Last April 27, 2023, the Central Bank of Paraguay (Banco Central del Paraguay - BCP, by its Spanish acronym) issued Resolution No. 40 Minute No.21, approving the Regulation for Loan Portfolio Purchase Transactions (the Regulation), abrogating BCP Resolution No. 14, Minute No. 18 dated March 22, 2018, as amended by Resolution No. 15, Minute No. 24 dated April 17, 2018.
The purpose of the Regulation is to establish the rules and requirements to be complied with by supervised financial institutions for the purchase of loan portfolios of any nature from individuals or legal entities, whether or not they are supervised by the BCP. The Regulation also provides that its provisions are applicable to financial intermediation entities supervised by the BCP that are subject to Law No. 861/96 as amended, as well as to other entities supervised by the BCP according to its special laws, such as the Development Finance Agency (Agencia Financiera de Desarrollo) the Retirement and Pension Fund for Bank and Related Employees (Caja de Jubilaciones y Pensiones de Empleados de Bancos y Afines), the Agricultural Allotment Credit (Crédito Agrícola de Habilitación) and the Livestock Fund (Fondo Ganadero).
According to the Regulation, the purchase of loan portfolios may be with recourse or without recourse. The purchase with recourse implies that the seller guarantees payment of the loan through a joint and several liability of the debt; consequently, in the event of default, the seller remains at risk for the supervised entity. In the case of a non-recourse purchase, the supervised entity assumes the risk of non-payment of the loan and everything related to its collection.
In order to carry out a loan portfolio purchase operation, every supervised entity must comply with certain requirements, such as including the loan portfolio purchase operation in its Credit Policies and Procedures Manual, including the intention to carry out portfolio purchase operations in its Business Plan, possessing the technical capacity and administrative and technological infrastructure necessary to carry out a technical analysis of the portfolio to be acquired, employ adequate internal control systems and procedures, request the documentation required by the Secretariat for the Prevention of Money or Asset Laundering (Secretaría de Prevención de Lavado de Dinero o Bines -SEPRELAD, by its Spanish acronym) from the assignor, ensure that the credit assets to be acquired do not correspond to loans from debtors that have been sold by the same supervised entity in the last twelve months, among others.
Likewise, the supervised entity shall have the original settlement of the acquired operation, maintain the original structure and conditions of the loan, not establish portfolio return clauses for periods exceeding forty-five days, and ensure that the portfolio to be acquired hast not expired, with no payment in arrears or default whatsoever.
On the other hand, it establishes the minimum content that loan portfolio purchase agreements shall contain, namely, basic information on the parties involved, the type of transaction (with or without recourse), precise identification of the loans acquired, price and form of payment, prohibition for the seller to carry out collection actions, the seller's obligation to notify the assigned debtor and deliver the corresponding documentation, alternative security mechanism if agreed upon and guarantees, if any.
Likewise, it establishes the requirements to consider valid the documents evidencing the existence and ownership of the credits, such as that they are freely available to the seller, that they represent non expired credits, that they have as a genuine source the business or productive activity of the seller and that they are transferable by endorsement or by any other form permitted by financial laws
It also establishes the seller's obligation to notify the assigned debtor of the assignment made and the identity of the new creditor, in accordance with the provisions of the Paraguayan Civil Code. In addition, the buyer must ensure that the debtors have been properly notified and must assume the management of the collection of the acquired credits from the moment it assumes the credit risk.
In addition, the Regulation establishes rules and requirements that must be complied with by the parties involved in the purchase of loan portfolios to prevent money laundering and financing of terrorism. In this sense, it establishes that the parties must apply the prevention rules issued by SEPRELAD and the related provisions issued by the BCP or the Superintendency of Banks. In addition, when the purchase of loan portfolio is formalized among related companies, these must obtain prior authorization from the Superintendency of Banks and consider the required legal limits.
Finally, specific rules are included for the accounting recording of portfolio purchase transactions, the purchase of portfolios in resolution process and renewals, refinancings and restructurings of purchased loans, and warns that supervised entities that do not comply with the Regulations will be subject to the sanctions provided for in Law No. 489/95 "Organic Law of the Central Bank of Paraguay".