Superintendency of Banks and Other Financial Institutions

REPUBLIC OF NICARAGUA - CENTRAL AMERICA

Resolution No. CD-SIBOIF-667-1-MAR2-2011
Dated 02 March 2011

STANDARD FOR THE REFORM OF ARTICLES 4 AND 6 OF THE STANDARD ON THE PAYMENT OF BONUSES IN FINANCIAL INSTITUTIONS

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

WHEREAS

I

That numerals 7 and 8 of article 40 of Law No. 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette No. 232, of 30 November 2005, establish that the precepts regulating the corporate governance of financial institutions must include, among others, policies on mechanisms for the identification, measurement, monitoring, control and prevention of risks and policies for the management of conflicts of interest; as well as general salary policies and other benefits for workers.

II

That in accordance with the foregoing and based on the powers established in article 3, numeral 13), and article 10, subparagraphs 1), 2) and 3) of Law No. 316, Law of the Superintendency of Banks and Other Financial Institutions and its reforms.

In exercise of its powers

HAS ISSUED

The following:

Resolution No. CD-SIBOIF-667-1-MAR2-2011 STANDARD FOR THE REFORM OF ARTICLES 4 AND 6 OF THE STANDARD ON THE PAYMENT OF BONUSES IN FINANCIAL INSTITUTIONS

FIRST: Reform articles 4 and 6 of the Standard on the Payment of Bonuses in Financial Institutions contained in Resolution No. CD-SIBOIF-655-2-NOV24-2010, of 24 November 2010, which shall read as follows:

Managua, Nicaragua

SIBOIF Building - Km. 7 Carretera Sur

Telephone PBX: 2265-1555 P.O. Box 788

web: www.siboif.gob.ni

Email: correo@siboif.gob.ni

Art. 4. Minimum content of bonus policies.- The bonus policies referred to in the previous article must contain at least the aspects indicated below and must be applied at the individual and financial group level:

a) The decision-making process used to determine the bonus policy; indicating that, in the case of officers, bonuses must be approved by the board of directors and in the case of directors, by the general shareholders' meeting, an aspect that must be recorded as an agenda item in the notice convening the session.

b) The criteria used to evaluate and measure performance and its risk adjustment, which contemplate among others, the following:

i. The cost of capital required to support the risks assumed, from the point of view of the evaluation of return on equity;

ii. The evolution of asset quality over time and not only for aspects related to its placement;

iii. The cost of liquidity assumed in the development of the business or activity, from the point of view of the evaluation of the financial margin; and

iv. The evaluation of the profitability of assets, from the point of view of their evolution over time, in accordance with the goals established in the operating plans.

c) Bonuses must be paid according to performance and compliance with the global goals of the institution, of the particular business unit and the individual goals of the director or officer.

d) The link between payment and performance.

e) Express prohibition of guaranteed bonuses, since these are not consistent with prudential risk management practices or the principle of pay for performance.

f) Policy of deferral in the payment of bonuses and criteria for granting, in cases where this form of payment is necessary to align the payment of the bonus with the nature of the business, its risks and the activities of the director or officer in question; as well as to create incentives aligned with the creation of long-term value and the time horizons of risk.

g) The parameters used to pay the bonus, whether in cash, shares or options.

h) Bonuses must be sensitive to aspects of non-financial performance of the director or officer. Misconduct (particularly unethical behavior and lack of compliance) must be sufficient to discredit good financial performance and reduce the bonus.

i) Both performance measures and risk adjustments must be adjusted to the level and responsibilities and the compensation approach used.

The board of directors is obliged to require from general management a report on the bonuses paid. Likewise, the board of directors must present to the shareholders' meeting, in the annual report, details of the aspects indicated above.

Art. 6. Restriction on the payment of bonuses.- The Superintendent, based on the knowledge obtained about the situation of a financial institution, whether through inspections or through the analysis of the documentation and information available, without prejudice to the sanctions that may apply, according to the materiality or seriousness of the case, may suspend or restrict the payment of bonuses in the following cases:

a) When acts or operations are carried out without the authorization of the Superintendent, when so established by law or regulations, or without observing the conditions established therein.

b) When transactions are carried out with related parties under preferential conditions or without complying with the legal and regulatory provisions established for this type of operations; or when there are undisclosed transactions with related parties.

c) Lack of minimum information that, in accordance with the law and the corresponding regulations, must be required from debtors, when such information has an impact on the determination of their payment capacity and/or the recoverability of the credit.

d) When the existence of practices that undermine the independence that must exist between the bodies responsible for auditing, internal control, compliance and risk management with respect to the other corporate and business instances of a particular institution is verified.

e) When it is determined that the policies, practices and procedures for granting, administering and controlling credits, insurance or securities intermediation do not conform to the applicable legal and regulatory provisions, according to the level of deficiencies found.

f) When at the start of the on-site inspection visit the information required in the opening letter is not available.

g) When the financial institution does not comply with the precepts of this standard.

h) When the financial institution is in a transitional regime regarding the constitution of provisions for any asset, that is, those for which the Board of Directors has approved gradualism or deferral for creating their provisions, whether they have resulted from its own calculations or as a product of inspections.

i) When the financial institution has pending to record adjustments ordered by the Superintendent, or determined by themselves, whether these are interest to be cleaned up or various accounts of the general balance sheet.

j) When the opinion of the external auditors regarding the audit performed at the end of the period includes qualifications that may affect the financial situation of the Institution.

k) When the provisions contained in the laws, resolutions of the Board of Directors are infringed; as well as the orders or instructions issued by the Superintendent; or irregularities are detected in the functioning of an institution, or documents or reports are received from these that do not correspond to their true situation.

l) When other situations arise that in the judgment of the Superintendent merit restricting the payment of bonuses, when in the criteria of said official and as a prudential measure, said payment may harm the stability or soundness of the Institution.

SECOND: This standard shall enter into force from its notification without prejudice to its publication in the Official Gazette, La Gaceta. (f) A. Rosales B. (f) V. Urcuyo V. (f) Gabriel Pasos Lacayo (f) illegible (Silvio Moisés Casco Marenco) (f) F. Reyes B. (f) U. Cerna B.

URIEL CERNA BARQUERO
Secretary Board of Directors SIBOIF