Costa Rica Watch: Loan default spike, Scotiabank fine

State-owned banks in Costa Rica saw loan default ratios surge in May, and for two loan segments they are way higher than the 3% ceiling recommended by local bank regulator (Sugef).

The small firm segment saw an average default ratio of 5.5% at the end of last month, while the ratios for mid-sized companies and large firms stood at 5.5% and 3.3%, respectively.

Sugef defines the default ratio as the percentage of loans where payments are more than 90 days late and have gone to collections. The state-owned banks referred are Banco Nacional, Banco de Costa Rica and Banco Popular.

Sugef head Bernardo Alfaro told local daily La Nación that "the increase in delinquency in public banking, and the rest of financial entities, is linked to the negative impact of the economic slowdown in Costa Rica, with reduced loan activity and unemployment.”

“Rising defaults is always a cause for concern, and of course, it keep us watchful and busy,” added Alfaro.

The central bank (BCCR) recently reported that its economic activity indicator increased 1.6% year-on-year in April, down from 1.8% in March.

Scotiabank pays fine in Toledo case

Scotiabank de Costa Rica paid 1.17 colones (US$2mn) in a fine imposed by Sugef for violation of the nation’s money laundering laws after accepting deposits of “at least” US$6.5mn in suspected bribes to former Peruvian President Alejandro Toledo.

Scotiabank paid the fine in response to a Sugef ruling made in April for deposits made to Toledo between 2001 and 2006, and the funds went into a special account held in the name of Costa Rica’s anti-drug entity (ICD).

In comments reported to La Nación, Diego Masola, senior VP of Scotiabank for Central America, said the payment was made "voluntarily and under protest," and insisted that the bank maintains "the economic solvency to deal with this payment, without alter the financial position "of the operation in the country.

The funds may eventually be returned to Scotiabank with interest if an eventual appeals process rules in the bank’s favor.

Jorge Barata, former Peru manager of disgraced Brazilian construction company Odebrecht has testified that he paid Toledo US$20mn in exchange for winning a contract to build the trans-oceanic highway between Peru and Brazil.