Norm Amending Article 4 of the Capital Adequacy Standard

Resolution No. CD-SIBOIF-777-1-ABR17-2013
Dated April 17, 2013

NORM AMENDING ARTICLE 4 OF THE CAPITAL ADEQUACY STANDARD

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I
That Article 2 of Law No. 316, the Law of the Superintendence of Banks and Other Financial Institutions, published in La Gaceta, Official Gazette No. 196, of October 14, 1999, and its amendments, establishes that the Superintendence of Banks and Other Financial Institutions (Superintendence) shall safeguard the interests of depositors who entrust their funds to financial institutions;

II
That to preserve the public's security and confidence in said financial institutions, the Superintendence must promote and control their solvency, establishing, among other actions, a relationship between the capital calculation base and credit and notional risk assets;

III
That it is necessary to establish guidelines for the application of numeral 10 of the second paragraph of Article 88 of Law 561, the General Law of Banks, Non-Bank Financial Institutions, and Financial Groups, in cases of subordinated debt with a term calculable as secondary capital, contracted by national banking entities with multilateral financial entities.

IV
That Article 10 of the aforementioned Law No. 316, and its amendments, empowers the Board of Directors of the Superintendence to issue the norms and provisions necessary for the compliance with the aforementioned laws.

In exercise of its powers,

HAS ISSUED

The following:

Resolution No. CD-SIBOIF-777-1-ABR17-2013
NORM AMENDING ARTICLE 4 OF THE CAPITAL ADEQUACY STANDARD

FIRST: Article 4 of the Capital Adequacy Standard contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, of October 27, 2010, published in La Gaceta, Official Gazette No. 18, of January 28, 2011, is hereby amended, which shall read as follows:

"Art. 4 Components of Secondary Capital.- Secondary capital shall be composed of the following:

A. Donations and other non-capitalizable contributions that meet the following characteristics:
1) Available to cover losses of the financial institution;
2) With prior authorization from the Superintendent in case there are repayment conditions;
3) In case there are repayment conditions, these cannot be enforced within the first five years.

B. Adjustments for Asset Revaluation (Fixed Assets). These adjustments cannot be taken into account as a component of secondary capital, while the Board of Directors of the Superintendence has not issued a norm regulating this matter.

C. Other Equity Reserves;

D. Accumulated Results from Previous Periods that do not qualify as primary capital;

E. Results of the Current Period;

F. Cumulative Preferred Shares and other hybrid capital instruments that meet the following characteristics:
1) Unsecured (not guaranteed), subordinated, and fully paid;
2) Of a permanent nature (no maturity), or with maturity with a mandatory conversion clause to ordinary capital;
3) Not redeemable at the holder's option or redeemable with prior authorization from the Superintendent;
4) Available to cover losses of the financial institution;
5) When the instrument contains a clause for mandatory payment of yield, it must allow for deferral in case the financial institution's profitability does not allow for payment.

When the financial institution incurs in any of the situations that warrant the application of preventive measures as established in the General Law of Banks, the Superintendent may order the financial institution to immediately capitalize, or in its absence, suspend the payment of interest on the hybrid capital instruments referred to in this letter, while the circumstances that gave rise to the order persist. For such purposes, the contracts of said instruments to be considered as secondary capital must incorporate a clause authorizing the Superintendent to execute the aforementioned.

G. Subordinated debt with a term and redeemable preferred shares of limited life that meet the following characteristics:
1) Unsecured (not guaranteed), subordinated, and fully paid;
2) With original maturity terms greater than five years; and
3) Not mandatorily convertible to ordinary capital.

The instruments referred to in this letter cannot exceed fifty percent of primary capital.
Likewise, during the last five years prior to the maturity of said instruments, only the following percentages can be recognized as part of secondary capital:

When the financial institution incurs in any of the situations that warrant the application of preventive measures as established in the General Law of Banks, the Superintendent may order the financial institution to immediately capitalize, or in its absence, suspend the payment of interest on the subordinated debt with a term referred to in this letter, while the circumstances that gave rise to the order persist. For such purposes, the contracts of said instruments to be considered as secondary capital must incorporate a clause authorizing the Superintendent to execute the aforementioned.

The capitalization of the subordinated debt with a term referred to in this letter, borne by debtor financial institutions that incur in any of the situations that warrant the application of preventive measures established in the General Law of Banks, will not be applicable to those multilateral financial entities, except for the suspension of interest payments.

Maturity | Percentages
Fifth year before maturity | 80%
Fourth year before maturity | 60%
Third year before maturity | 40%
Second year before maturity | 20%
Last year before maturity | 0%

H. Generic Provisions: Refers to credit provisions constituted voluntarily by the financial institution to cover unidentified losses. For the purposes of calculating secondary capital, these generic provisions cannot exceed 1.25% of the total credit risk-weighted assets.

In accordance with Article 20 of the General Law of Banks, secondary capital cannot exceed one hundred percent of primary capital."

SECOND: This norm shall enter into force from its publication in the Official Gazette, La Gaceta.

(f) Ovidio Reyes (f) V. Urcuyo (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) illegible (Silvio Moisés Casco Marenco) (f) Freddy José Blando Argeñal (f) U. Cerna. Secretary.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF