VIII. TRADE AND PROJECT FINANCING A. DESCRIPTION OF BANKING SYSTEM The Honduran banking system is made up of 20 commercial banks, including three in the process of beginning operations. Asll Honduran banks have correspondent relations with U.S. bank. Most of these banks are associated with powerful economic groups, and lend primarily to businesses owned by the group of which they are a part. The system has been criticized for permitting excessive amounts of unsecured lending to major stockholders or bank principals. The Central Bank of Honduras has proposed a new Financial System Law which would restrict lending to stockholders and bank officers, permit more control by the Superintendency of Banks over the financial system, and institute a deposit insurance scheme. To date, the overwhelming opposition of the commercial banks has proven an insurmountable obstacle to passage of this law. The five largest banks in the country control an estimated USD 1 billion in assets. About 10 percent of the system's total asset base is estimated to be classified as non-performing. B. FOREIGN EXCHANGE CONTROLS AFFECTING TRADING Until early 1990, Honduras maintained a fixed official exchange rate of 2 lempiras (Lps.) to the U.S. dollar. However in March 1990, with the passage of a sweeping economic reform package, the Central Bank of Honduras decided to review periodically the value of the lempira vis-a-vis the dollar and adjust it when necessary. To date, this system of currency valuation, the interbank rate of exchange, has been used for all purposes, except payment of official debt which was maintained at the LPS2/USD1 rate. The interbank rate of exchange was initially set at LPS.4/USD1, and as of August 1994 was LPS.8.75:USD1. The Foreign Exchange Repatriation Law passed in September 1990 requires all Honduran exporters, except those operating in free- trade zones and export processing zones, to repatriate 100 percent of their export earnings through the commercial banking system. Up until recently, the commercial banks were allowed to use 70 percent of the earnings to meet their clients foreign exchange needs. The other 30 percent had to be sold to the Central Bank at the prevailing interbank rate of exchange. However, in a move to stop the continued devaluation of the lempira against the U.S. Dollar in mid-1994, the central bank recently passed new measures to regulate the allocation of foreign exchange more tightly. While these measures fall short of becoming exchange controls, they have caused a great deal of alarm within the local business community as the availability of foreign exchange continually diminishes. For example, commercial banks are now required to sell 100 percent of repatriated foreign exchange earnings to the central bank, which will in turn auction 60 percent of them in the open market. C. GENERAL FINANCING AVAILABILITY There is limited short-term trade financing from local commercial banks. The financing situation has deteriorated recently because of central bank contractionist monetary policies aimed at halting inflation and controlling a slide in the value of the lempira against the U.S. dollar. In mid-June 1994 the central bank passed a resolution increasing the legal reserve requirement on commercial bank deposits from 34 percent to 40 percent. The increase will take effect gradually by one percentage point every two weeks. As a result, banks have increased interest rates on commercial loans to about 34 percent, and further increases are expected soon. However, bank liquidity is so tight that, even at such a high rate, they are not disbursing funds to their most preferred customers. D. HOW TO FINANCE EXPORTS/METHODS OF PAYMENT Because of a chronic shortage of foreign exchange, U.S. exporters should exercise caution when extending credit on sales to Honduran trading partners. Cash in advance and irrevocable letters of credit, confirmed by U.S. banks, are the most appropriate methods of payment for U.S. exporters selling to Honduras. E. TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE The United States Export-Import Bank (EXIMBANK) offers short and medium term financing for U.S. exports to Honduran private sector buyers. At present no local bank has direct access to EXIMBANK's credit lines. These lines, however, are available through U.S. commercial banks. EXIMBANK's credit facilities available to Honduras include the Working Capital Guarantee Program, Exporter Insurance Program, Bank Letter of Credit Policies and Financial Institution Facilities. F. PROJECT FINANCING AVAILABLE Long-term financing is generally available only through special funds of the Central Bank of Honduras, the Central American Bank for Economic Integration (CABEI) and the Inter-American Development Bank. The programs that are available from these institutions concentrate on export projects, including export processing zones and industrial parks. G. LIST OF COMMERCIAL BANKS Banco de El Ahorro Hondure o, S.A. P.O. Box 3185 Tegucigalpa, D.C. Honduras Tel: (504) 37-5161 Fax: (504) 37-4638 Banco Atlantida, S.A. P.O. Box 3164 Tegucigalpa, D.C. Honduras Tel: (504) 32-1742 Fax: (504) 32-1273 Banco La Capitalizadora Hondure a, S.A. (BANCAHSA) P.O. Box 344 Tegucigalpa, D.C. Honduras Tel: (504) 37-1171 Fax: (504) 37-2775 Banco del Comercio, S.A. (BANCOMER) P.O. Box 160 San Pedro Sula, Cortes Honduras Tel: (504) 53-3600 Fax: (504) 53-3128 Banco Continental, S.A. P.O. Box 390 San Pedro Sula, Cortes Honduras Tel: (504) 53-1310 Fax: (504) 52-2750 Banco Financiera Centroamericana, S.A. (FICENSA) P.O. Box 1432 Tegucigalpa, D.C. Honduras Tel: (504) 38-1661 Fax: (504) 38-1630 Banco de las Fuerzas Armadas, S.A. (BANFFAA) P.O. Box 877 Tegucigalpa, D.C. Honduras Tel: (504) 31-2051 Fax: (504) 31-3832 Banco Hondureno del Cafe (BANHCAFE) P.O. Box 583 Tegucigalpa, D.C. Honduras Tel: (504) 32-8370 Fax: (504) 32-8332 Banco de Honduras, S.A. (CITIBANK) P.O. Box 3434 Tegucigalpa, D.C. Honduras Tel: (504) 32-6122 Fax: (504) 32-6164 Lloyd's Bank P.O. Box 3136 Tegucigalpa, D.C. Honduras Tel: (504) 36-6864 Fax: (504) 36-6417 Banco Mercantil, S.A. (BAMER) P.O. Box 116 Tegucigalpa, D.C. Honduras Tel: (504) 32-0006 Fax: (504) 32-3137 Banco de Occidente, S.A. P.O. Box 3284 Tegucigalpa, D.C. Honduras Tel: (504) 37-0310 Fax: (504) 37-0486 Banco SOGERIN, S.A. P.O. Box 440 San Pedro Sula, Cortes Honduras Tel: (504) 53-3888 Fax: (504) 57-2001 Banco de Los Trabajadores, S.A. P.O. Box 3246 Tegucigalpa, D.C. Honduras Tel: (504) 37-9501 Fax: (504) 37-8422 Banco de la Exportacion, S.A. (BANEXPO) P.O. Box 3988 Tegucigalpa, D.C. Honduras Tel: (504) 39-4256 Fax: (504) 39-4265 Banco del Pais, S.A. P.O. Box 314 San Pedro Sula, Cortes Honduras Tel: (504) 52-5202 Fax: (504) 52-5229