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Honduras SERVICES
Banking and Financial System
The Honduran financial sector is small in comparison to
the
banking systems of its neighbors. After 1985, however, the
sector
began to grow rapidly. The average annual growth rate of
value
added to the economy from the financial sector for the
1980s was
the second-highest in Latin America, averaging 4 percent.
By 1985
Honduras had twenty-five financial institutions with 300
branch
offices. Honduran commercial banks held 60 percent of the
financial
system's assets in 1985 and nearly 75 percent of all
deposits. With
the exception of the Armed Forces Social Security
Institute, all
commercial banks were privately owned, and most were owned
by
Honduran families. In 1985 there were two government-owned
development banks in Honduras, one specializing in
agricultural
credit and the other providing financing to municipal
governments.
At the behest of the International Monetary Fund (IMF)
and World
Bank, Honduras began a process of financial liberalization
in 1990.
The process began with the freeing of agricultural loan
rates and
was quickly followed by the freeing of loan rates in other
sectors.
Beginning in late 1991, Honduran banks were allowed to
charge
market rates for agricultural loans if they were using
their own
funds. By law, the banks had to report their rates to
monetary
authorities and could fix rates within two points of the
announced
rate.
In 1991 commercial banks pressured the government to
reduce
their 35 percent minimum reserve ratio. This rate remained
standard
until June 1993 when the minimum requirement was
temporarily lifted
to 42 percent. The rate was dropped to 36 percent three
months
later. The banks had excess reserves, and lending rates
were in the
area of 26 to 29 percent, with few borrowers. Prior to
liberalization measures, the Central Bank of Honduras
(Banco
Central de Honduras) maintained interest rate controls,
setting a
19 percent ceiling, with the market lending rate hovering
around 26
percent in late 1991. With inflation hitting 33 percent in
1990,
there was, in fact, a negative real interest rate, but
this
situation reversed in 1991 when rates were high relative
to
inflation. Rates of 35 to 43 percent in 1993 were well
above the
inflation rate of 13 to 14 percent. Bankers argued for
further
liberalization, including easing of controls in the
housing and
nonexport agricultural sectors.
A Honduran stock exchange was established in August
1990 with
transactions confined to trading debt. Nine companies were
registered with the exchange in 1991; in 1993 this number
had grown
to eighteen. It appears doubtful, however, that the market
will
develop fully, given the reluctance of family-held firms
to open
their books to public scrutiny.
Data as of December 1993
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