Regulatory Alerts2024-08-15 | NRP-75Technical Standards on the Granting of Credits to Related Parties of a Cooperative Bank
The Standards Committee of the Central Reserve Bank of El Salvador issued Technical Standards NRP-75 to regulate credit operations granted to related parties of cooperative banks and their federations. The regulations establish strict limits, capping total credit exposure to related individuals at 5% and to related legal entities at 10% of the cooperative's equity fund, while mandating detailed reporting and conflict-of-interest disclosures. These rules supersede previous norms and aim to ensure prudent risk management and transparency in the financial system.
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR,
CONSIDERING:
I. That Article 49 of the Law on Cooperative Banks and Savings and Credit Societies establishes that cooperatives may not have in their portfolio credits, guarantees, and sureties granted to managers and members of the Governing Body of the cooperative, as well as to directors, managers, and employees of the federation of which the cooperative is a shareholder, for a global amount exceeding five percent of the equity fund. These operations must be notified to the Superintendence.
II. That Articles 50 and 51 of the Law on Cooperative Banks and Savings and Credit Societies establish who are considered related parties to Cooperative Banks and their treatment, and also provide that members of the corresponding Governing Body must disclose the existence of a conflicting interest and may not participate in the voting or analysis of credit, guarantee, or surety applications in which they have a direct interest or in which their spouse or relatives up to the fourth degree of consanguinity and second degree of affinity are interested.
III. That Article 3, literal c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendence of the Financial System to proactively monitor the risks of the members of the financial system and how they manage them, ensuring the prudent maintenance of their solvency and liquidity.
IV. That Article 7, literal g) of the Law on Supervision and Regulation of the Financial System establishes that among the entities subject to the supervision of the Superintendence of the Financial System are cooperative banks, savings and credit societies, and federations regulated by the Law on Cooperative Banks and Savings and Credit Societies.
V. That Article 32, first paragraph of the Law on Supervision and Regulation of the Financial System, among other things, establishes that the Superintendence, through the Superintendent, Deputy Superintendents, or persons to whom they delegate, may require supervised entities direct access to all data, reports, or documents regarding their operations through the means and form it defines.
VI. That Article 35, literal c) of the Law on Supervision and Regulation of the Financial System establishes that directors, managers, and other officials holding management or administrative positions in members of the financial system must comply with the adoption and updating of policies on ethical standards
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| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
of conduct, conflict of interest management, use of insider information, prevention of behaviors that could imply market manipulation or abuse, as well as compliance with principles, rules, or standards in business management established to achieve corporate objectives.
VII. That Article 36, second paragraph of the Law on Supervision and Regulation of the Financial System establishes that directors, administrators, managers, internal and external auditors, other officials, and other persons providing services to any member of the financial system must report to the Superintendence the operations that it has requested, particularly those carried out or that have been carried out between it and its shareholders or administrators, and those related to the financial conglomerate to which it belongs, if applicable. The form, frequency, and circumstances in which these operations must be reported will be established in the technical standards issued for this purpose.
VIII. That Article 99, literal a) of the Law on Supervision and Regulation of the Financial System stipulates that it will be the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to approve technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, including aspects inherent to risk management by the supervised entities.
THEREFORE,
by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,
AGREES to issue the following:
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK
CHAPTER I OBJECTIVE, SUBJECTS, AND TERMS
Objective Art. 1.- These Standards aim to establish the minimum guidelines that the corresponding entities must observe regarding aspects related to the granting of credits to related parties directly with the administration, with the federation where the cooperative is a shareholder, and with societies where they are shareholders.
Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 7
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
Subjects Art. 2.- The subjects obliged to comply with the provisions established in these Standards are: a) Cooperative Banks; and b) Federations of Cooperative Banks.
Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Central Bank: Central Reserve Bank of El Salvador; b) Cooperative Bank: Cooperative Associations and Cooperative Savings and Credit Societies, including Rural Credit Caisses and Banks of Workers; c) Federations of Cooperative Banks: Federations of Cooperative Savings and Credit Associations, Cooperative Savings and Credit Societies, and Savings and Credit Societies, or only one of them. d) Board of Directors or Governing Body: Collegiate body or equivalent body in charge of the entity's administration, with supervision, direction, and control functions; for Cooperative Associations, it will be the Board of Administration or as defined in its Creation Law; e) Law: Law on Cooperative Banks and Savings and Credit Societies; and f) Superintendence: Superintendence of the Financial System.
CHAPTER II RELATED PARTIES
Art. 4.- Related parties to a cooperative bank are members of the Governing Body, managers, and other employees of the cooperative bank, as well as directors, managers, and employees of the federation of which the cooperative bank is a shareholder.
Societies whose ownership is in any of the following circumstances are also considered related: a) Societies in which a director or manager of the cooperative bank is the holder, directly or through a legal entity in which they have participation, of ten percent (10%) or more of the voting shares of the referred society; and b) Societies in which two or more directors or managers together are the holders, directly or through a legal entity in which they have participation, of twenty-five percent (25%) or more of the voting shares.
To determine the aforementioned percentages, the equity participation of the director or manager will be added to that of their spouse and relatives within the first degree of consanguinity.
Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 3 of 7
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
On Classes and Degrees of Kinship Art. 5.- For the purposes of the provisions established in these Standards, the following classes and degrees of kinship are determined:
a) Classes of kinship: i. Consanguinity: Occurs when the bond uniting people is of blood, that is, existing between people who descend from one another, or from a common ancestor. When the line of the people is ascending from the other, consanguinity is in a direct line; and when both people proceed from a common ancestor, and one of them is not an ancestor of the other, consanguinity is in a collateral or transverse line; ii. Affinity: Is the kinship that exists between a person and the blood relatives of their spouse or partner. The line of affinity is qualified by the line of consanguinity of the spouses or partners; and iii. Adoption: Is the kinship that originates between the adopted, the adopters, and the relatives of the latter, with the same effects as consanguineous kinship.
b) Degrees of kinship: i. The degree of kinship by consanguinity is determined by the number of generations, as follows:
- First degree of consanguinity is the kinship between parent and child;
- Second degree of consanguinity is that which exists between grandparent and grandchild, and between siblings;
- Third degree of consanguinity is the kinship with great-grandparents, great-grandchildren, uncles, and nephews; and
- Fourth degree of consanguinity is the relationship that exists with cousins, grand-nephews, great-uncles. ii. The degree of affinity is determined by that of the blood relatives of the spouses or partners, as follows:
- First degree of affinity is that which exists between the spouse, parents-in-law, son-in-law and daughter-in-law, and between stepfather and stepchild; and
- Second degree of affinity is that which exists between brothers-in-law, grandparents of the spouse, spouses of grandchildren. iii. For the case of degrees of kinship by adoption, the same effects are established as for consanguineous kinship.
Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 4 of 7
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
CHAPTER III CONDITIONS AND LIMITS OF GRANTING CREDITS
Limit to Natural Persons Art. 6.- The credits referred to in Article 49 of the Law may not be granted on more favorable terms, regarding deadlines, interest rates, or guarantees, than those granted to third parties in similar operations; except those that a cooperative bank or federation grants as a labor benefit to its own staff. In no case may loans to managers be granted on more favorable terms than to the rest of the employees.
Credits granted to a related natural or legal person constitute the loans granted, documents discounted, bonds acquired, sureties, guarantees, and sureties granted, and any other form of direct or indirect financing or other operation in their favor, which represent an obligation for them.
The credits referred to in the previous paragraph will be subject to the following limit: The total sum of the outstanding balances of credits granted to managers and members of the Governing Body of a cooperative bank, as well as to the directors, managers, and employees of the federation of which the cooperative bank is a member, must not exceed five percent (5%) of its equity fund, understanding as the global amount the total of credits granted to such persons.
Limits to Legal Persons Art. 7.- The total balance of credits, sureties, bonds, and guarantees that, in any way, directly or indirectly, are granted to a society in which the cooperative bank has participation, may not exceed ten percent (10%) of the equity fund of said cooperative bank.
Art. 8.- For the calculation of the global amount of credits subject to limits, the following modalities are considered: a) Overdraft balances; b) Credit openings; c) Loans granted; d) Documents discounted at their nominal value; e) Sureties, bonds, and guarantees; f) Credit cards; and g) Any other form of direct or indirect financing that represents an obligation.
In addition to direct credits, indirect credits will be computed, understood as such the obligation that affects the person who, without being the beneficiary of the credit, has assumed personal responsibility for it; responding with their assets for the
Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 5 of 7
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
fulfillment of obligations, as in the case of joint debtors, guarantors, acceptors, drawers, and sureties of bills of exchange.
Art. 9.- Cooperative banks must send to the Superintendence, within the first thirty days of each year, a list of related persons with a sworn declaration where they manifest the names of their spouse and relatives up to the second degree of consanguinity and first of affinity, the societies where they are directors or direct shareholders and through legal entities in which they have participation, indicating the percentage of share participation.
In the event of changes regarding the Directors and Managers of the entities, they must inform them within thirty days following the occurrence.
Art. 10.- Cooperative banks must keep an updated register of the persons mentioned in Article 50 of the Law, and another containing the related credits, a detail of these registers must be sent to the Superintendence within the first five business days of each month, except in the months of June and December of each year, in which it must be sent within the first ten business days.
The figures corresponding to the month of December of each year must be verified by the internal auditor, from which they must issue a report, which will be sent to the Superintendence within the first thirty days of each year. External auditors, when issuing their opinion on the financial statements of cooperative banks, will indicate in a separate note the set of related credits, the percentage they represent, and if they are within the limit established in Article 49 of the Law.
Art. 11.- For the purpose of complying with the credit limit and contracts with related parties of Article 49 of the Law, cooperative banks may not grant new credits to related persons until the total of credits does not exceed five percent of the equity fund. These operations must be notified to the Superintendence.
CHAPTER IV OTHER PROVISIONS AND VALIDITY
Art. 12.- For the purpose of complying with Article 51 of the Law, members of the corresponding Governing Body must disclose the existence of a conflicting interest and may not participate in the voting or analysis of credit, guarantee, or surety applications in which they have a direct interest or in which their spouse or relatives up to the fourth degree of consanguinity and second degree of affinity are interested, having to withdraw from the respective session at the moment when the point in which the decision on the submitted credit application must be taken is discussed. The aforementioned withdrawal must be recorded in the minutes.
Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 6 of 7
| CNBCR-06/2024 | ||
|---|---|---|
| Approval: 15/08/2024 | NRP-75 TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO RELATED PARTIES OF A COOPERATIVE BANK | |
| Validity: 30/08/2024 |
Sanctions Art. 13.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.
Repeal Art. 14.- These Standards will repeal the "Standards for the Granting of Credits to related persons with a Cooperative Bank" (NPNB4-01), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-43/2001 of September 5, 2001, whose Organic Law was repealed in accordance with Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.
Unforeseen Aspects Art. 15.- Aspects not foreseen in regulatory matters in these Standards will be resolved by the Central Bank through its Committee of Standards.
Validity Art. 16.- These Standards will enter into force as of the thirtieth of August of two thousand twenty-four.
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