Resolution SBS No. 3952-2022: Amends the Regulation on the Requirement of Effective Capital for Credit Risk

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Lima, December 22, 2022

Resolution S.B.S. No. 3952-2022

The Superintendent of Banks, Insurance, and Private Pension Fund Administrators

CONSIDERING:

That, through Resolution SBS No. 14354-2009 and its modifying norms, the Regulation for the Requirement of Effective Capital for Credit Risk was approved, which establishes the methodology to be applied, as well as the requirements that financial system companies must meet to calculate the requirement of effective capital for credit risk using the standard method or internal ratings-based methods;

That, through Law No. 31380, the Law that delegates to the Executive Branch the power to legislate in tax, fiscal, financial, and economic reactivation matters to contribute to closing social gaps, the Congress of the Republic delegated to the Executive Branch the power to legislate, among other things, in financial matters;

That, through Legislative Decree No. 1531, the Executive Branch modified the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its amendments, hereinafter the General Law, in order to strengthen the solvency and stability of the financial system to protect depositors, within the framework of the powers granted by Law No. 31380;

That, the General Law establishes in articles 184 and 185 the composition of effective capital for financial system companies;

That, through the aforementioned Legislative Decree, the applicable regulations for financial system companies related to the composition of effective capital are adapted to the Basel III standard in order to improve the quality of effective capital;

That, likewise, the Second Final Complementary Provision of Legislative Decree No. 1531 authorizes this Superintendence to establish, through norms of a general nature, the forms and deadlines for adaptation to comply with the modification of article 199 of the General Law;

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 That, considering the foregoing, it is necessary to update the current regulations applicable to financial system companies issued by this Superintendence in order to incorporate changes related to the composition of effective capital and establish the adaptation deadline applicable to the solvency requirements contemplated in article 199 of the General Law;

That, likewise, it is necessary to modify 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, to incorporate the modifications introduced by the aforementioned Legislative Decree regarding the composition of effective capital;

That, in order to collect opinions from the general public regarding the proposal to modify the regulations, the draft resolution was pre-published, 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 Advisory; and,

In exercise of the powers conferred by paragraphs 7, 9, 13, and 19 of article 349 of the General Law;

RESOLVES:

Article First.- Modify the Regulation for the Requirement of Effective Capital for Credit Risk, approved by Resolution SBS No. 14354-2009 and its modifying norms, as follows:

1. Replace the second paragraph of article 6 with the following text:

Article 6.- Calculation of weighted assets and contingencies for credit risk

"(...)

"In the standard method, the exposure shall be calculated including accrued earnings, and deferred income, specific provisions, generic provisions not considered in effective capital (that is, the excess of mandatory generic provisions: fixed and procyclical component, over voluntary generic provisions, provisions for over-indebtedness risk, and provisions for credit exchange rate risk, over the computable amount of these in effective capital and that has not been used to reduce the requirement of effective capital for additional risks as indicated in the Regulation for the Requirement of Effective Capital for Additional Risks), accumulated depreciation, accumulated amortization, accumulated impairment loss, and credit risk mitigants of said exposure shall be deducted. For the purposes of this Regulation, it is considered that provisions for investments, provisions for accounts receivable, and provisions for assets received in payment, adjudicated assets, and recovered assets form part of specific provisions. The calculation of the exposure adjusted by risk mitigants, if any, shall be carried out in accordance with what is stipulated in Subchapter IV of this Chapter.

(...)"

2. Replace article 15 with the following text:

"Article 15.- Exposures with public sector entities

Credits granted to public sector entities correspond to a risk weight of 100%. However, there will be a transfer mechanism that will allow credits to public sector entities to be weighted at 20% instead of the aforementioned 100%, if the conditions indicated in paragraph b) of Article 12° and additionally the following are met:

a) That the public sector entity has issued an instrument that is currently valid and has an external risk classification equivalent to Risk I, b) That all obligations with the financial system of the public sector entity are in the normal category, c) That the issued instrument has a maturity from issuance greater than one year, and d) That the instrument has a subordination order, according to the General Law of the Concursal System, equal to or less favorable than the credit.

The residual term of the credit cannot be greater than the residual term of the issued instrument.

In the case that real and/or personal guarantees are incorporated into the classification of the reference instrument, such guarantees cannot be considered as risk mitigants.

For other exposures to public sector entities, the following weighting factors apply:

Risk Classification | Risk I | Risk II | Risk III | Risk IV | Risk V | No classification Factor for public sector entities carrying out business activity | 20% | 50% | 100% | 100% | 150% | 100% Factor for the rest of public sector entities | 20% | 50% | 50% | 100% | 150% | 100%

Exposures with the National Superintendence of Tax Administration (SUNAT) receive a weighting of 20%.

Net deferred income tax assets arising from temporary differences that do not exceed the 10% threshold of Level 1 Ordinary Capital, net of deferred income tax liabilities, will receive a weighting factor of 250%. The aforementioned Level 1 Ordinary Capital will be calculated taking into account all deductions referred to in paragraph 1.1 of article 184° of the General Law that do not depend on the 10% threshold. Applicable only in cases where the deferred income tax asset associated with temporary differences is greater than or equal to the deferred income tax liability."

3. Eliminate paragraph b) of article 24.

4. Incorporate as article 29-A° the following:

"Article 29-A°.- Sale of securities operations carried out under the delivery-versus-payment modality

In the case of sale operations of sovereign instruments carried out under the delivery-versus-payment modality, the weighting factor to be applied to the exposure between the negotiation date and the settlement and delivery date is the weighting factor corresponding to the transacted value, provided that the settlement date is not greater than three (3) business days after the negotiation date."

5. Replace the first paragraph of article 125 with the following text:

"When a company is not authorized to use internal ratings-based methods for the calculation of the requirement of effective capital for credit risk, it may include mandatory generic provisions: fixed and procyclical component, voluntary provisions, provisions for over-indebtedness risk, and provisions for credit exchange rate risk, as part of Level 2 effective capital up to 1.25% of the APR (adjusted by the corresponding adjustment factor, if applicable).

(...)

6. Replace paragraph a) of the second paragraph of article 125 with the following text:

"a) When the amount of total expected losses is greater than the amount of admissible provisions for the assets and contingencies to which the internal ratings-based methods are applied, the company must deduct the difference from Level 1 Ordinary Capital."

7. Replace the Eleventh Final Provision with the following:

"Eleventh.- Companies will have a gradual adaptation schedule for the application of the weight referred to in the last paragraph of article 15° "Exposures with public sector entities", according to the following table:

Date | Deferred income tax assets arising from temporary differences that do not exceed the 10% threshold of Level 1 Ordinary Capital - article 15 January 2023 | 175% January 2024 | 200% January 2025 | 225% January 2026 | 250%

Article Second 1.- For the deductions of Level 1 Ordinary Capital indicated in letters v, vi, and vii of paragraph h) of paragraph 1.1 of article 184 of the General Law, as well as for assets recognized by the difference between the fair value and the nominal value of the acquired credit portfolio, the following adaptation period applies:

Date | Deduction Percentage January 2023 | 70% January 2025 | 80% January 2026 | 90% January 2027 | 100%

In cases where the assets corresponding to letters v and vi of paragraph h) of paragraph 1.1 of article 184 of the General Law, as well as the assets recognized by the difference between the fair value and the nominal value of the acquired credit portfolio, were registered after December 2022, they will correspond to the deduction percentage of the "January 2027" row in the previous table.

The deduction percentages indicated in the previous table for the deductions of Level 1 Ordinary Capital indicated in letters v, vi, and vii of paragraph h) of paragraph 1.1 of article 184 of the General Law, as well as for the assets recognized by the difference between the fair value and the nominal value of the acquired credit portfolio, are deducted from effective capital. From the deduction percentage, Level 1 Ordinary Capital must represent, at a minimum, what is established in the following schedule:

Date | Minimum Deduction Percentage of Level 1 Ordinary Capital regarding the Deduction Percentage January 2023 | 30% January 2025 | 60% January 2026 | 80% January 2027 | 100%

Article Third 2.- For the solvency requirements established in article 199 of the General Law, the following adaptation period applies:

Period | Minimum Requirement of Level 1 Ordinary Capital (percentage of total weighted assets and contingencies for risk) | Minimum Requirement of Level 1 Effective Capital (percentage of total weighted assets and contingencies for risk) | Global Limit January 2023 to March 2023 | 3.825% | 5.10% | 8.5% April 2023 to August 2024 | 4.05% | 5.40% | 9.0% September 2024 to February 2025 | 4.275% | 5.70% | 9.5% March 2025 onwards | 4.50% | 6.00% | 10.0%

Article Fourth 3.- The limits in the computation of effective capital referred to in article 185 of the General Law, modified by Legislative Decree No. 1531, are suspended from January 1, 2023, to November 30, 2023, entering into force from December 1, 2023.

1 Article substituted by Resolution SBS No. 274-2024, published on 26/01/2024.

2 Article substituted by Resolution SBS No. 02192-2023, published on 26/06/2023, effective from 30/06/2023. Subsequently substituted by Resolution SBS No. 274-2024, published on 26/01/2024.

3 Article substituted by Resolution SBS No. 1048-2023, published on 27/03/2023. Subsequently substituted by Resolution SBS No. 02192-2023, published on 26/06/2023, effective from 30/06/2023.

Article Fifth.- Modify the Accounting Manual for Financial System Companies approved by Resolution SBS No. 895-98 and its modifying and complementary norms, according to the Annex attached to this Resolution, which is published on the Institutional Portal (www.sbs.gob.pe), in accordance with what is stipulated in Supreme Decree No. 001- 2009-JUS and its amendments.

Article Sixth.- This Resolution enters into force from January 1, 2023.

The submission of Report No. 2-A1 "Assets and Contingencies Weighted for Credit Risk – Standard Method" and Report No. 13 "Control of Global and Individual Limits Applicable to Financial System Companies" from Chapter V "Complementary Information" of the Accounting Manual for Financial System Companies, via SUCAVE, for the information corresponding to January to May 2023, will be carried out monthly with the formats valid for the information corresponding to December 2022.

The submission of Report No. 2-A1 "Assets and Contingencies Weighted for Credit Risk – Standard Method" and Report No. 13 "Control of Global and Individual Limits Applicable to Financial System Companies" from Chapter V "Complementary Information" of the Accounting Manual for Financial System Companies, via SUCAVE, for the information corresponding to June 2023, will be carried out in July 2023 with the formats approved by this Resolution.

The submission of Report No. 3 "Effective Capital" from Chapter V "Complementary Information" of the Accounting Manual for Financial System Companies, via SUCAVE, for the information corresponding to January 2023, will be carried out on February 24, 2023.

Register, communicate, and publish

MARIA DEL SOCORRO HEYSEN ZEGARRA Superintendent of Banks, Insurance, and AFP