Resolution 033/2002 Approving the New Liquidity Credit Regulation for Financial Intermediation System Entities

BOARD RESOLUTION NO. 033/2002 SUBJECT: FINANCIAL ENTITIES MANAGEMENT – APPROVES NEW REGULATION OF LIQUIDITY CREDITS TO ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM.

HAVING SEEN: Law 1670 of October 31, 1995. Law 2297 on Strengthening Financial Norms and Supervision of December 20, 2001. The Statute of the Central Bank of Bolivia of December 13, 2001. Board Resolution No. 005/2001 of January 9, 2001, which approves the BCB Credit Regulation. Board Resolution No. 083/2000 of November 21, 2000, which approves the new Regulation of Repo Operations. Board Resolution No. 116/2001 of November 20, 2001, which approves the Regulation of the Housing Development Unit. The Report from the Financial Entities Management GEF No. 069/2002 of March 22, 2002. The Reports from the Legal Affairs Management SANO No. 045/2002 of March 21, 2002 and SANO No. 060/2002 of April 1, 2002.

CONSIDERING: That Article 36 of Law 1670 empowers the BCB to address the temporary liquidity needs of the entities of the country's financial intermediation system. That the Liquidity Credit Regulation, approved by Board Resolution No. 005/2001, determines that for the granting of 90-day liquidity credits, the requesting entity must constitute a guarantee trust.

//2. B.D. No. 033/2002 That Law 2297 in its Article 13, modifying Article 131 of Law 1488, establishes that guarantees granted in favor of the Central Bank of Bolivia, in the case of financial entities intervened for their solution or liquidation by the Superintendence of Banks and Financial Entities, with the exception of repo operations and those constituted with the Reserve Fund of Liquid Assets (RAL), will be resolved by full right from the resolution of intervention. That it is necessary to harmonize the current Liquidity Credit Regulation with the provisions of Law 2297 in order to preserve a minimum of security in the recoverability of liquidity credits granted by the BCB to financial intermediation entities. That the Financial Entities Management in its Report GEF No. 069/2002 recommends the consideration by the Board of the Project of the New Liquidity Credit Regulation. That the Legal Affairs Management states that in accordance with the provisions of Articles 36 and 54 subsection o) of Law 1670 and Article 11 subsections 8) and 9) of the BCB Statute, it corresponds to the Board to consider the Project of the new Liquidity Credit Regulation for Entities of the Financial Intermediation System.

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

Article 1.- Approve the new Liquidity Credit Regulation for Entities of the Financial Intermediation System, in its three Chapters and 22 Articles, which as an annex forms part of this Resolution.

Article 2.- The Regulation will enter into force on April 15, 2002.

Article 3.- Repeal from April 15, 2002, Board Resolution No. 005/2001 of January 9, 2001.

//3. B.D. No. 033/2002 Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, April 2, 2002

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Juan Antonio Morales A.

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Juan Medinaceli V. Armando Méndez M.

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Roberto Camacho S. Javier Comboni S.

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Enrique Ackermann A.

//4. B.D. No. 033/2002 ANNEX LIQUIDITY CREDIT REGULATION FOR ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM

CHAPTER I GENERALITIES

Article. 1- (Object)

This regulation aims to norm the requirements and procedures for the granting of credits to address liquidity needs of financial intermediation entities, established in Article 36 of the Law of the Central Bank of Bolivia No. 1670.

Article 2.- (Abbreviations)

For the purposes of this regulation, the following abbreviations are used: BCB : Central Bank of Bolivia. COASIF : Committee for the Analysis of the Financial System of the BCB. COMA : Open Market Operations Committee of the B.C.B. GAL : Legal Affairs Management of the BCB. GEF : Financial Entities Management of the BCB. ME : Foreign Currency MN : National Currency MVDOL : National Currency with Value Maintenance with respect to the US Dollar. MNUFV : National Currency with Value Maintenance with respect to the Housing Development Unit. SBEF : Superintendence of Banks and Financial Entities. SPVS : Superintendence of Pensions, Securities, and Insurance. TGN : General Treasury of the Nation.

Article 3.- (On renewable liquidity credit operations)

Credits to address liquidity needs will be instrumented through repo operations, with the securities owned by the financial intermediation entities established in articles 13 and 18 of this regulation.

//5. B.D. No. 033/2002 Article 4.- (Term of the operation)

The term for the operations referred to in the previous article shall not exceed 90 (ninety) calendar days, and may be renewed under the conditions established in this regulation.

Article 5.- (Required Documentation) Financial intermediation entities requesting a liquidity credit must present to the BCB the respective Special Power of Attorney Testimony granted by their Board of Directors, or equivalent body, in favor of their representative(s), granting express powers to sign Liquidity Credit Contracts with the BCB under the terms and conditions established in this regulation.

Article 6.- (Non-binding consultations to the SBEF) To consider liquidity requests, the BCB will conduct non-binding consultations with the SBEF as provided in Article 36 of Law 1670.

Article 7.- (Approval) The Board of Directors of the BCB will approve liquidity credit operations by an absolute majority of votes, based on the recommendation of the COASIF and the joint report of the GEF and the GAL.

Article 8.- (Disbursement of funds) The BCB will disburse funds by crediting the current and/or legal reserve account that the financial intermediation entity maintains at the BCB, once the requesting entity has proceeded to endorse the securities in property to the BCB and sign the corresponding contract.

Article 9.- (Cancellation of the second tranche of the RAL Fund) With these resources, the requesting entity will cancel to the BCB the outstanding loans received under the second tranche of liquidity with guarantee of the RAL Fund provided in the Legal Reserve Regulation. The financial entity cannot use the second tranche of the RAL Fund during the validity of the credit; however, access to the first tranche is permitted.

//6. B.D. No. 033/2002 Article 10.- (Account Debits) The GEF is authorized to debit from any of the accounts that the requesting entity maintains at the Issuer Entity the outstanding balance, and in case these do not have sufficient funds to cover the credit, to proceed to the consolidation of the securities in favor of the BCB.

Article 11.- (Currency of the operation) The repo operations established in this regulation may be carried out indistinctly in ME, MN, MVDOL, or MNUFV, and the operation may be executed in a currency different from that of the security (crossed repo).

Article 12.- (Early Repurchase) Financial intermediation entities that have carried out repo operations with the BCB under the terms and conditions established in this regulation may effect the early repurchase of their securities. For this purpose, the Unit Repurchase Value of the repo will consider the effective term of use of the liquidity credit, and no additional penalties will be applied.

CHAPTER II LIQUIDITY CREDITS INSTRUMENTED THROUGH REPO OPERATIONS WITH SECURITIES OF THE TGN AND BCB

Article 13.- (Scope of application)

All entities of the financial intermediation system, authorized for operation by the SBEF, may access BCB liquidity credits instrumented through repo operations with the following Securities:

a) Treasury Bills of the General Treasury of the Nation. b) Treasury Bonds of the General Treasury of the Nation. c) BCB Deposit Certificates.

d) BCB Deposit Refund Certificates. e) Other Securities qualified as eligible by the Board of Directors of the BCB.

//7. B.D. No. 033/2002 Article 14.- (Request)

To carry out the operations indicated in the previous Article 13, financial intermediation entities will direct their requests to the Presidency of the BCB, justifying the need for liquidity. The request will be forwarded to the GEF and presented by it to the COASIF, who will issue a recommendation to the Board of Directors of the BCB.

Article 15.- (Valuation, premium rates, and documentation) The update rates for the valuation of securities acceptable by the BCB, as well as the prevailing premium rates, will be established by the COMA.

The securities must be duly endorsed in property to the BCB, and the credit operation will be documented through a contract.

Article 16.- (Renewal) The Board of Directors of the BCB will determine the conditions or rejection of a liquidity credit renewal request. The premium rate for renewals of these operations will be established by the Board of Directors of the BCB.

CHAPTER III LIQUIDITY CREDITS INSTRUMENTED THROUGH REPO OPERATIONS WITH SECURITIES FROM ISSUERS DIFFERENT FROM THE TGN OR BCB

Article 17.- (Scope of application).

Financial entities with operating authorization from the SBEF may access liquidity credits instrumented through repo operations with securities from public or private issuers different from the TGN or BCB, provided they are not in a regularization process due to actions established in subsections a) b), d), e), f), and g) of Article 112 of Law No. 1488 of Banks and Financial Entities, modified by Law No. 2297 on Strengthening Financial Norms and Supervision.

//8. B.D. No. 033/2002 Article 18.- (Assets acceptable by the BCB).

Liquidity credits instrumented through repo operations with securities from public or private issuers different from the TGN or BCB will be carried out with the following assets owned by the bank requesting the credit and in the following order of preference:

a) Fixed income securities, endorsable, from public and financial entities abroad that are registered in category I (risk weighting 0%) and III (risk weighting 20%) as established in the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF.

b) Non-convertible bank bonds, endorsable, issued by other banking entities in the country registered in category III (risk weighting 20%) as established in the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF.

c) Time deposits, endorsable, from other financial entities in the country registered in category III (risk weighting 20%) of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF.

d) Fixed income securities, endorsable, from private non-financial entities in the country that are registered in category V (risk weighting 75%) as established in the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF.

e) Fixed income securities, endorsable, from private non-financial entities abroad qualified with investment grade by a recognized risk rating agency. The securities mentioned in this Article must have a residual maturity term of no less than 180 days.

Article 19.- (Request)

Banking entities must present their request to the Presidency of the BCB, justifying the need for liquidity. The request must be accompanied by the documentation detailed below, duly signed by their legal representatives:

//9. B.D. No. 033/2002

a) Information on compliance with Article 17 of the Present Regulation. b) Business plan, including actions to overcome the illiquidity situation within a term not exceeding 90 days. c) Financial Statements corresponding to the month prior to the date of the credit request. d) The most recent risk rating of the securities for repo operations, granted by authorized raters. e) Financial matching by residual maturity term and by currencies. f) Projected cash flow for 90 days. g) Profit projection for the period or management for the following 90 days. h) Projections of delinquent portfolio and provisions for the following 90 days. i) Detail of the securities offered in repo. j) Stratification of deposits by amount and number of depositors. k) Detail of temporary and permanent investments. l) Detail of interbank captations and placements, by term, in the last thirty days.

The GEF may require additional information deemed convenient to verify the financial situation of the requesting entity.

The request will be forwarded to the GEF for presentation to the COASIF, who will issue a recommendation to the Board.

Article 20.- (Valuation and premium rate) The premium rates for repo operations will be:

a) Fixed income securities from public and financial entities abroad: a.1) 95% of the present value of securities classified in category I of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF will be considered. The premium rate will correspond to that of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 50 (fifty) basis points.

a.2) 90% of the present value of securities classified in category III of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF will be considered. The premium rate will correspond to that of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 100 (one hundred) basis points.

//10. B.D. No. 033/2002 b) 85% of the present value of Bank Bonds classified in category III of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF will be considered. The premium rate will correspond to the rate of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 150 (one hundred fifty) basis points.

c) 85% of the present value of Time Deposits from other banking entities classified in category III of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF will be considered. The premium rate will correspond to that of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 150 (one hundred fifty) basis points.

d) 85% of the present value of securities from private non-financial issuers in the country classified in category V of the Regulation of Control of Capital Sufficiency and Asset Weighting issued by the SBEF will be considered. The premium rate will correspond to that of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 200 (two hundred) basis points.

e) 85% of the present value of securities from private non-financial issuers abroad that have investment grade will be considered. The premium rate will correspond to that of repos with TGN and BCB securities for 90 days, according to the corresponding currency, established by the COMA, plus 200 (two hundred) basis points. The present value of the securities referred to in this Article will be determined based on the update rate indicated in Article 15 of this regulation.

Article 21.- (Obligations) Financial intermediation entities benefiting from a liquidity credit instrumented through repo operations with securities from issuers different from the TGN or BCB must comply with the following obligations:

a) Execute the actions presented in their plan to overcome the illiquidity situation. b) Have no overdue financial obligations with the BCB during the validity of the credit.

//11. B.D. No. 033/2002 c) Maintain the capital sufficiency required by Law during the validity of the credit. d) Not distribute dividends during the validity of the credit. e) Others established by the Board of Directors of the BCB.

In the event of non-compliance with one or more of the obligations indicated above, the BCB may apply additional administrative conditions.

During the validity of the liquidity credit, the financial intermediation entity must send weekly detailed information to the BCB on the origin and use of funds, its observed and projected liquidity flows, and monthly a report on the compliance of its plan and administrative conditions.

Article 22.- (Renewal) To consider the conditions of renewal or rejection of a request, the Board of Directors of the BCB will take into account the compliance report, with the opinion of the External Auditor, both of the plan to overcome the illiquidity situation and of the administrative conditions, the non-binding opinion of the SBEF, and the financial evaluation of the entity carried out by the GEF.

The premium rate for renewals will be established by the Board of Directors of the BCB. ---ooo---