Central Bank of Bolivia

Board of Directors

BOARD RESOLUTION NO. 035/2019

SUBJECT: ECONOMIC POLICY ADVISORY, FINANCIAL ENTITIES MANAGEMENT, AND INTERNATIONAL OPERATIONS MANAGEMENT - MODIFICATION OF THE LEGAL RESERVE REGULATION FOR FINANCIAL INTERMEDIATION ENTITIES

VIEWED:

• The Political Constitution of the State (CPE) promulgated on February 7, 2009.
• Law No. 1670 of October 31, 1995 of the Central Bank of Bolivia (BCB).
• The BCB Statute approved by Board Resolution No. 128/2005 of October 21, 2005 and its subsequent modifications.
• The Legal Reserve Regulation for Financial Intermediation Entities approved by Board Resolution No. 69/2017 of May 22, 2017 and its subsequent modifications.
• Report BCB-APEC-SIE-INF-2019-28 of April 8, 2019, from the Economic Policy Advisory (APEC), the Financial Entities Management (GEF), and the International Operations Management (GOI).
• Report BCB-GAL-SANO-DLBCI-INF-2019-60 of April 8, 2019, from the Legal Affairs Management (GAL).

CONSIDERING:

• That Article 327 of the CPE establishes that the BCB is a public law institution, with legal personality and its own assets. Within the framework of the State's economic policy, it is the function of the BCB to maintain the stability of the internal purchasing power of the currency, to contribute to economic and social development.
• That in its Article 328, the CPE indicates among the attributions of the BCB, in coordination with the economic policy determined by the Executive Branch, to determine and execute monetary policy.
• That Article 7 of Law No. 1670 provides that the BCB may establish legal reserves of mandatory compliance by banks and financial intermediation entities. Their composition, amount, method of calculation, characteristics, and remuneration shall be established by the Bank's Board of Directors, by an absolute majority of votes. The control and supervision of the legal reserve shall correspond to the Superintendency of Banks and Financial Entities, currently the Financial System Supervisory Authority (ASFI).

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• That Article 8 states that the reserve and deposits constituted in the BCB by banks and financial entities shall not be subject to any type of judicial embargo or retention by third parties.
• That Article 37 establishes that the BCB will be the custodian of the liquid reserves intended to cover the legal reserve and attend the payment system and other operations with the BCB of financial intermediation entities subject to the authorization and control of the Superintendency of Banks and Financial Entities (currently ASFI).
• That Article 44 states that the highest authority of the BCB is its Board of Directors, which is responsible for defining its policies, specialized normative regulations of general application, and internal rules; as well as establishing administrative, operational, and financial strategies of the BCB, approving their respective short and medium-term programs. For the monitoring and oversight of their execution, it will have access to independent information, analysis, and audit services.
• That subsections a) and i) of Article 54 of the same Law indicate as attributions of the BCB Board of Directors to issue norms and adopt general decisions that are necessary for the Issuing Entity to fulfill the functions, competencies, and powers assigned to it by the Law, and to fix and regulate the administration of the legal reserve to which banks and other financial entities must be subject, disposing measures for its compliance.
• That items 1, 2, and 7 of Article 11 of the BCB Statute provide that its Board of Directors has the attributions to approve general decisions and issue the norms that are necessary for the BCB to fulfill the functions, competencies, and powers assigned to it by the Law; define the BCB's policies, specialized normative regulations of general application, and internal rules, as well as establish, by an absolute majority of votes, legal reserves of mandatory compliance by financial intermediation entities and approve their composition, amount, calculation, characteristics, forms of administration, custody, and remuneration, in accordance with the Regulation.
• That the Legal Reserve Regulation for Financial Intermediation Entities has the object of establishing the technical and operational conditions of mandatory compliance for financial intermediation entities authorized for their operation by the ASFI, regarding the constitution and form of administration of the legal reserve.

CONSIDERING:

• That through Report BCB-APEC-SIE-INF-2019-28, the APEC, GEF, and GOI conclude that the priority of monetary policy is to inject resources, which can be achieved by reducing the reserve requirement so that financial intermediation entities can finance their portfolio, mainly to the productive sector and social housing sector. Therefore, the modification of the Legal Reserve Regulation for Financial Intermediation Entities is submitted to the Board of Directors, reducing the reserve requirement on titles in foreign currency (ME) – MVDOL by 15 percentage points. With the released resources, a new "Fund for Productive Credit and Social Housing (CPVIS III Fund)" is created in the BCB, and they recommend the modification of Articles 2, 5, 22, and Title V of the aforementioned Regulation.

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• That Report BCB-GAL-SANO-DLBCI-INF-2019-60, the GAL states that the proposal for the modification of the Legal Reserve Regulation for Financial Intermediation Entities made by the APEC, GEF, and GOI through Report BCB-APEC-SIE-INF-2019-28 responds to technical criteria regarding which it has no observations, and that regarding the legal aspects, it considers the modification procedent by an absolute majority of votes, in accordance with what is established in Article 7 of Law No. 1670 and item 7) of Article 11 of the BCB Statute.

THEREFORE, THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Approve the partial modification of Article 2 (Terms and Abbreviations) of the Legal Reserve Regulation for Financial Intermediation Entities, as follows:

IT SAYS:

Delegated Administrator of the RAL-ME Fund

It is the foreign financial institution that acts as Delegated Administrator in the administration of the RAL-ME Fund, selected based on competitive mechanisms and conditions approved by the BCB Board of Directors through an express resolution.

IT MUST SAY:

“Delegated Administrator of the RAL-ME Fund

Corresponds to the BCB or one or more foreign financial institutions that act as Delegated Administrators in the administration of the RAL-ME Fund abroad, selected based on competitive mechanisms and conditions approved by the BCB Board of Directors through an express resolution.”

Article 2.- Approve the modification of Article 5 (Legal Reserve Rates) of the Legal Reserve Regulation for Financial Intermediation Entities as follows:

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IT SAYS:

The legal reserve rates on the liabilities detailed in Article 3 of this Regulation are as follows:

In Local Currency (MN) and Non-Usable Foreign Currency (MNUFV):

• Cash: Six percent (6%) for cash reserve.
• Titles: Five percent (5%) for title reserve.

In Foreign Currency (ME) and MVDOL:

• Cash: Thirteen point five percent (13.5%) for cash reserve.
• Titles: Twenty-five percent (25%) for title reserve for DPFs greater than 720 days; and thirty-three percent (33%) for the rest of liabilities.

Financial Intermediation Entities must constitute the legal reserve in cash, equivalent to a rate of one hundred percent (100%), on the accounts included in "Other Obligations with the public, with companies with state participation, and with banks and financing entities" indicated in Article 3 of this Regulation.

IT MUST SAY:

“The legal reserve rates on the liabilities detailed in Article 3 of this Regulation are as follows:

In Local Currency (MN) and Non-Usable Foreign Currency (MNUFV):

• Cash: Six percent (6%) for cash reserve.
• Titles: Five percent (5%) for title reserve.

In Foreign Currency (ME) and MVDOL:

• Cash: Thirteen point five percent (13.5%) for cash reserve.
• Titles: Ten percent (10%) for title reserve for DPFs greater than 720 days; and eighteen percent (18%) for the rest of liabilities.”

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Financial Intermediation Entities must constitute the legal reserve in cash, equivalent to a rate of one hundred percent (100%), on the accounts included in "Other Obligations with the public, with companies with state participation, and with banks and financing entities" indicated in Article 3 of this Regulation.”

Article 3.- Modify the second paragraph of Article 22 of the Legal Reserve Regulation for Financial Intermediation Entities in the following terms:

IT SAYS:

Article 22 (Fund Administration).

The administration of the RAL-ME and RAL-MVDOL Funds shall be entrusted to one or more specialized entities in Delegated Administration, of recognized technical capacity and international solvency, in accordance with the norms approved by the BCB Board of Directors.

IT MUST SAY:

“Article 22 (Fund Administration).

The RAL-ME and RAL-MVDOL Funds shall be administered by the Central Bank of Bolivia or by one or more specialized entities in Delegated Administration, of recognized technical capacity and international solvency, in accordance with the norms approved by the BCB Board of Directors.”

Article 4.- Modify Title V of the Legal Reserve Regulation for Financial Intermediation Entities in the following terms:

IT SAYS:

TITLE V OF THE FUND FOR CREDITS DESTINED TO THE PRODUCTIVE SECTOR AND SOCIAL HOUSING

Article 29 (Constitution of the Fund for Credits destined to the Productive Sector and Social Housing).

The Fund for Credits destined to the Productive Sector and Social Housing (CPVIS II Fund) is constituted in the BCB with the resources available in this Fund on the date of approval of this Resolution.

Financial Intermediation Entities (EIFs) may make new voluntary contributions to the CPVIS II Fund, until May 31, 2019, only with resources in foreign currency (ME) originating from their assets abroad and deposited in the BCB account of their correspondent bank abroad. The new

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contributions shall not exceed the total balance of assets abroad of each EIF as of February 15, 2019, included in the accounts for availability and financial investments abroad (accounts 115.01, 115.02, 115.03, 123.01, 123.02, 123.98, 123.99, 126.02, 163.01, 163.02, 163.98, 163.99, and 166.04 of the Account Manual for Financial Entities of the ASFI). EIFs may request the BCB for the partial or total return of their participation in the CPVIS II Fund that is not guaranteeing liquidity credits in local currency (MN). In the case that EIFs request the return of resources that are guaranteeing liquidity loans in MN, they must first pay them. This return may be made in the EIFs' accounts abroad, without the BCB charging the Commission for transfer of funds abroad for the financial system approved by Board Resolution No. 177/2018 of December 11, 2018, up to the amount corresponding to voluntary contributions made from the approval of this modifying Resolution until May 31, 2019.

Article 30 (Rights and Responsibilities).

Participating EIFs will be beneficiaries of all rights of the CPVIS II Fund.

Article 31 (Liquidity Loans in MN with Guarantee of the Fund for Credits destined to the Productive Sector and Social Housing).

The resources of each participant in the CPVIS II Fund will serve as guarantee for the liquidity loans in MN that they request from the BCB, under the following conditions:

1. EIFs may request liquidity loans from the BCB in MN at an interest rate of 0%. These loans may be requested until May 29, 2020.

2. The maximum amount of accumulated liquidity loans will be the participation amount of each EIF in the CPVIS II Fund, equivalent in MN to the prevailing purchase exchange rate. The liquidity loans will have a maturity date of June 30, 2020. These loans may be paid in advance.

3. On June 30, 2020, the BCB will return in foreign currency (ME) to the EIFs their participation in the CPVIS II Fund prior to the cancellation of their liquidity loans in MN guaranteed by the CPVIS II Fund. In the case that an EIF does not have sufficient resources in its current or reserve account in MN to pay its liquidity loans, the BCB may compensate the difference with its participation in the CPVIS II Fund at the prevailing purchase exchange rate. This return may be made in the EIFs' accounts abroad, without the BCB charging the Commission for transfer of funds abroad for the financial system approved by Board Resolution No. 177/2018 of December 11, 2018, up to the amount corresponding to voluntary contributions made from the approval of this modifying Resolution until May 31, 2019.

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IT MUST SAY:

“TITLE V OF THE FUND FOR CREDITS DESTINED TO THE PRODUCTIVE SECTOR AND SOCIAL HOUSING

Article 29 (Constitution of the Fund for Credits destined to the Productive Sector and Social Housing II).

The Fund for Credits destined to the Productive Sector and Social Housing II (CPVIS II Fund) is constituted in the BCB with the resources available in this Fund on February 19, 2019.

Financial Intermediation Entities (EIFs) may make new voluntary contributions to the CPVIS II Fund, until May 31, 2019, only with resources in foreign currency (ME) originating from their assets abroad and deposited in the BCB account of their correspondent bank abroad. The new contributions shall not exceed the total balance of assets abroad of each EIF as of February 15, 2019, included in the accounts for availability and financial investments abroad (accounts 115.01, 115.02, 123.01, 123.02, 123.98, 123.99, 126.02, 163.01, 163.02, 163.98, 163.99, and 166.04 of the Account Manual for Financial Entities of the ASFI). EIFs may request the BCB for the partial or total return of their participation in the CPVIS II Fund that is not guaranteeing liquidity credits in local currency (MN). In the case that EIFs request the return of resources that are guaranteeing liquidity loans in MN, they must first pay them. This return may be made in the EIFs' accounts abroad, without the BCB charging the Commission for transfer of funds abroad for the financial system established in the Table of Commissions for Services of the Central Bank of Bolivia approved by Board Resolution, up to the amount corresponding to voluntary contributions made from February 19, 2019, until May 31, 2019.

Article 30 (Constitution of the Fund for Credits destined to the Productive Sector and Social Housing III).

The Fund for Credits destined to the Productive Sector and Social Housing III (CPVIS III Fund) is constituted in the BCB with the resources released from the RAL-ME Fund by the application of the legal reserve rates on titles in foreign currency (ME) and MVDOL determined in this modification of this regulation. The participation of each EIF in the CPVIS III Fund will be equal to its participation in the released RAL-ME Fund.

Article 31 (Liquidity Loans in MN with Guarantee of the Fund for Credits destined to the Productive Sector and Social Housing II).

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The resources of each participant in the CPVIS II Fund will serve as guarantee for the liquidity loans in MN that they request from the BCB, under the following conditions:

1. EIFs may request liquidity loans from the BCB in MN at an interest rate of 0%. These loans may be requested until May 29, 2020.

2. The maximum amount of accumulated liquidity loans will be the participation amount of each EIF in the CPVIS II Fund, equivalent in MN to the prevailing purchase exchange rate. The liquidity loans will have a maturity date of June 30, 2020. These loans may be paid in advance.

3. On June 30, 2020, the BCB will return in foreign currency (ME) to the EIFs their participation in the CPVIS II Fund prior to the cancellation of their liquidity loans in MN guaranteed by the CPVIS II Fund. In the case that an EIF does not have sufficient resources in its current or reserve account in MN to pay its liquidity loans, the BCB may compensate the difference with its participation in the CPVIS II Fund at the prevailing purchase exchange rate. This return may be made in the EIFs' accounts abroad, without the BCB charging the Commission for transfer of funds abroad for the financial system established in the Table of Commissions for Services of the Central Bank of Bolivia approved by Board Resolution, up to the amount corresponding to voluntary contributions made from February 19, 2019, until May 31, 2019.

Article 32 (Liquidity Loans in MN with Guarantee of the Fund for Credits destined to the Productive Sector and Social Housing III).

The resources of each participant in the CPVIS III Fund will serve as guarantee for the liquidity loans in MN that they request from the BCB, under the following conditions:

1. EIFs may request liquidity loans from the BCB in MN at an interest rate of 0%, with the purpose of increasing their credit portfolio destined to the productive sector and social housing in local currency (MN). These loans may be requested from the constitution of the CPVIS III Fund until January 29, 2021.

2. The maximum amount of accumulated liquidity loans will be the participation amount of each EIF in the CPVIS III Fund, equivalent in MN to the prevailing purchase exchange rate. The liquidity loans will have a maturity date of February 1, 2021, and may be cancelled in advance at the request of each EIF.

3. With information as of the end of each month, the balance of credits destined to the productive sector and social housing in MN of each entity will be compared with the balance of December 31, 2018, provided by the ASFI. If this increase is less than the accumulated loans granted by the BCB, the difference will pay interest at the MN repo rate of the evaluation date

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(end of each month cut), from that date until the EIF has remedied that difference.

4. For the purposes of the comparison indicated in point (3) above, EIFs with loans guaranteed by the CPVIS III Fund must send a letter to the BCB in the form of a sworn declaration with information on their credits of the Productive Sector and Social Housing as of the cut date of each month, until the 5th business day of the following month. For cooperatives, the total gross portfolio will be considered.

5. In the event that an EIF requires demonstrating compliance with the portfolio increase on a date other than the end of the month to remedy the difference indicated in point (3), it must send the BCB, in the form of a sworn declaration, this information within a maximum period of five business days after the compliance with the portfolio increase.

6. In the event that the EIF with loans guaranteed by the CPVIS III Fund does not send the letters cited in the two previous points within the established deadlines, the BCB will communicate the non-compliance to the ASFI so that this authority applies the corresponding fines or sanctions.

7. Credits destined to the productive sector will be understood as credit operations of the business type, microcredit, or SME, whose destination corresponds to the following categories of the Economic Activity Code and Credit Destination (CAEDEC), used by the ASFI:

a. Agriculture and Livestock; b. Hunting, Forestry, and Fishing; c. Extraction of Crude Oil and Natural Gas; d. Metallic and Non-Metallic Minerals; e. Manufacturing Industry; f. Production and Distribution of Electricity; g. Construction.

Likewise, credit operations destined to the economic activities of the tourism and intellectual production sector will be considered, detailed in Annexes 2 and 3 of the Regulation for Credit Operations to the Productive Sector, contained in the Compilation of Norms for Financial Services of the ASFI.

8. On February 1, 2021, the BCB will return in foreign currency (ME) to the EIFs their participation in the CPVIS III Fund prior to the cancellation of their liquidity loans in MN guaranteed by the CPVIS III Fund. In the case that an EIF does not have sufficient resources in its current or reserve account in MN to pay its liquidity loans, the BCB may compensate the difference with its participation in the CPVIS III Fund at the prevailing purchase exchange rate. The validity of this Fund may be extended to the extent that the BCB considers pertinent.

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Article 33 (Rights and Responsibilities).

Participating EIFs will be beneficiaries of all rights of the CPVIS II Fund and the CPVIS III Fund.”

Article 5.- The modification of the Legal Reserve Regulation for Financial Intermediation Entities will enter into force in the current legal reserve requirement period.

Article 6.- The Presidency and General Management are charged with the execution and compliance of this Resolution.

La Paz, April 9, 2019

Pablo Ramos Sánchez Gabriel Herbas Camacho Sergio Velarde Vera Abraham Pérez Alandia Ronald Polo Rivero Luis Baudoin Olea