Country Reports
2020
September 25, 2020
Colombia: Request for Augmentation of Access Under the Flexible Credit Line Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Colombia
Description: The current FCL arrangement for Colombia was approved in May 2020. Colombia was cited for its very strong policy frameworks—anchored by a flexible exchange rate, a credible inflation-targeting regime, effective financial sector supervision and regulation, and a structural fiscal rule—and a track record of very strong policy implementation that served as a basis for the economy’s resilience prior to the Covid-19 pandemic.
September 25, 2020
Belize: Technical Assistance Report—Cybersecurity, Regulation, Supervision, and Resilience
Description: Cybersecurity risk is embedded in the CBB’s supervisory framework, but additional enhancements are needed to formalize guidance and develop more intensive supervisory practices. Supervisory expectations on cybersecurity are presented in an informal guidance note, which should be formalized into regulation to ensure enforceability; and an IT/cybersecurity supervisory manual should be developed to promote effective and consistent practices. With its principle-based guidance note, the CBB highlights its priorities in strengthening the cybersecurity posture of Belizean financial institutions. The principles are an appropriate interpretation of international best practices on incident prevention, detection, response, and recovery measures, adapted to the cyber maturity of the Belizean financial institutions, and can be used as a foundation for the formalized guidelines. The manual could emphasize the review of cybersecurity strategies, policies, and responsibility specifications and should address obtaining assurance on the effectiveness of the financial institutions’ processes for cyber risk identification, assessment, and mitigation.
September 24, 2020
Togo: Technical Assistance Report-National Accounts Statistics
Description: A technical assistance (TA) mission led by Mr. Fahd Ndiaye, Resident Adviser in Real Sector Statistics for AFRITAC West, visited Lomé from January 27 to 31, 2020, to assess the national accounts for the new base year 2016 with the National Institute of Statistics and Economic and Demographic Studies. (INSEED). These accounts were prepared in accordance with the System of National Accounts 2008 (2008 SNA). The proceedings took the form of a workshop with representatives of the World Bank, the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB),the Statistical and Economic Observatory of Sub-Saharan Africa (AFRISTAT), the Commission of the West African Economic and Monetary Union (WAEMU) and the Central Bank of West African States (BCEAO). This report is largely based on the aide-memoire signed with the country and partners.
September 21, 2020
Angola: Third Review under the Extended Arrangement Under the Extended Fund Facility, Requests for Augmentation and Rephasing of Access, Waivers of Nonobservance of Performance Criterion and Applicability of Performance Criterion, Modifications of Performance Criteria, and Completion of Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Angola
Description: The economic outlook has substantially deteriorated since the Second Review, driven by the negative effects of the COVID-19 pandemic on global economic activity and oil prices. The adverse impact of the shock on the Angolan economy, which is highly dependent on oil (95 percent of exports, two-thirds of government revenue), adds to the hardship from five consecutive years of recession. Rapid exchange rate depreciation and the decline in oil prices have pushed the public debt-to-GDP ratio to a very high level. However, continued fiscal retrenchment, prudent debt management, and debt reprofiling are expected to improve debt dynamics progressively.
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Insolvency and Creditor Rights
Description: The Korean insolvency and creditor rights framework is complex and has undergone several reforms in recent years. Consistent efforts to enhance the efficiency and effectiveness of the insolvency system have been made since the Asian crisis by the multiple government agencies that oversee the functioning of the insolvency framework in Korea. This note summarizes the key findings of the analysis of select aspects of the Korean insolvency and creditor rights system against the international standard.2 While the framework for personal insolvency is also discussed (See Annex), its analysis is not prescriptive, as there are no international best practices in this area.
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Financial Conglomerates Supervisions
Description: Oversight of the Korean financial system is broadly effective. Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have in place regulatory and supervisory regimes in line with international standards with only a few remaining gaps. The authorities have addressed most of the recommendations of the previous FSAP and made good progress in benchmarking their frameworks with the Basel Core Principles (BCP), the Insurance Core Principles (ICP) and the International Organization of Securities Commissions (IOSCO) Objectives and Principles for Securities Supervision (IOP).
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Frameworks and Tools
Description: Past experience with financial crises places systemic risk oversight at the core of Korea’s approach to the financial system. The Korean authorities have amassed over a decade of experience with macroprudential policies. They have put in place rigorous and sophisticated processes for risk monitoring. They publish first-rate analysis. And they have actively developed measures to mitigate risks to the financial system—notably from FX exposures, and from household indebtedness—as circumstances have changed. But their system has evolved to be highly complex, which poses challenges for coordination, communication, and transparency; moreover, their toolkit needs to be extended. These areas should be the focus of efforts to strengthen the policy framework.
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Non-Financial Balance Sheet Vulnerabilities and Risks to Financial Stability
Description: Non-Financial Corporate Sector. Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP. The stock of non-corporate debt has become slightly more resilient due to the deleveraging of non-conglomerate affiliated firms. Average firm performance has remained resilient for conglomerate-affiliated corporates but weakened for all other firms. As a result, despite the low interest rate environment, around one-quarter of total corporate debt (around 28 percent of GDP) is registered ‘at-risk’. Banks balance sheets are at risk as over half of non-financial corporate debt-at-risk resides with SMEs; Stress tests show that (i) Korean firms which are more indebted, less profitable, smaller and have lower turnover are more likely to experience difficulties servicing their debt; (ii) corporate balance sheets are vulnerable to a sudden hike in interest rates, which combined with a profit shock, could double the amount of debt-at-risk held by non-SME firms and; (iii) exchange rate shocks appear manageable given low FX debt and natural FX hedges. Under a downside macro-financial stress test scenario, non-SME credit losses would total a touch over 2 percent of GDP. Bank stress tests suggest that the maximum cumulative bank losses from distressed SME loans in a stress scenario would total around 2 percent of GDP. Together, these losses would be broadly manageable for the financial system to absorb.
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis, Financial Sector Stress Testing, and an Assessment of Demographic Shift in Korea
Description: This note presents the systemic risk analysis conducted for the Republic of Korea in the course of the 2019 Korea FSAP. It comprises a forward-looking solvency analysis for banks, insurers, and pension funds, a liquidity stress test for banks, and an assessment of network and interconnectedness for a wide range of financial sector entities and their ties to the real economy. Various structural characteristics of Korea’s economy and its financial system informed the features and focus for its forward-looking risk analysis. They include Korea’s strong export orientation, limited diversification, and its key role as a node in regional and international supply chains. Korea’s financial system has grown by 40 percentage points of GDP since 2013, enhancing the importance of a deep financial sector analysis as conducted through the FSAP. Mortgage insurance schemes are widely used—which was reflected in the way the risk assessment for banks was conducted. Korea’s life and non-life insurance sector is large, highly concentrated and saturated. Fintech developments keep accelerating, in terms of its Open Banking system and e-money providers. Demographic developments in Korea are among the most adverse world-wide, implying a continuous drag on demand, downward pressure on interest rates, financial firms’ income, and hence their capitalization unless they will be altering their business models.
September 18, 2020
Republic of Korea: Financial Sector Assessment Program-Technical Note-Technological Change, Legal Frameworks, and Implications for Financial Stability
Description: Technological innovation in Korea holds great potential for the deepening of its financial system, that could lead to an increase of product offerings and lowering of transaction costs. Korea’s financial sector legal framework, particularly the recently announced open banking initiative and anticipated amendments to the legal frameworks for electronic financial transactions and use of personal data, will play a key role in shaping the direction of innovation and competition in the financial sector. The already highly modernized and digitally connected state of the Korean financial sector will amplify the impact of these changes to market structure and competition. Korea’s fintech experience illustrates that even within an already highly technologically advanced, efficient, and inclusive financial sector, significant benefits can still be reaped from innovation in financial services.