1. Central Bank – Monetary Policy Measures
– The Boards of Directors of the Central Bank of Costa Rica has approved the following measures:
- A reduction of the Monetary Policy Rate (“TPM” for its acronym in Spanish) by 100 basis points, to 1,25% annually, applicable as of March 17, 2020;
- A reduction of the interest gross rate for overnight deposits (depósitos a un dia plazo “DON” for its acronym in Spanish) to 0,01% annually, as of March 17, 2020, and a reduction of the Permanent Credit Facility and the Facility of the Permanent Deposits of the Integrated Liquidity Market to 2,00% and 0,01% respectively; and
- iAmend the control of the Minimum Legal Reserve from 97.5% to a minimum of 90%: “during each and every day of the reserve control period, the balance at the end of the day of deposits in the Central Bank shall not be less than 90% of the minimum legal reserve requirement two previous natural fortnights”. This measure aims to free up the daily liquidity in the country’s commercial banks; however, it is important to note that the required percentages of the Minimum Legal Reserve have not changed (15% in dollars and 12% in colones).
– These decisions have been taken as per the analysis of the projected inflation and its determinants, the risks in the projection, and the lag within which the monetary policy measures take effect.
– The purpose of these monetary policy measures is to reduce market interest rates to ease the financial situation of companies and families in the country.
2. General Superintendency of Financial Entities (SUGEF) – SGF-0971-2020
– On March 20, 2020, the SUGEF issued a resolution whereby agreed to reduce the “M” factor of the formula applicable to the countercyclical estimations with the purpose of enhancing the effectiveness of the countercyclical estimation model´s dynamics.
– The SUGEF agreed to set the value of the “M” factor referred to in Article 6 of SUGEF Agreement 19-16 to 0,00%.
– This minimum percentage level of countercyclical estimation (“M”) will apply after March 2020 monthly closing and will be subject to revision during 2020.
– The aforesaid measure will allow financial entities to reallocate funds to gran credits, given that these funds are typically used as reserves that are required by law.
3. Financial System Supervisory National Board (CONASSIF).
– The CONASSIF has approved the following measures:
- Extend until June 30, 2021, the option to renegotiate up to two times within a period of 24 months, the terms and conditions set forth in credits. The changes will not have repercussions on debtors´ files held in the Center of Credit Information (CIC).
- This measure covers loans of more than ₡100 million and to those loans of the same amount or less that have been collected at least two times in the last 24 months.
- Credits up to ₡100 million or less that, until this date, has been collected at least two times in the last 24 months, will be allowed to readjust their operation at least one more time within the period ending on June 30, 2021, without this being deemed as a special operation.
- This measure allows a third payment adjustment for those clients who have been subject to two prior adjustments. It allows the renegotiation of any operation disregarding the balance; and will enable to suspend, for a year, the countercyclical provisions (i.e., an amount of the utilities that must be kept monthly) for all financial entities.
b. Note – about a possible second package of measures by the CONASSIF: Given that, on March 2020, the Costa Rican Baking Association (ABC) has informed that all the banks in the country (which includes 14 private and public institutions) will abide by the Government´s proposal, the CONASSIF is working on the second package of measures. These measures will allow those debtors affected by the new coronavirus to request a deferral in their loans´ payment without affecting their credit history. The proposals under analysis may also include easing the rules applicable to financial entities in order to avoid creating provisions affecting credit operations that may be deemed as exceptional non-payments, for a certain period.
Current regulation only allows financial entities to make adjustments in loans´ principal but not in interests rates when debtors are in financial distress. A new regulation is vital since it will allow banks to make additional adjustments. The measures may be implemented next Monday, Marth 23 The measures will entail amendments in several financial regulations, including the Statutory Regulation for Debtors Rating and the Statutory Regulation for the Measurement and Registry of Countercyclical Estimations.
4. Presidency Directive 075-H: This directive is applicable to the commercial banks of the state and its purpose is to address the emergency created by COVID 19 (March 20, 2020):
– The Directive instructs all the commercial banks of the state to implement all the necessary measures to readjust the credits of debtors affected by the current situation. These measures include:
- A reduction in interest rates taking into consideration the conditions of each credit.
- Prolongation of terms in credits.
- Banks shall extend payments of principal and interest for the necessary time.
- Extraordinary payments of principal without incurring in penalties will be allowed.
– Additionally, the Banco Popular and all financial institutions are encouraged to implement similar measures, as this is vital to provide liquidity to companies and families.
5. Presidency – Protection Plan (Plan PROTEGER): the plan, valued in ₡1 trillion, has the objective to address the negative consequences arising from the COVID-19.
– The Project tries to protect people and companies and preserve jobs. It will be implemented in accordance with an assessment of priorities of most affected industries and sectors.
– The estimated amount of ₡1 trillion accounts for 3% the GDP.
– The funds come from the following projects.
- Project “Ley Pagar” (₡226 billion);
- Development Bank of Latin America (₡287 billion);
- Tax over luxury pensions (₡12 billon).
- A loan provided by the Interamerican Development Bank (IDB) – French Agency of Development (₡216 billion); and
- Securitization Project of the Instituto Nacional de Seguros´ utilities (INS) (₡288 billion).
1. This initiative involves using a trust and the issuance of securities for approximately ₡288 billion, ₡213 billion of which will be offered to investors and ₡75 billion will be purchased by the Instituto Nacional de Seguros.
– The Project will include the creation of a tax that will levy the gross utilities of the Instituto Nacional de Seguros (INS).
6. Legislative Assembly: Law of Maximum Commissions of the Card´s System
– The purpose of this law is to regulate the maximum commissions charged by the providers of services related to processing transactions that use payment deceives and the running of the card payment system.
– The Costa Rican Central Bank will be in charge of issuing the statutory regulation and to oversight its compliance, following the best international practices.
– All providers of services in the card system must follow this law, irrespective of whether they are subject to supervision by any of the superintendencies that comprise the CONASSIF. The same applies to those entities that provide technical support for providers, card brands, affiliates, and clients that accept and use payment devices.
– Non-compliance with the law will be sanctioned by administrative sanctions imposed by the Board of Directors of the Costa Rican Central Bank.
- The administrative procedure set in the General Law of the Public Administration will apply. The imposition and payment of fines will not exempt infringers from complying with the rules provided in said law.
- The law provides a classification of different infractions for which different penalties are imposed.
- For example, the applicable sanction for charging commissions above the permissible limit will be sanctioned with a fine equivalent to the commission charged in excess, but it will never be less than two hundred base salaries. Moreover, the infringer must return to affected affiliates all sums that infringe the maximum limits authorized by the Central Bank of Costa Rica, within the next ten working days upon the imposition of the fine.
PROVISIONS IN PRACTICE: Measures that certain financial institutions have announced to mitigate economic impacts of COVID – 19 in granted credits
Given the emergency in the country caused by the effects of COVID-19, many clients of public and private banks have requested for immediate alternatives to keep their loans up to date considering a possible decrease in their sources of income.
The request for credit restructuring has been high the past two weeks, and has reached different types of loans, such as: home loans, pledge loans, leases, direct loans and lines of credit – the latter two with a very particular focus on corporate banking.
In compliance with guidelines and regulations that have been issued by the different institutions to alleviate the financial burden on companies and households in the country, and in response to clients requests, some banks – and financial companies – have already taken measures to mitigate the economic impact of COVID-19, and are reviewing the respective credits in order to analyze what internal policy will be taken in this regard.
Said measures range from making case-by-case reviews according to the clients request, – taking into consideration the credit status and good payment thereof – or applying general policies for all clients by sector – since they will not necessarily be the same measures for different banking sectors.
Among the general measures that have been taken by financial institutions are the following:
a. extension of the credit term;
b. decrease in interest rates;
c. changing the payment form by granting grace periods to the payment of principal or interest, or even to both the joint payment of principal and interest, without affecting the customer’s credit history. Grace periods may be up to two months to a one-year term, and the pending payment during the grace period may be transferred to the end of the term;
d. granting grace periods in the minimum payment of credit cards for up to two months; and/or,
e. a new term will be granted to avoid the credit execution by judicial or administrative lawsuits, for credits that are in arrears with less than 120 days as of March 31.
From a legal perspective, there are several ways to structure and document the measures agreed upon by financial entities. The corresponding form must be determined in each case, taking into consideration the type of credit, the debtor, the risk assumed by the entity, the guarantees, etc.
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