Norms for Classifying Credit Risk Assets and Establishing Soundness 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 SOUNDNESS RESERVES Approval:
26/10/2005
Validity: 01/01/2007

The Board of Directors of the Superintendencia del Sistema Financiero, based on the power contained in Article 10 of its Organic Law and the third paragraph of Article 224 of the Banks Law, issues the:

NORMS FOR CLASSIFYING CREDIT RISK ASSETS AND ESTABLISHING SOUNDNESS 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 soundness reserves in accordance with the expected losses of the respective assets.

Subjects
Art. 2.- The subjects obliged to comply with these Norms are those under the supervision of the Superintendencia del Sistema Financiero by Law.
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 are also subject to compliance with these Norms. (1)

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

Furthermore, the subjects obliged 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 intended for productive activities as referenced in the Special Law to Facilitate Access to Credit (hereinafter LEFAC). (12) Each entity shall define in its internal policies what it understands as productive activities, taking into consideration what is established in Article 2, letter d) of the LEFAC. (12)

CHAPTER II
CREDIT RISK ASSETS

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

Loans;
Discounts;
Payments on behalf of others;
Interest and other receivables;
Other receivables, except premiums receivable and current accounts from reinsurance contracts (2);
Other unclassified credits;
Financial leasing operations;
Contingent credits;
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)
Disbursements to the beneficiary or guarantor, prior to the honor or maturity of the guarantee; (2)
In the case of banks, matured loans arising from honored guarantees; (1) (2)
For reciprocal guarantee societies, the amount guaranteed, endorsed, or secured by them, net of re-guarantee. (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 shall be grouped separately into corporate credits, housing credits, and consumer credits.

Corporate Credits
Art. 6.- The general body of credits granted by institutions, with the exception of housing credits and consumer credits, is grouped under corporate credits.
Credits granted to the Central Government, Municipalities, and Autonomous and Semi-Autonomous Official Institutions will also be included in this group.

Credits to which the LEFAC refers will also be part of this grouping. (12)

Housing Credits
Art. 7.- Loans granted to natural persons for the acquisition of housing, as well as those granted for the acquisition of land, construction, remodeling, and repair of housing, are grouped under housing credits. Generally, these credits meet the following characteristics:

The properties are for the use of the acquirer;
They are granted for long terms;
They are payable in periodic installments; and,
They may be guaranteed by 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.- Personal loans whose object is to finance the acquisition of consumer goods or the payment of services, and which possess the following general characteristics, are grouped under consumer credits:

The debtor is a natural person;
The loan term is generally between one and six years; and, (1)
The loan payment is made in periodic, normally equal, and successive installments.
Financing to natural persons resulting from the use of credit cards shall also be considered consumer credits.

CHAPTER IV
EVALUATION AND CLASSIFICATION OF CREDIT RISK ASSETS

Art. 9.- Obliged subjects must have 100% of credit risk assets properly classified at all times.
To determine the classification of a debtor, obliged subjects must gather all credit operations contracted by the debtor with that entity, such that the risk category assigned corresponds to the credit with the highest risk of recovery. The Superintendencia may require an obliged subject to assign a debtor the category of another debtor when there are well-founded criteria presuming ownership, administration, or business links between the two debtors.

Corporate Credits
Art. 10.- The evaluation and classification of corporate credits into the categories defined in Article 18 shall 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 presumed to be lost or unrecoverable considering the debtor's background. (2) The evaluation and classification of credits to which the LEFAC refers shall 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 to which the LEFAC refers, entities shall consider the days of delinquency corresponding to corporate credits established in Annex 3 of these Norms. (12)

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

Art. 12.- Repealed. (1)

Art. 13.- A file containing all legal and financial documents related to the application, analysis, approval, and monitoring must be opened for each debtor, according to the following:
a) For credits with a balance less than three hundred fifty thousand dollars (US$350,000.00), each subject must establish in its policies the documentation to 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 involving credit card issuance, 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 necessary guarantees for the limits granted in credit card credits, subject to review by the Superintendencia; (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 must be required, as well as compliance with respective policies. (1)(8)(11)

The provisions of this article apply to credits granted for productive activities as referenced 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 soundness reserves, the risk of a debtor is determined by subtracting from the total balance of obligations the value of the guarantees backing them, as detailed in the following article; additionally, the criteria for accepting them must be in accordance with policies approved by the Board of Directors or equivalent body, and the minimum valuation practices and procedures determined by the Superintendencia del Sistema Financiero through 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 said guarantee, for the purpose of establishing soundness reserves, shall 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 are considered:

TYPE OF GUARANTEE	Percentage to Consider
Cash deposits	100%
Monetary deposit certificates duly pledged and opened in local banks or first-line foreign banks or supervised non-bank financial intermediaries by the Superintendencia del Sistema Financiero. (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 an international classification of “investment grade”	100%
Guarantees from the Trust for Backing Housing Development Credit (FORDEH) (4)	100%
Guarantee Trusts where the Trustee is the Multisectorial Investment Bank (BMI), prior notification to this Superintendencia (5)	100%
Pledge bonds issued by General Warehouses supervised by the Securities Superintendencia. (1)	70%

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 complete 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)

Category Ranges	Percentage to Consider
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 property to be subtracted from the balance of obligations shall be the lesser between the updated expert appraisal and the contractual expert appraisal; (1) (2) b) The expert valuation of the guarantee must be carried out by an independent expert, duly registered with the Superintendencia; (1) (2) (16) c) The expert valuation 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 expert, duly registered with the Superintendencia; (1) (2) (11) (16) (18) d) In the case of construction credits, the added value in the progress of the work shall be considered part of the guarantee, provided that:
i) The technician from the construction department of the obliged subject documents and adequately verifies the progress of the work related to credit disbursements; ii) There is an annual progress report of the work prepared by an independent expert registered with the Superintendencia; and iii) Pre-sale and reservation reports of housing are included in the respective file, where applicable. (1) e) Guarantees granted by persons related to the obliged subject to cover third-party risks shall not be considered for the calculation of soundness reserves. (1)

Classification of Housing and Consumer Credits Art. 17.- All housing and consumer credits shall 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)

CHAPTER V
ESTABLISHMENT OF SOUNDNESS RESERVES

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

Classification	Soundness Reserve Percentage
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)
Irrecoverable
Category E	100%

Restructurings and Refinancings of Debts
Art. 19.- An extension of the payment term of an obligation without issuing a new contractual document and without a change in the credit reference is understood as a deferral. A reprogrammed credit is understood as a modification in the amortization conditions of the original credit, possibly including a term modification, without issuing a new document and without a change in the credit reference. Credits that have been deferred, reprogrammed, or subjected to any other legal or financial arrangement modifying the originally agreed conditions are termed restructured credits. (1) Modifications due to macroeconomic conditions and not attributable to the debtor, where the entity adjusts the interest rate, are excepted from the above concepts. As a consequence, the entity may modify the credit term to maintain the installment amount. (2)

Art. 20.- A refinanced credit is understood as a credit granted that cancels other credits with delinquency or payment capacity problems in whole or in part, changing 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, by their own means, before the restructuring or refinancing, the total accrued interest as of the transaction date, without these interests being the product of new financing, direct or indirect. (1) (2) Debtors with restructured or refinanced credits that do not meet the previous condition shall be classified in category C2 or a higher risk category, according to the symptoms presented. Debtors in the corporate sector are exempt from the provisions established in the previous paragraphs 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 established installments, for reasons of prudent and sound risk evaluation practice, it shall be classified as D1 or a higher risk category, according to the symptoms presented, provided that:
a) Six months have not elapsed from the new agreed term for credits intended for investment, and three months from the new agreed term for credits intended for working capital; or, (11) b) Six months have not elapsed from the new agreed term in housing or consumer credits. (1) (2) Furthermore, for qualification purposes, the file of these debtors must contain the accumulated delinquency of said credits, as of the date the restructuring or refinancing is carried out. (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 that category and additionally:
a) In the case of corporate credits, the debtor:
i) Demonstrates regular service of their debts for at least six months of the new agreed term for credits intended for investment, and at least three months of the new agreed term for credits intended 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 their capital and interest payments over the last six months.

“Regular service of debts” and “normality in payments” is considered the service of debt, capital, and interest, with a delay not exceeding seven calendar days for housing and consumer credits. “Regular service of debts” and “normality in payments” is considered the service of debt, capital, and interest, with a delay not exceeding fourteen calendar days for corporate credits. (2) (11) The above conditions are 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 is understood as credits granted to pay obligations that the client has with the granting entity or another entity in the financial system, to take advantage of better market conditions. (1)

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 is considered refinancing. (1)

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

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

Art. 26.- Obliged subjects must inform the Superintendencia of the restructurings or refinancings of their credit assets carried out during the month, within the first seven business days after its end, except in March, June, September, and December, in which case they shall 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 entities shall make the corresponding adjustments in the classifications and sanitation reserves established at the end of each month.

Art. 28.- Obligated entities must inform the Superintendency of the reclassifications to a lower risk category and the reasons supporting them, 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 shall do so within the first ten business days following said months. (1) (12)

Art. 29.- When the Superintendency establishes that a debtor is inadequately classified, it shall order their reclassification and the corresponding adjustment in the sanitation reserves. The Superintendency shall carry out the necessary verifications by the means and dates it deems convenient.

Information to the Superintendency

Art. 30.- Without prejudice to the information required in other articles of these Norms, obligated entities must send to the Superintendency 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 shall 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 entities. (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, in connection with the financial statements at the end of the fiscal year, regarding the sufficiency of the sanitation reserves established in accordance with these Norms. Such pronouncement must be recorded in the corresponding minutes book.

Art. 32.- The external auditors of obligated entities must document in their working papers the compliance with internal credit policies and report it to the Superintendency 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 shall 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 shall 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 matters not contemplated in these Norms shall be resolved by the Board of Directors of the Superintendency. (1)

CHAPTER VII
VALIDITY AND TRANSITIONAL PROVISIONS

Art. 36.- These Norms shall enter into force on January 1, 2007, and shall render ineffective the "Regulation for Classifying the Portfolio of Credit Risk Assets and Establishing Sanitation Reserves" approved by the Board of Directors of the Superintendency 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 submitted to this Superintendency within the first 90 days after the validity of these norms. (1)

Art. 38.- For the corresponding fiscal purposes, these Norms as well as the treatment of special cases, shall 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 entities must apply the following provisions:
a) All credits for companies and housing, which have mortgage guarantees, must have appraisals in order to deduct said guarantee from the balance of credit risk, according to the corresponding percentage; b) For guarantees of credits for companies, existing appraisals whose age is not more than 48 months will be accepted; otherwise, they must be updated;

c) For guarantees of credits for housing, existing appraisals whose age is not more than 48 months will be accepted, and if no appraisal exists, the contractual value or the table price value, whichever is lower, will be accepted; d) Repealed (16) e) Repealed (16) f) Entities shall 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) Appraisals of guarantees for company and housing credits must be carried out by independent experts registered with the Superintendency. (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, of September 12, two thousand twenty-four, entities shall 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 Superintendency 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 Superintendency of the Financial System in session No. CD-30/06 on July 26, two thousand six.
The Board of Directors of this Superintendency, in Session No. CD-49/06 dated December 13, 2006, took the following agreement: 1) The increase in sanitation reserves determined on risk assets on January 31, 2007, applying Norms NCB-022 regarding 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 established in each monthly evaluation that the entity carries out, such that by December 31, 2007, 100% of the reserves required in Norms NCB-022 must be registered in the accounting; notwithstanding the foregoing, obligated entities that so decide may register the total sanitation reserves corresponding in the month of January 2007. 2) The sanitation reserves 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 compared to those established at the end of 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 Superintendency of the Financial System in session No. CD-03/07 on January 18, two thousand seven.

(4) Reforms approved by the Board of Directors of the Superintendency 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 Superintendency 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 regulation approved by the Norms Committee. (14) Modifications to footnotes 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 regulation 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. CN-08/2024, of 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, of October 31, two thousand twenty-four, with effect from November 15, two thousand twenty-four. (17) Modifications to footnotes 8/ of Annex 2 and in Annex 4, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-04/2026, of May 25, two thousand twenty-six, with effect from June 9, two thousand twenty-six.

(18) Modifications of letter c) of article 16, approved by the Central Reserve Bank through its Norms Committee, in Session No. CN-05/2026, of June 30, two thousand twenty-six, with effect from July 15, two thousand twenty-six.

Annex 1

GENERAL CRITERIA FOR THE CLASSIFICATION OF DEBTORS

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 to cover their credit risk of 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.
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, proposals and opinions from 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 the entity will operate, as well as the global limits of the risks to 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, where applicable, group estimates of impairment losses, including in the latter case the parameters to be used in the estimate; 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, where 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 of evaluating 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 Superintendency and external auditors.
The Boards of Directors or equivalent bodies will be responsible for ensuring that the following criteria are applied in entities, in any case:
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 for the estimation of 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 or business areas in which the entity's and group's activity takes place, risk levels, and all information available at the date on which the estimate is made, including the sensitivity of 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, as well as the amounts presumably exposed to risk in contingent operations, including amounts where there is an irrevocable commitment to disburse by the institution, will be considered.
In overdrafts and other current debtor balances, 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.
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 destination for which they were originally agreed. In cases of non-compliance with the respective policies, the debtor will be classified in category D.
In operations with periodic amortization installments, the date of the first maturity for the purpose of classifying operations will be the one corresponding to the oldest installment for which any amount of principal or interest remains unpaid at the date of evaluation.

Categories and Criteria for the Classification of Debtors of Credits for Companies

To adequately classify risks in the categories provided for in article 18 of these Norms, entities must consider as a minimum the criteria presented in Annex No. 3.
The criteria to classify 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 of Annex No. 3 except for the days of delinquency, which cannot be less strict than those established in said annex. (9)(11)

Categories and Criteria for the Classification of Debtors for Housing and of Debtors for Consumption

The classification of the balances and reserves of these credits will be made based on the age of the delinquency observed in the installments, according to the following scheme:

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

Annex 2

THE FILE OF CREDITS FOR COMPANIES MUST CONTAIN AS A MINIMUM, WHERE RELEVANT, THE DOCUMENTS DETAILLED BELOW

Credit Application;
Credit contract or credit instrument with executive force;
Credit viability study carried out on the debtor, which served as the basis for the approval of the credit, which must include at least payment capacity, financial situation, debtor's payment behavior, clear identification of the destination of the funds and original sources of repayment. When the credit is a refinancing, it must also be supported by an analysis. (Weight of 10%);
Financial statements of the last two fiscal years, prepared in accordance with the accounting basis established by the Council for the Supervision of the Public Accounting and Auditing Profession (Weight 10%). The aforementioned financial statements must match those presented to the Commerce Registry. The weighting of this item shall not be applied to credits requested by micro and small enterprises, regardless of their amount;
(6)
(7) (8) (10)/
Projected monthly operating cash flow for one year, with the premises supporting it. This flow may be prepared by the bank, and will be required only for decreasing operations with terms exceeding 12 months. (Weight 10%);
Resolution of the level that approved the credit;
Updated report on debt service and monitoring carried out by the responsible executive, detailing sources of repayment used;
If the credit is backed by mortgage guarantees, an appraisal report, which does not exceed three years;(11)
Report on other credits owed by the same debtor and the location of their files;
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 item 4 of this Annex, which will be required again from the presentation of the Financial Statements corresponding to the 2012 fiscal year. This agreement entering 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 item 4 of this Annex, which will be required again from the presentation of the Financial Statements corresponding to the 2013 fiscal year. This agreement entering 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 item 4 of this Annex, to credits requested by micro and small enterprises regardless of their amount. This agreement will enter into force from March 3, 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 item 4 of this Annex, to credits requested by medium and large enterprises; weighting that will be required again from the presentation of the Financial Statements corresponding to the 2014 fiscal year. This agreement will enter into force from the date of its notification.

Alameda Juan Pablo II, between 15 and 17 Norte Ave, 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 2
11) Copy of the correspondence between the financial entity and the debtor;
12) Record or history 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 under whose charge it lies;
13) Copy of the income tax declaration of the last fiscal year;
14) In the case that the debtor is a legal entity, the file must additionally contain the following: external auditor's opinion (weight 10%); updated list of shareholders; certification of minutes of the Board of Directors or equivalent body of the entity, where it was agreed to contract the credit under the agreed conditions; deed of incorporation and its modifications and credentials of the Board of Directors or equivalent body of the society, duly registered;
15) In the case of credits for the construction sector, the file must contain:
a) The necessary permits for the realization 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 the Environment, the Ministry of Public Works, the Office for Planning of the Metropolitan Area of San Salvador (OPAMSS), the National Council for Culture and Art (CONCULTURA) and by the electricity distribution companies (Weight 10%). b) The progress of the work prepared by a technician from the construction department of the granting bank related to the disbursements of the credit. (weight 10%). c) Annual progress report of the work prepared by an independent expert registered in the Superintendence. (Weight 10%). d) Pre-sale and reservation reports for housing, when applicable.
16) When it comes to recently constituted companies, of which no historical financial information is available, the file must contain the respective study on the viability of the business, which includes an analysis of the market, technical and financial feasibility of the project; (weight 10%)
17) The assigned weight corresponds to the weighting that will be given to the file documentation, 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 Corporate Credit Debtors" detailed in Annex 3 ;
18) To analyze the financial situation to determine the debtor's payment capacity, at a minimum the following indicators will be used:

Operating profit / Sales
Net profit / Total assets.
Net profit / Shareholders' equity.
Current assets / Current liabilities.

Current assets-inventory / Current liabilities.
Working capital = Current assets – Current liabilities.
Total liabilities / Shareholders' equity.
Current liabilities / Long-term debt.
Historical operating cash flow / Debt service.
Historical operating cash flow / Current liabilities.
Inventory turnover.
Accounts payable turnover
Accounts receivable turnover.

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

Alameda Juan Pablo II, between 15 and 17 Norte Ave, 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 CRITERIA FOR THE EVALUATION AND CLASSIFICATION OF CORPORATE CREDIT DEBTORS Normal Credits (Category A1 and A2) Subnormal Credits (Category B) Deficient Credits (Category C1 and C2) Difficult Recovery Credits (Category D1 and D2) Unrecoverable Credits (Category E) Payment behavior and documentation in accordance with policies

A1:
-Credits granted with delinquency no greater than 14 days in the last 12 months. (CB) (11) New debtors of the entity may have this category, as long as they meet the other criteria of the category.
A2:
Delinquencies up to 30 days in the payment of their
obligations (CB) (11)
Delinquencies up to 60 days in the payment
of their obligations. (CB) (11)
C1: Delinquencies from 61 days to 90 days
in the payment of their obligations. (CB) (11) C2: Delinquencies of 91 days to 120 days in the payment of their obligations. (CB)
D1: Delinquencies of 121 days that can
reach up to 150 days in the payment of their obligations (CB)
D2: Delinquencies of 151 days that can
reach up to 180 days in the payment of their obligations (CB)
Delinquencies of 181 days or more in the
payment of their obligations. (CB)
Well-structured credit according to the expected
cash flows of the debtor and in accordance with the policies approved by the entity. (CB)
Credit structured according to the expected cash flows
of the debtor and with some degree of justified non-compliance with policies approved by the entity. (CS)
Credit structured according to the
expected cash flows of the debtor with unjustified exceptions to the policies approved by the entity. (CB)
Structure and conditions of the credit
disproportionate to the solvency and payment capacity of the debtor, present well-founded doubts about their 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 documentation non-compliance remediable, 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 the
Annex 2. (CB)
Incomplete documentation plus more than 30% of the information requirements of annex 2. (CB)
There is no instrument with executive force. (CB)
Use of funds and repayment sources
identified and duly supervised by the entity. (CB)
Use of borrowed funds and
repayment sources without evidence of identification or supervision by the entity. (CS)
Indications that the borrowed funds
are used to finance losses or are diverted to related companies or outside the business of the company, without alternative sources of repayment. (CS)
Deviation of funds
from loans to destinations other than those declared. (CB)
There are indications that new
credits granted are used or diverted to pay pending obligations with payment problems in other financial entities, or of companies related to the debtor. (CS)
Renewal of revolving credit lines
with limit increase, due to including outstanding balances of interests. (CB)
Credits in judicial collection
(CB)
Financial situation and payment capacity
Satisfactory profitability indicators,
according to the documented experience of the entity, and in conformity with its policies.
(CB)
Minor problems in
profitability, according to the documented experience of the entity, and of conformity with its policies.
(CS)
Decreasing profitability, according to
documented experience of the entity and in accordance with its policies, possibly being negative in the last period, or with accumulated losses of 25% or more of the capital. (CS)
Negative profitability in at least
two of the last three periods, with accumulated losses of 50% or more of the capital. (CB)
Incurs in the causes of
dissolution and liquidation of the
Commercial Code, although the creditors have not requested it. (CB)
Voluntarily the
owners of the company have decided the definitive closure of the same. (CB)
Satisfactory liquidity ratios, according to the
documented experience of the entity, and of conformity with its policies. (CB)
Occasional liquidity problems,
according to the documented experience of the entity, and of conformity with its policies.
(CS)
Low liquidity, according to documented
experience of the entity and of conformity with its policies, or supported exclusively by bank debts or by accounts receivable and slow-recovery inventories. (CB)
No liquidity, according to documented
experience of the entity and of conformity with its policies or supported by accounts receivable and inventories of doubtful recovery.
(CB)
No liquidity to cover its obligations (CB)
Adequate debt level, according to the
documented experience of the entity, and of conformity with its policies. (CB)
Slightly elevated debt level,
according to the documented experience of the entity, and in conformity with its policies. (CS)
High debt level and with
upward trend, according to documented experience of the entity and in accordance with its policies, not justified by the level of expansion of the company during the current year. (CS)
Some suppliers have
suspended financing, reducing the supply of inventories to levels that hinder the course of the company. (CS)
Supplier financing has been
suspended, reducing the supply of inventories to levels that make it impossible the course of the company. (CB) Anexo 3

Alameda Juan Pablo II, between 15 and 17 Norte Ave, 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 CRITERIA FOR THE EVALUATION AND CLASSIFICATION OF CORPORATE CREDIT DEBTORS Normal Credits (Category A1 and A2) Subnormal Credits (Category B) Deficient Credits (Category C1 and C2) Difficult Recovery Credits (Category D1 and D2) Unrecoverable Credits (Category E)

Operating cash flow 1 covers
widely the payment of capital plus interest.
(CB)
Operating cash flow covers
scarcely the payment of capital plus interest. (CS)
Operating cash flow is insufficient
to attend to the normal payment of principal and interest. (CB)
Negative operating cash flow
without evidence that in the short term they can recover the situation.
Although there is partial service of the debt, this comes from sources outside the business, and the company operates with operational loss. (CB)
Operating cash flow does not
recover production and marketing costs.
(CB)
Satisfactory turnover of accounts receivable and
inventories, according to the documented experience of the entity, and of conformity with its policies. (CB)
Slightly elevated turnover of accounts receivable
and inventories, according to documented experience of the entity, 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 founded and evaluated. (CS)
Evident difficulties in the rotation
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 means or will to support the capitalization of the company, aggravating the perspectives of debt and future viability.
(CS)
Fire, sabotage and generally
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 which must have all basic criteria 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: Delinquency 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 norms, the historical and projected operating cash flow will be that obtained from operating profit before taxes and interest service, adding depreciations (includes amortization of intangibles and provisions for impairment of accounts receivable, inventories and other investments) and deducting increases in net working capital. Anexo 3

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

The board of directors or equivalent body of the entity, shall define and approve:
a) The policies and norms in matters of guarantee underwriting and obtaining guarantees, marketing, monitoring of guaranteed obligations, risk management, reinsurance in the case of insurance companies, as well as strategic objectives in these matters and mechanisms for monitoring and evaluating compliance; b) The constitution of advisory committees that report, directly or through the general manager or acting manager, to the board of directors and that have the object of assisting in the determination of the policy and strategy in matters of risk management, guarantee underwriting, obtaining guarantees and reinsurance, in the case of insurance companies; c) That in the granting of guarantees, the entity without prejudice to collecting the guarantees that are necessary, must reasonably estimate that the surety will give compliance to the guaranteed obligations considering the economic viability of the projects related to the obligations that are intended to guarantee, the technical and financial capacity of the surety to fulfill the obligation, its credit history, as well as its administrative and moral qualification; d) In the case of insurance companies, the adequate diversification of the responsibilities assumed by the issuance of guarantees, must celebrate reinsurance contracts. Likewise, in the realization of operations of reinsurance cession, the entity must seek adequate dispersion in the use of reinsurers.
Risk Management
The objectives, guidelines and policies in matters of guarantees must contemplate, in a general manner, 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 levels or granting levels both by amount and by type; c) The strategies and policies for the issuance of guarantees, which, in addition to maintaining congruence with the characteristics and capacity of the entity, may consider the following elements:

Types of guarantees that 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 Norte Ave, 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 guarantee manual is in accordance with the objectives, guidelines and policies in matters of issuance and administration of guarantees, approved by the board of directors or equivalent body. Entities must give periodic follow-up, in accordance with their policies, to each of the guarantees, requesting all relevant information that indicates the situation of the surety in relation to the covered event and the situation of the guarantees obtained, if any. Without prejudice to the foregoing, entities must establish procedures for evaluation and monitoring more strict for those guarantees whose object of coverage presents symptoms that indicate that it will not be fulfilled fully with the terms and conditions agreed between the surety and the beneficiary.
3. Files and documentation
Entities must include in their policies and procedures related to guarantees, the requirements for integration and maintenance of the files that they must have for each type of guarantee they issue. These requirements must provide for the incorporation of information and documentation pertinent according to the stages of the guarantee process, related to evaluation, approval and issuance of the guarantee, as well as monitoring, control and recovery. Notwithstanding the foregoing, entities must integrate a file per surety containing the information and documentation of all guarantee operations concluded with the same. The file must contain, as appropriate and in accordance with its own policies, the following information:
a) Guarantee application; b) Customer evaluation record, financial analysis, selection of the risk covered, etc.; c) Minutes of the guarantee committee or equivalent body in which the issuance of the guarantee was approved; d) Copy of the issued guarantee 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 surety, if it is a legal entity; if it is a natural person not obliged to carry out external audit, must present financial statements certified by an external auditor; g) Copy of the contract between the surety and the beneficiary that gave rise to the guarantee; h) Copy of the guarantee document received for the granting of the guarantee. The information and documentation contained in the file must 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, 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 a natural or legal person, has mortgage guarantees or other guarantees accepted by financial institutions, lacks a credit history in financial institutions in accordance with the Law on Regulation of Information Services on Credit History of Persons, and has an income-generating source or will have one once the productive project subject to financing is implemented. Credits granted under this modality 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 for Facilitating Access to Credit.

Norms for Classifying Credit Risk Assets and Establishing Soundness Reserves

Lineage: In force

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