Bank’s Dividend Distribution Limited to Strengthen Liquidity

In a move to ensure the stability of the financial system, Guatemala has introduced measures to limit the distribution of dividends by banks when needed to strengthen their liquidity or solvency.

New Regulations to Prevent Excessive Risk-taking

Under the new regulations, banks must notify the Superintendency of Banks (SIB) and present a regularisation plan if they have a patrimonial deficiency. The plan must include measures such as:

• Reducing assets
• Increasing capital
• Selling shares to cover the deficiency

SIB’s Authority and Oversight

The SIB has the authority to approve, reject, or amend the bank’s proposal and may appoint a delegate with veto powers to ensure compliance with the regularisation plan. Banks are also required to file reports with the SIB on a regular basis and may not pay dividends or grant loans to their shareholders or related companies during the regularisation period.

Consequences of Non-compliance

The measures aim to prevent banks from taking on excessive risks, which could put their liquidity and solvency at risk. The SIB has the power to suspend a bank’s operations if it fails to present a regularisation plan or if its patrimonial deficiency is higher than 50% of required legal patrimony.

• A bank suspension entails several effects, including:
  • Suspension of all judicial procedures against the bank
  • Inability to contract new obligations
  • Suspension of interest accrual on debts
  • Rights incorporated by shares are suspended
  • Directors or administrators are ceased and terminated

Measures to Prevent Misuse of Bank Funds

The SIB has also introduced measures to prevent the misuse of bank funds, including:

• Appointment of a three-member Board for Exclusion of Assets and Liabilities (BEAL) to determine losses and cancel them with legal reserves and other reserves
• BEAL is empowered to take any or all of the following measures:
  • Determining losses and cancelling them with legal reserves and other reserves
  • Deciding exclusion of assets from the bank’s balance sheet
  • Deciding exclusion of liabilities from the bank’s obligations

Aim and Expected Outcomes

The new regulations aim to strengthen the financial system by preventing banks from taking on excessive risks and ensuring that they have sufficient liquidity and solvency to meet their obligations. The measures are expected to improve the stability of the banking sector and reduce the risk of financial instability in Guatemala.