Resolution modifying the General Provisions applicable to the activities of Savings and Loan Cooperative Societies

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DOF: 24/07/2017

RESOLUTION that modifies the General Provisions applicable to the activities of Savings and Loan Cooperative Societies

At the margin, a seal with the National Coat of Arms, which says: United Mexican States.- Ministry of Finance and Public Credit.- National Banking and Securities Commission.

The National Banking and Securities Commission, based on the provisions of articles 32 and 40, first paragraph of the Law to Regulate the Activities of Savings and Loan Cooperative Societies, as well as 4, fractions IV, XXXVI and XXXVIII and 16, fraction I of the Law of the National Banking and Securities Commission, and

CONSIDERING

That it is deemed convenient to adjust the accounting criteria applicable to savings and loan cooperative societies with operation levels I to IV, regarding the classification of their investments in securities held to maturity, extending the period during which such securities can be sold or reclassified before their maturity, without affecting the ability to use said category, and

That, additionally, it is necessary to clarify the requirements for isolated events that are outside the control of savings and loan cooperative societies with operation levels I to IV, so that when they occur and the entities sell or reclassify the held-to-maturity securities, they can continue to classify them in that category, in order to achieve greater adherence and consistency with the international standards established in the International Financial Reporting Standards, has resolved to issue the following:

RESOLUTION THAT MODIFIES THE GENERAL PROVISIONS APPLICABLE TO THE

ACTIVITIES OF SAVINGS AND LOAN COOPERATIVE

SOCIETIES

SOLE.- The Annex E, Criterion B-2 "Investments in Securities" of the "General Provisions applicable to the activities of savings and loan cooperative societies", published in the Official Gazette of the Federation on June 4, 2012, and modified through resolutions published in the said Official Gazette on January 9, 2015; January 7, 2016 and April 4, 2017; is REFORMED, to read as follows:

TITLES FIRST to EIGHTH . . .

Annexes A to D . . .

Annex E

Accounting criteria for savings and loan cooperative societies.

Annexes F to U . . .

TRANSITORY PROVISIONS

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

SECOND.- The criterion B-2 "Investments in securities" of the "Series B Criteria relating to the concepts that integrate the financial statements", contained in Annex E which is modified by means of this Resolution, shall be applied prospectively in accordance with the provisions of Financial Information Standard B-1 "Accounting changes and corrections of errors" issued by the Mexican Council for Financial Reporting Standards A.C., so that savings and loan cooperative societies with operation levels I to IV will not need to reevaluate the classifications of investments in securities previously recognized. Investments in securities classified prior to the entry into force of this instrument shall maintain the classification granted in accordance with the accounting criteria in force on the date of their celebration. In any case, savings and loan cooperative societies with operation levels I to IV shall disclose in notes to the financial statements the main changes in accounting standards for investments in securities, which affected or could significantly affect their financial statements.

Respectfully,

Mexico City, July 13, 2017.- The President of the National Banking and Securities Commission, Jaime González Aguadé.- Signature.

B-2 INVESTMENTS IN SECURITIES

Objective and scope

This criterion aims to define the specific rules regarding the recognition, valuation, presentation and disclosure in the financial statements of operations with investments in securities carried out by entities.

1

The following aspects are subject to this criterion:

a)

initial recognition and valuation of investments in securities;

b)

subsequent recognition of gains or losses derived from investments in

securities;

c)

recognition of impairment of investments in securities, and

d)

derecognition of investments in securities from the entities' balance sheet.

2

The following topics are not subject to this criterion:

a)

reports;

b)

permanent investments contemplated by NIF B-8 "Consolidated or combined financial statements", NIF C-7 "Investments in associates, joint ventures and other permanent investments" and NIF C-21 "Agreements with joint control";

c)

investments derived from pension and retirement plans, and

d)

assets adjudicated.

Definitions

3

Amortized cost.- For the purposes of this criterion, it is the amount at which a financial asset is valued resulting from adjusting the value at which it is initially recognized by (i) payments of principal, (ii) plus or minus the accumulated amortization, using the effective interest method, of any difference between the value at which it is initially recognized and the value at its maturity and (iii) less any reduction in value due to impairment.

4

Transaction costs.- For the purposes of this criterion, these are those incremental costs directly attributable to the acquisition or disposal of a financial asset. A cost is incremental if it would not have been incurred had a financial instrument not been acquired or disposed of. For example, commissions paid to agents, consultants, brokers, as well as charges by stock exchanges, among others. Transaction costs do not include discounts or premiums received or paid for debt securities, financing costs or internal administrative costs.

5

Impairment.- It is the existing condition when the carrying amount of investments in securities exceeds the recoverable amount of said securities.

6

Investments in securities.- Those made in assets constituted by obligations, bonds, certificates and other credit instruments and documents that are issued in series or in bulk and that the entity holds in its own position.

7

Effective interest method.-

It is that by which the amortized cost of a financial

asset or financial liability (or group of them) is calculated and the recognition of financial income or expense over the relevant period. This, by applying the effective interest rate, that is, the discount rate that exactly equates the estimated future cash flows to be received or paid over the expected life of the financial asset or financial liability, or when appropriate, in a shorter period (for example, when there is the possibility of an early payment or redemption), with the net book value of said financial asset or financial liability.

8

Credit risk.- It is the risk that one of the parties to a financial instrument causes a financial loss to the other party by failing to fulfill an obligation.

9

Market risk.- It is the risk that the fair value or future cash flows of a

financial instrument may fluctuate as a result of changes in market prices. Market risk comprises three types of risks: exchange rate risk (originated by variations in the exchange rate), interest rate risk (coming from variations in market interest rates) and other price risks (caused by particular factors of the specific financial instrument or its issuer, or by factors that affect all similar financial instruments traded in the market).

10

Effective interest rate.- Rate obtained by estimating cash flows considering all contractual conditions of the financial instrument (for example, commissions and interest paid or received by the parties to the contract, transaction costs and any other premium or discount), without considering future credit losses. When extraordinarily the cash flows and the expected life of a group of substantially similar financial assets cannot be estimated reliably, the entity will use the contractual cash flows over the contractual period of each financial asset.

11

Securities held to maturity.- These are debt securities, whose payments are fixed or determinable and with a fixed maturity (which means that a contract defines the amounts and dates of payments to the holding entity), with respect to which the entity has both the intention and the capacity to hold them until maturity. A security cannot be classified as held to maturity if during the current fiscal year or during the two previous fiscal years, the entity sold securities classified in the held-to-maturity category, or reclassified securities from the held-to-maturity category to the available-for-sale category, unless the amount sold or reclassified during the last 12 months does not represent more than 15% of the total amount of securities held to maturity on the date of the transaction. This, regardless of whether the securities to be classified, the previously sold or the reclassified have similar or different characteristics. In this regard, it will be considered that both the intention and the capacity to hold the securities until maturity have been maintained when sales or reclassifications have been previously made that fall under any of the following circumstances:

a)

they are carried out within the 90 natural days prior to their maturity or, if applicable, the date of the issuer's call option;

b)

they occur after the entity has accrued or, if applicable, collected more than 85% of

its original value in nominal terms, or

c)

they are attributable to an isolated event that is outside the control of the entity, that is not

recurring and that could not have been reasonably foreseen by the entity.

12

Debt securities.- These are instruments that, in addition to constituting a right for one party and an obligation for the other, have a known term and generate cash flows for the holder of the securities during or at the maturity of said term.

13

Securities available for sale.- These are debt securities whose intention is not oriented to obtain gains derived from price differences resulting from short-term sales and purchase operations, nor is there the intention nor the capacity to hold them until maturity, therefore it represents a residual category, that is, they are acquired with an intention different from that of securities for trading or held to maturity, respectively.

14

Securities for trading.-

These are those securities that entities acquire with the intention of

disposing of them, obtaining gains derived from price differences resulting from short-term sales and purchase operations, which they carry out as market participants.

15

Carrying amount.- It is the balance of an investment in a security, including adjustments for valuation results, interest, impairment loss or any other adjustment that corresponds to it, as the case may be, determined in accordance with this criterion.

16

Fair value.- The amount for which an asset can be exchanged or a liability settled between informed, interested and equally willing parties in a free competition transaction.

17

Classification

At the time of acquisition, investments in securities shall be classified as securities for trading, securities available for sale, or securities held to maturity. Each of these categories has specific rules regarding recognition, valuation and presentation standards in the financial statements.

18

The classification between the categories of securities for trading and securities available for sale shall be made by the entity's management, based on the intention at the time of acquiring a specific instrument with respect to it. To classify an instrument in the held-to-maturity category, it must:

i.

have the intention and capacity to hold them until maturity, and

ii.

not be unable to classify them as held to maturity in accordance with

the provisions of paragraph 12.

19

Recognition standards

At the time of acquisition, investments in securities shall be initially recognized at their fair value (which includes, if applicable, the discount or premium), in accordance with what is established for such purposes in criterion C-1 "Recognition and derecognition of financial assets".

20

Transaction costs for the acquisition of securities shall be recognized, depending on the category in which they are classified, as follows:

a)

Securities for trading.- In the results of the fiscal year on the date of acquisition.

b)

Securities available for sale and held to maturity.- Initially as part of the

investment.

21

For the derecognition from the balance sheet of investments in securities, the guidelines provided for such purposes in criterion C-1 shall be followed, as well as what is stated in paragraph 28.

Valuation standards

General valuation standards

22

Securities for trading and securities available for sale shall be valued at their fair value.

23

Securities held to maturity shall be valued at their amortized cost, which implies that the amortization of the premium or discount (included, if applicable, in the fair value at which they were initially recognized), as well as transaction costs, shall be part of the accrued interest.

Accrued interest

24

Accrued interest on debt securities shall be determined in accordance with the effective interest method and recognized in the corresponding category within the investments in securities line item against the results of the fiscal year (including in the case of securities available for sale). At the moment when accrued interest is collected, the investments in securities line item shall be reduced against the cash line item.

25

Valuation result of securities for trading and available for sale

The valuation result of securities for trading shall be recognized in the results of the fiscal year.

26

The valuation result of securities available for sale shall be recognized in other items of comprehensive income within equity. In the case of an inflationary environment, the valuation result of the monetary position corresponding to the valuation result of securities available for sale shall be recognized in other items of comprehensive income within equity.

27

The valuation result of securities for trading that are disposed of, which has been previously recognized in the results of the fiscal year, shall be reclassified as part of the sales and purchase result on the date of sale. Likewise, the accumulated valuation result of securities available for sale that are disposed of, which has been recognized in other items of comprehensive income within equity, shall be reclassified as part of the sales and purchase result on the date of sale.

28

Reclassifications

Reclassifications from the held-to-maturity category to available for sale may be made, provided that there is no intention or capacity to hold them until maturity. Reclassifications to the held-to-maturity category, or from securities for trading to available for sale, may be made in extraordinary circumstances (for example, lack of liquidity in the market, no active market for it, among others), which shall be evaluated and, if applicable, validated through express authorization of the CNBV.

29

Sales of securities classified as held to maturity may satisfy the conditions established in paragraph 12(c) and, therefore, do not raise doubts about the entity's intention to hold other investments until maturity, provided they are attributable to any of the following circumstances:

a)

Significant deterioration in the credit rating of the issuer.

b)

A change in tax laws that affects the tax treatment of the instrument's yields,

and therefore its value.

c)

A business combination or a restructuring that involves the sale of a business segment including the financial instrument held to maturity.

d)

The modification of regulations to which an entity may be subject and that affect the relationship of assets and equity.

30

The valuation result corresponding to the date of reclassification, in the event of reclassifying from the held-to-maturity category to available for sale, shall be recognized in other items of comprehensive income within equity.

31

Valuation result shall be understood as the difference resulting from comparing the carrying amount with the fair value on the date on which the aforementioned reclassification takes place.

32

Those debt securities that had been authorized to effect the reclassification from the available-for-sale category to the held-to-maturity category, the valuation result corresponding to the date of the transfer shall continue to be reported in the entity's equity, and shall be amortized based on the remaining life of said security.

33

In the case of reclassifications that may have been authorized from the securities for trading category to any other, the valuation result on the date of the reclassification must have been previously recognized in the statement of results.

Clearing accounts

34

Securities acquired that are agreed to be settled on a date subsequent to the agreement of the sales and purchase operation and that have been assigned, that is, identified, shall be recognized as restricted securities (to be received) at the time of the agreement, while, the sold securities shall be recognized as an outflow of investments in securities (to be delivered). The counterpart shall be a clearing account, creditor or debtor, as appropriate, in accordance with what is established in criterion A-3 "Application of general standards".

Impairment in the value of a security

35

Entities shall evaluate whether, on the balance sheet date, there is objective evidence that a security is impaired.

36

A security is considered impaired and, therefore, an impairment loss is incurred, if and only if, there is objective evidence of impairment as a result of one or more events that occurred subsequent to the initial recognition of the security, which had an impact on its estimated future cash flows that can be determined reliably. It is unlikely to identify a single event that individually is the cause of the impairment, it being more likely that the combined effect of various events may have caused the impairment.

37

Objective evidence that a security is impaired includes observable information, among others, regarding the following events:

a)

significant financial difficulties of the issuer of the security;

b)

it is likely that the issuer of the security will be declared bankrupt or undergo another

financial reorganization;

c)

breach of contractual clauses, such as failure to pay interest or principal;

d)

the disappearance of an active market for the security in question due to financial difficulties, or

e)

that there is a measurable decrease in the estimated future cash flows of a group

of securities since the initial recognition of said assets, although the decrease cannot be

identified with the individual values of the group, including:

i.

adverse changes in the payment status of the issuers in the group, or

ii.

local or national economic conditions that correlate with defaults on

securities in the group.

38

The disappearance of an active market because a security is no longer publicly traded is not necessarily evidence of impairment. A decrease in an entity's credit rating is not by itself evidence of impairment; however, it could be when considered in combination with additional information. A decrease in the fair value of a security below its amortized cost is not necessarily evidence of impairment (for example, a decrease in the fair value of a debt security resulting from an increase in the risk-free interest rate, such as the interest rate relative to treasury certificates issued by the Federal Government).

39

In some cases, the observable information required to estimate the amount of the impairment loss of a security may be limited or cease to be relevant in certain circumstances, so the entity will use its judgment based on its experience to determine said impairment loss.

Securities for trading

40

Because securities for trading are valued at fair value, recognizing the valuation result immediately in the results of the fiscal year, the impairment loss that, if any, is generated with respect to said securities would already be implicit in the aforementioned valuation result, so it is not necessary to perform the impairment evaluation referred to in this section.

Securities available for sale

41

When a decrease in the fair value of a security available for sale has been recognized directly in other items of comprehensive income within equity, and there is objective evidence that the security is impaired, the valuation result recognized there shall be reclassified to the results of the fiscal year. The amount to be reclassified shall be determined as follows:

a)

the difference between (i) the value at which the security was initially recognized, net of any principal payment and amortization and (ii) the current fair value of the security, less

b)

any impairment loss of said security previously recognized in the

results of the fiscal year.

42

If, in a subsequent period, the fair value of a debt security classified as available for sale increases and such effect of the reversal of impairment can be objectively related to an event that occurs after the impairment was recognized in the results of the fiscal year, the impairment loss shall be reversed in the results of the fiscal year.

43

Securities held to maturity

If there is objective evidence that an impairment loss has been incurred with respect to a security held to maturity, the amount of the loss shall be determined by the difference between the book value of the security and the present value of estimated future cash flows, discounted at the original effective interest rate of the security (for example, the effective interest rate calculated at initial recognition). The book value of the security shall be reduced, recognizing the impairment loss in the results of the period.

44

If, in a subsequent period, the amount of the impairment loss decreases and such decrease can be objectively related to an event that occurs after the impairment was recognized, the previously recognized impairment loss shall be reversed. The effect of the reversal of impairment shall not exceed the amortized cost that the security would have had on that date, had impairment not been recognized. Such effect shall be recognized in the results of the period.

Presentation Standards

Balance Sheet

45

Investments classified as trading securities, available-for-sale securities, and held-to-maturity securities shall be presented separately under the securities investments line item, maintaining that same order.

46

The valuation result of available-for-sale securities, as well as the monetary position result corresponding to such valuation, in the event of an inflationary environment, shall be presented under the line item for valuation result of available-for-sale securities as part of the other items of comprehensive income within equity.

Income Statement

47

Accrued interest and yields, and gains or losses from changes in securities investments, shall be presented under the interest income or interest expense line item, as applicable.

48

The fair value valuation result of trading securities, the result from the purchase and sale of securities investments, the amount of impairment loss for available-for-sale and held-to-maturity securities, or the effect of the reversal of impairment of debt securities classified as available-for-sale or held-to-maturity whose value was previously adjusted for impairment, as well as the transaction costs of trading securities, shall be included within the intermediation result line item.

49

Disclosure Standards

Entities shall disclose in the notes to the financial statements the following information relating to securities investments:

a)

The book value of securities investments by each category of securities.

b)

In the event that the entity has sold held-to-maturity securities, it shall disclose in its financial statements and inform the CNBV, the amount and type of securities sold, the remaining time during which the held-to-maturity category cannot be used in the classification of securities, as well as an explanation of the reasons for such situation.

c)

If the entity has reclassified a security from the held-to-maturity category to the available-for-sale category, it shall disclose the amount and type of securities reclassified, the reason for such reclassification, the remaining time during which the held-to-maturity securities category cannot be used in the classification of securities, as well as an explanation of the reasons for such situation.

d)

In the event that the entity, in accordance with what is established in the Reclassifications section of this standard, has obtained authorization from the CNBV to reclassify securities, the disclosure of this fact is required, specifically indicating the category from and to which the reclassification was made, as well as the characteristics of the reclassified securities in terms of: their number, weighted average rate, and type of issuer. Likewise, the book value and fair value of the securities as of the date of the financial statements shall be disclosed, when these have been transferred to the held-to-maturity securities category, or the effect of the fair value valuation on that date if the transfer has been from the trading securities category to the available-for-sale category.

e)

The fair value of securities investments that have been pledged as collateral, including those that may have been reclassified as restricted in accordance with what is established in standard C-1.

f)

The terms and conditions related to the collateral.

g)

If the entity receiving collateral (consisting of financial or non-financial assets) has the right to sell it, without there being a default by the entity granting the collateral, in terms of what is established in standard C-1, it shall disclose:

i.

the fair value of the collateral received;

ii.

the fair value of any collateral sold, and

iii.

the terms and conditions associated with the use of the collateral.

50

h)

Net gains or losses on:

i.

trading securities;

ii.

available-for-sale securities, showing separately the valuation result recognized in the other items of comprehensive income within equity during the period and the amount reclassified to the results of the period, and

iii.

held-to-maturity securities.

i)

The total interest income and the total interest expense of securities.

j)

Income and expenses from commissions generated by securities.

k)

Interest income accrued on impaired securities.

l)

The amount of impairment by each category of available-for-sale and held-to-maturity securities.

m)

The amount and origin of the effect of the reversal of impairment of available-for-sale and held-to-maturity securities.

n)

Accounting policies relating to the valuation bases used in securities investments.

o)

Any extraordinary event that affects the valuation of securities investments.

p)

Information that allows users of the entity's financial statements to evaluate the nature and degree of risks arising from securities investments (for example, the type of risk and its characteristics, as well as to what extent they affect the entity), including, but not limited to, credit and market risk, to which such entity is exposed at the end of the period, as well as the manner in which such risks are managed (for example, the establishment of a monitoring group whose function is the supervision and determination of risks, as well as the degree of compliance with the policies established for such effects).

q)

Qualitative disclosure.

For each type of risk arising from securities investments:

i.

the risk exposures and how they arise;

ii.

their objectives, policies, and processes for managing risk and the methods used to measure them, and

iii.

any change in (i) or (ii), with respect to the previous period.

r)

Quantitative disclosure.

For each type of risk arising from securities investments:

i.

a summary of quantitative information about its risk exposures at the end of the period, which shall be based on information internally provided to the key management personnel of the entity;

ii.

the quantitative disclosure for each type of risk (credit and market) detailed in items t) and u), to the extent that it has not been provided in accordance with item (i) above, unless the risk is not material, and

iii.

risk concentrations, if not evident in accordance with items (i) and (ii) above.

If the quantitative information disclosed at the end of the period is not representative of the entity's exposure to risk during the period, additional information that is representative shall be provided.

s)

With respect to credit risk:

For each category of securities:

i.

the amount that best represents the maximum exposure to credit risk at the end of the period, without taking into account any collateral received or other type of credit enhancement (for example, guarantees);

ii.

with respect to the amount disclosed in item (i) above, a description of the collateral received or other type of credit enhancements;

iii.

information on the credit quality of securities investments that are not impaired;

iv.

the book value of securities investments, whose terms have been renegotiated, and that would otherwise be impaired;

v.

an analysis of securities investments that have been individually impaired at the end of the period, including the factors that the entity considered for such effects, and

vi.

with respect to the amounts disclosed in item (v) above, a description of the collateral received by the entity and of other credit enhancements and, unless it is impracticable, an estimate of their fair value.

If an entity obtains financial or non-financial assets during the period, exercising the collateral or requesting other types of credit enhancements, and the aforementioned assets meet the recognition standards contained in the accounting criteria for savings and loan cooperative societies, the following shall be disclosed:

i.

the nature and book value of the assets obtained, and

ii.

when the assets are not immediately convertible into cash, the policies to sell such assets, or to use them in operations.

t)

With regard to market risk, a sensitivity analysis for each type of market risk to which the entity is exposed at the end of the period, showing:

i.

the methods, main parameters, and assumptions used for the preparation of the analysis;

ii.

an explanation of the objective of the method used and of the limitations that might result in the information not fully reflecting the fair value of securities investments, and

iii.

changes in the methods and assumptions used in the previous period, as well as the reasons for such changes.

u)

Securities investments other than government securities, which are composed of debt securities from the same issuer and represent more than 5% of the entity's net capital, indicating the main characteristics of these (issuance, weighted average maturity, and weighted average rate). Net capital shall be determined in accordance with the rules for the capitalization requirements of entities, issued by the CNBV.

Appendix A is an integral part of standard B-2. Its content illustrates the application of this standard, with the aim of clarifying its meaning.

APPENDIX A

APPLICATION GUIDELINES

Classification in the held-to-maturity securities category

Intent and capacity

For the purposes of the Reclassifications section, an entity does not have the intention to hold debt securities to maturity if at least one of the following assumptions is met:

a)

the entity intends to hold the security for an indefinite period;

b)

the entity is willing to sell the security (due to circumstances other than isolated events that are not subject to the entity's control, are not recurring, and could not have been reasonably anticipated by the entity) in response to changes in market interest rates or risks, liquidity needs, changes in the availability and profitability of alternative investments, changes in terms and sources of financing, or

c)

the issuer has the right to settle a security for an amount significantly lower than its amortized cost.

GA1

For the purposes of the Reclassifications section, an entity does not have demonstrated capacity to hold to maturity an investment in a security with a fixed maturity if:

a)

it does not have available financial resources to continue financing its investment until maturity, or

b)

it is subject to a legal or other type of restriction that may frustrate its intention to hold the investment to maturity.

Specific Cases

GA2

Variable-rate debt securities may meet the conditions to be classified as held-to-maturity securities.

GA3

Credit risk does not prevent a security from being classified as held to maturity, provided that contractual payments are fixed and determinable, and that the other conditions for such classification are met.

GA4

Likewise, if the terms of a perpetual debt security contemplate interest payments for an indefinite time, the security cannot be classified as held to maturity.

GA5

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