San José, Costa Rica, since 1956

Three State Banks May Soon Wed

Costa Rica’s three public banks are considering joining forces by merging into a single bank in order to compete with the multinational private banks that have entered the country in the last few years.

The Casa Presidencial gave the idea an initial green light after a meeting with representatives of Banco Nacional, Banco de Costa Rica and Banco Crédito Agrícola de Cartago (Bancrédito). The government is forming a commission to study the possibility of a merger.

Meanwhile, the three banks also have the go-ahead to continue forming alliances with each other with the goal of cutting costs and increasing efficiency. One new alliance will see fruit before February as basic bank transactions like depositing money and cashing checks become interchangeable among the three banks, said Banco Nacional CEO William Hayden.

It’s a continuation of a gradual process of public bank consolidation that started several years ago when, for example, Banco Nacional and Banco de Costa Rica put their automatic teller machines on the same network.

“The government is happy to see the continuation of this integration of operations,” said Rodrigo Arias, minister of the presidency.

Further alliances and integration could save the state banks a lot of money, bank and government representatives say. Sharing everything from automatic teller machines and branch offices to technology costs and back office staff would cut the banks’ operational costs by millions of dollars,Hayden said.

At the same time, it would allow the banks to stay competitive against some of the biggest banks in the world.

Scotiabank and HSBC – multinational banks with headquarters in Canada and the United Kingdom, respectively – stormed the Costa Rican market in 2006 with purchases of local players and in 2007 began making big publicity pushes in the consumer banking market, traditionally the domain of the state banks.

“In a competitive world, in a world where the big players in the banking sector have arrived to Costa Rica, it’s important to ask ourselves how we want to evolve as state banks so we can be much more efficient and profitable,” said Alvaro García, the president of Banco Nacional’s board of directors.

While Costa Rica’s state banks are tiny by global standards, they throw a lot of weight around in the local market. A merging of the three entities would create a bank with $9 billion in assets that controls 50% of the credit market and holds 70% of the country’s deposits, according to the most recent numbers from the Superintendence of Financial Entities (SUGEF).

Creating such a monster, however, would not be easy. Merging the three banks would require the passage of a bill in the Legislative Assembly, something that has proved nearly impossible for the last few years, even for the most noncontroversial legislation.

And such a bank fusion would likely be controversial. While bank and government representatives say the merger would be good for the consumer because the banks could save operating expenses and lower their interest rates, some analysts aren’t so sure.

Luis Mesalles, president of economics think tank Academia de Centroamérica, said a merging of the three state banks would reduce competition in the country’s banking sector.

“It would take a bank out of the market, which wouldn’t be healthy,” he said.

Another option, Mesalles said, would be to sell one of the state-run banks to a private company to keep it as a separate player in the market, but Arias said “the government is not looking at any possibility of a sale.”

Neither the government nor the banks has set any timeline for the commission to complete its analysis of the possible merger.

Arias said the three banks had been preparing to make the proposal they made on Wednesday for at least the last eight months.


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