# Banking in Nicaragua

Baking in Nicaragua has faced many changes and restructuring. Currently, it includes private and state-owned banks, micro finance institutions, and insurance companies all regulated by SIBOIF.

## Economy of Nicaragua

   Main Article: Economy of Nicaragua

### Economic Situation

Nicaragua is currently the second poorest country in Latin America. This is mostly because of poor fiscal policies, high unemployment, and external debt.

### Agriculture

Nicaragua has historically depended on agriculture as its main economic sector. It also employs a significant part of the population, especially in rural areas. Economic disparities have increased during periods of agricultural difficulties, caused by natural disasters. Additionally, limited access to modern farming technology has caused challenges and disadvantages for those working in agriculture. Some argue that the government should grant financial assistance to farmers based on their scale of production, but this has not been accomplished.

### Economic Vulnerability

Nicaragua is a country susceptible to hurricanes, droughts, and storms while also being highly dependent on agriculture. Variations in temperature and precipitation directly impact per capita consumption. There is a negative relationship between climate variability and household consumption, which implies poverty, proving that climate shocks such as El Niño increase poverty rates.

### Tourism

Tourism is one of the main sources of income in Nicaragua, it has contributed to economic development and is still a growing sector.

### International Investment

The Free Trade Agreement (2006) increased the GDP per capita by opening opportunities for businesses. Organizations like the IMF and World Bank have also provided economic support.

### Remittances

Remittances account for a big part of the economy. In 2022, remittances reached $3,547 million, 23% of GDP, making them the main driver of economic growth though domestic consumption and macroeconomic stability. However, remittance flows are slowing and there is no significant increase in trade or borrowing, so economic growth is likely to start decreasing. The increased flow in remittances, rising 30% in 2022, was a direct result of mass migration following the April 2018 crisis, and it intensified with the April 2021 legal measures criminalizing democratic activity. Between 122,000 and 200,000 Nicaraguans are expected to migrate, and almost half of them are expected to send money back during their first year abroad. In 2023, remittances increased to 28% of the GDP, making Nicaragua the most remittance-dependent country in Latin America and the Caribbean. These have contributed to real exchange rate appreciation, lowering the competitiveness of the tradable goods sector. Remittances are expected to keep growing but at a lower pace, which may impact private consumption and savings in the coming years.

### Effects of the 2018 Crisis

Poverty increased by 6.5% after 2018, contradicting the information provided by the government. This indicates that the crisis reversed years of economic progress, it directly caused a decline in employment and a rise in poverty.

## History
### 1880

Nicaragua’s banking system began in 1888 with Banco de Nicaragua and Banco Agrícola Mercantil.

### 1911-1912

The government granted Brown Brothers & Company the power to create Banco Nacional de Nicaragua (Nicaraguan National Bank). It was created in 1912 and functioned as the central and commercial bank.

### 1940

The Banco Nacional de Nicaragua (Nicaraguan National Bank) was fully nationalized. The Superintendency of Banks was established as there were more private and foreign banks. It focused on regulating all financial institutions.

### 1950s–1970s

The banking sector expanded with the creation of new private banks (Banco Nicaragüense, Banco de América) and foreign institutions (Citibank, Bank of America). The Superintendency of Banks expanded and became the main regulatory body, which oversaw commercial banks, savings and loans, and insurance companies.

### 1979-1985

After the revolution, when the Sandinista government got into power in 1979, they attempted to nationalize the country's banking system (Decree No. 25 of 1979) as part of their project to aid the poor in rural areas. They did this under the National Financial System. State institutions like Corporación Financiera (CORFIN) controlled financial assets, and regulatory functions were transferred to the General Comptroller’s Office. All banking institutions became state-owned, including the Banco Nacional de Desarrollo, Banco de Crédito Popular, Banco Nicaragüense, Banco de América, and Banco Inmobiliario. New institutions were incorporated to manage the nationalized sectors of production. Foreign banks were allowed to continue their operations but could no longer accept local deposits. The Central Bank adopted an expansionary monetary policy, leading to rapid credit growth. Reserve requirements for banks were removed, increasing the money supply significantly. The banking system went from being conservative and driven by the private sector, to a state-controlled expansionary model.

### 1985-1989

In 1985, a new degree loosened state control of the banking system by allowing the establishment of privately owned local exchange houses. Then in 1988, the government created it’s largest exchange house under the direction of the Financial Corporation of Nicaragua (Corporación Financiera de Nicaragua - Corfin).In 1989 the Central Bank authorized the exchange house to operate a foreign money exchange office as an agent of the bank.

### 1990-2000s

In 1990, the National Assembly passed legislation permitting private banks to resume operations. In 1991 a legislation allowed the establishment of the first private banks in the country, however only large industries and agribusiness producers of non-traditional crops for export qualified for credit thus leaving small business owners and producers of consumption crops with no access to loans or banking services.
In 1992, the largest stateowned commercial bank was the National Development Bank (Banco Nacional de Desarrollo - BND), originally established by Chase National Bank. Other state-owned commercial banks were the Bank of America (Banco de América - Bamer) and the Nicaraguan Bank of Industry and Commerce (Banco Nicaragüense de Industria y Comercio - Banic). The People's Bank (Banco Popular) specialized in business loans, and the Real Estate Bank (Banco Inmobilario - Bin) provided loans for housing. Three foreign banks continued operations: Bank of America, Citibank, and Lloyds Bank.

#### Restructure

The Inter-American Development Bank (IDB) was instrumental in restructuring Nicaragua's technically bankrupt banking sector. In December 1991, the IDB approved a US$3 million technical cooperation grant to restructure the Central Bank, and in March 1992, it approved a US$3 million loan to a new commercial bank, the Mercantile Bank (Banco Mercantil). The Mercantile Bank program was expected to make loans available to small and medium-sized private-sector enterprises and to finance investments to bolster fixed assets and create permanent working capital. The Mercantile Bank was the first private bank to be established in Nicaragua since 1979. Three additional new commercial banks were scheduled to open in 1992.
Restructuring of the National Financial System (Sistema Financiero Nacional - SFN) was one of the key elements of the government's economic reform program. According to an agreement between President Chamorro and the World Bank, Banic was to be merged with Bin. The BND would handle only rural credit operations, and the People's Bank was to take over all credit operations for small and medium-sized industry. International operations, which had been managed exclusively by the Central Bank since 1984, were transferred to the BND and Banic. The Central Bank would continue to handle operations pertaining to the central government, while the newly merged banks would be responsible for letters of credit, imports, transfers, and dollar checking accounts.
The Central Bank also auctioned off one of the government's largest exchange houses. This exchange house had been established in 1988 under the direction of the Financial Corporation of Nicaragua (Corporación Financiera de Nicaragua - Corfin). In 1989 the Central Bank authorized the exchange house to operate a foreign money exchange office as an agent of the bank. In May 1991, Corfin voted to turn over its shares in the exchange house to the Central Bank so that the exchange house could be sold.
Opponents charged that this sale was unconstitutional. They argued that the exchange house was the property of the Central Bank and could not be transferred. The Federation of Bank Workers also charged that the new government banking policy was weakening the state bank while giving the advantage to the private banks. Nicaragua had far fewer banking resources than its Central American counterparts by the end of 2002, with only six banks compared to the regional average of 107 per country.

## Current Banking System

The banking system includes:
* Private banks offering commercial and investment services.
* State-Owned Banks focused on economic development and public credit
* Financial Cooperatives and micro finance institutions supporting small enterprises.
* Insurance and Reinsurance Companies offering services to individuals and companies, regulated under modern financial laws.
They are all regulated by the Superintendence of Banks and other financial institutions (SIBOIF). It is in charge of applying global banking standards and ensuring regulatory compliance across the sector.

### Active Banks
#### Central Bank:

* Central Bank of Nicaragua (BCN)

#### State-Owned Bank:

* Banco de Fomento a la Producción (Created by law No. 640)

#### Private Banks with correspondent relationships with banks in the United States:

* Banco de la Producción (BANPRO)
* Banco Lafise (BANCENTRO)
* Banco de América Central (BAC)
* Banco de Finanzas (BDF)
* Banco Ficohsa Nicaragua
* Banco Avanz

#### Other Private Banks:

* Banco Atlántida Nicaragua
* Banco Procredit

### Effects of the political situation

Nicaraguan banks’ relationship with banks in the US has been impacted by the political crisis, international sanctions on Nicaraguan banks and officials, and the Nicaraguan government's changes to the legislation. The United States government, since 2021 requires local Nicaraguan banks to deny services to “the State” and every sanctioned person and company. Nicaragua is also not allowed to receive financing, loan guarantees, or insurance for exports from the Export-Import Bank of the United States (EXIM Bank).

### Remittances

Banks like Banco Lafise have focused on expanding its system for receiving remittances. Their customers are currently able to receive remittances from more than 20 remitters.