Norm on Activation or Deactivation of the Counter-Cyclical Capital Buffer Reserve

RESOLUTION CDMF-XXIV-1-25
Dated July 9, 2025

NORM ON ACTIVATION OR DEACTIVATION OF THE COUNTER-CYCLICAL CAPITAL BUFFER RESERVE

The Monetary and Financial Board,

CONSIDERING

I

That in accordance with Article 20 ter of Law No. 561, "General Law of Banks, Non-Bank Financial Institutions and Financial Groups," added by Law No. 1237 "Law of Reforms and Additions to Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups," published in La Gaceta, Official Gazette No. 37, of February 25, 2025, "The Superintendence shall establish a temporary counter-cyclical capital reserve for financial institutions of two and a half percent (2.5%) of risk-weighted assets, ... The Superintendence shall determine the activation or deactivation of this reserve, based on economic and financial conditions. To this end, the Superintendence shall request an analysis of these conditions from the Central Bank of Nicaragua, which shall incorporate its recommendations. The analysis must be submitted no later than five business days following the request.

II

That in accordance with Article five of Law No. 1237 "Law of Reforms and Additions to Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups," "The counter-cyclical capital reserve and the systemic risk reserve, established in Articles 20 ter and 20 quater of Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups added by this Law, shall be implemented gradually at a rate of an increase of zero and a half percent (0.5%) semi-annually, from the entry into force of this Law, until reaching the percentages provided by Law."

III

That Article 17, letter C, number 7, of Law No. 1232 "Law on the Administration of the Monetary and Financial System," published in La Gaceta, Official Gazette No. 241, of December 30, 2024, establishes that it is the responsibility of the Monetary and Financial Board: "7. Approve general criteria for the evaluation and classification of risk assets, guidelines for the establishment of reserves and provisions, conditions for the distribution of profits and everything related to risk rating agencies and appraisers;".

IV

That Article 17, letter C, number 8, of the aforementioned Law No. 1232, establishes that it is the responsibility of the Monetary and Financial Board: 8. Approve necessary norms to prevent activities or operations that harm third parties, or promote the concentration of risks; consequently, it may, among other things: establish regulatory provisions to enforce maximum individual credit and investment limits applicable to banks and non-bank financial institutions; establish regulations on contingent obligations; establish capital reserves that are generally or by categories of institutions required; and fix the amount of general reserves for portfolio and investment cleanup;".

V

That according to the considerations set forth above and based on the powers granted by Article 17, letter A, number 1) and letter C, numbers 7) and 8), of Law No. 1232 "Law on the Administration of the Monetary and Financial System.

In exercise of its powers,

HAS ISSUED

The following:

NORM ON ACTIVATION OR DEACTIVATION OF THE COUNTER-CYCLICAL CAPITAL BUFFER RESERVE

CHAPTER I
CONCEPTS, OBJECT AND SCOPE

Article 1. Concepts.- For the application of this norm, the concepts indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Central Bank: Central Bank of Nicaragua. b) Law No. 561: General Law of Banks, Non-Bank Financial Institutions and Financial Groups, contained in Law No. 1175, "Law of the Nicaraguan Legal Digest on Banking and Finance Matters," published in La Gaceta, Official Gazette No. 153, of August 20, 2024 and its reforms. c) Law No. 1232: Law on the Administration of the Monetary and Financial System, published in La Gaceta, Official Gazette No. 241, of December 30, 2024. d) Law No. 1237: Law of Reforms and Additions to Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 37, of February 25, 2025. e) Counter-Cyclical Reserve: Temporary counter-cyclical capital reserve of financial institutions of two and a half percent (2.5%) of risk-weighted assets.

f) Superintendence: Superintendence of Banks and Other Financial Institutions. g) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object and scope.- This norm aims to establish the guidelines and/or parameters related to the activation or deactivation of the Counter-Cyclical Reserve established by virtue of Law No. 1237.

CHAPTER II
ON THE ACTIVATION OR DEACTIVATION OF THE TEMPORARY COUNTER-CYCLICAL CAPITAL BUFFER

Article 3. Activation or deactivation of the Counter-Cyclical Reserve.- The Superintendence shall determine the activation or deactivation of the Counter-Cyclical Reserve, based on the prevailing economic and financial conditions in Nicaragua. To this end, the Superintendence shall request an analysis of these conditions from the Central Bank, which shall incorporate its recommendations.

Article 4. Criteria of the analysis.- In carrying out its analysis, the Central Bank shall take into account the performance indicators of the banking and financial system, mainly those concerning credit, deposits, risky portfolio, and financial situation. Likewise, it shall take into account the prevailing economic indicators, especially those concerning the Monthly Index of Economic Activity (IMAE), inflation, and employment.

Article 5. On the deactivation of the Counter-Cyclical Reserve.- To deactivate the Counter-Cyclical Reserve, once the Superintendence observes that economic and financial conditions have tightened, it shall request the analysis of the Central Bank. Once the Superintendence determines the appropriateness of deactivating the Counter-Cyclical Reserve, the Superintendent shall proceed to do so, which must be communicated to the Banks, indicating the manner and deadline for deactivation, which may be extended by the Superintendent if the conditions that gave rise to it prevail.

Upon expiration of the deadline or its extension, the Superintendent shall reactivate the Counter-Cyclical Reserve, prior to the analysis of the Central Bank, at the semi-annual percentage stipulated in Article five of Law No. 1237, until reaching two and a half percent (2.5%) of risk-weighted assets, established in Article 20 ter of Law No. 561.

CHAPTER III
FINAL PROVISION

Article 6. Validity.- This norm shall enter into force from the date of its approval.

(f) Illegible, Luis Ángel Montenegro Espinoza, Substitute President of the Board; (f) Illegible, Magaly María Sáenz Ulloa, Substitute Member for the BCN. (f) Illegible, Bruno Gallardo, Minister of Finance, Regular Member; (f) Illegible, Roberto Rivas, Regular Non-executive Member; (f) Illegible, Hugo Ortega, Regular Non-executive Member. (Up to here the text of the Resolution). (f) Illegible, Ruth Elizabeth Rojas Mercado, Secretary of the Board.