Resolution that modifies the General Provisions applicable to credit institutions

Official Gazette of the Federation: 22/06/2022

RESOLUTION that modifies the General Provisions applicable to credit institutions

In the margin, a seal with the National Shield, reading: United Mexican States.- TREASURY.- Secretariat of Treasury and Public Credit.- National Banking and Securities Commission.

The National Banking and Securities Commission, pursuant to the agreement of its Governing Board and based on the provisions of articles 50 and 98 Bis of the Law of Credit Institutions, as well as 4, sections XXXVI and XXXVIII and 16, sections I and VI of the Law of the National Banking and Securities Commission, having the prior opinion of the Bank of Mexico, and

CONSIDERATIONS

That, in attention to article 78 of the General Law on Regulatory Improvement and with the purpose of reducing the compliance cost of this Resolution, the National Banking and Securities Commission issued the "Resolution that modifies the General Provisions applicable to investment funds and to persons who provide services to them", published in the Official Gazette of the Federation on December 30, 2021, with the purpose of, among others, eliminating the obligation for investment funds to present the annual consolidated basic financial statements with the following criteria contained in Annex 5: B-2. Investments in securities and B-5 Derivatives and Hedging Operations, corresponding to Series B Criteria relative to the concepts that make up the financial statements, as well as criteria C-1. Recognition and derecognition of financial assets and C-2. Related parties corresponding to Series C Criteria applicable to specific concepts;

That, in order to maintain a capital framework of the Mexican financial system aligned with international prudential standards on credit risk for exposures linked to securitization schemes for credit institutions issued by the Basel Committee on Banking Supervision, of which Mexico is a member, that contributes to improving the solidity and stability of the banking system, and

That, to encourage credit institutions to continue developing this type of market and recognize the monitoring they carry out on the performance of the underlying assets and the structural characteristics of the securitization scheme, it is necessary to incorporate into the revised regulatory framework the method based on external ratings for securitization schemes that adequately reflects the credit risk of these exposures, it has resolved to issue the following:

RESOLUTION THAT MODIFIES THE GENERAL PROVISIONS APPLICABLE TO CREDIT INSTITUTIONS

SOLE.- Articles 1, section LXXV; 2 Bis 49, section II, second paragraph; 2 Bis 55; 2 Bis 56, sections I, subsection a, first paragraph and V, first paragraph, are REFORMED, as well as the denomination of First Title Bis, Chapter III, Second Section, Section F, Subsection B denominated "Standard Method applicable to Securitization Schemes" to be named "Method based on external ratings applicable to Securitization Schemes", and Annexes 1-G and 1-H of the "General Provisions applicable to credit institutions", published in the Official Gazette of the Federation on December 2, 2005 and modified by various resolutions being the last one published in said means of diffusion on December 31, 2021, are SUBSTITUTED, to remain as follows:

"FIRST TITLE

. . .

FIRST TITLE BIS

. . .

Chapters I and II

. . .

Chapter III

. . .

First Section

. . .

Second Section

. . .

Sections A to E

. . .

Section F

. . .

Subsection A

. . .

Subsection B

Method based on external ratings applicable to Securitization Schemes.

Subsections C and D

. . .

Section G

. . .

Third and Fourth Sections

. . .

Chapters IV to VII

. . .

SECOND to FIFTH TITLES

. . .

Annexes 1 to 1-F

. . .

Annex 1-G

Mapping of Ratings and Risk Grades for Securitization Schemes.

Annex 1-H

Operational Requirements for the Use of Ratings Granted by a Rating Agency.

Annexes 1-I to 73

. . ."

"Article 1.-

. . .

I. to LXXIV.

. . .

LXXV.

Risk Grade: to the risk grades indicated in the correspondence tables of ratings and risk grades, long-term and short-term, both for the global scale and for the Mexico scale, included in Annexes 1-B and 1-G of these provisions.

LXXVI. to CXCVII.

. . ."

"Article 2 Bis 49.-

. . .

I.

. . .

II.

. . .

In the event that Institutions act as sellers of credit protection through this type of instruments, the tranches will be applicable the risk weighting corresponding to the method based on external ratings applicable to Securitization Schemes, provided that the product has a credit evaluation from a recognized Rating Agency. In the event that the product does not have the admissible external Rating, to obtain the value of the risk-weighted assets the risk weightings of the assets included in the portfolio will be added up to a maximum of 1,250 percent, and said sum will be multiplied by the nominal amount of the protection provided by the credit derivative.

. . .

III.

. . ."

"Subsection B

Method based on external ratings applicable to Securitization Schemes

Article 2 Bis 55.- In the method based on external ratings to obtain the capital requirement for positions linked to Securitization Schemes due to their exposure to credit risk, the amount of risk-weighted assets, obtained according to this article, will be multiplied by 8 percent capital charge.

The amount of risk-weighted assets for a securitization position assumed by an Institution acting as an investor, will be obtained by multiplying the value of the securitization positions calculated in accordance with the Accounting Criteria, by the weighting factor corresponding to the Risk Grade associated with the Rating that has been assigned to said position, in accordance with the provisions of this article.

For securitization positions with a Risk Grade corresponding to Short-Term Ratings, the following risk weightings will be applied:

Risk Weightings according to Risk Grades

Short-Term Local and Global Scales

Risk Grade	Grade 1	Grade 2	Grade 3	Grade 4, 5 or Not Rated
Risk Weighting Factor	15 %	50 %	100 %	1250 %

In the case of positions with a Risk Grade corresponding to Long-Term Ratings, the effective or maturity term of the position must first be determined, for which the same methodology as that established in Article 2 Bis 80, section I of these provisions must be used, where the cash flows to be used must correspond to contractual payments (principal, interest payments and commissions), be unconditional and must not depend on the actual performance of the underlying assets transferred to the structure. In the event that this information is not available, the effective or maturity term will correspond to the remaining term to maturity of the security.

In no case may the effective or maturity term be less than one year or greater than five years, so for positions whose referred term, determined in accordance with the previous paragraph, does not comply with said limits, the minimum or maximum term previously indicated must be considered, as appropriate, for purposes of determining the risk weighting factor established in this article.

The risk weighting factor applicable to the position will be the one corresponding to its effective or maturity term and that results from linearly interpolating the weightings established for positions with the same level of subordination and terms of one and five years, in accordance with the following table:

Risk Weightings according to the effective or maturity term,

level of subordination and

Long-Term Risk Grades Local and Global Scales

Risk Grade	Senior Tranches 1 Year	Senior Tranches 5 Years	Subordinated Tranches 1 Year	Subordinated Tranches 5 Years
1.1	15 %	20 %	15 %	70 %
1.2	15 %	30 %	15 %	90 %
1.3	25 %	40 %	30 %	120 %
1.4	30 %	45 %	40 %	140 %
2.1	40 %	50 %	60 %	160 %
2.2	50 %	65 %	80 %	180 %
2.3	60 %	70 %	120 %	210 %
3.1	75 %	90 %	170 %	260 %
3.2	90 %	105 %	220 %	310 %
3.3	120 %	140 %	330 %	420 %
4.1	140 %	160 %	470 %	580 %
4.2 and 4.3	160 %	180 %	620 %	760 %
4.4 to 4.6	200 %	225 %	750 %	860 %
5.1	250 %	280 %	900 %	950 %
5.2	310 %	340 %	1050 %	1050 %
5.3	380 %	420 %	1130 %	1130 %
5.4	460 %	505 %	1250 %	1250 %
5.5 to 5.9 or Not Rated	1250 %	1250 %	1250 %	1250 %

In the case of Subordinated Positions, the risk weighting indicated above must be multiplied by the factor resulting from the following expression:

Where,

corresponds to the quotient of the difference of the book value of all underlying assets transferred to the structure minus the book value of all tranches that have equal or lower subordination with respect to the position, including the tranche to which the latter corresponds, between the book value of all underlying assets transferred to the structure.

corresponds to the quotient of the difference of the book value of all underlying assets transferred to the structure minus the book value of all tranches that have lower subordination with respect to the position, between the book value of all underlying assets transferred to the structure.

In no case may the factors and indicated above be less than zero.

Likewise, the resulting risk weighting for Subordinated Positions will be subject to a minimum of 15 percent and, in no case, may be less than the weighting that would correspond to the Senior Position of the same Securitization Scheme that presents the same Rating and remaining term to maturity.

In the case of positions registered in memorandum accounts, including those positions related to First Loss Coverage Schemes in which the risk is retained or credit protection is provided up to a certain limit of a position referred to in Article 2 Bis 45 of these provisions, Institutions must apply a credit conversion factor in accordance with the specific treatments referred to in Subsection C of this Section F. In the case of positions with a Rating, the credit conversion factor will be 100 percent.

In the case of positions in synthetic Securitization Schemes derived from personal guarantees, the capital requirements for said positions will be subject to a maximum equivalent to that capital requirement that would have been obtained in the event that the underlying assets had not been securitized.

In the case of Securitization Schemes in which the underlying assets are made up of securities or securitization positions, the amount of risk-weighted assets will be obtained by multiplying the value of the positions of these schemes, calculated in accordance with the Accounting Criteria, by a weighting factor of 1,250 percent.

The association between Risk Grades and Ratings provided for in the tables of this article will be made in terms of the provisions of Annex 1-G of these provisions.

Article 2 Bis 56.-

. . .

I.

. . .

a)

Possess, retain or acquire securitization positions, will require capital for said positions. For these purposes, risk-weighted assets will be obtained according to the procedures contained in Article 2 Bis 55 of these provisions.

. . .

. . .

b) to d)

. . .

II. to IV.

. . .

V.

In the case of securitization positions that register the maximum preference and do not have Ratings, Institutions may apply the average risk weighting of the set of underlying assets, subject to this being, at a minimum, 15 percent provided that, at all times, the composition of said set is known, instead of weighting said positions by 1,250 percent. The foregoing, provided that the assignor or the originator of the underlying assets is not a related person referred to in Article 73 of the Law. If Institutions are unable to determine at all times the aforementioned average risk weighting of the set of underlying assets, said positions must be weighted at 1,250 percent.

. . .

a) to c)

. . .

VI. and VII.

. . ."

TRANSITIONAL PROVISIONS

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

Respectfully,

Mexico City, June 7, 2022. - President of the National Banking and Securities Commission, Dr. Jesús de la Fuente Rodríguez.- Signature.

"ANNEX 1-G

MAPPING OF RATINGS AND RISK GRADES FOR SECURITIZATION SCHEMES

When a Rating Agency grants a Rating, according to the scale and the type of currency that corresponds, Institutions must adhere to the following matrix to associate the assigned Rating with the Risk Grade that are detailed below.

Method based on external ratings for securitizations

Long-Term Ratings and Risk Grades Global and Local Scales

Long-Term Risk Grades	Method Based on Internal or Inferred Ratings	Authorized Rating Scales S&P Global Scale	Authorized Rating Scales MOODY'S Global Scale	Authorized Rating Scales FITCH Global Scale	Authorized Rating Scales HR RATINGS Global Scale	Authorized Rating Scales A.M. Best Global Scale	Authorized Rating Scales DBRS Global Scale	Authorized Rating Scales S&P CaVal Mexico Scale	Authorized Rating Scales MOODY'S Mexico Scale	Authorized Rating Scales FITCH Mexico Scale	Authorized Rating Scales HR RATINGS Mexico Scale	Authorized Rating Scales VERUM Mexico Scale	Authorized Rating Scales A.M. Best Mexico Scale	Authorized Rating Scales DBRS Mexico Scale
Grade 1	1.1	AAA	Aaa	AAA	HR AAA (G)	aaa	AAA
Grade 1	1.2	AA+	Aa1	AA+	HR AA+ (G)	aa+	AA (high)
Grade 1	1.3	AA	Aa2	AA	HR AA (G)	aa	AA
Grade 1	1.4	AA-	Aa3	AA-	HR AA- (G)	aa-	AA (low)	mxAAA	Aaa.mx	AAA (mex)	HR AAA	AAA/M	aaa.MX	AAA.MX
Grade 2	2.1	A+	A1	A+	HR A+ (G)	a+	A (high)	mxAA+	Aa1.mx	AA+ (mex)	HR AA+	AA+/M	Aa+.MX	AA.MX (high)
Grade 2	2.2	A	A2	A	HR A (G)	a	A	mxAA	Aa2.mx	AA (mex)	HR AA	AA/M	aa.MX	AA.MX
Grade 2	2.3	A-	A3	A-	HR A- (G)	a-	A (low)	mxAA-	Aa3.mx	AA- (mex)	HR AA-	AA-/M	aa-.MX	AA.MX (low)
Grade 3	3.1	BBB+	Baa1	BBB+	HR BBB+ (G)	bbb+	BBB (high)	mxA+	A1.mx	A+ (mex)	HR A+	A+/M	a+.MX	A.N.MX (high)
Grade 3	3.2	BBB	Baa2	BBB	HR BBB (G)	bbb	BBB	mxA	A2.mx	A (mex)	HR A	A/M	a.MX	A.N.MX
Grade 3	3.3	BBB-	Baa3	BBB-	HR BBB- (G)	bbb-	BBB (low)	mxA-	A3.mx	A- (mex)	HR A-	A-/M	a-.MX	A.N.MX (low)
Grade 4	4.1	BB+	Ba1	BB+	HR BB+ (G)	bb+	BB (high)	mxBBB+	Baa1.mx	BBB+ (mex)	HR BBB+	BBB+/M	bbb+.mx	BBB.N.MX (high)
Grade 4	4.2	BB	Ba2	BB	HR BB (G)	bb	BB	mxBBB	Baa2.mx	BBB (mex)	HR BBB	BBB/M	bbb.mx	BBB.N.MX
Grade 4	4.3							mxBBB-	Baa3.mx	BBB- (mex)	HR BBB-	BBB-/M	bbb-.mx	BBB.N.MX (low)
Grade 4	4.4	BB-	Ba3	BB-	HR BB- (G)	bb-	BB (low)	mxBB+	Ba1.mx	BB+ (mex)	HR BB+	BB+/M	bb+.mx	BB.N.MX (high)
Grade 4	4.5							mxBB	Ba2.mx	BB (mex)	HR BB	BB/M	bb.mx	BB.N.MX
Grade 4	4.6							mxBB-	Ba3.mx	BB- (mex)	HR BB-	BB-/M	bb-.mx	BB.N.MX (low)
Grade 5	5.1	B+	B1	B+	HR B+ (G)	b+	B (high)
Grade 5	5.2	B	B2	B	HR B (G)	b	B
Grade 5	5.3	B-	B3	B-	HR B- (G)	b-	B (low)
Grade 5	5.4	CCC	Caa	CCC	HR C+ (G)	ccc+	CCC (high)	mxB+	B1.MX	B+ (mex)	HR B+	B+/M	b+.mx	B.N.MX (high)
Grade 5	5.5	CC	Ca	CC	HR C (G)	ccc	CCC	mxB	B2.MX	B (mex)	HR B	B/M	b.mx	B.N.MX
Grade 5	5.6	C	C	C	HR C- (G)	ccc-	CCC (low)	mxB-	B3.MX	B- (mex)	HR B-	B-/M	b-.mx	B.N.MX (low)
Grade 5	5.7	and lower	and lower	and lower	and lower	and lower	and lower	mxCCC	Caa1.mx	CCC (mex)	HR C+	C/M	ccc+	CCC.N.MX (high)
Grade 5	5.8							mxCC and lower	Caa2.mx	CC (mex)	HR C	D/M	ccc	CCC.N.MX
Grade 5	5.9								Caa3.mx	Ca.mx	C.mx and lower	C (mex) and lower	HR C- and lower	E/M and lower	ccc- and lower	CCC.N.MX (low)
								and lower

Short-Term Ratings and Risk Grades

Short-Term Risk Grades	Method Based on Internal or Inferred Ratings	Authorized Rating Scales S&P Global Scale	Authorized Rating Scales MOODY'S Global Scale	Authorized Rating Scales FITCH Global Scale	Authorized Rating Scales HR RATINGS Global Scale	Authorized Rating Scales A.M. Best Global Scale	Authorized Rating Scales DBRS Mexico Scale	Authorized Rating Scales S&P CaVal Mexico Scale	Authorized Rating Scales MOODY'S Mexico Scale	Authorized Rating Scales FITCH Mexico Scale	Authorized Rating Scales HR RATINGS Mexico Scale	Authorized Rating Scales VERUM Mexico Scale	Authorized Rating Scales DBRS Mexico Scale
1		A-1+	A-1	P-1	F1+	F1	HR+1 (G)	HR1 (G)	AMB-1+	AMB-1	R-1 (high)	R-1 (medium)	R-1 (low)	mxA-1+	mxA-1	MX-1	F1+ (mex)	F1 (mex)	HR+1	HR1	1+/M	1/M	R-1 (high)	R-1 (medium)	R-1 (low)
2		A-2		P-2	F2	HR2 (G)	AMB-2	R-2 (high)	R-2 (medium)	R-2 (low)	mxA-2	MX-2	F2 (mex)	HR2	2/M	R-2 (high)	R-2 (medium)	R-2 (low)
3		A-3		P-3	F3	HR3 (G)	AMB-3	R-3	mxA-3	MX-3	F3 (mex)	HR3	3/M	R-3.N
4		B		B	HR4 (G)	AMB-4	R-4	mxB	B (mex)	HR4	4/M	R-4.N
5		C		NP	C	HR5 (G)	and lower	R-5 and Lower	mxC and lower	MX-4 and lower	C (mex) and lower	HR5 and lower	D/M and lower	R-5.N and Lower

ANNEX 1-H

OPERATIONAL REQUIREMENTS FOR THE USE OF RATINGS GRANTED BY A RATING AGENCY

a)

External credit Ratings must come from a Rating Agency.

b)

The Rating, procedures, methodologies and any other key elements used by the Rating Agency, as well as the sensitivity analyzes of the ratings issued by said Rating Agencies ante changes in rating hypotheses, must be published in a non-selective and free manner, for example, through the Internet.

c)

Rating Agencies must demonstrate that they have experience in rating securitizations.

d)

The Rating applied to all tranches of the same securitization structure, must be issued by the same Rating Agency.

e)

In the use of external Ratings issued by Rating Agencies, Institutions must apply the provisions of Article 2 Bis 25 of these provisions."

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