Norm on Minimum Leverage Requirement

Resolution No. CD-SIBOIF-926-2-ENE26-2016
Dated January 26, 2016

NORM ON MINIMUM LEVERAGE REQUIREMENT

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

CONSIDERING

I
That subsections 1) and 2), and the final paragraph of Article 10 of Law 316, the Law of the Superintendence of Banks and Other Financial Institutions, and its reforms contained in Law 552, the Law of Reforms to the aforementioned Law 316, establish that it corresponds to the Board of Directors of the Superintendence of Banks and Other Financial Institutions to issue general norms to strengthen and preserve the security and confidence of the public in the institutions under its supervision, inspection, surveillance, and audit.

II
That for the purposes indicated in the preceding paragraph, it is necessary to establish a minimum leverage coefficient as a simple, transparent, and risk-weighting-independent measure of capital adequacy, in order to contain excessive leverage in financial institutions, and as a complementary backup measure to the capital adequacy coefficient.

In exercise of its powers,

RESOLVES

CD-SIBOIF-926-2-ENE26-2016

To issue the following:

NORM ON MINIMUM LEVERAGE REQUIREMENT

CHAPTER I
GENERAL PROVISIONS

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

a) Minimum Leverage Coefficient (MLC): The ratio between primary capital and the total of assets and contingencies net of provisions, depreciation, and amortization, unweighted by risk. The accounts that deduct from primary capital must be subtracted from the asset.

b) Board of Directors: Board of Directors of the Superintendence of Banks and Other Financial Institutions.

c) Credit Conversion Factor (CCF): Weights used for the conversion of contingent exposures into equivalent direct credit risk exposures.

d) Financial Institution: Banks, financial companies, and branches thereof established in the country, which in accordance with the General Banking Law can capture resources from the public.

e) General Banking Law: Law 561, General Banking Law, Non-Banking Financial Institutions and Financial Groups, published in Official Gazette No. 232, of November 30, 2005.

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 a minimum leverage coefficient that financial institutions must maintain in order to:

a) Reduce leverage in financial institutions such that the risk of destabilizing de-leveraging processes that could affect the financial system and the country's real economy is mitigated, and

b) Introduce additional safeguard measures against the risk of errors in risk-weight calculations, among others, complementing risk-based measures with simpler, transparent, and independent ones.

CHAPTER II
CALCULATION METHODOLOGY

Article 3. Minimum Leverage Coefficient.- Financial institutions shall calculate the minimum leverage coefficient on a monthly basis, in accordance with the concepts set forth in Articles 4 and 5 of this norm, for which they must use the following formula:

MLC = (Primary Capital + accumulated results from previous periods – items deducted from the capital base) / (Total Assets + Contingencies, net of provisions, depreciation, and amortization unweighted by risk, – items deducted from the capital base)

The minimum monthly leverage coefficient limit shall be at least 3.75%.

Article 4. Primary Capital.-
1 For the calculation of the numerator, financial institutions must consider as primary capital the components established in the regulations governing capital adequacy, plus accumulated results from previous periods that are computable, included in the secondary capital components, minus capital deductions.

Article 5. Total Assets and Contingencies.- For the calculation of the denominator, financial institutions must include the entirety of assets and contingencies, net of provisions, depreciation, and amortization, unweighted by risk. Items that are deducted from primary capital shall be deducted. In the case of contingencies, off-balance sheet items must be calculated by applying a uniform CCF of 100%, except for automatic utilization credit lines that can be unconditionally revoked by the institution at any time and without prior notice, or in which automatic cancellation is contemplated in case of deterioration of the borrower's solvency; in which case a CCF of 10% shall be used.

1 Art. 4, amended on December 4, 2018 - Resolution CD-SIBOIF-1087-3-DIC4-2018

CHAPTER III
FINAL PROVISIONS

Article 6. Submission of Report.- Financial institutions must submit the calculation of the minimum leverage coefficient monthly according to the annex established in this norm, which is an integral part of it, in accordance with the information supply schedule established by the Superintendent. Said annex may be modified by the Superintendent through a reasoned resolution.

Article 7. Transitional Provisions.- Financial institutions may request from the Superintendent a gradual compliance period of up to two years to comply with the provisions of this norm, and while such gradual compliance exists, they may not distribute cash profits, which shall be subject to what is established in the General Banking Law and regulations governing this matter.

Article 8. Validity.- This norm shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Gazette.

ANNEX

2 Annex amended on December 4, 2018, by Resolution CD-SIBOIF-1087-3-DIC4-2018
Annex amended on March 2, 2016, by Resolution No. SIB-OIF-XXIV-083-2016

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

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF