Resolution modifying the General Provisions applicable to credit institutions

DOF: 28/04/2016

RESOLUTION modifying the General Provisions applicable to credit institutions

A seal with the National Coat of Arms appears at the margin, which reads: United Mexican States.- Ministry of Finance and Public Credit.- National Banking and Securities Commission.

The National Banking and Securities Commission, based on what is established in Article 76 of the Credit Institutions Law, as well as Articles 4, fractions XXXVI and XXXVIII, and 16, fraction I of the National Banking and Securities Commission Law, having received the prior favorable opinion of the Bank of Mexico, and

CONSIDERING

That it is deemed convenient to recognize in the calculation of preventive reserves for credit risks corresponding to commercial credits granted by credit institutions, the agricultural insurance held by certain borrowers, in order to mitigate credit risks and to adequately reflect the risk incurred by these institutions in the event that such insurance meets certain characteristics, has resolved to issue the following:

RESOLUTION MODIFYING THE GENERAL PROVISIONS APPLICABLE TO

CREDIT INSTITUTIONS

SINGLE.- Article 114 of the "General Provisions applicable to credit institutions", published in the Official Gazette of the Federation on December 2, 2005 and amended through Resolutions published in the same Gazette on March 3 and 28, September 15, December 6 and 8, 2006, January 12, March 23, April 26, November 5, 2007, March 10,

August 22,

September 19, October 14, December 4, 2008, April 27, May 28, June 11, August 12, October 16, November 9, and December 1 and 24, 2009, January 27, February 10, April 9 and 15, May 17, June 28, July 29, August 19, September 9 and 28, October 25,

November 26 and December 20, 2010, January 24 and 27, March 4, April 21, July 5, August 3 and 12,

September 30, October 5 and 27 and December 28, 2011, June 19, July 5, October 23, November 28

and December 13, 2012, January 31, April 16, May 3, June 3 and 24, July 12, October 2

and December 24, 2013, January 7 and 31, March 26, May 12 and 19, July 3 and 31, September 24,

October 30, December 8 and 31, 2014, January 9, February 5,

April 30, May 27,

June 23,

August 27, September 21, October 29, November 9 and 13, December 16 and 31, 2015, as well as that issued on March 29, 2016, to read as follows:

" Article 114.- The Loss Given Default (LGD) shall be 45 percent for credits in the Commercial Credit Portfolio that lack coverage of real guarantees, personal guarantees, or credit derivatives.

Likewise, a LGD of 75 percent shall apply to subordinated credits, as well as to syndicated credits that, for purposes of their priority in payment, are subordinated with respect to other creditors, and a LGD of 100 percent shall apply to credits that report 18 or more months of delay in the payment of the amount due under the terms originally agreed.

As an exception to the foregoing, Institutions may calculate the LGD as indicated below:

I.

Regarding credits granted to legal entities or natural persons with business activity that have been declared in commercial bankruptcy with a restructuring plan in advance, in terms of what is established in Article 341 of the Commercial Bankruptcy Law, and until the adoption of an agreement between the borrower and the recognized creditors or until the bankruptcy of the borrower is determined within the timeframes established in the aforementioned law:

a)

For the portion covered with real guarantees, Institutions must adhere to what is established in Subsection B of this section.

b)

For the uncovered portion of the credit, in accordance with what is provided in Subsection B of this section, Institutions must calculate the LGD according to the following formula:

Where:

Updated Loss Estimate = Given the state of default of the borrower and recognizing that losses could exceed the loss severity estimate of 45 percent for uncovered positions or 75 percent for subordinated positions in their payment priority, Institutions must make their best loss estimate, considering possible payments or loss mitigants that they may receive for the payment of the uncovered portion of the credit.

Previous LGD = The LGD applicable to the credit in accordance with the first and second paragraphs of this article.

Once, in accordance with the Commercial Bankruptcy Law, an agreement is adopted between the borrower and the recognized creditors or the bankruptcy of the borrower is determined, Institutions may not apply the treatment described in the previous paragraph. Exceptionally, Institutions may request authorization from the Commission to continue using said treatment, for a period that may not exceed six months counted from the adoption of the agreement between the borrower and the recognized creditors, considering for such effect the terms and conditions of said agreement.

Regarding credits covered with real or personal guarantees, as well as by credit derivatives, Institutions must adhere to what is established in Subsection B of this section.

Regarding credits granted under the authority of fraction II of Article 224 of the Commercial Bankruptcy Law, the Loss Given Default shall be subject to the following treatment:

Where:

Guarantees= The guarantees that are constituted, as applicable, in terms of Article 75 of the

Commercial Bankruptcy Law applying, as appropriate, the adjustment factors or the discount percentages corresponding to each type of admissible real guarantee as established

below:

Institutions, with respect to the aforementioned credits granted under the authority of fraction II of Article 224 of the Commercial Bankruptcy Law and regarding financial real guarantees that meet the requirements established in fractions I and II of Article 2 Bis 30 and in Annex 24 of these provisions, must use a standard discount to adjust for volatility the value of financial real guarantees, in accordance with what is established in Annex 1-F of the mentioned provisions. Likewise, regarding non-financial real guarantees that meet the requirements established in fractions I and II of Article 2 Bis 30 and in Annex 24 of these provisions, Institutions must use a standard discount to adjust for volatility the value of non-financial real guarantees, in accordance with the following table:

Type of non-financial real guarantee or assimilable instrument Discount Percentage

Receivables including fiduciary rights
20 percent

Commercial and residential real estate
29 percent

Movable goods and others
29 percent

Adjusted Mass= The Mass, as this term is defined in the Commercial Bankruptcy Law, deducting the amount of obligations referred to in fraction I of Article 224 of the aforementioned law and applying a 40 percent discount to the resulting amount.

= Outstanding balance of credits granted under the authority of fraction II of Article 224 of the Commercial Bankruptcy Law on the date of rating.

Regarding credits granted under the authority of fraction III of Article 224 of the Commercial Bankruptcy Law, the Loss Given Default shall be subject to the following treatment:

Where:

Adjusted Mass ' = The Mass, as this term is defined in the Commercial Bankruptcy Law, deducting the amount of obligations referred to in fractions I and II of Article 224 of the aforementioned law and applying a 40 percent discount to the resulting amount.

Si= Outstanding balance of credits granted under the authority of fraction III of Article 224 of the Commercial Bankruptcy Law on the date of rating.

II.

Regarding credits intended to finance the primary activity of the agricultural sector that have agricultural and animal damage insurance, which meets the following:

a)

The contracts or policies include the lending Institution as the direct beneficiary of the insurance, or there is some legal instrument that provides for such circumstance.

b)

The insured amount covers at least the outstanding balance of the credit and its interest.

c)

The corresponding insurance covers at least the following agricultural risks:

i.

Frost

ii.

Flood

iii.

Clogging (waterlogging)

iv.

Heat wave

v.

Low temperatures

vi.

Lack of floor to harvest

vii.

Hail

viii.

Fire

ix.

Excess humidity (rain)

x.

Impossibility to sow

xi.

Drought

xii.

Earthquake

xiii.

Hurricane

xiv.

Cyclone

xv.

Tornado

xvi.

Waterspout

xvii.

Strong winds.

d)

Are granted by specialized entities authorized by the National Insurance and Bonds Commission that have a credit rating higher than or equal to Investment Grade, issued by at least one Rating Agency.

e)

The payment of the premium is up to date in accordance with what is contractually established.

Institutions may adjust the LGD, as long as no insurance claim occurs, as follows:

At the moment when the insurance-granting entity makes the payment of the insured amount without the lending Institution having written off the credit from its balance, such Institution will calculate the amount of the reserves for each credit in accordance with what is established in fraction I of Article 119 of these provisions.

TRANSITORY

SINGLE.- This Resolution will enter into force the day following its publication in the Official Gazette of the Federation.

Respectfully,

Mexico City, April 15, 2016. - The President of the National Banking and Securities Commission, Jaime González Aguadé.- Signature.

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