Banking in Nicaragua
Encyclopedia
Banking in Nicaragua, prior to 1978, consisted of the Central Bank of Nicaragua
and several domestic- and foreign-owned commercial bank
s. One of the first acts of the Sandinista government in 1979 was to nationalize the country’s banking system in an attempt to promote community banking and support the rural poor. Foreign banks were allowed to continue their operations but could no longer accept local deposits. Private banks in Nicaragua were by law abolished in the 1980s and cooperative
s were considered too politicized and dependent on subsidies. In 1985 a new degree loosened state control of the banking system by allowing the establishment of privately owned local exchange houses.
passed legislation permitting private bank
s to resume operations. In 1991 a legislation allowed the establishment of the first private banks in the country, however only large industries and agribusiness
producers of non-traditional crops for export
qualified for credit thus leaving small business owners and producers of consumption crops with no access to loan
s or banking services. In 1992 the largest stateowned commercial bank was the National Development Bank (Banco Nacional de Desarrollo - BND), originally established by Chase National Bank. Other state-owned commercial banks were the Bank of America
(Banco de América - Bamer) and the Nicaraguan Bank of Industry and Commerce (Banco Nicaragüense de Industria y Comercio - Banic). The People's Bank (Banco Popular) specialized in business loans, and the Real Estate Bank (Banco Inmobilario - Bin) provided loans for housing. Three foreign banks continued operations: Bank of America, Citibank
, and Lloyds Bank
.
(IDB) was instrumental in restructuring Nicaragua's technically bankrupt banking sector. In December 1991, the IDB approved a US$3 million technical cooperation grant to restructure the Central Bank, and in March 1992, it approved a US$3 million loan to a new commercial bank, the Mercantile Bank (Banco Mercantil). The Mercantile Bank program was expected to make loans available to small and medium sized private-sector enterprises
and to finance investments to bolster fixed assets and create permanent working capital. The Mercantile Bank was the first private bank to be established in Nicaragua
since 1979. Three additional new commercial banks were scheduled to open in 1992.
Restructuring of the National Financial System (Sistema Financiero Nacional - SFN) was one of the key elements of the government's economic reform program. According to an agreement between President Chamorro
and the World Bank
, Banic was to be merged with Bin. The BND would handle only rural credit operations, and the People's Bank was to take over all credit operations for small and medium sized industry. International operations, which had been managed exclusively by the Central Bank since 1984, were transferred to the BND and Banic. The Central Bank would continue to handle operations pertaining to the central government, while the newly merged banks would be responsible for letters of credit, imports, transfers, and dollar checking accounts.
The Central Bank also auctioned off one of the government's largest exchange houses. This exchange house had been established in 1988 under the direction of the Financial Corporation of Nicaragua (Corporación Financiera de Nicaragua - Corfin). In 1989 the Central Bank authorized the exchange house to operate a foreign money exchange office as an agent of the bank. In May 1991, Corfin voted to turn over its shares in the exchange house to the Central Bank so that the exchange house could be sold.
Opponents charged that this sale was unconstitutional. They argued that the exchange house was the property of the Central Bank and could not be transferred. The Federation of Bank Workers also charged that the new government banking policy was weakening the state bank while giving the advantage to the private banks. Nicaragua had 15 times less banking resources than its Central America
n counter-parts by the end of 2002, with only six banks compared to the regional average of 107 per country.
Central Bank of Nicaragua
-External links:...
and several domestic- and foreign-owned commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s. One of the first acts of the Sandinista government in 1979 was to nationalize the country’s banking system in an attempt to promote community banking and support the rural poor. Foreign banks were allowed to continue their operations but could no longer accept local deposits. Private banks in Nicaragua were by law abolished in the 1980s and cooperative
Cooperative
A cooperative is a business organization owned and operated by a group of individuals for their mutual benefit...
s were considered too politicized and dependent on subsidies. In 1985 a new degree loosened state control of the banking system by allowing the establishment of privately owned local exchange houses.
History
In 1990 the National AssemblyNational Assembly of Nicaragua
The National Assembly is the legislative branch of the government of Nicaragua.-Composition:The Nicaraguan legislature is a unicameral body....
passed legislation permitting private bank
Private bank
Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner...
s to resume operations. In 1991 a legislation allowed the establishment of the first private banks in the country, however only large industries and agribusiness
Agribusiness
In agriculture, agribusiness is a generic term for the various businesses involved in food production, including farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing, and retail sales....
producers of non-traditional crops for export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
qualified for credit thus leaving small business owners and producers of consumption crops with no access to loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s or banking services. In 1992 the largest stateowned commercial bank was the National Development Bank (Banco Nacional de Desarrollo - BND), originally established by Chase National Bank. Other state-owned commercial banks were the Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
(Banco de América - Bamer) and the Nicaraguan Bank of Industry and Commerce (Banco Nicaragüense de Industria y Comercio - Banic). The People's Bank (Banco Popular) specialized in business loans, and the Real Estate Bank (Banco Inmobilario - Bin) provided loans for housing. Three foreign banks continued operations: Bank of America, Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
, and Lloyds Bank
Lloyds Bank
Lloyds Bank Plc was a British retail bank which operated in England and Wales from 1765 until its merger into Lloyds TSB in 1995; it remains a registered company but is currently dormant. It expanded during the nineteenth and twentieth centuries and took over a number of smaller banking companies...
.
Restructure
The Inter-American Development BankInter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
(IDB) was instrumental in restructuring Nicaragua's technically bankrupt banking sector. In December 1991, the IDB approved a US$3 million technical cooperation grant to restructure the Central Bank, and in March 1992, it approved a US$3 million loan to a new commercial bank, the Mercantile Bank (Banco Mercantil). The Mercantile Bank program was expected to make loans available to small and medium sized private-sector enterprises
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
and to finance investments to bolster fixed assets and create permanent working capital. The Mercantile Bank was the first private bank to be established in Nicaragua
Nicaragua
Nicaragua is the largest country in the Central American American isthmus, bordered by Honduras to the north and Costa Rica to the south. The country is situated between 11 and 14 degrees north of the Equator in the Northern Hemisphere, which places it entirely within the tropics. The Pacific Ocean...
since 1979. Three additional new commercial banks were scheduled to open in 1992.
Restructuring of the National Financial System (Sistema Financiero Nacional - SFN) was one of the key elements of the government's economic reform program. According to an agreement between President Chamorro
Violeta Chamorro
Violeta Barrios Torres de Chamorro is a Nicaraguan political leader, former president and publisher. She became president of Nicaragua on April 25, 1990, when she unseated Daniel Ortega...
and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, Banic was to be merged with Bin. The BND would handle only rural credit operations, and the People's Bank was to take over all credit operations for small and medium sized industry. International operations, which had been managed exclusively by the Central Bank since 1984, were transferred to the BND and Banic. The Central Bank would continue to handle operations pertaining to the central government, while the newly merged banks would be responsible for letters of credit, imports, transfers, and dollar checking accounts.
The Central Bank also auctioned off one of the government's largest exchange houses. This exchange house had been established in 1988 under the direction of the Financial Corporation of Nicaragua (Corporación Financiera de Nicaragua - Corfin). In 1989 the Central Bank authorized the exchange house to operate a foreign money exchange office as an agent of the bank. In May 1991, Corfin voted to turn over its shares in the exchange house to the Central Bank so that the exchange house could be sold.
Opponents charged that this sale was unconstitutional. They argued that the exchange house was the property of the Central Bank and could not be transferred. The Federation of Bank Workers also charged that the new government banking policy was weakening the state bank while giving the advantage to the private banks. Nicaragua had 15 times less banking resources than its Central America
Central America
Central America is the central geographic region of the Americas. It is the southernmost, isthmian portion of the North American continent, which connects with South America on the southeast. When considered part of the unified continental model, it is considered a subcontinent...
n counter-parts by the end of 2002, with only six banks compared to the regional average of 107 per country.