Resolution No. CD-SIBOIF-605-1-DIC9-2009
Dated 09 December 2009

STANDARD FOR THE REFORM OF ARTICLES 34, 35, 36, 37, 38, 40 and 41 OF THE STANDARD ON CREDIT RISK MANAGEMENT

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

SOLE RECITAL

That based on the power granted to it by article 3, numerals 3 and 13, and article 10, numeral 7, of Law 316, Law of the Superintendency of Banks and Other Financial Institutions, and its reforms contained in Law 552, Law of Reforms to the aforementioned Law 316;

In exercise of its powers,

HAS ISSUED

The following,

CD-SIBOIF-605-1-DIC9-2009

STANDARD FOR THE REFORM OF ARTICLES 34, 35, 36, 37, 38, 40 and 41 OF THE STANDARD ON CREDIT RISK MANAGEMENT

First: Reform articles 34, 35, 36, 37, 38, 40 and 41 of the Standard on Credit Risk Management, contained in Resolution No. CD-SIBOIF- 547-1-AGOST20-2008, dated 20 August 2008, which shall read as follows:

Art. 34 Refinancings.- Refinancings shall be considered to be credits that are current with their payments, that are subject to renegotiation due to a change or modification in the terms and conditions originally agreed that do not involve, prior to the refinancing, a deterioration in the debtor's payment capacity.

Modifications made to the conditions of a credit contract for the purpose of adjusting its payment to the deterioration of the client's payment capacity may not be considered refinancings, but rather extensions or restructurings, as applicable, in accordance with the provisions of this chapter.

Art. 35 Extensions.- An extension shall be considered to be the extension or enlargement of the term for the payment of a credit, for a period no greater than six (6) months, of the term originally agreed, without any other modification of the terms of the contract, motivated by a temporary deterioration in the debtor's payment capacity with respect to the credits. In the event that one or several of the original terms of the contract, other than the term, are modified, the credit shall be considered restructured, and shall be treated in accordance with the provisions of article 36 of this standard.

Installments may be extended, partially or totally, in the case of credits payable in installments, or balances in the case of credits with a single maturity.

No more than one extension may be granted to the same debtor within a period of twelve months.

Extensions shall be processed as any other credit in accordance with the requirements established in this standard and prior to their authorization, they shall comply with the following:

a) That the extension must be granted before the maturity of the installment or balance to be extended, that is, that the credit is current with its payments.

b) To have payment capacity, whether as a product of the financed activity or of other activities that evidence the return of the credit within a term no greater than the term of the extension.

c) That the cause of non-payment on the agreed date is due to temporary external factors not attributable to improper actions or omissions of the debtor, and that the expectations of overcoming them are not greater than the term of the extension.

d) That there has been no diversion of funds from the financed activity or from the pledge given as collateral, nor breach of other contractual conditions aimed at the protection of the creditor.

e) That the debtor has not failed to comply with indications or guidelines of the technicians or officers of the creditor financial institution, whose effects could have caused a reduction of its capacity for the payment of its obligations, or weakening of the collateral.

The extended credit may be accounted for as current, once the client complies with the total payment of the amount subject to the extension; otherwise, the credit shall be considered in arrears and the days of arrears shall be calculated from the originally agreed maturity date, that is, before the extension.

The provisions of this article are not applicable to microcredits, consumer credits and mortgage loans for housing, in which case the modifications of the contracts motivated by a deterioration in payment capacity may only be perfected through the restructuring of the credit. Excepted from the foregoing are microcredits intended to finance economic and production activities.

Art. 36 Restructurings.- A credit shall be considered restructured when the changes in the terms and conditions originally agreed are motivated by a deterioration in the debtor's payment capacity with respect to the credits.

The restructuring shall be processed as any other credit in accordance with the requirements established in this standard and prior to its authorization, it shall comply with the following:

a) The carrying out of a prior analysis and the approval by the corresponding instance of the institution;

b) That the debtor has payment capacity, whether as a product of the financed activity or of other activities that evidence the recovery of the credit within the new term and conditions agreed;

c) That there has been no diversion of funds from the financed activity or from the pledge given as collateral, nor breach of other contractual conditions aimed at the protection of the creditor; and

d) The proportion of coverage of the collateral originally agreed is maintained or improved. In cases in which the collateral has been affected by causes of force majeure or fortuitous event and the client does not have assets susceptible of being given as collateral, the financial institution may proceed to restructure, provided that, through the restructuring, the position of recovery of the amount owed is improved. For such cases, said situation shall be duly documented in the debtor's file.

The consolidation of debts shall be considered a restructuring when one or more of the credits to be consolidated have been granted by the same financial institution and at least one of them is not current with its payments in the last ninety (90) days prior to the consolidation of the debts. Debt consolidation shall be understood as the credits granted to pay obligations that the client has with the granting financial institution or with another institution of the financial system, in order to take advantage of better market conditions.

Art. 37 Classification of restructured microcredits, consumer credits and housing mortgage loans.- Microcredits, consumer

and housing mortgage loans subject to a restructuring shall be classified in the risk category that the credit had before the restructuring. In the case of consumer credits disbursed through credit cards, as well as those that do not have liquid or real collateral, the classification may in no case be lower than risk category "C".

1) Restructured credits whose payment is agreed in equal and successive installments may improve the classification of the credit up to category "A", after at least one of the following conditions is met:

a) Normal payment behavior for at least six (6) installments after the restructuring.

b) That an amount equivalent to twenty-five percent (25%) of the principal of the restructured credit has been paid.

The restructured credit may be accounted for as current once the two conditions established in literals a) and b) above are met.

2) In the event that the credit is structured in installments that are not equal or successive, they may only improve the classification of the credit up to category "A" after complying with the provisions of literal b) of numeral 1) referred to above. The restructured credit may be accounted for as current once the condition established in this numeral is met.

If the debtor shows non-compliance in the payment of the agreed installments, non-compliance with the goals agreed within one (1) quarter and/or deterioration in its payment capacity, the financial institution must proceed to reclassify the credit to a higher risk category.

Art. 38 Classification of restructured commercial credits.- Restructured

commercial credits shall be classified in accordance with the criteria set forth in this regulation for each category, according to the evaluation of the debtor before the restructuring.

The credit subject to restructuring shall be considered in arrears when it has previously been subject to an extension and is restructured before the expiration of the extension period or when the client has not complied, at its maturity, with the total payment of the amount subject to the extension. For these purposes, the days of arrears shall be calculated from the maturity date of the originally agreed credit, that is, before the extension.

In the event that the debtor has more than one credit and these are subject to restructuring via consolidation thereof, for the calculation of arrears the maturity date of the oldest credit shall be used as a reference.

The restructuring of a credit shall not induce a debtor to be automatically reclassified to a lower risk category, unless the following conditions are met:

a) Debtors that pay off the interest pending payment before the date of formalizing the restructuring or debtors that have a secure source of payment with coverage of 80% of the total debts (principal and interest) or that the principal and interest of the restructured credit is 100% covered by liquid collateral may be reclassified up to category "B".

Such debtors may be reclassified in category "A" after receiving payment for an amount equivalent to twenty-five percent (25%) of the principal of the restructured credit

The following are considered secure sources of payment:

1) Flows from a pledge on harvest in favor of the creditor financial institution and that has been effectively delivered to the marketing entity or its equivalent;

2) Flows from the payments of principal and interest of debt securities issued by the Central Bank of Nicaragua or the Ministry of Finance and Public Credit, duly pledged in favor of the creditor financial institution;

3) Securities issued by financial institutions of the country supervised by the Superintendency or by foreign financial institutions qualified as first order in accordance with the regulations governing the matter on limits of deposits and investments, duly pledged in favor of the creditor financial institution; and

4) Prior authorization, any other that in the opinion of the Superintendent is considered a secure source of payment.

b) Credits that do not comply with the provisions of literal a) above may be reclassified up to category "A", after receiving payment for an amount equivalent to twenty-five percent (25%) of the principal of the restructured credit.

For the purpose of the reclassifications referred to in literals a) and b) above, the new credit conditions must comply with the criteria set forth in this regulation for the respective category. Once the conditions indicated in said literals are met, the credits may be accounted for as current.

Art. 40 Measurement.- Assets received in payment or adjudicated shall be measured as follows:

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

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

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

3) The balance in the bank's books, corresponding to the principal of the credit plus interest, plus other accounts receivable other than transactional costs. The foregoing without considering the

provisions recorded or the interest written off prior to adjudication.

The value of the measurement methods in numerals 1) and 3) indicated above must include the transactional costs incurred in the acquisition of such assets. Transactional 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 letter, they shall be measured at the value recorded in the books less the provisions assigned to the asset, as established in the following article. Additionally, in the case of real estate, for any loss of value due to impairment.

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. In the event that the value determined in letter a) of the preceding article is less than the book balance of the corresponding credit, the financial institution must write off the outstanding balance and transfer the remainder of the provisions assigned to the credit to provisions for assets received in payment or adjudicated.

Likewise, when there is more than one asset in the process of adjudication, the financial institution must transfer the respective provisions assigned to the credit as the assets are adjudicated and in the proportion of the value determined in letter a) of the preceding article.

Without prejudice to the foregoing, these provisions must be adjusted to the provisions of the following letter a):

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

1) Movable assets:

    - 30% minimum provision from its registration until 6 months after 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) Real estate:

    - The provision that the credit had assigned before the adjudication in accordance with the provisions of the first and second

paragraph of this article, 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.

Second: Repeal the reform norm of articles 34, 35, 36, 37, 38, 40 and 41 of the Norm on Credit Risk Management, contained in Resolution CD-SIBOIF-593-2-AGOST19-2009, of 19 August 2009.

Third: Repeal resolution CD-SIBOIF-597-1-SEP23-2009, of 23 September 2009, published in La Gaceta, Diario Oficial, No. 192 of 12 October 2009.

Fourth: Banks, financial companies and insurance companies shall have until 31 March 2010 to adjust their operating and technological systems to the provisions contained in this norm, except for the provisions in these articles for the consumer credit portfolio disbursed through credit cards, for which the deadline to adjust shall be until 31 December 2009.

Fifth: This norm shall enter into force upon its notification without prejudice to its publication in the Diario Oficial, La Gaceta.

(f) A. Rosales B. (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) Fausto Reyes (f) Illegible (Silvio M. Casco Marenco) (f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary Board of Directors SIBOIF