Featured Product

    IMF Reports on 2017 Article IV Consultation with Costa Rica

    June 27, 2017

    IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Costa Rica. The reports discuss the challenges facing the financial sector in Costa Rica and examine the implementation of Basel III in the country.

    The staff report highlights that the introduction of micro- and macro-prudential tools to contain systemic financial risks is welcomed, but more may be needed. Further tightening of regulatory requirements should be considered if there is no evidence of a reduction in banks’ foreign exchange exposures, or if the deceleration of foreign exchange credit proves temporary. In addition, implementation of the pending 2008 FSAP recommendations and adoption of Basel III standards would improve resilience of the financial system. Substantial progress has been made in adopting risk-based supervision; however, advances toward the implementation of other key FSAP recommendations, notably crisis management and the bank resolution framework, have been slow due to the crowded legislative agenda. Staff argued that the regulatory and risk management frameworks would also benefit from gradually introducing Basel III capital requirements and liquidity standards. The mission welcomed the authorities’ plan to introduce in 2018 a Net Stable Funding Ratio, in addition to the Liquidity Coverage Ratio enacted in 2015. Additionally, the credit gap proves to be a robust early warning indicator of future financial distress, and the activation of countercyclical capital buffers (CCyBs) based on it would strengthen the resilience of banks through the financial cycle, although their implementation would likely entail non-negligible challenges. Progress toward past FSAP advice and the implementation of Basel III standards will be assessed, among other topics, by an imminent financial sector stability review.

     

    The selected issues report reveals that Costa Rica is gradually adopting Basel III standards. The authorities expect to finalize regulations to introduce the Basel III definition of regulatory capital and leverage ratio by the end of 2017 and implemented, in 2016, the countercyclical provisions based on the growth of bank-specific loan portfolios. In general, banks are well-placed to comply with Basel III capital requirements: the minimum capital requirement is 10%. The capital adequacy ratio of banks and cooperatives satisfies Basel III requirements when adjusted for the new capital guidelines, although it declines due to increases in risk-weighted assets (RWA). Supervisory authorities have also advanced in implementing risk-based supervision (Pillar 2) and adopting a cross-border consolidated scheme that allows for the identification of risks taken by financial conglomerates. Along with the capital conservation buffer (CCB), the CCyB is a key macro-prudential policy tool to promote the conservation of capital and the buildup of adequate buffers above the minimum that can be drawn down in periods of stress. According to Basel III guidelines, the CCB is to be set at 2.5% of RWA and it can be drawn down when losses are incurred, to avoid the breach of minimum capital requirements. The CCyB varies between zero and a “non-binding” cap of 2.5% of RWA: authorities should increase the buffer rate when risks associated with excessive credit growth build-up and they should lower it when risks materialize to sustain the flow of credit to households and corporations and contain the risk of systemic deleverage.

     

    Related Links

    Staff Report (PDF)

    Selected Issues Report (PDF)

    Keywords: IMF, Americas, Costa Rica, Banking, Basel III, CCyB, Capital Adequacy

    Featured Experts
    Related Articles
    News

    PRA Consults on Implementation of Certain Provisions of CRD5

    PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).

    July 31, 2020 WebPage Regulatory News
    News

    EIOPA Report Identifies Key Financial Stability Risks for Insurers

    EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for First Quarter of 2020

    EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Issues Updates on Stress Test Exercise for Banks in EU

    EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.

    July 30, 2020 WebPage Regulatory News
    News

    PRA Proposes Guidance Related to Matching Adjustment under Solvency II

    PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.

    July 30, 2020 WebPage Regulatory News
    News

    MAS Issues Guidance on Dividend Distributions by Banks

    MAS published a statement guidance on dividend distribution by banks.

    July 30, 2020 WebPage Regulatory News
    News

    APRA Updates Guidance on Capital Management for Banks

    APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.

    July 29, 2020 WebPage Regulatory News
    News

    FSB Report Reviews Macro-Prudential Framework and Tools in Germany

    FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.

    July 29, 2020 WebPage Regulatory News
    News

    EBA Urges Firms to Finalize Preparations for End of Brexit Transition

    EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.

    July 29, 2020 WebPage Regulatory News
    News

    SRB on Operational Continuity in Resolution and FMI Contingency Plans

    SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.

    July 29, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5604