Financial Crime World

IMF Urges Ecuador to Implement Basel III Buffers and Borrower-Based Measures to Enhance Financial Stability

Quito, Ecuador - The International Monetary Fund (IMF) has called on Ecuadorian authorities to take action to enhance financial stability in the country.

Strengthening Supervisory Framework and Improving Capital Requirements

In its latest report, the IMF highlighted the need for Ecuador to strengthen its supervisory framework, improve capital and liquidity requirements, and address vulnerabilities in the public banking system. The report noted that while Ecuador’s economy has rebounded from the COVID-19 pandemic, it is now facing a slowdown.

Public Banks: A Major Concern

The country’s financial sector has remained stable, but public banks have significantly higher non-performing loans (NPLs) and have recently undergone an asset quality review (AQR). While public banks have capital ratios above 30 percent, covering the substantial gap in loan classification and provisioning found by the AQR would trigger supervisory action.

To address these vulnerabilities, the IMF has recommended that Ecuador implement:

  • Basel III Buffers: Conservation, countercyclical, and D-SIB buffers
  • Borrower-Based Measures:
    • Enhanced credit data collection and reporting requirements
  • Strengthening Institutional Framework:
    • Making safety and soundness the primary goal of superintendencies
    • Enhancing independence and technical capacity

Market Development and Financial Inclusion

The IMF has also called on Ecuador to:

  • Address vulnerabilities in public banks
  • Implement AQR provisioning recommendations
  • Intensify prudential supervision of state-owned financial institutions
  • Redesign credit support programs with debt forgiveness removed and interest rate caps migrated to a usury rate
  • Develop services to reach underserved and financially excluded segments

Conclusion

The IMF has urged Ecuadorian authorities to take swift action to address these vulnerabilities and implement the recommended measures to enhance financial stability in the country.