Norm on Capital Adequacy

Resolution No. CD-SIBOIF-651-1-OCTU27-2010
Dated October 27, 2010

NORM ON CAPITAL ADEQUACY

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

CONSIDERING

I
That Article 2 of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, authorizes the Superintendence to protect the interests of depositors who entrust their funds to financial institutions.

II
That to preserve the security and confidence of the public in said financial institutions, the Superintendence must promote and control their solvency, establishing a relationship between the capital calculation base and credit risk and notional assets.

III
That it is necessary to regulate what is established in Articles 19 and 20 of Law No. 561, General Law of Banks, Non-Banking Financial Institutions and Financial Groups, regarding the minimum required capital and credit risk and notional assets.

IV
That Article 10 of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, and its reform contained in Law 552, Law of Reforms to the aforementioned Law 316, authorizes the Board of Directors of the Superintendence to issue the norms and provisions necessary for compliance with the aforementioned laws;

In exercise of its powers,

HAS ISSUED

The following:

NORM ON CAPITAL ADEQUACY
Resolution No. CD-SIBOIF-651-1-OCTU27-2010

CHAPTER I
GENERAL PROVISIONS

Art. 1 Object.- This Norm aims to establish the regulations referred to in Title II,
Chapter II of Law No. 561, General Law of Banks, Non-Banking Financial Institutions and Financial
Groups (hereinafter, General Law of Banks), regarding the components of the capital calculation base, minimum required capital, credit risk assets, notional assets for exchange rate risk and other provisions.

Art. 2 Scope.- The provisions of this norm are applicable to banks and financial societies and their branches established in the country, which in accordance with the General Law of Banks can capture public funds.

In the following text, when the concept "financial institution" is used, it shall be understood that it refers to any of the entities mentioned in the previous paragraph.

Art. 3 Components of Primary Capital.- Primary capital shall be composed of the following:
A. Ordinary paid-in capital composed of ordinary shares; B. Preferred shares that meet the following characteristics:
1) Registered and non-convertible to bearer;
2) Of a permanent nature (no maturity), or with maturity with a mandatory conversion
to ordinary capital clause;
3) Available for loss coverage;
4) With a non-cumulative yield clause, meaning that the yield not paid in
previous periods cannot be paid in subsequent periods. Additionally, said yield to be paid must be treated as a dividend and comply with what is established on the matter in the General Law of Banks and Norms issued by the Board of Directors.

C. Donated capital not subject to return;
D. The amount received above the nominal value of shares issued when placed above par; E. Contributions received from shareholders on an irrevocable basis with the sole purpose of increasing the social capital of the financial institution; F. Legal Reserve; G. Other reserves of an irrevocable nature. H. Minority interests, only in the case of consolidated financial statements;
I. Accumulated results from previous periods that the competent body of the respective financial
institution has resolved to capitalize in an express and irrevocable manner.

Art. 4 Components of Secondary Capital.-
1 Secondary capital shall be composed of the following:
A. Donations and other non-capitalizable contributions available to cover losses of the financial institution, which cannot be refunded under any concept. B. Other Equity Reserves;
C. Accumulated Results from Previous Periods that do not qualify as primary capital;
D. Results of the Current Period;
E. Cumulative Preferred Shares and other hybrid capital instruments that meet the following characteristics:
1 Art. 4, reformed on July 16, 2025 - Resolution CDMF-XXV-1-25 Art. 4, reformed on December 4, 2018 - Resolution CD-SIBOIF-1087-1-DIC4-2018 Art. 4, reformed on September 19, 2017 - Resolution CD-SIBOIF-1016-3-SEP19-2017 Art. 4, reformed on January 26, 2016 - Resolution CD-SIBOIF-926-4-ENE26-2016 Art. 4, reformed on April 17, 2013 - Resolution CD-SIBOIF-777-1-ABR17-2013

1) Unsecured (unbacked), subordinated and fully paid;
2) Of a permanent nature (no maturity), or with maturity with a mandatory conversion
to ordinary capital clause;
3) Not redeemable at the holder's option or redeemable with prior authorization of the Superintendent;
4) Available to cover losses of the financial institution;
5) When the instrument contains a mandatory yield payment clause, it must allow
its deferral in case the financial institution's profitability does not allow its payment.
6) There are no early payment clauses in case of deterioration in the credit quality of the institution.
7) Not financed, directly or indirectly, by the institution for the purchase of the instrument.
8) There are no accelerated amortization clauses (step up) or other incentives for early amortization.
9) The instrument cannot be purchased by the institution or by any related party to it,
in which this controls or exercises dominant influence.
10) The instrument may be purchased by investors, for amounts not less than the equivalent in
national currency to fifty thousand dollars (US$50,000.00).
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, the suspension of the payment of interests of 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 that authorizes the Superintendent to execute the aforementioned. F. Subordinated term debt and redeemable preferred shares of limited life that meet the following characteristics:

1) Unsecured (unbacked), subordinated and fully paid;
2) With original maturity terms greater than five years; and
3) Not mandatorily convertible to ordinary capital.
4) There are no early payment clauses in case of deterioration in the credit quality of the institution;
5) Not financed directly or indirectly by the institution for the purchase of the instrument;
6) The instrument cannot be purchased by the institution or by any related party to it,
in which this controls or exercises dominant influence;
7) There are no accelerated amortization clauses (step up) or other incentives for early amortization;
8) The instrument may be purchased by investors, for amounts not less than the equivalent in
national currency to fifty thousand dollars (US$50,000.00).
The instruments referred to in this letter cannot exceed one third (1/3) of the amount considered as secondary capital. Likewise, during the last five years prior to the maturity of said instruments, only the following percentages may be recognized as part of secondary capital:

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%

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, the suspension of the payment of interests of the subordinated term debt 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 that authorizes the Superintendent to execute the aforementioned. The capitalization of the subordinated term debt referred to in this letter, by the financial institutions debtors 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. G. Generic Provisions:
a. Voluntary generic provisions: Refers to credit provisions constituted by the financial institution voluntarily to cover unidentified losses. For purposes of calculation of secondary capital, these generic provisions cannot exceed 1.25% of the total of credit risk-weighted assets. b. Countercyclical Provision Fund: Refers to the countercyclical provision fund constituted by the financial institution, in accordance with the Norm on Constitution of Countercyclical Provisions. In accordance with Article 20 of the General Law of Banks, the secondary capital to be considered in the capital base can never be greater than one third (1/3) of the amount of primary capital thereof. Additionally, the positive balance generated from the Other Comprehensive Net Income account as part of the equity of the financial institution, will not count as part of secondary capital.

Art. 5 Deductions.-
2 The following items will be deducted from the Capital Adequacy calculation:
a) The following will be deducted from the sum of the primary capital components:
1) The book value of goodwill acquired from a business combination, derived from mergers
or acquisitions of institutions.
2) Accumulated results from previous periods in case of losses.
2 Art. 5, reformed on February 14, 2023 - Resolution CD-SIBOIF-1360-2-FEB14-2023 Art. 5, reformed on December 4, 2018 - Resolution CD-SIBOIF-1087-1-DIC4-2018 Art. 5, reformed on January 26, 2016 - Resolution CD-SIBOIF-926-4-ENE26-2016 Art. 5, reformed on February 17, 2011 - Resolution CD-SIBOIF-665-4-FEB17-2011 Art. 5, reformed on January 26, 2011 - Resolution CD-SIBOIF-662-1-ENE26-2011

3) Non-capitalizable donations that have conditions of repayment.
4) Other Net Assets of Amortization: Taxes paid in advance, other expenses paid in
advance, balance of the deferred income tax account less transition adjustment, improvements to properties received in lease, software, other intangible assets, and stationery, supplies and other materials. These accounts will also not be counted within the risk-weighted assets. All these assets are net of amortization, depreciation and impairment. b) The following will be deducted from the sum of the secondary capital components:
1) Results of the Current Period, in case of losses.
2) The negative balance of the Other Comprehensive Net Income account.
3) The amount of the gain from the sale with financing of non-financial assets (sale value
less cash premium less book value), plus the amount for revaluations of those assets, registered before the sale as a transition adjustment to January 1, 2018 and adjustment for revaluation of Other Comprehensive Income. Once the cost value of the non-financial asset has been fully recovered, the gain from sale, and revaluation referred to above will cease to be deducted in secondary capital.
4) The balance of the subaccounts Non-Distributable Exercise Result and Accumulated Results of
Previous Non-Distributable Exercises.
5) The amount of the gain (fair value less book value) from the transfer of Assets Received in
Recovery of Credits to Properties, Plant and Equipment.
6) The amount of the gain from business combinations registered in exercise results
computable and in accumulated results computable. c) The following will be deducted from the Capital Calculation Base:
1) Any adjustment pending to be constituted;
2) The book value of participations in capital instruments issued by subsidiaries and
associates. Likewise, participations in joint ventures will be deducted. These investments

will also not be counted in the computation of risk assets contained in Article 6 of the present norm. Capital instruments are understood, for purposes of the application of this letter, to be any of the following: common or ordinary shares, preferred shares, other titles of participation in the capital of the issuing entity, and subordinated debt instruments.

Art. 6 Credit risk-weighted assets.-
Risk assets will be weighted according to the following:
A) With a weight of zero percent (0%) of their value, the following items:
1) Cash, legal reserve deposits and other deposits at the Central Bank of Nicaragua, as
well as balances of effects in collection and remittances in transit locally.
2) Investments in Debt Instruments issued in national or foreign currency by the Central
government or the Central Bank of Nicaragua, all of this in accordance with the Law.
3) Credits granted in national or foreign currency to the Central government or the Central Bank of
Nicaragua, all of this in accordance with the Law.
4) Investments in Debt Instruments issued by Multilateral Credit Organizations of which
the country is a member, qualified as first-tier institutions as established in the norm that regulates the matter on limits in deposits and investments.
5) Balances of credits and contingent third-party operations, guaranteed with debt instruments
issued in national or foreign currency by the Central government or the Central Bank of Nicaragua. 3 Art. 6, reformed on January 26, 2011 - Resolution CD-SIBOIF-662-1-ENE26-2011 Art. 6, reformed on February 17, 2011 - Resolution CD-SIBOIF-665-4-FEB17-2011 Art. 6, reformed on June 11, 2014 - Resolution CD-SIBOIF-838-2-JUN11-2014 Art. 6, reformed on May 6, 2016 – Resolution CD-SIBOIF-940-1-MAY6.2016 Art. 6, reformed on August 9, 2016 – Resolution CD-SIBOIF-954-1-AGOS9-2016 Art. 6, reformed on September 6, 2016 – Resolution CD-SIBOIF-958-1-SEP6-2016 Art. 6, reformed on June 20, 2017 – Resolution CD-SIBOIF-1003-1-JUN20-2017 Art. 6, reformed on July 31, 2017 – Resolution CD-SIBOIF-1009-1-JUL31-2017 Art. 6, reformed on December 4, 2017 – Resolution CD-SIBOIF-1031-2-DIC4-2017 Art. 6, reformed on May 16, 2018 – Resolution SIB-OIF-213-2018 Art. 6, reformed on December 4, 2018 - Resolution CD-SIBOIF-1087-1-DIC4-2018

6) Debt instruments issued by third parties, guaranteed with debt instruments issued in
national or foreign currency by the Central government or the Central Bank of Nicaragua.
7) Balances of credits and contingent operations guaranteed with deposits in the same
financial institution endorsed in favor of said institution.
B) With a weight of twenty percent (20%) of their value, short-term self-liquidating contingent operations (documentary letters of credit). C) With a weight of fifty percent (50%) of their value, mortgage loans for housing granted in national currency without value maintenance. D) With a weight between zero and one hundred fifty percent of their value (0% to 150%), the following items:
1) Assets (credits, deposits and investments), guarantees, bonds and other contingent operations
net of provisions, depreciation, amortizations and impairments, made with financial institutions from the country or abroad. Likewise, deposits and remittances of documents at sight to deposit in said entities. All of the above according to the long-term risk rating of the issuer.
2) Credits and contingent third-party operations guaranteed by guarantees, bonds and other
contingent operations of financial institutions abroad according to the long-term risk rating of the issuer.
3) Investments in debt instruments issued by foreign states or central banks according to the long-term sovereign risk rating of the issuer.
The long-term emission risk rating will be in accordance with the ratings of the following Risk Rating Agencies:

Rating
Risk Agencies
Fitch IBCA
Moody's
Investors
Services
Standard &
Poor's
Corporation
Dominion Bond
Rating Services
Limited
Kroll Bond
Rating Agency,
Inc.
Centroamerican
Rating Company,
S.A.
(Moody's
Local)
Pacific Credit
Rating, S.A. de
C.V.
0% AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA- AAA to AA- AAA to AA- 20% A+ to A- A1 to A3 A+ to A- A+ to A- A+ to A- A+ to A- A+ to A- 50% BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB+ to BBB- BBB+ to BBB- BBB+ to BBB- 100% BB+ to B- and Not Rated Ba1 to B3 and not rated BB+ to B- and not rated BB+ to B- and not rated BB+ to B- and not rated BB+ to B- and not rated BB+ to B- and not rated BB+ to B- and not rated 150% Below B- Below B3 Below B- Below B- Below B- Below B- Below B-

The Superintendent may update the above table in case of new authorized and registered risk rating agencies in the registry kept by the Superintendence for these purposes, establishing the link between the rating agency's scale and the corresponding risk weight. Likewise, it may be updated when new internationally recognized risk rating agencies are determined, or in case said entities modify their risk rating nomenclature; which will be informed via circular to financial institutions. In the case of more than one risk rating existing, to determine the corresponding weight the lowest rating among those published by the risk rating agencies will be applied. E) With a weight of sixty to one hundred twenty-five percent (60% to 125%) of their value, the following credit operations, exposed to credit exchange rate risk:
1) Consumer credits granted in foreign currency and in national currency with value
maintenance will be weighted at one hundred twenty-five percent (125%) of their value.
2) Mortgage loans for housing granted in foreign currency and in national currency with
value maintenance will be weighted at sixty percent (60%) of their value. Exceptions are credits for social interest housing, single-family and multi-family, as referred to in Law No. 677, Special Law for the Promotion of Construction of Social Interest Housing and Access to Social Interest Housing, published in La Gaceta, Official Diary No. 80, of May 4, 2009, and its reforms, granted in foreign currency and in national currency with value maintenance for amounts that do not exceed the values established in the aforementioned Law No. 677 for the types of housing mentioned above, which will be weighted at fifty percent (50%) of their value.
3) Commercial credits and microcredits granted in foreign currency and in national currency
with value maintenance to non-foreign exchange generating debtors will be weighted at one hundred twenty-five percent (125%) of their value, otherwise, they will be weighted at one hundred percent (100%). For purposes of this norm, foreign exchange generators are those debtors whose source of income comes from:

i. Financing operations of goods or merchandise for export in which there is a
purchase and sale contract between the trading entity and the producer, and in which the corresponding payment in foreign currency or national currency with value maintenance is established;
ii. Export operations of services or provision of services to exporters, in which
there is an export contract or service provision contract, and in which the corresponding payment in foreign currency is established. The above cases must be duly evidenced by the institution. The purchase of foreign exchange in the exchange market or the mere fact that the prices of the goods or services that it trades are expressed in foreign currency, should not be considered as the debtor being a foreign exchange generator. F) With a weight of one hundred percent (100%) of their value:
1) Credits (commercial, consumer or personal, microcredit) including contingent operations
(Guarantees, bonds, granted guarantees, standby letters of credit) granted in national currency without value maintenance; accounts receivable and any other obligation.
2) Investments in public offer debt instruments issued by legal entities of the country
made in accordance with the regulations that regulate deposit and investment limits.
3) Items corresponding to assets not mentioned in this article.

Art. 7 Notional amount of assets for exchange rate risk.- The notional amount of assets for exchange rate risk will be understood as the sum of the net nominal positions, long or short, previously weighted. For purposes of calculating the net long or short nominal position, it must:
A. Calculate separately for national currency with value maintenance and for foreign currency, the net nominal position, which will be measured through the difference between the balances of asset and liability accounts, including in these the accrued interest, provisions, impairments, depreciations and amortizations. In the case that the difference results in being positive (assets greater than liabilities) it will be considered as a net long nominal position, to which a weight of 50% will be applied, and in case it is negative (liabilities greater than assets) it will be considered as a net short nominal position, to which a weight of 100% will be applied. 4 Art. 7, reformed on December 4, 2018 - Resolution CD-SIBOIF-1087-1-DIC4-2018 Art. 7, reformed on January 26, 2016 - Resolution CD-SIBOIF-926-4-ENE26-2016

net short nominal position, to which a weighting of 100% will be applied. The net nominal position in national currency without value maintenance will not be included in this calculation. B. Sum the absolute value of the weighted net nominal positions, long and short, to obtain the notional amount of assets for exchange rate risk. Art. 8 Forms.- The Superintendent is authorized to establish the forms and instructions for the calculation of capital adequacy in accordance with the provisions of this norm. These forms may be modified by the Superintendent as the application thereof requires. Art. 9 Calculation of Capital Adequacy.- Financial institutions are obligated to submit the calculation of capital adequacy monthly in accordance with the forms referred to in the preceding article, in accordance with the information supply schedule established by the Superintendent. Art. 10 Normalization Plans.- When a financial institution, as a result of an excess of assets or insufficiency of its capital, fails to comply with this norm, it shall be governed by the provisions established in Articles 89 and 90 of the General Banking Law. Art. 11 Sanctions for Non-compliance.- Institutions that fail to comply with the provisions established in this norm shall be sanctioned in accordance with what is established in the General Banking Law and the regulations governing the imposition of fines.
CHAPTER II
TRANSITIONAL AND FINAL PROVISIONS
Art. 12 Transitional.- Financial institutions will have until December 31, 2010, to adapt their accounting, control, and computer systems to comply with the new provisions contained in literals A), B), E) and F) of Article 6 of this norm. Consequently, to calculate capital adequacy until the aforementioned date, they must do so in accordance with the provisions of the Norm on Capital Adequacy contained in Resolution No. CD-SIBOIF-504-2-OCTU19-2007, dated October 19, 2007, published in La Gaceta, Official Journal No. 230 of November 29, 2007. Art. 13 Repeal.- From January 1, 2011, the Norm on Capital Adequacy contained in Resolution No. CD-SIBOIF-504-2-OCTU19-2007, dated October 19, 2007, published in La Gaceta, Official Journal No. 230 of November 29, 2007, is repealed.

Art. 14 Effectiveness.- This norm shall enter into force upon its notification without prejudice to its publication in La Gaceta, Official Journal. (f) A. Rosales B. (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) illegible (Silvio Moisés Casco Marenco) (f) U. Cerna B. URIEL CERNA BARQUERO Secretary of the Board of Directors SIBOIF