Resolution JPRF-F-2023-087: Reforming Interest Rate Regulations for Productive SME Credit

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-F-2023-087 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 84 of the Constitution of the Republic of Ecuador establishes that every body with normative power shall have the obligation to formally and materially adapt laws and other legal norms to the rights provided for in the Constitution; That, Article 132, number 6 of the Magna Carta grants public control and regulation bodies the authority to issue norms of a general character in matters within their competence, without being able to alter or innovate legal provisions; That, Article 226 of the Fundamental Norm mandates that State institutions, their bodies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law; That, Article 227 of the Constitution provides that public administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation; That, Article 284, number 7 of the Supreme Norm determines that economic policy has among its objectives to maintain economic stability, understood as the maximum level of production and employment sustained over time; That, Article 302, number 4 of the Magna Carta provides that monetary, credit, exchange, and financial policies shall have as objectives, among others, to promote levels and relationships between passive and active interest rates that stimulate national savings and the financing of productive activities, with the purpose of maintaining price stability and monetary equilibria in the balance of payments, in accordance with the economic stability objective defined in the Constitution; That, Article 303 of the Fundamental Charter precepts that the formulation of monetary, credit, exchange, and financial policies is the exclusive faculty of the Executive Function and shall be implemented through the Central Bank; That, Article 308 of the Supreme Norm establishes that financial activities are a public order service, and may be exercised with prior authorization of the State, in accordance with the law; whose fundamental purpose is to preserve deposits and meet financing requirements for the achievement of the country's development objectives; That, Article 309 of the Constitution determines that the national financial system is composed of the public, private, and popular and solidary sectors, which intermediated public resources, with specific and differentiated control norms and entities, which will be responsible for preserving their security, stability, transparency, and solidity; That, Article 5 of the Organic Code of Monetary and Financial Law, Book I, provides that the formulation of policies and regulations in monetary, credit, exchange, financial, as well as insurance and securities matters, is the exclusive faculty of the Executive Function and has as objectives those determined in articles 284 and 302 of the Constitution of the Republic and those established in the National Development Plan;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | That, Article 13 of the aforementioned Organic Code creates the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14, number 2 of the aforementioned Code provides that it corresponds to the Financial Policy and Regulation Board to issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems in attention to what is provided in Article 309 of the Constitution of the Republic of Ecuador; That, Article 14.1, number 7, letter b. of the aforementioned Organic Code provides that it is the function and faculty of the Financial Policy and Regulation Board to issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care services entities must be subject, establishing for this effect, among others, the interest rate system, as provided in article 130 of said Code, for active and passive operations of the national financial system and other interest rates required by law, promoting the development of prudent credit: Minimum capital levels, technical equity, and risk weightings of assets, their composition, method of calculation, and modifications; That, Article 130 of the aforementioned normative body provides that the Financial Policy and Regulation Board shall establish the interest rate system for active and passive operations of the national financial system and other interest rates required by law, which must observe what is provided in Article 14.1, number 26 of the Code in reference; That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0099-M of November 24, 2023, submits to the President of the Board the following reports: i) Technical Report No. JPRF-CTSF-2023-019 dated November 24, 2023, analyzes trends in effective active rates in the market and recognizes the bargaining power of risk subjects that make the transition from the Productive Corporate Credit subsegment to the Productive SME Credit subsegment, given the adjustment in sales levels that determine the classification of credit segments established in Resolution No. JPRF-F-2023-086. The report identifies that maintaining a system of static or fixed maximum interest rates for this subsegment could restrict the efficient allocation of prices in the granting of new credits. Therefore, it is determined the need to establish a flexible system of maximum effective active interest rates for the aforementioned subsegment, a measure that seeks to allow the financial system to conserve its dynamism and, at the same time, promote economic growth. ii) Legal Report No. JPRF-CJF-2023-059 of November 24, 2023, which concludes that by virtue of what is precepted in articles 14.1, number 7, letter b. and 130 of the Organic Code of Monetary and Financial Law, Book I, the Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, is competent to establish the interest rate system for active and passive operations of the national financial system, within which the productive SME credit segment is included; therefore, the Reform Proposal contained in Technical Report No. JPRF-CTSF-2023-019 dated November 24, 2023 is legally viable;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas Governmental Financial Management Platform. Yellow Block, 5th floor | Postal Code: 170507 | Quito - Ecuador | That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on November 25, 2023 and carried out through video conference on November 28, 2023, reviewed Memorandum No. JPRF-ST-2023-0099-M of November 24, 2023, issued by the Technical Secretariat of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Financial System and from the Legal Coordination of Policy and Financial Norms, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held by technological means, convened on November 25, 2023 and carried out through video conference on November 28, 2023, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: SINGLE ARTICLE.- Substitute the text of letter c. "Productive SME", number 1 "Productive Credit", Article 2, Section I "Norms that regulate interest rates", Chapter XI "Interest Rate and Tariff System of the Central Bank of Ecuador", Title I "Monetary System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities and Insurance Resolutions, with the following: "c. Productive SME: The maximum effective active rate shall be that corresponding to the Reference Effective Active Rate of the productive SME sector of the month immediately preceding its validity plus two standard deviations. The standard deviation shall be mobile and obtained from the series of the last twelve months of the reference rate of the productive SME segment." FINAL PROVISION.- This Resolution shall enter into force from the present date, without prejudice to its publication in the Official Register. Publish this Resolution on the website of the Financial Policy and Regulation Board, within a maximum term of two days from its issuance. COMMUNICATE.- Given in the Metropolitan District of Quito, on November 28, 2023. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The resolution above was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on November 28, 2023.- I CERTIFY. TECHNICAL SECRETARY Mgs. Nelly Arias Zavala