Honduras

6. Financial Sector

Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit.  Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market.  The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying securities listed on it.  Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds.  In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have placed fixed rate and floating rate notes extended to three years in maturity, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange.  Any private business is eligible to trade its financial instruments on the BCV, and firms that participate are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency.  Historically, traded firms generally have had economic ties to the different business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

Money and Banking System

The Honduran financial system is comprised of commercial banks, state-owned banks, savings and loans institutions, and financial companies.  There are currently 15 commercial banks operating in Honduras. There is no offshore banking or homegrown blockchain technologies in Honduras.

Foreign Exchange and Remittances

Foreign Exchange Policies

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment.  Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport.  For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

The Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

  • Imports of goods and services necessary to operate
  • Payment of royalty fees, rents, annuities, and technical assistance
  • Remittance of dividends and capital repatriation

The Central Bank of Honduras   instituted a crawling peg in 2011 that allows the lempira to fluctuate against the U.S. dollar by seven percent per year.  The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions.  These restrictions limit devaluation to a maximum of 4.8 percent annually. As of mid-May, the exchange rate is 24.43lempira to the U.S. dollar.

The Central Bank uses an auction system to allocate of foreign exchange based on the following regulations:

  • The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners.
  • The Central Bank’s Board of Directors determines the procedure to set the base.
  • The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions.
  • Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency.  The offers can be no less than USD 10,000, no more than USD 300,000 for individuals, and no more than USD 1.2 million for corporations.
  • To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested.  Foreign investors that choose to remit their investment proceeds from Honduras do so through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras.  These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

Sovereign Wealth Funds

Honduras does not have a sovereign wealth fund.

Kosovo

6. Financial Sector

Capital Markets and Portfolio Investment

Kosovo has an open-market economy and the market determines interest rates.  Individual banks conduct risk analysis and determine credit allocation. Foreign and domestic investors can get credit on the local market.  Access to credit for the private sector is limited, but improving.

The country generally has a positive attitude towards foreign portfolio investment.  Kosovo does not have a stock exchange. The regulatory system conforms with EU directives and international standards.  There are no restrictions beyond normal regulatory requirements related to capital sourcing, fit, and properness of the investors.  The CBK has taken all required measures to improve policies for the free flow of financial resources. Requirements under the SAA with the EU oblige the free flow of capital.  The government respects the IMF’s Article VIII conditions on the flow of capital.

Money and Banking System

Kosovo has 10 commercial banks (of which 8 are foreign) and 22 micro-financial institutions (of which 14 are foreign).  The official currency of Kosovo is the euro, although the country is not a member of the Eurozone. In the absence of an independent monetary policy, prices are highly responsive to market trends in the larger Eurozone.

Kosovo’s private banking sector remains well capitalized and profitable.  Difficult economic conditions, weak contract enforcement, and a risk-averse posture have limited banks’ lending activities, although marked improvement occurred in the past several years.  On February 2019, the rate of non-performing loans was 2.6 percent, the lowest rate in the last ten years. The three largest banks own 57.5 percent of the total 4.2 billion euros of assets in the entire banking sector.  Despite positive trends, relatively little lending is directed toward long-term investment activities. Interest rates have dropped significantly in recent years, from an average of about 12.7 percent in 2012 to an average of 6.7 percent in 2019.  Slower lending is notable in the northern part of Kosovo due to a weak judiciary, informal business activities, and fewer qualified borrowers.

The Central Bank of Kosovo (CBK) (established in 2008 is an independent government body responsible for fostering the development of competitive, sound, and transparent practices in the banking and financial sectors.  It supervises and regulates Kosovo’s banking sector, insurance industry, pension funds, and micro-finance institutions. The CBK also performs other standard central bank tasks, including cash management, transfers, clearing, management of funds deposited by the Ministry of Finance and other public institutions, collection of financial data, and management of a credit register.

Foreign banks and branches can establish operations in the country.  They are subject to the same licensing requirements and regulations as local banks.  The country has not lost any correspondent banking relationships in the past three years and no such relationship is currently in jeopardy.  There are no restrictions on foreigners opening bank accounts; they can do so upon submission of valid identification documentation.

Kosovo is a signatory country to the United States’ Foreign Account Tax Compliance Act (FATCA), aimed at addressing tax evasion by U.S. citizens or permanent residents with foreign bank accounts.  For more information, visit the FATCA website: https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA.

Foreign Exchange and Remittances

Foreign Exchange

The Foreign Investment Law guarantees the unrestricted use of income from foreign investment following payment of taxes and other liabilities.  This guarantee includes the right to transfer funds to other foreign markets or foreign-currency conversions, which must be processed in accordance with EU banking procedures.  Conversions are made at the market rate of exchange. Foreign investors are permitted to open bank accounts in any currency. Kosovo adopted the euro in 2002, but is not a Eurozone member.  The CBK administers euro exchange rates on a daily basis as referenced by the European Central Bank.

Remittance Policies

Remittances are a significant source of income for Kosovo’s population, representing over 12 percent of GDP (or over USD 900 million) in 2018.  The majority of remittances come from Kosovo’s diaspora in European countries, particularly Germany and Switzerland. The Central Bank reports that remittances are mainly used for personal consumption, not for investment purposes.

Kosovo does not apply any type of capital controls or limitations on international capital flows.  As such, access to foreign exchange for investment remittances is fully liberalized.

Sovereign Wealth Funds

Kosovo does not have any sovereign wealth funds.

Paraguay

6. Financial Sector

Capital Markets and Portfolio Investment

Credit is available but expensive.  Banks frequently charge from 40 percent to 60 percent interest on consumer loans, with the vast majority favoring repayment horizons of one year.  Loans for up to 10 years are available at higher interest rates. High collateral requirements are generally imposed. Private banks, in general, avoid mortgage loans.  Because of the difficulty in obtaining bank loans, Paraguay has seen growth in alternative and informal lending mechanisms, such as “payday” lenders. These entities can charge up to 85 percent interest on short-term loans according to banking contacts.  The high cost of capital makes the stock market an attractive, although underdeveloped option. Paraguay has a relatively small capital market that began in 1993. As of April 2018, the Asuncion Stock exchange consisted of 92 companies. Many family-owned enterprises fear losing control, dampening enthusiasm for public offerings.  Paraguay passed a law in 2017 abolishing anonymously held businesses, requiring all holders of “bearer shares” to convert them. Foreign banks and branches are allowed to establish operations in country, as such Paraguay currently has three foreign bank branches and four majority foreign-owned banks.

The Paraguayan government issued Paraguay’s first sovereign bonds in 2013 for USD 500 million to accelerate development in the country.  Paraguay also issued bonds in 2014, 2015, 2016, 2017, 2018 and recently in 2019 for USD 500 million. Proceeds are expected to finance key infrastructure development programs designed to promote economic and social development and job creation.  Commercial banks also issue debt to fund long-term investment projects.

Paraguay became an official member of the IMF in December 1945 and its Central Bank respects IMF Article VIII related to the avoidance of restrictions on current payments.

Money and Banking System

Paraguay’s banking system includes 17 banks with an approximate total USD 21.5 billion in assets and USD 15.1 billion in deposits.  The banking system is generally sound but remains overly liquid. Long-term financing for capital investment projects is scarce. Most lending facilities are short-term.  Banks and finance companies are regulated by the Banking Superintendent, which is housed within, and is under the direction of, the Central Bank of Paraguay.

The Paraguayan capital markets are essentially focused on debt issuances.  As the listing of stock is limited, with the exception of preferred shares, Paraguay does not have clear rules regarding hostile takeovers and shareholder activism.

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, royalties).  Funds associated with any form of investment can be freely converted into any world currency. Paraguay has a flexible exchange rate system making the national currency rate fluctuate according to the foreign-exchange market mechanisms.

Remittance Policies

There are currently no plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.  There are no time limitations on remittances. Paraguay is a member of the Financial Action Task Force against Money Laundering in Latin America (GAFILAT), a Financial Action Task Force (FATF)-style regional body and is due a GAFILAT review in 2019.

Sovereign Wealth Funds

Paraguay does not have a sovereign wealth fund.

Investment Climate Statements
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The Lessons of 1989: Freedom and Our Future