Norm on Deposit and Investment Limits

Resolution No. CD-SIBOIF-650-2-OCT20-2010
Dated October 20, 2010

NORM ON DEPOSIT AND INVESTMENT LIMITS

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

CONSIDERING

That Article 10, item 11 of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, reformed by Law No. 552, Law of Reforms to Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions; and Articles 57, item 1, 53 and 54 of Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups (General Law of Banks); empower the Board of Directors of the Superintendence of Banks and Other Financial Institutions to issue norms related to investments and deposits, as well as the limits for this type of operations in the country and abroad of the supervised financial institutions;

In exercise of its powers;

HAS ISSUED

The following:

CD-SIBOIF-650-2-OCT20-2010

NORM ON DEPOSIT AND INVESTMENT LIMITS

CHAPTER I
CONCEPTS, OBJECT AND SCOPE

Art. 1. Concepts.- For the purposes of applying the provisions contained in this norm, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Top-tier international rating: a top-tier rating that takes into account country risk as established in Chapter VII of this norm.

b) Top-tier local rating: a top-tier rating that does not take into account country risk as established in Chapter VII of this norm.

c) Institution or Financial Institution: banks and financial companies; the latter constituted in accordance with the General Law of Banks and what is established in Decree No. 15-L, published in La Gaceta, Official Journal No. 77 of April 10, 1970, insofar as applicable.

d) General Law of Banks: Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups;

e) MMDA/MMSA; Money Market Deposit Account/Money Market Savings Account: a type of interest-bearing savings account that only allows a limited number of withdrawals per month. This concept includes all money market accounts, which despite having different denominations than MMDA/MMSA, have the aforementioned characteristics.

f) FINRA: acronym in English for the Financial Industry Regulatory Authority of the United States of America.

g) SIPC: acronym in English for the Securities Investor Protection Corporation of the United States of America.

h) Superintendence: Superintendence of Banks and Other Financial Institutions.

i) Superintendent: Superintendent of Banks and Other Financial Institutions.

j) Traded negotiable securities: Those issued by the same issuer, with homogeneous and fungible characteristics among themselves.

Art. 2. Object and scope.- This norm aims to establish the requirements and limits of the deposits and investments that financial institutions may carry out.

CHAPTER II
RESPONSIBILITIES

Art. 3. Responsibility of the Board of Directors.- The Board of Directors of the institution shall have, among others, the following responsibilities:

a) Approve strategies, guidelines and policies for the prudent management of deposits and investments,

b) Ensure that relevant personnel of the institution have knowledge of and comply with the policies and this norm.

Art. 4. Responsibilities of management.- The management of the institution shall have, among others, the following responsibilities:

a) Ensure that the strategies, guidelines and policies dictated by the Board of Directors for the management of deposits and investments are complied with;

b) Establish procedures that identify, measure, monitor and control the risks to which deposits and investments are exposed;

c) Keep the Board of Directors informed in a timely manner.

CHAPTER III
DEPOSITS AND INVESTMENTS IN DOMESTIC SECURITIES

Art. 5. Investments in securities of the Central Government and Central Bank of Nicaragua.- Financial institutions may invest in the country, only in the following instruments in córdobas or foreign currency:

a) Traded negotiable public debt securities issued by the Ministry of Finance and Public Credit (MHCP), in accordance with the relevant law;

b) Traded negotiable public debt securities issued by the Central Bank of Nicaragua, in accordance with the relevant law;

c) Repo operations of the negotiable securities issued by the Central Bank of Nicaragua and the Central Government.

The aforementioned investments must comply with the limits and provisions of Article 8 of this norm.

Art. 6. Deposits and investments in securities of financial institutions and other legal entities.- Financial institutions may maintain deposits or invest, in córdobas or foreign currency, only in securities or instruments issued by the following entities:

a) Financial institutions that have a top-tier local risk rating:

1. Demand deposits (checking and savings) or time deposits;

2. Traded negotiable securities: Commercial paper, bonds and other similar traded negotiable securities issued by financial institutions, which trade on the stock exchange or regulated market of the country;

b) Legal entities that issue public offering debt securities, registered in the registry kept by the Superintendence for such purposes. The acquisition of these securities is subject to the following restrictions:

1. Have a local rating of at least AA or higher or the equivalent used by the respective rating agency.

2. Issued by Nicaraguan public, private or mixed entities. In the case of guarantees, mortgages or others, these must be located in national territory.

3. Issued by entities operating in the following productive sectors such as: agricultural, industrial, exporting, port and airport administrators, electricity generation, telecommunications, infrastructure and construction.

4. The issuances or issuance programs must be for amounts greater than US$3 million or its equivalent in córdobas.

The deposits and investments indicated in this article must comply with the limits and provisions indicated in Article 8 of this norm.

CHAPTER IV
DEPOSITS AND INVESTMENTS IN FOREIGN SECURITIES

Art. 7. Deposits and investments in foreign securities.- Financial institutions may maintain deposits or invest abroad, only in the following instruments in highly convertible foreign currency:

a) In banks with top-tier international rating:

1) In checking account deposits;

2) In MMDA/MMSA and savings accounts;

3) Non-negotiable time deposits of up to seven (7) days;

4) Non-negotiable time deposits greater than seven (7) days and not greater than one year;

5) Debt instruments and/or Traded Negotiable Deposit Certificates, which trade on the stock exchange or regulated market of the corresponding country;

b) In checking account deposits in unranked banks, but that meet the following minimum requirements:

1) Be domiciled in a country with a top-tier sovereign risk rating, as established in Chapter VII of this norm;

2) Not be subject to any public exception regime imposed by their supervisory authority, such as "cease and desist" orders or other equivalent measures;

3) Maintain physical and operational presence in the country where the banking license was granted and be subject to supervision;

4) That the country where the institution is located is not sanctioned or suspended by international organizations working in the fight against money laundering/terrorist financing (ML/FT) and/or for international transparency, such as FATF, Egmont Group and the UN; and,

5) Maintain a solid and solvent financial position, documented by the depositing financial institution through an analysis of its audited financial statements no older than twelve months, and equity of not less than fifteen million United States dollars.

c) In checking account deposits in banks with top-tier local rating and meet the requirements established in items 2), 3), 4) and 5) of the previous letter b).

d) Money Market or similar account maintained with a stock exchange broker authorized to operate in the United States of America and member of FINRA and SIPC. These accounts must be connected with a securities custody account and will only be used to carry out clearing and settlement operations.

e) Other Instruments:

1) Any type of traded negotiable debt securities issued or guaranteed by the Department of the Treasury or by institutions or companies of the Federal Government of the United States of America, quoted on the Stock Exchange or regulated market of the United States of America;

2) Traded negotiable debt securities issued by Multilateral Credit Organizations (IDB, WB, CABEI) of which the country is a member, quoted on the Stock Exchange or regulated market of the corresponding country;

3) Traded negotiable debt securities issued by Central Banks and Central Governments of countries with top-tier sovereign risk rating, according to the table in Chapter VII of this norm and quoted on the stock exchange or regulated market of the corresponding country.

The deposits and investments indicated in this article must comply with the limits and provisions of Article 8 of this norm.

CHAPTER V
LIMITS PER DEPOSITOR OR ISSUER

Art. 8. Limits per depositor or issuer and global limit.- 1 In the operations carried out in accordance with Articles 5, 6 and 7 of this norm, the depositing and investing financial institutions shall be governed by the following limits:

I. Limits per depositor or issuer:

a) In traded negotiable securities issued in national or foreign currency by the Central Government or Central Bank of Nicaragua indicated in Article 5 of this norm, without limit.

b) In demand deposits (checking and savings) or time deposits, as well as in traded negotiable securities indicated in letter a) of Article 6 of this norm, up to thirty percent (30%) of the calculation base of the investing or depositing institution, per issuer or depositor.

c) In investments in public offering debt securities referred to in letter b) of Article 6 of this norm, up to ten percent (10%) of the calculation base of the investing institution, per issuer.

d) In checking account deposits, savings, MMDA/MMSA and time deposits of up to seven (7) days in banks with top-tier international rating, indicated in items 1), 2) and 3) of letter a) of Article 7 of this norm, according to their operational and/or treasury needs. In those cases where the thirty percent (30%) limit of the calculation base of the capital of the depositing institution per depositor is exceeded in such accounts, such operations must be duly justified at the discretion of the Superintendent.

1 Art. 8, reformed on November 17, 2022 - Resolution CD-SIBOIF-1345-1-NOV17-2022 Art. 8, reformed on June 20, 2017 - Resolution CD-SIBOIF-1003-2-JUN20-2017

e) In non-negotiable time deposit certificates greater than seven (7) days and not greater than one (1) year in banks with top-tier international rating, indicated in item 4) of letter a) of Article 7 of this norm, up to thirty percent (30%) of the calculation base of the investing institution, per depositor.

f) In Debt instruments and/or Traded Negotiable Deposit Certificates in banks with top-tier international rating, which trade on the stock exchange or regulated market of the corresponding country referred to in Article 7, letter a), item 5) up to fifteen percent (15%) of the calculation base of the investing or depositing institution, per issuer or depositor.

g) In checking account deposits maintained in unranked banks referred to in Article 7, letter b) up to ten percent (10%) of the calculation base of the depositing institution, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the institution, provided that such excess is regularized within a period not exceeding three (3) business days duly justified in communication sent to the Superintendent.

h) In checking account deposits maintained in banks with top-tier local rating, referred to in Article 7, letter c) of this norm, up to fifteen percent (15%) of the calculation base of the depositing institution, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by deposits made by persons or entities unrelated to the institution, provided that such excess is regularized within a period not exceeding three (3) business days duly justified in communication sent to the Superintendent.

i) In Money Market accounts maintained in the stock exchange brokers indicated in letter d), of Article 7 of this norm, up to fifteen percent (15%) of the calculation base of the depositing institution, per depositor.

Exceeding the aforementioned limit shall not be considered a breach when it is exceeded by temporary operations connected with pending investments, duly justified in communication sent to the Superintendent.

j) In traded negotiable debt securities issued or guaranteed by the Department of the Treasury or by institutions or companies of the Federal Government of the United States of America, indicated in the

Article 7, letter e), item 1), of this norm, up to fifty percent (50%) of the calculation base of the investing institution, per issuer.

k) In traded negotiable debt securities issued by Multilateral Credit Organizations (IDB, WB, CABEI) of which the country is a member, indicated in Article 7, letter e), item 2), of this norm, up to fifty percent (50%) of the calculation base of the investing institution, per issuer.

l) In traded negotiable debt securities issued by Central Banks and Central Governments, indicated in Article 7, letter e), item 3) of this norm, up to fifteen percent (15%) of the calculation base of the investing institution, per issuer.

II. Global limit: The sum of the operations for time deposits and securities established in letters e), f), j), k) and l) of this article, shall have a maximum global limit of fifty percent (50%) of the capital adequacy base of the depositing and/or investing institution.

Art. 9. Traded value (acquisition value).-2
The limits indicated in the previous article must be determined taking as a base the traded value (Acquisition value) of the securities per depositor or issuer.

This is without prejudice to what is provided in the regulations governing the matter on concentration limits, regarding the limits in active operations that a financial institution can carry out cumulatively with its related and unrelated parties.

CHAPTER VI
PRIOR AND FOLLOW-UP REQUIREMENTS

Art. 10. Financial analysis.- The depositing institution shall be responsible for verifying that the deposit-taking institution meets the requirements mentioned in the preceding Chapters. For such purposes, the depositing or investing institution must perform, as a minimum, before and while the deposit or investment is maintained, financial analyses of the deposit-taking institutions or securities issuers in which they place or invest their resources. These analyses must demonstrate that the fund-receiving institution enjoys a solid and solvent financial situation, and must be backed by pertinent documentation no older than twelve months (financial statements, reports, etc.), as well as the pertinent verifications to ensure that the depositary entity complies with what is established by letters b) and c) of Article 7.

2 Art. 9, reformed on November 24, 2010 - Resolution CD-SIBOIF-655-1-NOV24-2010

It will not be necessary to perform a financial analysis, in the case that the fund-receiving institution is rated by a risk rating agency as established in Article 11 of this norm. For this purpose, the institution must keep a copy of the analysis performed by the risk rating agency and other pertinent documentation no older than twelve months (financial statements, reports, etc.).

CHAPTER VII
RISK RATING AGENCIES

Art. 11.3 Repealed.

Art. 12. Rating parameters.-4 For purposes of determining local or international rating as well as sovereign risk, only the risk rating agencies and ranges established in the following table are considered:

Risk Rating Agency | Issuer Obligations | Short-term Obligations | Long-term Obligations | Sovereign Risk --- | --- | --- | --- | --- Fitch IBCA | Rating BBB- or higher | F3 Rating or higher | BBB - or higher | BBB- or higher Moody's Investors Services | Baa3 Rating or higher | P-3 Rating or higher | Baa3 Rating or higher | Baa3 or higher Standard & Poor's Corporation | BBB- or higher | A3 Rating or higher | BBB- or higher | BBB- or higher Dominion Bond Rating Services Limited | BBB- or higher | A3 Rating or higher | BBB- or higher | BBB- or higher Kroll Bond Rating Agency, Inc. | BBB- or higher | K3 Rating or higher | BBB- or higher | BBB- or higher Centroamerican Risk Rating Society, S.A. (Moody's Local) | BBB- or higher | ML A-3 or higher Rating | BBB- or higher | BBB- or higher Pacific Credit Rating, S.A. de C.V. | BBB or higher | P-3 or higher Rating | BBB or higher |

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, according to the corresponding investment grade ratings. Likewise, it may update it when new internationally recognized risk rating agencies are determined, or in case such entities modify their risk rating nomenclature; which it will inform the Monetary and Financial Board prior to the notification by circular to financial institutions.

In the case of more than one risk rating, the lower rating shall apply.

The current rating shall be that available on the respective rating agency's website. For such purposes, the rating must be available to the public on the website of the respective rating agency, as well as on the website of the rated financial institution, permanently.

CHAPTER VIII
GENERAL PROVISIONS

Art. 13. Encumbrance of deposits and investments.-5 It is prohibited for financial institutions to constitute any type of encumbrance on the deposits maintained in, or investments in securities issued by other entities. The following cases are exempt from the above prohibition:

a) Encumbrances constituted for the purpose of obtaining direct financing or contingent operations requested by the depositing or investing institution, provided that such encumbrances are constituted and accounted for in accordance with the corresponding regulations.

b) Encumbrances required by the depositary entity for the confirmation of contingent operations, such as letters of credit, on behalf of the depositing financial institution's clients, provided that, the aforementioned clients constitute liquid guarantee in an amount equal to or greater than the encumbered amount in favor of the depositing financial institution or that the operation is based on a previously authorized loan.

5 Art. 13, reformed on August 3, 2021 - Resolution CD-SIBOIF-1262-2-AGOS3-2021 Art. 13, reformed on November 24, 2010 - Resolution CD-SIBOIF-655-1-NOV24-2010

Article 14. Evidence of the existence of deposits and investments.- Financial institutions must maintain sufficient and appropriate evidence supporting the existence of deposits held in, or investments in securities issued by other entities, as presented in the audited institution's financial statements, regardless of whether these instruments are negotiable or non-negotiable, traded or not traded on a regulated stock exchange or market, physical or dematerialized.

Considered as sufficient and appropriate evidence are purchase confirmations and account statements issued by the brokerage house or financial institution where the transaction was carried out, custody certificates of physical or dematerialized securities issued by the custodian entity, and others deemed appropriate by the Superintendent.

Article 15. Investments in capital instruments.- Financial institutions, with prior authorization from the Superintendent, may invest in capital instruments issued by other banks, non-bank financial institutions, or special regime financial companies, national or foreign, in accordance with the General Banking Law and the regulations governing investments in capital instruments.

Article 16. Non-compliance with limits.- Without prejudice to the monetary sanctions applicable for exceeding the deposit and investment limits established in this norm, the financial institution must, additionally, comply with the following:

a) Immediately provision one hundred percent (100%) of the excess of the limit; b) Not distribute profits while limits are exceeded; and c) Correct the excess within a period not exceeding 180 days.

Non-compliance with limits will not be considered when, in the demand deposit accounts referred to in letters c) and d) of Article 7 of this norm, the excesses are originated by deposits made by persons or entities external to the institution, provided that such excesses are regularized within a period not exceeding three (3) business days and duly justified in communication sent to the Superintendent.

CHAPTER IX
FINAL PROVISIONS

Article 17. Repeals.- The Norm on Deposit and Investment Limits, contained in Resolution No. CD-SIBOIF-620-1-MAR19-2010, dated March 19, 2010, published in La Gaceta, Official Journal No. 98 of May 26, 2010, is hereby repealed.

Article 18. Validity.- 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) F. Reyes B.
(f) illegible (Silvio M. Casco Marenco) (f) U. Cerna B. Secretary.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF