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How is banking in Costa Rica? In many respects there are similarities with North America. From the day to day point of view a person will enter a bank and recognize many departments and functions: credit, management, service desk, cashier. Due to crawling devaluation since the 80's, accounts are commonly held in dollars as well as colones, and transfers can be made between them.

As was the case decades ago in North America, now Costa Rica is increasingly lining up at the ATM machine as well as the teller. We also join in increasingly enjoying the ease of electronic transfers and account management. Banco Nacional and Banco de Costa Rica now offer cd management and rollover from the internet, which may put an end to the days of fetching cd's from the scarce safety-deposit boxes.

Likewise, there are usually too few tellers for the customers at hand, on those occasions when you must go through a teller or service desk, but many small town folk actually enjoy waiting in lines, telling "chiles" (funny stories) and jokes and talking, of course, about babies.

As a tourist or new immigrant, can you have bank accounts? Yes, but only sight savings accounts. There is no tax withheld on interests paid on US dollar savings accounts, as there is on Colones saving accounts. ATM cash withdrawals may be made from your savings account. In certain ATM machines, accounts in the US may be accessed for withdrawals, with the correct cards.

If you have residency, you may have a checking account, and are required to show your cedula and a phone or light bill. If you have a SA, or corporation, you may have a checking account, but only if you have two Costa Rican officers in the SA.

Bank transfers between national banks and the exterior need to be made through banks affiliated with yours in the country of choice, to be re-routed if necessary. Cost of outgoing transfers is .4% (.4 of 1%) of the amount, plus $7 swift charges. Incoming transfers also must be made via banks affiliated with yours, and the charge is prorated, with maximum charge of $30 (at Banco Costa Rica).   Banco Costa Rica has now established a maximum fee for outward transfer of $60, plus $7 swift charge. Banco Nacional charges .25% for outward transfer, with a maximum fee of $100.

One solvent private bank now offers online transfers between banks, including affiliated banks in the exterior. This is new, as far as I know, with one exception, and is a welcome step into the future.

Following reforms under the Calderon administration, money can not only be stored in dollars but contracts can be designated in dollars, which provides forward currency stability in long-term contracts.

The Costa Rican banking system is formed by a core of the Banco Central (BCCR), and under her the three commercial banks Banco Nacional (BN), Banco de Costa Rica (BCR), and BanCredito (formerly Credito Agricola de Cartago) who were given exclusive rights under the original Ley Orgánica to offer checking and current accounts. In a banking reform in 1995 private banks were also permitted to offer these services as well, subject to strict regulations and reserve requirements.

It should be said at this point that while private banks are regulated by the state, through the SUGEF, and permitted to offer services, only the accounts and deposits of the core of national banks are backed up by the government. There is no Federal Deposit Insurance Corporation, nor regional variation.

Does the government fulfill its role as guarantor? Yes. There used to be another state bank, Banco Anglo-Costariccense, that in 1995 was brought down by a combination of bad "good-old-boy" loans and ill-advised investment in Venezuelan bonds. The government took a couple of years to sort it all out, but all deposits were honored. At this point a private bank, Banco Elca, is in liquidation, and no government help is expected.

Under the LEY ORGÁNICA DEL BANCO CENTRAL DE COSTA RICA, part of the the constitutional legislation for the financial system, the Banco Central is both monetary and currency authority of Costa Rica. It is managed and guided by its board of directors, Junta Directiva, which in turn is formed by the President of the Bank, who is nominated by the executive branch, the serving Minister of Finance, Ministro de Hacienda, and 5 other persons who "are of proven moral solvency, with ample capacity and experience in economic, financial, banking, and administration pursuits (con amplia capacidad y experiencia en materia economica, financiera, bancaria y de administracion.)

These directors may not:

1) Have relation either family, social, or business, one with the other.

2) Have business or be associated with a business which is administered by SUGEF, the auditor and watchdog authority.

3) Having complied with their obligations and duties to the bank under the law, be removed from their posts for the term of the directorship.

These directors:

1) May determine foreign exchange policy or rates with a majority of 5, with exchange rates quoted in US dollars.

2) Can determine interest rates and discount rates, direct monetary policy, and approve purchase of (t-bills) by a vote of 5.

3) May control emissions and retirement of currency.

4) Can factor, or discount, investments, financial instruments and receivables for the banks, providing liquidity in need.

5) Can in emergency measures levy surcharges on imports to augment liquidity as well as to discourage outflow of reserve dollars.

Governments can and have in past earmarked priority in lending for sectors of the population who fill criteria considered socially or economically desirable.

There is an enforcement and supervisory entity established to enforce the policies of the Banco Central. This is called SUGEF (Superintendencia General de Entidades Financieras, or the General Supervisory Agency of Financial Entities). They also act as auditors in cases of concern, and oversee financial statements by all financial institutions, which are generated bi-yearly against a fiscal calendar year.

Net income of banks is considered income net, as well, of set-asides for reserve requirements. 50% of this "net-net" income is then to be set aside as well to further enhance reserve capacity.

A highly unpopular ex-president of the country in the 80's decided in a populist manner that he was going to face down the IMF on its terms, and of course, he lost, and precipitated a crisis that confidential sources say was narrowly averted by diplomacy, chiefly in European nations. Since then, the fright of massive and brutal devaluation has led authorities to step lightly, and while they experimented with floating the colon briefly in the early 90's, have always returned to the more stable if inexorable crawling peg to the dollar. This is the daily "mini-devaluation" you will see continued reference to. Average yearly devaluation over the 90's: 13-14%.

So how is Costa Rica doing, overall? In fact, Agustin Carstens, of the IMF, has written an article, "Twenty Years Without a Crisis in Costa Rica", which gives a pat on the back to Costa Rica and especially to Eduardo Lizano and Francisco de Paula Gutierrez (current BCCR president) for the accomplishment of stability.

Updates:

In a bold step in 2006, the Banco Central has loosened the tie of the colon with the dollar, and instead of a crawling peg has designated a "looser float" of the currency within a trading range, allowing more latitude in valuation. The result has seen the dollar consistently trade at the bottom of the trading range, and given continued government spending at previous levels, may predict pressures for future devaluation if the  dollar does not begin to float freely within the range. The new policy depicts confidence in the colon, hopefully justified.

 Banco de Costa Rica has now dropped fees for a bank draft to $10, from earlier abusive levels, a welcome change. Traveler's cheques can be deposited to an account without fee. Internal transfers can be made between accounts without fee. 

Also, while cash withdrawals from an ATM are fee-free, withdrawals from a cashier are $1.

On another note, one bank loan officer explained to me that they are discouraging loans in dollars, as opposed to in colones.

Bank of Nova Scotia called to say it is welcoming credit applications from foreigners with verifiable income, supported by a mortgage. They will require home country tax forms, they say. I will mail out their info sheet to any client interested.

(While the author has tried to depict the system carefully and accurately, referencing original documents as sources, he urges you to double-check and verify any information you may use to form decisions, with your lawyer, since changes can occur unperceived over time)

1-18-07

Update October 2007:

With over a year of experience with the "trading range", the colon remains stable against the dollar. While the Central Bank has intervened to buy dollars from time to time, it would appear the colon is stabilizing, due probably to the large amount of dollars seeking investment in Costa Rica, and the recent weakening of the dollar worldwide. If proven sustainable, this would indicate that interest rates may soon begin to drift downward. Has a former tendency of the government to rely on devaluation of the colon, to relieve the effect of continuing forward government spending payables, been brought under control? More time will tell.

Euro accounts have been offered for over a year and a half, and in fact have captured a significant share of savings accounts.

The major national banks are now enabling inter-bank transfers between their account holders, designated SINPE transfers, and using special codes for transfers. This is a new and welcome blessing. Call your bank's service desk for detailed instructions.

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 10-2-07