Measures by Banco de México to foster liquidity in the financial market in the face of the COVID-19 pandemic

1. Increase in liquidity during operating hours to facilitate the optimal functioning of the financial markets and payment systems. 2. Expansion of the securities eligible for the Ordinary Additional Liquidity Facility (“FLAO”), foreign exchange hedging transactions and credit transactions in dollars. 3. Expansion of counterparties eligible for the FLAO. 4. Term repo window for government securities. 5. Temporary collateral exchange window. 6. Repo facility for corporate securities. 7. Provision of resources to banking institutions to channel credit to micro, small and medium-sized enterprises and to individuals affected by the pandemic. 8. Financing facility for multiple banking institutions collateralized with credits to corporations, for financing micro, small and medium-sized enterprises. 9. Swap of government securities. 10. Foreign exchange hedges settled by difference in U.S. dollars with counterparties not domiciled in the country in order to operate during the hours in which the national markets are closed. In order to analyze in greater detail the Additional Measures that Banxico will implement, below we have grouped each of said Additional Measures into four categories: I. Measures to increase liquidity in the financial market. Additional Measures 1 through 3 seek to increase liquidity in the financial market and in the payment system through two channels: (i) the ordinary channel, by increasing the overdraft limit on the current account in the SIAC that credit institutions and brokerage firms may use, a limit that will depend on each institution’s capital; and (ii) the additional ordinary channel, by granting ordinary additional liquidity facilities (FLAO), consisting of expanding: (a) the range of debt securities, authorizing that eligible securities, whether to carry out repos or to be provided as collateral for credits, foreign exchange hedging transactions settled in pesos, and dollar credit auctions, may have a credit rating of “A” on the national scale, instead of “AA” as currently established by Banxico Circulars 8/2009, 3/2017 and 10/2015; and (b) the counterparties eligible for the FLAO, since development banking institutions will now be able to access collateralized credits or repos. II. Repo, swap and securities exchange transactions carried out by financial institutions with Banxico. Additional Measures 4 through 6 and 9 mentioned above have an impact on the repo, swap and securities exchange transactions carried out by financial institutions with Banxico. In relation to repo transactions, Banxico approved extending the term of such transactions and will also allow credit institutions and brokerage firms to carry out repo transactions with corporate securities (short-term stock exchange certificates and long-term debentures) issued by private-sector institutions resident in Mexico. Additionally, Banxico will allow financial institutions to carry out swaps of government securities, in which Banxico will receive long-term maturity securities and deliver short-term ones, of up to 3 years. Finally, for the exchange of securities, financial institutions will be able to deliver debt securities with low liquidity to Banxico in exchange for government securities with greater liquidity, subject to the obligation to return them at the end of the corresponding period. It is important to note that this Additional Measure is a measure that is not currently regulated under any Banxico Circular. III. Financing to support SMEs and individuals affected by the COVID-19 pandemic. Additional Measures 7 and 8 are related to the granting of financing to micro, small and medium-sized enterprises (“SMEs”) and individuals affected by the COVID-19 pandemic. In this regard, the aforementioned Additional Measures consist of Banxico: (i) issuing a financing program of up to 250 billion pesos aimed at SMEs and individuals, which will be channeled through credit institutions (both multiple banking and development banking); and (ii) granting direct financing to multiple banking institutions of up to 100 billion pesos, which will be collateralized with credits of companies whose credit rating is equal to or higher than “A”. Multiple banking institutions must use this financing granted by Banxico exclusively to grant credits to SMEs. The term of this type of financing will be from 18 to 24 months at a cost of overnight TIIE. IV. Settlement of foreign exchange hedging transactions in dollars with extended hours. Additional Measure number 10 is related to the settlement of foreign exchange hedging transactions in dollars outside Mexican market hours, which will be in force until the date determined by the Foreign Exchange Commission. This Additional Measure will apply only to Banxico, which may, outside national market hours, arrange and settle foreign exchange hedging transactions by difference in dollars with other financial institutions not domiciled in the country, eliminating the need for the latter to hold accounts in pesos. The objective of this tenth and final Additional Measure is to seek orderly operating conditions in the peso-dollar foreign exchange market, particularly in the Asian and European sessions. Additional Measures numbers 1 through 9 will have a temporary term that began on April 21 and will end on September 30, 2020, while the term of Additional Measure number 10 will be determined by the Foreign Exchange Commission. It is important to note that the Additional Measures will imply amendments to the Banxico Circulars in force and, in some cases, Banxico will have to issue new regulations for their implementation. For further information, please contact our experts: Luis Burgueño, Partner: +52 (55) 5258 1003 | lburgueno@vwys.com.mx Gloria Martínez, Associate: +52 (55) 5258 1016 | gmartinez@vwys.com.mx Laura Rojas, Associate: +52 (55) 5258 1016 | lrojas@vwys.com.mx