Resolution Reforming Article 6 of the Capital Adequacy Standard

Resolution No. CD-SIBOIF-954-1-AGOS9-2016
Dated August 9, 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 was approved, contained in Resolution No. CD-SIBOIF-651-1-OCTU27-2010, published in La Gaceta, Official Gazette No. 18, of January 28, 2011, 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 there is credit exchange rate risk not only for those debtors who, not being foreign exchange generators, receive credits in foreign currency; but also for those debtors who having received credits in córdobas with value maintenance, their source of payment is not indexed to foreign currency.

III
That in order to mitigate the risk referred to in the previous consideration, it is necessary to reform Article 6 of the aforementioned standard to clarify that loans granted in national currency with value maintenance are also subject to higher weightings for credit exchange rate risk.

IV
That according to the consideration stated above and based on the authority granted by Article 3, numerals 3) and 13), and Article 10, numeral 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-954-1-AGOS9-2016
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 Gazette 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 of this in accordance with the Law.
3) Loans granted in national currency to the Central Government or the Central Bank of Nicaragua, all of this 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 third-party credits and contingent operations, 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 favor of said institution.

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 of this in accordance with the Law.
2) Loans granted in foreign currency to the Central Government or the Central Bank of Nicaragua, all of this in accordance with the Law.
3) Balances of third-party credits and contingent operations, 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 net contingent operations of provisions, depreciation and amortizations, made with financial institutions of the country or abroad. Likewise, deposits and remittances of documents on demand to be deposited in said entities. All of the above according to the long-term risk rating of the issuer.
2) Third-party credits and contingent operations 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 emission risk rating shall be in accordance with the ratings of the following Rating Agencies:

[Table Data]
Rating Agencies | 0% | 20% | 50% | 100% | 150% Fitch IBCA | AAA to AA- | A+ to A- | BBB+ to BBB- | BB+ to B- and unrated | Below B- Moody's Investors Services | Aaa1 to Aa3 | A1 to A3 | Baa1 to Baa3 | Ba1 to B3 and unrated | Below B3 Standard & Poor's Corporation | AAA to AA- | A+ to A- | BBB+ to BBB- | BB+ to B- and unrated | Below B- Dominion Bond Rating Services Limited | AAA to AA- | A+ to A- | BBB+ to BBB- | BB+ to B- and unrated | Below B- Centroamericana Rating Society, S.A. | AAA to AA- | A+ to A- | BBB+ to BBB- | BB+ to B- and unrated | Below B-

In the case of more than one risk rating existing, to determine the corresponding weighting, the lower rating among those published by the risk 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. Exceptions are housing loans 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), 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 exchange 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 exchange generators are those debtors whose source of income comes from financing operations of export products involving a sales contract between the trading entity and the producer, in which the corresponding payment in foreign currency or national currency with value maintenance is established, 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 traded are expressed in foreign currency shall not be considered as the debtor being a foreign exchange 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) Investments in public offer debt securities issued by legal persons of the country made in accordance with the regulations regulating the limits of deposits and investments.
3) Items corresponding to assets not mentioned in this article."

SECOND: The additional weighting of 25% applicable to loans granted in national currency with value maintenance, must be completed in a maximum of twenty-four (24) months counted from January 1, 2017, according to the following gradualness:

[Table Data]
Month and Year | Gradualness of the additional 25% weighting for loans granted in C$MV January 2017 | 1.04% February 2017 | 2.08% March 2017 | 3.13% April 2017 | 4.17% May 2017 | 5.21% June 2017 | 6.25% July 2017 | 7.29% August 2017 | 8.33% September 2017 | 9.38% October 2017 | 10.42% November 2017 | 11.46% December 2017 | 12.50% January 2018 | 13.54% February 2018 | 14.58% March 2018 | 15.63% April 2018 | 16.67% May 2018 | 17.71% June 2018 | 18.75% July 2018 | 19.79% August 2018 | 20.83% September 2018 | 21.88% October 2018 | 22.92% November 2018 | 23.96% December 2018 | 25.00%

THIRD: This standard shall enter into force from its approval, and its application shall be in accordance with the gradualness established in the preceding second point.

FOURTH: Notify.- (f) S. Rosales C. (f) M. Díaz O. (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) illegible (Silvio Moises Casco Marenco) (f) illegible (Freddy José Blandón Argeñal) (f) A. Morgan Pérez. Ad Hoc Secretary"

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF