JPRF-F-2023-064 — Extraordinary and Temporary Financial Relief Mechanism Applicable to the National Financial System until June 30, 2023

THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 225 of the Constitution of the Republic of Ecuador prescribes that the public sector comprises, among others, the bodies and dependencies of the Executive Branch, and the bodies and entities created by the Constitution or law for the exercise of state authority, for the provision of public services, or for developing economic activities assumed by the State; That, Article 226 of the Magna Carta orders that: “The institutions of the State, their bodies, dependencies, public servants, and persons acting by virtue of state authority 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 to make effective the enjoyment and exercise of the rights recognized in the Constitution.”; That, Article 227 of the Fundamental Norm determines 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 277 of ibid states that: “For the achievement of good living, the general duties of the State shall be: 1. Guarantee the rights of persons, collectives, and nature. (…) 5. Promote the development of economic activities through a legal order and political institutions that promote, foster, and defend them through compliance with the Constitution and the law. (…)”; That, in accordance with number 7 of Article 284 of the Supreme Norm, it is established that economic policy shall have as its objective, among others, the “maintain economic stability, understood as the maximum level of production and sustainable employment over time”; That, Article 302 of ibid, in its pertinent part, mandates that: “Monetary, credit, exchange, and financial policies shall have as objectives: (…) 2. Establish levels of global liquidity that guarantee adequate margins of financial security. 3. Orient liquidity surpluses toward the investment required for the development of the country. (…)”; and that, in accordance with Article 303 of the Constitution, the formulation of credit and financial policies is an exclusive faculty of the Executive Branch; That, Article 308 of ibid prescribes 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 turn, the last paragraph of this article mandates that: “The regulation and control of the private financial sector shall not transfer the responsibility for banking solvency nor imply any guarantee by the State. The administrators and managers of financial institutions and those who control their capital shall be responsible for their solvency. The arbitrary or generalized freezing or retention of funds or deposits in public or private financial institutions is
prohibited.”; That, Article 309 of ibid establishes that: “The national financial system is composed of the public, private, and popular and solidary sectors, which intermediated public resources. Each of these sectors shall have specific and differentiated control norms and entities, which shall be responsible for preserving their security, stability, transparency, and solidity. These entities shall be autonomous. The directors of control entities shall be administratively, civilly, and criminally responsible for their decisions.”;

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That, Article 310 of the Constitution of the Republic of Ecuador prescribes that the public financial sector shall have as its purpose the sustainable, efficient, accessible, and equitable provision of financial services; and that the credit it grants shall be oriented preferentially to increase the productivity and competitiveness of productive sectors that allow achieving the objectives of the Development Plan and of the less favored groups, in order to promote their active inclusion in the economy; That, Article 5 of the Organic Monetary and Financial Code, Book I, prescribes that: “The formulation of policies and regulations in matters of monetary, credit, exchange, financial, as well as insurance and securities, is the exclusive faculty of the Executive Branch 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.”; That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, published in the Official Register Supplement No. 443 of May 3, 2021, created the Financial Policy and Regulation Board, part of the Executive Branch, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, numbers 1, 2, and 3 of Article 14 of the same legal body, provide that it corresponds to the Financial Policy and Regulation Board: “1. Formulate credit, financial, including insurance policy, prepaid comprehensive health care services, and securities policies; 2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system, securities, insurance, and prepaid comprehensive health care services in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador; 3. Issue micro-prudential regulations for the national financial, securities, insurance, and prepaid comprehensive health care services sectors, based on proposals presented by the respective superintendencies, within their respective scopes of competence and without prejudice to their independence.”; That, Article 14 of ibid provides that, for the fulfillment of its functions, “the Financial Policy and Regulation Board shall issue norms in matters within its competence, without being able to alter legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria.”; That, in concordance with the aforementioned provisions, Article 14.1 of the Organic Monetary and Financial Code, Book I, mandates that, for the performance of its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise the following
faculties: “1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health care services entities; (…) 7. Issue the prudential regulatory framework to which financial, securities, insurance, and prepaid comprehensive health care services entities must adhere (…) 10. Promote financial inclusion processes and the full exercise of users' financial rights; (…)”; That, Article 160 of the referred Organic Code determines that the national financial system is integrated by the public financial sector, the private financial sector, and the popular and solidary financial sector; and Article 161 of ibid states that the public financial sector is composed of Banks and Corporations;

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That, Article 385 of ibid mandates that public financial entities shall have, among others, the prohibitions of carrying out credit operations that do not fit within the public policy established for the entity or in the regulations issued by the Monetary and Financial Policy and Regulation Board; forgiving debts; and, those others established by the same Organic Code; That, the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, provides that in current legislation where the "Monetary and Financial Policy and Regulation Board" is mentioned, it shall be replaced by "Financial Policy and Regulation Board"; That, the Fifty-Fourth Transitional Provision of ibid provides that resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions shall remain in force until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board decide what corresponds, within the scope of their competencies; That, Article 1 of the Organic Law of Humanitarian Support to Combat the Health Crisis derived from Covid-19 determines that the object of the norm is to establish necessary humanitarian support measures to face the consequences derived from the health crisis caused by COVID-19, through measures aimed at mitigating their adverse effects within the Ecuadorian territory, which allow fostering the economic and productive reactivation of Ecuador; That, through Resolution No. JPRF-F-2022-032 of July 21, 2022, the Financial Policy and Regulation Board incorporated the “Extraordinary and Temporary Financial Relief Mechanism” into the Codification of Monetary, Financial, Securities, and Insurance Resolutions, applicable to the public and private financial sectors and the popular and solidary financial sector; in which it was established that the deadline for the application of said Mechanism is from July 21, 2022, until December 31, 2022; That, with Letter No. BANECUADOR-BANECUADOR-2022-0429-OF of December 8, 2022, the Acting General Manager of BANECUADOR B.P. requests the Financial Policy and Regulation Board to: “Extend the validity period for the application of Resolution No. JPRF-F-2022-032, initially established until December 31, 2022; extending it by three more months, that is until March 31, 2023, with the purpose of continuing to implement extraordinary obligation arrangements, and to be able to massify its benefits to the citizenry, and to reduce the non-performing portfolio and delinquency index of BANECUADOR B.P.; in consonance with the financial and social sustainability approach contemplated in our institutional mission, which is in accordance with the Government Plan of the President of the Republic.”; and attached for this effect the Technical Report s/n titled “TECHNICAL REPORT FOR REQUEST FOR EXTENSION OF DEADLINE FOR THE EXTRAORDINARY AND TEMPORARY FINANCIAL RELIEF MECHANISM ACCORDING TO RESOLUTION NO. JPRF–F-2022-032” dated November 2022, approved by the
Acting Manager of Placements and Captures of BANECUADOR B.P.; That, with Resolution No. JPRF-F-2022-052 of December 23, 2022, the Financial Policy and Regulation Board resolved to extend the application deadline of the Extraordinary and Temporary Financial Relief Mechanism for the entire national financial system, until March 31, 2023;

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That, through Memorandum No. BANECUADOR-GDC-2023-0190-MEM of March 10, 2023, received by the Financial Policy and Regulation Board on March 13, 2023, BanEcuador again requests the Board for a new extension of the deadline and puts on notice that: “(…) once the process, development, and necessary adjustments in the CoreBanking system have been executed in order to implement obligation arrangement operations framed within this extraordinary financial relief, by means of this present, we put on your knowledge and consideration the request for a new extension [Sic] of the validity period for the obligation arrangement process with financial relief, according to the report prepared by the Management of Placements and Captures, which reflects a summary of operational activities that led to the implementation of this process.”; attaching for the respective analysis the technical report s/n signed by the collections and captures units; That, with Letter No. BANECUADOR-BANECUADOR-2023-0136-OF of March 24, 2023, the General Manager of BANECUADOR B.P. sends to the Financial Policy and Regulation Board an addendum to the technical report initially presented on March 13, 2023, which was requested in the technical commission held on March 22, 2023, in which it was determined the need for more information on the scope and benefit that the deadline extension for the application of the Extraordinary and Temporary Financial Relief Mechanism would cause in the population, in families, and in areas of greater influence, as well as, reveal the actions being executed for credit risk management; That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0025-M of March 29, 2023, sends to the President of the Board the Technical-Legal Report No. JPRF-CTCJ-2023-006 of March 29, 2023, which concludes that:
(i) In the scope of the technical report presented by BanEcuador, it is foreseen to complete 1,150 credit operations, which represent 5% of the total operations identified in its database, that meet the characteristics provided in the resolution; for this, in the three months they request for the extension of the deadline for the application of the Extraordinary and Temporary Financial Relief Mechanism, 400 more credit operations would be managed, which represent approximately US$ 2MM, added to those in process (US$ 4,668,603.94) would reach a total of US$ 6MM, which represents, of the amount identified in its database (US$ 11,582,1478.15), 5.76%. Regarding this, the average size of an Ecuadorian household is 3.9 people, if we consider each operation (400) as a person, it would be estimated that 1,560 people would benefit; (ii) The refinanced or restructured credits under the Extraordinary and Temporary Financial Relief Mechanism have an essential objective, which is to provide conditions that allow debtors who, despite having decreased their payment capacity, not their willingness to honor the received credit, to have the opportunity to reactivate their productive activities, without this meaning that financial entities assume higher costs for provisions that would affect their profitability and solvency levels, in case they maintain the risk rating that the debtor has at the date of accessing this mechanism. Each financial entity must evaluate the risk profile and the real payment capacity of each of the debtors when carrying out refinancing or restructuring within the framework of credit risk management. In this context, it is essential to recognize that this was a temporary and conjunctural mechanism, not a normal practice, which could also distort the real condition of the credit portfolio of entities and in no way was its main objective to use this mechanism to “reduce the non-performing portfolio and delinquency index” generating asymmetric financial information and indicators;

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(iii) In consideration that extending the application deadline of the mechanism could benefit a greater number of debtors that, due to the time it took for public banking to parametrize its transactional system, would have been left out of this benefit; and, given that, the execution of credit and financial policy is also exercised through public banking, it is considered appropriate to grant the extension. However, it is emphasized that, the Extraordinary and Temporary Financial Relief Mechanism, arose as a circumstantial measure in dialogue tables with representatives of the government, control organisms, and social organizations, which in no moment must go against the principle of preserving deposits and meeting financing requirements for the achievement of the country's development objectives, and it is also specified that the administrators of financial entities, public in this case, are those who control their capital, are responsible for their solvency and the quality of their assets, therefore, it is emphasized that this measure must be exceptional and should not become a continuous practice; (iv) The public financial sector will have specific and differentiated norms, which will be responsible for preserving its security, stability, transparency, and solidity, and will have as its purpose the sustainable, efficient, accessible, and equitable provision of financial services, in accordance with what is prescribed in Articles 309 and 310 of the Constitution of the Republic of Ecuador; (v) The formulation of credit and financial policies is the exclusive faculty of the Executive Branch, through the Financial Policy and Regulation Board, in accordance with what is prescribed in Article 303 of the Fundamental Norm and in Article 5 of the Organic Monetary and Financial Code, Book I; in concordance with what is mandated in Articles 13 and 14 of ibid; and, (vi) The Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, has legal competence to extend the application deadline of the Extraordinary and Temporary Financial Relief Mechanism, in accordance with what is provided in Article 14.1 numbers 1, 7, and 10 of the Organic Monetary and Financial Code, Book I. Thus, the Financial Policy and Regulation Board is competent to reform Section VII “Extraordinary and Temporary Financial Relief Mechanism Applicable to Public and Private Financial Sectors”, Chapter XVIII “Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendence of Banks”, Title II “National Financial System”, of Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions; That, the Financial Policy and Regulation Board, in extraordinary session convened by technological means on March 29, 2023, and carried out through video conference on March 30, 2023, learned of
Memorandum No. JPRF-ST-2023-0025-M of March 29, 2023, issued by the Technical Secretary of the Board; as well as the aforementioned Technical-Legal Report, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in extraordinary session convened by technological means on March 29, 2023, and carried out through video conference on March 30, 2023, learned of and approved the following Resolution; and, In exercise of its functions,

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RESOLVES:
ARTICLE 1.- Substitute the text of Article 29 of Section VII “Extraordinary and Temporary Financial Relief Mechanism Applicable to Public and Private Financial Sectors”, Chapter XVIII “Classification of Risk Assets and Constitution of Provisions by Entities of the Public and Private Financial Sectors under the Control of the Superintendence of Banks”, Title II “National Financial System”, of Book I “Monetary and Financial System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:
“Art. 29.- The deadline for the application of the mechanism established in this section is from July 21, 2022, the date of issuance of Resolution No. JPRF-F-2022-032 of the Financial Policy and Regulation Board, and shall be in force until March 31, 2023, except for the case of entities of the public financial sector, which shall be until June 30, 2023, a deadline that shall not be susceptible to any additional extension.”
GENERAL PROVISIONS
FIRST.- The Superintendence of Banks shall communicate to the respective controlled entities the content of this Resolution.
SECOND.- The Superintendence of Banks shall carry out monitoring and control over the compliance with the norms established for the Extraordinary and Temporary Financial Relief Mechanism by entities of the public financial sector.
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 March 30, 2023.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The preceding Resolution 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 March 30, 2023.- I CERTIFY.
TECHNICAL SECRETARY
Dr. Nelly Arias Zavala