Resolution No. JPRF-F-2022-045: Application of the Organic Monetary and Financial Code Regarding Unrecoverable Credits in the Asset Risk Classification and Provisioning Norm

Resolution No. JPRF-F-2022-045
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law. They shall have the duty to coordinate actions to fulfill their purposes and to make effective the enjoyment and exercise of rights recognized in the Constitution."; That the first paragraph of Article 308 of the Supreme Norm stipulates that financial activities are a matter of public order and shall efficiently intermediate captured resources to strengthen national productive investment, and socially and environmentally responsible consumption; it also stipulates that: "The regulation and control of the private financial sector shall not transfer the responsibility for bank solvency nor shall it constitute any guarantee by the State. (...)" In concordance, Article 309 of the Constitution of the Republic stipulates that the norms of the national financial system shall be responsible for "preserving its security, stability, transparency, and solidity."; That Articles 424, 425, and 426 of the Magna Carta establish the normative hierarchy that norms and acts of public power must maintain; That Article 13 of the Organic Monetary and Financial Code, Book I, created the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That Article 14, paragraphs 1 and 2 of the Organic Monetary and Financial Code, regarding the scope of action of the Financial Policy and Regulation Board, mandates: "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 (...) To fulfill these functions, the Financial Policy and Regulation Board shall issue norms in matters within its competence, without altering legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria."; That Article 14.1, in its numbers 1, 9, and 25 ibidem, states: "To perform its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise the following powers: 1. Regulate the creation, constitution, organization, activities, operation, and liquidation of financial entities, securities, insurance, and prepaid comprehensive health care services; (...) 9. Issue the non-prudential regulatory framework for all financial entities, securities, insurance, and prepaid comprehensive health care services, which shall include, among others, norms on accounting, transparency and information disclosure, market integrity,

Resolution No. JPRF-F-2022-045
____________________________ consumer protection; (...) 25. Apply the provisions of this Code and resolve cases not provided for in it, within the scope of its competence; (...)"; That the Organic Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic incorporated Article 207.1 into the Organic Monetary and Financial Code, Book I, which states the following: "By executive decree, it may be provided that public financial entities forgive credits or loan assets of up to ten thousand United States dollars (US$10,000) in principal, plus their interest and other costs and commissions, and that are considered unrecoverable. (...)"; That the Fiftieth Fourth Transitional Provision added to the Organic Monetary and Financial Code by the Reformatory Organic Law to the Organic Monetary and Financial Code for the Defense of Dollarization prescribes: "Transitory Regime of Resolutions of the Codification of the Monetary and Financial Policy Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board and the norms issued by control bodies shall remain in force until the Monetary Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies."; That the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0081-M of November 21, 2022, submits to the President of the Board the Technical-Legal Report No. JPRF-CTCJ-2022-011 of November 21, 2022; That the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on November 21, 2022, and held via video conference on November 22, 2022, reviewed the Memorandum No. JPRF-SETEC-2022-081-M of November 21, 2022, issued by the Technical Secretariat of the Board; as well as the Technical-Legal Report No. JPRF-CTCJ-2022-011 of November 21, 2022, issued by the Technical Coordination and the Legal Coordination of the aforementioned Board, and the corresponding draft resolution; That the Financial Policy and Regulation Board, in an extraordinary session convened by technological means on November 21, 2022, and held via video conference on November 22, 2022, reviewed and approved the following resolution; and, In exercise of its functions, RESOLVES:
SINGLE ARTICLE.- Incorporate Article 5.1 after Article 5 in Section II "Elements of Asset Risk Classification and its Classification", of Chapter XVIII "Asset Risk Classification and Provisioning by Entities of the Public and Private Financial Sectors under the control of the Superintendency of Banks", of Title II "National Financial System", of Book I "Monetary and Financial System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, whose text is as follows:

Resolution No. JPRF-F-2022-045

---

"Art. 5.1.- For the application of Article 207.1 of the Organic Monetary and Financial Code, Book I, by public financial entities, unrecoverable credits or loan assets shall be understood as those with an 'E' classification, whether charged off or not, that are provisioned at 100% of their recorded book value and for which necessary actions for their recovery have been carried out.
Entities must report the forgivenesss carried out to the Superintendency, in the formats established by it for this purpose, which, in turn, shall inform the Internal Revenue Service."
FINAL PROVISION.- This resolution shall enter into force from the present date, without prejudice to its publication in the Official Register, and shall be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance.
NOTIFY.- Given in the Metropolitan District of Quito, on November 22, 2022.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The resolution above 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 November 22, 2022.- I CERTIFY.
TECHNICAL SECRETARIAT
Dr. Nelly Arias Zavala