New reserve rules could force banks to raise reserves, capital

New rules governing bank deposits and repos could force Costa Rica's banks to hike their reserves and capitalization levels, local financial news service Capital Financiera reported. Banks that take deposits in inflation-indexed UD currency units and euros must now create reserves equivalent to 15% of deposits as is currently the case for US dollar and colon-denominated deposits, according to a new central bank disposition. State-run banks Banco Nacional de Costa Rica and Banco de Costa Rico are the only banks allowed to take UD and euro deposits, respectively. Banco Nacional had about 21bn colones (US$41.8mn) in UD-denominated deposits and commercial paper at December 31. The central bank has also ordered financial institutions to reserve repo transactions 100%, up from 20% as part of the migration toward Basel II capital adequacy rules. "This implies that [mutual funds] will reduce their positions in those instruments which could affect the returns on those portfolios, especially, in colones," mutual fund association chairman Victor Chacon said.