Resolution SBS No. 3950-2022: Approves New Subordinated Debt Regulation for Financial System Companies and Substitutes Annex No. 12-II

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 1 Lima, December 22, 2022 S.B.S. Resolution No. 3950-2022 The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, through Resolution SBS No. 975-2016, the Subordinated Debt Regulation Applicable to Financial System Companies was approved;

That, Annex No. 12-II “Control of Subordinated Debt” of Chapter V of the Accounting Manual for Financial System Companies, approved by Resolution SBS No. 895-98 and its modifying and complementary norms (hereinafter, Accounting Manual), presents the portion of subordinated debt computable at each level of effective equity;

That, through Legislative Decree No. 1531, articles 184, 185 and 233 of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance – Law No. 26702 and its amendments (hereinafter, General Law) are modified, to continue adapting the regulatory framework to the Basel III standard: Global regulatory framework to strengthen banks and banking systems of December 2010 and revised in June 2011 of the Basel Committee on Banking Supervision;

That, therefore, it is necessary to make modifications to the Subordinated Debt Regulation Applicable to Financial System Companies, to adapt it to what is established in Legislative Decree No. 1531, regulating the method of computation at the different levels and sublevels of effective equity, according to the specific characteristics of each element;

That, likewise, through Legislative Decree No. 1531, articles 95, 103 and 114 of the General Law are modified, establishing that the surveillance regime, the intervention regime, as well as the dissolution and liquidation contemplated in the General Law, are applicable to multiple-operation companies authorized to capture public deposits, to the companies referred to in article 7 of the General Law, and to companies in the insurance system; while companies in the financial system other than those mentioned are subject to the grounds for revocation referred to in articles 28 and 28-A of the General Law, and once the revocation of the operating certificate occurs, these companies are outside the jurisdiction of the Superintendence;

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That, in that sense, it is necessary to modify the Subordinated Debt Regulation Applicable to Financial System Companies to clarify that once the revocation of the authorization certificate for the operation of financial system companies other than multiple-operation companies authorized to capture public deposits and companies referred to in article 7 of the General Law occurs, these companies are governed by the applicable regulations, different from those corresponding to the financial system, since they would be outside the scope of supervision of this Superintendence and the scope of the General Law;

That, likewise, it is necessary to modify Annex No. 12-II “Control of Subordinated Debt” of Chapter V of the Accounting Manual, to adapt it to the new structure of effective equity, approved through Legislative Decree No. 1531, and to what is established in the new Subordinated Debt Regulation Applicable to Financial System Companies;

That, for the purpose of collecting opinions from the general public regarding the proposed modifications to the regulations applicable to supervised companies, the prepublication of the draft resolution on the matter was ordered on the electronic portal of the Superintendence, under the provisions of the Thirty-Second Final and Complementary Provision of the General Law and Supreme Decree No. 001-2009-JUS and its amendments;

Having the approval of the Adjunct Superintendencies of Banking and Microfinance, Risks, Economic Studies and Legal Advice; and,

In exercise of the powers conferred by numerals 7, 9 and 13 of article 349 of the aforementioned General Law.

RESOLVES:

Article First.- Approve the new Subordinated Debt Regulation Applicable to Financial System Companies, according to the following:

“SUBORDINATED DEBT REGULATION APPLICABLE TO FINANCIAL SYSTEM COMPANIES

CHAPTER I
GENERAL PROVISIONS

Article 1.- Scope
This Regulation is applicable to the companies included in letters A, B and C of article 16 of the General Law, to the National Bank, to the Development Financial Corporation (COFIDE), to the Agricultural Bank and to the MIVIVIENDA S.A. Fund, authorized to issue and/or incur subordinated debt.

Article 2.- Definitions
For the purposes of the provisions of this Regulation, the following definitions shall be considered:

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1. Forgiveness: It is the act by which the subordinated debt issued or received by a company indicated in the scope of the Regulation is extinguished. Forgiveness can be temporary or permanent, as contemplated in the issuance or receipt documents.

2. Subordinated debt: Debt instrument or loan that can be considered for the computation of the effective equity of companies if it meets the requirements established, and whose order of priority is subordinate to depositors and general unsecured creditors of the company.

3. Non-redeemable subordinated debt: Subordinated debt whose principal is not amortized and generates periodic profitability perpetually.

4. Redeemable subordinated debt: Subordinated debt whose principal is cancelled within a determined period.

5. Subordinated debt convertible into shares: Subordinated debt that, prior to its maturity date, or on that date, can be converted into shares of the company.

6. Companies: The companies included in letters A, B and C of article 16 of the General Law, the National Bank, the Development Financial Corporation (COFIDE), the Agricultural Bank and the MIVIVIENDA S.A. Fund, which issue and/or incur subordinated debt, according to articles 7 and 11 of this Regulation.

7. Legal entities: In accordance with the definition in letter g) of article 2 of the Special Norms on Linkage and Economic Group, approved by Resolution SBS No. 5780-2015.

8. Cumulative interest: When the company that issues or incurs subordinated debt does not make the payment of interest within the reference period, the holder of the debt instruments representing subordinated debt or creditor does not lose the right to receive said interest, such that the interest not paid in the reference period is claimable in the future.

9. Non-cumulative interest: When the company that issues or incurs subordinated debt does not make the payment of interest within the reference period, the holder or creditor loses the right to receive said interest, such that the interest not paid in the reference period is not claimable. Interest that has already accrued but has not been paid is written off.

10. Securities Market Law: Securities Market Law, approved by Legislative Decree No. 861 and its modifying norms.

11. General Law: General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its amendments.

12. Accounting equity: Own resources of the companies, constituted by the difference between assets and liabilities. It includes, among other items, share capital, donations, issuance premiums, capital in process, reserves, accumulated results and the result of the exercise, net of losses, if any. It does not include subscribed capital until it has been integrated into the capital.

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13. Effective equity: Extra-accounting amount that serves as backing for the company's operations. It is equal to the sum of level 1 effective equity (formed by level 1 ordinary capital and additional level 1 capital) and level 2 effective equity. Its composition and limits are indicated in the General Law and norms issued by the Superintendence.

14. Regulation on the computation of reserves, profits, donations and capital-representing instruments in the effective equity of financial system companies: Regulation on the computation of reserves, profits, donations and capital-representing instruments in the effective equity of financial system companies, approved by Resolution SBS No. 03951-2022.

15. Step-up: One or more increases in the interest rate, on pre-established dates, calculated with respect to the yield on the placement or granting date. Rate adjustments are not considered step-up. An interest rate adjustment is understood as a change in rate, provided that the implicit spread in the initial rate with respect to the final rate does not increase.

16. Superintendence: Superintendence of Banking, Insurance and Private Pension Fund Administrators.

Article 3.- Subordinated debt computable in effective equity

3.1. Subordinated debt computable in effective equity is that which meets the following conditions:

1. Issued and disbursed.

2. It cannot be acquired by the company itself, any legal entity or legal entity that it controls, any legal entity or legal entity in which it maintains significant ownership or over which it exercises significant influence in management, according to what is established in the Special Norms on Linkage and Economic Group approved by Resolution SBS No. 5780-2015 and in the Regulation on Acquisition of Ownership in the Share Capital of Supervised Companies and Significant Owners approved by Resolution SBS No. 6420-2015 and its amendment.

3. Its acquisition cannot be financed directly or indirectly (through third parties) by the company itself.

4. It is not guaranteed or covered by the company itself, or any legal entity or legal entity linked to the company according to what is established in article 202 of the General Law and in the Special Norms on Linkage and Economic Group approved by Resolution SBS No. 5780-2015.

5. Regarding companies included in letter A of article 16 of the General Law authorized to capture public deposits, the National Bank, COFIDE, the Agricultural Bank and the MIVIVIENDA S.A. Fund, it is not subject to any agreement, whether contractual or of another type, that improves legally or economically the priority in case of intervention, or dissolution and liquidation of the company that issues and/or receives the subordinated debt. Regarding companies other than those mentioned above, in case their operating authorization certificate is revoked, they must be governed by the regulations applicable to them in such circumstances.

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3.2. Subordinated debt computable in effective equity may be represented by debt instruments or by loans.

3.3. The issuing company of the debt instrument representing subordinated debt computable in its effective equity cannot grant credits secured by the aforementioned instrument.

Article 4.- Authorization to issue subordinated debt instruments or incur subordinated loans

4.1. To issue debt instruments representing subordinated debt or to incur subordinated loans, companies must present to the Superintendence a request for a favorable opinion or authorization, respectively. The request must indicate whether the debt instruments or loans will be used for the computation of effective equity, attaching the information required in articles 8 and 12 of this Regulation, as applicable.

4.2. Prior to the evaluation of the adequate compliance with the respective requirements, the Superintendence issues the resolution with a favorable opinion or authorization, within thirty (30) business days following the presentation of the corresponding request containing complete information.

4.3. Any modification in the conditions of the contracts for the issuance of debt instruments representing subordinated debt or in the conditions of the contracts to incur subordinated loans, which affects their computation in effective equity, requires the prior favorable opinion or authorization of the Superintendence, respectively.

4.4. Any modification in the conditions of the contracts for the issuance of debt instruments representing subordinated debt or in the conditions of the contracts to incur subordinated loans, which does not affect their computation in effective equity, must be communicated to the Superintendence thirty (30) business days prior to its modification.

Article 5.- Application of norms on shareholders and capital to subordinated debt convertible into shares

The provisions of Chapter I of Title III of Section One of the General Law are applicable to creditors and/or holders of subordinated debt convertible into shares, insofar as pertinent, at the time of conversion.

CHAPTER II
DEBT INSTRUMENTS REPRESENTING SUBORDINATED DEBT

Article 6.- Definition

6.1. Debt instruments representing subordinated debt confer credit rights on their holders that must present the characteristics established in this Regulation to be computable in effective equity.

6.2. Redeemable and non-redeemable subordinated bonds and subordinated bonds convertible into shares are considered debt instruments representing subordinated debt.

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Article 7.- Companies authorized to issue debt instruments representing subordinated debt

The following are authorized to issue debt instruments representing subordinated debt:

1. Banking companies;

2. Financial companies;

3. Other multiple-operation companies that are authorized to issue debt instruments representing subordinated debt according to what is established in articles 285 to 288 of the General Law;

4. Specialized companies that are authorized to issue debt instruments representing subordinated debt;

5. Investment banks; and,

6. The National Bank, the Agricultural Bank, COFIDE and the MIVIVIENDA S.A. Fund.

Article 8.- Requirements for the issuance of debt instruments representing subordinated debt

8.1. For the issuance of debt instruments representing subordinated debt, companies must attach to the request referred to in article 4 of this Regulation, a certified copy of the agreement of the respective social body, a copy of the draft issuance contract, and a technical study of the issuance.

8.2. The technical study of the issuance comprises, at minimum, the following aspects:

1. Report on the evaluation of the impact of the financial instrument on the risk profile of the issuing company, which must include:

a) Executive Summary: Main aspects of the impact study on the company's risk profile.

b) Background: Objectives of the issuance and use of resources, previous issuances of the company and its risk classifications.

c) Description of the Program / Issuance: Characteristics of the issuance and the financial instrument and the projected schedule for the issuances.

d) Market Analysis: Analysis of the supply and demand of the financial instrument and potential investors.

e) Economic-financial evaluation: Comprises risk analysis and financial projections:

e.1) Risk Analysis: Impact on interest rate risk (earnings at risk and equity value at risk); impact on exchange rate risk (limits on the global position of overselling and overbuying); impact on liquidity position (liquidity ratios, liquidity gaps and concentration of liabilities).

e.2) Impact on financial indicators: Additional level 1 capital, level 1 effective equity, level 2 effective equity, total effective equity, global capital ratio, effective equity requirements for additional risks and other financial indicators.

e.3) Financial projections for a 3-year period: Assumptions of the projections, estimation of issuance rates, projected cash flow of the issuances (monthly flows), impact on the income statement, net present value (sensitivity analysis with scenarios). Likewise, projections for the indicators indicated in item e.2) are included.

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2. The format for presenting projected financial statements for a three (3) year period must correspond to the accounting norms approved by the Superintendence.

3. In addition to the printed documentation, the financial analysis must be presented in electronic files, in Excel format with formulas.

8.3. For the aforementioned issuances, the norms approved by the Superintendence regarding the general procedure or the advance procedure for the series issuance of financial instruments are applicable, when applicable.

Article 9.- Placement

9.1. Debt instruments representing subordinated debt may be placed through public or private offering.

9.2. In case the issuance of the debt instruments representing subordinated debt is carried out in Peru, for the purposes of its placement through public offering, issuing companies must comply with the provisions established in the Securities Market Law. The registration of the instruments in the Public Registry of the Securities Market, under the responsibility of the Superintendence of the Securities Market (SMV), requires the prior presentation of the favorable opinion resolution issued by the Superintendence, according to article 4 of this Regulation.

CHAPTER III
SUBORDINATED LOANS

Article 10.- Definition

Subordinated loans are contracts under which companies incur redeemable, non-redeemable or convertible into shares subordinated debt that must present the characteristics established in this Regulation to be computable in effective equity.

Article 11.- Companies authorized to incur subordinated loans

The following are authorized to incur subordinated loans:

1. Multiple-operation companies;

2. Specialized companies;

3. Investment banks; and,

4. The National Bank, the Agricultural Bank, COFIDE and the MIVIVIENDA S.A. Fund.

Article 12.- Requirements to incur subordinated loans

12.1. Companies wishing to incur subordinated loans must attach to the request referred to in article 4 of this Regulation, a certified copy of the agreement of the respective social body, a copy of the draft loan contract and a technical study of the loan.

12.2. The technical study of the loan comprises, at least, the following:

1. Identification of the lender, loan amount, currency, maturity, interest and payment period.

2. Impact on interest rate risk (earnings at risk and equity value at risk); impact on exchange rate risk (limits on the global position of overselling and overbuying);

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impact on liquidity position (liquidity ratios, liquidity gaps and concentration of liabilities).

3. Effect of the loan on additional level 1 capital, level 1 effective equity, level 2 effective equity, total effective equity, global capital ratio, effective equity requirements for additional risks and other financial indicators.

4. Assumptions of the projections and sensitivity analysis of the flows destined for the payment of the loan for a 3-year period; projections for the indicators indicated in numeral 3 for a 3-year period.

5. Impact on the income statement for a 3-year period.

12.3. In addition to the documentation, the financial analysis must be presented in electronic files, in Excel format with formulas.

CHAPTER IV
COMPUTATION OF SUBORDINATED DEBT IN EFFECTIVE EQUITY

SUBCHAPTER I
NON-REDEEMABLE SUBORDINATED DEBT COMPUTABLE IN ADDITIONAL LEVEL 1 CAPITAL

Article 13.- Non-redeemable subordinated debt computable in additional level 1 capital

Subordinated debt may be considered as part of the additional level 1 capital of companies provided it meets the general characteristics indicated in article 3 of this Regulation and meets, at minimum, the requirements indicated in articles 14 and 15 of this Regulation.

Article 14.- Perpetuity

14.1. Subordinated debt is considered perpetual if it has no maturity date and does not contain step-up or other incentive for its purchase or early redemption.

14.2. Subordinated debt may contemplate a call option or early redemption option but only at the initiative of the issuer or loan debtor, after a minimum period of five (5) years counted from its issuance or granting and taking into account the following:

a. The company must refrain from generating expectations that the call or early redemption option will be exercised;

b. The company must not exercise the call or early redemption option, unless:

i) it substitutes the subordinated debt with another element that meets the characteristics to form part of the additional level 1 capital or with another instrument that meets characteristics to form part of the level 1 ordinary capital, and such substitution is carried out simultaneously or prior to the amortization of the debt, and under conditions that are sustainable considering the company's income generation capacity; or,

ii) it demonstrates that after the exercise of the call or early redemption option its effective equity is, in the opinion of the Superintendence, above the global limit and the effective equity requirements for additional risks; and,

c. The company must have prior approval from the Superintendence to exercise the

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 9 option to purchase or early redemption.
14.3. Purchases or early redemptions due to changes in legislation, tax rules, and other regulations or due to the occurrence of events beyond the company's control are not subject to the five (5) year period mentioned in the previous paragraph, but prior approval from the Superintendency is required.
Article 15.- Loss Absorption
15.1. Subordinate to depositors (where applicable), general creditors, and subordinated debt computable in the company's effective Level 2 equity.
15.2. Any return of principal (for example, through purchase or redemption) requires prior approval from the Superintendency, and the company must not assume or create in the market the expectation that such authorization will be obtained.
15.3. This is subordinated debt with non-cumulative interest. The company may, at its sole discretion, indefinitely suspend the payment of interest. Interest that has already accrued but not paid must be reversed.
15.4. The suspension of interest payments does not constitute a default event nor impose restrictions on the company, except for the prohibition on distributing profits to common shareholders.
15.5. The accrual of interest must not generate losses or increase losses in the period's results.
15.6. The subordinated debt instrument cannot incorporate an increase in the payment level based, in whole or in part, on the company's credit quality or any breach of commitments specified in the issuance documents or the documents with which the subordinated debt is contracted.
15.7. The instrument cannot have characteristics that hinder the recapitalization of the company, such as provisions requiring the issuer of the subordinated debt or the borrower of the subordinated loan to compensate the subordinated debt holder or subordinated loan creditor if a new instrument is issued at a lower price or a new loan is taken at a higher interest rate during a specified period.
15.8. Furthermore, subordinated debt must include a mechanism that allows it to absorb losses pro rata and pari passu through conversion into common shares, or through permanent or temporary forgiveness.
15.9. The conversion mechanism into common shares or forgiveness must be activated by the Superintendency when the "Ordinary Level 1 Capital referred to in Article 184 of the General Law divided by Total Assets and Risk-Weighted Contingencies" indicator is below any of the following values:
a. 5.125% b. A level higher than 5.125%, as indicated by the company and specified in the issuance documents or the documents with which the subordinated debt is contracted. In this case, levels for the indicator that stops the conversion into common shares or forgiveness mechanism; and for the indicator that initiates maximum recomposition, in the case of temporary forgiveness, must also be established in the documents, to the satisfaction of the Superintendency.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 10 subordinated debt. In this case, levels for the indicator that stops the conversion into common shares or forgiveness mechanism; and for the indicator that initiates maximum recomposition, in the case of temporary forgiveness, must also be established in the documents, to the satisfaction of the Superintendency.
15.10. As a result of the application of the aforementioned mechanism, the conversion or forgiveness applies until the aforementioned indicator reaches at least 6% or the subordinated debt is exhausted.
15.11. The company has ninety (90) calendar days to apply the mechanism, counted from the month-end to which the indicator calculation corresponds.
15.12. Conversion into common shares, as well as permanent or temporary forgiveness, applies pro rata and pari passu among all holders and/or creditors of subordinated debt computable in the additional Level 1 capital in effect on the date of conversion or forgiveness.
15.13. In the case of conversion into common shares, the company must take into consideration the book value of the subordinated debt and the value of the shares, as established in the issuance documents or the documents with which the subordinated debt is contracted. The provisions of Chapter I of Title III of First Section of the General Law apply, insofar as relevant, at the time of conversion into common shares.
15.14. In the case of temporary forgiveness, the recomposition of the subordinated debt occurs gradually, pro rata and pari passu only when the aforementioned indicator is greater than 7%. In this case, the maximum recomposition to be made plus the coupon payment corresponding to the forgiven amount is determined, at the end of the fiscal year and with audited Financial Statements, by the following calculation:
Maximum Recomposition = (Profits) x (DS0 / PE1) Where,

• Profits: current and accumulated profits.
• DS0: Nominal amount (before forgiveness) of all subordinated debt computable in additional Level 1 capital that was subject to forgiveness.
• PE1: Total amount of effective Level 1 equity of the company
  15.15. For companies included in letter A of Article 16 of the General Law authorized to collect public deposits, the National Bank, COFIDE, the Agricultural Bank, and the MIVIVIENDA S.A. Fund, in the event of intervention, or dissolution and liquidation, the interest and principal of the non-redeemable subordinated debt computable in additional Level 1 capital, in that order, on an equal (pari passu) and proportional basis, are applied to absorb the company's losses that remain after the instruments representing capital computable in ordinary Level 1 capital and the instruments representing capital computable in additional Level 1 capital have been applied, in that order. This must have been expressly contemplated in the documentation and information regarding the instrument necessary for investors' decision-making.
  15.16. For companies other than those mentioned in the previous paragraph, subordinated debt absorbs losses when, due to a cause for revocation of the certificate of authorization to operate and prior to this, its book equity is completely reduced.
  SUBCHAPTER II
  REDEEMABLE SUBORDINATED DEBT COMPUTABLE IN EFFECTIVE LEVEL 2 EQUITY
  Article 16.- Redeemable subordinated debt computable in effective Level 2 equity
  Redeemable subordinated debt may be considered as part of the effective Level 2 equity of companies provided it meets the general characteristics indicated in Article 3 of this Regulation and complies, at a minimum, with the requirements indicated in Articles 17 and 18 of this Regulation.
  Article 17.- Maturity
  17.1. Subordinated debt must have an original maturity term of at least five (5) years.
  17.2. Subordinated debt does not contain step-up clauses or other incentives for its purchase or early redemption.
  17.3. Subordinated debt may include a purchase or early redemption option that can only be exercised at the initiative of the issuer or borrower of the loan, but only after a minimum period of five (5) years from its issuance or granting, taking into account the following:
  a. The company must refrain from generating expectations that the purchase or early redemption option will be exercised; b. The company must not exercise the purchase or early redemption option, unless:
  i) it substitutes the subordinated debt with another instrument that meets the characteristics to form part of effective Level 2 equity or with another instrument that meets characteristics to form part of effective Level 1 equity, and such substitution is carried out simultaneously or prior to the amortization of the debt and under conditions that are sustainable considering the company's income generation capacity; or, ii) it demonstrates that after exercising the purchase or early redemption option, its effective equity is, in the opinion of the Superintendency, above the global limit and the effective equity requirements for additional risks; and,
  c. The company must have prior approval from the Superintendency to exercise the purchase or early redemption option.
  17.4. Purchases or early redemptions due to changes in legislation, tax rules, and other regulations or due to the occurrence of events beyond the company's control are not subject to the five (5) year period mentioned in the previous paragraph, but prior approval from the Superintendency is required.
  17.5. For subordinated debt where the purchase or early redemption option complies with what is stated in paragraph 17.3 of this Article, the maturity of the debt is considered the originally agreed date for the purpose of computing effective Level 2 equity.

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17.6. During the five (5) years prior to its maturity, for the purpose of its computation in effective Level 2 equity, an annual discount factor of twenty percentage points is applied proportionally to the subordinated debt principal balance, such that it is not computable in the last year.
Article 18.- Loss Absorption
18.1. Subordinate to depositors (where applicable) and general creditors of the company.
18.2. Any return of principal (for example, through purchase or redemption) requires prior approval from the Superintendency, and the company must not assume or create in the market the expectation that such authorization will be obtained.
18.3. Subordinated debt cannot incorporate an increase in the payment level based, in whole or in part, on the company's credit quality or any breach of commitments specified in the issuance documents or the documents with which the subordinated debt is contracted.
18.4. For companies included in letter A of Article 16 of the General Law authorized to collect public deposits, the National Bank, COFIDE, the Agricultural Bank, and the MIVIVIENDA S.A. Fund, the holder and/or creditor of subordinated debt must not have the right to accelerate future agreed payments, except in the event of intervention, or dissolution and liquidation.
18.5. For companies other than those mentioned in the previous paragraph, the holder of subordinated debt must not have the right to accelerate future agreed payments, except after the certificate of authorization to operate has been revoked.
18.6. For companies included in letter A of Article 16 of the General Law authorized to collect public deposits, the National Bank, COFIDE, the Agricultural Bank, and the MIVIVIENDA S.A. Fund, in the event of intervention, or dissolution and liquidation, the interest and principal of the redeemable subordinated debt computable in effective Level 2 equity, in that order, on an equal (pari passu) and proportional basis, are applied to absorb the company's losses that remain after the instruments computable in effective Level 1 equity and the instruments representing capital computable in effective Level 2 equity have been applied, in that order. This must have been expressly contemplated in the documentation and information regarding the instrument necessary for investors' decision-making.
18.7. For companies other than those mentioned in the previous paragraph, subordinated debt absorbs losses when, due to a cause for revocation of the certificate of authorization to operate and prior to this, its book equity is completely reduced.
SUBCHAPTER III
OTHER TYPES OF SUBORDINATED DEBT
Article 19.- Subordinated debt convertible into shares computable in effective equity
19.1. Non-redeemable subordinated debt convertible into shares is treated as an instrument computable in additional Level 1 capital when such debt meets the requirements indicated in Article 13 of this Regulation, and the shares meet the necessary characteristics to be considered as part of ordinary Level 1 capital, in accordance with what is stated in the Regulation for computing reserves, profits, donations, and instruments representing capital in the effective equity of financial system companies.
19.2. Redeemable subordinated debt convertible into shares is considered as redeemable subordinated debt computable in effective Level 2 equity, and what is stated in Article 16 of this Regulation applies to it.
Article 20.- Redeemable subordinated debt with a term equal to or greater than sixty (60) years
20.1. When redeemable subordinated debt, convertible or not into shares, has an original maturity equal to or greater than sixty (60) years, it is considered to meet the perpetuity requirement referred to in Article 14, provided it has a residual term equal to or greater than twenty (20) years, and therefore, it may be considered computable in additional Level 1 capital, provided it meets the requirements established in Article 13, as well as the limits contemplated in Article 22 of this Regulation.
20.2. When the residual term of the aforementioned subordinated debt is less than twenty (20) years, it is considered as redeemable subordinated debt referred to in Article 16 of this Regulation, taking into account the limits contemplated in Article 22 of this Regulation.
Article 21.- Other instruments representing subordinated debt computable in effective equity
If there are other instruments representing subordinated debt other than those contemplated in this norm, the Superintendency determines their computation in effective equity, attending to their characteristics of perpetuity, ability to absorb losses, and flexibility in the declaration and/or payment of interest. SUBCHAPTER IV LIMITS IN THE COMPUTATION OF EFFECTIVE EQUITY
Article 22.- Limits in the computation of effective equity
22.1. Non-redeemable subordinated debt contemplated in Article 13 of this Regulation, non-redeemable subordinated debt convertible into shares, and other instruments that meet the requirements to be computed as additional Level 1 capital, are considered in this sub-level up to the limit contemplated in numeral 1 of Article 185 of the General Law. The excess over this limit is considered as corresponding to instruments computable in effective Level 2 equity.
22.2. Redeemable subordinated debt contemplated in Article 16 of this Regulation, as well as other instruments that receive the same treatment as the aforementioned redeemable subordinated debt, are considered in effective Level 2 equity up to the limit contemplated in numeral 2 of Article 185 of the General Law. The excess over this limit is not computed in the effective equity of companies.
CHAPTER V
OTHER PROVISIONS
Article 23.- Investment in subordinated debt
23.1. For the calculation of companies' effective equity, the amount of the following must be deducted:

1. Investment in instruments representing subordinated debt issued by companies in the financial and insurance system of the country or abroad.
2. Investment in instruments representing subordinated debt issued by legal persons or entities with which financial statements must be consolidated.
3. Subordinated loans granted to companies in the financial and insurance system of the country or abroad.
4. Subordinated loans granted to legal persons or entities with which financial statements must be consolidated.
5. Investment in instruments representing subordinated debt issued by the company itself (treasury instruments representing subordinated debt).
   23.2. In the case of COFIDE, what is stated in the previous paragraph does not apply, with the exception of numeral 5.
   Article 24.- Loss absorption of subordinated debt issued without meeting the requirements to be computable in effective equity
   24.1. For companies included in letter A of Article 16 of the General Law authorized to collect public deposits, the National Bank, COFIDE, the Agricultural Bank, and the MIVIVIENDA S.A. Fund, in the event of intervention, or dissolution and liquidation, the interest and principal of subordinated debt issued without meeting the requirements to be computable in effective equity and which has not been subject to the authorizations of this Regulation, in that order, on an equal (pari passu) and proportional basis, are applied to absorb the company's losses that remain after the book equity has been completely applied and after the subordinated debt computable in effective equity has been applied.
   24.2. For companies other than those mentioned in the previous paragraph, subordinated debt issued without meeting the requirements to be computable in effective equity and which has not been subject to the authorizations of this Regulation, absorbs losses when, due to a cause for revocation of the certificate of authorization to operate and prior to this, its book equity is completely reduced and after the subordinated debt computable in effective equity has been applied.
   FINAL COMPLEMENTARY PROVISIONS
   Unique 1
   .- Subordinated debt issued by financial system companies that is acquired by the State under the framework of Urgency Decree No. 037-2021 and its amendments, and Urgency Decree No. 013-2023 Subordinated debt issued by financial system companies that is acquired by the State under the framework of Urgency Decree No. 037-2021 and its amendments, and Urgency Decree No. 013-2023, is considered computable in ordinary Level 1 capital for as long as the State's participation in said companies lasts. The amount computable in ordinary Level 1 capital will be the outstanding capital balance of the subordinated debt held by the State on the reporting cutoff date. TRANSITIONAL COMPLEMENTARY PROVISIONS First.- Favorable opinions and/or authorizations issued by the Superintendency regarding subordinated debt that has not been issued or contracted by the effective date of this Regulation Favorable opinions and/or authorizations issued by the Superintendency regarding subordinated debt that has not been issued or contracted by the effective date of this Regulation maintain their efficacy. Second.- Treatment of subordinated debt issued or contracted prior to the effective date of this Regulation Subordinated debt issued or contracted prior to the effective date of this Regulation may continue to be recognized for the purpose of computing effective equity.” Second Article.- Substitute Annex No. 12-II “Control of Subordinated Debt” of Chapter V “Complementary Information” of the Accounting Manual for Financial System Companies, approved by Resolution SBS No. 895-98 and its modifying and complementary norms, with the format shown in Annex 1, which is an integral part of this Resolution, and is published on the institutional portal (www.sbs.gob.pe), in accordance with what is established in Supreme Decree No. 001-2009-JUS and its amendments. Third Article.- This Resolution enters into force on January 1, 2023, from which date the Subordinated Debt Regulation applicable to financial system companies, approved by Resolution SBS No. 975-2016, is repealed. The submission of Annex No. 12-II “Control of Subordinated Debt” of Chapter V “Complementary Information” of the Accounting Manual for Financial System Companies, via SUCAVE, for the corresponding information from January to June 2023, will be carried out in July 2023. Register, communicate, and publish. MARIA DEL SOCORRO HEYSEN ZEGARRA Superintendent of Banks, Insurance, and AFP