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6. Financial Sector

Capital Markets and Portfolio Investment

Guatemala’s capital markets are weak and inefficient because they lack a securities regulator. The local stock exchange (Bolsa Nacional de Valores) deals almost exclusively in commercial paper, repurchase agreements (repos), and government bonds.  The Guatemalan Central Bank (Banguat) and the Superintendence of Banks (SIB) were drafting an updated capital markets bill that included a chapter on securitization companies and the securitization process as of May 2020.  Notwithstanding the lack of a modern capital markets law, the government debt market continues to develop.  Domestic treasury bonds now represent 55.4 percent of total public debt.

Guatemala lacks a market for publicly traded equities, which raises the cost of capital and complicates mergers and acquisitions.  As of December 2019, borrowers faced a weighted average annual interest rate of 15.6 percent in local currency and 7 percent in foreign currency, with some banks charging over 30 percent on consumer or micro-credit loans. Commercial loans to large businesses offered the lowest rates and were on average 7 percent as of December 2019.  Dollar-denominated loans typically are several percentage points lower than those issued in local currency. Foreigners rarely rely on the local credit market to finance investments.

Money and Banking System

Overall, the banking system remains stable.  According to information from the SIB, Guatemala’s 16 commercial banks had an estimated USD 45.4 billion in assets in December 2019.  The six largest banks control about 89 percent of total assets.  In addition, Guatemala has 12 non-bank financial institutions, which perform primarily investment banking and medium- and long-term lending, and three exchange houses.  Access to financial services is very high in Guatemala City, as well as in major regional cities.  Guatemala has 15.1 access points per 10,000 adults at the national level and 22.3 access points per 10,000 adults in the metropolitan area.  Most banks offer a variety of online banking services.

Foreigners are normally able to open a bank account by presenting their passport and a utility bill or some other proof of residence.  However, requirements may vary by bank.

In April 2002, the Guatemalan Congress passed a package of financial sector regulatory reforms that increased the regulatory and supervisory authority of the SIB, which is responsible for regulating the financial services industry.  The reforms brought local practices more in line with international standards and spurred a round of bank consolidations and restructurings.  The 2002 reforms required that non-performing assets held offshore be included in loan-loss-provision and capital-adequacy ratios.  As a result, a number of smaller banks sought new capital, buyers, or mergers with stronger banks, reducing the number of banks from 27 in 2005 to 17 in 2018.

Guatemalan banking and supervisory authorities and the Guatemalan Congress actively work on new laws in the business and financial sectors.  In August 2012, the Guatemalan Congress approved reforms to the Banking and Financial Groups Law and to the Central Bank Organic Law that strengthened supervision and prudential regulation of the financial sector and resolution mechanisms for failed or failing banks.  In July 2010, the Guatemalan Congress approved a new insurance law, which strengthened supervision of the insurance sector and allowed foreign insurance companies to open branches in Guatemala.  Groups of affiliated credit card, insurance, financial, commercial banking, leasing, and related companies must issue consolidated financial statements prepared in accordance with uniform, generally accepted, accounting practices.  The groups are audited and supervised on a consolidated basis.

Foreign banks may open branches or subsidiaries in Guatemala subject to Guatemalan financial controls and regulations.  These include a rule requiring local subsidiaries of foreign banks and financial institutions operating in Guatemala to meet Guatemalan capital and lending requirements as if they were stand-alone operations.

There have been some changes to correspondent banking relationships over the past few years, but the changes were similar to those seen throughout the region and reflected a trend of de-risking.  The total number of relationships with Guatemala’s financial sector showed a slight decline in 2016 but the situation stabilized in 2017.

Alternative financial services that are present in Guatemala include credit and savings unions and microfinance institutions, which serve those segments not covered by banks.

Foreign Exchange and Remittances

Foreign Exchange

Guatemala’s Foreign Investment Law and CAFTA-DR commitments protect the investor’s right to remit profits and repatriate capital.  There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency at a market-clearing rate.  U.S. dollars are freely available and easy to obtain within the Guatemalan banking system.  In October 2010, monetary authorities approved a regulation to establish limits for cash transactions of foreign currency to reduce the risks of money laundering and terrorism financing.  The regulation establishes that monthly deposits over USD 3,000 will be subject to additional requirements, including a sworn statement by the depositor stating that the money comes from legitimate activities.  There are no legal constraints on the quantity of remittances or any other capital flows and there have been no reports of unusual delays in the remittance of investment returns.

The Law of Free Negotiation of Currencies allows Guatemalan banks to offer different types of foreign-currency-denominated accounts.  In practice, the majority of such accounts are in U.S. dollars.  Some banks offer “pay through” dollar-denominated accounts in which depositors make deposits and withdrawals at a local bank while the bank maintains the actual account on behalf of depositors in an offshore bank.

Capital can be transferred from Guatemala to any other jurisdiction without restriction.  The exchange rate moves in response to market conditions.  The government sets one exchange rate as reference, which it applies only to its own transactions and which is based on the commercial rate.  The Central Bank intervenes in the foreign exchange market only to prevent sharp movements.  The reference exchange rate of Quetzals (GTQ) to the U.S. dollar has remained relatively stable since 1999.

Remittance Policies

There are no time limitations on remitting different types of investment returns.

Sovereign Wealth Funds

Guatemala does not have a sovereign wealth fund.

7. State-Owned Enterprises

With the exception of the National Electricity Institute (INDE) and two state-owned ports, Guatemala does not have significant state-owned enterprises (SOEs).  INDE is a state-owned electricity company responsible for expanding the provision of electricity to rural communities.  INDE owns approximately 14 percent of the country’s installed effective generation capacity, and it participates in the wholesale market under the same rules as its competitors.  It also provides a subsidy to consumers of up to 88 kilowatt-hours (kWh) per month.  Its board of directors comprises representatives from the government, municipalities, business associations, and labor unions.  The board of directors appoints the general manager.

The GoG currently owns 16 percent of the shares of Rural Development Bank (BanRural), the second largest bank in Guatemala, and holds 3 out of 10 seats on its board of directors.  BanRural is a mixed capital company and operates under the same laws and regulations as other commercial banks.  The GoG also appoints the manager of GUATEL, the former state-owned telephone company dedicated to providing rural and government services that split off from the fixed-line telephone company during its privatization in 1998.  GUATEL’s operations are small and it continuously fails to generate sufficient revenue to cover expenses.  The GUATEL director reports to the Guatemalan president and to the board of directors.

Privatization Program

The GoG privatized a number of state-owned assets in industries and utilities in the late 1990s, including power distribution, telephone services, and grain storage.  Guatemala does not currently have a privatization program.

Investment Climate Statements
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U.S. Department of State

The Lessons of 1989: Freedom and Our Future