Norm on Reform of Article 6 of the Capital Adequacy Norm

Page 1 of 4 Resolution No. CD-SIBOIF-1003-1-JUN20-2017 Dated June 20, 2017

NORM ON REFORM OF ARTICLE 6 OF THE NORM ON CAPITAL ADEQUACY

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

CONSIDERING

I

That on October 27, 2010, the Norm on Capital Adequacy, contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, published in La Gaceta, Official Journal No. 18, on January 28, 2011, was approved. This norm aims to regulate matters concerning the components of the capital calculation base, minimum required capital, credit risk assets, and notional assets for foreign exchange risk of supervised financial institutions.

II

That Article 19 of Law No. 561, General Law of Banks, Non-Bank Financial Institutions, and Financial Groups, published in La Gaceta, Official Journal No. 232, on November 30, 2005, establishes that securities payable in foreign currency issued by the Government of the Republic or by the Central Bank of Nicaragua shall be risk-weighted through a norm issued by the Board of Directors of the Superintendency.

In exercise of its powers,

HAS ISSUED

The following,

CD-SIBOIF-1003-1-JUN20-2017

NORM ON REFORM OF ARTICLE 6 OF THE NORM ON CAPITAL ADEQUACY

FIRST: Article 6 of the Norm on Capital Adequacy contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, dated October 27, 2010, published in La Gaceta, Official Journal No. 18, on January 28, 2011, and its amendments, is hereby reformed, which shall read as follows:

“Art. 6 Risk-Weighted Credit Assets.- Assets shall be risk-weighted as follows:

A) With a weight of zero percent (0%) of their value, the following items:

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1. Cash, legal reserve deposits, and other deposits at the Central Bank of Nicaragua, as well as balances of effects in collection and local remittances in transit.

2. Investments in securities issued in national or foreign currency by the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.

3. Loans granted in national or foreign currency to the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.

4. Investments in securities issued by Multilateral Credit Organizations of which the country is a member, qualified as first-tier institutions as established in the norm regulating the matter on limits for deposits and investments.

5. Balances of third-party credits and contingent operations guaranteed with securities issued in national or foreign currency by the Central Government or the Central Bank of Nicaragua.

6. Investments in securities issued by third parties, guaranteed with securities 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, sureties, and other net contingent operations of provisions, depreciation, and amortizations, made with financial institutions in the country or abroad. Likewise, demand deposits and remittances of documents to be deposited in said entities. All of the above according to the long-term risk rating of the issuer.

2. Third-party credits and contingent operations guaranteed by guarantees, sureties, and other contingent operations of foreign financial institutions according to the long-term risk rating of the issuer.

3. Investments in securities issued by foreign states or central banks according to the long-term sovereign risk rating of the issuer.

The long-term emission risk rating shall conform to the ratings of the following Rating Agencies:

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In the event that there is more than one risk rating, to determine the corresponding weight, the lower rating among those published by the risk rating agencies shall be applied.

E) With a weight from sixty to one hundred twenty-five percent of their value (60% to 125%), the following credit operations, exposed to credit foreign exchange risk:

1. Consumer credits granted in foreign currency and in national currency with value maintenance shall 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 shall be weighted at sixty percent (60%) of their value. Loans for housing granted in foreign currency and in national currency with value maintenance for amounts equal to or less than the equivalent of thirty-two thousand dollars (US$32,000.00) are excepted, which shall 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 shall be weighted at one hundred twenty-five percent (125%) of their value; otherwise, they shall be weighted at one hundred percent (100%). For the purposes of this norm, foreign exchange generating debtors are those whose source of income comes from:

i. Financing operations for goods or merchandise for export involving a sales contract between the trading entity and the producer, 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, involving an export or service provision contract, in which the corresponding payment in foreign currency is established.

Fitch IBCA Moody’s Investors Services Standard & Poor’s Corporation Dominion Bond Rating Services Limited Centroamerican Rating Society, S.A.

Weighting Risk Rating Agencies

0% AAA to AA- Aaa1 to Aa3 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- 50% BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB+ to BBB- 100% BB+ to B- and unrated Ba1 to B3 and unrated BB+ to B- and unrated BB+ to B- and unrated BB+ to B- and unrated 150% Below B- Below B3 Below B- Below B- Below B-

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The above cases must be duly evidenced by the institution. The purchase of foreign exchange in the foreign exchange market or the mere fact that the prices of the goods or services it trades are expressed in foreign currency shall 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 (Sureties, guarantees, granted guarantees, standby letters of credit) granted in national currency without value maintenance; accounts receivable and any other obligation.

2. Investments in public debt securities issued by legal persons in the country carried out in accordance with the regulations governing limits for deposits and investments.

3. Items corresponding to assets not mentioned in this article.”

SECOND: This norm shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Journal. (f) S. Rosales (f) Fausto Reyes (f) Gabriel Pasos Lacayo (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