JPRF-F-2022-031 — Maximum Effective Active Interest Rates for the National Financial System for the Second Semester of 2022

Resolution No. JPRF-F-2022-031 THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution."

That Article 227 of the Supreme Norm orders: "Public administration constitutes a service to the community that is governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, concentration, coordination, participation, planning, transparency, and evaluation."

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

That the first clause of Article 308 of the Supreme Norm stipulates that financial activities are a matter of public order and shall have the fundamental purpose of "preserving deposits and meeting financing requirements for the achievement of the country's development objectives." In concordance, Article 309 of the Constitution of the Republic prescribes that the norms of the national financial system shall be responsible for "preserving its security, stability, transparency, and solidity."

That Article 5 of the Organic Code of Money and Finance, Book I, provides that the formulation of policies and regulations in matters of money, credit, exchange, finance, as well as insurance and securities, is the exclusive prerogative 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 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, regarding the scope of action of the Financial Policy and Regulation Board, mandates: "2. Issue the regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador";

That literal b) of number 7 of Article 14.1 ibidem, establishes the following: "For the performance of its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise the following powers: (...) 7. Issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care services entities must adhere, framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: (...) b. 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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That Article 130 of the Organic Code of Money and Finance, Book I, orders that: "The Financial Policy and Regulation Board shall establish the system of maximum interest rates for the active and passive operations of the national financial system and the other rates required by Law. (...)." This power is in harmony with what is provided in Article 14.1, number 7, letter b) of the same legal body;

That the first clause of Article 1 of 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, establishes: "The maximum active interest rates for each of the credit portfolio segments of the entities of the national financial system shall be established by the Financial Policy and Regulation Board, with a semi-annual periodicity and validity."

That, through Resolution No. JPRF-F-2021-004 of December 13, 2021, 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 starting from January 01, 2022, which will govern for semi-annual periods;

That the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0051-M of June 26, 2022, submits to the President of the Board the following reports:

Technical Report No. JPRF-CT-2022-00027 of June 26, 2022, which describes the evolution of the reference effective active rates of all credit segments from the second semester of the year 2021 until April 2022, observing a sustained reduction of all rates, being below the maximum effective active interest rates. Additionally, a seasonal analysis of the first four months of the years 2018 to 2022 is performed, disaggregated by credit segments, volume, and number of operations, whose results generally determine an increase in amount and number of operations, oriented mainly to the consumption, microcredit, and productive segments. Therefore, the maximum effective rates fixed from January 01, 2022, and the behavior of the described variables, would indicate a performance in the credit portfolio that contributes to the recovery of economic activity;

Legal Report No. JPRF-CJ-2022-0030 of June 26, 2022, in which it was determined that the Board has technical discretion to establish interest rate ceilings, whose limitation lies in the legal objectives that must be achieved, and concluded 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 system of maximum interest rates 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;

That the Financial Policy and Regulation Board, in ordinary session convened by technological means on June 27, 2022, and carried out through video conference on June 29, 2022, reviewed and approved the following resolution; and,

In exercise of its functions,

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RESOLVES:

ARTICLE 1.- Substitute Article 2 of Section I "Norms that Regulate Interest Rates", of Chapter XI "Interest Rate and Tariff System of the Central Bank of Ecuador", of Title I "Monetary System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"Art. 2.- Establish that the maximum effective active interest rates in force, referred to in Article 1 of this section, shall be the following:

1. Productive Credit: a. Corporate Productive: 8.86% b. Business Productive: 9.89% c. SME Productive: 11.26%
2. Microcredit: a. Retail Microcredit: 28.23% b. Simple Accumulation Microcredit: 24.89% c. Extended Accumulation Microcredit: 22.05%
3. Real Estate Credit: 10.40%
4. Social and Public Interest Housing Credit: a. Social Interest Housing: 4.99% b. Public Interest Housing: 4.99%
5. Consumer Credit: 16.77%
6. Educational Credit: 9.50% a. Social Educational: 7.50%
7. Public Investment Credit: 9.33%"

ARTICLE 2.- Substitute the text of the Eighth General Provision of Section II "On Interest Rates", of Chapter XI "Interest Rate and Tariff System of the Central Bank of Ecuador", of Title I "Monetary System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, added by Article 4 of Resolution No. JPRF-F-2021-004 of December 13, 2021, with the following:

"EIGHTH.- The maximum interest rates for active operations shall apply to credit operations granted or readjusted by financial entities starting from July 01, 2022."

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ARTICLE 3.- Renumber the General Provisions of Section II "On Interest Rates", of Chapter XI "Interest Rate and Tariff System of the Central Bank of Ecuador", of Title I "Monetary System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.

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.

NOTIFY.- Given in the Metropolitan District of Quito, on June 29, 2022.

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 29, 2022.- I CERTIFY.

TECHNICAL SECRETARY Dra. Nelly Arias Zavala