Decline in Number of Banks in Costa Rica Raises Questions on Competition and Consumer Access
The reduction in Costa Rican banks, from 26 in 2000 to a projected 12 by 2025, prompts discussion on the implications for banking competition and consumer services.
The landscape of banking in Costa Rica is undergoing significant transformation, with the number of banks declining from 26 in 2000 to an anticipated 12 by 2025 following the merger of Scotiabank and Davivienda and the exit of Prival as a banking intermediary.
Currently, there are 14 banking institutions operational in the country, a situation that has been marked by a trend of mergers alongside notable crises, such as the insolvency of Bancrédito, which was acquired by the Banco de Costa Rica (BCR).
Hazel Valverde, head of the Superintendence of Financial Entities (Sugef), has expressed that competition within the banking sector is not a cause for concern, provided that remaining banks are capable of competing effectively.
According to Valverde, the critical factor lies in the ability of banks to fulfill the financial needs of consumers and maintain operational parity, which could mitigate potential competitive disadvantages.
Bernardo Alfaro, former general manager of the National Bank of Costa Rica and a past head of Sugef, has noted that intermediary margins within the banking system have been decreasing, indicating improved efficiency and competitiveness in the sector.
Despite the reduction in the number of institutions, Alfaro asserts that consumers are benefiting from more favorable conditions for loans and enhanced interest rates on deposits due to vigorous competition.
Conversely, Carlos Fernández, a former manager of BCR, has raised concerns that a smaller number of banks could adversely affect consumer access to financial services, notably in corporate and personal banking sectors.
Fernández pointed out that fewer banks could limit competitive pricing and the availability of essential services, particularly credit options that cater to large corporations.
In the personal finance sector, Fernández noted that not all banks offer long-term mortgage options, although there remains a variety of viable credit choices for consumer loans and credit cards.
He cautioned, however, that reduced competition could stabilize or potentially inflate the costs associated with credit services and interest rates on deposits.
Looking ahead, Róger Madrigal, president of the Central Bank of Costa Rica (BCCR), highlighted that increased competition in the financial system could influence lending practices, particularly preventing lenders from exceeding maximum limits in consumer credit sectors.
During a presentation to lawmakers on November 11, Madrigal emphasized that a competitive banking environment is essential for effectively transmitting reductions in the Monetary Policy Rate to market borrowers.
Currently, there are 14 banking institutions operational in the country, a situation that has been marked by a trend of mergers alongside notable crises, such as the insolvency of Bancrédito, which was acquired by the Banco de Costa Rica (BCR).
Hazel Valverde, head of the Superintendence of Financial Entities (Sugef), has expressed that competition within the banking sector is not a cause for concern, provided that remaining banks are capable of competing effectively.
According to Valverde, the critical factor lies in the ability of banks to fulfill the financial needs of consumers and maintain operational parity, which could mitigate potential competitive disadvantages.
Bernardo Alfaro, former general manager of the National Bank of Costa Rica and a past head of Sugef, has noted that intermediary margins within the banking system have been decreasing, indicating improved efficiency and competitiveness in the sector.
Despite the reduction in the number of institutions, Alfaro asserts that consumers are benefiting from more favorable conditions for loans and enhanced interest rates on deposits due to vigorous competition.
Conversely, Carlos Fernández, a former manager of BCR, has raised concerns that a smaller number of banks could adversely affect consumer access to financial services, notably in corporate and personal banking sectors.
Fernández pointed out that fewer banks could limit competitive pricing and the availability of essential services, particularly credit options that cater to large corporations.
In the personal finance sector, Fernández noted that not all banks offer long-term mortgage options, although there remains a variety of viable credit choices for consumer loans and credit cards.
He cautioned, however, that reduced competition could stabilize or potentially inflate the costs associated with credit services and interest rates on deposits.
Looking ahead, Róger Madrigal, president of the Central Bank of Costa Rica (BCCR), highlighted that increased competition in the financial system could influence lending practices, particularly preventing lenders from exceeding maximum limits in consumer credit sectors.
During a presentation to lawmakers on November 11, Madrigal emphasized that a competitive banking environment is essential for effectively transmitting reductions in the Monetary Policy Rate to market borrowers.
