Resolution CD-SIBOIF-569-1-ENE28-2009
Dated 28 January 2009

STANDARD REFORMING ARTICLES 1, 6, 11, 18, 19, 51 and 52 OF THE STANDARD ON CREDIT RISK MANAGEMENT

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

WHEREAS

SOLE

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,

STANDARD REFORMING ARTICLES 1, 6, 11, 18, 19, 51 and 52 OF THE STANDARD ON CREDIT RISK MANAGEMENT

Resolution CD-SIBOIF-569-1-ENE28-2009

First: Reform articles 1, 6, 11, 18, 19, 51 and 52 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. 1 Concepts.- For the purposes of application of the provisions contained in this standard, the terms indicated in this article, whether in uppercase or lowercase, singular or plural, shall have the following meanings:

a) Risk assets: All credit portfolio and contingent operations that in any way represent direct or indirect financing in favor of natural or legal persons shall be understood as risk assets. Foreclosed assets, the investment portfolio and accounts receivable shall also be considered risk assets. Insurance and bonding premiums are excluded

receivable from clients and accounts receivable from reinsurers for commissions or reimbursements for payment of claims.

b) Days past due: For credits with a single maturity, the days elapsed since the credit's maturity date; for credits payable in installments, the days elapsed since the installment's maturity date (interest, principal or a combination of principal and interest).

c) Dollars: United States of America dollars at the official exchange rate.

d) Total indebtedness: The sum of credit operations (direct and indirect) and contingent operations, according to the information available in the Superintendency's Credit Bureau and private credit bureaus available to the financial institution, as well as the information provided by the client.

e) Financial institution: Refers to banks, financial companies and insurance companies.

f) Portfolio classification: It is the action of analyzing and evaluating the level of recoverability of the set of credits of each debtor, including the corresponding contingent operations and any other obligation that the debtor has with the institution.

g) Credit in judicial collection: A credit is considered in judicial collection when it is in the process of collection through this channel.

h) Debtor: It is the natural or legal person that has incurred obligations directly or indirectly with the financial institution.

i) General Banking Law: Law 561, General Law of Banks, Non-Bank Financial Institutions and Financial Groups, published in La Gaceta, Official Gazette, number 232, of 30 November 2005.

j) Credit exchange risk: Possibility of facing losses derived from debtor defaults in the payment of their credit obligations as a result of mismatches between their net exposures in foreign currency due to variations in the exchange rate.

k) Credit risk: Potential loss due to the failure to pay of a debtor or counterparty in the operations carried out by the institutions.

l) Overindebtedness: Level of indebtedness in the financial system that, due to its excessive nature relative to the debtor's income and payment capacity, puts at risk the fulfillment of their obligations.

m) Superintendency: Superintendency of Banks and Other Financial Institutions.

n) Superintendent: Superintendent of Banks and Other Financial Institutions.

Art. 6 Evaluation criteria for consumer and mortgage housing credits.-

Prior to the granting of consumer and mortgage housing credits, the payment capacity and indebtedness capacity shall be analyzed based on, among others, the applicant's income, their net worth, the installments and balance of their various obligations. To obtain the aforementioned information, the financial institution shall require the client to provide it, as well as, through consultation with the Superintendency's Credit Bureau or other complementary background information that allows estimating the quality of the set of obligations of the debtor subject to evaluation, such as information on the debtor's credit history from private credit bureaus available to the financial institution.

The evaluation of debtors shall be carried out using credit technologies specialized in consumer and mortgage housing credits in accordance with the minimum risk management aspects referred to in literal a) of article 18 of this standard.

Art. 11 Evaluation and classification.- The financial institution shall carry out

permanently an evaluation of the quality of its risk assets, classifying them according to the criteria established in this standard, in order to estimate the recoverability of its risk assets and take the corresponding corrective and safeguard measures. The financial institution shall keep the classifications of its debtors updated, in accordance with the background information that indicates variations in the debtor's level of risk of losses. In no case shall unclassified portfolio be admitted.

The evaluations and classifications of the different types of portfolio shall be carried out as follows:

a) Consumer loans, residential mortgage loans, and microcredit shall be permanently classified based on their repayment capacity measured by their degree of compliance, reflected in the number of days past due. To determine the classification, all credit operations contracted by the debtor with said institution shall be combined, such that the risk category assigned shall be that corresponding to the credit with the highest risk of recovery within the institution, provided that said credit is classified in categories "D" or "E", and its balance represents at least five percent (5%) of the total amount owed by the client within the institution.

When a commercial debtor maintains other types of operations (consumer, residential mortgage, or microcredit) in the same institution, the debtor shall be evaluated as a whole based on the criteria for the evaluation of the commercial portfolio.

b) Commercial loans shall be permanently classified based on delinquency or other events that warrant their reclassification, and must be reclassified at the time when, through the respective monitoring, deterioration in the debtor's repayment capacity or financial conditions is determined. Additionally, at least once a year, the asset evaluation and classification area of the financial institution shall conduct a thorough evaluation based on all the criteria established in Article 8 of this regulation.

The additional provisions resulting from the evaluations and classifications must be constituted and reflected in the financial statements of the financial institution in the same month in which they are determined.

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

a) For consumer and residential mortgage loans: The Superintendency, during its inspection visits, shall evaluate the consumer and residential mortgage loan activity of the financial institution in order to verify whether there are additional risk factors due to deficiency in the risk management of consumer and residential mortgage loans; and, consequently, the need to constitute a provision for additional risk.

In order to determine the provision for additional risk, the Superintendency shall evaluate the policies, practices, and procedures for the granting and administration of consumer and residential mortgage loans, verifying that they contemplate at least the following aspects:

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

2) Take into account the total indebtedness of the debtor (and of their spouse, when the spouse's income is included in the analysis) with the institution and with other financial institutions in the financial system in the calculation of total debt in order to determine their borrowing capacity and their over-indebtedness status.

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

4) Consider appropriate levels of installment/income or installment/net flow after expenses, to determine borrowing capacity, adequately differentiated by products and income range, using realistic assumptions when converting loan balances into installment equivalents.

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

6) Consider for the granting of mortgage loans, a loan amount/property value ratio ("Loan-to-value") in accordance with the risk profile of the clients.

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

8) Include 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 the loans (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 campaigns to increase credit card lines, or to attract clients for consumer credit products,

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

10) In the case of credit cards, identify debtors who only make the minimum payment, and establish specific monitoring mechanisms to take necessary corrective measures.

When it is determined that the policies, practices, and procedures for the granting, administration, and control of loans do not conform to the guidelines indicated in this subsection, the Superintendent may order the financial institution to constitute and maintain a provision, additional to those referred to in Articles 13, 14, and 17 of this regulation, of twenty-five hundredths of a percent (0.25%), with respect to the net book value of the consumer and residential mortgage loan portfolio.

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 the management of consumer and housing mortgage loans.

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

b) For microcredits: The Superintendency, in its inspection visits, shall 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 constitute a provision for additional risk.

In order to determine the provision for additional risk, the Superintendency shall evaluate the policies, practices and procedures for the granting and administration of microcredits, verifying that they contemplate at least:

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

• Adequate portfolio evaluation and rating system 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 the granting, administration and control of credits do not conform to the guidelines established in this subsection, the Superintendent may order the financial institution to constitute and maintain a provision, additional to those referred to in articles 15 and 17 of this regulation, of zero point fifty 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-compliances with the established credit policies and procedures and/or sound practices for granting and administering credits, 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 payment capacity;

3) Verification of the debt payment history with institutions of the Financial System and with other creditors (in case of having access), ensuring that the client does not maintain overdue, in-execution or settled operations at the time of granting the credit.

4) Verification that the client's guarantor has no overdue debts with institutions of the Financial System and with other creditors (in case of having access) at the time of granting the credit;

5) Verification, when 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 an adequate historical database 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 shows discrepancies at a level below 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 classification of commercial credits.- In the event that the result of the inspection carried out by the Superintendency based on a representative sample determined in a statistical and random manner, 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, which must be done within a period no greater than ninety (90) days, and simultaneously shall order the constitution of a provision for deficiency in the management of credit classification, additional to those referred to in articles 10 and 16 of this norm, of twenty-five hundredths of a percent (0.25%), with respect to the net book value of the commercial credit portfolio.

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 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 norm are complied with.

Art. 51 Powers.- The Superintendent is empowered to do the following:

a) In special circumstances, financial institutions may request from the Superintendent specific exceptions to the application of this norm. The latter, by reasoned resolution, shall rule on the matter, informing the Board of Directors of the Superintendency of such exceptions. In no case shall it be applicable to consumer credits.

b) Modify the information requested in Annexes 1 and 2-A 2-B of this norm, to the extent that its application so requires.

Art. 52 Transitional.- The following transitional provisions are established for the application of the new criteria for evaluation and classification of assets contained in this norm:

a) Financial institutions shall have until 31 March 2009, to adapt their accounting, control, computer and other systems necessary for the recording of operations and other provisions contained in this norm.

b) Financial institutions shall have until 31 May 2009, to incorporate and implement in their credit policies the minimum aspects of credit risk management established in literal a) of article 18 of this norm.

c) With respect to the provisions of Annex No. 1 of this norm, regarding the requirement of certified or audited financial statements for commercial credits granted to natural or legal persons, the first period to be considered shall be the financial statements as of 31 December 2008 or 30 June 2009 or according to the approved fiscal regime.

d) Financial institutions that as a result of the application of the provisions established in this norm require constituting provisions, may request from the Superintendent authorization to graduate the application of said provisions, attaching a proposal of the gradual plan with the respective justification.

e) Financial institutions that as a result of the application of the criteria established in this norm require fewer specific provisions than those constituted, must record the excess as generic provisions, so that they do not affect the results of the period. Said generic provisions may not be considered as components of secondary capital in the calculation of capital adequacy. These generic provisions may be reduced by affecting the result of the period, until the Superintendency in on-site inspection evaluates the assets of the institution in accordance with the provisions established in this norm.

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

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

URIEL CERNA BARQUERO
Secretary Board of Directors SIBOIF