“The Board of Directors of the Central Bank of Bolivia is lowering the ratio of legal reserve requirements, which was in effect in local currency and foreign currencies, in order to promote access to loans for Bolivian families with a maximum interest rate of 3% per year for the purchase of domestic products,” the BCB said in a statement. The BCB decision stipulates that financial intermediaries must build up the legal cash reserve, which corresponds to a rate of 100% in the accounts included in the “Other obligations towards the public, with enterprises with state participation and with banks and financial institutions”. Also known as a cash ratio, the legal bank reserve is the percentage of a bank`s money that must be held in liquid reserves without being able to be used for investments or loans. It is the monetary authorities of each country that will set this minimum percentage of reserves that all financial institutions will have to respect. However, there are financial institutions that tend to maintain a higher percentage than reported by the authorities. Monetary and Finance 183-02. This paragraph states: “Financial intermediaries are subject to legal reserve, i.e. the obligation to hold in the central bank or, if determined by the Monetary Board, a percentage of all funds collected by the public in any modality or instrument in domestic or foreign currency. According to the statutory minimum reserves, the rates in national currency and in national currency in UFV were 5.5% for cash reserves and 4.5% for minimum reserves on securities until 28 December. It is explained that the participation of each financial institution in the CPRO Fund corresponds to the resources corresponding to the resources of the ADR Fund in national currency and foreign currency available after the application of the statutory reserve ratios and may be increased by voluntary contributions. The new rates, in force since 10 January, are 5.5% for cash reserves in local currency and in national currency in UFV. And 3.5% for fit-in titles.
The BCB will inject about 4,000 million Bolivianos (about $575 million) by relaxing the ratio of statutory reserves and increasing funds in detention, which will allow the population to have resources through the financial system, which will not be able to charge more than 3% annual interest. For securities deposits and term deposits in local currency, the minimum reserve requirement has been reduced from 5% to 4.5%. The statutory reserve refers to the reserves that financial institutions are required to hold in cash or in the BCB from public deposits and funds from short-term external financing. The Central Bank of Bolivia (BCB) has lowered the reserve requirement for financial institutions to establish securities; The measure aims to free up resources that support the granting of productive credits. An expert sees that he is trying to solve liquidity problems. The legal reserve is not only a support for the sector, i.e. the solvency of banks, but also a monetary instrument to limit or increase working capital. If the percentage of the legal reserve is reduced, the money supply increases, and if it increases, then the money supply is reduced. The following example shows an idea of how the legal reserve is applied: the profits of a commercial bank come from the return provided by the investment it makes in the deposits it receives. That is, when a bank receives 100 pesos of deposits, it pays a passive interest rate of 3% per year to the depositor and lends this 100 pesos to the public, to which it charges an annual active rate of 18%. Until last week, the legal reserve for several banks was 12.3% and was increased by the central bank to 14.3% to stop the rise in the dollar exchange rate.
In AAyP and savings banks, the reserve requirement increased from 8.1% to 10.1%. In foreign currency, the cash reserve is 10% and 9% for reserve requirements for DPF securities longer than 720 days, in addition to 10% for the rest of the liabilities. In the external circular of 7 January CIEX No. 2/2022 to financial intermediaries with reference to the establishment of the Credit Fund for the Productive Sector (CPRO), the BCB informs them where the funds released by the reduction of the statutory reserve should go. In general, 90% of statutory reserve funds are deposited with the central bank and the remaining 10% with the financial institutions themselves, based on the corresponding amounts. Now the legal reserve is applied to the deposits that banks receive, and since it is now 14.3%, the example of the bank that receives deposits per 100 pesos must hold 14.30 pesos of legal reserve in the central bank. This means that you can only use 85.70 pesos to lend them later and make a profit on the interest rate. In the circular, the issuing body points out that the change in the structure of the statutory reserve ratios has increased from 10. January 2022, freeing up resources to form the CPRO. LA PAZ, July 6 (Xinhua) — The Central Bank of Bolivia (BCB) announced today that it has lowered the current reserve requirement ratio to “promote access to credit for Bolivian families” less interested in consuming Bolivian goods and services. A bank cannot invest everything it receives from deposits because it would run the risk of running out of cash and going bankrupt. To avoid this situation, the central bank obliges them to keep a percentage of the deposits in their possession.
The legal reserve is not of general application to all institutions, it depends on the value of their assets and the amounts deposited by savers with each institution, so the formula for determining it would be as follows: legal reserve = assets of the banking system or reserves (CNC) between deposits remitted by savers to the bank (D). The application of the legal framework is defined in article 26, letter b) of the law: “The issuing body regrets that some media disseminate false information in order to create insecurity in the population and violate not only the norms of journalistic ethics, but also the right of Bolivians to be informed in a reliable and transparent manner”. held the BCB. The funds of loans in national currency with a duration of at least 11 months must be intended for the purchase of domestic products and the payment of services of Bolivian origin. For Banegas, the measure to reduce the legal reserve approved for the direct financing of the productive sector stems from the liquidity problem targeted at the regulated portfolio. This condition makes minimum reserves an ideal instrument for the application of monetary policy in certain circumstances.