Resolution 038/2000: Regulation for the Authorization of Banks as Accredited Financial Entities (EFA)

BOARD RESOLUTION NO. 038/2000
SUBJECT: FINANCIAL ENTITIES MANAGEMENT –
REGULATION FOR THE AUTHORIZATION OF BANKS
AS ACCREDITED FINANCIAL ENTITIES
(AFE).

HAVING SEEN:

The Law of the Central Bank of Bolivia No. 1670 of October 31, 1995.
The Law of Banks and Financial Entities No. 1488 of April 14, 1993, with the modifications incorporated by the Pension Law No. 1732 of November 29, 1996 and the Law of Modifications to the Financial System No. 1977 of May 14, 1999. The Regulation for the Authorization of Banking Financial Entities as Accredited Financial Entities, approved by Board Resolution No. 117/97 of June 10, 1997 and Board Resolution No. 056/99 of July 6, 1999, on Modifications to the Regulation for the Authorization of Banks as Accredited Financial Entities (AFE). The Internal Regulation for Operations through the Reciprocal Payments and Credits Agreement of ALADI, approved by Board Resolution No. 099/99 and modified by Board Resolution No. 018/2000 of March 21, 2000. Circular Letter No. SB 303/99 of the Superintendency of Banks and Financial Entities dated December 3, 1999. The Regulation on Control of Capital Sufficiency and Asset Weighting, approved by Resolution of the Superintendency of Banks and Financial Entities SB No. 039/2000 of June 15, 2000. The Report of the Financial Entities Management GEF No. 097/2000 of June 16, 2000. The Report of the Legal Affairs Management SANO No. 017/2000 of June 20, 2000.

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CONSIDERING:

That the Superintendency of Banks and Financial Entities (SBEF), through Circular Letter No. SB/303/99, has instructed banking entities to contract the services of risk rating agencies.

That the SBEF, through Resolution No. SB 039/2000, approved the new regulation on Capital Sufficiency and Risk Weighting of Assets, based on the risk ratings of rating agencies authorized by the Superintendency of Pensions, Securities and Insurance (SPVS).

That it is advisable to incorporate into the criteria and guidelines for evaluation to authorize Banks as Accredited Financial Entities (AFE) the advances achieved with risk ratings carried out by international rating agencies.

That the Financial Entities Management and the Legal Affairs Management in their reports GEF No. 097/2000 and SANO No. 017/2000, respectively, recommend the approval of the new Regulation for the Authorization of Accredited Financial Entities (AFE), compatible with the evolution of prudential regulation norms currently in force.

THEREFORE,

THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA

RESOLVES:

Article 1.- Approve the Regulation for the Authorization of Banks as Accredited Financial Entities (AFE), which in the annex, forms part of this Resolution.

Article 2.- This Regulation will enter into force on July 1, 2000.

Article 3.- Board Resolutions 117/97 of June 10, 1997 and 056/99 of July 6, 1999 are hereby repealed, from the entry into force of the Regulation.

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Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, June 20, 2000

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G.

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Juan Medinaceli V. Armando Méndez M.

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REGULATION FOR THE AUTHORIZATION OF BANKS AS
ACREDITED FINANCIAL ENTITIES (AFE)

Article 1.- (Object)
This Regulation establishes the norms, requirements, criteria, and procedures to authorize banks as Accredited Financial Entities (AFE). This authorization will allow banks to operate with the instruments of the ALADI Reciprocal Payments and Credits Agreement and to carry out other operations to be qualified by the Board of Directors of the CBB.

Article 2.- (Definitions)
For the purposes of this Regulation, the following abbreviations and definitions will be used:

CBB: Central Bank of Bolivia
GEF: Financial Entities Management of the CBB
SBEF: Superintendency of Banks and Financial Entities SPVS: Superintendency of Pensions, Securities and Insurance.
BANK: Financial Entity with a license to operate issued by the SBEF to operate as a banking entity.
CPCR-ALADI: Reciprocal Payments and Credits Agreement of ALADI. System for compensating debtor and creditor balances of banking operations carried out between the member countries of said Organization.

AUTHORIZED RATING AGENCY: Risk rating agency authorized by the SPVS to rate financial entities. Such authorization requires that the SBEF has previously issued a favorable opinion on the matter.

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ISSUER RISK RATINGS: Ratings granted by risk rating agencies authorized by the SPVS.

Article 3.- (Requirements)
The compliance with the following requirements is established for the authorization and/or maintenance of banks as Accredited Financial Entities (AFE):

a) Maintain the capital sufficiency required by Law. b) Be up to date with obligations contracted with the CBB. c) That the Bank is not suspended for non-compliance with the Internal Regulation for operations through the Reciprocal Payments and Credits Agreement of ALADI, approved by Board Resolution No. 099/99. d) That the entity has received a local issuer rating not lower than TE-BBB- (according to Thomson Financial Bankwatch) or BBBB- (according to Duff & Phelps) or a rating from another risk rating agency authorized by the SPVS, within the scales acceptable to weight at 20%, as stated in the Regulation on Control of Capital Sufficiency and Asset Weighting of the SBEF in force. e) That the bank has not incurred fines from the SBEF for deficiencies in legal reserves, for two consecutive biweekly periods in the last two months. f) That the bank is not benefiting from a liquidity credit from the CBB, in accordance with Article 36 of Law 1670. g) That recently created banks have at least twelve months of operation. h) That the bank has not been intervened by the SBEF for forced sale under the terms of Article 3 of Law No. 1977.

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Article 4.- (Documentation)
To be authorized as an AFE, the bank must present a written request to the GEF accompanied by the following information:

a) Annual Report and Financial Statements of the last fiscal year. b) External audit report corresponding to the Financial Statements of the last fiscal year and its corresponding opinion. c) Bylaws. d) Names and powers of the legal representatives of the bank.

Article 5.- (Initial Authorization)
The General Management of the CBB will approve the authorization of the bank as an AFE for the first time, considering the technical reports prepared by the GEF and the Legal Affairs Management, and must inform the Board of Directors of this fact at its next meeting.

Article 6.- (Obligations)
The obligations of AFEs are:

a) Keep updated the information detailed in Articles 3 and 4 of this Regulation. b) Provide all information that the GEF reasonably requires.

Article 7.- (Supervision and follow-up)
The GEF will permanently evaluate the behavior of AFEs, analyzing the conditions defined in Article 3, as well as compliance with the other requirements established in this Regulation.

Article 8.- (Complementary information)
The Management of International Operations and the Management of Monetary Operations will communicate to the GEF any relevant fact that serves the purposes of supervision and follow-up of AFEs.

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Article 9.- (Temporary Suspensions)

a) In cases of non-compliance with items b) and e) of Article 3 of this Regulation, the GEF will notify the entity of this fact and give it an irrevocable period of thirty (30) calendar days to correct the non-compliance. Upon expiration of that period, the GEF will bring the fact to the knowledge of the General Management of the CBB, which will temporarily suspend the AFE for 30 days and inform in writing the suspended entity and the Management of International Operations about this decision. If the causes that gave rise to the suspension have not been remedied upon expiration of that term, Article 10 of this Regulation will be applied.

b) Non-compliance with items a), d) and f) of Article 3 of this Regulation will result in a temporary suspension, automatically, for a period of ninety (90) days. Upon expiration of that term, if the causes that gave rise to the temporary suspension have not been remedied, Article 10 of this Regulation will be applied.

c) Non-compliance with item c) of Article 3 of this Regulation will result in the following suspensions:

• If the bank is under the application of item b) of Article 24 of the Internal Regulation for operations of the Reciprocal Payments and Credits Agreement of ALADI, it will be automatically suspended as an AFE for a period of 30 days.
• If the bank is under the application of item c) of Article 24 of the Internal Regulation for operations of the Reciprocal Payments and Credits Agreement of ALADI, it will be automatically suspended as an AFE for a period of 90 days.
• If the bank is under the application of item d) of Article 24 of the Internal Regulation for operations of the Reciprocal Payments and Credits Agreement of ALADI, it will be automatically suspended as an AFE for a period of one year. The CBB reserves the right to reconsider its rehabilitation.

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Article 10.- (Indefinite Suspension)
The Presidency of the CBB may indefinitely suspend the AFE that finds itself in any of the following situations:

a) When the AFE has not regularized the situation that gave rise to the temporary suspension established in items a) and b) of Article 9 of this Regulation. b) When the AFE has incurred three temporary suspensions during the last twelve months. c) When the external audit issues a negative opinion or abstains from issuing an opinion on the financial statements of the AFE. d) Banks intervened by the SBEF for forced sale will be subject to indefinite suspension for as long as the intervention process lasts.

Article 11.- (Rehabilitation)
Once the GEF establishes that the bank has corrected the causes that gave rise to its indefinite suspension, it will submit a report to the Presidency, through the General Management. The Presidency may order the rehabilitation of the AFE, which will take effect ninety days after the determination is communicated to the corresponding instances.

Article 12.- (Definitive Suspension)
The suspension of an AFE will be definitive when the bank enters the process of forced or voluntary liquidation, or when it is under the application of item e) of Article 24 of the Regulation of the Reciprocal Payments and Credits Agreement of ALADI.

Article 13.- (Transitory Provision)

Banks that on the date are authorized by the Central Bank of Bolivia as AFEs, according to what is provided in the Board Resolutions of the CBB 117/97 and 056/99, will conserve that condition if they comply with the requirements of this Regulation. --ooo--