Norm on the Evaluation of Accounts Receivable Balances and Assets Acquired in Recovery by General Warehouses

Resolution No. CD-SIBOIF-675-2-MAY6-2011
Date: May 6, 2011

NORM ON THE EVALUATION OF ACCOUNTS RECEIVABLE BALANCES AND ASSETS ACQUIRED IN RECOVERY BY GENERAL WAREHOUSES

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

CONSIDERING

I
That in General Warehouses, balances in accounts receivable constitute a substantive part of the assets that must be examined to present the financial reality of these institutions.

II
That with the purpose of strengthening the supervision of General Warehouses, it is necessary to develop a norm incorporating regulations to evaluate the quality of the aforementioned balances.

III
That based on the authority conferred by Articles 2 and 139 of Law 734, General Warehouse Law; and Article 2, fourth paragraph, and Article 3, item 13, of Law 316, Law of the Superintendence of Banks and Other Financial Institutions and its reforms.

In exercise of its powers,

HAS ISSUED,

Resolution No. CD-SIBOIF-675-2-MAY6-2011

The following:

NORM ON THE EVALUATION OF ACCOUNTS RECEIVABLE BALANCES AND ASSETS ACQUIRED IN RECOVERY BY GENERAL WAREHOUSES

CHAPTER I
OBJECTIVE AND SCOPE

Art. 1 Objective and Scope.- This norm aims to establish general guidelines to evaluate the quality of balances in accounts receivable and of assets acquired in recovery by General Warehouses subject to the supervision of the Superintendence of Banks and Other Financial Institutions, hereinafter referred to as the "Superintendence".

CHAPTER II
RESPONSIBILITIES OF THE BOARD OF DIRECTORS

Art. 2 Responsibilities of the Board of Directors.- The Board of Directors of the warehouse is responsible for establishing mechanisms, guidelines, procedures, and policies oriented towards conducting adequate management in the selection of clients and in the administration and recovery of the portfolio in accounts receivable. Such processes must be explicitly detailed in the administrative and internal control procedure manuals of the warehouse and shall contain at least the following:

a) Client selection. b) Basic identity documentation of said clients. c) General policy on prices and/or tariffs to be applied as appropriate. d) Control, monitoring, management, and recovery processes for the corresponding balances. e) Responsibilities and delegated powers of the different bodies and persons in charge of granting, formalizing, monitoring, valuing, and controlling operations. f) Ensuring that administrative and control bodies implement and execute provisions emanating from the Board of Directors, as well as provisions established in this norm. g) Reviewing policies for the selection, administration, and recovery of these balances at least once a year.

CHAPTER III
ACCOUNTS RECEIVABLE

Art. 3 Accounts Receivable.- Comprises accumulated balances for services accrued and not cancelled regarding storage, insurance, and handling, provided to clients on merchandise received in deposits in own, rented, or equipped warehouses, equipment handling services, third-party fumigation or product transformation services, other complementary services to clients, companies within the financial group, and advances granted to officials and employees for purchases of goods or services, food and transportation per diems, among others.

Art. 4 Provisions for Accounts Receivable.-
The balances described in Article 3 shall be provided for by age according to the strata described in the "Annex", which forms an integral part of this norm. The following provisions are established:

a) 50% of the balance found in the stratum of more than 90 to 120 days; b) 70% of the balance found in the stratum of more than 120 to 150 days; c) 100% of the total accumulated balance when there are balances in the stratum of more than 150 days.

Art. 5 Maturity.- Total accumulated balances of each client shall be considered overdue 30 days after they have been provided for at 100% in accordance with item c) of Article 4.

Art. 6 Sanitation of Accounts Receivable.- Total accumulated balances in accounts receivable must be sanitized at one hundred eighty-one (181) days past due.

Art. 7 Exceptions.-
2 Only those client balances declared judicially insolvent, in bankruptcy proceedings, or bankrupt, or with unknown domicile in the country, may be provided for at 100% earlier than provided by Article 4 of this norm; in the latter case, supported by the corresponding legal opinion. Their sanitation may be immediate or not exceed 181 days after being provided for.

CHAPTER IV
EVALUATION OF ASSETS RECEIVED FROM RECOVERIES

Art. 8 Scope of Evaluation.-
Adjudicated assets shall be evaluated in their entirety at least once every three years for real estate, and for movable assets with a semi-annual periodicity.
For the purposes of this norm, adjudicated assets are understood as those acquired via judicial or extrajudicial means for the recovery of corresponding accounts receivable balances.

Art. 9 Criteria for Evaluation.-
Adjudicated merchandise shall be valued in accordance with the analysis criteria and documentation referred to in the regulations governing the operational and financial matters of general warehouses.

1 Art. 4, amended on April 11, 2014 - Resolution No. CD-SIBOIF-830-1-ABR11-2014 2 Art. 7, amended on April 11, 2014 - Resolution No. CD-SIBOIF-830-1-ABR11-2014 3 Art. 8, amended on April 11, 2014 - Resolution No. CD-SIBOIF-830-1-ABR11-2014 4 Art. 9, amended on December 6, 2018 - Resolution No. CD-SIBOIF-1088-3-DIC6-2018 Art. 9, amended on April 11, 2014 - Resolution No. CD-SIBOIF-830-1-ABR11-2014

In the case of adjudicated real estate, the evaluation of said assets must be performed based on the estimate of realization value in accordance with the regulations governing appraisers who provide services to institutions of the Financial System. All real estate whose book value in national currency or foreign currency exceeds the equivalent in Cordobas of twenty-five thousand United States Dollars (US$25,000.00), at the official exchange rate, must have valuations performed by independent appraisers registered in the Register of Appraisers of the Superintendence of Banks.

The evaluation of shares and rights in companies, and generally, of financial instruments received in payment in kind or adjudicated, shall be performed at fair value in accordance with the criteria defined in IFRS 13.

The general warehouse shall determine whether the adjudicated asset is recorded as non-current assets held for sale in accordance with IFRS 5 criteria, or as assets received from recoveries, if the criteria established in the referenced IFRS are not met.

Recognition and Measurement of Adjudicated Assets under IFRS 5 Non-current Assets Held for Sale.
An entity shall classify an adjudicated asset as a non-current asset held for sale when it meets the criteria established in IFRS 5. The accounting procedure is as follows:

1) Classification to Non-current Assets Held for Sale (IFRS 5) from the date of asset adjudication.
The institution, for initial registration in accordance with IFRS 5, must take the lesser of:
a) The amount agreed in the transfer in payment, or adjudication at auction in accordance with the General Warehouse Law or judicial auction as appropriate; this is considered the cost of the asset, and its b) Fair value (determined in accordance with IFRS 13) minus selling costs (in accordance with IFRS 5). The financial institution must sanitize the outstanding credit balance against the provision, and if there is a remaining provision balance, it must be reversed to the corresponding account in the statement of results, controlled in the sub-account of Undistributable Current Year Result. Subsequently, all provisions established in IFRS 5 apply.

5) Reclassification of Assets Received in Credit Recovery to Non-current Assets Held for Sale (IFRS 5).
This is the case when an adjudicated asset meets IFRS 5 criteria after adjudication and registration as Assets Received in Credit Recovery.
Reclassification can be made to the Non-current Assets Held for Sale account and shall be performed at the lesser of:
a) The initial amount recognized in the Assets Received in Credit Recovery account, without considering provisions, and its b) Fair value (determined in accordance with IFRS 13) minus selling costs (in accordance with IFRS 5). For assets reclassified to IFRS 5 in the Opening Balance Sheet applying what is established in IFRS 1 First-time Adoption of IFRSs, the accumulated provision for these shall be reversed to the corresponding sub-account of Transition Adjustment. Reclassification of Assets Received in Credit Recovery to IFRS 5 can only be performed in a period no longer than 6 months counted from the date of adjudication. If there is an excess provision resulting from the reclassification of the asset received in credit recovery to non-current assets held for sale, this must be reversed to the corresponding account in the statement of results, controlled in the sub-account of Undistributable Current Year Result. Subsequently, all provisions established in IFRS 5 apply.

3) Changes in the sales plan for the asset classified as Non-current Assets Held for Sale (IFRS 5).
When there is a change in the sales plan because the IFRS 5 criteria are no longer met, the asset will be reclassified to the Assets Received in Credit Recovery account, by the book amount recognized in the Non-current Assets Held for Sale account, adjusted from the date of adjudication, by the provision established in Article 10 of this norm, for which it must consider the provision constituted as impairment, and if there is a provision deficit, it shall be constituted against the corresponding expense account in the statement of results. When the change in the sales plan corresponds to assets that were originally reclassified to IFRS 5 in the January 1, 2018 opening financial statements, the provision to be constituted from the date of adjudication shall be debited from the Transition Adjustment account, provided that the specific asset has a positive balance in the referenced account for that concept. If there is a provision deficit as required by Article 10 of this norm, it shall be constituted and recognized as an expense in the corresponding account in the statement of results. Subsequently, the remaining positive balance of the specific asset, registered in the Transition Adjustment account, can: i) be reversed against accumulated results until the asset is sold; ii) and while the asset is not sold, it complements the provision requirement established in Article 10 of this norm. An asset registered as IFRS 5 and reclassified to the Assets Received in Credit Recovery account cannot be reclassified again under the scope of IFRS 5.

4) Treatment of Undistributable Results.
Amounts registered in the sub-account of Undistributable Current Year Result and Accumulated Results of Previous Years Undistributable, shall be distributable until the asset that generated them is sold or 100% provision is registered.

Art. 10 Constitution of Provisions.-
In the case of an adjudication of assets received in recovery of accounts receivable, the warehouse must transfer the respective provisions from accounts receivable to provisions for adjudicated assets received in recoveries, until the cancellation by sale of the asset is performed. In any case, the accounted provision cannot be less than the following percentages of the value of the asset registered in the books:

a) In movable assets:
30% From its registration until 6 months from the adjudication of the asset.
100% After 6 months from the adjudication of the asset.

b) In real estate:
30% After 6 months until 12 months from adjudication.
50% After 12 months and up to 18 months from adjudication.
75% After 18 months up to 24 months from adjudication.
100% After 24 months from adjudication.

5 Art. 10, amended on December 6, 2018 - Resolution No. CD-SIBOIF-1088-3-DIC6-2018

Art. 11 Reversal of Constituted Provisions.-
Constituted provisions may be reversed once the sale of the corresponding asset is effected, previously considering against these provisions the possible losses determined by the decrease in the value of the asset at the time of sale. If the asset in question is sold for a higher value, both the excess of the sale value and the constituted provisions must be registered as gain from the sale of various assets. Provisions for assets received in credit recovery, reclassified to non-current assets held for sale (IFRS 5), must be reversed, registering income from the decrease in provision of assets received in credit recovery.

Art. 12 Retention of Valuations and Supporting Background.- Valuations and supporting background of evaluations performed must be available to the Superintendence for review. The warehouse must inform, through a detailed list, all assets received in payment or adjudicated and their respective accounted amounts, with the same periodicity established for the sending of monthly financial reports.

CHAPTER V
FINAL PROVISIONS

Art. 13 Modifications of Annexes.- The Superintendent is authorized to modify the information requested in the annex of this norm, to the extent that its application so requires.

Art. 14 Repeal.- The Norm on the Evaluation of Accounts Receivable Balances of General Warehouses contained in Resolution CD-SIBOIF-557-1-OCT22-2008, published in La Gaceta, Official Journal No. 229, of December 1, 2008, is hereby repealed.

Art. 15 Effectiveness.- This norm shall enter into effect upon its notification without prejudice to its publication in La Gaceta, Official Journal.

ANNEX 7
NAME OF THE WAREHOUSE COMPANY
Age of Accounts Receivable Balances 1501.00.00 Month of:

---

Client Name
From 0 to 30 days
More than 30 and up to 60 days
More than 60 and up to 90 days
More than 90 and up to 120 days
More than 120 and up to 150 days
More than 150 days
Total accumulated balance
Provision Amount
Net Balance

Totals C$

(f) J. Rojas R.
(f) V. Urcuyo V.
(f) illegible (Silvio Moises Casco Marenco)
(f) Fausto Reyes
(f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF