As a result of the COVID-19 emergency in Colombia, the President declared a national Social, Economic and Ecological Emergency (the “State of Emergency”) by means of Decree 417 of 2020. The State of Emergency enables the Executive Branch of the Government, for a 30-day period, to issue Legislative Decrees addressed to resolving the emergency. Legislative Decrees have the same rank as laws/statutes enacted by Congress -the legislative branch-. A significant number of measures have been adopted to mitigate the effects of the crisis:
- Decree 444 of 2020. Within the framework of Decree 417 of 2020, the Ministry of Finance and Public Credit issued Decree 444 creating the Emergency Mitigation Fund (“FOME”) as a fund/account to (i) providing resources for the health care system, (ii) mitigating the adverse effects on the productive activities and (iii) fostering appropriate conditions for employment and continuous growth of the economy. Thus, FOME’s resources will be used to avert the crisis or prevent the extension of its effects on the national territory. Specifically, FOME will aim to:
- Carry out operations to provide transitory cash flow support to the financial sector trough the temporary transfer of securities, term deposits, among others;
- Invest in equity or debt instruments issued by private, public or mixed capital companies engaged in activities of national interest, including shares with special participation conditions, dividends, among others;
- Provide direct financing to private, public or mixed capital companies engaged in activities of national interest;
- Provide cash flow to the Nation, only in those events where the effects of the emergency extend to the ordinary sources of cash flow. This support will only be intended to meet the social and economic needs of the business sector, caused by the State of Emergency.
These operations may be carried out only to prevent the extension of the effects of the State of Emergency declared by Decree 417 of 2020.
- Circular 007 of 2020 (“Instructions”) of the Superintendencia Financiera de Colombia (“SFC”).
- By means of this Instructions, prudential measures were issued by the SFC to mitigate the effects of the economic market situation and the health emergency situation in the financial system debtors.
Thus, the SFC determined that credit institutions should establish effective policies and procedures to identify the clients that will be subject of the agile application of special measures to attend the situation, emphasizing on those economy sectors identified as being “of particular attention” by the National Government. These measures will consider at least the following, notwithstanding the possibility to implement additional measures:
- For those credits which, as of 29 of February of 2020, do not have a default greater than or equal to 30 days, even if they were modified and/or restructured, grace periods may be established to address the client’s particular situation, without the client being considered a greater risk factor. Financial entities may continue to accrue interests during this period.
- For the established grace period, these loans will maintain the rating they had as of February 29, 2020, and only after that it should be requalified according to the risk analysis performed by the financial entity. Therefore, during that period the client’s rating at the risk centrals will remain unchanged.
- For a 120-day period, changes to the credit’s conditions in attention to the provisions issued by means of this Circular will not be understood as a generalized practice for portfolio normalization.
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