Superintendency of Banks Launches a Transparency

UNCLAS QUITO 001002 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/AND AND EB/OMA TREASURY FOR STEPHEN GOOCH E.O. 12958: N/A TAGS: EFIN ECON EC SUBJECT: Superintendency of Banks Launches a Transparency Initiative, Congress May Revive Bank Legislation ¶1. (SBU) Summary. The Superintendent of Bank launched a plan to increase transparency in the banking sector. This could lower interest rates, a priority for President Correa. Separately, Congress may move forward with a law to impose additional controls over the banking sector; although earlier versions were a cause for concern, an initial review by the Banking Association suggests that the main provisions of the currently proposed law might be acceptable. End Summary. Transparency Initiative -------------- ¶2. (U) On May 1, the Superintendency of Banks initiated a new transparency initiative by publishing on its website the actual lending costs of Ecuadorian banks for a variety of loans: commercial, consumption, real estate and automobile. Many Ecuadorian banks charge substantial commissions in addition to interest rates, which are capped. The transparency initiative should clarify the real costs of loans, and could serve as a catalyst for banks to lower their total lending costs. Banks' interest rates on deposits will also be published by the Superintendency. ¶3. (SBU) The impact of this transparency is already being felt; a Superintendency official who briefed a USAID officer about this proposal noted that as the Superintendency compiled data on lending costs, banks returned to the Superintendency several times to lower their interest rates and commissions. Revived Banking Legislation -------------- ¶4. (U) The Ecuadorian Banking Association informed a USAID officer that it had learned that the Economic Commission in Congress is planning to move forward with a law initially proposed by former president Leon Febres Cordero (but also supported by President Correa) to impose tighter controls over the banking sector. The law had already been approved in a first reading by the former congress, so it could move forward relatively quickly if the current congress decides to act. The second review of this proposed law could take place in mid-May. ¶5. (SBU) In examining the views of the current President of Economic Commission, Salvador Quishpe, the Banking Association believes that some of the more egregious elements of the draft law (such as directed lending) may be eliminated. The Banking Association believes that the law may focus on segmenting loans markets and establishing interest rate and commission caps, but do so in a way the banking industry could accept. The Banking Association will meet with Quishpe on May 7 to reopen the dialogue. The Banking Association is prepared to take a flexible position, recognizing that Correa supporters control the Congress with 55 Deputies, enough to pass the law and/or introduce other reforms in this law that might affect the stability of the financial sector. Comment -------------- ¶6. (SBU) The Superintendent's transparency initiative strikes us as a good first step to respond to President Correa's (not unreasonable) demand that banks lower lending rates. By making lending rate data publicly available, the transparency initiative should use market force (and maybe a healthy dose of embarrassment) to push down exorbitant interest rates and commissions. More worrisome is the effort to revive legislation which initially attempted to greatly increase regulatory control over the banking sector, without reasonable and appropriate segmentation based on loan type and other factors. Post will remain in touch with the Banking Association to determine whether its initial views that Quishpe will turn the legislation into something more acceptable are well-founded. Jewell