Resolution JPRF-F-2023-070: Reforming Interest Rate Regulations to Establish a Flexible System of Maximum Effective Active Rates for Corporate and Business Productive Credit Subsegments

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-2023-070

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic of Ecuador provides: its 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. They shall have the duty to coordinate actions for the fulfillment of their purposes and make;

That Article 227 of the Supreme Norm orders: collectivity governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization,

That, according to Article 302 number 4 of the Magna Carta, monetary, credit, exchange, and financial policies will have, among others, the ultimate objective of reaching which is also one of the objectives of economic policy, in accordance with the constitutional precept inserted in Article 284 number 7;

That the first clause of Article 308 of the Supreme Norm stipulates that financial activities are a public order service and will have the fundamental purpose of In concordance, Article 309 of the Constitution of the Republic prescribes that the norms of the national financial system will be in charge of;

That Article 5 of the Organic Code of Money and Finance, 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 ratifies that the objectives of public policy in these matters are those determined in Articles 284 and 302 of the Fundamental Norm;

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 Organic Code, regarding the scope of action of the Financial Policy and Regulation Board, mandates: solidity, sustainability, and stability of the national financial system, securities, insurance, and prepaid comprehensive health care services in attention to what is provided in Article 309 of the Constitution of the;

That literal b) of number 7 of Article 14.1 ibidem For the performance of its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise financial entities, securities, insurance, and prepaid comprehensive health care services, framework that should Establish the interest rate system, as provided in Article 130 of this Code, for the active and passive operations of the national financial system and the other interest rates required by law, promoting the development of prudent credit: Minimum capital levels, equity, technical equity, and risk weightings of assets, their composition, method of calculation, and modifications

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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 130 of the Organic Code of Money and Finance, Book I, orders that: and Financial Regulation Board will establish the interest rate system for the active and passive operations of the national financial system and the other interest rates required by law, which must Faculty that harmonizes with what is provided in Article 14.1, number 7, letter b) of the same legal body;

That, through Resolution No. JPRF-F-2022-031 of June 29, 2022, the Financial Policy and Regulation Board, in accordance with what is stated in literal b), number 7, of Article 14.1 of Book I of the Organic Code of Money and Finance, established the maximum effective active interest rates that will apply to credit operations granted or readjusted by financial entities from July 01, 2022, which will govern for semi-annual periods;

That, with Resolution No. JPRF-F-2022-053 of December 27, 2022, Chapter XI was reformed, establishing the maximum effective active interest rates for the first semester of the year 2023;

That the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0046-M of June 20, 2023, submits to the President of the Board the following reports: i. Technical Report No. JPRF-CTSF-2023-005 of June 20, 2023, which, through the analysis of the trends of the active effective rates of the market and the recognition of the bargaining power that would correspond to the risk subjects of the corporate productive and business productive credit subsegments; and, considering that, if a system of static or fixed maximum interest rates were maintained for these subsegments, it could be a limitation for the efficient allocation of prices in the granting of new credits, it is determined the need to establish a flexible system of maximum effective active interest rates for the aforementioned credit subsegments, so that the financial system can maintain its dynamism and economic growth is promoted. Additionally, in the aforementioned technical report, it is estimated appropriate to reform the norms that dispose the Financial Policy and Regulation Board to establish the maximum active interest rates for each of the segments of the credit portfolio of the entities of the national financial system with semi-annual periodicity, in view that it is estimated that the factors that would motivate an adjustment correspond to mainly market conditions, which by their nature, do not subject to a specific periodicity. ii. The Legal Report No. JPRF-CJF-2023-020 of June 20, 2023 concludes that the Financial Policy and Regulation Board as responsible for the formulation of credit and financial policy and regulation, has legal competence to establish the interest rate system for the active operations of the national financial system, in accordance with what is provided in Articles 14.1 number 7 letter b) and 130 of the Organic Code of Money and Finance, Book I.;

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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 extraordinary session held by technological means, convened on June 21, 2023 and carried out through video conference on June 22, 2023, learned of Memorandum No. JPRF-ST-2023-0046-M of June 20, 2023, issued by the Technical Secretary of the Board; as well as Technical Report No. JPRF-CTSF-2023-005 and Legal Report No. JPRF-CJF-2023-0020, both of June 20, 2023, issued by the Technical Coordination and the Legal Coordination of the aforementioned Board and the corresponding resolution project;

That the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on June 21, 2023 and carried out through video conference on June 22, 2023, learned of and approved the following Resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE FIRST.- Substitute M I of the Codification of Monetary, Financial, Securities and Insurance Resolutions, with the following: Art. 1.- The maximum active interest rates for each of the segments of the credit portfolio of the entities of the national financial system will be established by the Financial Policy and Regulation Board

ARTICLE SECOND.- Substitute the letters that regulate the rates of Codification of Monetary, Financial, Securities and Insurance Resolutions, with the following: a. Corporate Productive: The maximum effective active rate will be the corresponding to the Reference Active Effective Rate of the corporate productive sector, published by the Central Bank of Ecuador (BCE) of the month immediately preceding its validity plus two standard deviations. The standard deviation will be mobile and will be obtained from the series of the last twelve months of the reference active rate of the corporate productive segment. b. Business Productive: The maximum effective active rate will be the corresponding to the Reference Active Effective Rate of the business productive sector of the month immediately preceding its validity plus two standard deviations. The standard deviation will be mobile and will be obtained from the series of the last twelve months of the reference rate of the business productive segment.

ARTICLE THIRD.- Add as the last clause of Monetary, Financial, Securities and Insurance Resolutions, the following:

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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 |

The Financial Policy and Regulation Board will publish monthly the result of the application of the interest rate system, as provided in this article. ARTICLE FOURTH.- The values of the maximum effective active interest rates established by Resolution No. JPRF-F-2022-031 of June 29, 2022 are maintained, with the exception of those of the Corporate Productive and Business Productive subsegments.

ARTICLE FIFTH.- Substitute the text of article 9 Financi of the Codification of Monetary, Financial, Securities and Insurance Resolutions, with the following: Art. 9.- The maximum effective active interest rates for each of the segments of the credit portfolio of financial entities will be published by the Financial Policy and Regulation Board and will govern for monthly periods. No nominal interest rate whose equivalent effective annual interest rate exceeds the maximum effective active rate of its respective segment may be charged. If it does, the offender will be subject to what the law determines.

ARTICLE SIXTH.- a of interest rates and of the Codification of Monetary, Financial, Securities and Insurance Resolutions, with the following: Art. 10.- The interest rate referred to in Article 8 of this Chapter will govern for monthly periods and in accordance with the Organic Code of Money and Finance will be published on the website of the Central Bank of Ecuador and/or by any means that the Financial Policy and Regulation Board defines. In case of not being determined for the following period, the last rate published by the Central Bank of Ecuador will govern

ARTICLE SEVENTH.- Repeal the Eighth General Provision of the of the Codification of Resolutions, Monetary, Financial, Securities and Insurance Resolutions; and, renumber the General Provisions of the Title of the Codification of Resolutions Monetary, Financial, Securities and Insurance Resolutions.

SINGLE GENERAL PROVISION.- The maximum interest rates for active operations established under the terms of this resolution will apply to credit operations granted or readjusted by financial entities from July 01, 2023.

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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 |

FINAL PROVISION.- This Resolution will enter into force from the present date, without prejudice to its publication in the Official Register, and will be published on the institutional 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 June 22, 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 June 22, 2023.-

I CERTIFY. TECHNICAL SECRETARY Dr. Nelly Arias Zavala