Norm on Reform of Article 6 of the Capital Adequacy Standard

Resolution No. CD SIBOIF-1009-1-JUL31-2017
Dated July 31, 2017

NORM ON REFORM OF ARTICLE 6 OF THE CAPITAL ADEQUACY STANDARD

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

CONSIDERING

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

II
That for the purpose of weighting the risk assets of the aforementioned institutions, it is necessary to reform Article 6 of the Capital Adequacy Standard in order to establish a procedure to update the list of credit rating agencies contained in this article.

IV
That in accordance with the above consideration and based on the authority granted by Article 3, subsections 3) and 13), and Article 10, subsection 1), of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, and its amendments.

In exercise of its powers,

HAS ISSUED

The following,

Resolution No. CD SIBOIF-1009-1-JUL31-2017
NORM ON REFORM OF ARTICLE 6 OF THE CAPITAL ADEQUACY STANDARD

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

"Art. 6 Credit risk weighted assets.- Risk assets shall be weighted as follows:

A) With a weighting 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 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 standard regulating matters on limits for deposits and investments.
5) Balances of third-party credits and contingent operations, guaranteed by 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 by 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 weighting of twenty percent (20%) of their value, short-term self-liquidating contingent operations (documentary letters of credit).

C) With a weighting of fifty percent (50%) of their value, mortgage loans for housing granted in national currency without value maintenance.

D) With a weighting 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 of the country or abroad. Likewise, demand deposits and document remittances 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 be in accordance with the ratings of the following Credit Rating Agencies:

Weighting	Rating Agencies
	Fitch IBCA	Moody's Investors Services	Standard & Poor's Corporation	Dominion Bond Rating Services Limited	Sociedad Calificadora Centroamericana, S.A.	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-
20%	A+ to A-	A1 to A3	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-
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	BB+ to B- and unrated
150%	Below B-	Below B3	Below B-	Below B-	Below B-	Below B-

The Superintendent may update the above table in the event of new authorized and registered credit rating agencies in the registry kept by the Superintendence for these purposes, establishing the link between the agency's rating scale and the corresponding risk weighting. Likewise, it may be updated when new internationally recognized risk rating agencies are determined, or in case such entities modify their risk rating nomenclatures; this shall be communicated via circular to financial institutions.

In the event of more than one risk rating, to determine the corresponding weighting, the lower rating among those published by the risk rating agencies shall be applied.

E) With a weighting of sixty to one hundred twenty-five percent of their value (60% to 125%), the following credit operations, exposed to credit exchange rate 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 standard, 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.

The aforementioned 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 traded are expressed in foreign currency shall not be considered as the debtor being a foreign exchange generator.

F) With a weighting 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 entities of the country made in accordance with the regulations governing limits for deposits and investments.
3) Items corresponding to assets not mentioned in this article."

SECOND: This standard shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Gazette.

(f) S. Rosales (f) V. Urcuyo (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) illegible (Silvio Moisés Casco Marenco) (f) Illegible (Freddy José Blandón Argeñal) (f) U. Cerna"

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF