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Capital Adequacy Guidelines
A bank must maintain minimum capital adequacy ratios (CAR) to ensure its stability and solvency. The key requirements are:
- Credit Risk: 10% CAR
- Market Risk: 20% CAR
- Operational Risk: 50% CAR
If a bank fails to meet these requirements, the oversight agency will order a capital increase. If the bank is unable to comply within the granted term, it will enter into mandatory liquidation.
Undercapitalisation
When a bank becomes undercapitalised, its administrators can no longer fulfill their duties, and a receiver is appointed ex officio. Precautionary measures may be implemented until the liquidation is over. Civil and criminal action may be taken against administrators and shareholders.
Insolvency
If a bank becomes insolvent, all levels of supervision must be exhausted before issuing a resolution to liquidate the bank. The oversight entity will initiate corrective measures prior to liquidation to safeguard equity, depositors’ rights, and financial stability. After exhausting all options, the Superintendency of Banks issues a resolution ordering the liquidation of the bank and appoints a liquidator.
Recent and Future Changes
Although no changes are expected regarding adequate capital, state-owned banks are obligated to contribute up to 50% of their profits to a fund for the development of people’s and solidarity financial sectors.
Ownership Restrictions and Implications
An individual or company has direct controlling interest when owning 6% or more of subscribed and paid-in capital or capital stock, or having shares equal to or greater than 600 times the income tax-exempt base fraction. Controlling interest resulting from an indirect relationship exists in certain family relationships or companies with influential power in the financial institution.
Foreign Ownership
Foreign individuals or legal persons may incorporate financial entities or establish branches or representation offices in Ecuador without limits on investment, subject to domestic rules governing investment.