RegAlertRule · CNBV · 2 Jul 2018
Guide for Authorization of Applications for Market Risk Models
The CNBV establishes the legal, technical, and operational requirements for credit institutions to obtain approval for internal models determining deposit stability and passive rate sensitivity, and for calculating mortgage prepayment amounts. Additionally, it defines the classification procedures for housing subaccount balances held by INFONAVIT and FOVISSSTE in maturity bands exceeding one year. Institutions must submit specific documentation, including risk committee minutes and policy manuals, and comply with strict statistical validation and reporting obligations.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
MARKET RISK
Credit Institutions
Guide for the application of:
A) Approval of the Internal Model for stability in deposits and the sensitivity of passive rates of said deposits.
B) Authorization of the Internal Model to calculate the prepayment amount of mortgage loans.
MARKET RISK
Development Entities and Organizations
C) Guide for applications for the classification of balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability.
Version 1.0
July 2, 2018
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
INDEX
- Objective of the Guide
- Definitions
- SECTION I
Application Letter - SECTION II
Legal Requirements
Section A. Approval for the use of the Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates.
Section B. Authorization of the Internal Model to calculate the prepayment amount of mortgage loans.
Section C. Classification of balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability. - SECTION III
Technical and Operational Requirements
Section A. Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates.
Section B. Internal Model to calculate the prepayment amount of mortgage loans.
Section C. Classification of balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability. - SECTION IV
a) Annex 1-A of the CUB b) Annex 1-N of the CUB c) Text of article 274 of the General Provisions applicable to development organizations and development entities.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
Objective of the Guide
This Guide constitutes a support tool for credit institutions to apply for:
A) The approval of this Commission for the use of the Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates, in accordance with what is provided in Annex 1-A "Integration of Risk Groups", section 1, item 1.1, subsection a, of the General Provisions applicable to credit institutions.
B) The authorization of the Internal Model to calculate the prepayment amount of mortgage loans in accordance with what is provided in Annex 1-A "Integration of Risk Groups", section 1, item 1.1, subsection v, of the General Provisions applicable to credit institutions.
Additionally, this Guide will be applicable to INFONAVIT and FOVISSSTE for the classification of balances of the housing subaccount in maturity bands greater than one year up to the maximum period of demonstrable stability.
This document has been prepared solely for practical purposes, using as a methodology the orderly exposition of the set of requirements established in the aforementioned Annex 1-A of the General Provisions applicable to credit institutions to obtain the referred approval and authorization, and of article 274 of the General Provisions applicable to development organizations and development entities, with explanations and orientations that contribute to the compliance of each requirement in particular.
The Guide incorporates complementary information that is considered necessary to attach to the application, with the understanding that the requirements for complementary information are only illustrative, as the National Banking and Securities Commission, in exercise of the attribution conferred by articles 19 of the Law of the National Banking and Securities Commission and 97 of the Law of Credit Institutions, may at any time request additional data, reports, and documents that are equally related to the application.
Annex 1-A of the General Provisions applicable to credit institutions and the text of article 274 of the General Provisions applicable to development organizations and development entities are added to this Guide.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
Definitions
For the purposes of this Guide, the following shall be understood:
Annex 1-A: the Annex "Integration of Risk Groups" of the General Provisions applicable to credit institutions.
Annex 1-N: the Annex "Calculation of the duration of a fixed-rate coupon debt instrument" of the General Provisions applicable to credit institutions.
CNBV: the National Banking and Securities Commission.
CUB: the General Provisions applicable to credit institutions.
Development Entities and Organizations Provisions: The General Provisions applicable to development organizations and development entities.
INFONAVIT: The National Workers' Housing Fund Institute.
FOVISSSTE: The Housing Fund of the Institute for Social Security and Services for State Workers.
LIC: the Law of Credit Institutions.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
SECTION I
Application Letter
The application letter for approval, for the use of an Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates, in accordance with what is provided in Annex 1-A, section 1, item 1.1, subsection a, of the CUB, and for the authorization of an Internal Model to calculate the prepayment amount of mortgage loans in accordance with what is provided in Annex 1-A, section 1, item 1.1, subsection v, of the CUB, shall be in a free-form letter.
Similarly, the letter for the classification of balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability, shall be in a free-form letter.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
SECTION II
Legal Requirements
This Section indicates the documentation and information that must accompany the application letter for authorization submitted by credit institutions and INFONAVIT and FOVISSSTE.
Section A
Approval for the use of the Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates.
-
The application letter must be signed by the representative who proves to have special powers to manage the application, or general powers for the performance of administrative acts.
-
A simple copy of the minutes of the last session of the Risk Committee, as well as the presentation of the Internal Model that has been made during the session, along with all annexes and documentation delivered to the members of the Committee.
Section B
Authorization of the Internal Model to calculate the prepayment amount of mortgage loans to be included in the calculation of duration referred to in Annex 1-N of the CUB.
- The application letter must be signed by the members of the Institution's Risk Committee, as provided in Annex 1-A, section 1, item 1.1, subsection v, third paragraph of the CUB.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
The aforementioned letter must be signed by all members of the Risk Committee.
-
Attach the Board's authorization regarding the use of the Internal Model to calculate the prepayment amount for the purpose of calculating the Institution's capital requirements, which must contain the explicit agreement of the authorization.
-
Copy of the minutes of the Institution's Risk Committee session where the risk management manual with the procedures, methodologies, and quantitative and qualitative processes used in the Internal Model was approved.
-
A letter signed by the General Director of the Institution containing the Institution's commitment to present, within a maximum period of 12 months from the date the CNBV authorized the Internal Model to calculate the prepayment amount, its application for approval of the Internal Model to statistically determine stability in deposits and the sensitivity of passive rates thereof with respect to market rates, in the terms established in item 1.1 of Annex 1-A of the CUB.
Section C
Classification of balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability.
-
The application letter must be signed by the representative who proves to have special powers to manage the application, or general powers for the performance of administrative acts.
-
INFONAVIT and FOVISSSTE must present to the CNBV the documentary support for the classification during the first fifteen days of the month of December of each year.
-
INFONAVIT and FOVISSSTE must present the approval of the Risk Committee of the methodology and procedures for the classification of the balance
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
of the housing subaccount in maturity bands greater than one year, as well as any modifications, in accordance with what is provided in article 64, fraction II, subsections b and c, of the Development Entities and Organizations Provisions.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
SECTION III
Technical and Operational Requirements
This Section indicates the documentation and information that must accompany the application letter for authorization of the Internal Model in question, to demonstrate compliance with the technical requirements referred to in:
-
Annex 1-A section 1, item 1.1, subsection a, of the CUB for the Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates (Section A);
-
In Annex 1-A section 1, item 1.1, subsection v, of the CUB for the Internal Model to calculate the prepayment amount of mortgage loans (Section B);
-
In article 274 of the Development Entities and Organizations Provisions to classify the balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability (Section C).
Section A
For Multiple Banking Institutions and Development Banking
For the approval for the use of an Internal Model to statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market interest rates, the Institution must comply with the following clarifications to what is established in the provisions:
| Annex 1-A section 1, item 1.1, subsection a, of the CUB | |
|---|---|
| Standard | Requirements / Minimum Compliance Expectation |
| Institutions may statistically determine stability in deposits and the sensitivity of passive rates of said deposits with respect to market rates using an internal model, for this purpose | See Sections I and II of this guide. |
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
| Annex 1-A section 1, item 1.1, subsection a, of the CUB | |
|---|---|
| Standard | Requirements / Minimum Compliance Expectation |
| must have written approval from the Commission. | |
| Stable deposits under the internal model may be classified in bands greater than those referred to in the preceding paragraphs and will be done indistinctly each period, up to the maximum period of demonstrable stability. | No additional comments. |
| Institutions, in order to use an internal model to statistically determine stability in deposits, must adhere to the following: | When integrating the information and documentation that the entity presents to apply for approval of the Internal Model, the Institution must at minimum consider the following: i. Define in detail the deposits that will be the subject of the Internal Model, indicating their origin and characteristics; ii. Indicate, if applicable, the deposits that are excluded from the model including the corresponding justification; iii. Send the series of deposits and passive rates used in the construction of the Internal Model; and iv. Compare the deposit series with respect to the information reported to the Bank of Mexico and/or the CNBV, and if applicable, clarify any differences that arise. |
| 1. Demonstrate to the Commission that they have a solid policy for comprehensive risk management. | To document this requirement, the Institution must send: i. Document explaining the organizational, operational, and functional structure of the Institution's Comprehensive Risk Management System (SAIR). ii. The Risk Management Manual, current at the time of the authorization request, with all its annexes, as well as documentary evidence of its approval by the Risk Committee. iii. List of the latest observations or improvement opportunities detected by authorities, internal and/or external auditors in terms of CRM, indicating the progress in |
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
| Annex 1-A section 1, item 1.1, subsection a, of the CUB | |
|---|---|
| Standard | Requirements / Minimum Compliance Expectation |
| the implementation of corrective measures and/or actions with which the Institution will address said observations, at the time of the authorization request. | |
| 2. Determine and document the classification of deposits in each band. | Provide a detailed description of the procedures and methods used by the Institution, which must include the assumptions considered to define the percentages of deposits subject to classification that can be assigned in each of the bands, up to the maximum period of demonstrable stability; likewise, the results obtained with the previously referred procedures and methods must be included. |
| 3. Ensure that the classification of deposits is consistent for a minimum period of twelve months and is supported by statistical evidence. | A detailed description of the statistical procedures used by the Institution to guarantee that the classification of deposits in the bands and the maximum percentages resulting from the Internal Model are consistent for at least a period of 12 months must be provided, including as a minimum the assumptions, inputs, and the conclusion obtained. |
| 4. Demonstrate, through the procedures and methodologies included in the models, the historical performance of stability in deposits, as well as the sensitivity of said deposits to variations in the market interest rate (28-day Cetes). | Regarding this, in an illustrative but not limiting manner, the Institution must consider the following: i. Indicate the historical information period of the deposits considered in the construction of the Internal Model, this period must cover a sufficient number of observations to guarantee the stability of the model, and must not be less than 48 months; ii. Document the methodologies and procedures used to demonstrate the historical performance of stability in deposits and the sensitivity of passive rates to variations in the 28-day Cetes rate; iii. Justify the selection of the methodologies and procedures referred to in the previous subsection; iv. Demonstrate compliance with all assumptions inherent to the methodologies and procedures referred to in the second subsection of this section; in the case of statistical tests |
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
| Annex 1-A section 1, item 1.1, subsection a, of the CUB | |
|---|---|
| Standard | Requirements / Minimum Compliance Expectation |
| the confidence level under which they are performed must be indicated; v. Demonstrate that there is no relationship between the variation of the rates of deposit products and the 28-day Cetes rates, as well as between the variation of the rates of deposit products and the variation of the 28-day Cetes rates; vi. Perform projections of deposits at least for the time horizon for which authorization is requested, to classify said deposits in each band with the Internal Model, considering prediction intervals and indicating the level of statistical significance used; vii. Use statistical software that allows it to precisely identify the behavior of deposits and their sensitivity to various risk factors, as well as to ensure that the methodologies and procedures referred to in the second subsection of this section are properly elaborated and calibrated. Additionally, the code used must be delivered. | |
| 5. Document the procedures, methodologies, and qualitative and quantitative processes used in the model. | The policies related to Comprehensive Risk Management where the procedures, methodologies, and qualitative and quantitative processes used in the Internal Model are included and properly documented, clearly establishing as a minimum, the responsible parties for the processes, the systems and reports used for their determination and calculation, their distribution within the Institution, as well as the information that must be presented to the Risk Committee. Additionally, evidence of the approval of said policies by the referred Committee must be presented, subject to the prior approval of the Internal Model by this Commission. The documentation provided must be clear, complete, consistent, and up to date with the most recent information available, establishing as a minimum, the responsible parties for the processes, the systems and reports used for their determination and calculation, their distribution |
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
| Annex 1-A section 1, item 1.1, subsection a, of the CUB | |
|---|---|
| Standard | Requirements / Minimum Compliance Expectation |
| within the Institution, as well as the information that will be presented to the Risk Committee. The updated methodological manual of the model must be submitted for approval by the competent instances of the Institution. Additionally, if there are changes in the Internal Model with respect to the last authorization, they must be documented, demonstrating that such changes result in an improvement of the model. On the other hand, bibliographic references used must be included. | |
| 6. Perform backtesting on the internal deposit stability model that demonstrates that the measurements performed are reliable. | Present a detailed description of the process followed in the backtesting of the Internal Model, indicating as a minimum the parameters, the information period used, which must be at least 12 months, and the assumptions considered, as well as the results and conclusion derived from its execution. Additionally, in case of obtaining confidence intervals, indicate the level of statistical significance used. The foregoing, with the objective of evaluating the performance, consistency, and stability of the model. |
| 7. Ensure that the information used in the internal deposit stability models and of sensitivity of passive rates of said deposits to variations in the market interest rate (28-day Cetes) is reliable, complete, and timely. | The Institution must send a certification by an area independent from that which developed the Internal Model, in which it states that the information used in the Internal Model is complete, correct, precise, complete, and reliable; the foregoing, to demonstrate to the CNBV the precision, solidity, and reliability of its estimates. Additionally, the Institution must provide detailed evidence that it has integrated systems with automatic interfaces and reliable platforms for data maintenance; in such a way as to guarantee those systems related to comprehensive risk management, and their interaction with the other systems used by the Institution. |
| The Institution may classify stable deposits according to the Internal Model, but in no case, the sum of the risk-weighted assets subject to credit risk, the risk-weighted positions equivalent subject to market risk, as well as the risk-weighted positions equivalent subject to operational risk derived from the Internal Model, must register a reduction greater than 12.5%, nor a benefit in the Capitalization Index greater than two percentage points, with respect to having used the standard model. | Once the Internal Model is authorized, the Institution must deliver monthly information on the amounts and percentages assigned to each of the bands, demonstrating that the deposits subject to classification derived from the use of the Internal Model do not exceed the authorized maximum percentages, nor the mentioned limits. |
Once the Internal Model is approved, the Institution must:
- Perform, at least once a year, an evaluation by the unit for Comprehensive Risk Management with the object of verifying if the Internal Model continues to be adequate, considering that said review must be presented to the Risk Committee, in accordance with what is provided in article 75, fractions II and V, of the CUB.
-
Present the report of the comprehensive risk management audit, which shall be carried out at least once a year or at the close of each fiscal year, which contemplates the audit of the Internal Model, where what is established in Article 76 of the CUB is considered.
-
When the authorization of the Internal Model, valid for a period of 12 months, is about to expire, the Institution must submit the authorization request again to the CNBV, at the latest two months before the end of such validity, referencing the last authorization granted. The corresponding authorization request, where it is demonstrated that deposits are stable, must include the most recent information available, and demonstrate that deposits can be classified in bands greater than those referred to in the standard model, up to the maximum period of demonstrable stability.
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
Section B
For Multiple Banking Institutions and Development Banking
In the case of the authorization of an Internal Model to calculate the prepayment amount of mortgage loans, to be included in the calculation of duration referred to in Annex 1-N of the CUB, the following clarifications are made to what is established in the provisions:
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| Fixed-rate mortgage loans for housing originated with similar prudential criteria (Down payment, payment schemes, demographic data of the borrower, bank and non-bank debts in relation to their income, among others), that are exposed to the same interest rate and contractual term, that have established in the contracts the possibility of prepayment and that are expressed in the same currency. | No additional comments. |
| Institutions, with prior authorization from the Commission, may incorporate a prepayment amount of the aforementioned mortgage loans in the calculation of the duration referred to in Annex 1-N of these provisions. Such amount may be incorporated up to the lower limit of the confidence interval to measure the precision of the internal model indicated in subitem iv of the following | With respect to this paragraph, Institutions must provide the documentary detail of the process to determine the prepayment amount that will be incorporated into the cash flows that will be considered in the duration formula referred to in Annex 1-N of the CUB; at a minimum, the detail of the theoretical model used, inputs, assumptions, calculation formulas; as well as an example of the application of the Internal Model to calculate the prepayment amount, for the most recent month of available information, in such a way as to demonstrate that such amount meets the required specifications. Additionally, the impact that the use of the Internal Model has on the calculation of the capital requirement must be documented as of the most recent date available; in case the Institution has an Internal Model |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| paragraph always provided that such limit considers at least scenarios with respect to which the interest rate increases at least two standard deviations with respect to its estimated average level. | authorized to statistically determine the stability in deposits and the sensitivity of passive rates of these with respect to market rates, the referred impact must be provided considering both Internal Models jointly. |
| For the purposes of the previous paragraph, Institutions must present to the Commission the authorization request for their internal model to calculate the prepayment amount, which must be signed by the members of the risk committee and accompanied by the following: | See Section I and II of this guide. |
| i. The evidence that the loans to be considered meet the characteristics indicated in the first paragraph of this item v. | To meet this requirement, a detailed description of the characteristics of the mortgage loans considered in the Internal Model must be delivered, taking into account the prudential criteria mentioned in the first line of this table, and those characteristics related to prepayment (types of prepayment that exist, their operation, restrictions, rights and obligations of the borrower, among others). Furthermore, a copy of a master contract incorporating the pre-payment clause must be sent. Complementarily, the detail of the composition of the mortgage loan portfolio must be presented, with the number of loans and balances, at least for the year prior to the date on which the authorization of the Internal Model is requested, segmented according to the criteria established by the Institution, where the corresponding detail for the portfolio subject to the Internal Model can be distinguished. The foregoing, with the objective of demonstrating the stability of the mortgage loan portfolio. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| ii. The authorization of the Council regarding the use of the internal model to calculate the prepayment amount for the purpose of calculating the Institution's capital requirements. | See Section II of this guide. |
| iii. The methodology, assumptions, parameters and processes related to the calculation of the prepayment amount, which must be documented in the risk management manual. | To address this point, the Institution must send the Manual containing the policies related to Comprehensive Risk Management, duly authorized and with documentary evidence of such authorization, where the procedures, methodologies and qualitative and quantitative processes used in the Internal Model are included and documented adequately, clearly establishing as a minimum, the responsible parties for the processes, the systems and reports used for its determination and calculation, its distribution within the Institution, as well as the information that must be presented to the Risk Committee. Additionally, evidence of the approval of said policies by the said Risk Committee must be presented. In the information and documentation that the Institution sends to address this point, it must consider in an enunciative but not limited manner, the following: i. The documentation provided must be clear, complete, consistent and up to date with the most recent information available. It must include the reasons why the selected methods and processes were decided to be employed, contain the detail of the sources of information used, a description of the variables or parameters incorporated and justify their choice, among other considerations. Such documentation must allow the understanding and replication by a third party of the entirety of the methods and processes used. ii. Indicate the period of historical information used for the estimation of prepayment rates, which must comprise at least one economic cycle |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| complete and cannot be less than five years. Additionally, the criteria used to define the indicated economic cycle must be documented. iii. Describe the treatment provided to the information used in the estimates; at a minimum, it must deliver the description of the databases, the criteria for sample selection, filters applied, and exclusions, among other aspects. Additionally, the Institution must provide detailed evidence of having integrated systems with automatic interfaces and reliable platforms for data maintenance, in such a way as to guarantee the quality of the information and that a third party can replicate the estimates consistently. iv. Document the criteria for segmentation or grouping of the population of the mortgage loan portfolio used for the development of the model. v. Demonstrate compliance with all the assumptions inherent to the theoretical models used. vi. Present the results obtained in each of the processes carried out; in particular, the final values of the prepayment rates estimated by defined segment. vii. Send the codes and databases used for the development of the model. viii. Certify that the information used in the Internal Model to calculate the prepayment amount is reliable, complete and timely. ix. Provide evidence of the evaluation carried out, at least once a year, by the unit for Comprehensive Risk Management to verify if the Internal Model to calculate the prepayment amount is adequate, considering that such review must be presented to the Risk Committee, in accordance with what is provided in article 75, fractions II and V, of the CUB. x. Present the report of the Comprehensive Risk Management audit, which shall be carried out at least once a year or at the close of each fiscal year, which contemplates the audit of the Internal Model, in accordance with what is established in article 76 of the CUB. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| iv. The evaluation of the precision of the internal model to calculate the prepayment amount with a backtesting test that is carried out with information from a complete economic cycle. The indicated cycle cannot be less than 5 years. In any case, the precision of the internal model used must be at least 97.5 percent confidence for the 12 months in which the Institution committed to use said model. | Document in detail the procedure of the backtesting test, at a minimum, the criteria for the definition of the economic cycle must be indicated, the detailed description of the method applied, the sample selection process, the calculation formulas and the point values of the estimated and observed prepayment rates that are used in the test; as well as the results obtained by defined segment, considering the conditions established in subitem iv. |
| v. The analysis of the effect in the internal model to calculate the prepayment amount that considers at least the following elements: | |
| 1. Current and future behavior of interest rates, as well as their influence on prepayment rates considering at least that future rates could deviate from the proposed projection up to two standard deviations of said projection in both directions. | Present the necessary elements that allow appreciating that the current and future behavior of interest rates, in recent economic conditions, was considered to develop the Internal Model to calculate the prepayment amount. |
| 2. Age of the loans since origination. | Send documentary evidence where the impact of the age of the loans, from their origination, on the estimation of the prepayment rate is analyzed. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| 3. Payment seasonality. | The seasonality of payments must be analyzed based on the historical behavior of the portfolio and the impact on the estimation of the prepayment rate must be evaluated. If considered significant, the recognition of the effect of seasonality in the Internal Model to calculate the prepayment amount must be documented. |
| 4. Refinancing patterns. | Document the analysis and conclusion of the relationship that exists between the prepayment rate and the refinancing patterns that the Institution has (award, write-off, restructuring, among others). |
| 5. Conditions and policies for loan origination (term, rate, Down payment, payment schemes, demographic data of the borrower, bank and non-bank debts in relation to their income, among others). | Present evidence showing how each of the origination conditions and policies are incorporated as explanatory factors of prepayment behavior in the Internal Model. |
| 6. Economic conditions to which the borrower and the collateral are exposed (appreciation or depreciation of real estate, unemployment, among others). | Send evidence showing how different economic conditions affect the borrower and the collateral; and therefore the prepayment amount. |
| 7. Defaults on fixed-rate mortgage loans for housing, including costs associated with said defaults and the various types of recovery. | Deliver evidence of the analysis and conclusion of the impact that defaults have on the calculation of the prepayment amount of mortgage loans. If considered significant, document the treatment that will be given to loans that fall into default and to which the Internal Model is applied. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| 8. In its case, the prepayment penalty. | If there is a penalty for early payments, document the characteristics of the penalty and the treatment given to its incorporation in the Internal Model. |
| vi. A letter signed by the general director of the Institution in which the commitment of the Institution itself to present within a maximum period of 12 months from the date on which the Commission authorized the internal model to calculate the prepayment amount, its request for approval of the internal model to statistically determine the stability in deposits and the sensitivity of passive rates of these with respect to market rates, in the terms established in numeral 1.1 of this Annex. | No additional comments. |
The authorization that, in its case, the Commission grants will have a validity of 12 months counted from its granting. In any case, Institutions must apply the internal model to calculate the prepayment amount consistently during the 12 months for which it was authorized.
When Institutions request again the authorization of their internal model to calculate the prepayment amount
When the authorization of the Internal Model, valid for a period of 12 months, is about to expire, the Institution must submit the authorization request again to the CNBV, at the latest two months before the end of such validity, referencing the last authorization granted.
As part of said authorization request, the Institution must include the most recent information available.
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Annex 1-A section 1, numeral 1.1, item v, of the CUB | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| of prepayment must, in their case, include the differences that exist with the methodology, assumptions, parameters and processes related to the calculation of the prepayment amount with respect to the last authorized internal model. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
Section C
In the case of the methodology for classifying the balances of the housing subaccount under the responsibility of INFONAVIT and FOVISSSTE, in maturity bands greater than one year up to the maximum period of demonstrable stability, to which article 274 of the Proximity Entity Provisions refers, the following clarifications are made:
| Article 274 of the Provisions for Proximity Entities and Organizations | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| Regarding the balances of the housing subaccount under the responsibility of Infonavit and Fovissste, these may be classified in maturity bands greater than one year up to the maximum period of demonstrable stability, which must consider the dynamics of the exigibility of the housing subaccounts. | No additional comments. |
| To classify the balances of the housing subaccount in maturity bands greater up to the maximum period of demonstrable stability, Infonavit and Fovissste must be subject to what is indicated below: | |
| 1. Determine and document the classification of the housing subaccount in each maturity band. | Detailed evidence of the procedures and methodologies used to classify the housing subaccount in each maturity band must be delivered, including the maximum percentages to be assigned in each of said bands. For this, the Institution must consider as a minimum, for the estimation of the percentage of exits that imply a decrease in the housing subaccount, the possible exits in the subaccount derived from: i) that the beneficiary exercises a mortgage credit; ii) withdrawal due to death, disability or total incapacity; iii) withdrawal due to old-age unemployment and old age or retirement by age and length of service; and iv) that the beneficiary changes jobs and requests the transfer of their housing subaccount to another institution. |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Article 274 of the Provisions for Proximity Entities and Organizations | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| Additionally, the historical series of the housing subaccount used must be provided. | |
| 2. Ensure that the classification of the housing subaccount is consistent for a minimum period of 12 months and is supported by statistical evidence. | A detailed description of the statistical procedures used by the Institution to ensure that the classification of the housing subaccount is consistent for at least a period of 12 months must be provided, including as a minimum the assumptions, inputs and the conclusion obtained. Likewise, the impact analysis of the classification of subaccount balances in maturity bands greater than one year up to the maximum period of demonstrable stability resulting, in the total unexpected loss requirements and in the unexpected loss reserves, as of the most recent date available, must be provided. |
| 3. Demonstrate, through procedures and methodologies, the historical performance of the stability of the housing subaccount, as well as perform backtesting tests on said stability in order to demonstrate that the measurements made are reliable. | Document in detail the process followed in the backtesting tests, indicating as a minimum the parameters, the information period and the assumptions considered, as well as the results and conclusion derived from its execution. Additionally, in case confidence intervals are obtained, indicate the level of statistical significance used. Likewise, the Comprehensive Risk Management unit must carry out an evaluation, at least once a year, to determine if the methodology for classifying the balances of the housing subaccount continues to be adequate, where it is demonstrated if it accurately reflects the value of the positions and its sensitivity to various risk factors, if it is adequately elaborated and calibrated, and incorporates information from reliable sources. Such review must be presented to the Risk Committee. The foregoing, in accordance with what is provided in article 68, fractions I, III and IV of the Provisions for Proximity Entities and Organizations. Present the report of the Comprehensive Risk Management audit, which shall be carried out at least once a year or at the close of each fiscal year, which contemplates the audit of the methodology, in accordance with what is established in the |
SHCP
MINISTRY OF FINANCE AND PUBLIC CREDIT
CNBV
NATIONAL BANKING AND SECURITIES COMMISSION
| Article 274 of the Provisions for Proximity Entities and Organizations | |
|---|---|
| Standard | Requirements / Minimum compliance expectation |
| article 69 of the Provisions for Proximity Entities and Organizations. | |
| 4. Document the procedures, methodologies and qualitative and quantitative processes used to classify the housing subaccount in each maturity band. | Documentary evidence of the procedures, methodologies and qualitative and quantitative processes used to classify the balances of the housing subaccount in each maturity band must be sent (formalize within its manual for Comprehensive Risk Management); the documentation provided must be clear, complete, consistent and up to date with the most recent information available. Additionally, if there are changes in the way of classifying the housing subaccount in each maturity band with respect to the last annual delivery of the model, they must be documented. The updated methodological manual must be submitted for approval by the competent instances of the Institution, as established in article 64, fraction II, item g of the Provisions for Proximity Entities and Organizations, for which the corresponding evidence of such approval must be delivered. |
-
Carry out, at least once a year, an evaluation by the Unit for Comprehensive Risk Management, of the Internal Model for the classification of the balances of the housing subaccount, in order to determine if it accurately reflects the value of the positions and its sensitivity to risk factors, if it is adequately elaborated and calibrated, and incorporates information from reliable sources, which must be presented to the risk committee, in accordance with what is provided in article 68, fractions I, III and IV of the Provisions for Proximity Entities and Organizations.
-
Present the report of the Comprehensive Risk Management audit, which shall be carried out at least once a year or at the close of each fiscal year, which contemplates the audit of the methodology, in accordance with what is established in article 69 of the Provisions for Proximity Entities and Organizations.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
ANNEX 1
[PDF Icon]
Annex 1-A CUB.pdf
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
ANNEX 2
(III) ANNEX 1-N
CALCULATION OF THE DURATION OF A FIXED-RATE COUPON DEBT INSTRUMENT In the case of fixed-rate operations with periodic interest payments or periodic principal amortizations, the term in days shall be equivalent to the "Duration" of the instrument, calculated according to the following formula:
D = [Summation of t=1 to n] (tk * fk) / (P * (1 + i * (tk / 360)))
Where:
D: Duration. n: Number of interest payments and, where applicable, capital amortizations to occur.
P: Value of the title or instrument, which includes accrued interest. i: Annual yield to maturity rate of the title or instrument. dk: Number of natural days between the calculation date and the settlement date of cash flow fk. tk: Number of natural days between the dates of cash flows (k-1) and k. In the event that k=1, t1 shall be the number of natural days between the calculation date and the date of the next cash flow. fk: Cash flow at time k, which includes interest and, where applicable, capital. In the case of fixed-rate housing mortgages, the prepayment amount may be considered in the estimated cash flow using an internal model, in accordance with what is established in Annex 1-A of these Provisions.
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
Annex 3
Article 274.- To obtain the Requirements for Unexpected Losses from operations in national currency with a yield rate referenced to the growth of the general minimum wage, Development Agencies and Development Entities in matters of terms and procedures for compensation and Requirements for Unexpected Losses, must use the same procedures indicated in Article 272, with the exception of what is provided in subsection g) of fraction II of said Article, using for this purpose the table contained in this Article.
For the purposes of what is provided in subsection a) of fraction II of Article 272, it shall be understood that operations are of the same term when the same level of the general minimum wage is to be applied to their settlement.
Yield Rate in national currency referenced to the growth of the general minimum wage.
| Zone | Bands | Term to Maturity | Market Risk Charge Coefficient (Percentage) |
|---|---|---|---|
| 1 | 1 | From 1 to 7 days | 0.03% |
| 2 | From 8 to 31 days | 0.10% | |
| 3 | From 32 to 92 days | 0.21% | |
| 4 | From 93 to 184 days | 0.35% | |
| 2 | 5 | From 185 to 366 days | 0.71% |
| 6 | From 367 to 731 days | 1.32% | |
| 7 | From 732 to 1,096 days | 1.99% | |
| 3 | 8 | From 1,097 to 1,461 days | 2.65% |
| 9 | From 1,462 to 1,827 days | 3.97% | |
| 10 | From 1,828 to 2,557 days | 5.77% | |
| 11 | From 2,558 to 3,653 days | 9.06% | |
| 12 | From 3,654 to 5,479 days | 11.89% | |
| 13 | From 5,480 to 7,305 days | 14.73% | |
| 14 | More than 7,306 days | 18.28% |
In the case of balances of the housing sub-account held by Infonavit and Fovissste, these may be classified into maturity bands greater than one year up to the maximum period of demonstrable stability, which must consider the dynamics of the exigibility of the housing sub-accounts. To classify the balances of the housing sub-account into maturity bands up to the maximum period of demonstrable stability, Infonavit and Fovissste must adhere to the following:
SHCP
SECRETARÍA DE HACIENDA Y CRÉDITO PÚBLICO
CNBV
COMISIÓN NACIONAL BANCARIA Y DE VALORES
I. Determine and document the classification of the housing sub-account in each maturity band.
II. Ensure that the classification of the housing sub-account is consistent for a minimum period of twelve months and is supported by statistical evidence.
III. Demonstrate, through procedures and methodologies, the historical performance of the stability of the housing sub-account, as well as perform backtesting on said stability in order to demonstrate that the measurements made are reliable.
IV. Document the procedures, methodologies, and qualitative and quantitative processes used to classify the housing sub-account in each maturity band.
For the purposes of what is provided in the preceding paragraph, Infonavit and Fovissste must submit to the Commission the corresponding documentary support during the first 15 days of the month of December of each year. At all times, the Commission may order the suspension of the classification of the balance of the housing sub-account in maturity bands greater than one year, considering for this purpose the requirements established to apply such classification.
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