Norms for Classifying Credit Risk Assets and Establishing Sanitation Reserves

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

The Board of Directors of the Superintendence of the Financial System, based on the authority contained in Article 10 of its Organic Law and the third clause of Article 224 of the Banks Law, issues the:

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES

CHAPTER I
OBJECT AND SUBJECTS

Object
Art. 1.- These Norms aim to regulate the evaluation and classification of credit risk assets according to the quality of debtors and require the establishment of minimum sanitation reserves in accordance with the expected losses of the respective assets.

Subjects
Art. 2.- The subjects obligated to comply with these Norms are those that by Law are under the supervision of the Superintendence of the Financial System.

Entities that, while under the competence of another superintendence, form part of a financial conglomerate and possess credit risk assets; likewise, subsidiaries of the financial conglomerate will also be subject to compliance with these Norms. (1)

Art. 3.- The Board of Directors or equivalent body of the obligated subjects will be responsible for ensuring compliance with these Norms, authorizing internal credit granting policies, and establishing sufficient internal controls to guarantee their compliance. The aforementioned policies must include at least the elements indicated in Annex 1 of these Norms and must be communicated to the Superintendence within a period not exceeding ten business days after approval. (1)

Likewise, subjects obligated to comply with these Norms must establish in their internal credit granting policies expedient origination mechanisms, based on the simplification of requirements and procedures, for credits destined for productive activities referred to in the Special Law to Facilitate Access to Credit (hereinafter LEFAC). (12)

Each entity will define in its internal policies what it will understand as productive activities, taking into consideration what is established in Article 2, letter d) of the LEFAC. (12)

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

CHAPTER II
CREDIT RISK ASSETS

Art. 4.- For the purposes of these Norms, all operations that in some way signify direct or indirect financings in favor of natural persons, legal entities, or groups of persons are considered credit risk assets, such as the following operations:

1. Loans;
2. Discounts;
3. Payments on behalf of others;
4. Interest and other receivables;
5. Other receivables, except for premiums receivable and current accounts from reinsurance contracts (2);
6. Other unclassified credits;
7. Financial leasing operations;
8. Contingent credits;
9. Loans guaranteed by policies granted by entities regulated by the Insurance Companies Law, for amounts exceeding the accumulated values of Mathematical Reserves or guaranteed values; (1)
10. Disbursements to the beneficiary or the guarantor, prior to the honoring or maturity of the guarantee; (2)
11. In the case of banks, overdue loans arising from honored guarantees; (1) (2)
12. For reciprocal guarantee companies, the amount guaranteed, backed, or secured by them, net of re-guaranteeing. (2)

In this Norm, the word "credits" shall be understood as "credit risk assets".

CHAPTER III
GROUPING OF CREDIT RISK ASSETS

Art. 5.- For the purposes of evaluating and classifying credit risk assets, they will be grouped separately into corporate credits, housing credits, and consumer credits.

Corporate Credits
Art. 6.- The general majority of credits granted by institutions are grouped within corporate credits, with the exception of housing credits and consumer credits.

Credits granted to the Central Government, Municipalities, and Official Autonomous and Semi-Autonomous Institutions will also be included in this same group.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

Credits referred to in the LEFAC will also be part of this grouping. (12)

Housing Credits
Art. 7.- Housing credits include loans granted to natural persons for the acquisition of housing, as well as those granted for land acquisition, construction, remodeling, and repair of housing.

Generally, these credits meet the following characteristics:

1. The real estate is for use by the acquirer;
2. They are granted for the long term;
3. They are payable in periodic installments; and,
4. They may be guaranteed with a first mortgage or a second mortgage, provided both were constituted with the same entity; they may also be guaranteed by the Guarantee Trust for the Acquisition of Real Estate, administered by the Multisectorial Investment Bank. (2)

Consumer Credits
Art. 8.- Consumer credits include personal loans whose purpose is to finance the acquisition of consumer goods or the payment of services, and which have the following general characteristics:

1. The debtor is a natural person;
2. The loan term is generally between one and six years; and, (1)
3. The loan payment is made in periodic, normally equal and successive installments.

Financing to natural persons resulting from the use of credit cards will also be considered consumer credits.

CHAPTER IV
EVALUATION AND CLASSIFICATION OF CREDIT RISK ASSETS

Art. 9.- Obligated subjects must have 100% of their credit risk assets properly classified at all times.

To determine the classification of a debtor, obligated subjects will gather all credit operations contracted by the debtor with that entity, so that the risk category assigned corresponds to the credit with the highest risk of recovery.

The Superintendence may require an obligated subject to assign a debtor the category of another debtor when there are founded criteria that presume ownership, administration, or business linkages between the two debtors.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

Corporate Credits
Art. 10.- The evaluation and classification of corporate credits into the categories defined in Article 18 will be made in accordance with the content of the Annexes of these Norms. This involves technically evaluating the quality of each debtor as a credit subject, especially their behavior and payment capacity, determining the percentage of the credit that is presumed could be lost or not recovered considering the debtor's background. (2)

The evaluation and classification of credits referred to in the LEFAC will be carried out in accordance with the content of the Annexes of these Norms and the information requirements established in the LEFAC. (12)

For the evaluation and classification of low-amount credits referred to in the LEFAC, entities will consider the days of delinquency corresponding to corporate credits established in Annex 3 of these Norms. (12)

Art. 11.- Obligated subjects must evaluate their fifty largest corporate debtors with monthly periodicity. The rest of corporate credit debtors must be evaluated according to the periodicity established in their own policies, which must not exceed one year; notwithstanding the foregoing, the obligated subject must evaluate and reclassify debtors or groups of debtors at the moment when, through respective monitoring, deterioration in payment capacity and financial conditions of the debtor is determined. (1)

Art. 12.- Repealed. (1)

Art. 13.- A file containing all legal and financial documents related to the request, analysis, approval, and monitoring must be opened for each debtor as follows:

a) For credits with a balance less than three hundred fifty thousand dollars (US$350,000.00), each subject must establish in its policies which documentation will be required for granting credits as well as for the respective evaluation; these policies must consider the applicant's payment capacity, and in the case of corporate credits that consider the issuance of a credit card, the time in operation for granting the credit shall not be established as a requirement; this applies to credit opening contracts for companies under which a credit card is issued; in the case of recently constituted companies, entities must require the necessary guarantees for the limits granted in credit card credits, which will be subject to review by the Superintendence; (8)(11)(15)

b) For credits with a balance greater than or equal to three hundred fifty thousand dollars (US$350,000.00), the information detailed in Annex 2 and compliance with respective policies will be required as a minimum. (1)(8)(11)

The provisions of this article will apply to credits granted for productive activities referred to in the LEFAC, considering for such credits the information requirements established in said Law. The aforementioned credits must be adequately identified. (12)

Treatment of Guarantees
Art. 14.- For the purposes of the requirement of sanitation reserves, the risk of a debtor will be determined by subtracting from the total balance of obligations the value of the guarantees backing them, which correspond to those detailed in the following article; in addition, the criteria for their acceptance must be in conformity with policies approved by the Board of Directors or equivalent body, and with the minimum valuation practices and procedures determined by the Superintendence of the Financial System through the corresponding norms.

In cases where the same guarantee backs the granting of one or more credits to different debtors, the value to be considered for that guarantee, for the purpose of establishing sanitation reserves, will be proportional to the outstanding balances of the credits granted to the debtor. (1) (2)

Art. 15.- For the purposes of the previous article, the following guarantees will be considered:

TYPE OF GUARANTEE Percentage to be considered
Cash deposits 100%
Monetary deposit certificates duly pledged and opened in local banks or first-line foreign banks or non-bank financial intermediaries supervised by the Superintendence of the Financial System. (1) (2) 100% Guarantees and Bonds from local banks or first-line foreign banks 100% Guarantees and Bonds from guarantee funds administered by the Multisectorial Investment Bank 100% Pledges on fixed income securities, issued in the country or abroad, with a high degree of liquidity and which have an international "investment grade" classification 100% Guarantees of the Trust for Backing Housing Development Credit (FORDEH) (4) 100% Guarantee of Trusts where the Trustee is the Multisectorial Investment Bank (BMI), prior notification to this Superintendence (5) 100% Pledge bonds issued by General Warehouses supervised by the Securities Superintendence. (1) 70%

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

First mortgages on real estate, duly registered; however, for those guarantees with preventive annotation and sufficient documentation for registration, a maximum period of six months is granted to conclude the registration process, from the date of granting the guarantee; and Guarantee Trust for the Acquisition of Real Estate, administered by the Multisectorial Investment Bank. (2) (1) (2)

Category Ranges Percentage to be considered
From A2 to C2 70%
D1 and D2 60%
E 50%

Art. 16.- Mortgage guarantees and the Guarantee Trust for the Acquisition of Real Estate must meet the following requirements: (2)

a) The value of the real estate to be subtracted from the balance of obligations will be the lesser between the updated appraisal and the contractual appraisal; (1) (2)

b) The appraisal of the guarantee must be carried out by an independent appraiser, duly registered with the Superintendence; (1) (2) (16)

c) The appraisal of mortgage guarantees must not be older than 36 months in corporate credits and 72 months in housing credits, and must be carried out by an independent appraiser, duly registered with the Superintendence; (1) (2) (11) (16) (18)

d) In the case of construction credits, the added value in the progress of the work will be considered part of the guarantee, provided that:

i) The technician from the construction department of the obligated subject documents and adequately verifies the progress of the work related to the credit disbursements;

ii) There is an annual progress report prepared by an independent appraiser registered with the Superintendence; and

iii) The respective file includes pre-sale and reservation reports for housing, where applicable. (1)

e) Guarantees granted by persons related to the obligated subject to cover third-party risks will not be considered for the calculation of sanitation reserves. (1)

Classification of Housing and Consumer Credits Art. 17.- All housing and consumer credits will be evaluated and classified monthly according to the debtor's payment behavior, i.e., their delinquent balances, in the manner provided in Annex 1, considering the treatment of guarantees as provided in Articles 14 to 16 of these Norms. (1)

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

CHAPTER V
ESTABLISHMENT OF SANITATION RESERVES

Risk Categories
Art. 18.- Obligated subjects to comply with these Norms must establish minimum sanitation reserves for their credit risk assets, subtracting from the balance of each debtor the value of the guarantees backing them, established in Articles 14 to 16 of these Norms, classifying said debtors and applying reserve percentages in accordance with the following detail: (1) (3)

Classification Percentage of Sanitation Reserves Normal Category A1 0% (2) Category A2 1% (2) Subnormal Category B 5% Deficient Category C1 15% Category C2 25% Difficult to recover Category D1 50% Category D2 75% (1) Unrecoverable Category E 100%

Restructurings and Refinancings of Debts
Art. 19.- An extension shall be understood as the prolongation of the payment term of an obligation, without issuing a new contractual document and without a change in the credit reference.

A reprogrammed credit shall be understood as a modification in the amortization conditions of the original credit, possibly including a modification of the term, without issuing a new document and without a change in the credit reference.

Credits that have been extended, reprogrammed, or that have been the subject of any other legal or financial arrangement that modifies the originally agreed conditions will be referred to as restructured credits. (1)

Modifications that, due to macroeconomic conditions and not due to problems attributable to the debtor, the entity adjusts the interest rate are excepted from the above concepts. As a consequence of the foregoing, the entity may modify the credit term to maintain the installment amount. (2)

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

Art. 20.- A refinanced credit shall be understood as a credit granted that cancels total or partially other credits with delinquency or payment capacity problems and that change the conditions of the previous credits. (1)

Repealed. (13)

Art. 21.- Debtors whose original credits are restructured or refinanced will retain their risk category according to the criteria defined in Annex 1 provided that the debtor satisfies on their own, before the restructuring or refinancing, the total of accrued interest up to the date of the transaction, provided that the latter were not the product of new financing, direct or indirect. (1) (2)

Debtors with restructured or refinanced credits that do not meet the previous condition will be classified in category C2 or a higher risk category, in accordance with the symptoms presented.

Debtors in the corporate sector are exempt from the provisions established in the previous clauses of this article; they must be classified according to the risk category corresponding to the symptoms they present at the time of refinancing or restructuring, established in Annex 3 of these Norms. (11)

If the restructured or refinanced operation that does not meet the payment of the total accrued interest continues with delays in the payment of the established installments, for reasons of prudent and sound risk evaluation practice, it will be classified as D1 or a higher risk category, in accordance with the symptoms presented, provided that:

a) Six months have not elapsed from the new agreed term, for credits destined for investment, and three months from the new agreed term for credits destined for working capital; or, (11)

b) Six months have not elapsed from the new agreed term in housing or consumer credits. (1) (2)

Likewise, for classification purposes, the accumulated delinquency of said credits at the date the restructuring or refinancing is carried out must be recorded in the file of these debtors. (1)

Reclassification of Restructured or Refinanced Credits Art. 22.- Debtors with credits that have been restructured or refinanced may be reclassified to a lower risk category if they meet the conditions of said category and additionally:

a) In the case of corporate credits, the debtor:

i) Demonstrates regular service of its debts for at least six months of the new agreed term for credits destined for investment, and at least three months of the new agreed term for credits destined for working capital; and (11)

ii) Cancels at least five percent (5%) of the principal.

b) In the case of housing and consumer credits, until the debtor demonstrates normality in its capital and interest payments in the last six months.

"Regular service of its debts" and "normality in payments" is considered the service of the debt, capital and interest, with a delay not greater than seven calendar days for housing and consumer credits. "Regular service of its debts" and "normality in payments" is considered the service of the debt, capital and interest, with a delay not greater than fourteen calendar days for corporate credits. (2) (11)

The above conditions will be required in the first reclassification carried out to the risk category corresponding to the debtor, according to the criteria described in these Norms. (1) (2)

Art. 23.- Debt consolidation shall be understood as credits granted to pay obligations that the client has with the granting entity or with another entity of the financial system, to take advantage of better market conditions. (1)

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND
ESTABLISHING SANITATION RESERVES

Approval:
26/10/2005
Validity: 01/01/2007

When one or more of the credits to be consolidated have been granted by the same entity and present delinquency greater than 30 days in the last 90 days, the consolidation will be considered as refinancing. (1)

Art. 24.- Restructured or refinanced risk assets must be adequately identified in the accounting of the entities and in their computer systems. The entities' information systems must allow for the tracking of said risks, segregate the products effectively received by them credited to results, identify their origin, as well as facilitate the control of their payment behavior. (1) (2)

Art. 25.- The Superintendence may require the establishment of additional sanitation reserves in those cases where, due to a restructured or refinanced credit, uncollected and unprovisioned interest is carried to Products. (1)

Art. 26.- Obligated subjects must inform the Superintendence of the restructurings or refinancings of their credit assets that they carry out during the month, within the first seven business days after the end of the same, except in March, June, September, and December, in which case they will do so within the first ten business days following said months. (1)

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval:
26/10/2005
Validity: 01/01//2007
Reclassifications of credit assets
Art. 27.- The classification of credit assets and, consequently, the amount of sanitation reserves required, may vary month to month due to the granting and payment of credits, the receipt of extraordinary assets, the write-off of credits, the reclassification of debtors, and other circumstances. However, obligated subjects will make the corresponding adjustments in the classifications and sanitation reserves established at the end of each month. Art. 28.- Obligated subjects must inform the Superintendence of the reclassifications to a lower risk category and the reasons on which they are based, for the 50 largest debtors of the respective institution within the first seven business days of each month, except in March, June, September, and December, in which case they will do so within the first ten business days following said months. (1) (12) Art. 29.- When the Superintendence establishes that a debtor is inadequately classified, it will order their reclassification and the corresponding adjustment in sanitation reserves. The Superintendence will carry out the necessary verifications by the means and dates it deems convenient. Information to the Superintendence Art. 30.- Without prejudice to the information required in other articles of these Norms, obligated subjects must send to the Superintendence the classification of the portfolio of all their credit assets and the respective sanitation reserves referred to the balances at the end of the month, within the first seven business days following, except in the months of March, June, September, and December, in which case they will do so within the first ten business days following said months. This information must also allow for the support of the information service on credit users as indicated by the Banks Law and other applicable laws to obligated subjects. (1) Likewise, entities must identify in their registry all credits granted by LEFAC. (12)
CHAPTER VI
OTHER PROVISIONS
Art. 31.- The Board of Directors or equivalent body of each of the institutions subject to these Norms must pronounce itself at least once a year and, in any case, on the occasion of the financial statements at the end of the fiscal year, regarding the sufficiency of the sanitation reserves established in accordance with these Norms. Said pronouncement must be recorded in the corresponding minutes book. Art. 32.- The external auditors of the obligated subjects must document in their working papers the compliance with the internal credit policies and report it to the Superintendence within the first 60 days of each year or within the first ten business days, when they determine any non-compliance with said policies. (1) Art. 33.- Financial entities that grant credits with the guarantee of a reciprocal guarantee society must not evaluate, qualify, or establish sanitation reserves for said credits, an exception that does not imply undermining the procedures and internal controls that are necessary for the granting of credits. (2) Art. 34.- Reciprocal Guarantee Societies will have a maximum period of 60 days to honor the obligation with the respective financial entity, counted from the date on which said financial entities notify them of the claim for payment of the guarantee due to non-compliance with the cancellation of the amortization installments of the credit or the balance thereof, assigning to the debtor the category that corresponds to them, according to the time of delinquency, counted from the date on which the respective payment should have been made. (2) Art. 35.- Special cases and those not contemplated in these Norms will be resolved by the Board of Directors of the Superintendence. (1)
CHAPTER VII
VALIDITY AND TRANSITIONAL PROVISIONS

Art. 36.- These Norms will enter into force on January 1, 2007, and will render ineffective the "Regulation for Classifying the Portfolio of Credit Risk Assets and Establishing Sanitation Reserves" approved by the Board of Directors of the Superintendence of the Financial System in session No 58/93 dated September 29, 1993 with all its reforms. (2) Art. 37.- The policies referred to in Art. 3 of these Norms must be sent to this Superintendence within the first 90 days after the validity of these norms. (1) Art. 38.- For the corresponding tax purposes, these Norms as well as the treatment of special cases will be proposed to the General Directorate of Internal Taxes of the Ministry of Finance. (1) Art. 39.- At the date of validity of these Norms, obligated subjects must apply the following provisions:
a) All credits for companies and for housing, which have mortgage guarantee, must have appraisals in order to be able to deduct said guarantee from the balance of the credit risk, according to the corresponding percentage; b) For the guarantees of credits for companies, existing appraisals whose age is not greater than 48 months will be accepted; otherwise, they must be updated;

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval:
26/10/2005
Validity: 01/01//2007
Superintendence within the first 60 days of each year or within the first ten business days, when they determine any non-compliance with said policies. (1) Art. 33.- Financial entities that grant credits with the guarantee of a reciprocal guarantee society must not evaluate, qualify, or establish sanitation reserves for said credits, an exception that does not imply undermining the procedures and internal controls that are necessary for the granting of credits. (2) Art. 34.- Reciprocal Guarantee Societies will have a maximum period of 60 days to honor the obligation with the respective financial entity, counted from the date on which said financial entities notify them of the claim for payment of the guarantee due to non-compliance with the cancellation of the amortization installments of the credit or the balance thereof, assigning to the debtor the category that corresponds to them, according to the time of delinquency, counted from the date on which the respective payment should have been made. (2) Art. 35.- Special cases and those not contemplated in these Norms will be resolved by the Board of Directors of the Superintendence. (1)
CHAPTER VII
VALIDITY AND TRANSITIONAL PROVISIONS

Art. 36.- These Norms will enter into force on January 1, 2007, and will render ineffective the "Regulation for Classifying the Portfolio of Credit Risk Assets and Establishing Sanitation Reserves" approved by the Board of Directors of the Superintendence of the Financial System in session No 58/93 dated September 29, 1993 with all its reforms. (2) Art. 37.- The policies referred to in Art. 3 of these Norms must be sent to this Superintendence within the first 90 days after the validity of these norms. (1) Art. 38.- For the corresponding tax purposes, these Norms as well as the treatment of special cases will be proposed to the General Directorate of Internal Taxes of the Ministry of Finance. (1) Art. 39.- At the date of validity of these Norms, obligated subjects must apply the following provisions:
a) All credits for companies and for housing, which have mortgage guarantee, must have appraisals in order to be able to deduct said guarantee from the balance of the credit risk, according to the corresponding percentage; b) For the guarantees of credits for companies, existing appraisals whose age is not greater than 48 months will be accepted; otherwise, they must be updated;

c) For the guarantees of credits for housing, existing appraisals whose age is not greater than 48 months will be accepted and if no appraisal exists, the contractual value or the value of the price table, whichever is lower, will be accepted; d) Repealed (16) e) Repealed (16) f) Entities will have a maximum period of 24 months from the validity of these Norms to update the appraisals of all mortgage guarantees associated with credits, according to what is established in Art. 16 of these Norms; and g) The appraisals of guarantees for company and housing credits must be carried out by independent experts registered with the Superintendence. (16) Art.40.- From the entry into force of the modifications established in letter a) of article 13 of these norms, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-08/2024, on September 12, two thousand twenty-four, Entities will have thirty days to make the pertinent adjustments in their internal policies, said adjustment period ends on October 27, 2024. (15)

MODIFICATIONS:
(1) Reforms approved by the Board of Directors of the Superintendence of the Financial System in session No. CD-07/06 on February 15, two thousand six.
(2) Reforms approved by the Board of Directors of the Superintendence of the Financial System in session No. CD-30/06 on July 26, two thousand six.
The Board of Directors of this Superintendence, in Session No. CD-49/06 dated December 13, 2006, took the following agreement: 1) The increase in sanitation reserves that is determined on risk assets on January 31, 2007 applying Norms NCB-022 with respect to the balances of sanitation reserves at the end of the 2006 fiscal year, will be accounted for, starting from the month of January 2007 and throughout that year, a twelfth (1/12) monthly plus the adjustment that is established in each monthly evaluation that the entity carries out, in such a way that on December 31, 2007, 100% of the reserves required in Norms NCB-022 must be registered in the accounting; notwithstanding the above, obligated subjects, if they so decide, may register the total sanitation reserves corresponding in the month of January 2007. 2) The sanitation reserves that are determined for risk assets granted or impaired in each of the months from February to December 2007, will be accounted for in the corresponding month. 3) For those entities where the sanitation reserves determined on January 31, 2007 with the application of Norms NCB-022 decrease with respect to those established at the end of the year 2006, they cannot be reversed during the gradualness period and must be registered as voluntary reserves. 4) It is suggested to entities that they consider the convenience of not distributing profits in the year 2007, in order to have a financial situation that allows them to absorb the application of sanitation reserves and maintain their equity strength. (3) Reforms approved by the Board of Directors of the Superintendence of the Financial System in session No. CD-03/07 on January 18, two thousand seven.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval:
26/10/2005
Validity: 01/01//2007
(4) Reforms approved by the Board of Directors of the Superintendence of the Financial System in session No. CD-36/09 on September 2, two thousand nine, with effect from the day following the date of its communication.
(5) Reforms approved by the Board of Directors of the Superintendence of the Financial System in session No. CD-32/10 on August 25, two thousand ten, with effect from the day following the date of its communication (27/08/2010).
(6) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador, in Session No. CN-10/2012 dated October 2, two thousand twelve, with effect from the date of its notification.
(7) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-05/2013 dated May 9, two thousand thirteen, with effect from the date of its notification.
(8) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-02/2014 dated January 30, two thousand fourteen, with effect from March 3, two thousand fourteen.
(9) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-03/2014 dated February 17, two thousand fourteen, with effect from March 3, two thousand fourteen.
(10) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-06/2014 dated May 15, two thousand fourteen, with effect from the date of its notification.
(11) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-02/2015 dated January 22, two thousand fifteen, with effect from February 9, two thousand fifteen.
(12) Modification approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-13/2020 dated August 19, two thousand twenty, with effect from September 3, two thousand twenty.
(13) Modifications to the second paragraph of article 20 and notes 2 to 6 of Annex No. 3, approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-04/2021 dated March 29, two thousand twenty-one, with effect from March 30, two thousand twenty-one. In order to maintain consistency with new regulations approved by the Norms Committee. (14) Modifications to footnote 8/ of Annex 2, regarding definitions of microenterprise and small enterprise, approved by the Norms Committee of the Central Reserve Bank of El Salvador in Session No. CN-05/2022 dated June 10, two thousand twenty-two, with effect from June 27, two thousand twenty-two. In order to maintain consistency with modifications to regulations approved by the Norms Committee. (15) Modification of letter a) of article 13 and incorporation of article 40, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN08/2024, on September 12, two thousand twenty-four, with effect from September 27, two thousand twenty-four. (16) Modification of letters b) and c) of article 16 and of article 39, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-10/2024, on October 31, two thousand twenty-four, with effect from November 15, two thousand twenty-four. (17) Modifications to footnote 8/ of Annex 2 and in Annex 4, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-04/2026, on May 25, two thousand twenty-six, with effect from June 9, two thousand twenty-six.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval:
26/10/2005
Validity: 01/01//2007
(18) Modifications of letter c) article 16, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-05/2026, on June 30, two thousand twenty-six, with effect from July 15, two thousand twenty-six.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval:
26/10/2005
Validity: 01/01//2007
Annex 1

GENERAL CRITERIA FOR THE CLASSIFICATION OF DEBTORS

1) Entities will establish the policies, methods, and procedures that they will apply in the granting, study, and documentation of their credit risks and contingent commitments (hereinafter, operations), as well as in the identification of their impairment and the calculation of the amounts necessary for the coverage of their credit risk due to insolvency attributable to the client. The Board of Directors or equivalent body of the financial holding companies will ensure that said policies, methods, and procedures are homogeneous for all entities belonging to the same group.
2) Based on the size of the entities' operations, considering their volume and complexity, the policies, methods, and procedures must:
a) Be approved by the Board of Directors, or equivalent body of the entity, and ratified by the holding entity in the case of entities dependent on financial conglomerates; b) Be adequately justified and documented. Among the necessary documentation, the proposals and opinions of the corresponding internal departments of the entity, such as Internal Audit, Risk Management, and Legal and Regulatory Compliance, must be included; c) Detail, among other matters:
i) The criteria for granting operations, which will include aspects such as the markets, products, type of clientele, etc., in which it will operate, as well as the global limits of the risks that will be assumed for each of them, and the requirements that clients and guarantees must meet to be granted operations, specifying the minimum review period of the evaluation, both of information, solvency and indebtedness, capacity to service their debts, as well as liquidity and other relevant factors, according to the business segment and type of operation; ii) The pricing policy to be applied; iii) The responsibilities and delegated powers of the different bodies and persons in charge of granting, formalizing, monitoring, valuing, and controlling operations, including the delegation of policy authorization; iv) The requirements that studies and analyses of operations to be carried out before their granting and during their validity must meet; v) The minimum documentation that different types of operations must have for their granting and during their validity; vi) The definition of criteria to classify operations based on their credit risk and the way to quantify individual estimates and, if applicable, group estimates of impairment losses, including in the latter case the parameters to be used in the estimation; vii) The limit parameters corresponding to financial ratios and other factors that objectify each risk category analyzed. d) The Audit Committee and the Internal Audit Department or, if applicable, the Risk Unit that has authorized the Board of Directors will ensure that the policies, methods, and procedures are adequate, effectively implemented, and reviewed at least once a year and adjusted if necessary. It will also have the responsibility to evaluate the risk of the operations for which it must have the means and experience adequate to the complexity and volume of credit activities; the evaluation it carries out must be independent of the Unit that granted the credit and the respective responsible credit officer; e) The documentation referred to in this section will be available to the Superintendence and external auditors.
3) The Boards of Directors or equivalent bodies will be responsible for ensuring that the following criteria are applied in entities at all times:
a) They will exercise maximum care and diligence in the rigorous and individualized study of the credit risk of operations, not only at the time of their granting, but also continuously during their validity, and will not delay their reclassification to a higher risk category due to deterioration in credit quality, nor their adequate coverage through sanitation reserves, which must be carried out as soon as an abnormal situation or deterioration of credit risk is observed. Likewise, they will implement mechanisms that allow the adequate application of the criteria in cases of reclassifications to lower risk categories; b) They will adequately document all operations; c) The methods or procedures they use to estimate impairment due to credit risk will be integrated into the entities' risk management system and must take into account, in addition to all the factors listed, past experience, the geographic areas or business areas in which the entity's and group's activity takes place, risk levels, and all information available on the date the estimation is made, including the sensitivity of the estimates to the phase of the economic cycle, as well as reasonable fluctuations in interest rate levels, input prices, and variations in demand; d) In the analysis of credit risk and in the estimation of losses, the cash disbursed by the entity pending amortization will be considered, as well as the amounts presumably exposed to risk in contingent operations, including the amounts in which there is an irrevocable commitment to disburse by the institution.
4) In overdrafts and other debtor balances on demand, the term to compute the age of unpaid amounts will be counted from the first repayment request made by the entity, or from the first interest settlement that results unpaid.
5) The Board of Directors will establish policies for the granting, documentation, and control of revolving credit lines and will be responsible for ensuring that disbursements are used according to the purpose for which they were originally agreed. In cases of non-compliance with the respective policies, the debtor will be classified in category D.
6) In operations with periodic amortization installments, the date of the first maturity for the purposes of classifying the operations will be the one corresponding to the oldest installment of which any amount for principal or interest remains unpaid at the date of the evaluation.

Categories and Criteria for the Classification of Corporate Credit Debtors

7) To adequately classify risks into the categories provided in Article 18 of these Rules, entities must consider at least the criteria presented in Annex No. 3.
8) The criteria for classifying debtors with credits less than three hundred fifty thousand dollars (US$350,000.00) must be established in the entity's policies and may differ from the criteria in Annex No. 3, except for days in arrears, which may not be less strict than those established in said annex. (9)(11)

Categories and Criteria for the Classification of Housing Debtors and Consumer Debtors
9) The classification of balances and reserves for these credits will be made based on the age of observed arrears of installments, according to the following scheme:

Arrears in calendar days of amortization installments	Category	Housing	Consumer
Up to 7 days	A1	Up to 7 days	Up to 7 days
Up to 30 days	A2	Up to 30 days	Up to 30 days
Up to 90 days	B	Up to 90 days	Up to 60 days
Up to 120 days	C1	Up to 120 days	Up to 90 days
Up to 180 days	C2	Up to 180 days	Up to 120 days
Up to 270 days	D1	Up to 270 days	Up to 150 days
Up to 360 days	D2	Up to 360 days	Up to 180 days
+360 days	E	+360 days	+180 days

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CDSSF-45/2005
NCB-022
Approval:
26/10/2005
Effective: 01/01//2007
Annex 2

THE CREDIT FILE FOR COMPANIES MUST CONTAIN, AT A MINIMUM, THE FOLLOWING DOCUMENTS, AS APPLICABLE
1) Credit Application;
2) Credit agreement or credit instrument with executive force;
3) Credit viability study carried out on the debtor, which served as the basis for the credit approval, which must include at least payment capacity, financial situation, debtor's payment behavior, clear identification of the destination of funds and original repayment sources. When the credit is a refinancing, it must also be supported by an analysis. (Weight of 10%);

4) Financial statements for the last two fiscal years, prepared in accordance with the accounting basis established by the Oversight Council of the Public Accounting and Auditing Profession (Weight of 10%). The aforementioned financial statements must coincide with those presented to the Commercial Registry. The weighting of this numeral will not be applied to credits requested by micro and small enterprises, regardless of their amount; (6) (7) (8) (10)/

5) Monthly Operational Cash Flow projected for one year, with the premises that support it. This flow may be prepared by the bank, and will only be required for decreasing operations with terms exceeding 12 months. (Weight of 10%);
6) Resolution of the level that approved the credit;
7) Updated report on debt service and follow-up carried out by the responsible executive, detailing repayment sources used;
8) If the credit is secured by mortgage guarantees, a valuation report, not exceeding three years old;(11)
9) Report on other credits owed by the same debtor and the location of their files;
10) Financial information of the co-debtor;

(6)/__________________________________
The Standards Committee of the Central Reserve Bank in Session No.CN-10/2012 of October 2, 2012, agreed to temporarily suspend the 10% weighting established in numeral 4 of this Annex, which will be required again starting from the presentation of the Financial Statements corresponding to the 2012 fiscal year. Said agreement enters into force from the date of its notification. (7)/ The Standards Committee of the Central Reserve Bank in Session No.CN-05/2013 of May 9, 2013, agreed to temporarily suspend the 10% weighting established in numeral 4 of this Annex, which will be required again starting from the presentation of the Financial Statements corresponding to the 2013 fiscal year. Said agreement enters into force from the date of its notification. (8)/ The Standards Committee of the Central Reserve Bank in Session No.CN-02/2014 of January 30, 2014, agreed not to apply the 10% weighting established in numeral 4 of this Annex to credits requested by micro and small enterprises regardless of their amount. This agreement will enter into force on March 03, 2014. (10)/ The Standards Committee of the Central Reserve Bank in Session No.CN-06/2014 of May 15, 2014, agreed not to apply the 10% weighting established in numeral 4 of this Annex to credits requested by medium and large enterprises; this weighting will be required again starting from the presentation of the Financial Statements corresponding to the 2014 fiscal year. Said agreement will enter into force from the date of its notification.

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CDSSF-45/2005
NCB-022
Approval:
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Effective: 01/01//2007
Annex 2
11) Copy of correspondence between the financial entity and the debtor;
12) Record or file of credit evaluations carried out by the institution with identification of the official who performed the evaluation, as well as its review by the management level responsible for the unit in charge of it;
13) Copy of the income tax declaration for the last fiscal year;
14) In the event that the debtor is a legal entity, the file must also contain: external auditor's opinion (weight of 10%); updated list of shareholders; certification of a Board of Directors' meeting minute or equivalent body of the entity, where it was agreed to contract the credit under the agreed conditions; articles of incorporation and their modifications and credentials of the Board of Directors or equivalent body of the company, duly registered;
15) In the case of credits for the construction sector, the file must contain: a) The necessary permits for the execution of the project, such as those granted by the National Administration of Aqueducts and Sewers (ANDA), the corresponding Municipal Mayor's Office, the Ministry of Environment, the Ministry of Public Works, the Metropolitan Area Planning Office of San Salvador (OPAMSS), the National Council for Culture and Art (CONCULTURA) and by electricity distribution companies (Weight of 10%). b) Progress reports of the work prepared by a technician from the construction department of the granting bank related to credit disbursements. (weight of 10%). c) Annual progress report of the work prepared by an independent expert registered with the Superintendence. (Weight of 10%). d) Pre-sale and housing reservation reports, when applicable.
16) In the case of recently incorporated companies for which historical financial information is not available, the file must include the respective study on the business viability, which includes an analysis of the marketing, technical, and financial feasibility of the project; (weight of 10%)
17) The assigned weight corresponds to the weighting that will be given to the documentation in the file, for the purpose of determining the percentage of non-compliance with the information requirements referred to in the “Criteria for the Evaluation and Classification of Debtors for Business Credits” detailed in Annex 3;
18) To analyze the financial situation in order to determine the debtor's payment capacity, at least the following indicators will be used:

• Operating profit / Sales
• Net profit / Total assets.
• Net profit / Equity.
• Current assets / Current liabilities.

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CDSSF-45/2005
NCB-022
Approval:
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Effective: 01/01//2007
Annex 2

• Current assets - inventory / Current liabilities.
• Working capital = Current assets – Current liabilities.
• Total liabilities / Equity.
• Current liabilities / Long-term debt.
• Historical operational cash flow / Debt service.
• Historical operational cash flow / Current liabilities.
• Inventory turnover.
• Accounts payable turnover
• Accounts receivable turnover.

(8)/---------------------------------------
For the purposes of these Rules, microenterprises and small enterprises are defined, in accordance with the Law for the Promotion, Protection and Development of Micro and Small Enterprises, as follows: (17) a) Microenterprise: “Natural or legal person, operating in various sectors of the economy, through an economic unit, with an annual gross sales income of goods or services up to 500 current monthly minimum wages of the commerce and services sector and with up to 10 workers”. Including their respective sub-classifications. (14) (17) b) Small enterprise: “Natural or legal person, operating in various sectors of the economy, through an economic unit with an annual gross sales income of goods or services greater than 500 up to 5,000 current monthly minimum wages of the commerce and services sector and from 11 up to a maximum of 50 workers”. (14) (17)

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CDSSF-45/2005
NCB-022
Approval: 26/10/2005
Effective: 01/01//2007
CRITERIA FOR THE EVALUATION AND CLASSIFICATION OF DEBTORS FOR BUSINESS CREDITS

Normal Credits (Category A1 and A2)	Subnormal Credits (Category B)	Deficient Credits (Category C1 and C2)	Difficult to Recover Credits (Category D1 and D2)	Irrecoverable Credits (Category E)
Payment behavior and documentation in accordance with policies
• A1: -Credits granted with arrears not exceeding 14 days in the last 12 months. (CB) (11) New debtors of the entity may have this category, provided they meet the other criteria of the category.	• Arrears up to 60 days in the payment of their obligations. (CB) (11)	•C1: Arrears from 61 days up to 90 days in the payment of their obligations. (CB) (11) C2: Arrears from 91 days up to 120 days in the payment of their obligations. (CB)	• D1: Arrears of 121 days that can reach up to 150 days in the payment of their obligations (CB) • D2: Arrears of 151 days that can reach up to 180 days in the payment of their obligations (CB)	• Arrears of 181 days or more in the payment of their obligations. (CB)
• A2: - Arrears of up to 30 days in the payment of their obligations (CB) (11)
• Credit well-structured according to the debtor's expected cash flows and in accordance with the policies approved by the entity. (CB)	• Credit structured according to the debtor's expected cash flows and with some degree of justified non-compliance with policies approved by the entity. (CS)	• Credit structured according to the debtor's expected cash flows with unjustified exceptions to the policies approved by the entity. (CB)	▪ Credit structure and conditions disproportionate to the debtor's solvency and payment capacity, raising well-founded doubts about its cancellation according to the terms of the contract. (CB)
Complete and updated documentation in accordance with Annex 2 and the policies approved by the entity. (CB)	Minor remediable documentation non-compliance, in accordance with Annex 2 or the policies approved by the entity. (CB)	• Non-compliance up to 10% of the information requirements of Annex 2. (CB)	• Non-compliance up to 30% of the information requirements of Annex 2. (CB)	Incomplete documentation more than 30% of the information requirements of Annex 2. (CB) - No instrument with executive force. (CB)
• Destination of funds and repayment sources identified and duly supervised by the entity. (CB)	• Destination of loaned funds and repayment sources without evidence of identification or supervision by the entity. (CS)	• Indications that loaned funds are intended to finance losses or are diverted to related companies or outside the company's business, without alternative repayment sources. (CS)	• Diversion of funds from loans to destinations other than those declared. (CB)	• There are indications that new credits granted are intended or diverted to pay outstanding obligations with payment problems in other financial entities, or from companies related to the debtor. (CS)
			• Renewal of revolving credit lines with increased limit, because it includes outstanding interest balances. (CB)	- Credits in judicial collection (CB)
Financial situation and payment capacity
• Satisfactory profitability indicators, according to the entity's documented experience, and in accordance with its policies. (CB)	• Minor profitability problems, according to the entity's documented experience, and in accordance with its policies. (CS)	• Decreasing profitability, according to the entity's documented experience and in accordance with its policies, potentially negative in the last period, or with accumulated losses of 25% or more of capital. (CS)	• Negative profitability in at least two of the last three periods, with accumulated losses of 50% or more of capital. (CB)	• Incurs in the causes for dissolution and liquidation of the Commercial Code, even if creditors have not requested it. (CB)
				▪ The owners of the company have voluntarily decided its definitive closure. (CB)
• Satisfactory liquidity ratios, according to the entity's documented experience, and in accordance with its policies. (CB)	• Occasional liquidity problems, according to the entity's documented experience, and in accordance with its policies. (CS)	• Scarce liquidity, according to the entity's documented experience and in accordance with its policies, or exclusively supported by bank debts or slow-recovering accounts receivable and inventories. (CB)	• Without liquidity, according to the entity's documented experience and in accordance with its policies or supported by doubtful accounts receivable and inventories. (CB)	Without liquidity to cover its obligations (CB)
• Adequate debt level, according to the entity's documented experience, and in accordance with its policies. (CB)	• Slightly elevated debt level, according to the entity's documented experience, and in accordance with its policies. (CS)	• High and upward-trending debt level, according to the entity's documented experience and in accordance with its policies, not justified by the company's expansion level during the current year. (CS)	• Some suppliers have suspended financing, reducing inventory supply to levels that hinder the company's operations. (CS)	•Supplier financing has been suspended, reducing inventory supply to levels that make the company's operations impossible. (CB)
• Operational cash flow 1 amply covers the payment of principal plus interest. (CB)	• Operational cash flow barely covers the payment of principal plus interest. (CS)	• Operational cash flow is insufficient to meet the normal payment of principal and interest. (CB)	• Negative operational cash flow with no evidence that the situation can be recovered in the short term. Although there is partial debt service, it comes from sources outside the business, and the company operates at an operational loss. (CB)	• Operational cash flow does not recover production and marketing costs. (CB)
• Satisfactory accounts receivable and inventory turnover, according to the entity's documented experience, and in accordance with its policies. (CB)	• Slightly elevated accounts receivable and inventory turnover, according to the entity's documented experience, and in accordance with its policies. (CS)	• Tendency to accumulate inventories, accounts receivable, and investments, without justification, whose realization and value have not been adequately substantiated and evaluated. (CS)	•Evident difficulties in the turnover of inventories, accounts receivable, and investments, with reasonable doubts about their realization value. (CB)	The payment of its obligations comes from the sale of fixed assets essential for its operation (CB)
				• There is no evidence that the owners have the means or willingness to support the capitalization of the company, worsening future debt and viability prospects. (CS)
				• Fire, sabotage, and in general force majeure situations not covered by insurance that affect the viability of the company. (CB)

(CB) Basic criterion, with one of them being met, determines the risk category, except in categories A1 and A2 where all basic criteria must be present.
(CS) Secondary criterion, with three or more of them being met, determines the risk category considering the initial assumptions (of operations, profitability, solvency, leverage, and debt service) that preceded the granting of the credit.
Note: Arrears days are considered calendar days.
2 REPEALED. (13)
3 REPEALED. (13)
4 REPEALED. (13)
5 REPEALED. (13)
6 REPEALED. (13)
1 For the purposes of these rules, the operational cash flow, historical and projected, will be that obtained from operating profit before taxes and interest service, adding depreciation (includes amortization of intangibles and provisions for impairment of accounts receivable, inventories, and other investments) and deducting increases in net working capital.

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CDSSF-45/2005
NCB-022
Approval: 26/10/2005
Effective: 01/01//2007
Annex 4

PRUDENTIAL ASPECTS TO CONSIDER IN THE ISSUANCE OF GUARANTEES Entities must consider the following prudential aspects of risk management and necessary documentation before issuing guarantees.

1. The board of directors or equivalent body of the entity will define and approve:
   a) Policies and rules regarding the underwriting of guarantees and obtaining collateral, commercialization, monitoring of guaranteed obligations, risk management, reinsurance in the case of insurance companies, as well as strategic objectives in these matters and mechanisms to monitor and evaluate their compliance; b) The establishment of advisory committees that report, directly or through the general manager or whoever acts in their stead, to the board of directors and whose purpose is to assist in determining policy and strategy in matters of risk management, underwriting of guarantees, obtaining collateral, and reinsurance, in the case of insurance companies; c) That in granting guarantees, the entity, without prejudice to collecting necessary collateral, must reasonably estimate that the guaranteed party will comply with the guaranteed obligations, considering the economic viability of the projects related to the obligations to be guaranteed, the technical and financial capacity of the guaranteed party to comply with the obligation, their credit history, as well as their administrative and moral rating; d) In the case of insurance companies, the adequate diversification of responsibilities assumed by the issuance of guarantees, requiring the execution of reinsurance contracts. Likewise, in carrying out reinsurance cession operations, the entity must seek adequate dispersion in the use of reinsurers.
2. Risk Management
   The objectives, guidelines, and policies regarding guarantees must generally include the following aspects:
   a) The functions and responsibilities of the different organizational areas and personnel involved in the issuance and administration of guarantees; b) The powers of authorized personnel for the issuance of different types of guarantees, establishing authorization or granting levels both by amount and by type; c) The strategies and policies for issuing guarantees, which, in addition to being consistent with the entity's characteristics and capacity, may consider the following elements:

• Types of guarantees the entity will grant.
• Maximum granting levels by type of guarantee.
  Entities must have a guarantee manual containing the processes, methodologies, procedures, and other necessary information for the issuance and administration of guarantees.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval: 26/10/2005 Validity: 01/01/2007
Annex 4

The risk committee or the audit committee shall be responsible for reviewing that the surety manual is in accordance with the objectives, guidelines, and policies regarding the issuance and administration of sureties, approved by the board of directors or equivalent body.

Entities shall provide periodic follow-up, in accordance with their policies, to each of the sureties, requesting all relevant information that indicates the situation of the principal debtor in relation to the covered event and the situation of the guarantees obtained, if any.

Without prejudice to the foregoing, entities shall establish more strict evaluation and follow-up procedures for those sureties whose coverage object shows symptoms indicating that the terms and conditions agreed upon between the principal debtor and the beneficiary will not be fully complied with.

3. Files and Documentation

Entities shall include in their policies and procedures regarding sureties, the requirements for the integration and maintenance of the files that they must have for each type of surety they issue.

These requirements shall provide for the incorporation of pertinent information and documentation based on the stages of the surety process, relating to the evaluation, approval, and issuance of the surety, as well as follow-up, control, and recovery.

Notwithstanding the above, entities shall integrate a file for each principal debtor containing the information and documentation of all surety operations conducted with the same.

The file shall contain, as appropriate and in accordance with the entity's own policies, the following information:
a) Surety application; b) Record of client evaluation, financial analysis, selection of the covered risk, etc.; c) Point of the minutes of the surety committee or equivalent body in which the issuance of the surety was approved; d) Copy of the issued surety document; e) Sworn declaration for compliance with the Special Law for the Prevention, Control and Sanction of Money Laundering, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction; (17) f) Audited financial statements of the principal debtor, if it is a legal entity; if it is a natural person not obliged to have external audit, they must present financial statements certified by an external auditor; g) Copy of the contract between the principal debtor and the beneficiary that gave rise to the surety; h) Copy of the document of the guarantee received for the granting of the surety.

The information and documentation contained in the file shall be kept updated as required by the entity's policies.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador Tel. (503) 2281-8000 www.bcr.gob.sv CDSSF-45/2005 NCB-022 NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SANITATION RESERVES Approval: 26/10/2005 Validity: 01/01/2007
Annex 5

GLOSSARY OF TERMS ASSOCIATED WITH LEFAC (12)

a) Low-amount credit: refers to credit applications submitted by Salvadoran natural persons, intended for productive activities, of up to ten minimum wages of the commerce and service sector. b) First-time credits: refers to credit applications for productive activities in which the applicant, whether natural or legal person, has mortgage guarantees or other guarantees accepted by financial institutions, lacks a credit history in financial institutions according to the Law on Regulation of Information Services on the Credit History of Persons, and has a source of income generation or will have one once the productive project subject to financing is implemented. Credits granted under this modality shall correspond to those granted in amounts equal to or less than thirty thousand United States dollars. For the purpose of documenting the lack of credit history, entities may establish the mechanisms they consider pertinent in their internal policies. c) LEFAC: Special Law to Facilitate Access to Credit.