QCOSTARICA — The Organización para la Cooperación y el Desarrollo Económicos (OCDE) – Organization for Economic Cooperation and Development – warns about the high level of financial dollarization in Costa Rica.
In its 2025 country report, the organization notes that the growing dollarization of loans and savings poses challenges, despite the maintenance of financial stability.
The OECD indicates that household debt in Costa Rica is relatively low compared to other member countries, but emphasizes that high financial dollarization poses challenges that must be taken into account.
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Currently, loands and deposits in dollars represent around 35% of the total.
Among the warnings mentioned by the OECD are the following:
- Regulators indicate that two-thirds of dollarized debt is not covered.
- The recent reduction in foreign exchange market interventions by the Central Bank of Costa Rica (BCCR) may, over time, facilitate better internalization of exchange rate fluctuation risks by economic agents, reduce moral hazard, and contribute to reducing currency mismatches (the impact of an exchange rate change on the value of future inflows and outflows) and unhedged positions.
- In the short term, the wide interest rate differential between colones and dollars may encourage dollarization, which requires close monitoring.
- Dollar lending has increased considerably in recent months.
“Foreign currency lending is increasing strongly,” the OECD states in the document.
In this regard, it refers to data from the Central Bank’s April 2024 Monetary Policy Report (MPR), according to which loands in domestic currency registered a 6% year-over-year growth in that month, while foreign currency transactions increased by 12% year-over-year in the same period.
It also mentions that the foreign exchange loans risk weighting for uninsured borrowers was increased in January 2024.
“However, given the recent significant increases in foreign currency lending, authorities should consider additional prudential measures to discourage borrowing and lending in foreign currency and the associated risks,” it adds.
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According to the most recent data from the Central Bank, borrowers’ preference for foreign currency transactions remained at the end of 2024, but these transactions slowed down in the final months of that year, compared to the dynamism they had shown since 2023.
At the end of last year, loans to the private sector showed annual growth of 7.5%, higher than the 6.4% recorded in the same period of 2023.
“Growth was observed in both domestic and foreign currency, but was greater in the latter. However, foreign currency financing showed a slowdown in its growth rate since September,” notes the BCCR in its January 2025 Monetary Policy Report (IPM).
Loans in colones closed December 2024 with a growth of 6.5%, higher than the 4.6% recorded in December 2023. In the case of credit in dollars, it increased by 9.8% in December of last year, a lower rate than the previous year. December 2023, when it stood at around 11%.
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Despite the moderation in foreign currency loans growth, the monetary authority recognizes that its relative share of the total rose to 32.5% at the end of 2024.
This result is 0.7 percentage points (p.p.) higher than that observed a year earlier, which increases the financial system’s exposure to foreign exchange risk, especially if the credit is granted to individuals with foreign exchange exposure.
The Central Bank also indicates that the proportion of foreign currency loans granted to debtors with foreign exchange exposure increased 8.2 p.p. in the twelve months ending November 2024, from 58.4% in November 2023 to 66.61% in the same month of 2024.
Stability
Despite the challenges posed by increasing financial dollarization, the OECD highlights that the Costa Rican financial system has remained stable and resilient.
In its report, it notes that it maintains capitalization levels similar to those of other OECD countries, liquidity levels exceeding regulatory requirements, and that the non-performing loan portfolio is contained.
Furthermore, according to the latest stress tests by Costa Rica’s General Superintendency of Financial Entities (Sugef), the financial system—including private banks, state-owned banks, and participating credit unions—is said to be resilient to adverse economic events.
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