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Exceptional Regulatory Measures to Assist in the Reactivation Economy in Honduras

It is widely known that the effects of the COVID-19 Pandemic, and the natural phenomena Eta and Iota that hit the Republic of Honduras in the month of November 2020, will have an impact on the Honduran economy, which will be reflected in this year.

In addition to the effects derived from the initial lock down due to the Pandemic that led to the closure of countless commercial businesses, as well as the termination of jobs, the country suffered substantial additional losses due to the damage caused by the Eta and Iota phenomena. According to a report by the Economic Commission for Latin America (ECLAC), the crisis has had an impact of one hundred million Lempiras (L 100,000,000.00) on the national economy, consequently, the landscape that is visualized for this year is not encouraging, being imperative the taking of economic, financial, social and labor measures, that contribute to a recovery of the Honduran economy.

Consequently, the National Banking and Insurance Commission (CNBS), the regulatory body of the financial sector in the Republic of Honduras, approved regulatory measures of an exceptional nature, with the objective of contributing to the rehabilitation and reactivation of the national economy. Thus, it issued an administrative resolution, contracted, among others, to allow the financial institutions of the system to restructure the credit portfolios of financial users affected by the pandemic and natural phenomena, allowing them to receive differentiated treatment through the granting of measures of relief and readjustment of your debts.

Likewise, it was established that the financial institutions of the system may present a gradual adjustment for the constitution of estimates for deterioration of their loan portfolio, when the reserves constituted for this are insufficient, which terms may range from five to seven years. In addition to the foregoing, the Regulatory Body approved the temporary modification for a period of five years, from December 2020 to December 2025, the way to calculate the loan portfolio default coverage indicator.

From the adoption of the exceptional regulatory measures previously listed succinctly, it is easy to collate that these are intended to free up bank resources for the purposes of restructuring the affected loans.

However, it is also concluded that there will be a default in the banking system due to the eventual inability to pay of the obligors, consequently a reduction in the profits of the financial system.

Godofredo Siercke Núñez
Partner
García & Bodán
Honduras

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