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Cablegate: Superintendency of Banks Launches a Transparency

VZCZCXYZ0029
OO RUEHWEB

DE RUEHQT #1002 1222141
ZNR UUUUU ZZH
O 022141Z MAY 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6926
INFO RUEHBO/AMEMBASSY BOGOTA 6627
RUEHCV/AMEMBASSY CARACAS 2530
RUEHLP/AMEMBASSY LA PAZ MAY LIMA 1629
RUEHGL/AMCONSUL GUAYAQUIL 2275

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

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