Sovereign risk, the muzzle for foreign banks

Ecuadornews:

The government seeks to improve the conditions for branches of foreign banks to land in Ecuador, while the country fights a battle between those who criticize the payment of interest on cards after the amount of the minimum payment and the payment of interest on the day of payment with the plastic.

The regime reduced the requirements in case an international financial institution decides to open an office in the country. The objective is to promote competition in the Ecuadorian financial system, says the resolution of the Monetary and Financial Policy and Regulation Board, signed at the end of 2018 and in force since January 21.

Economic analyst José Orellana Giler argues that “to be exhaustive we must consider that the best corporate clients and individuals are already clients of banks abroad.” There are niche markets that attract firms from outside, such as microcredit. The country has not grown since 2014 and its projections are not encouraging.

The resolution modifies three aspects. The first: establishes that the bank seeking an authorization to operate a branch or representative office must have a rating of at least ‘BB’.

Before the reform, a rating of at least ‘BBB’ was needed.

The second has to do with heritage. A sufficiency of technical equity is required in accordance with the applicable regulations for entities controlled by the Superintendency of Banks, at least, during the last month prior to the date of presentation of the request.

Previously, it was required to comply with the same levels of sufficiency of technical patrimony during the last three consecutive months prior to the date of presentation of the request to be able to operate.

The term in which the branch of the foreign entity must submit to the Superintendency the certification issued by the corresponding state agency on compliance with minimum security measures for persons, goods and others is extended from three to six months.

Miguel Ricaurte, chief economist for the Andean Region of Brazilian bank Itaú, says that although the measure is going in the right direction, he expects it to be planned. He explains that foreign banks are not in the country not only because the regulations are restrictive, but also because the sovereign risk is high and that makes the domestic market unattractive. He adds that the incursion of international banks in countries of the region has been executed through the purchase of local entities, because growing from zero is difficult for banks.

The stock market

To make the national financial system more attractive, says Clermont Muñoz, an academic specialist in banking and corporate finance at Espai (Espol Business School), the stock market must also be developed.

For international banks to enter the country you also need a securities market that provides facilities for investment and offering securities and other financial instruments. (I)

Source: https://www.expreso.ec/economia/economia-finanzas-pagos-bancos-LX2617836