This content is from: Local Insights

Honduras: A modernised securities market

José Ramón Paz Morales
In the early 1990s, with the support of the international community, two securities exchanges were established in Honduras that formalised the domestic securities market for public offerings and injected much-needed capital into various sectors of the Honduran economy, especially the energy sector. By the mid 1990s, around 150 non-financial sector issuers were listed in both securities exchanges, representing approximately 90% of the total issuers listed. These issuers provided a broad range of attractive investment instruments to all kinds of local and foreign investors.

In 1998, the Honduran financial system suffered a systemic crisis that began with wide ranging defaults in different sectors of the Honduran economy, caused by the effects of Hurricane Mitch. The crisis was aggravated by the lack of regulations in monitoring and controlling systemic risk and safeguarding the stability of the financial system as a whole. The Honduran securities market received far less support from the government than the banking sector, and as a result, was the most affected. By the end of the 1990s, trust in the domestic securities market was reduced substantially.

In 2000, local brokerage firms and financial institutions joined efforts to regain confidence in the domestic securities market by lobbying members of the Honduran Congress for a new Securities Market Law, that was finally approved and came into force in June 2001. Additionally, the Law of the Financial System, that came into force in 2004, strengthened the supervisory capacity of the National Banking and Insurance Commission and established measures to contain and avoid systemic risk. Combined with more than 16 other regulations issued by the regulator in the last decade, the domestic securities market now enjoys a new and modern legal framework in accordance with international finance standards and norms.

The government and commercial banks have now returned to the domestic securities market by issuing debt instruments. The government has played a major role in regaining confidence in the domestic securities market by issuing securities in local currency for monetary policy purposes whose main buyers are local commercial banks and institutional investors attracted by the double digit returns. Nevertheless, these government securities are now preventing the non-financial sector from participating as issuers, as it makes financing through the domestic securities market expensive and therefore unattractive.

At a time when the government is seeking to promote economic growth, the domestic securities market presents an attractive and plausible alternative for local and regional companies whose place of business is Honduras, as it already proved in the mid 1990s. Securities markets play an important role in the economic development of any country, as they will in Honduras.

José Ramón Paz Morales

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