Resolution 059/98 Approving the Regulation of Liquidity Credits for Financial Intermediation System Entities

BOARD RESOLUTION NO. 059/98 SUBJECT: ECONOMIC POLICY ADVISORY - APPROVAL OF THE REGULATION OF LIQUIDITY CREDITS FOR ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM.

SEEING: Law No. 1670 of October 31, 1995. Board Resolution No. 117/97 of June 10, 1997. Board Resolution No. 180/97 of December 23, 1997 on Legal Reserves. Report from the Legal Advisory Office ALEG No. 179/98 of May 22, 1998. Report from the Economic Policy Advisory Office No. 047/98 of May 22, 1998.

CONSIDERING: That Article 36 of Law 1670 empowers the BCB to attend to the liquidity needs of the entities of the financial intermediation system of the country. That Article 29 of Board Resolution No. 180/97 allows financial entities, with operating authorization from the SBEF, to carry out overdraft operations and/or request freely available resources, guaranteed by their equity constituted in the RAL Fund of the legal reserve. That Article 39 of Law 1670 empowers the BCB to collect overdue obligations with it from banks and financial entities, through debits to the reserve account and others that the debtor entity maintains at the BCB, without prejudice to using other forms of recovery of such obligations.

//2. B.D. No. 059/98 That Article 54 subsection j) of Law 1670 establishes as an attribute of the Board to fix and modify the interest rates on the credits granted by the BCB, taking into account market rates for similar operations, as well as to establish their other terms and conditions. That the Economic Policy Advisory in its Technical Report No. 047/98 recommends the approval of a new Regulation of Liquidity Credits, compatible with the norms regarding the attention of liquidity needs of the Legal Reserve Regulation and Article 36 of Law 1670. That the Report of the Legal Advisory ALEG No. 179/98 states that the Board of the Bank has the authority to regulate liquidity credits to financial intermediation entities, in accordance with Article 36 of Law 1670 of October 31, 1995.

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

Article 1.- Approve the Regulation of Liquidity Credits for Entities of the Financial Intermediation System, which, as an annex, forms part of this Resolution.

Article 2.- Modify Article 3 of Board Resolution No. 117/97 of June 10, 1997, in its subsection 6, in the following terms: SAYS: “That the Bank is not benefiting from a liquidity credit from the BCB.” SHOULD SAY: “That the bank is not benefiting from a credit to attend temporary liquidity needs from the BCB. However, the bank with immediate liquidity credits may maintain its authorization as an EFA while complying with their conditions.”

Article 3.- Repeal Board Resolutions of the BCB 025/94 of February 17, 1994, 096/94 of August 4, 1994, and 054/95 of May 30, 1995.

//3. B.D. No. 059/98 Article 4.- Liquidity credits granted under the terms of Board Resolution No. 025/94 will maintain their conditions until maturity. Entities to which this type of loan had been granted may receive a new credit from the BCB to attend temporary liquidity needs under the terms of the new Regulation approved by this Resolution.

Article 5.- Banks that had accessed prior to June 16, 1998 the second tranche of liquidity credits, contemplated in Article 29 of Board Resolution No. 180/97, will have 30 days to cancel it and adapt to the terms of Article 15 of the attached Regulation of Liquidity Credits for Entities of the Financial Intermediation System.

Article 6.- This Regulation will enter into force on June 16, 1998.

Article 7.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, June 9, 1998

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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.

//4. B.D. No. 059/98 REGULATION OF LIQUIDITY CREDITS FOR ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM

TITLE I GENERALITIES

Article 1 (Object). This Regulation has as its object to establish the norms, requirements, and procedures to be complied with by banks and financial intermediation entities to access liquidity credits from the Central Bank of Bolivia, in accordance with Article 36 of Law 1670.

Article 2 (Terms and abbreviations). For the purposes of this Regulation, the following terms and abbreviations are used: BCB : Central Bank of Bolivia. COASIF : Committee for the Analysis of the Financial System. COMA : Open Market Operations Committee. Immediate Liquidity Credits : Automatic credits granted by the BCB to financial intermediation entities in the first two tranches of liquidity established in the Legal Reserve Regulation (Board Resolution No. 180/97), as well as repos granted by the COASIF.

Credits to Attend Temporary Liquidity Needs : Credits granted by the Board of Directors of the BCB to financial entities for a term not greater than 90 days, renewable, requested in writing and in accordance with what is established in this Regulation.

DPF : Time Deposit. EFA : Accredited Financial Entity. RAL Fund : Fund of Liquid Asset Requirements which has a component in national currency (RAL Fund-National) and another in foreign currency (RAL Fund-Foreign). GSF: Financial System Management of the BCB. SBEF : Superintendence of Banks and Financial Entities.

//5. B.D. No. 059/98 Payments System : System constituted by financial entities that participate in the Check Clearing House and other authorized clearing and payment settlement chambers by the BCB. TGN : General Treasury of the Nation.

Article 3 (Account debits). Upon maturity of the liquidity credits or repo, the BCB is empowered to debit the amount owed in the accounts that the financial entity maintains at the Central Bank of Bolivia.

Article 4 (Prepayment). Liquidity credits may be prepaid at any time, in which case interest will be computed on the effective period of use of said loans.

TITLE II IMMEDIATE LIQUIDITY CREDITS

Article 5 (Scope of application). All entities of the financial intermediation system, authorized for their operation by the SBEF and subject to the Legal Reserve Regulation, may access the immediate liquidity credits granted by the BCB.

Article 6 (Repos approved by the COASIF). By decision of the COASIF, the BCB may carry out repo operations with securities issued by the TGN or the BCB, in a modality different from that carried out under the norms established in Board Resolution No. 105/97 of April 29, 1997, for the term agreed upon by the parties and which may not exceed 90 days nor be less than 15 days. In these cases, the premium rate will be equivalent to the prime rate of the third tranche of the repo, according to the corresponding currency, established weekly by the COMA, plus 25 basis points. These repos must be documented through a contract.

TITLE III CREDITS TO ATTEND TEMPORARY LIQUIDITY NEEDS

//6. B.D. 059/98 Article 7 (Scope of application). Any entity of the financial intermediation system authorized for its operation by the SBEF, which is part of the payments system, whose solvency is acceptable to the Board of Directors of the BCB based on reports from the SBEF, may access credits to attend temporary liquidity needs.

Article 8 (Application). The financial entities mentioned in the preceding article, which have used the second tranche of immediate liquidity loans for more than seven consecutive days or ten discontinuous days during a maximum of two consecutive reserve periods, must request from the BCB, through the GSF, a credit to attend temporary liquidity needs for a term not greater than 90 days, renewable.

Financial entities may also request credits to attend temporary liquidity needs, without having previously used the immediate liquidity tranches of the legal reserve.

Article 9 (Required information). The GSF may request the information it deems convenient to verify the situation and solvency of the financial entity requesting the credit. This information may contemplate the following aspects: a) financial matching by terms and currencies, b) projected cash flow for 90 days, c) detail of the portfolio to be ceded as collateral, d) stratification of deposits, e) detail of temporary and permanent investments, f) detail of interbank captures and placements, g) plan to overcome the illiquidity situation, and h) other information considered necessary.

Article 10 (Internal evaluation reports). The COASIF will recommend the consideration of the credit by the Board, based on the report of the Financial System Management on the situation and solvency of the requesting entity, and of the Economic Policy Advisory on the monetary and systemic impacts of the loan.

Article 11 (Administrative conditions). The BCB may require the requesting financial entity to comply with the following administrative conditions:

//7. B.D. No. 059/98 i) implementation of the measures presented in its plan to overcome the illiquidity situation, ii) reduction of administrative expenses relative to the average recorded in the last three months, iii) expansion of the portfolio up to the amount established in the contract, iv) no distribution of dividends during the validity of the credit, and v) others established by the Board.

During the validity of the credit, the entity must send weekly to the BCB its observed and projected liquidity flows, and monthly a report on the compliance of its plan and the administrative conditions.

Article 12 (Non-binding consultations to the SBEF). To consider applications for these credits, the BCB will make non-binding consultations to the SBEF as provided by Article 36 of Law 1670.

Article 13 (Consideration of applications). In the consideration of applications for credits to attend temporary liquidity needs, the Board will take into account the monetary program, the repayment capacity of the requesting entity, and the quality of the guarantees offered.

Article 14 (Approval). By decision of the absolute majority of the members of the Board present in meeting, the BCB may grant credits to attend temporary liquidity needs prior to consideration of the recommendation of the COASIF.

Article 15 (Cancellation of the second tranche). With the credit granted, the requesting entity will cancel to the BCB the amount lent under the second tranche of immediate liquidity provided in Article 29 of Board Resolution No. 180/97. The financial entity will not be able to use the second tranche during the validity of this type of credit. Nevertheless, access to the first tranche of immediate liquidity contemplated in the aforementioned Article will be permitted.

Article 16 (Guarantees). The guarantees of the credits to attend temporary liquidity needs will be constituted in a 2 to 1 proportion relative to the loan amount. Such guarantees will be constituted by non-linked credit portfolio, with the requesting entity's own resources, which preferably have rating 1 (normal) and in no case inferior to 2 according to SBEF norms; by 40% of the reserve in securities, and/or by Bonds and DPFs issued by entities authorized as EFA, different from the requesting entity.

//8. B.D. No. 059/98 The guarantee with credit portfolio and fixed income instruments will be documented through a contract of cession and transfer of portfolio or securities. The documents of the portfolio and of the securities will remain in custody at the BCB. The Board of Directors of the BCB may fix additional guarantees in case of credit renewal.

Article 17 (Interest). The interest of these credits will be determined based on the average nominal active interest rate for 360 days of the banking system in the preceding week, calculated by the BCB according to the currency of the credit. The interests will be cancelled at the maturity of the credit or at the moment of prepayment.

Article 18 (Renewal). To consider a request for renewal of the credit, the Board of Directors of the BCB will evaluate the degree of compliance with the administrative conditions and the plan to overcome the illiquidity situation. Based on this evaluation, it will determine the conditions of the renewal or the rejection of the request.

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