GUATEMALA. Financial Sector Adjustment Loan (Loan 7130-GU) Release of the Second Tranche - Waiver of One Condition Tranche Release Document

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized GUATEMALA Financial Sector Adjustment Loan (Loan 7130-GU) Release of the Second Tranche - Waiver of One Condition Tranche Release Document 1. The US$l50 million Financial Sector Adjustment Loan (FSAL)was approved by the Board on June 25, The loan was declared effective on December 18, 2002 and the first tranche was disbursed shortly thereafter. The closing date of this loan has been extended to December 31, This loan was designed to assist the Guatemalan Government to implement its Financial Sector Reform Program, aimed at bringing about a stronger and better functioning banking sector, able to withstand external shocks and to increase prudent lending to the private sector, opening access to groups and enterprises today largely excluded from bank financing (micro, rural and small and medium enterprise financing). The Bank loan would finance the needs of the Government s economic program related to the strengthening of the financial sector. 2. The remainder of this memorandum summarizes progress in implementing the reform Program, and reports on actions taken by the Guatemalan Government to meet specific conditions for the release of the Second Tranche of the FSAL. Waiver for the condition concerning the capitalization of the Central Bank, as contained in paragraph 2 of Schedule 3 of the Loan Agreement, is sought on the grounds that said condition has been partially met as detailed in paragraphs 2land 22 of this report. Based on the assessment that the Ministry of Finance, the Central Bank and the Superintendency of Banks have met all other Second Tranche conditions, this memorandum recommends that a waiver be granted with respect to the pending condition and that the Second Tranche (US$50 million) be released.

2 2 I. KEY OBJECTIVES OF THE GOVERNMENT S FINANCIAL SECTOR REFORM PROGRAM 3. The broader policy objective of this proposed loan is to assist the Guatemalan Government to implement its Financial Sector Reform Program, aimed at bringing about a stronger and better functioning banking sector, able to withstand external shocks and to increase prudent lending to the private sector, opening access to groups and enterprises that have been largely excluded from bank financing (micro, rural and SME financing). The Bank loan helps finance the needs of the Government s economic program related to the strengthening of the financial sector. 4. Based on the results of the FSAP (Financial Sector Assessment Program) conducted during the second half of 2000, the Guatemalan authorities, with assistance from the Bank (as part of post-fsap technical assistance provided by Bank staff), the IMF and the IDB, embarked on a financial sector reform program aimed at addressing the sector s problems in a comprehensive manner. The reform program involves: (A) Financial Sector Legal/Regulatory Reforms: The program includes: (i) reform of the monetary policy legal framework for the conduct of monetary and financial policy; (ii) reform of the financial sector legal framework aimed at: strengthening the regulation of financial groups and creating an orderly market exit mechanism, enhancing credit risk management, and increasing access to financing; (iii) reform of bank supervision legal framework aimed at strengthening the autonomy of the supervisory authorities, enhancing their legal and institutional capacity to supervise financial groups, and rising banking sector regulation towards international standards; (iv) stronger legislation to prevent money laundering so as to reduce illegal activities and comply with international norms; and (v) presentation to Congress of new legislation on insurance, secured transactions, and non-bank financial intermediaries, with the objective of expanding credit access. (B) Bank Regularization/Consolidation Program: This part of the program consists of (i) the establishment of a mechanism to handle consolidation and recapitalization of banks; (ii) regularization or liquidation of several insolvent banks; and (iii) consolidation of the banking system through mergers and acquisitions. (C) Strengthening of the Superintendency of Banks (SB) and the Central Bank (BANGUAT). This part of the reform program consist of securing technical assistance to help both institutions to implement the program of legal and regulatory reforms and the bank regularizatiodconsolidation program.

3 11. PROGRESS IN IMPLEMENTING THE GOVERNMENT S FINANCIAL SECTOR REFORM PROGRAM 5. The Guatemalan Government has made major advances in the implementation of its financial sector reform program, including measures implemented prior to Board Presentation in compliance with the First Tranche Release of the loan. (A) Legal and Regulatory Reforms to Strengthen the Financial Sector 6. Between October 2001 and April 2002, prior to Board presentation of loan, Congress approved a package of five financial sector laws. These laws were prepared with technical advice from the Bank, IDB and IMF. The new laws have given Guatemala a state of the art financial sector legal framework. Four of the laws were enacted on June 1, Central Bank Law. This Law addresses most of the shortcomings of the previous legislation, including the following: Clear statement of objectives. It establishes that the fundamental objective of the central bank is to achieve and maintain price stability and redefines the instruments of monetary policy as a function of this objective (open market operations, exchange operations and lender of last resort--lolr--operations). Greater autonomy. The law reaffirms the role of the Monetary Board (MB) to determine the monetary, credit and exchange rate policy of Guatemala, but delegate to BANGUAT the capacity to implement such policies through an Implementation Committee. It also establishes that the President and Vicepresident of BANGUAT would be nominated by the President of the Republic for a period of four years and stipulates the basic qualifications for these positions and the causes for their removal. Greaterfinancial au$onomy. The law establishes that the State will guarantee the maintenance over time of BANGUAT s capital to strengthen its capacity to implement monetary policy. It also establishes that the central bank will transfer its eventual surpluses to the Treasury, after making the reserve provisions established by law, and that the Ministry of Finance (MOF) will absorb the accumulated losses suffered by BANGUAT as a result of Government policies. Greater transparency and accountability. The law includes a number of provisions concerning transparency and accountability, including: (i) the financial statements of BANGUAT have to comply with internationally accepted norms and principles, and be audited by external auditors; (ii) the President of BANGUAT will appear before Congress twice a year to give account of the results of the monetary, exchange rate, and credit policies; and (iii) BANGUAT will periodically publish information of its activities, general balance and

4 4 financial statements, as well as summaries of the debates of the MB with respect to the determination of monetary, exchange rate and credit policies. Limited Lender of Last Resort (LOLR) assistance. The new law specifies that BANGUAT will be able to provide short term credit to banks in the system solely to cover temporary liquidity deficiencies up to 50 percent of the bank s computable equity, at an interest rate no lower than the average lending rate applied by the petitioner bank. The law prohibits BANGUAT from engaging in other activities including lending or providing guarantees to the State. 8. Monetary Law. This Law modernizes the monetary legislation, particularly in the area of exchange rate policy. The new law guarantees the free convertibility of the currency, and the free movement of capital. 9. Banking and Financial Groups Law. This law has the following main features: Improved bank licensing provisions. The law establishes the minimum entry requirements for new banks and provides the SB with the authority to deny the participation of promoters, shareholders or administrators who have any impediment under the law. It also establishes the prohibition that entities not subject to SB supervision mobilize resources from the public, except savings and loan cooperatives which are ruled by specific laws. Consolidated supervision and regulation of financial groups, including ofs-shore banking. The law includes norms for the constitution, organization and functioning of financial groups. It gives the SB the faculty to presume the existence of a financial group if there are common interests among its members and empowers it to carry out consolidated supervision of all the enterprises of a financial group to evaluate and control the risks faced by the group as a whole. The law requires the elaboration and presentation of consolidated financial statements by the financial groups and establishes lending limits to related parties. Equal treatment of ofs-shore banks. The law establishes the treatment given to off-shore entities (which are licensed in a foreign country but have their assets and liabilities in Guatemala) that form part of a financial group, in order to measure the risks of the group. Off-shore entities have to obtain authorization to operate within six months of the effectiveness of the law. Improved bank regulatory framework and prudential rules. The law establishes the minimum capital of banks and financial groups as 10 percent of the riskweighted assets, with the weights to be applied established by regulation, and requires the adoption of regularization plans in cases of capital deficiencies. The law also mandates the application of accounting norms issued by the MB based on generally accepted accounting principles and international accounting norms.

5 5 Improved governance and transparency of banking institutions. The law establishes rights and duties of the banks and groups management councils and the maintenance of systems of internal controls. It empowers the SB to determine minimum requirements and scope of the external audit and provides disclosure of information guidelines. Limited deposit insurance scheme. The law creates a deposit insurance fund (Fondo de Proteccidn al Ahorro, FOPA) administered by BANGUAT, to guarantee the safety of bank deposits, up to 420,000 (US$2,600) per individual or entity in a local bank or subsidiary of a foreign bank. Deposits in off-shore entities are not guaranteed. It is constituted by: quotas paid by participating banks, return on investments of the fund, proceeds from liquidation of banks and sale of adjudicated assets, and Government contributions. EfJicient bank resolution mechanism. The law establishes mechanisms for bank restructuring and market exit of insolvent institutions. These go from a regularization plan (in case of capital deficiency) proposed by the bank and approved by the SB, to suspension of operations, exclusion of assets and liabilities, and liquidation. 10. Money Laundering Law. This law makes money laundering a crime and provides for appropriate sanctions. It also creates a Specific Unit Against Money Laundering within the SB ( Intendencia de Verificaci6n Especial ) Bank Supervision Law. This law has the following main features: Enhanced supervisory and sanctioning power. The law specifies the functions of the SB, which include, among others, to: enforce the laws and regulations; supervise the financial entities to ensure that they maintain adequate liquidity and solvency; provide instructions to overcome deficiencies; impose sanctions; have access to all relevant information; carry out its supervision and inspection on a consolidated basis; evaluate the policies, procedures, norms and systems of the entities; and request from the MB the liquidation of failed entities. Greater autonomy. The law provides for the Superintendent to be nominated by the President of the Republic for a four year term. It also establishes the eligibility requirements and impediments for exercising the position and the causes for his removal. Legal protection of SB stafl The law establishes that the SB will provide a mechanism to finance the legal expenses for the defense of its functionaries in case of legal actions against them derived from the exercise of their functions, and provides personal immunity to the Superintendent of Banks and authorities of the institution.

6 6 (B) Bank Regularization/Consolidation Program 12. Prior to loan approval, the authorities intervened and suspended the equity and administrative rights of the shareholders of three small failed banks: Promotor, Metropolitan0 and Empresarial, and two financieras: Financiera Agrocomercial and Financiera Metropolitana. The authorities fully reimbursed the depositors of the intervened banks through a contingency credit line extended by BANGUAT. All three banks are under liquidation procedures. 13. Creation of the Bank Capitalization Fund. The new banking legislation limits the ability of BANGUAT to provide funds to capitalize, restructure or close distressed banks. Instead, it establishes a bank resolution mechanism that involves the exclusion of assets and liabilities of a failed bank, and their transfer to other institutions. A solvent bank that acquires the liabilities (deposits) may find that it needs additional capital to meet the regulatory capital standards. A Bank Capitalization Fund (FCB) has been created to provide these banks with capital in the form of subordinated loans (tier-two capital). The FCB was created as a trust fund managed by BANGUAT, in the same law that approved the Bank FSAL. (C) Strengthening of the SB and BANGUAT 14. Together with the FSAL, the Board approved a US$5.0 million technical assistance loan (FSTAL) to assist BANGUAT and the SB to implement the new financial legislation, and prepare future legal reforms ACTIONS TAKEN TO FULFILL THE SECOND TRANCHE RELEASE CONDITIONS A. Satisfactory Progress in carrying out the Program Loan Agreement, Article 11, Section 2.02 (d) (i): Bank to be satisfied, based on evidence satisfactory to the Bank, with the progress achieved in the carrying out of the Program. 15. This condition has been met. A letter of Sector Development Policy, signed by the Minister of Finance dated May 20, 2002, describes the Program supported by Loan 7130-GU. The Bank is satisfied that the Borrower has complied with these commitments, which include: the passage of key financial laws; the issuing of regulations to implement these laws; and the initial implementation of a bank regularizationkonsolidation program.

7 7 B. Macroeconomic Performance Loan Agreement, Article 11, Section 2.02 (d) (ii): Bank to be satisfied, based on evidence satisfactory to the Bank, that the macroeconomic policy framework is satisfactory. 16. This condition has been met. The last Stand-By Arrangement (SBA) of Guatemala with the IMF (for SDR84 million), covered the period June 18, 2003, to March 15, The program supported by the agreement was designed to consolidate the macroeconomic stability and accommodate additional government spending related to the Peace Accord, including an increase in expending in social services, while increasing international reserves and further lowering inflation. The program was completed successfully. Although Guatemala does not have at the moment a program with the IMF, there has been progress toward agreement on an economic program that could be supported by a new SBA. The new SBA could be presented to the Board in early December and would support the authorities program to maintain macroeconomic stability, keep the public debt low, while providing for higher social and investment spending, continue financial sector reforms, and foster strong and sustainable economic growth. 17. The new administration that took office in January 2004, faced a deteriorating fiscal situation, aggravated by the elimination of the tax on sales of assets (IEMA), which had been declared unconstitutional in December The new Government has acted swiftly to address the fiscal situation. It instituted budgetary cuts except for social expenditures, and secured Congressional support for a short-term tax package which was approved in June The tax package incorporates changes to the corporate income tax, a 6 to 8 percent tax on alcoholic drinks, an extraordinary and temporary tax in support of the Pace Agreement; and the authorization for a 45.3 billion (US$671 million) treasury bond issue. Two major objectives of the tax reform are to keep the budget deficit within the 2 percent of GDP target, and increase the tax ratio to 12 percent of GDP, as required by the Peace Agreement. In mid-august 2004, the Government announced an Economic Reactivation Plan that includes actions to: (i) improve the climate for business and exports; (ii) set out a series of publidprivate investment projects in infrastructure, tourism, and construction; and (iii) increase investment in poor communities on health, education, basic services and job creation. 18. The Central Bank estimates a real GDP growth rate of 2.6 percent in 2004, up from 2.1 percent in This growth rate is slightly higher than the 2.4 percent population growth. Inflation for 2004 is estimated at 7 percent, compared with 5.8 percent in Projections for 2005 are for a real GDP growth of 3.2 percent, with inflation of about 5 percent. Guatemala s financial sector has strengthened substantially since 2000, due to improvements in prudential regulatory framework and stepped-up onsite inspections. As of end-april 2004, the risk-weighted capital adequacy was well above the regulatory level of 10 percent (14.8 percent for onshore banks and 12.8 percent for offshore banks). The situation of the banks is still fragile due to the low level of provisions and excessive amount of related lending. However, the authorities have made

8 8 progress in the licensing, supervision and registration of financial conglomerates, including offshore banks which are now required to be part of licensed conglomerates in order to operate. All these positive outcomes are linked to actions supported by the FSAL. C. Other Actions Loan Agreement, Article 11, Section 2.02 (d)(iii): Bank to be satisfied, based on evidence satisfactory to the Bank, that the actions described in Schedule 3 of the Loan Agreement have been taken in form and substance satisfactory to the Bank: Schedule 3, Part (1) of the Loan Agreement: Enactment of regulations (reglamentos) of BANGUAT s organic law (Ley Orghnica del Banco de Guatemala), dated June 2,2002, which regulations should address the following topics: (i) governance of BANGUAT; and (ii) reserve requirement rules. 19. This condition has been met. Regulations issued addressing the governance of BANGUAT include the following resolutions: (i) JM Determination of the periodicity of the ordinary sessions of the Monetary Board ; (ii) JM Designation of the authorities of BANGUAT to integrate the Execution Committee and designation of technical advisors ; (iii) JM Regulation of the Execution Committee ; and (iv) JM Administrative Structure of BANGUAT. 20. The regulation issued addressing reserve requirement rules is Resolution JM Regulation of Bank Reserve Requirement and its modification: Resolution JM Schedule 3, Part (2) of the Loan Agreement: Capitalization of BANGUAT has been completed though the issuing of bonds to settle past fiscal losses. 21. This condition has been partially met. Article 83 of the Central Bank Law establishes that the equity of BANGUAT will be restored through the issuing of a 100 year zero-coupon bond to settle its fiscal losses due to the cost of the monetary policies up to end As required by the Law, an audit was conducted which determined that the debt to BANGUAT amounted to Q16,873 million. The MB through resolution JM issued a favorable opinion to the issuing of the bond to settle this debt, and the MOF requested Congressional authority to issue the bond. Congress refused to approve such bond, even if it did not involve any real financial cost to the Govemment. The new Government intends to re-introduce the bill to the new Congress which, they argue, is more inclined to approve the issuing of the bond. However, there is no definite time frame for this.

9 9 22. We consider this condition as partially met because the expected effect of the recognition of the old debt to BANGUAT has already taken place. On this basis, the Board is requested to waive this condition. The issuing of the long term bond was an accounting device to avoid showing that BANGUAT had a negative capital. With the recognition of the debt, the accounts of BANGUAT have ceased to show the old debt as accumulated losses. They show instead a (differed) long-term asset (debt to be paid by the MOF). The most important issue i s that the new losses after-2002 be compensated with performing bonds, which is a condition for third tranche disbursement. Schedule 3, Part (3) of the Loan Agreement: Enactment of new regulations (reglamentos) to strengthen the financial payments system, which regulations shall include a clear definition of BANGUAT s responsibilities, risk management rules, and enhanced efficiency. 23. This condition has been met. BANGUAT through Management Agreement of August 2, 2002, created the Payments System Committee, in charge of the coordination and follow up of the implementation of the of the project for the Modernization of the National Payments System, Resolution JM approved the restructuring of BANGUAT, including, among others, the creation of the Payments System Section. Resolution JM of April 23, 2003, approved the regulation of the Chamber of Bank Compensation within BANGUAT, which includes, as an annex, the Instructions for the Standardization of Checks in the National Banking System. Schedule 3, Part (4) of the Loan Agreement: Enactment of regulations (reglamentos) of the Borrower s banking law (Ley de Bancos y Grupos Financieros, dated June 2, 2002), which regulations should comprehensively cover the following topics: (i) entry rules; (ii) minimum risk management arrangements and governance principles to be adopted by banks; (iii) capital adequacy, loan classification and provisioning, and remaining prudential rules; (iv) accounting norms, including consolidation rules following international standards; (v) exit mechanisms including the procedures related to FOPA; and (vi) sanction rules. 24. This condition has been met. (i) Rules for entry of new institutions in the banking system: Resolution JM , Regulation for the authorization, constitution, and merger of national private banks and the establishment of branches of foreign banks was replaced by Resolution JM , Regulation for the Constitution of National Private Banks and the Establishment of Branches of Foreign Banks, and Resolution JM , Regulation for the Authorization of Merger of Banking Entities, the Acquisition of Shares of one Banking Entity by Another of Similar Nature and the Cession of a Substantial Share of the BaIance of a Banking Entity.

10 10 Minimum risk management arrangements and governance principles to be adopted by banks: Circular No of April 20, 2003, contains the Dispositions for the Verification of Policies and Risk Committees. Resolution JM , Regulation for the Administration of Credit Risk, which includes minimum norms for the credit process. Capital adequacy, loan classijication and provisioning, and remaining prudential rules: Resolutions issued: (i) JM , Regulation for the determination of the minimum equity required for the exposure to the risks applicable to banks and financial institutions. JM , Regulation for financial operations with related persons or persons that are part of a risk unit. JM , Regulation for the valuation of credit assets and norms to determine and classify those of doubtful recovery which was replaced by JM , Regulation for the Administration of Credit Risk and includes norms for the valuation of credit assets and the minimum information of debtors. JM , Regulation about the capital adequacy for off-shore entities, stock exchanges, enterprises specialized in financial services, warehouses, and foreign exchange offices, which are part of a financial group. Accounting noms, including consolidation rules following international standards. Norm for the Consolidation of Financial Statements was approved by the SB in Agreement Exit mechanisms, including the procedures related to FOPA. Resolutions issued: JM , Dispositions and Regulations for the Fondo Para la Protecci6n del Ahorro FOPA ; and JM , Regulation of the Junta de Exclusi6n de Activos y Pasivos. Sanctions Noms: Resolutions issued: JM , Regulation for the application of the sanctions contemplated in Art. 99 of Decree No of the Congress of the Republic; Law of Banks and Financial Groups ; and Agreement of the SB No , Sanctions Regime for obliged persons defined in the Law Against Money Laundering. Schedule 3, Part (5) of the Loan Agreement: Evidence that FOPA: (i) is fully operational and premiums are being paid by banks; and (ii) has adequate funding to reimburse depositors of banks under liquidation. 25. This condition has been met. (i) FOPA is fully operational and premiums are being paid by banks Resolution issued JM , Regulations for the Fondo Para la Protecci6n del

11 Ahorro. BANGUAT has submitted to the Bank a certification indicating that as of October 26, 2004, all the banks in the system are paying their monthly premiums to FOPA. (ii) FOPA has adequate funds to reimburse depositors of banks under liquidation: As of May 31, 2004, the equity of FOPA amounted to 41,127.2 million, of which million are in US dollars (US75.5 million), from the proceeds of the first tranche of the Financial Sector Adjustment Loan. Schedule 3, Part (6) of the Loan Agreement: Enactment of regulations (reglamentos) of the Borrower s banking supervision law (Ley de Supervision Financiera, dated June 2, 2002, which regulations should address the following topics: (i) minimum requirements for external audits; and (ii) SB labor relations framework. 26. This condition has been met. (i) Minimum requirement for external audit: The minimum requirement was issued with Agreement No of the SB Contracting and scope of the external audits and resolutions: JM , Regulation for the registration of external auditors and JM , Regulation of minimum requirements that have to be incorporated in the contracting of external auditors of specialized enterprises when they form part of a financial group. (ii) SB labor relations framework: Resolution JM , Internal regulation of labor relations between the Superintendency of Banks and its employees. Schedule 3, Part (7) of the Loan Agreement: Evidence that the SB action plan agreed with the Bank for the application the Borrower s new financial legal framework has met following benchmarks: (i) risk management committees are in place for all of the banks of the Borrower s system; and (ii) risk management manuals have been adopted by all the banks of the Borrower s banking system, and further verified by SB. 27. This condition has been met. (9 Risk management committees are in place for all of the banks of the Borrower s system: Circular was issued concerning risk management including the establishment of risk management committees. Compliance of all the banks in the system has been verified as indicated in reports issued by the SB: and

12 12 (ii) Risk management manuals have been adopted by all the banks of the Borrower s banking system, and further verified by SB: Circular establishes that among the aspects to be verified by the SB is that the policies and procedures for risk management shall be part of a risk manual. Banks were given up to June 15, 2004 to present their credit manuals to the SB. The SB presented to the Bank a report dated July 6,2004, signed by the Intendente of Studies and Systems, stating that all the banks in the system had submitted their risk management manuals to the SB. Schedule 3, Part (8) of the Loan Agreement: Satisfactory progress has been made in carrying SB s program of in situ supervisions of the Borrower s national. 28. This condition has been met. As of December 31, 2002, the SB completed the Valuation of Credit Assets in almost all the banks in the system, in accordance to Art. 53 of the Banking Law. Reports have been given to all the banks in the system, except two entities, and the results have been discussed with the affected entities, which have taken actions to reduce their risks andor strengthen their patrimony. The SB has presented to the Bank a certification signed by the Superintendent of Banks, dated October 25, 2004, indicating that the SB is in a second phase of review of the credit portfolio and provisions of the affected banks, with satisfactory results that are recorded in the SB report of each bank. Schedule 3, Part (9) of the Loan Agreement: Evidence that supervision procedures and related necessary tools to implement the Borrower s money laundering law (Ley Contra el Luvado de Diner0 IC Otros Activos, dated December 17,2001) are being applied. 29. This condition has been met. In April 2002, the regulation of the Money Laundering Law was issued: Government Agreement No of the President of the Republic, In accordance to Art. 32 of the Law, Congressional Decree No was issued creating within the SB the Intendencia de Verificacio n Especial (IVE), which is the Analysis Unit for money laundering in Guatemala. WE is fully operational and the GAFI (Review Group for the Americas) has indicated that Guatemala meets all 25 qualification criteria. Schedule 3, Part (10) of the Loan Agreement: The Borrower has taken irrevocable actions to initiate either merger, full regularization, full capitalization or liquidation of two selected undercapitalized banks of the Borrower s banking system, as agreed with the Bank. 30. This condition has been met. The Government capitalized Banco Hipotecario Nacional (CHN) with QlOO million to allow it to absorb Banco del Ejkrcito (Resolution JM ). Afterwards, the Government capitalized CHN with million to allow the merger of CHN and Banco del Nororiente (BANORO) - (Resolution JM-34-

13 ). The Government has agreed with the IMF to conduct a strategic diagnostic of CHN. Schedule 3, Part (11) of the Loan Agreement: Evidence that FFCB is fully operational, its Operating Principles and Procedures have been made effective, and a coordination unit for its operation has been created and is adequately staffed. 31. This condition has been met. The FFCB (renamed FCB) was created by Congressional Decree No On December 23, 2003 the ESCRITURA CONSTITUTNA of the fund was signed; and on February 23, 2004, the fund s Technical Committee staff was nominated by the MOF and BANGUAT. The operating principles and procedures of the FCB have been prepared with the assistance of external consultants, funded by the Financial Sector Technical Assistance Loan. Staff of BANGUAT and SB involved in the operation of the FCB has been trained by the external consultants. The operating principles and procedures, approved by the Technical Committee were approved by the MOF through ministerial agreement No of October 4, IV CONCLUSION 32. All the conditions required under the Loan Agreement for the release of this Second Tranche, except for the condition for which a waiver is being requested, have been met. Subject to the no-objection of the Board, management will inform the Borrower of the availability of the Second Tranche for disbursement.