CREDIT POLICY MAIN OBJECTIVE
Since the 90’s, one of the main goals of the Monetary Authority has been to support the country’s economic restructuring plan, implementing an economic policy with free-market emphasis, stimulating private sector financing and reducing the financing to the public sector.
CREDIT POLICY STRATEGY
Stimulate the increase of banking credit with the purpose of directing resources to the economy’s most productive areas.
CREDIT POLICY INSTRUMENTS
By decreasing reserve requirements to those institutions of the financial system that keep or increase their loan portfolios in productive areas like agriculture, manufacture and construction and decrease lending for consumption and trade.
PUBLIC SECTOR CREDIT
According to Central Bank Law, the CBH can provide credit to the Government and Official Institutions through the purchase of securities in the secondary market. These credits cannot exceed the limits approved unanimously by the Board of Directors. Securities acquired by the CBH can be traded with the public and with financial institutions.
Only in cases of emergency, public calamity or to cover stationary variations in income and expenses can the CBH provide credit directly to the Government. These credits have to be approved unanimously by the Board of Directors and ratified by Presidential Decree in the Council of Secretaries.
LENDER OF LAST RESORT
The CBH has implemented a series of reforms in its credit policy with the purpose of fulfilling its role of financial stability through its functions as lender of last resort and as an overseer of the payment and settlement system. In February 2005, the Board of Directors approved the “Norms to Provide Credit of Last Resort to help Financial Institutions in Cases of Temporary Insufficiency of Liquidity”. The base used to compute the interest rate for this type of operations is the same established in October 2003, which consists in adding seven percentage points (7.0%) to the average deposit interest rate (excluding demand deposits) of the financial system.
RULES OF CONSTITUTIONAL ORIGIN
In June 2005, the CBH approved the “Standards for the Processing of Loans, Discounts, Endorsements and Other Credit Operations for Financial System Institutions with Natural and Legal Persons Living Abroad”.
In June 2003, the “Regulations for Credit Operations of Financial Institutions with Economic Groups and Related Parties” was approved according to Resolution No.206-6/2003.
In July 2005, “Regulations for Credit Operations of Financial Institutions with Economic Groups,” was separated and went into effect according to Resolution No.232-7/2005, and was amended on December 2005, with regard to the classification of loans.
In July 2005, “Regulations for Credit Operations of Financial Institutions with Related Parts,” was separated and went into effect according to Resolution No.233-7/2005.
LOANS TO BORROWERS NOT GENERATING FOREIGN CURRENCY
Since the National Banking and Insurance Commission issued a normative for loans made in foreign currency, the Board of Directors decided to remove, beginning on February 23, 2006, the limit of 15% of total deposits in foreign currency for loans to borrowers not generating foreign currency, according to Resolution No.73-2/2006.