Financing future growth

Financing future growth


Bernardo Alfaro, CEO, Banco Nacional de Costa Rica, helms one of the nation’s seminal financial institutions, a body that is leading the way to continued economic growth for society.


Having steered through the pandemic, and the economic shock of global geopolitics, inflation and supply chain issues, how would you assess the strength and performance of the Costa Rican economy in 2022? What have been some of the key trends on the market, and what’s your outlook for 2023?

Costa Rica has achieved over 3% GDP growth in 2022, which is a good economic performance given the tough international context. The monetary policy rate was 1.75% at the beginning of 2022 and 9% at the end of the year. We were expecting a shock, but we’re still growing at about 3%, while the inflation rate growth of the last few months (August, September, October) is going down, so the higher interest rates by the central bank are having a positive impact. Much of our growth can be attributed to our healthy export sector, which for a large share includes medical devices manufactured in our free trade zones. We’re, nevertheless, having some troubles with our debtors, who are facing higher quotas for their loans.

For 2023, we’re expecting a more stable interest rate, maybe a little bit down from the current levels. As opposed to many of our neighbor countries whose currencies are depreciating, Costa Rica’s local currency, the colon, has been appreciating, in part because of our exports and our tourism sector, which is witnessing a strong recovery at the moment. We are expecting our local currency to be very stable in 2023, and a GDP growth around 3%-3.5%.

Banco Nacional de Costa Rica (BNCR) is one of the leading banks in the country and has been recognized for its excellent service through awards. Could you give us a brief introduction of the bank? What would you say are some of the competitive advantages of your services, and how does it contribute to Costa Rica’s growing economy?

BNCR’s loan portfolio represents about 20% of the total loans of the banking system in Costa Rica and is a perfect reflection of the country’s GDP. Agriculture weights the same in our portfolio as it weights in the GDP, and so do the tourism and industrial sectors. We are very strong in services and in tourism, since 80% of the loans provided to the tourism sector are provided by BNCR. Tourism is a winning sector in our country. We also have a very strong base of small and medium sized enterprises (SMEs) customers, with around 200,000. SMEs make an important part of our economy, and they are spread all over the country.

As a bank, BNCR has a very strong impact on financial inclusion. Costa Rica ranks in the second or third place in Latin America for financial inclusion, which is the percentage of the population who has access to financial services. BNCR provides the best conditions in terms of commissions and interest rates in Costa Rica, because we have a very wide range of depositors and a very low cost of funds. That’s one of our most important competitive advantages. We provide very good conditions for customers. We’re very strong in time and demand deposits and have also gathered important lines of credit with banks in the US or in Europe.

In addition, BNCR is also going increasingly digital, as every other bank in the world is. Our customers now have their app on their cell phones, they have their internet banking system, and they can fulfill any financial transaction with those digital instruments. That’s another important tool we use to compete with other banks. Costa Rica has become a very competitive country in terms of financial services. Several large international banks operate here, so interest margins and profits are the lowest in the Latin American region.

Sustainability is very important to us. BNCR is involved in 100% of Costa Rica’s renewable energy projects. As the bank funding these projects, we are an integral part of Costa Rica’s green achievements. In 2015 we had issued green bonds in the international market; we were the third entity from Latin America which issued green bonds in the international market.

We are also very focused on social impact programs, to help impoverished communities. In 2022, IDB Invest invested $40 million in subordinated debt at the Banco Nacional, while FindDev, the Financial Development Agency of Canada, invested $35 million, and the French development agency, AFD, invested $15 million in subordinated debt. IDB Invest and FinDev issued what they call their first social bond in their history. All the proceeds must be invested in SMEs lead by women. Banco Nacional is very strong in providing financial services to women. More than 50% of our customers are women. We have more women customers than male customers, which is quite interesting. The French AFD gave us those $15 million for sustainable projects, for projects which have a positive impact on the climate. We have been working quite hard on that topic of sustainability, from the social point of view and from the environmental point of view.

We are also very strong in all corporate governance issues, transparency, and sending information to the government on how we’re doing things. We issue a transparency report which we post online.

Those are some things we have been working very hard in the last years. We are expecting around $35,000 million colones (US$ 55 million) in net profit for this year, and we believe that Banco Nacional will have an even higher performance in 2023, with maybe $70 million in net profit, which is a very good rate of return on equity (a lot better than the previous years).

You mentioned technologies. Digital technological solutions are driving the competitiveness of the modern banking industry. Over 1 million customers now use your digital platforms. How are you continuing to innovate within your services? To what extent are you working with both the local or global fintech industry to try and integrate more solutions into your products?

We have been working with several fintech companies to provide our clients with better service. Some of these fintechs provide us with the ability to change parameters for our customers when they use their debit or credit cards. We have these agreements with several FinTech companies. That has allowed us, for example, to offer a product to large companies which have a large truck fleet. All the drivers were given credit cards that can be used in specific shops which allow our customers to have a much better control of their expenses and truck fleets.

We are working also on this omnichannel product that we’re going to offer our customers, so they can choose any channel they want to get their financial services: they get the same interface and can switch from one device to another during a session, and our internet services will be very easy to use. It will be much easier for our customers to use all services we provide.

We’re working on some other innovation products, and we’ll most likely offer them in 2023.

Cyber security threats have skyrocketed around the world and in the banking sector there has been a 700% year-on-year increase in attacks. Costa Rica itself has been affected by some major cyberattacks in 2022. What efforts are you taking to make sure your infrastructure and clients remain well protected amid the rise in cyberattacks?

We have invested a lot of money in cybersecurity. We hire expert companies to constantly test and try to penetrate our systems, to attack us. We keep investing and improving our systems every day. We face a lot of attacks every day, like any other bank in the world, but no one has penetrated our defense systems, so we do think we’re doing a good job in that regard. Those companies keep testing our system all the time and tell us to improve this or that specific part of it. It’s an everyday task to be protected and to be completely updated. It’s very tough because cyber attackers are at it 24 hours per day, but we still feel very comfortable with what we have at the moment and what we have invested in.

ESG investment has also grown rapidly. With COP27 concluding, there is a major drive to fill the $3 trillion funding gap for sustainability-driven solutions, and a lot of this has to come through a green transformation of the banking sector. How do you integrate sustainability and environmental concerns into your investment philosophy and lending portfolio?

We have developed what we call a SARAS (Environmental and Social Risks Analysis System). It’s performed for every customer who requires a loan over $1 million, which is an important part of our portfolio. We will scale it down and down until we cover the whole portfolio, but as of now, we’re applying this SARAS for loans over $1 million. They must approve it in order to really get the loan. If they have negative social or environmental impact, the loan is not approved. That has forced many of our customers to make investments and take some actions in order to be able to get a loan from us.

We’ve been working also with all our stakeholders and our providers. In order to qualify to be a supplier for the bank, you must follow and get some certifications to ensure that you comply with environmental and social standards. That’s another way we’re improving and having an impact on all the stakeholders. We’re working quite hard on that. That was one of the main reasons that the French agency gave us the subordinated debt, because they seized this SARAS and concluded it’s a strong instrument, so they are supporting us with that.

With the USA being a major economic partner of Costa Rica and many American businesses and investments seeing Costa Rica as a key market thanks to its stability and opportunity, how are you working with US partners to strengthen economic ties between the two countries?

We have an agreement with a large US bank. When American companies come to Costa Rica and need financial services, for their employees, for example, they come to us and we provide services based on that agreement.

We have a very strong relationship with many American banks, from JP Morgan, to Citigroup, Bank of America or Wells Fargo. We are the correspondent bank for them. We are always in touch with them, and together, we provide financial services for trade. We comply with all the standards required by the US because, otherwise, we wouldn’t be able to be a correspondent bank for all those American banks.

What are your main priority areas and objectives as leader of the bank?

We’ll continue to support all micro, small and medium sized enterprises in Costa Rica, as they are the basis of our economy. That will always be our main objective. We want to be part of their growth by offering them better financial services, letting them grow and become stronger. We want to keep our market share and even try to increase in terms of loans and total assets. We want to be an even more important bank in the coming years.

What’s your outlook for the economy of Costa Rica in 2023? In your opinion, what would be the key reforms or areas for improvement for Costa Rica to continue in this growth trajectory?

Exports will continue to be one of our most important sectors as well as tourism. After the pandemic, we have recovered very well. Of course, we have to work on developing the infrastructure in several regions of the country, and that’s the main challenge we must face. But tourism will be one of the most important engines for our economy in the next two or three years. I think our GDP will grow by about 3% or 3.5% in 2023, just a little bit less than this year because of the impact of the higher interest rates.

What’s your final message to our readers?

Costa Rica is always an incredible experience, and I believe everyone should come here. We have a lot to offer. Doing Business in Costa Rica is becoming easier and easier. It’s an incredibly stable economy and a very stable country politically speaking; a longtime democracy. Whether you come to Costa Rica for tourism of for business, you can be completely sure that this country is going to be the perfect partner in terms of stability, in terms of the labor provision and in terms of hospitality.