US embassy cable - 02TEGUCIGALPA3491

UNCLAS TEGUCIGALPA 003491 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR INR/B, WHA/CEN, WHA/EPSC, EB/IFD/OMA 
TREASURY FOR JOHN JENKINS 
STATE PASS TO USAID, USTR, EXIM, OPIC, USED IDB, USED WB, 
USED IMF 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, HO 
SUBJECT: BANCO CAPITAL LIQUIDATED; SOGERIN TO BE SOLD 
 
REF: TEGUCIGALPA 1540 
 
1. (SBU) Summary.  The National Banking and Insurance 
Commission announced on December 20 the forced liquidation 
of Banco Capital, which had been under government 
supervision since May 17.  Banco Ficohsa acquired the 
deposits worth approximately USD 43 million.  The GOH 
authorized the transfer of approximately USD 30.7 million 
from accounts of the state-owned telephone company Hondutel 
to Banco Ficohsa to guarantee the deposits.  Banco Sogerin, 
the other bank under government supervision, will be sold in 
February, after completion of an appraisal of its assets. 
End summary. 
 
2. (U) On December 20, Ana Cristina Mejia de Pereira, 
President of the National Banking and Insurance Commission, 
announced the liquidation of Banco Capital which, along with 
Banco Sogerin, had been under the supervision of the 
Honduran Deposit Insurance Fund (Fosede) since May 17 after 
the bank was found to be undercapitalized and have high 
levels of related lending and a deteriorating loan portfolio 
(see reftel). 
 
3. (SBU) In a December 30 meeting, Pereira told Econcouns 
that the government-appointed supervisors discovered 
previously unknown non-performing loans and new cases of 
insider lending that had increased the bank's insolvency, 
pushed the bank's legal reserve requirement beneath the 
minimum six percent as required by law and ultimately forced 
the liquidation of Banco Capital.  The Commission is 
preparing an exhaustive report on evidence of violations by 
Capital's principal shareholder, Ivis Lopez, to assist the 
Public Ministry in pressing charges.  Pereira confided that 
the original plan was to liquidate Banco Capital last May 
when the bank was intervened.  However, due to concerns that 
closing two banks at that time could cause significant 
amount of capital flight from several other banks, the 
Banking Commission decided to hold off liquidating Capital 
to avoid a banking crisis. 
 
4. (SBU) Banco Ficohsa acquired Capital's deposits worth 730 
million lempiras (approx. USD 43 million).  Due to low 
offers, the loan portfolio was not sold.  The government 
hopes to recover approximately USD 100,000 through the sale 
of the remaining assets.  Fosede, which is required by law 
to guarantee deposits up to 150,000 lempiras, originally had 
set aside only 213 million lempiras (approx. USD 12.6 
million) to guarantee the deposits.  After the sale of the 
assets, the Council of Ministers agreed to transfer 517.7 
million lempiras (approx. USD 30.7 million) from the 
accounts of the state-owned telephone company Hondutel to 
cover the remaining Capital deposits.  Honduran law requires 
the government to guarantee 100 percent of the deposits 
until September 2003.  Pereira believes the final cost will 
be lower (currently, Ficohsa is reporting that most Capital 
depositors are leaving their accounts open). 
 
5. (SBU) Pereira commented that Banco Sogerin's 
recapitalization effort was more successful.  As opposed to 
Capital, which had many outstanding loans in the agriculture 
sector and few assets, Sogerin possessed properties and 
other assets which helped the government-appointed 
supervisors make the bank solvent.  The Banking Commission 
has commissioned an appraisal of plans Sogerin's worth, due 
to be completed in February.  It will be sold shortly 
thereafter.  So far Honduran bank Occidente, regional bank 
LAFISE and Salvadoran bank Cuscatlan have all expressed 
interest in acquiring Sogerin. 
 
6. (SBU) Pereira also remarked that implementation of Basel 
rules on capitalization requirements will lead to eventual 
bank mergers.  Banco Futuro and the Armed Forces Bank 
(BANFFAA) are both reportedly up for sale.  Shareholders in 
Banco del Pais, in contrast, have chosen to add funds as 
part of a recapitalization effort. 
 
7. (SBU) Comment:  Although not mentioned during briefings 
for the press or donors, the November IMF mission apparently 
urged immediate closure of Capital and quick sale of 
Sogerin.  Pereira appeared confident that the current 
financial sector measures will satisfy the Fund.  End 
comment. 
 
Palmer