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Chilean Central Bank Informs Conditions for Credit Facility Conditioned to the Increase in Placements (FCIC) and Supplementary Measures 

by Diego Peralta

Published: March, 2020

Submission: March, 2020

 



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:


  1. The FCIC shall be open to every banking company having commercial and/or consumer placements.
  2. For the purposes of the size of the facilities associated to the FCIF, and using to such endsthe relevant administrative files, the sum-total of commercial and consumer placements reportedto the CMF at the end of February shall be established as base portfolio.
  3. An initial line shall be set, the amount of which corresponds to 3% of the base portfolio. Theaccess to this facility shall be immediate, as of the date of inception of the program.
  4. In a supplementary manner, an additional facility shall be set based on the increase observedin placements and the fraction of the resources in the facility destined to smaller-sizedcompanies.
  5. For the allocation of the additional facility, the bank will consider: • Weekly reviews in accordance with the information reported by banks to the BCCh, as wellas administrative and accounting files stemming from the CMF, to monitor the use of FCIC funds.• Two supplies for their size: (i) The growth (annualized and face value) of the base portfolio(commercial and consumer bases), taking as starting date that of 13 March 2020; and (ii)The use given to the resources of the facility for the financing of smaller-sized companies.
  6. To access the FCIC, banking companies shall constitute a lien to the benefit of the BCCh,which may not fall on any of the following instruments (eligible collaterals): a) Serialized credit securities issued by the BCCh or the Treasury General of the Republic. b) Fixed-income credit securities issued by banking companies, consisting in mortgageletters of credit, mortgage bonds and other unsecured bonds (with the exception ofsubordinated bonds and bonds without a set seniority date), and notes or set-term CDs. c) Debt securities registered in the Securities Registry (national) kept by the CMF, includingbonds and negotiable instruments (corporate titles), that meet the risk conditions determinedby the BCCh.
  7. Notwithstanding the foregoing, the Central Bank is assessing the most efficientimplementation to extend the list of eligible collaterals to other assets of the investment portfolioor that of placements of banking companies, pursuant to articles 34 and 56 of the ConstitutionalOrganic Law that governs it.
  8. This measure includes the possibility of substituting the instruments on which the liens initiallyestablished to the benefit of the BCCh fall, by the new collaterals that are admitted, subject tothe fulfillment of the financial conditions set up to such ends.
  9. In a supplementary manner, the bank shall also activate the Liquidity Credit Facility (LCL) inChilean pesos (Chapter 4.1 of the CMNF), the ceiling of which corresponds to each Bank’sAverage Cash Reserve [Encaje] in Pesos. The access and use of the LCL shall be subject to thesame conditions associated to the increase in placements set for the FCIC (conditional LCL),notwithstanding the fact of also considering the possibility to access, against the LCL, the sameamount of the initial facility of the FCIC (therefore it being possible to use up the same commoninitial space, which will be available through one facility and/or the other).
  10. To assess the effectiveness of this program of extraordinary facilities, banks accessing themshall fill out a form on a weekly basis, to report the use of the resources of the facility.
  11. The FCIC shall begin to operate during this week, by making available to the bankingcompanies the documentation necessary for them to access the resources set for the matter.

 


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.


 

 


Footnotes:

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.


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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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