Instruction for the Calculation and Publication of Weighted Average Interest Rates

November 2021

INDEX

Generalities
1.1. Background
1.2. Legal Basis
1.3. Scope of Application
Objective
Definitions
General Rules
Specific Rules
5.1. Submission and Obtaining of Information
5.2. Method of Calculation
5.3. Publication of Weighted Average Interest and Yield Rates
5.4. Publication Validity
5.5. Non-Compliance and Sanctions
Special Provisions
Validity, Distribution, and Dissemination

Control Table of Modifications
Annexes

Central Bank of Reserve of El Salvador
INSTRUCTION FOR THE CALCULATION AND PUBLICATION OF WEIGHTED AVERAGE INTEREST RATES

Department of Financial System Stability

PAGE No
1 / 14

CODE
990501

REVISED
Manager of Financial Stability and Public Policies.

APPROVED BY:
Board of Directors No. 38/2021 of November 26, 2021

1. Generalities

1.1. Background

The Board of Directors in Session No. 11/2009 of March 23, 2009, approved modifications to the Instruction for the Calculation and Publication of Weighted Average Interest Rates, required by the implementation of the Interest Rate System (STI), which comprises the remote capture of primary information from financial institutions, its processing, and dissemination.

Given the boom in credit in low amounts in the financial market, the entry of more institutions into this market segment, and the repeated need of the Central Bank authorities to broaden the spectrum of analysis of the price of money, in order to broaden the Central Bank's statistical offering and disseminate necessary information for various users and economic authorities, in Session CD-25/2009 of July 6, 2009, the Board of Directors of the Central Bank agreed to entrust the Financial Development Department with conducting a study on options for calculating and disseminating a microcredit interest rate.

In Session CD-1/2010 of January 11, 2010, a proposal for the calculation and publication of an interest rate by credit amount ranges was presented to the Board of Directors, based on the operations of banks, cooperative banks, and savings and credit societies.

Since the beginning of 2010, different adjustments have been made to the Interest Rate System with the purpose of preparing it for the processing, calculation, and dissemination of the new interest rate, requiring modifications to the aforementioned instruction.

In Session CD-20/2015 of May 11, 2015, the Board of Directors of this Central Bank of Reserve of El Salvador recommended to the Department of Financial System Stability to incorporate Cooperative Banks and Savings and Credit Societies into the Interest Rate System (STI), to capture the necessary information and perform the monitoring, calculation, and publication of the weighted average interest rate of interbank loans.

The Board of Directors in Session No. 38/2021 of November 26, 2021, approved the second version of said instrument, due to changes in interest rates and changes in the internal organization of the Central Bank of Reserve of El Salvador.

1.2. Legal Basis

This Instruction is issued in accordance with the following articles:

1.2.1 Article 3, letters d), e), and g); Article 23, letter j), and Article 64 of the Organic Law of the Central Bank of Reserve.

1.2.2 Article 60, Article 64, paragraph 5th, and Article 240, paragraph 2nd of the Banks Law.

1.2.3 Article 146, paragraph 2nd, Article 151, letter h), and Article 152 of the Cooperative Banks and Savings and Credit Societies Law.

1.3. Scope of Application

The measures contained in this Instruction will be applied by the Manager of Financial Stability and Public Policies through the Department of Financial System Stability, to the process of weekly, monthly, and annual calculation and publication of the average interest rates of loans and time deposits, the average interest rates of interbank loans, and the average yield rates of repos, computed based on the information of the operations performed by banks, cooperative banks, and savings and credit societies.

2. Objective

Establish the norms for the process of weekly, monthly, and annual calculation and publication of the average interest rates of loans and time deposits, interbank loans, and average yield rates of repos, based on the information of the operations performed by banks, cooperative banks, and savings and credit societies.

3. Definitions

3.1. Central Bank: Central Bank of Reserve of El Salvador.

3.2. Banks: Entities regulated by the Banks Law and under the supervision of the Superintendence of the Financial System, which perform the function of financial intermediation by capturing resources through deposits or other instruments, for their placement to individuals or companies through active operations.

3.3. BC and SAC: Cooperative Banks and Savings and Credit Societies, which are under the supervision of the Superintendence of the Financial System, are entities regulated by the Cooperative Banks and Savings and Credit Societies Law, which perform the function of financial intermediation through a wide range of financial services, such as deposits, loans, whose owners have the dual quality of member and user of their institution.

3.4. BVES: Stock Exchange of El Salvador.

3.5. STI: Interest Rate System, through which the information of interest rates of loans and time deposits, interbank loan interest rates, and repo yield rates is captured and processed.

3.6. Annual average interest rate: The simple average of each of the monthly average interest rates of the year in reference.

3.7. Monthly average interest rate: The simple average of each of the weighted average interest rates corresponding to the week in reference, for the month in reference.

3.8. Monthly weighted average interest rate: The weighted averages of the rates of new operations contracted by financial institutions during the month in reference.

3.9. Weekly weighted average interest rate: The weighted averages of the rates of new operations contracted in a week, adjusted by means of weights that reflect the participation of each institution in the market.

3.10. Repo yield rates: The weighted average yield of repo operations performed at the Stock Exchange of El Salvador.

3.11. Federations: Cooperatives or associations whose members are Cooperative Banks or Savings and Credit Societies, which are under the supervision of the Superintendence of the Financial System and regulated by the Cooperative Banks and Savings and Credit Societies Law.

4. General Rules

4.1. The Manager of Financial Stability and Public Policies of the Central Bank, through the Department of Financial System Stability, will carry out the calculation and dissemination of the interest rates of operations representative of loans, time deposits, interbank loans, loans by amount ranges, and the yield rate of repos, based on the operations performed by banks, BC, SAC, and Federations. The information will correspond to new operations contracted in United States dollars performed during the reference period.

4.2. Banks, BC, SAC, and Federations must send the required information to the Central Bank through the STI, in accordance with the specifications contained in the User Manual of the Interest Rate System issued by the Department of Financial System Stability.

5. Specific Rules

5.1. Submission and Obtaining of Information

5.1.1. Banks, BC, SAC, and Federations must inform the Central Bank every business day by 10:00 a.m. at the latest, the amounts, interest rates, and guarantees (if any), of interbank loans granted or received, on the previous business day, for terms of 1 to 7 days, 8 to 15 days, and 16 to 30 days.

5.1.2. The daily weighted average yield rate of repos will be obtained by taking as a base the amount of repo operations and their corresponding yield rates up to seven days term, performed by the BVES.

5.1.3. Banks must send the Central Bank on Mondays by 4:30 p.m. at the latest, the required information on weekly interest rates of loans and time deposits, as follows:

5.1.3.1. The amounts and agreed interest rates of time deposits contracted during the immediate previous week, for each of the defined terms, excluding automatic renewals or extensions of the same and negotiated renewals.

5.1.3.2. For time deposits, information will be sent for terms of 7, 14, 21, 30, 60, 90, 120, 150, 180, and 360 days, separately.

5.1.3.3. When a bank contracts time deposits for terms other than those mentioned in the previous paragraph, it must notify the Department of Financial System Stability within 3 business days following the start of those operations. The detailed information of the operations of this new term will only be sent to the Central Bank when it so disposes and communicates it to the banks.

5.1.3.4. The amounts and agreed rates of new loans contracted, separately as indicated below:

5.1.3.4.1. For loans up to one year term, those granted to companies and individuals will be included.

5.1.3.4.2. For loans with a term of more than one year, those granted to companies for housing acquisition and those granted to individuals will be included. Regarding loans to individuals, housing acquisition loans shall not be included.

5.1.3.5. In no case will information of loans granted under the figure of overdrafts or credit cards be included; nor will information of refinancing and restructuring operations be included.

5.1.3.6. Banks that perform time deposit and loan operations through subsidiaries outside the national territory must inform the amounts and rates of said operations referred to in paragraphs 5.1.3.1 and 5.1.3.4 of this Instruction.

5.1.4. Banks, BC, and SAC must send the Central Bank the information on monthly interest rates of Loans by Amount Ranges, corresponding to the immediate previous month, within the first five business days of each month, as follows:

5.1.4.1. The amounts and agreed interest rates of new loans contracted between the first and last calendar day of the immediate previous month, for each of the defined terms and amount ranges, separately as indicated below:

5.1.4.1.1. Up to 6 months, more than 6 months up to 12 months, and more than 12 months, and separately in the amount ranges of loans up to one thousand dollars (<= $1,000), more than one thousand up to five thousand dollars ($1,000 > <= $5,000), and more than five thousand dollars ($5,000 >).

5.1.4.2. Information of loans granted under the figure of overdrafts or credit cards will not be included, nor will information of refinancing and restructuring operations.

5.1.4.3. Banks that perform loan operations through subsidiaries outside the national territory must inform the amounts and rates referred to in paragraph 5.1.4.1 of this Instruction.

5.1.5. If no loan or time deposit operations have been performed, Banks, BC, and SAC must inform this situation through the STI or the mechanism defined by the Central Bank.

5.1.6. Weighted average rates of additional loan and time deposit operations may be incorporated into the calculation process and disseminated, in accordance with the specifications contained in the STI User Manual, with prior authorization of the Presidency, upon proposal of the Manager of Financial Stability and Public Policies.

5.2. Method of Calculation

5.2.1. To calculate the weekly weighted average of the interest rate of loans and time deposits of banks, the information sent by the banks will be used, which will be adjusted by weights, which are coefficients obtained from the participation of each bank in the loan and deposit market, within the banking system.

5.2.2. The weights referred to in the previous paragraph are the following:

5.2.2.1. The participation of each bank in the loan and time deposit market, respectively, according to the corresponding item, based on the total amounts contracted corresponding to the week being processed, sent by the banks through the STI.

5.2.2.2. The weights of the loan interest rates will be the total amounts contracted during the week being processed that correspond to each type and term of loan.

5.2.2.3. The weights of the time deposit interest rates will be taken from the total amounts contracted during the week being processed.

5.2.3. The calculation of the monthly average rate of loans and time deposits will be done by taking as a base the weighted average weekly rate of the corresponding month, calculating a simple average, considering only the business days of the month, and assigning to each of them the corresponding rate of the respective week.

5.2.4. The calculation of the annual average interest rates of loans and time deposits will be done by taking as a base the monthly average interest rates of the corresponding year, calculating a simple average.

5.2.5. The calculation of the interest rates of interbank loans for different periodicities and terms will be done as follows:

5.2.5.1. The daily weighted average rate of each term will be obtained by weighting each of the rates of the loans granted by banks, BC, SAC, and Federations on that day, by the amount of each of the loans.

5.2.5.2. The weekly weighted average rate of each term will be obtained by weighting each of the loan rates granted by banks, BC, SAC, and Federations during the week based on their amount.

5.2.5.3. The monthly average rate of each term will be obtained by calculating the simple average of the weekly averages obtained, according to the previous paragraph.

5.2.5.4. The annual average rate of each term will be obtained by calculating the simple average of the monthly averages obtained, according to the previous paragraph.

5.2.6. The weighted average yield rate of repos will be obtained by taking as a base the amount of repo operations up to seven days term published by the BVES, in the following manner:

5.2.6.1. The daily weighted average yield rate will be obtained by weighting the yield rate of public and private instruments traded on that day, by their respective participation in the total amounts traded on the day.

5.2.6.2. The weekly weighted average yield rate will be obtained by weighting the yield rate of public and private instruments traded during that week, by their respective participation in the total amounts traded during the week.

5.2.6.3. The monthly weighted average yield rate will be obtained by weighting the yield rate of public and private instruments traded during that month, by their respective participation in the total amounts traded during the month.

5.2.6.4. The annual average yield rate will be obtained by calculating the simple average of the monthly averages obtained in the previous paragraph.

5.2.7. The calculation of the interest rates of loans by amount ranges, for different periodicities and terms, will be done as follows:

5.2.7.1. To calculate the monthly weighted average interest rate of each amount range and term of loans granted by banks, BC, and SAC during the reference month, it will be done starting from the information provided by said institutions through the STI, which will be adjusted by weights.

5.2.7.2. The weights referred to in the previous paragraph are the participation coefficients of the institution in the loan market, according to the amount ranges and terms, based on the total amounts contracted during the month being processed.

5.2.7.3. The annual average rate of each defined amount range and term will be obtained by calculating the simple average of the monthly averages obtained, according to the previous paragraph.

5.3. Publication of Weighted Average Interest and Yield Rates.

5.3.1. The Central Bank will publish on Wednesdays in a national circulation newspaper the following weekly interest and yield rates (Annex No. 1):

5.3.1.1. The weighted average interest rates of deposits contracted in United States dollars for terms of 30, 60, 90, 120, 150, 180, and 360 days.

5.3.1.2. The weighted average interest rate of loans contracted up to one year term in United States dollars, as well as those corresponding to the items of credits granted to companies and individuals, for the same term.

5.3.1.3. The weighted average interest rate of loans contracted for more than one year term in United States dollars, as well as those corresponding to the items of credits granted to companies, individuals, and for housing acquisition, for the same term.

5.3.1.4. The weighted average interest rate of interbank loans up to seven days term and the weighted average yield rate of repos traded at the BVES up to seven days term, as well as other rates deemed convenient.

5.3.2. The interest and yield rates referred to in paragraph 5.3.1 will also be published on the Central Bank's website (www.bcr.gob.sv) on Tuesdays by 4:30 p.m. at the latest.

5.3.2.1. Additionally, by Friday at the latest, the minimum and maximum interest rates of deposits contracted for terms of 30, 60, 90, 120, 150, 180, and 360 days; of loans contracted up to one year term with their corresponding items of credits granted to companies and individuals; as well as of loans contracted for more than one year term with their corresponding items of credits granted to companies, individuals, and for housing acquisition, will be published.

5.3.3. The following rates will be published on the Central Bank's website within the first twelve business days of the following month:

5.3.3.1. The monthly weighted average rate of loans and time deposits applied by banks and the yield rates of repos corresponding to the immediate previous month.

5.3.3.2. The monthly weighted average rate of the immediate previous month of loans, applied by banks, BC, and SAC by amount ranges and terms. (Annex No. 2)

5.3.4. The following rates will be published on the Central Bank's website in the first fifteen business days of January:

5.3.4.1. The annual averages of the immediate previous year, of the interest rates applied by banks, BC, and SAC, and the yield rates of repos.

5.3.4.2. The annual averages of the immediate previous year, of the interest rates applied by banks, BC, and SAC, by amount ranges and terms.

5.3.5. The Department of Financial System Stability, in coordination with the Communications Department, will be responsible for the weekly publication in a

Central Bank of Reserve of El Salvador
INSTRUCTION FOR THE CALCULATION AND PUBLICATION OF WEIGHTED AVERAGE INTEREST RATES

Department of Financial System Stability

PAGE No
2 / 14

CODE
990501

REVISED
Manager of Financial Stability and Public Policies.

APPROVED BY:
Board of Directors No. 38/2021 of November 26, 2021

tasas de interés promedio de préstamos y de depósitos a plazo, de las tasas de interés promedio de los préstamos interbancarios y de las tasas de rendimiento promedio de los reportos, computadas con base en la información de las operaciones que realizan los bancos, bancos cooperativos y sociedades de ahorro y crédito.