Technical Standards for Classifying Credit Risk Assets and Establishing Sanitation Reserves for Investment Banks

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

CONSIDERING:

I. That Article 3, third clause of the Investment Banks Law establishes that Investment Banks constituted in accordance with this law shall have the status of members of the Financial System in accordance with the Law on Supervision and Regulation of the Financial System.

II. That Article 43, first clause of the Investment Banks Law establishes that Investment Banks must support in their internal policies the criteria for granting financing to Sophisticated Investors and the recovery risk of the funds.

III. That Article 44, first clause of the Investment Banks Law establishes that Investment Banks must elaborate and implement control policies and systems that allow them to adequately manage their financial and operational risks; considering, among others, provisions related to the management, destination, and diversification of credit and investments, liquidity management, interest rates, and foreign currency operations, as well as those carried out abroad.

IV. That Article 57, third clause of the Investment Banks Law establishes that the Central Reserve Bank of El Salvador through its Committee of Standards must establish the general standards for the preparation and presentation of financial statements and supplementary information of Investment Banks, determine the principles according to which they must keep their accounting, which must be based on international accounting standards issued by internationally recognized bodies, establish criteria for the valuation of assets, liabilities, and the constitution of provisions for risks.

V. That Article 2, first clause of the Law on Supervision and Regulation of the Financial System establishes that the Financial Supervision and Regulation System has the objective of preserving the stability of the financial system and ensuring its efficiency and transparency, as well as ensuring the safety and solidity of the members of the financial system in accordance with what this Law, other applicable laws, regulations, and technical standards dictate for this effect, all in concordance with international best practices on the matter.

VI. That Article 3, letter c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendent of the Financial System to proactively monitor the risks of the members of the financial system and the way in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.

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VII. That Article 35, first clause and letter d) of the Law on Supervision and Regulation of the Financial System establishes that directors, managers, and other officials holding management or administrative positions in the members of the financial system are obligated to comply with and ensure that in the institution they direct or work for, the adoption and updating of policies and mechanisms for risk management are fulfilled, among other actions, identifying, evaluating, mitigating, and disclosing them in accordance with international best practices.

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 CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES FOR INVESTMENT BANKS

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to regulate the evaluation and classification of credit risk assets according to the quality of the debtors and require the constitution of minimum sanitation reserves in accordance with the expected losses of the respective assets based on the level of risk assumed by the entities.

Subjects Art. 2.- The subjects obliged to comply with the provisions established in these Standards are: a) Investment Banks constituted in El Salvador; b) Subsidiaries established abroad of Investment Banks constituted in El Salvador; and c) National subsidiaries and joint venture companies of Investment Banks constituted in El Salvador that possess credit risk assets.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:

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a) Easily liquidated assets: In accordance with Article 4, fourth clause of the Investment Banks Law, these are those goods or resources owned by a sophisticated investor that can be used immediately without legal or contractual restrictions, understanding that these assets are free of liens and any restrictions that limit their use or alienation, such as: Bitcoin, Stablecoins, Treasury Bonds, Tokenized Treasury Bonds, Gold, Tokenized Gold, among others. b) Central Bank: Central Reserve Bank of El Salvador; c) Credit: For the purposes of these Standards, this term refers to Credit Risk Assets, which are all operations that in some way signify direct or indirect financing in favor of Sophisticated Investors; d) Entity (ies): Subject obliged to comply with these Standards; e) Sophisticated Investor: In accordance with Article 4 of the Investment Banks Law, these are natural or legal persons, national or foreign, to whom Investment Banks are authorized to offer their services, which must meet the criteria established in said article; f) Board of Directors: Collegiate body in charge of the administration of the entity, with supervisory, directional, and control functions; and g) Superintendent: Superintendent of the Financial System.

CHAPTER II RESPONSIBILITIES OF THE BOARD OF DIRECTORS

Board of Directors Art. 4.- The Board of Directors of the entities shall have the following obligations: a) It shall be responsible for ensuring compliance with these Standards; b) Authorize internal credit granting policies; and c) Establish sufficient internal controls to guarantee compliance with the policies referred to in letter b).

The aforementioned policies must include at least the elements indicated in Annexes No. 1 and 2 of these Standards and must be communicated to the Superintendent within a period not exceeding ten business days after approval.

CHAPTER III CREDIT RISK ASSETS Art. 5.- For the purposes of these Standards, credits are considered to be operations that in some way signify direct or indirect financing in favor of sophisticated investors, such as the following operations:

1. Loans;
2. Discounts;

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3. Payments on behalf of others;
4. Interest and other receivables;
5. Other accounts receivable;
6. Other unclassified credits;
7. Financial leasing operations;
8. Contingent credits;
9. Disbursements to the beneficiary or guarantor, prior to the honor or maturity of the guarantee; and
10. Overdue loans arising from honored guarantees.

CHAPTER IV GROUPING OF CREDIT RISK ASSETS Art. 6.- For the purposes of classifying credits, they shall be grouped separately into corporate credits, housing credits, and consumer credits. At the time of granting, credits must be guaranteed in a proportion greater than 100% of their amount, and once they begin to be amortized, they must always be guaranteed in a proportion greater than 100% with respect to their outstanding balance, in accordance with Article 37 of the Investment Banks Law. The above must be defined in the Credit Risk Management Policy of each entity. Likewise, in the event that the guarantee deteriorates and loses its value below 100%, entities must define in their Credit Risk Management Policy the mechanisms they will use to mitigate this event. Credits will be classified according to the "Technical Standards on the Procedure for Information Collection from the Central Risk System for Investment Banks" (NRP-92).

Corporate Credits Art. 7.- The general majority of credits granted by entities are grouped within corporate credits, with the exception of housing credits and consumer credits. In this same group, credits granted to the Central Government, Municipalities, and Autonomous and Semi-Autonomous Official Institutions that request to be qualified as sophisticated investors and successfully obtain that qualification will be included. Financing to legal persons resulting from the use of credit cards will also be considered as corporate credits.

Corporate credits whose destination country is different from El Salvador must be registered solely under code "12.03.00 Credits for Activities Abroad", in accordance with the "Technical Standards on the Procedure for Information Collection from the Central Risk System for Investment Banks" (NRP-92).

Housing Credits Art. 8.- Housing credits include loans granted to natural persons for the acquisition of housing, as well as those granted for land acquisition, construction, remodeling, and repair of housing. Generally, these credits meet the following characteristics:

1. The properties are for the use of the acquirer;
2. They are granted for the long term;
3. They are payable in periodic installments; and
4. They may be guaranteed with easily liquidated assets, first mortgage, or second mortgage, provided both were constituted with the same entity.

Housing credits whose destination country is different from El Salvador must be registered solely under code "09.00.08 Financing for the Acquisition of Housing and Others Abroad", in accordance with the "Technical Standards on the Procedure for Information Collection from the Central Risk System for Investment Banks" (NRP-92).

Consumer Credits Art. 9.- Consumer credits include personal loans whose object is to finance the acquisition of consumer goods or the payment of services, and which have the following general characteristics:

1. The debtor is a natural person;
2. The loan term is generally between one and six years; and,
3. The loan payment is made in periodic installments, normally equal and successive.

Financing to natural persons resulting from the use of credit cards will also be considered as consumer credits.

Consumer credits whose destination country is different from El Salvador must be registered solely under code "10.00.07 Consumer Loans Abroad", in accordance with the "Technical Standards on the Procedure for Information Collection from the Central Risk System for Investment Banks" (NRP-92).

CHAPTER V EVALUATION AND CLASSIFICATION OF CREDIT RISK ASSETS Art. 10.- Entities must have 100% of their credits duly evaluated and classified at all times. To determine the classification of a debtor, entities will gather all credit operations contracted by the debtor with said entity, so that the risk category assigned corresponds to the credit with the highest recovery risk. The Superintendent may require an entity to assign a debtor the category of another debtor when there are well-founded criteria that presume that there are ownership, administration, or business linkages between both debtors.

Classification of corporate, housing, and consumer credits Art. 11.- All credits will be classified monthly according to the debtor's payment behavior in the categories defined in Article 17, in the manner provided in Annex 1, considering the treatment of guarantees as provided in Articles 13 to 15 of these Standards. Additionally, entities must keep a specific record of the evaluation and classification of their fifty largest corporate debtors.

Art. 12.- A file containing all documents related to the request, analysis, and approval must be opened for each debtor, in accordance with what is established in Annex No. 2.

Treatment of Guarantees Art. 13.- For the purposes of the requirement of sanitation reserves, the risk of a debtor will be determined by subtracting from the total balance of obligations the value of the guarantees backing them that correspond to those detailed in the following article; in addition, the criteria for their acceptance must be in conformity with the policies approved by the Board of Directors.

In cases where the same guarantee backs the granting of one or more credits to different debtors, the value to be considered for said guarantee, for the purpose of constituting sanitation reserves, will be proportional to the outstanding balances of the credits granted to the debtor.

Art. 14.- For the purposes of the previous article, the guarantees that may be considered are the following:

TYPE OF GUARANTEE	Percentage to Consider
Cash deposits in legal tender currency.	100%
Monetary deposit certificates in legal tender currency duly pledged and opened in local banks (both commercial and investment banks) or in first-line foreign banks or other financial intermediaries supervised by the Superintendent of the Financial System.	100%
Guarantees and Bonds from local banks (both commercial and investment banks) or first-line foreign banks in legal tender currency.	100%
Pledges on fixed-income securities, issued in the country or abroad, with a high degree of liquidity and holding an international classification of "investment grade".	100%
Stablecoins or "Stablecoins", whose underlying asset is a currency issued by a Central Bank or an asset traded in organized securities markets with similar or superior supervision requirements compared to El Salvador and that has an active market.	90%
First mortgages on real estate, duly registered; however, for those guarantees with preventive annotation and sufficient documentation for registration, a maximum period of six months is granted to complete the registration process, from the date of granting the guarantee.	Risk Categories
:---	:---
From A2 to C2	70%
D1 and D2	60%
E	50%
Bitcoin or other cryptocurrency with an active market.	Risk Categories
:---	:---
From A2 to C2	75%
D1 and D2	65%
E	55%

An "active market" is understood as one in which transactions of an asset take place with sufficient frequency and volume to provide price information on a continuous basis.

Art. 15.- Mortgage guarantees must meet the following requirements: a) The value of the property to be subtracted from the balance of obligations will be the lesser between the updated expert appraisal and the contractual expert appraisal; b) The expert appraisal of the guarantee must be carried out by an independent appraiser, duly registered with the Superintendent; c) The expert appraisal of mortgage guarantees must not be older than 24 months in corporate credits and 36 months in housing credits, and must be carried out by an independent appraiser, duly registered with the Superintendent; d) In the case of construction credits, the added value in the progress of the work will be considered as part of the guarantee, provided that: i) The entity adequately documents and verifies the progress of the work related to the credit disbursements; ii) There is an annual progress report prepared by an independent appraiser registered with the Superintendent; and iii) The respective file includes pre-sale and reservation reports of housing, where applicable. e) Guarantees granted by related persons to the obliged entity to cover third-party risks will not be considered for the calculation of sanitation reserves.

Art. 16.- Guarantees constituted with stablecoins, bitcoin, or other cryptocurrencies in accordance with Article 15 of these Standards must be valued at market value. For the purposes of the foregoing, entities must use a valuation methodology that provides real-time information.

For the valuation of the guarantees referred to in the first paragraph of this article, entities must share with the Superintendent access to the information system used for the real-time monitoring of the value of said guarantees, which must consider at minimum the fields included in Annex No. 4 of these Standards.

Prior to the start of operations, entities must submit to the Superintendent the methodology they will use to value the guarantees and the international source of financial information they will use for valuation, both of which must have the approval of the Superintendent, which will have a maximum period of 20 business days to issue a resolution.

CHAPTER VI CONSTITUTION OF SANITATION RESERVES

Risk Categories Art. 17.- Entities must constitute minimum sanitation reserves for their credit risk assets, subtracting from the balance of each debtor the value of the guarantees backing them established in Articles 13 to 15 of these Standards, classifying said debtors and applying reserve percentages in accordance with the following detail:

Classification	Sanitation Reserve Percentage
Normal
Category A1	0%
Category A2	1%
Subnormal
Category B	5%
Deficient
Category C1	15%
Category C2	25%
Difficult to Recover
Category D1	50%
Category D2	75%
Unrecoverable
Category E	100%

Restructurings and Refinancings of Debts Art. 18.- Extension is understood as the prolongation of the payment term of an obligation, without issuing a new contractual document and without a change in the credit reference.

Restructured credit is understood as the modification of the amortization conditions of the original credit, possibly including a change in the term, without issuing a new document and without a change in the credit reference.

Credits that have been extended, restructured, or that have been subject to any other legal or financial arrangement that modifies the originally agreed conditions will be referred to as restructured credits.

Art. 19.- Refinanced credit is understood as a credit granted that cancels in whole or in part other credits with delinquency or payment capacity problems and that changes the conditions of the previous credits.

Art. 20.- Debtors whose original credits are restructured or refinanced will retain their risk category in accordance with the criteria defined in Annex 1, provided that the debtor satisfies by their own means, prior to the restructuring or refinancing, the total of the interest owed as of the date of the transaction, without these last being the product of new financing, direct or indirect.

Debtors with restructured or refinanced credits that do not meet the previous condition will be classified in category C2 or a higher risk category, in accordance with the symptoms presented.

If the restructured or refinanced operation that does not meet the payment of the total interest owed continues with delays in the payment of the established installments, for reasons of prudent and sound risk evaluation practice, it will be

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 10 of 20 CNBCR-09/2025 NCF-13 TECHNICAL STANDARDS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES FOR INVESTMENT BANKS Approval: 10/11/2025 Validity: 25/11/2025