Norm on Purchases and Sales of Credit Assets

Resolution No. CD-SIBOIF-1360-1-FEB14-2023
Dated February 14, 2023

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

CONSIDERING

I
That Article 55, numeral 4, literal b, of Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, contained in the Legal Digest of Nicaragua of the Subject Matter of Banking and Finance, published in La Gaceta, Official Journal No. 164, of August 27, 2018, and its updates (Legal Digest), empowers the Board of Directors of the Superintendence of Banks and Other Financial Institutions to issue general norms regarding the purchase of credit portfolios.

II
That in accordance with the consideration stated above and based on Article 3, numeral 13 and Article 10, numeral 1, of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, contained in the Legal Digest; and Article 53 of Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups.

In exercise of its powers,

HAS ISSUED

The following,

CD-SIBOIF-1360-1-FEB14-2023

NORM ON PURCHASES AND SALES OF CREDIT ASSETS

CHAPTER I
CONCEPTS, OBJECT AND SCOPE

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

a) Purchasing Entity: Natural or legal person domiciled in the country or abroad that purchases credit assets from financial institutions in the country. b) Selling Entity: Financial institutions in the country that sell credit assets. c) Financial Group: Set of legal persons recognized as such by the General Law of Banks and the regulations governing the subject matter on Financial Groups.

d) Financial Institutions: Banks, financial societies, and insurance companies in the country. e) General Law of Banks: Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, contained in Law No. 974, Legal Digest of Nicaragua of the Subject Matter of Banking and Finance, published in La Gaceta, Official Journal No. 164, of August 27, 2018, and its updates. f) IFRS 13: International Financial Reporting Standard for the measurement of fair value, issued by the International Accounting Standards Board, which is contained in the Accounting Framework for Banking and Financial Institutions. g) Holding Company: Legal person referred to in the regulations governing the subject matter on Financial Groups. h) Superintendence: Superintendence of Banks and Other Financial Institutions. i) Superintendent: Superintendent of Banks and Other Financial Institutions. j) Substantial Sale: Sales with an amount greater than the equivalent of twenty percent (20%) of the Calculation Base of Capital of the selling entity. This includes sales made in a single act or in successive acts, within a period of the last twelve (12) months, whose sum exceeds the aforementioned percentage.

Article 2. Object and Scope.- This norm aims to establish provisions to regulate the purchases and sales of credit assets by banks, financial societies, and insurance companies.

The acts of disposal of credit assets carried out by banks and financial societies within the framework of credit operations with the Central Bank of Nicaragua (BCN) are not subject to this norm.

Article 3. General guidelines that financial institutions must comply with in the purchase and sale of credit assets.- Financial institutions that decide to purchase or sell credit assets must comply with the following general guidelines:

a) Establish a policy for the purchase and sale of credit assets that includes, among other elements, the methodology for determining fair value in accordance with IFRS 13 and legal, regulatory, operational, and technology aspects. This policy must be approved by the Board of Directors of the institution. b) Establish a Committee responsible for the application of regulations and policies for the purchase and sale of credit assets, which must organize, direct, and report to the Board of Directors on the entire process of acquisition or sale of these assets.

c) The information supporting the methodology for determining fair value must be documented and supported with respect to the hypotheses or variables used. d) Internal Audit must evaluate compliance with the regulations and policies corresponding to the purchase and sale of credit assets and submit the report to the Superintendent no later than 30 days after the end of the review process of each purchase or sale.

All information related to the purchase and sale of credit assets must be available to the Superintendent.

CHAPTER II
PURCHASES OF CREDIT ASSETS

Article 4. Purchase of credit assets.- Financial institutions may, with prior authorization from the Superintendent, purchase credit assets, provided they comply with the following provisions:

a) That the credit assets to be acquired are at a value not higher than their fair value as defined in IFRS 13, to the satisfaction of the Superintendent.
In the event that the fair value of the purchase of credit assets is lower than the book balance corresponding to the principal of the credit plus interest receivable, minus the provision for uncollectible credit portfolio, the difference must be recorded in an asset correction account that will be deferred as established in the Accounting Framework for Banking and Financial Institutions.

b) That the credit assets to be acquired have not previously been sold by the purchasing financial institution to the selling entity.

c) That in the case where the selling entity is a related party to the purchasing financial institution, the purchased credit assets are classified in risk category "A", to the satisfaction of the Superintendent.

d) In addition to complying with the provisions in the previous literals, the following information must be attached to the authorization request:

1. General data of the selling entity;

2. Detail of the credit assets to be purchased, including, among others, the Unique Code of the debtor, ID number for natural persons, RUC number for legal persons, type of guarantee, balance, maturity date, debt status, provision constituted, if any, and total amount;

3. Business purposes justifying the purchase;

4. Purchase price including its calculation memorandum;

5. Certification of the agenda item of the Board of Directors of the selling entity, stating the agreement to sell the asset;

6. In the case where the selling entity is related to the purchasing financial institution, certification issued by the Board of Directors of the purchasing financial institution, stating that the classification of the portfolio to be acquired corresponds to risk category "A" in accordance with the criteria established in the regulation governing the subject matter on Credit Risk Management, issued by the Board of Directors of the Superintendence.

7. Evidence of notification to debtors regarding the sale of credits, when required.

8. Draft purchase contract.

The financial institution authorized for the purposes set forth in this article must keep the credit files of the acquired portfolio under its custody, which will be subject to the evaluation criteria established in the regulation governing the subject matter on Credit Risk Management issued by the Board of Directors of the Superintendence.

CHAPTER III
SALES OF CREDIT ASSETS

Article 5. Sales of credit assets.- Financial institutions may sell credit assets to purchasing entities, prior to compliance, at a minimum, with all and each of the following provisions:

a) The sale is not made on credit nor is it financed directly or indirectly by the selling entity, and payment is in cash or by acceptable values in accordance with the regulation governing the subject matter on deposit and investment limits;

b) The sales contract contains a clause indicating that the purchased credit assets are accepted irrevocably and unconditionally, expressly excluding any commitment to repurchase or resale, or any concurrent or subsequent addendum or modification that contradicts, directly or indirectly, these conditions. Exceptions are made for periods not exceeding ninety (90) days explicitly agreed upon for the review of sold credit assets, in the context of transactions involving an internationally recognized entity within the framework of an agreement approved by the Superintendent;

c) The sales contract does not imply, through any mechanism, that the selling entity assumes, totally or partially, the credit risk of the credit assets transferred. Exceptions are made for guarantees issued by the selling entity, explicitly agreed upon in the context of transactions involving an internationally recognized entity within the framework of an agreement approved by the Superintendent;

d) The sale of credit assets is made at a value not lower than its fair value (as defined in IFRS 13) to the satisfaction of the Superintendent.
If the exchange value received in the sale of credit assets exceeds the net book value of provisions, the excess must be recorded as a gain on the sale of credit assets in the statement of results. If the exchange value received in the sale of credit assets is lower than the net book value of provisions, the difference will be recorded as a loss on the sale of credit assets;

e) The sale has the express authorization of the board of directors of the selling entity, prior to the signing of the corresponding contract, contained in a resolution registered in the minutes book duly signed, explicitly including in said resolution the verification by the board of directors of compliance with the conditions contained in this norm, and the Superintendence has received certification of said resolution no later than within five (5) business days of the approval and signing of the respective minutes; and

f) The sales contract includes a detailed and specific list of all and each of the credits sold (including the Unique Code of the debtor, ID number for natural persons, RUC number for legal persons, type of guarantee, balance, maturity date, debt status, provision constituted, if any, and total amount) and the Superintendence has received a notarially certified copy of the complete contract, including the aforementioned list, within five (5) business days of signing.

Article 6. Sales to related parties.- In cases where the purchasing entity is a related party to the selling entity, the sold credit assets must not contain loans to related parties of the selling entity.

When the purchasing entity is not part of the financial group to which the selling entity belongs, there must be documentation issued by an internationally recognized entity that, in the judgment of the Superintendent, sufficiently certifies that conditions a), b), c), and d) of Article 5 of this norm are met.

In the case where the purchasing entity is part of the financial group to which the selling entity belongs, it must demonstrate, in the judgment of the Superintendent, that the consolidated capital of the supervised financial group exceeds the capital that would be required for the group as a whole, if the capital adequacy ratio and its calculation methodology required by the supervisory authority of the country of origin where the controlling entity of said financial group is domiciled or incorporated were applied in a consolidated manner, by an amount widely sufficient to absorb without risk any possible loss related to the sale value, in the recovery of the sold credit assets.

Article 7. Substantial sales of credit assets.- In accordance with what is established in numeral 1 of Article 16 of the General Law of Banks, the substantial sale of credit assets will require prior authorization from the Superintendent. For these purposes, in addition to complying with what is established in Articles 5 and 6 of this norm (the latter when applicable), the following must be complied with:

a) The authorization request to sell a substantial part of the balance of the selling entity; b) General data of the purchasing entity; c) Detail of the credit assets to be sold, including, among others: the Unique Code of the debtor: ID number for natural persons, RUC number for legal persons, type of guarantee, balance, maturity date, debt status, provision constituted, if any, and total amount; d) Characteristics of the sale; e) Business purposes justifying the sale; f) Sale price including its calculation memorandum g) Certification of the agenda item of the Board of Directors of the selling entity, stating the agreement to sell; h) Certification issued by the general accountant stating the percentage of credit assets to be sold; i) In applicable cases, draft of the public deed of sale.

Article 8. Notification to the debtor.- In accordance with Article 122 of the General Law of Banks, any sale of credit assets carried out by selling entities to legal persons or non-bank institutions must be previously informed to each of the debtors included in the sale.

CHAPTER IV
FINAL PROVISIONS

Article 9. Provision for default.- The Superintendent may order the constitution of a provision of up to one hundred percent (100%) of the amount of credit assets sold or purchased, if the purchasing or selling entity does not comply with the requirements established in this norm, without prejudice to the imposition of sanctions in accordance with the regulation governing the subject matter on the imposition of fines. This provision may be eliminated by resolution of the Superintendent, when it considers that the non-compliances that originated it have been overcome.

Article 10. Repeal.- The Norm on Purchases and Sales of Credit Assets, contained in Resolution No. CD-SIBOIF-563-1-DIC3-2008, dated December 3, 2008, published in La Gaceta, Official Journal No. 17, of January 27, 2009, is repealed.

Article 11. Validity.- This norm will enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Journal.

(F) Legible Magaly María Sáenz Ulloa (F) Illegible (Luis Ángel Montenegro E) (F) Illegible Fausto Reyes (F) Illegible (Silvio Moisés Casco Marenco) (F) Illegible (Ervin Antonio Vargas Pérez).

SAÚL CASTELLÓN TÓRREZ
Ad Hoc Secretary Board of Directors SIBOIF