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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

THE STANDARDS COMMITTEE OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING:

I. That Article 127, first paragraph, of the Banks Law, establishes that, taking into consideration the solvency requirements of the companies in which the exclusive-purpose holding company invests, this company shall be subject to Capital Requirements at the consolidated level. In any case, the consolidated Capital shall not be less than the sum of the capital requirements mandated by the corresponding regulations for each of the companies in which the exclusive-purpose holding company has an investment, in proportion to its participation.

II. That Article 128 of the Banks Law, establishes that in order to avoid the pyramiding of share capital of the conglomerate's companies and of the companies in which the holding company has a minority participation, excluding the exclusive-purpose holding company, to determine the Capital or Net Equity of said companies, the value of investments in shares of any other company shall be deducted.

III. That Article 68, first paragraph, of the Investment Banks Law, establishes that Investment Banks may form part of a Financial Conglomerate, and shall be subject to the provisions on Financial Conglomerates established in the Banks Law, with the exception that Investment Banks cannot be Controlling Banks. (1)

IV. That Article 2, first paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that the Financial Supervision and Regulation System has as its objective to preserve the stability of the financial system and ensure its efficiency and transparency, as well as to ensure the safety and solidity of the members of the financial system in accordance with what is established in said Law, other applicable laws, regulations, and technical standards issued for this purpose, all in concordance with international best practices on the matter. (1)

V. That Article 99, third paragraph, literal a), of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Standards Committee 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, especially those relating to solvency requirements, liquidity, provisions, reserves, classification of risky assets, criteria for establishing the need for consolidation, good corporate governance practices, information transparency, and on any other aspect inherent to risk management by the supervised entities. (1)

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

VI. That in accordance with Article 101, fourth paragraph, of the Law on Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador. (1)

THEREFORE,

in 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 FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards have as their objective to establish the provisions that allow for the calculation of the capital requirement for subjects obligated to comply with them.

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are: a) Controlling banks; b) Exclusive-purpose holding companies; c) Subsidiaries of controlling banks; and d) Subsidiaries of exclusive-purpose holding companies.

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) Conglomerate or Financial Conglomerate: is the set of companies characterized by the fact that more than fifty percent (50%) of their respective share capital is owned by a controlling company, which is also a member of the conglomerate. The controlling company of the conglomerate may be an exclusive-purpose company or a bank constituted in the country; c) Holding Company: Refers to controlling bank and exclusive-purpose holding company; d) Entity: Subjects obligated to comply with these Standards; and e) Superintendency: Superintendency of the Financial System.

CHAPTER II CONSOLIDATED CAPITAL

Calculation Date Art. 4.- Holding companies must establish the consolidated capital on March 31, June 30, September 30, and December 31 of each year and when required by the Superintendency.

Capital Art. 5.- Capital shall be the sum of Primary Capital plus Supplementary Capital. When the capital calculation is performed using consolidated financial statements, the participation in the capital of any other non-consolidated company shall be deducted from them.

Primary Capital Art. 6.- The components of primary capital are the following: a) Paid-in share capital; b) Legal reserve; and c) Other capital reserves, derived from received profits.

Supplementary Capital Art. 7.- The components of supplementary capital are the following: a) Results from previous periods, on which no decision has been taken; b) Undistributable profits; and c) Fifty percent (50%) of the profits of the current period, net of the Income Tax provision.

From the sum of all the aforementioned components, the value of accumulated losses and current period losses, if any, shall be deducted.

For the purposes of determining capital, supplementary capital will be accepted up to a sum equal to primary capital.

Calculation of the capital requirement on interim dates Art. 8.- On March 31, June 30, and September 30 of each year, holding companies must establish the consolidated capital, using non-consolidated financial statements, in the following manner: a) The sum of the capital of all entities in the conglomerate is obtained; b) The sum of the holding company's shareholdings in the subsidiaries at book value in the first company's records is obtained; c) To the sum obtained in the previous literal a), the sum from the previous literal b) is subtracted; the result obtained will be the conglomerate's capital; d) The sum of the capital requirements of the subsidiaries is obtained; and e) To the result of the previous literal c), the result of the previous literal d) is subtracted; the positive or negative difference will be the capital surplus or deficiency of the holding company.

In the case of entities that must weight assets to determine the capital requirement, those assets that in turn represent debts of other companies in the conglomerate shall be excluded, when such assets have been subtracted for the purposes of the capital calculation.

The capital calculation described in the aforementioned literals must be presented in accordance with the model of Annex No. 1 of these Standards.

Calculation of the capital requirement at the end of the accounting period Art. 9.- Based on the consolidated financial statements as of December 31 of each year, when the value of the conglomerate's consolidated capital is equal to or greater than the sum of the capital required for each of its subsidiaries, it will have complied with the capital requirement; otherwise, it will be understood that the conglomerate is in a deficit situation.

The capital requirements of the subsidiaries that must be taken into account for this calculation will be determined in proportion to the holding company's participation in those companies.

The capital calculation described above must be presented in accordance with the model of Annex No. 2 of these Standards.

Consolidatable subgroups Art. 10.- When consolidatable subgroups exist, such as in the cases of insurance companies and their subsidiaries or affiliates, and subsidiaries that are holding companies of other companies, they must comply with the provisions contained in this Chapter.

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

CHAPTER III CAPITAL SITUATION OF THE CONGLOMERATE

Calculation Date Art. 11.- Financial conglomerates must determine their capital situation on March 31, June 30, September 30, and December 31 of each year or when required by the Superintendency.

The calculation bases for capital and their requirements shall be the individual financial statements of each of the subsidiaries.

Determination of the capital situation Art. 12.- The calculation of the capital situation is determined by summing the capital of all entities in the conglomerate and deducting from the obtained value the sum of the capital requirements of each of them.

When the sum of the capital is equal to or greater than the sum of the requirements, compliance with this measurement will be considered achieved; otherwise, it will be understood that the conglomerate as a whole is in a deficit situation.

The capital calculation described above must be presented in accordance with the model of Annex No. 3 of these Standards.

CHAPTER IV GENERAL PROVISIONS

Art. 13.- The calculation of capital, asset weighting, and the corresponding requirements shall be made based on what is provided by the regulations governing each entity. In the case where no regulations exist on this matter, the "Technical Standards for the Application of the Capital Requirement for Financial Entities" (NRP-44) shall be applied, or in the case of Investment Banks, the "Technical Standards for the Application of the Capital Requirement for Investment Banks" (NRP-90), issued by the Central Reserve Bank of El Salvador through its Standards Committee. (1)

Art. 14.- When dealing with subsidiaries constituted abroad, for the purposes of these Standards, they must calculate their capital, asset weighting, and the corresponding capital requirements, based on the norms applicable to entities of the same kind constituted in El Salvador; but additionally, they must comply with the provisions on this matter established in the country of origin.

Art. 15.- Holding companies must submit the calculation of their capital situation to the Superintendency, according to the models in Annexes Nos. 1, 2, and 3 of these Standards, with the entity's seal and the signature of the manager or whoever holds an equivalent position, within the first fifteen business days of the month following the reference date of the calculation; with the exception of the one corresponding to the month of December of each year, which may be submitted within the first sixty calendar days of the immediately following month.

The capital calculation corresponding to the month of December of each year must be accompanied by the consolidated financial statements and the external auditor's report.

Art. 16.- Entities must keep in their files, for a period of no less than two years, the documents used for the respective calculations.

Art. 17.- In order to safeguard the stability of the bank or investment bank constituted in El Salvador, the Superintendency, based on Article 124 of the Banks Law, may require the holding company to transfer, outside the conglomerate, the participation in those subsidiaries that present solvency problems. (1)

CHAPTER V OTHER PROVISIONS AND VALIDITY

Sanctions Art. 18.- 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. 19.- These Standards repeal the "Standards for the Application of the Capital Requirement to Financial Conglomerates" (NPB3-05), approved by the Board of Directors of the Superintendency of the Financial System in Session No. CD-45/2000, on September 6, 2000, whose Organic Law was repealed by Legislative Decree No. 592, which contains the Law on Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume 390, on February 2, 2011.

Unforeseen Aspects Art. 20.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Standards Committee.

Validity Art. 21.- These Standards will enter into force on June 20, 2024.

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

MODIFICATIONS: (1) Modifications in considerations III, IV, and V and incorporation of consideration VI, and modifications of articles 13 and 17, approved by the Central Bank through its Standards Committee, in Session No. CN-09/2025, on November 10, 2025, with validity from November 25, 2025.

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

Annex No. 1

CALCULATION OF THE CONSOLIDATED CAPITAL OF THE HOLDING COMPANY (Based on Non-Consolidated Financial Statements) (In thousands of US$)

I. Capital of: a) Holding Company b) Subsidiary "a" c) Subsidiary "b" ______________ Total $

II. Less: Shareholdings of the holding company in: a) Subsidiary "a" b) Subsidiary "b" ______________ Total $

III. Conglomerate Capital (I-II) $

IV. Capital requirements of: a) Subsidiary "a" b) Subsidiary "b"

---

Total $

V. Capital Surplus or Deficit (III-IV) $

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

Annex No. 2

CALCULATION OF THE CONSOLIDATED CAPITAL OF THE HOLDING COMPANY (Based on Consolidated Financial Statements) (In thousands of US$)

I. Primary Capital a) Paid-in share capital $ b) Legal reserve c) Other Capital Reserves ____________ $

II. Supplementary Capital a) Results from previous periods $ b) Undistributable profits c) Current period losses d) Current period profits (at 50% of its value) _____________ $

III. Total Primary plus Supplementary Capital (I+II) $

IV Less the following deductions: a) Participations in non-consolidated companies $ b) Accumulated losses ____________ $

V. Capital (III-IV) $

VI. Capital requirements of the conglomerate's subsidiaries a) Company "X" Requirement $____ *% participation $ b) Company "Y" Requirement $____ *% participation ______________

VII. Surplus or Deficit (V-VI) $

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TECHNICAL STANDARDS FOR THE APPLICATION OF THE CAPITAL REQUIREMENT TO FINANCIAL CONGLOMERATES

Approval: 05/06/2024 Validity: 20/06/2024

Annex No. 3

CALCULATION OF THE CAPITAL SITUATION OF THE FINANCIAL CONGLOMERATE (In thousands of US$)

I. Capital of: a) Company "X" $ b) Company "Y" c) Company "Z" ______________ $

II. Capital Requirements of: a) Company "X" $ b) Company "Y" c) Company "Z" ______________ $

III. Surplus or Deficit (I-II) $