Financial Institutions Cushion COVID19 Blow

This blog post was written by Diana Mejía and Karina Azar

Latin America and the world are facing the same challenge: joining forces to cope with the negative impacts of COVID-19.  Protecting jobs and small and medium-sized enterprises are critical to sustaining the social progress made by Latin America over recent decades.

CAF has offered shareholders a contingent credit line of up to USD 50 million per country for direct support to public healthcare systems, as well as a rapid emergency credit line of up to USD 2.5 billion to mitigate the effects of the pandemic, help ensure continuity of business operations, and economic upturn. Authorities also have non-refundable technical cooperation funds of up to USD 400,000 per country at their disposal for initiatives related to this global situation. CAF will also continue to make efforts to mobilize funds from third-party countries and strategic partners to complement the efforts made by our shareholder countries.

Similarly, CAF will continue to support the banking system of countries of the region and will prioritize development banks in their efforts to allocate funds to the productive sector, particularly SMEs, because these companies are hit hardest by the impact of the outbreak as they are more likely to experience limited cash flow and difficulties in repaying their loans. Thus, we seek to ensure greater access to funding in order for financial institutions to continue to offer loans aimed for foreign trade and working capital, as well as to support liquidity in the event that SME production chains are compromised, and thus mitigate the effects on their productive activities and jobs.

In addition, CAF has offered support to regulatory bodies and banking associations engaged in non-financial services.  This includes issues related to portfolio rating regulation, as well as in the design of emergency rules that consider the impact of COVID-19 as a force majeure event to support exceptions in the financing of companies by commercial banking, among others.

Furthermore, CAF welcomes and supports the initiatives of Latin American financial institutions that have established meaningful and timely measures to reduce the impact of this crisis on their clients, including SMEs and individuals. In particular, these measures range from special lines of credit for SMEs to adjustments to the conditions of consumer loans for individuals, including installment term extensions, change in payment days and grace periods. In addition, several entities have included preferential conditions and lower interest rates for purchases of basic goods.

In addition, financial institutions have offered digital channels for their clients, often free of charge, to avoid in-person procedures at branches, and have raised daily caps for payments and transfers. Similarly, and in an effort to curb the use of cash, financial institutions are promoting different contactless payment alternatives such as debit and credit cards, as well as QR payments, among others, for payment at retail establishments and fares in mass transport systems.

Furthermore, the region’s supervisors and regulators have given an agile response in order to alleviate the financial burden on debtors financially impacted by the coronavirus outbreak and ensure the provision of financial services. In particular, new conditions for loans, such as grace periods, extended terms, among other measures, will have no effect on the debtor’s rating or information on their credit behavior at risk rating institutions. This means that financial institutions will not need to issue additional provisions for these new conditions during this period.

In sum, CAF’s role as a multilateral development entity, together with the initiatives of financial institutions in the region, will enable rapid and timely response to the needs of the region’s private sector, thus reducing the impact COVID-19 on people’s economy and quality of life.