Circular 3/2023 — Modifications to Circular 14/2007 (Transition of TIIE for Terms Greater Than One Banking Business Day to the Overnight TIIE)

Thursday, April 13, 2023 OFFICIAL GAZETTE 1 BANK OF MEXICO CIRCULAR 3/2023 addressed to Credit Institutions and Multiple-Object Financial Companies Regulated, regarding Modifications to Circular 14/2007 (Transition of TIIE for Terms Greater Than One Banking Business Day to the Overnight TIIE).

At the margin a logo, which says: Bank of Mexico. CIRCULAR 3/2023 TO CREDIT INSTITUTIONS AND MULTIPLE-OBJECT FINANCIAL COMPANIES REGULATED: SUBJECT: MODIFICATIONS TO CIRCULAR 14/2007 (TRANSITION OF TIIE FOR TERMS GREATER THAN ONE BANKING BUSINESS DAY to the OVERNIGHT TIIE)

The Bank of Mexico, with the purpose of continuing to promote the sound development of the financial system and considering the recommendations of the Swiss association that groups financial authorities from various countries, known as the Financial Stability Board (FSB, by its acronym in English), as well as of the association of banking supervisory authorities, known as the Basel Committee on Banking Supervision, and of the International Organization of Securities Commissions (IOSCO, by its acronym in English) regarding the characteristics that reference interest rates used in financial markets must meet, particularly, the periods in which financial institutions should cease to use reference rates not determined based on real transactions, has decided to determine the dates from which the use, as a reference for new operations, of the Interbank Equilibrium Interest Rates in national currency (TIIE) for terms greater than one banking business day will be restricted.

For the above, based on articles 28, paragraphs sixth and seventh, of the Political Constitution of the United Mexican States, 24 and 26 of the Bank of Mexico Law, 4 and 22 of the Law for Transparency and Ordering of Financial Services, 1, 4, first paragraph, 8, paragraphs fourth and eighth, 10, first paragraph, 12, first paragraph, in relation to 19 Bis 1, fraction XI, and 17, fraction I, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Directorate of Central Bank Operations and the Directorate of Central Bank Regulations, respectively, as well as Second, fractions VI and X, of the Agreement on the Attachment of Administrative Units of the Bank of Mexico, has resolved to modify numerals 2.4, first paragraph, 2.5 and 2.7, subsection b), second paragraph, as well as to add the definition “Overnight TIIE” to numeral 1 of the “General provisions referred to in article 4 of the Law for Transparency and Ordering of Financial Services in matters of interest rates”, contained in Circular 14/2007, to remain in the following terms:

GENERAL PROVISIONS REFERRED TO IN ARTICLE 4 OF THE LAW FOR TRANSPARENCY AND ORDERING OF FINANCIAL SERVICES IN MATTERS OF INTEREST RATES

“1. Definitions … Overnight TIIE: the Interbank Equilibrium Interest Rate in national currency, for a term of one banking business day, which is published by the Bank of Mexico in accordance with what is provided in Section IV of Chapter IV of Title Third, of the Provisions applicable to the operations of credit institutions, multiple-object financial companies regulated that maintain patrimonial links with credit institutions and the National Financial Company for Agricultural, Rural, Forestry and Fisheries Development, issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette on March 2, 2012, as it has been modified by subsequent resolutions.

2 OFFICIAL GAZETTE Thursday, April 13, 2023 …”

“2.4 Substitute reference rates When a reference rate is agreed upon, one or more substitute reference rates must be agreed upon in the event that it: a) ceases to exist, b) ceases to be made known, c) ceases to be considered as an adequate reference to market conditions, subject to the determination of the Bank of Mexico, or d) that the competent authorities or the associations recognized by the financial markets of the respective jurisdictions cease to consider it as an adequate reference to market conditions in their respective jurisdictions, and the order in which, if necessary, such substitute reference rates would substitute, if necessary, the originally agreed upon must be agreed upon. The substitute rates may be considered as a reference if they are formally recommended for use by the Bank of Mexico, the competent authority or by the association recognized by the financial markets for recommending rates denominated in the currency in question. …”

“2.5 Reference rates in national currency In Credits denominated in national currency, only the following may be used as a reference rate: a) the Overnight TIIE; b) the yield rate in primary placement of Certificates of the Treasury of the Federated States of Mexico (CETES) and Development Bonds of the Federal Government of the United Mexican States (BONDES); c) the term deposit cost of liabilities denominated in national currency that the Bank of Mexico considers representative of the set of multiple banking institutions and that it publishes in the Official Gazette (CCP); d) the Nafin Rate (TNF) that is published in the Official Gazette; e) the rate that was agreed upon in the instruments that document Credits of the development bank or of public trusts for economic promotion, only in Credits that are subject to discount with such development bank institutions or from those trusts, or that are granted with resources coming from said institutions or trusts; f) the weighted banking funding rate, or g) the weighted government funding rate. These last two rates, as well as the Overnight TIIE, will be those that the Bank of Mexico makes known on its electronic page on the worldwide Internet network with the domain name www.banxico.org.mx. Regarding the reference rates provided for in subsection b) above, the term of the CETES or BONDES to which the Credit rate is referenced must be indicated.”

“2.7 Reference rates in foreign currency … a) … b) … In the event that any of the reference rates mentioned in this subsection ceases: i) to exist or to be made known, ii) to be considered as an adequate reference to market conditions, subject to the determination of the Bank of Mexico, or well, iii) that the authorities competent or the associations recognized by the financial markets of the jurisdictions in question cease to consider it as an adequate reference to market conditions in their respective jurisdictions, the supplementary rate applicable in those contracts formalized prior to the cessation of use of the original reference rate and that do not provide for the application of substitute rates in accordance with numeral 2.4 of these provisions, may be considered as a reference if it is formally proposed for use

Thursday, April 13, 2023 OFFICIAL GAZETTE 3 by some competent authority or association recognized by the financial markets for recommending rates denominated in the currency in question; c) and d) …”

TRANSITORY PROVISIONS FIRST.- The modifications to the “General provisions referred to in article 4 of the Law for Transparency and Ordering of Financial Services in matters of interest rates” provided for in this Circular will enter into force on January 1, 2025, without prejudice to what is provided in the following transitory articles.

SECOND.- From January 1, 2024, Financial Institutions that enter into contracts to formalize new Credits must refrain from using as a reference in said contracts the Interbank Equilibrium Interest Rates in national currency for terms of 91 and 182 days. However, Financial Institutions may continue to use, as a reference rate, the Interbank Equilibrium Interest Rates in national currency for terms of 91 and 182 days, as applicable, that the Bank of Mexico publishes in accordance with Chapter IV of Title Third of the “Provisions applicable to the operations of credit institutions, multiple-object financial companies regulated that maintain patrimonial links with credit institutions and the National Financial Company for Agricultural, Rural, Forestry and Fisheries Development”, issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette on March 2, 2012, as it has been modified by subsequent resolutions, only in those Credits granted under contracts entered into prior to the date indicated in this article. In these cases, Financial Institutions may use the reference rates indicated until the maturity of the referred contracts.

THIRD.- From January 1, 2025, Financial Institutions that enter into contracts to formalize new Credits must refrain from using as a reference in said contracts the Interbank Equilibrium Interest Rate in national currency for a term of 28 days. However, Financial Institutions may continue to use, as a reference rate, the Interbank Equilibrium Interest Rate in national currency for a term of 28 days that the Bank of Mexico publishes in accordance with Chapter IV of Title Third of the “Provisions applicable to the operations of credit institutions, multiple-object financial companies regulated that maintain patrimonial links with credit institutions and the National Financial Company for Agricultural, Rural, Forestry and Fisheries Development” issued by the Bank of Mexico through Circular 3/2012, published in the Official Gazette on March 2, 2012, as it has been modified by subsequent resolutions, only in those Credits granted under contracts entered into prior to the date indicated in this article. In these cases, Financial Institutions may use the reference rate indicated until the maturity of the referred contracts.

4 OFFICIAL GAZETTE Thursday, April 13, 2023 Mexico City, April 3, 2023.- BANK OF MEXICO: General Director of Central Bank Operations, Gerardo Israel García López.- Initials.- Director of Central Bank Regulations, María Teresa Muñoz Arámburu.- Initials. For any inquiry regarding the content of this Circular, the Bank of Mexico is at your disposal through the Directorate of Authorizations and Sanctions of Central Bank at telephone (55) 5237-2000 extension 3200.