Chilean Central Bank Informs Conditions for Credit Facility Conditioned to the Increase in Placements (FCIC) and Supplementary Measures
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As a response to the financial tensions triggered by the dissemination of Covid-19, the ChileanCentral Bank (BCCh) has announced a series of measures aimed at granting liquidity to theeconomy, support the flow of credit and the conveyance of the monetary policy.
A core component of these measures is that of a Credit Facility Conditioned to the Increase inPlacements (FCIC). This is a special financial facility for banking companies, with resources andincentives for them to continue to fund and refinance private loans and corporate loans,especially for those who do not have access to the capital market.
For a prompt and effective implementation of the FCIC, the Board of the BCCh approved the following operational rules:
Additionally, the Board of the BCCh has approved a flexibilization of liquidity requirements for banking companies. To these ends, the Compendium of Financial Regulation of the BCCh (CNF) will be amended toexpressly consider that in situations of national emergency or other severe and exceptionalcases (contingency situations), the Board of the Chilean Central Bank may decide, at its owndiscretion, the flexibilization or suspension of the application of the thresholds set, be it becauseof mismatching timeframes, on a contractual or adjusted base, pursuant to that set forth innumbers 8.2, 8.10, and 8.11 and/or for the measurement subject to the regulatory ceiling of theliquidity coverage ratio (LCR), as per that stated in number 11 bis above.
In the particular case of the LCR regulatory ceiling, it should be noted that its design wasconceived, precisely, to generate a buffer of additional liquidity, that may be used to tacklesituations such as those described in this section, reason for which this circumstance will beconsidered in case the Board instructs a flexibilization or suspension of said requirement.
In this context, and for 90 days, renewable by the Board of the Central Bank in case theconditions triggering this measure persist, a temporary suspension shall be applied to thefulfillment of the requirements for mismatch in timeframes, both 30 days once in the case ofbasic capital and 90 days twice the basic capital. Every requirement of a report associated tothis regulation shall remain in place without any modifications.
In the case of the LCR ceiling, they are considering the flexibilization of the fulfillment of theobligation to at all times keep the ceiling at 70%, in force and effect for 2020, in accordance tothe progressive implementation program announced in 2019. According to its own policies, procedures and technical expertise, banks shall define theproducts and strategies to meet the goals sought by these measures.
The flexibilization itself of the liquidity rules, the expansion of State guarantees to creditannounced by the Government, the temporary elimination of the stamp tax for credit operationsand the adapting of provisioning and guarantees rules for refinancing operations and the like,shall all make these operations significantly easier.i
As regards the banking sector, it has evidenced sufficient creditworthiness to absorb the effectsof a severe scenario, as shown in the stress exercises published every 6 months in the FinancialStability Report. However, the shock we are facing calls for a prudent behavior when decidingabout dividends distribution, so as to strengthen its capital base to face new challenges.
1 The Board for the Financial Market announced today a series of measures, supplementary to those announced by the Chilean Central Bank in order to make the flow of credit towards companies and households easier. Among them, a special treatment in the establishmentof provisions for postponed mortgages; the use of mortgage guarantees to protect SME’s loans; and adjustments in the treatment of goods received in payment and derivatives’ operational margins.
Journalists requiring to get in touch with the Chilean Central Bank may do so through the Communications Department, at the e-mail address [email protected], or via telephone at (56-2) 2670 2438.
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