Resolution Reforming Article 6 of the Capital Adequacy Standard

Resolution No. CD-SIBOIF-958-1-SEP6-2016 of date September 6, 2016

NORM REFORMING ARTICLE 6 OF THE STANDARD ON CAPITAL ADEQUACY

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

CONSIDERING

I

That on October 27, 2010, the Standard on Capital Adequacy, contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, published in La Gaceta, Official Journal No. 18, of January 28, 2011, was approved, which aims to regulate matters concerning the components of the capital calculation base, minimum required capital, credit risk assets, and notional assets for exchange rate risk of supervised financial institutions.

II

That it is necessary to reform Article 6 of the aforementioned standard in order to include under the category of "foreign currency generator" for the purposes of weighting commercial credits and microcredits granted in foreign currency, those debtors whose source of income comes from service export operations, as they are also generators of foreign currency.

III

That in accordance with the consideration stated above and based on the authority granted by Article 3, items 3) and 13), and Article 10, item 1), of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, and its reforms.

In exercise of its powers,

HAS ISSUED

The following,

Resolution No. CD-SIBOIF-958-1-SEP6-2016

NORM REFORMING ARTICLE 6 OF THE STANDARD ON CAPITAL ADEQUACY

FIRST: Article 6 of the Standard on Capital Adequacy contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, of October 27, 2010, published in La Gaceta, Official Journal No. 18, of January 28, 2011, and its reforms, is hereby amended, which shall read as follows:

"Art. 6 Weighted assets for credit risk.- Risk assets shall be weighted as follows:

A) With a weighting of zero percent (0%) of their value, the following items:

1. Cash, legal reserve deposits, and other deposits at the Central Bank of Nicaragua, as well as balances of effects in collection and local remittances in transit.
2. Investments in securities issued in national currency by the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.
3. Credits granted in national currency to the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.
4. Investments in securities issued by Multilateral Credit Organizations of which the country is a member, qualified as first-tier institutions as established in the standard regulating the matter on limits in deposits and investments.
5. Balances of credits and contingent operations of third parties, guaranteed with securities issued in national currency by the Central Government or the Central Bank of Nicaragua.
6. Investments in securities issued by third parties, guaranteed with securities issued in national currency by the Central Government or the Central Bank of Nicaragua.
7. Balances of credits and contingent operations guaranteed with deposits in the same financial institution endorsed in its favor.

B) With a weighting of twenty percent (20%) of their value, the following items:

1. Investments in securities issued in foreign currency by the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.
2. Credits granted in foreign currency to the Central Government or the Central Bank of Nicaragua, all in accordance with the Law.
3. Balances of credits and contingent operations of third parties, guaranteed with securities issued in foreign currency by the Central Government or the Central Bank of Nicaragua.
4. Investments in securities issued by third parties, guaranteed with securities issued in foreign currency by the Central Government or the Central Bank of Nicaragua.
5. Short-term self-liquidating contingent operations (documentary letters of credit).

C) With a weighting of fifty percent (50%) of their value, mortgage loans for housing granted in national currency without value maintenance.

D) With a weighting between zero and one hundred fifty percent of their value (0% to 150%), the following items:

1. Assets (credits, deposits, and investments), guarantees, bonds, and other contingent operations net of provisions, depreciation, and amortizations, made with financial institutions in the country or abroad. Likewise, demand deposits and document remittances to be deposited in said entities. All of the above according to the long-term risk rating of the issuer.
2. Credits and contingent operations of third parties guaranteed by guarantees, bonds, and other contingent operations of foreign financial institutions according to the long-term risk rating of the issuer.
3. Investments in securities issued by foreign states or central banks according to the long-term sovereign risk rating of the issuer.

The long-term issuance risk rating shall be in accordance with the ratings of the following Rating Agencies:

In the event that there is more than one risk rating, to determine the corresponding weighting, the lower rating among those published by the rating agencies shall be applied.

E) With a weighting of sixty to one hundred twenty-five percent (60% to 125%) of their value, the following credit operations, exposed to credit exchange rate risk:

1. Consumer credits granted in foreign currency and in national currency with value maintenance shall be weighted at one hundred twenty-five percent (125%) of their value.

2. Mortgage loans for housing granted in foreign currency and in national currency with value maintenance shall be weighted at sixty percent (60%) of their value. Loans for housing granted in foreign currency and in national currency with value maintenance for amounts equal to or less than the equivalent of thirty-two thousand dollars (US$32,000.00) are excepted, which shall be weighted at fifty percent (50%) of their value.

3. Commercial credits and microcredits granted in foreign currency and in national currency with value maintenance to non-foreign currency generating debtors shall be weighted at one hundred twenty-five percent (125%) of their value; otherwise, they shall be weighted at one hundred percent (100%). For the purposes of this standard, foreign currency generators are those debtors whose source of income comes from: i. Financing operations for goods or merchandise for export involving a purchase-sale contract between the trading entity and the producer, in which the corresponding payment in foreign currency or national currency with value maintenance is established; ii. Service export operations or the provision of services to exporters, involving an export contract or service provision contract, in which the corresponding payment in foreign currency is established.

The aforementioned cases must be duly evidenced by the institution.

The purchase of foreign currency in the exchange market or the mere fact that the prices of the goods or services it trades are expressed in foreign currency shall not be considered as the debtor being a foreign currency generator.

F) With a weighting of one hundred percent (100%) of their value:

1. Credits (commercial, consumer, or personal, microcredit) including contingent operations (Bonds, guarantees, granted guarantees, standby letters of credit) granted in national currency without value maintenance; accounts receivable, and any other obligation.
2. Items corresponding to public offering debt securities issued by legal persons in the country, carried out in accordance with the regulations governing limits on deposits and investments.
3. Items corresponding to assets not mentioned in this article."

SECOND: This standard shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Journal. (signed) S. Rosales C. (signed) V. Urcuyo V. (signed) Gabriel Pasos Lacayo (signed) Fausto Reyes B. (signed) illegible (Silvio Moisés Casco Marenco) (signed) illegible (Freddy José Blandón Argeñal) (signed) U. Cerna B. Secretary.

URIEL CERNA BARQUERO Secretary of the Board of Directors SIBOIF