Browse Profiles > Guatemala > Core Principles for Systemically Important Payment Systems
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Standards Compliance Index 7.50 out of 100 76
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Guatemala

Core Principles for Systemically Important Payment Systems

Summary
In its 2006 report on the national payment system, the Central Bank of Guatemala (CBG) states that a reform strategy to modernize the country's payment system has been developed and was finally set forth in the 2004 "Matrix of Modernization of the Payment System." The reform aims to strengthen the payment system, implement modern technological tools to improve the efficiency in the operations settlement, apply international standards, and enhance institutional cooperation. Particularly, according to the CBG, the modernization project incorporates the Bank for International Settlements Core Principles for Systemically Important Payment Systems (CPSIPSs). Guatemala operates a Real Time Gross Settlement System, known by the acronym LBTR, which was launched on January 27, 2006. Banking and public entities with deposit accounts at the CBG as well as other entities authorized by the CBG may carry out online and real time financial transactions through the LBTR.

    General Overview

    According to a 2006 Central Bank of Guatemala (CBG) report on the national payment system, the CBG developed a strategy in 2000 to modernize the country's payment system. On November 17, 2004, the CBG's Monetary Board approved the "Matrix of Modernization of the Payment System," which sets forth the reform program. The reform aims at strengthening the payment system¸ implementing a payment system that counts on modern technological tools to improve the efficiency in the operations settlement, applying international standards, and enhancing the institutional cooperation. According to the CBG, the modernization project incorporates the Bank for International Settlements Core Principles for Systemically Important Payment Systems.
    On November 30, 2005, the Monetary Board approved the Regulation of the Real Time Gross Settlement System, known in Guatemala by the acronym "LBTR." The LBTR was launched on January 27, 2006. Banking and public entities with deposit accounts at the CBG, and other entities authorized by the CBG may carry out online and real time financial transactions through the LBTR. According to the 2006 CBG report, stock exchanges, public sector entities, Automated Clearing Houses (ACHs), and other participants on their request are incorporated in the LBTR system. As of March 2006, 25 banking institutions, 2 financial societies, and the Banking Clearing House participated in the LBTR system. In a 2005 report, the CBG notes that the LBTR system uses two communication networks, namely the local BANCARED and the international SWIFT.
    On April 23, 2003, the Monetary Board approved the Regulation of the Banking Clearing House. Pursuant to article 70 of the Organic Law of the CBG, cash and funds deposited with the CBG serve as the basis for the checks-clearing system. The Banking Clearing House is administered by the Banking Association of Guatemala (ABG) and daily clears checks of the system's participating banks. The main clearing agent is the Imágenes Computarizadas de Guatemala, Sociedad Anónima (ICG). The ICG clears checks electronically and establishes the net multilateral result in the participating banks' cash accounts with the CBG. According to the CBG's 2005 report, the system cleared 29.6 million checks in the national currency with a total amount of Q 423,181.1 million; it cleared 0.25 million checks in foreign currency with a total amount of $2,973.3 million.
    On its website, the CBG states that the Organic Law of the CBG designates the central bank as the supervisor of the payment systems. The law requires participating banks to provide reserves as collateral for clearing and limits the CBG's lender-of-last-resort facilities to short-term credit to banks that only have liquidity problems. Further, the law covers the failure to meet clearing obligations by banks and mandates bank liquidation as the consequence. The financial system is supervised by the Superintendence of Banks (SdB) and the CBG. Particularly, the SdB supervises individual banks, intermediaries, and conglomerates. The CBG, on the other hand, analyzes systemic financial risk through the supervision of the payment systems.
    In their 2004 Report on Payment and Securities Clearance and Settlement Systems in Guatemala, the Center for Latin American Monetary Studies (CEMLA) and the World Bank state that the main participants in the payment system are banks, some non-banking institutions like credit card companies, and the CBG. The banks, private financial societies, and the treasury of the central government maintain current accounts with the CBG. Cash and checks are the main means of payment in Guatemala.


    The Principles

    I. The system should have a well-founded legal basis under all relevant jurisdictions.

    According to the CBG website, the Organic Law of the CBG designates the CBG as the supervisor of the payment systems. The law requires participating banks to provide reserves as collateral for clearing and limits the CBG's lender-of-last-resort facilities to short-term credit to banks that only have liquidity problems. Further, the law covers the failure to meet clearing obligations by banks and establishes bank liquidation as its consequence. The financial system is supervised by the SdB and the CBG. Particularly, the SdB supervises individual banks, intermediaries, and conglomerates; the CBG, on the other hand, analyzes systemic financial risk through the supervision of the payment systems. However, there is insufficient information publicly available as to Guatemala's compliance with this principle.

    II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

    There is insufficient information publicly available as to Guatemala's compliance with this principle. The modernization of the payment system, according to the 2006 CBG report reduces the systemic risk as the CBG is now allowed to act before any potential failure situation

    IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

    There is insufficient information publicly available as to Guatemala's compliance with this principle. The modernization of the payment system, according to the 2006 CBG report, increased the security of the operations with the electronic payment settlement and reduced the systemic risk as the CBG is now allowed to act before any potential failure situation.

    VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

    There is insufficient information publicly available as to Guatemala's compliance with this principle. The modernization of the payment system, according to the 2006 CBG report, increased the security of the operations with the electronic payment settlement and reduced the systemic risk as the CBG is now allowed to act before any potential failure situation.

    IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    X. The system's governance arrangements should be effective, accountable and transparent.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

    According to the CBG website, the Organic Law of the CBG designates the CBG as the supervisor of the payment systems. The law requires participating banks to provide reserves as collateral for clearing and limits the CBG's lender-of-last-resort facilities to short-term credit to banks that only have liquidity problems. Further, the law covers the failure to meet clearing obligations by banks and mandates bank liquidation as its consequence. The financial system is supervised by the SdB and the CBG. Particularly, the SdB supervises individual banks, intermediaries, and conglomerates; the CBG, on the other hand, analyzes systemic financial risk through the supervision of the payment systems. However, there is insufficient information publicly available as to Guatemala's compliance with this principle.

    B. The central bank should ensure that the systems it operates comply with the Core Principles.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

    D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

    There is insufficient information publicly available as to Guatemala's compliance with this principle.

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    Sources of Assessment

    Central Bank of Guatemala, "Aide Memoire Banco de Guatemala 2005," 2005 Available from Central Bank of Guatemala website. Accessed on August 1, 2007. (CBG 2005)

    Central Bank of Guatemala, "Modernization of the National Payment System," March 2006. Available from Central Bank of Guatemala website. Accessed on August 1, 2007. (CBG 2006)

    Center for Latin American Monetary Studies and World Bank, "Report on Payment and Securities Clearance and Settlement Systems in Guatemala - Sistemas de Compensación y Liquidación de Pagos y Valores en Guatemala)," June 2004. Available from Western Hemisphere Payment and Securities Settlement Forum website. Accessed on August 1, 2007. (CEMLA & WB 2004) (in Spanish only)

    Relevant Organizations

    Banking Association of Guatemala - Asociacion Bancaria de Guatemala (ABG) (in Spanish only)

    Central Bank of Guatemala - Banco Central de Guatemala (CBG)



    Relevant Legislation/Regulation

    Organic Law of the Bank of Guatemala, 2002 - Ley Orgánica del Banco de Guatemala, 2002



    Supplementary Sources

    Central Bank of Guatemala website. Accessed on August 1, 2007. (CBG website)

    International Monetary Fund, "Guatemala: 2005 Article IV Consultation--Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Guatemala," Country Report No.05/362, Washington, D.C.: IMF, October 2005. Available from International Monetary Fund website. Accessed on August 1, 2007. (IMF 2005)

    Western Hemisphere Payment and Securities Settlement Forum website. Accessed on August 1, 2007. (WHPSSF website)

    World Bank, "Guatemala: Financial Sector Adjustment Loan (Loan 7130-GU), Release of the Second Tranche - Waiver of One Condition Tranche Release Document," October, 2004. Available from World Bank website. Accessed on August 1, 2007. (WB 2004)
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