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

Strengthening Ecuador’s Financial Sector

QUITO, ECUADOR - The International Monetary Fund (IMF) has urged Ecuadorian financial authorities to implement various measures to strengthen the country’s financial sector. In a report released today, the IMF highlighted the need for Ecuador to enhance its supervisory agencies’ technical and analytical capacity by establishing a career plan, sound training program, and adequate resources.

Recommendations

Here are some of the key recommendations made by the IMF:

  • Basel III Buffers: Align capital and liquidity requirements with Basel III standards
  • Conservation, Countercyclical, and D-SIB Measures: Implement measures to strengthen the financial sector’s resilience
  • Borrower-Based Measures: Implement borrower-based measures to improve credit risk assessment and reduce defaults
  • Supervisory Agencies: Enhance supervisory agencies’ technical and analytical capacity by establishing a career plan, sound training program, and adequate resources
  • Institutional Framework: Strengthen the institutional framework for supervision, making safety and soundness the primary goal of superintendencies and enhancing their independence

Addressing Vulnerabilities

The IMF report also identified several vulnerabilities in Ecuador’s financial sector that need to be addressed:

  • Public Banks: Address vulnerabilities in public banks
  • AQR Provisioning Recommendations: Implement AQR provisioning recommendations
  • Prudential Supervision of SOFIs: Intensify prudential supervision of SOFIs (state-owned financial institutions)
  • Credit Support Programs: Redesign credit support programs and remove expectations of debt forgiveness

Market Development

To promote market development, the IMF recommended:

  • Government Securities: Streamline the supply of government securities
  • Repo and Secondary Markets: Promote the development of repo and secondary markets
  • Investor Base: Broaden the investor base to reduce reliance on a single group of investors

Challenges Ahead

Despite Ecuador’s progress in recent years, including a strong recovery driven by private consumption, the country still faces challenges:

  • High Frequency Indicators: High frequency indicators pointing to moderation in 2023Q1
  • Political Uncertainty: High political uncertainty

The IMF report concluded that Ecuador’s financial sector remains vulnerable and requires strengthening of supervisory frameworks, improved regulation, and enhanced competition to support sustainable economic growth and stability.