Superintendency of Banks and Other Financial Institutions

REPUBLIC OF NICARAGUA - CENTRAL AMERICA

Resolution No. CD-SIBOIF-665-2-FEB17-2011
Dated 17 February 2011

NORM AMENDING ARTICLES 14, 23 AND 27 AND REPEALING ARTICLE 10 OF THE NORM ON CREDIT RISK MANAGEMENT

The Board of Directors of the Superintendency of Banks and Other Financial Institutions, after deliberations on the matter,

SOLE CONSIDERING

That based on the authority granted to it by Article 3, items 3 and 13, and Article 10, item 7, of Law 316, Law of the Superintendency of Banks and Other Financial Institutions, and its amendments contained in Law 552, Law of Amendments to the aforementioned Law 316;

In the exercise of its powers,

HAS ISSUED

The following,

CD-SIBOIF-665-2-FEB17-2011

NORM AMENDING ARTICLES 14, 23 AND 27 AND REPEALING ARTICLE 10 OF THE NORM ON CREDIT RISK MANAGEMENT

FIRST: Article 10 of the Norm on Credit Risk Management, contained in Resolution No. CD-SIBOIF-547-1-AGOST20-2008, of 20 August 2008, published in La Gaceta, Official Gazette No. 176 and 178, of 11 and 17 September 2008, is repealed.

SECOND: Generic provisions for accumulated credit exchange risk as of the entry into force of this norm may be reversed and recorded as income, except in the case that the financial institution is under a gradualness plan or has pending provisions to be established, in which case the provisions must be allocated to cover existing provision deficits and, once covered, the excess of the established provisions may be recorded as income.

Managua, Nicaragua

SIBOIF Building - Km. 7 South Highway

PBX Telephone: 2265-1555 P.O. Box 788

web: www.siboif.gob.ni

Email: correo@siboif.gob.ni

THIRD: Articles 14, 23 and 27 of the Norm on Credit Risk Management, contained in Resolution No. CD-SIBOIF-547-1-AGOST20-2008, of 20 August 2008, published in La Gaceta, Official Gazette No. 176 and 178, of 11 and 17 September 2008, are hereby amended and shall read as follows:

Art. 14 Scope and criteria for classification.- The financial institution shall permanently classify its portfolio of housing mortgage loans based on the criteria established in Article 6 and item a) of Article 11 of this norm and shall establish the corresponding minimum provisions according to the following table:

Classification	Days past due	Provision
A	Normal risk	Up to 60	1%
B	Potential risk	From 61 to 90	5%
C	Actual risk	From 91 to 120	20%
D	Doubtful recovery	From 121 to 180	50%
E	Uncollectible	More than 180	100%

Housing loans granted in national or foreign currency for amounts equal to or less than the equivalent of thirty thousand dollars (US$30,000.00) and classified in category "A" shall have a provision of zero percent (0%). The remaining classification categories shall be provisioned in accordance with the provisions of the table above.

Such minimum provisions are without prejudice to the fact that each institution may increase its amount if it considers that the risk of loss assumed is greater than that determined in accordance with the indicated procedure.

The provision percentage shall be applied to the net balance not covered by liquid guarantees eligible as risk mitigants, in accordance with the provisions of Chapter XIII of this norm.

Additionally, for debtors who have eligible real guarantees as risk mitigants referred to in item 1), item b) of Article 30 of this norm, whose appraised realization value is equal to or greater than one hundred percent (100%) of the outstanding balance, the institution may apply the provision percentage corresponding to the immediately preceding lower-risk classification to the one assigned to the debtor, without changing the classification corresponding to it.

Art. 23 Requirements of guarantees.- All guarantees eligible as risk mitigants must meet the following requirements:

a) Executable, meaning that they are duly established.

b) Marketable, meaning that there is a market that facilitates their rapid realization.

c) Valuable, meaning susceptible to measurement and appraisal. Such valuation must be carried out in accordance with the provisions of the regulations governing the matter of appraisers who provide services to institutions of the Financial System.

In the case of mortgage guarantees for housing loans granted in national or foreign currency for amounts equal to or less than the equivalent of thirty thousand dollars (US$30,000.00) that are located in the same urbanization or subdivision and have house models with equal physical characteristics (design, physical structure, built area, quality of materials, among others), the appraisal carried out on the model house may be accepted as the initial appraisal for all houses. For the subsequent valuations that must be carried out in accordance with the periodicity established in Article 27 of this norm, the aforementioned appraisal shall not apply, but a new appraisal must be carried out for each house.

d) Transferable at reasonable costs.

e) Stable in its value, that is, that the minimum value of the guarantee is maintained over time, and

f) Insured in the event that their own nature so requires.

Art. 27 Frequency of valuations.- The financial institution shall carry out valuations of its liquid guarantees at least once a month. The records such as valuations and appraisals, in addition to the financial institution's evaluations supporting the recorded or booked amounts, shall be kept at the disposal of the Superintendent.

In the case of mortgage guarantees, valuations shall be carried out at least every three (3) years, except for mortgage guarantees on housing credits granted in national or foreign currency for amounts equal to or less than the equivalent of thirty thousand dollars (US$30,000.00) that are located in the same urbanization or subdivision and have house models with identical physical characteristics (design, physical structure, built area, quality of materials, among others), which shall be carried out at least every five (5) years.

A new valuation will not be required when the guaranteed credit is classified in categories "A" or "B", provided that the principal plus interest balance of said credit has been reduced by a percentage equal to or greater than fifty percent (50%), or the market realization value of the asset constituting the guarantee covers three (3) or more times the amount owed.

Notwithstanding the foregoing, the financial institution shall carry out new valuations when the following situations occur:

a) Adverse market conditions and/or price drops;

b) Natural disasters affecting the assets under guarantee; or

c) The credit secured by a mortgage guarantee on real property is subject to restructuring.

FOURTH: This regulation shall enter into force upon its notification, without prejudice to its publication in the Official Gazette, La Gaceta.

(f) A. Rosales B. (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) F. Reyes Báez (f) illegible (Silvio Moisés Casco Marenco) (f) U. Cerna B.

ANTONIO MORGAN PÉREZ
Ad hoc Secretary
Board of Directors SIBOIF