GUATEMALA: An Introduction to Banking & Finance
The main credit rating agencies in the world have raised Guatemala’s rating following the COVID-19 pandemic, citing the country’s resilient economy, long-standing macroeconomic stability, and cautious fiscal and monetary policies. Inflation expectations have decreased in recent months (5.19% as of March 2023), with an annual inflation rate of 8.32% in April 2023. The Bank of Guatemala (the “Central Bank”) raised interest rates to 5% in April 2023, referring to hikes from central banking authorities in other countries and an aim of controlling inflation. Private sector credit has been on the rise in recent months, reported at GTQ213,048.90 million for March 2023.
The Guatemalan banking and financial system is subject to oversight from the Banking Superintendence (SIB), an organ of the Central Bank. The SIB is also in charge of supervising compliance with laws and regulations to prevent asset laundering and financing of terrorism, through its Special Verification Intendancy (IVE), the Guatemalan Financial Intelligence Unit. The system currently comprises 18 banks, 11 financial companies, 14 general deposit warehouses, 28 insurance companies, three exchange houses, three offshore entities, eight brokerage houses, four credit card companies, one microfinance entity and four institutions of other types. Many of these are part of one of a total of ten financial groups.
At the close of 2022, the banking system reported total net assets of GTQ486,323 million, an interannual increase of 11.9% due mainly to growth in credits, investments and availabilities. The growth in credit included increases of 25.2% for consumption, 13.3% for major enterprises (defined as over USD650,000 or GTQ5 million in credit destined for production and commercialisation of goods and services), and 46.8% for microcredit. The growth in investments was due mainly to acquisition of securities issued by the Central Government. Liabilities at GTQ439,854 million (11.7% interannual increase) were due to growth in savings deposits (15.8%), term deposits (8.6%), checking accounts (8.9%) and credits obtained (18.8%). Profit before tax reached GTQ10,427 million, which was 36.4% greater than that of December 2021.
Guatemala’s civil and commercial justice system is currently undergoing a transition towards electronic procedures, following the lessons learned from the pandemic. Some notifications and hearings are already carried out through electronic means, and recent amendments to the Code of Civil and Commercial Procedure seek to further enhance the efficiency of the courts by allowing electronic filing. Although still in its early stages, this will have a long-term impact for promoting faster response times from a court system that is currently seen by investors as a relevant risk factor for purposes of recovery and foreclosure.
Other recent developments in legislation, aimed at improving economic and investment conditions in the wake of the pandemic, include a new Leasing Act, an Act to Promote Investment of Foreign Capital, a new Insolvency Act, which completely overhauls and modernises the pre-existing judicial procedures for default and bankruptcy, an Act to Simplify Administrative Procedures and Requirements before offices of the central administration, and amendments to the country’s Free Trade Zones Act.
Local business and legal conditions have thus required our team of professionals to acquire a wide range of knowledge and skills for counselling both local and transnational investment and finance, as relates to structuring contracts, secured transactions, ensuring compliance with local banking regulations, foreseeing potential limitations and delays for recovery, and designing solutions to them, as well as keeping up to date with new legislation, the opportunities it offers, and the new challenges it raises.
The Banking and Finance Practice Group at Mayora & Mayora is comprised of professionals with vast experience in both the private and public sector, and dedicated litigation specialists, all prepared to offer clients the support they need for success in these types of projects.