Costa Rica borrower assistance programs extended as risks mount

The COVID-19 relief programs for borrowers at Costa Rica’s financial institutions now have until the end of the year to wind down, under updated guidelines from sector regulator Conassif.

Among those measures extended to December 31, 2021, financial institutions are allowed to continue programs for loan payment deferments and loan restructuring programs whereby participating companies and individuals can avoid damage to their credit standing by staying within the programs’ guidelines. 

It will be at the discretion of each financial institution to offer grace periods without payment of interest or principal on the debt, and as such some banks may opt to wind down the programs on their own. 

Additionally, banks were asked to apply their internal policies once again in measuring the payment capacity of each customer as of April 1, 2021.

The regulator also extended additional flexibility on capital requirements at banks, and maintained the suspension on participating banks’ “special operations”, presumably dividend payments and stock-buybacks, though not explicitly stated as such in the Conassif memo (available in Spanish here.)

Delayed reckoning

Banks across the region are only beginning to see the true extent of asset deterioration as deferment programs wind down, with Mexican banks, for example, expecting to see a surge in charge offs and non-performing loans (NPLs) this month and continuing through the second quarter.

Mexico’s Banorte, for example, has opted out of additional loan restructuring mechanisms extended into 2021 by bank and securities regulator CNBV, as well as out of relaxed capital requirements – to have an earlier accounting on asset deterioration and opening the possibility earlier that it might prepare a dividend payment or similar operation. 

The problem, according to Fitch Ratings senior director for financial institutions, Rolando Martínez, is that these program extensions only delay an inevitable reckoning on accounts that are not going to survive the pandemic.

“Banks can’t know their [real] asset deterioration because of [such] loan deferment programs,” Martínez told BNamericas in a recent interview, adding that even those banks which ended programs in December would not have the full picture on asset quality until the end of 2021.