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Cablegate: Response to Opic On Banco Procredito

VZCZCXYZ0000
OO RUEHWEB

DE RUEHQT #1701 2121430
ZNR UUUUU ZZH
O 311430Z JUL 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7466
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 6776
RUEHCV/AMEMBASSY CARACAS PRIORITY 2617
RUEHLP/AMEMBASSY LA PAZ JUL 0661
RUEHPE/AMEMBASSY LIMA PRIORITY 1793
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2589
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS QUITO 001701

SIPDIS

SENSITIVE
SIPDIS

TREASURY FOR MMALLOY AND MEWENS
STATE PASS TO OPIC/RGREENBERG

E.O. 12958: N/A
TAGS: EINV EC
SUBJECT: RESPONSE TO OPIC ON BANCO PROCREDITO

REF A: State 74213

B: Quito 1655

1. (SBU) Post welcomes OPIC interest in supporting the important
microcredit and small-medium enterprise market in Ecuador (ref A).
We had delayed responding given recent uncertainty regarding the
outcome of Ecuador's controversial banking bill, but can now provide
a fulsome response as the law has been passed by Congress.

2. (SBU) Banco ProCredito (BPC), the successor of Sociedad
Financiera Ecuatorial S.A., was established in October 2001 by
ProCredit Holding AG (formerly IMI) in Germany and the Dutch lottery
fund DOEN. In September 2004, BPC received approval from the
Superintendency of Banks to be transformed into a bank and converted
into a fully operational bank in January 2005. BPC is headquartered
in Quito, with 15 branch offices in 9 cities in the north and west
of Ecuador. BPC has grown very quickly since its inception in
October 2001 and has consolidated its position as one of the leaders
in Ecuador's microfinance market. As of December 2006, BPC had
$130.8 million in assets; a $47.4 million increase over the previous
year. The loan portfolio grew by nearly $40 million and
approximately 10,000 accounts from the previous year, resulting in
an outstanding loan volume of US$117.5 million distributed among
more than 40,400 micro and small entrepreneurs and rural producers.
BPC received $8.6 million in paid-in capital and generated US $2
million in profits - an increase of $1 million from 2005. BPC can
now accept a range of deposits from the public which will fuel
future expansion and development of new savings and loan products.
Deposits more than doubled from 2005 to 2006 (from $20 million to
$44.6 million) as did the number of accounts (from 15,500 to
43,000).

3. (SBU) The banking law that was passed by Congress (ref B)
entered into effect on July 26, 2007. Initially, the
administration's bill proposed strong political controls over the
banking sector, but Congress substantially modified the bill to
establish more limited controls, which the banking sector found
relatively acceptable. The legislation prohibits commissions, sets
interest rate ceilings by market segment (commerce, consumption,
housing and microcredit) and gives the Central Bank the authority to
establish the methodology to calculate the effective rate of
interest. Banks claim that the law's maximum interest rate formula
will tend to move interest rates towards a fixed rate within six to
eight months. President Correa is not satisfied with the new law
because it does not provide for a low enough interest rate ceiling,
and has vowed to seek stronger control of the financial sector
through the Constituent Assembly later this year.

4. (SBU) Comment: OPIC is considering a project with an efficient
and leading institution servicing micro and small businesses as well
as rural producers. Under a stable environment for the banking
sector, the project would have a positive impact in underserved
sectors of the economy. While the project seems positive, the
potential for changes in the Constituent Assembly to the legal
framework for the banking sector, possibly including greater
government control and lower mandatory fixed interest rates, could
further disrupt the financial sector, particularly for microcredit.
End Comment.

BROWN

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