Resolution No. CD-SIBOIF-583-1-ABR29-2009
Dated 29 April 2009

RULE AMENDING ARTICLES 18, 19, 39, 40, 41, 42, 43, 44 AND 45 OF THE RULE ON CREDIT RISK MANAGEMENT

The Board of Directors of the Superintendency of Banks and Other Financial Institutions, after deliberations on the matter,

SOLE CONSIDERING

That based on the authority granted to it by Article 3, items 3 and 13, and Article 10, item 7, of Law 316, Law of the Superintendency of Banks and Other Financial Institutions, and its amendments contained in Law 552, Law of Amendments to the aforementioned Law 316;

In the exercise of its powers,

HAS ISSUED

The following,

Resolution No. CD-SIBOIF-583-1-ABR29-2009

RULE AMENDING ARTICLES 18, 19, 39, 40, 41, 42, 43, 44 AND 45 OF THE RULE ON CREDIT RISK MANAGEMENT

First: Articles 18, 19, 39, 40, 41, 42, 43, 44 and 45 of the Rule on Credit Risk Management, contained in Resolution No. CD-SIBOIF-547-1-AGOST20-2008, dated 20 August 2008, are hereby amended and shall read as follows:

Art. 18 Provision for deficiency in the management of consumer credit, housing mortgage credit and microcredit.- The provision for deficiency in the management of consumer credit, housing mortgage credit and microcredit shall be determined as follows:

a) For consumer and housing mortgage credits: The Superintendency, during its inspection visits, shall evaluate the consumer and housing mortgage credit activity of the financial institution in order to verify whether there are additional risk factors due to deficiencies in the risk management of consumer and housing mortgage credits; and, consequently, the need to establish an additional risk provision.

For the purpose of determining the additional risk provision, the Superintendency shall evaluate the policies, practices and procedures for granting and administering consumer and housing mortgage credits, verifying that they contemplate at a minimum the following aspects:

1) Repayment capacity, identifying sources of income and their stability.

2) Taking into account the total indebtedness of the debtor (and of his/her spouse, when his/her income is included in the analysis) with the institution and with other financial institutions of the financial system in the calculation of total debt in order to determine his/her debt capacity and his/her status as over-indebted.

3) Considering among the risk-differentiating variables the number of institutions with which debtors have incurred obligations, as well as the ratios of total debt/net annual income or total debt/net monthly income as a selection and/or alert factor, applying a criterion consistent with the risk profile of the clientele, segmented by income level.

4) Considering appropriate installment/income or installment/net cash flow after expenses levels to determine debt capacity, adequately differentiated by product and income range, using realistic assumptions when converting credit balances into installment equivalents.

5) Carrying out the complete evaluation process for the granting of credits for all credit modalities, including the expansion of lines. In this regard, a new evaluation shall be considered that includes debt capacity as of the date and payment behavior in the system, among other factors.

6) Considering for the granting of mortgage credits a loan amount/property value ratio ("Loan-to-value") consistent with the clients' risk profile.

7) In the case of revolving credit lines, a maximum level shall be set based on the client's repayment capacity and his/her total indebtedness in the system.

8) Including as part of the monitoring of credit portfolios the analysis and periodic evaluation of the evolution of their quality, not only based on historical delinquency and other risk discrimination factors but also based on the date of granting of credits (vintage analysis) in order to be able to take corrective measures. In particular, this analysis shall be applied with special emphasis to the results of credit line increase campaigns by card, or of client acquisition for consumer credit products,

9) Having indicators and alert systems for monitoring the use of credit cards through cash withdrawals, as well as for the application of credit risk reduction measures as necessary.

10) In the case of credit cards, identifying debtors who only make the minimum payment, and establishing specific follow-up mechanisms to take the corrective measures that may be necessary.

When it is determined that the policies, practices and procedures for granting, administering and controlling credits do not comply with the guidelines indicated in this item, in the opinion of the Superintendent, according to the level of deficiencies found, he/she may order the financial institution to establish and maintain a provision in addition to those referred to in Articles 13, 14 and 17 of this rule, from twenty-five hundredths of a percent (0.25%) to fifty hundredths of a percent (0.50%), with respect to the net book value of the consumer and housing mortgage credit portfolio.

In the event that the Superintendent orders the financial institution to establish the aforementioned provision, the general manager shall bring it to the attention of the Board of Directors through its President, urging said senior management body to take the necessary measures to correct the deficiencies in the mechanisms, guidelines, procedures and policies issued by said body for the management of consumer and housing mortgage credit.

Said provision may be eliminated, by resolution of the Superintendent, when compliance with the guidelines referred to in this literal is verified in the next evaluation of the Superintendency; or at the request of a party, demonstrating compliance with the said guidelines.

b) For microcredits: The Superintendency, in its inspection visits, will evaluate the microcredit activity of the financial institution in order to verify whether there are additional risk factors due to deficiencies in microcredit risk management; and, consequently, the need to establish a provision for additional risk.

For the purpose of determining the provision for additional risk, the Superintendency will evaluate the policies, practices and procedures for the granting and administration of microcredits, verifying that they contemplate at a minimum:

§ The existence of adequate credit technology for the selection of the borrower, determination of their repayment capacity, administration and recovery of credits, as well as an appropriate internal control system;

§ Adequate system for portfolio evaluation and rating and effective mechanisms for verifying its operation, reviewed in a timely manner according to the situation;

§ The existence of a computer system and procedures for monitoring microcredit operations.

When it is determined that the policies, practices and procedures for granting, administering and controlling credits do not conform to the guidelines established in this literal, in the judgment of the Superintendent, according to the level of deficiencies found, he may order the financial institution to establish and maintain a provision in addition to those referred to in articles 15 and 17 of this norm, from twenty-five hundredths of one percent (0.25%) to fifty hundredths of one percent (0.50%), with respect to the net book value of the microcredit portfolio.

The provision shall be determined, based on the review of a representative sample of borrowers, determined randomly, aimed at achieving a greater scope of analysis. The frequency of cases in which there are deviations or non-compliance with credit policies and established procedures and/or sound credit granting and administration practices, among them, the lack of any of the following:

1) Home and employment verification and updated data sheet, including identity documents;

2) Verification of the source of income and reasonable estimation of repayment capacity;

3) Verification of payment history and the client's level of indebtedness in institutions of the Financial System and with other creditors (in case of having access);

4) Verification of payment history and the guarantor's level of indebtedness in institutions of the Financial System and with other creditors (in case of having access);

5) Verification, where applicable, of the perfection of real guarantees, their adequate valuation and the measures adopted for their protection;

6) Adequate support, for clients selected and approved through automated procedures, including a historical database adequate for said clients;

7) Documentation required by its credit policy, both for the application, approval, as well as the contract and guarantees, if required;

8) Monitoring, in accordance with the provisions of its credit technology, of the client's address, situation and activity, which must be recorded in a communication from the respective credit officer; and,

9) Verification that they are complying with the other aspects of the credit policy or technology.

When the frequency of cases with deviations or non-compliances exceeds twenty percent (20%) of the sample, the Superintendent may order the financial institution to constitute and maintain the provision for deficiency in microcredit management referred to above.

In the event that the Superintendent orders the financial institution to constitute the aforementioned provision, the general manager must bring it to the attention of the Board of Directors through its Chairman, urging said superior governing body to take the necessary measures to correct the deficiencies in the mechanisms, guidelines, procedures and policies issued by said body for microcredit management.

Said provision may be eliminated by resolution of the Superintendent, when the next evaluation by the Superintendency yields discrepancies at a level lower than the established parameters; or at the request of a party, demonstrating compliance with the aforementioned guidelines.

Art. 19 Provision for deficiency in the management of commercial credit classification.-

In the event that the result of the inspection carried out by the Superintendency based on a representative sample determined statistically and randomly, compared with the classifications of the financial institution found in the inspection, indicates classification discrepancies that are equal to or greater than twenty percent (20%) of the number of cases or ten percent (10%) of the amounts of the corresponding provisions, the Superintendent shall order the institution to carry out a new evaluation that must be performed within a period no greater than ninety (90) days, and simultaneously, in his judgment, according to the level of classification discrepancies found, shall order the constitution of a provision for deficiency in credit classification management additional to those mentioned in articles 10 and 16 of this norm, from zero point twenty-five percent (0.25%) to fifty percent (0.50%), with respect to the net book value of the commercial credit portfolio.

In the event that the Superintendent orders the financial institution to establish the aforementioned provision, the general manager must bring it to the attention of the Board of Directors through its Chairman, urging said superior governing body to take the necessary measures to correct the deficiencies in the mechanisms, guidelines, procedures and policies issued by said body for the evaluation and classification of assets.

Said provision may be eliminated by resolution of the Superintendent, when the next evaluation by the Superintendency yields discrepancies at a level below the established parameters; or at the request of a party, demonstrating that as a result of a new evaluation the evaluation and classification guidelines referred to in this regulation are met.

Art. 39 Recognition.- The financial institution must recognize assets received in payment or adjudicated when, as a result of a legally documented agreement, the right over them exists and at the same time the probability arises of receiving economic benefits associated with the item to be recognized and the same has a value that can be measured reliably.

Art. 40 Measurement .- Assets received in payment or adjudicated shall be measured in accordance with the following:

a) Initial Measurement: Assets received in payment or adjudicated shall be measured at the lower of:

1) The value agreed in dation in payment or the judicial adjudication value, as applicable.

2) The realizable value in accordance with the regulations governing the matter of appraisers providing services to institutions of the Financial System, at the date of incorporation of the asset.

3) The net book balance of the bank, corresponding to the principal of the credit plus interest, plus other accounts receivable other than transaction costs.

The value of the measurement methods in numerals 1) and 3) indicated above must include the transaction costs incurred in the acquisition of such assets. Transaction costs shall be understood as the costs directly attributable to the acquisition or realization of the asset (taxes, duties, professional fees to acquire or transfer ownership of the assets, etc.)

b) Subsequent Measurement: Once the assets are recorded in accordance with the provisions of the preceding literal, they shall be measured at the value recorded in books less the provisions assigned to the asset, as established in the following article.

Art. 41 Constitution of provisions.- The financial institution must transfer the respective provisions assigned to the credit to provisions for assets received in payment or adjudicated, as long as the sale of the asset is not made. Without prejudice to the foregoing, these provisions must be adjusted to the provisions of the following literal a):

a) The provision recorded may not be less than the following percentages of the value of the asset recorded in the books: Provisions:

1) Movable assets:

    § 30% minimum provision from its registration until 6 months from the adjudication of the asset.

    § 50% minimum provision after 6 months until 12 months.

    § 100% provision after 12 months from the adjudication of the asset.

2) Immovable assets:

    § The provision that the credit had assigned before the adjudication, until 6 months after the asset has been adjudicated.

    § 30% minimum provision after 6 months until 12 months from the adjudication of the asset.

    § 50% minimum provision after 12 months until 24 months from the adjudication.

    § 75% minimum provision after 24 months until 36 months from the adjudication.

    § 100% provision after 36 months from the adjudication.

Art. 42 Valuation.- Immovable assets received in payment or adjudicated shall be valued in their entirety at least once a year, unless there is evidence that an impairment loss has occurred.

The valuation of said assets must be made based on the estimate of the realizable value in accordance with the regulations governing the matter of appraisers providing services to institutions of the Financial System.

All assets whose book value is greater than the equivalent in national currency or foreign currency of one hundred thousand dollars (US$100,000.00), must have valuations performed by appraisers independent of the financial institution, duly registered in the Registry of Appraisers of the Superintendency, with the exception of assets located outside the country.

The valuations and supporting background information must be available to the Superintendent for review. The financial institution must report, by means of a detailed list, all assets received in payment or adjudicated and their respective recorded amounts, with the periodicity established in the “Calendar” sent to all supervised entities. Information Officer

Art. 43 Reversal of constituted provisions.- The provisions constituted may be reversed once the sale of the respective asset is made, considering previously against these provisions, the possible losses determined by effect of diminution of the value of the asset at the time of sale. If the asset in question is sold for a higher value, both the excess of the sale value and the provisions constituted must be recorded as income.

Art. 44 Loans with a single maturity.- Consumer credits, microcredit, mortgage loans for housing and commercial loans that have not been paid on their maturity date shall be transferred to overdue at thirty-one (31) calendar days, counted from the maturity date.

Art. 45 Loans payable in installments.- Consumer, microcredit, mortgage housing and commercial credits payable in monthly, quarterly, semi-annual, annual, etc. installments, which have not been paid on their due date, shall be transferred to overdue after ninety-one (91) calendar days, counted from the due date of the first unpaid installment. In the case of loans with installments with a payment frequency of less than one month, they shall be transferred to overdue after the default of payment of three consecutive installments.

Second: The following transitional provisions are established:

a) The provisions constituted corresponding to goods received in payment or adjudicated existing before the entry into force of this regulation may be reversed once the respective sale of the good is made, considering previously against these provisions the possible losses determined by the effect of a decrease in the value of the good at the time of sale.

b) The aforementioned goods that at the entry into force of this regulation are not provisioned at one hundred percent (100%) shall be adjusted to the provisions established in the first point of this regulation.

Third: This regulation shall enter into force as of its notification, without prejudice to its subsequent publication in La Gaceta, Diario Oficial.

(f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) A. Cuadra G. (f) Roberto Solórzano Ch. (f) U. Cerna Barquero.

URIEL CERNA BARQUERO
Secretary Board of Directors SIBOIF