Superintendence Freezes Banco Elca’s Funds

July 9, 2004

THE Superintendence of FinancialEntities (SUGEF) last week froze theapproximately $80 million in assets ofprivate bank Banco Elca last week afterdiscovering it was “conducting bankingpractices that were putting in danger itsfinancial solvency.”The bank’s assets will remain frozenfor 90 days while a plan that will decideits future is prepared, the daily La Naciónreported.Luis Diego Vargas, president of theNational Financial System SupervisionCouncil (CONASSIF) said the bank hadinadequate loaning practices.According to SUGEF, the bank’s operationswere not transparent. In its currentstate, Elca lacks the resources needed tocontinue to fulfill its financial obligations.In May, the bank’s assets totaled ¢34.76billion ($80.29 million), while its liabilitieshad reached ¢31.89 billion ($73.65 million).Its patrimony had been reduced to¢2.874 millions ($6.64 million).Elca’s assets (buildings, money, equipment,etc.) represent less than 1% of thetotal assets of Costa Rica’s financial system.In addition to its main offices, Elca haseight branches and employs 155 people.Recently, Elca had sold off its stockexchange post, investment fund operatorand insurance broker office.In August 2003, Elca announced it sold50% of its shares to Venezuela-basedBanco Canarias, which agreed to inject anadditional $3 million in fresh capital to thebank. However, those resources were neveradded to Elca, according to SUGEF.The bank’s decreasing patrimonyprompted SUGEF to freeze and assumecontrol of the bank’s assets for 90 days.The bank’s manager, sub-manager andboard of directors were suspended.During this time, those who have outstandingdebts with Elca will still berequired to pay them. However, thosewho have savings in the bank will not beable to access their money.Within the next 30 working days,SUGEF will present CONASSIF with aplan to normalize the bank. The plan mustinform whether Elca is viable as a financialentity, according to SUGEF.Possible options if it’s not viableinclude selling the bank in its entirety,selling parts of it to different buyers orliquidating all of its assets.Jorge Monge, President of the CostaRican Banking Association (ABC),described what happened to Elca as anisolated incident and discarded the possibilityof it happening to other banks.

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