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IDB approves $25 million soft loan to Honduras for financial sector program

The Inter-American Development Bank today announced the approval of a $25 million fast-disbursing soft loan to Honduras for a program to maintain the stability and solvency of its banking sector.

The program will assist the Honduran government’s efforts to bolsterbank supervision, improve financial information systems and introduce prudential norms based on the Basle core principles for effective banking.

A key goal of the program is to avoid potential fiscal crises triggered by bank failures. It also seeks to ensure a sound and solvent financial system, build trust among depositors and offer borrowers a reliable source of financing.

In combination with other projects supported by multilateral institutions, the IDB-backed program also aims to improve the Honduran banking system’s financial health, which has suffered due to the lack of adequate supervision and other factors, such as the forgiveness of rural loans after Hurricane Mitch.

In order to bring regulations up to Basle standards, the National Banks and Insurance Commission will take actions concerning capital adequacy; classification of loans, guarantees and reserves; matching of maturities, currencies and interest rates; external audits; contingent assets; accrual of interest in income accounts and electronic exchange of financial information.

Regarding consolidated supervision, the Honduran banking authority will adopt measures concerning the definition of financial groups and registration procedures; submission of consolidated financial statements; financial group capital adequacy and treatment of offshore operations.

This program reflects the IDB’s strategy of supporting Honduran efforts to ensure fiscal and macroeconomic stability and foster growth to reduce poverty. The program has been closely coordinated with other projects to be supported by the World Bank and the International Monetary Fund to strengthen the Honduran financial system in a comprehensive manner.

The loan is for a 40-year term, with a 10-year grace period. Annual interest will be 1 percent during the first decade and 2 percent thereafter. Resources are to be disbursed in two tranches, the first one for $15 million.

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