Resolution No. JPRF-F-2022-023 — Reforming the Rules Regulating the Segmentation of the Credit Portfolio of Entities in the National Financial System

THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:

That Article 84 of the Constitution of the Republic mandates that any body with normative power shall have the obligation to formally and materially adapt laws and other legal norms to the rights provided for in the Constitution and international treaties, and those necessary to guarantee human dignity;

That Article 226 of the Magna Carta incorporates the principle of legality regarding State institutions, their agencies, dependencies, public servants, and persons acting by virtue of State power;

That the aforementioned norm in its Article 308 prescribes that financial activities are a public order service, and may be exercised with prior State authorization, in accordance with the law; in turn, it establishes that the State will promote access to financial services and the democratization of credit;

That Article 334, numeral 5 of the Fundamental Charter determines that the State will promote the democratization of credit;

That through the Organic Law Reforming the Organic Monetary and Financial Code for Defense of Dollarization, published in the First Supplement of the Official Register No. 443 of May 3, 2021, the Organic Monetary and Financial Code was reformed;

That, through Article 13 of the Organic Monetary and Financial Code, the Financial Policy and Regulation Board was created, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; and its composition and functioning are determined;

That the Organic Monetary and Financial Code, in its Article 14, numerales 1, 3, and 4, establishes that it is the responsibility of the Board to formulate credit and financial policy; issue regulations for the national financial sector based on proposals presented by the respective superintendencies; formulate policies and issue regulations that promote financial inclusion in the country, in coordination with public and private sector entities related to this scope; and defines that for the fulfillment of these functions, it will issue norms in matters within its competence, being able to issue regulations by segments, economic activities, and other criteria;

That the Organic Monetary and Financial Code in its numerales 1 and 10 and the antepenultimate paragraph of Article 14.1, states that it is the faculty of the Financial Policy and Regulation Board to regulate the creation, constitution, organization, activities, operation, and liquidation of financial, securities, insurance, and prepaid comprehensive health care service entities; promote financial inclusion processes and the full exercise of financial users' rights; and that the Superintendent of Banks may propose regulation projects for consideration by the Financial Policy and Regulation Board with the backing of respective technical reports;

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That Article 19 of the Internal Tax Regime Law prescribes that natural persons and undivided estates whose gross income from the immediate previous fiscal year exceeds three hundred thousand (USD $300,000) United States dollars, including natural persons engaged in agricultural, livestock, forestry, or similar activities, as well as professionals, commission agents, artisans, agents, representatives, and other self-employed workers, shall be obligated to keep accounting records; the amount may be expanded by the Regulation to that law;

That Article 37 of the Regulation for the Application of the Internal Tax Regime Law mandates that natural persons operating with own capital that at the start of their economic activities or on January 1 of each tax year were superior to one hundred eighty thousand (USD 180,000) United States dollars or whose annual income from the immediate previous fiscal year was superior to three hundred thousand (USD 300,000) United States dollars or whose annual costs and expenses, imputable to the economic activity, of the immediate previous fiscal year were superior to two hundred forty thousand (USD 240,000) United States dollars are obligated to keep accounting records;

That the Codification of Monetary, Financial, Securities, and Insurance Resolutions, in its Book I "Monetary and Financial System", Chapters IX "Rules regulating the segmentation of the credit portfolio of entities in the National Financial System" and XVIII "Risk Asset Classification and Provisioning by entities in the public and private financial sectors under the control of the Superintendent of Banks", Title II "National Financial System", collects the credit segments and subsegments with their respective definitions, whose last reform corresponds to the one carried out through Resolution No. 603-2020-F of September 22, 2020;

That the aforementioned norm indicates that the "Productive Credit" segment is granted to natural persons obligated to keep accounting records or to legal entities that register annual sales superior to USD 100,000.00 destined for the acquisition of goods and services for productive and commercial activities; that the subsegment "Productive Credit SMEs" corresponds to productive credit operations granted to natural persons obligated to keep accounting records or to legal entities that register annual sales superior to USD 100,000.00 and up to USD 1,000,000.00. On the other hand, it states that the "Microcredit" segment is granted to a natural or legal person with an annual sales level inferior or equal to USD 100,000.00, or to a group of borrowers with joint guarantee, destined to finance small-scale production and/or commercialization activities, whose main source of payment constitutes the product of sales or income generated by said activities, adequately verified by entities in the National Financial System, and that the subsegment "Extended Accumulation Microcredit" corresponds to operations granted to credit applicants who register annual sales superior to USD 20,000.00 and up to USD 100,000.00;

That the Superintendent of Banks, through letter No. SB-DS-2021-0682-O of December 23, 2021, made a consultation to the Financial Policy and Regulation Board (JPRF) regarding Resolution No. 603-2020-F of September 22, 2020, through which, in its Article 12, the replacement and simplification of credit segments was effected. Said letter states:

"III. CONSULTATION (...) Therefore, since Resolution No. 603-2020-F does not provide that cases of doubt in the application of said resolution be resolved by the Superintendent of Banks, in accordance with what is provided in Article 14.1.25 of the Organic Monetary and Financial Code, I request you please:

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(i) Inform the members of the Financial Policy and Regulation Board about this letter and the facts exposed; and, (ii) Clarify the scope of the application of the 'Productive SMEs' credit segment regarding natural persons not obligated to keep accounting records but who might register annual sales superior to USD $100,000.00";

That the Superintendent of Banks through letter No. SB-DS-2022-0031-O of January 20, 2022, requested the "Reform to the chapters: IX 'Rules regulating the segmentation of the credit portfolio of entities in the National Financial System' and XVIII 'Risk Asset Classification and Provisioning by entities in the public and private financial sectors under the control of the Superintendent of Banks' with the objective of promoting financial inclusion". The aforementioned letter states:

"In virtue of this, and in accordance with what is established in numeral 22 of Article 62 of the Organic Monetary and Financial Code, I allow myself to submit to your consideration and criteria of the distinguished members of the Financial Policy and Regulation Board the normative project, for which effect I attach to the present letter the respective draft resolution, the technical and legal reports, the executive summary, and the presentation and request that this matter, if you deem it convenient, be submitted to the knowledge and approval of the collegiate body that you represent.";

That the Superintendent of Banks through letter No. SB-IG-2022-0026-O of January 31, 2022, makes a reminder of the request for reform to the credit portfolio segmentation, with the objective of promoting financial inclusion;

That the Technical Secretariat of the Financial Policy and Regulation Board through memorandum No. JPRF-SETEC-2022-0030-M of March 19, 2022, sends to the President the technical report "Reform to the Productive Credit segment" No. JPRF-CT-2022-0019 of March 18, 2022 and the legal report No. JPRF-CJ-2022-0017 of March 19, 2022, which issue favorable criteria for said reform;

That the Financial Policy and Regulation Board, in an extraordinary session held by technological means convened on March 20, 2022 and carried out through video conference on March 21, 2022, learned of and resolved on memorandum No. JPRF-SETEC-2022-0030-M of March 19, 2022, issued by the Technical Secretariat and its annexes; and,

In exercise of the attributions and duties conferred by Article 14.1 of the Organic Monetary and Financial Code, the Financial Policy and Regulation Board:

RESOLVES:

ARTICLE FIRST.- Substitute numeral 1 of Article 1 of Chapter IX "Rules regulating the segmentation of the credit portfolio of entities in the National Financial System", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

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"1. Productive Credit.- It is granted to natural persons or legal entities that register annual sales superior to USD 100,000.00 destined for the acquisition of goods and services for productive and commercial activities.
For this segment of the portfolio, the following subsegments are defined:
a. Corporate Productive.- Productive credit operations granted to natural persons obligated to keep accounting records or legal entities that register annual sales superior to USD 5,000,000.00. b. Business Productive.- Productive credit operations granted to natural persons obligated to keep accounting records or legal entities that register annual sales superior to USD 1,000,000.00 and up to USD 5,000,000.00.
c. SME Productive.- Productive credit operations granted to natural persons or legal entities that register annual sales superior to USD 100,000.00 and up to USD 1,000,000.00.

ARTICLE SECOND.- Substitute numeral 1.1 of Article 5, Section II "Elements of Risk Asset Classification and its Classification", of Chapter XVIII "Risk Asset Classification and Provisioning by entities in the public and private financial sectors under the control of the Superintendent of Banks", Title II "National Financial System", Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

"1.1 PRODUCTIVE CREDIT
It is granted to natural persons or legal entities that register annual sales superior to USD 100,000.00 destined for the acquisition of goods and services for productive and commercial activities.
For this segment of the portfolio, the following subsegments are defined:
a. Corporate Productive.- Productive credit operations granted to natural persons obligated to keep accounting records or legal entities that register annual sales superior to USD 5,000,000.00. b. Business Productive.- Productive credit operations granted to natural persons obligated to keep accounting records or legal entities that register annual sales superior to USD 1,000,000.00 and up to USD 5,000,000.00.
c. SME Productive.- Productive credit operations granted to natural persons or legal entities that register annual sales superior to USD 100,000.00 and up to USD 1,000,000.00.

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For the operational and administrative handling of credit files of debtors of productive credit, entities in the public and private financial sectors must have the complete and updated information contained in Annex No. 1."

GENERAL PROVISIONS

First.- The Superintendent of Banks and the Superintendent of Popular and Solidarity Economy shall communicate to controlled entities the content of this Resolution;

Second.- In case of doubt regarding the content or scope of the provisions of this Resolution, it shall be the responsibility of the Financial Policy and Regulation Board to interpret them obligatorily.

REPEALING PROVISION.- Any norm of equal or lesser hierarchy whose content opposes the provisions of this Resolution is repealed.

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 21, 2022.

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 21, 2022.- I CERTIFY.

TECHNICAL SECRETARIAT
Dr. Nelly Arias Zavala