THE STRUCTURE AND ROLE OF COMMERCIAL BANKS IN THE CENTRAL AMERICAN COUNTRIES SINCE 1955

JEAN LEON CARRICA, University of Nebraska - Lincoln

Abstract

In a developing region such as Central America (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) economic betterment depends largely on the availability of capital. Some of that necessary capital is forthcoming from commercial banks. This study of the nature and activity of Central American commercial banks was undertaken to provide some insight to the contributions, if any, of these financial institutions to economic betterment.The structure of the banking systems was analyzed by investigating the types, numbers and operations of existing banks. The banking activities in this region are directed by central banks. Credit ceilings by industry are normally set by these central banks. The banking system of Costa Rica is in essence nationalized and relatively well developed. Another highly centralized system but one not nationalized is that of Nicaragua. The most extensive. privately-owned system is found in El Salvador. The banking systems in Guatemala and Honduras seemed less well developed. All the systems are in the process of growth.The role of the commercial banks in their respective countries was determined by studying central bank documents and reports to obtain the main use of commercial bank funds. Commercial bank performance was then compared against total economy performance by sector. Gross Domestic Product was used as a measure of economic production. Whether the banking system was lending in tune with economic production then become apparent. Some of the conclusions reached as to bank activity are:1. The Costa Rican banking system has been the most responsive to government policy and economic development. The main reason for this good showing is attributed to its nationalized system.2. The lending policies of the banking system in El Salvador were somewhat ineffective in the light of national economic results. Ironically, this banking system enjoying the greatest freedom from government intervention was the system most out of relation in lending policy with economic growth of the country.3. Compared to other countries in the region the banking system of Guatemala was rather conservative in its lending practices. The national political instability and the high percentage of people outside the money economy are important causes of this conservatism.4. Honduran commercial banking has much the same problem as Guatemala with respect to the number of people outside the money economy. Poor markets and sparse population have retarded banking activities. very poorly supported.5. Like Costa Rica, Nicaraguan commercial banking has done a fairly good job of lending in line with general economic development. Heavy government support helped centralize effort in the needed sectors.Some broader conclusions pertinent to commercial banking in Central America are also reached. One of these is the necessity of bankers to work for political and social stability. Another is the need of educating the public to the many services banks can render. The community at large must be convinced that the public's preference for cash hoarding or liquidity limits the ability of the commercial banks to expand credit. Finally, some better support of industrialization and agriculture that yields surpluses for use and foreign exchange is needed. Long term capital in both areas is badly needed. Small farmers and the growing middle class will require attention by the banking systems as to both use by these economic groups and fostering by the banks of advances in techniques for small farming and small traders.

Subject Area

Finance

Recommended Citation

CARRICA, JEAN LEON, "THE STRUCTURE AND ROLE OF COMMERCIAL BANKS IN THE CENTRAL AMERICAN COUNTRIES SINCE 1955" (1967). ETD collection for University of Nebraska-Lincoln. AAI6800737.
https://digitalcommons.unl.edu/dissertations/AAI6800737

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