Costa Rica’s economy looks set for a strong recovery

Significance GDP posted growth of 9.4% year-on-year in the second quarter, the highest rate in 23 years. According to high-frequency data, economic recovery appears to have continued between July and September albeit at a slightly slower pace. Impacts Low inflation will allow the Central Bank to maintain an accommodative stance in the short term; any rate hikes next year will be gradual. Banks’ profitability and credit quality may deteriorate in 2022 as loan restructuring measures expire and lagged pandemic effects kick in. The exchange rate may further depreciate amid uncertainty over the country’s fiscal prospects and the outcome of the 2022 elections. While tourism appears to be on a strong trajectory, the spread of Omicron in Europe and the United States could reverse its recovery.

How does information integration enhance SMEs’ credit quality: the mediating role of supply chain capabilities

PurposeThis paper aims to investigate the relationship between information integration, supply chain capabilities and credit quality of small and middle enterprises (SMEs) in supply chain finance (SCF).Design/methodology/approachGrounded in the resource-based view (RBV) and signaling theory, this study proposes a theoretical model. Then, structural equation modeling and interview analysis are employed to test the theoretical model.FindingsThe results show that both two aspects of information integration, namely, information technology and information sharing, have positive effects on the SMEs’ credit quality in SCF, and these effects are mediated by supply chain capabilities.Originality/valueFirst, the paper contributes to SCF literature by simultaneously examining the role of two dimensions of information integration (information technology and information sharing) in enhancing SMEs’ credit quality. Second, this paper enriches the existing theoretical research on SCF by integrating the SMEs perspective and SCF service provider perspective. Moreover, this paper explores the indirect effects of information integration on SMEs’ credit quality by incorporating supply chain capabilities as a mediating factor.

Bank Credit Risk Rating Process: Is There a Difference Between Agencies?

The purpose of this article is to compare the bank credit risk rating (BCRR) process between credit rating agency (CRA) after the 2012 revision of their methodologies using 76 banks from 23 EMENA countries rated simultaneously by S&P's, Moody's and FitchRatings. We made this comparison based on the CAMELS model with a proposed 'S’ to BCRR. We use “ordered logit” regression for the rating classes and we complete our analysis by “linear multiple” regression for the rating grades. The results show that the BCRR processes are largely consistent between agencies but not aligned. Some differences appear in the important factors and relevant variables of the intrinsic credit quality component that manifest themselves in specific behaviors distinguishing one agency to another. The three agencies agree on the factors: Capital, Earnings, Liquidity and Supports and the most relevant support variable is the sovereign rating of the bank's country of establishment. The results also confirm a consistence between the BCRR's revealed and practiced methodologies revised by the CRA.

Information Resolution and Subnational Capital Markets

This book theorizes that information is a critical factor for subnational government (SNG) capital market formation and development. It empirically tests the stated relationship between information resolution institutions and mechanisms of information resolution on SNG borrowing. Based on empirical results, analyses of underlying fundamentals of city credit quality, and the study of contexts of information resolution reforms, the book recommends policy measures for central governments, regional and local governments, and financial sector firms to build capital markets for subnational borrowing. As subnational governments across the globe, especially cities, bear increasing pressures to provide critical capital infrastructure, responsibilities for the provision of local infrastructure resulting from decentralization efforts and population demands, the need for a wider array of internal and external resources, including bond market alternatives, become a priority. With information resolution, access to capital market financing becomes a feasible option of regional and local government finance. The evidence reported in this book demonstrates that SNG access to capital market financing depends on credit contractibility, which is the nation’s capacity of information resolution. The bases of credit contractibility are transparency of credit information, depth of credit information, dissemination, and regulatory quality. Evidence also shows that the informational content of underlying credit quality is a significant covariate of city-level borrowing and debt composition. Based on empirical findings and focusing on cities, the book argues that SNGs can and should strengthen their agency vis-à-vis the public and financial sector actors, in an environment where global capital is increasingly intertwined with the provision of critical infrastructure finance. Agency is necessary for city policymakers not only to achieve their key governance tasks efficiently, but do so effectively and equitably, consistent with the demands of the citizenry.

Information Resolution, Information Content, and City Debt

This chapter furthers an understanding of how information resolution relates to borrowing and debt composition at the city level. The study examines the role of credit ratings, as well as the key informational components of credit quality, for city borrowing levels and debt structure. The informational components of credit quality include economic, fiscal, debt and financial, and governance factors. This chapter evaluates city debt for the largest cities in select countries with SNG market activity across the globe by asking: What debt levels do cities have, and what is the composition of that debt? How does information resolution, both information resolution institutions and the underlying components of credit quality information assessment, influence subnational-level borrowing?

A Theory of Subnational Government Capital Market Information

Chapter 2 develops the theoretical base for why and how information resolution is expected to relate to subnational government capital market borrowing by reviewing and extending the corporate finance literature. Based on theories of information, it argues that although countries must have a certain level of maturity along economic, financial and market, political, and legal institutions before successfully managing a well-functioning capital market, the crowning factor behind an efficient subnational government credit market, beyond the fundamental dimensions of institutional maturity, is credit contractibility in the system and tools of information certification and monitoring available to subnational governments. This chapter details how information problems manifest in credit contractibility, reviews how information relates to capital finance, and applies theories of capital markets to subnational government borrowing, debt size, and debt composition. It discusses how information resolution institutions and credit quality can enhance subnational government capital markets and proposes testable hypotheses.

Understanding, Managing, and Communicating Credit Fundamentals

This chapter probes the informational content of city credit ratings: what the credit ratings are, why city policymakers should care about credit ratings, and how city policymakers may evaluate credit ratings and make use of their informational content. By explicitly showcasing 12 cities from different contexts, this chapter conducts a comparative evaluation of core credit quality fundamentals for these cases. This analysis looks at the economic, fiscal, debt and financial management, and governance factors that policymakers may leverage to proactively manage the city’s underlying credit quality. It asks: How can policymakers manage city credit fundamentals to leverage access to capital market options? What are the elements of credit quality information that city policymakers may signal? What can city policymakers do to improve their agency? The results give tools to city policymakers to announce their market readiness, regardless of, and perhaps even undeterred by, the context of governance institutions in which the city is nested.

Subnational Government Capital Financing

This book argues that capital markets can be an important source of financing for subnational governments across the globe as they face decentralization of governance systems and increased demand for infrastructure at the local level. The central argument is that information resolution at both the national-level and the city-level is critical for the success of subnational capital markets. Furthermore, the chapter argues that subnational governments can and must become competent actors with regards to both top-down (national to local governments) and outside-in (financial sector firms to local governments) transactions and pressures. This chapter presents city policymakers with options for capital market access when both system credit contractibility and underlying credit quality vary by offering a typology of alternatives for capital financing. The chapter recommends policies that establish contractibility and credit quality assessment mechanisms and concludes with recommendations for future research.