CIEX No. 27/2019: Modification to the Legal Reserve Regulation

BANCO CENTRAL DE BOLIVIA PLURINATIONAL STATE OF BOLIVIA 7019 APR 'O PM ]: 06 EXTERNAL CIRCULAR La Paz, April 10, 2019, CIEX No. 27/2019. FROM: GENERAL MANAGEMENT FINANCIAL ENTITIES MANAGEMENT TO: FINANCIAL INTERMEDIATION ENTITIES SUBJECT: MODIFICATION TO THE LEGAL RESERVE REGULATION

Ladies and Gentlemen:

The Central Bank of Bolivia (BCB) informs financial intermediation entities that the BCB Board of Directors approved Resolution No. 035/2019 modifying the Legal Reserve Regulation, which is attached to this document. This modification will enter into force during the current legal reserve requirement period.

Sincerely,

[Signature] CARLOS A. QUIROZ LÓPEZ GENERAL MANAGER CENTRAL BANK OF BOLIVIA

Adj.: Board of Directors Resolution No. 035/2019 c.c.: Archive

Calle Ayacucho esquina Mercado - Telephone: (591-2) 2409090 - Fax: (591-2) 2661590 www.bcb.gob.bo - bancocentraldebolivia@bcb.gob.bo - La Paz - Bolivia

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BOARD OF DIRECTORS RESOLUTION No. 035/2019 ECONOMIC POLICY ADVISORY, FINANCIAL ENTITIES MANAGEMENT AND INTERNATIONAL OPERATIONS MANAGEMENT MODIFICATION OF THE LEGAL RESERVE REGULATION FOR FINANCIAL INTERMEDIATION ENTITIES

VISTOS:

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 of Directors Resolution No. 128/2005 of October 21, 2005, and its subsequent modifications. The Legal Reserve Regulation for Financial Intermediation Entities approved by Board of Directors 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), Financial Entities Management (GEF), and 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 internal purchasing power stability 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, calculation method, 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 (current ASFI).

That Article 8 states that the reserve and the deposits constituted in the BCB by banks and financial entities shall not be subject to any type of judicial seizure or retention by third parties.

That Article 37 establishes that the BCB shall be the depositary 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 (current 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 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 follow-up and oversight of their execution, it will have independent analysis and audit services information.

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 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 by the Law; define the BCB policies, specialized normative of general application and internal rules, as well as establish, by 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, according to 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, APEC, GEF and GOI conclude that the priority of monetary policy is to inject resources which can be achieved by decreasing the reserve so that financial intermediation entities finance the portfolio, mainly to the productive sector and social housing, therefore the modification of the Legal Reserve Regulation for Financial Intermediation Entities is submitted to the consideration of the Board of Directors, decreasing the reserve in ME titles by 15pp and with the released resources creating a new "Fund for Productive Portfolio and Social Housing (Fund CPVIS III)" in the BCB and recommending the modification of articles 2, 5, 22 and Title V of the referred Regulation.

That Report BCB-GAL-SANO-DLBCI-INF-2019-60, GAL states that the proposal for modification of the Legal Reserve Regulation for Financial Intermediation Entities carried out by 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 legal aspects it considers the modification procedent by 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, in the following manner:

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 express resolution.

SHOULD 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 express resolution."

Article 2.- Approve the modification of Article 5 (Legal Reserve Rates) of the Legal Reserve Regulation for Financial Intermediation Entities, in the following manner:

SAYS: The legal reserve rates on the liabilities detailed in Article 3 of this Regulation are the following: In MN and YNUFV: Cash Six percent (6%) for cash reserve. Titles Five percent (5%) for title reserve. In ME and MVDOL: Cash Thirteen point five percent (13.5%) for cash reserve. Titles Twenty-five percent (25%) for title reserve for DPF 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 accounts included in "Other Obligations with the public, with state-owned companies and with banks and financing entities" indicated in Article 3 of this Regulation.

SHOULD SAY: "The legal reserve rates on the liabilities detailed in Article 3 of this Regulation are the following: In MN and YNUFV: Cash Six percent (6%) for cash reserve. Titles Five percent (5%) for title reserve. In ME and MVDOL: Cash Thirteen point five percent (13.5%) for cash reserve. Titles Ten percent (10%) for title reserve for PPF greater than 720 days; eighteen percent (18%) 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 accounts included in "Other Obligations with the public, with state-owned companies 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:

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.

SHOULD 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:

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 (Fund CPVIS II) is constituted in the BCB with the resources available in this Fund on the date of approval of this Resolution.

EIFs may make new voluntary contributions to Fund CPVIS II, until May 31, 2019, only with resources in 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 on February 15, 2019 included in the accounts of availabilities 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 Manual of accounts for financial entities of the ASFI). EIFs may request the BCB for the partial or total return of their participation in Fund CPVIS II that is not guaranteeing liquidity credits in MN. In the case that EIFs request the return of the 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 of Directors Resolution No. 177/2018 of December 11, 2018, up to the amount corresponding to the voluntary contributions made from the approval of this modifying Resolution until May 31, 2019.

Article 30 (Rights and Responsibilities) The participating EIFs will be beneficiaries of all rights of Fund CPVIS II.

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 Fund CPVIS II 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 amount of participation of each EIF in Fund CPVIS II, equivalent in MN to the prevailing buying 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 ME to the EIFs their participation in Fund CPVIS II prior to cancellation of their liquidity loans in MN with guarantee of Fund CPVIS II. 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 Fund CPVIS II at the prevailing buying 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 of Directors Resolution No. 177/2018 of December 11, 2018, up to the amount corresponding to the voluntary contributions made from the approval of this modifying Resolution until May 31, 2019.

SHOULD 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 (Fund CPVIS II) is constituted in the BCB with the resources available in this Fund on February 19, 2019.

EIFs may make new voluntary contributions to Fund CPVIS II, until May 31, 2019, only with resources in 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 on February 15, 2019 included in the accounts of availabilities 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 Manual of accounts for financial entities of the ASFI). EIFs may request the BCB for the partial or total return of their participation in Fund CPVIS II that is not guaranteeing liquidity credits in MN. In the case that EIFs request the return of the 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 of Directors, up to the amount corresponding to the 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 (Fund CPVIS III) is constituted in the BCB with the resources released from Fund RAL-ME by the application of the legal reserve rates in titles in ME and MVDOL determined in this modification of this regulation. The participation of each EIF in Fund CPVIS III will be equal to its participation in the released Fund RAL-ME.

Article 31 (Liquidity Loans in MN with Guarantee of the Fund for Credits destined to the Productive Sector and Social Housing II) The resources of each participant in Fund CPVIS II 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 amount of participation of each EIF in Fund CPVIS II, equivalent in MN to the prevailing buying 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 ME to the EIFs their participation in Fund CPVIS II prior to cancellation of their liquidity loans in MN with guarantee of Fund CPVIS II. 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 Fund CPVIS II at the prevailing buying 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 of Directors, up to the amount corresponding to the 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 Fund CPVIS III 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 MN. These loans may be requested from the constitution of Fund CPVIS III until January 29, 2021.

2. The maximum amount of accumulated liquidity loans will be the amount of participation of each EIF in Fund CPVIS III, equivalent in MN to the prevailing buying 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 the interest of the MN repo rate of the evaluation date (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 Fund CPVIS III must send to the BCB a letter in the character of sworn declaration with information of 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 case that an EIF requires demonstrating the compliance of the increase in the portfolio on another date that is not end of month to remedy the difference indicated in point (3), it must send to the BCB, in the character of sworn declaration, this information within a maximum term of five business days after the compliance of the portfolio increase.

6. In case that the EIF with loans guaranteed by Fund CPVIS III does not send the letters cited in the two previous points within the established terms, 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 business, microcredit or SME type, whose destination corresponds to the following categories of the Code of Economic Activity 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 Electrical Energy; g. Construction. Likewise, credit operations destined to economic activities of the tourism and intellectual production sector, 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, will be considered.

8. On February 1, 2021, the BCB will return in ME to the EIFs their participation in Fund CPVIS III prior to cancellation of their liquidity loans in MN with guarantee of Fund CPVIS III. 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 Fund CPVIS III at the prevailing buying exchange rate. The validity of this Fund may be extended to the extent that the BCB considers pertinent.

Article 33 (Rights and Responsibilities) The participating EIFs will be beneficiaries of all rights of Fund CPVIS II and Fund CPVIS III.

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

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