Technical Standards for Credit Risk Management, Limits on Risk Assumption, and Credits to Related Parties of Development Banking Entities

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE OF EL SALVADOR,

CONSIDERING:
I. That in accordance with Article 3, letter c) of the Law on Supervision and Regulation of the Financial System, it is the responsibility of the Superintendence of the Financial System to proactively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.
II. That Article 7 of the Law on Supervision and Regulation of the Financial System establishes that the Development Bank of the Republic of El Salvador, formerly the Development Bank of El Salvador and formerly the Multisectoral Investment Bank, is a member of the financial system.
III. That in accordance with Article 35, letter d) of the Law on Supervision and Regulation of the Financial System, it is stipulated that directors, managers, and other officials holding positions of direction or administration of the members of the financial system must conduct their business, acts, and operations in compliance with the highest ethical standards of conduct, acting with the due diligence of a good merchant in their own business, being obligated to comply with and ensure that in the entity they direct or work for, the adoption and updating of policies and mechanisms for risk management are fulfilled, and among other actions, to identify, evaluate, mitigate, and disclose them in accordance with international best practices.
IV. That Article 99, letter a) of the Law on Supervision and Regulation of the Financial System stipulates that it will be the responsibility of the Standards Committee to approve technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, including aspects inherent to risk management by the supervised entities.
V. That by Legislative Decree No. 847, dated September 22, 2011, published in the Official Journal No. 197, Volume No. 393, of October 21 of the same year, the Financial System Law for Development Promotion was issued.
VI. That by Legislative Decree No. 653, dated June 4, 2020, published in the Official Journal No. 117, Volume No. 427, of June 9 of the same year, the Financial System Law for Development Promotion was reformed, changing its name to the Law of the Development Bank of the Republic of El Salvador, among others.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
VII. That Article 92 of the Law of the Development Bank of the Republic of El Salvador establishes that regarding financial operations that the Bank concludes directly with eligible subjects, with its own resources or with the resources of the Economic Development Fund or the Salvadoran Guarantee Fund, and whose provisions are not contemplated in the aforementioned Law, the Bank must observe the relevant provisions of the Banking Law regarding prohibitions on the assumption of risks, credits, and contracts with related parties.
VIII. That Article 34 of Legislative Decree No. 653, dated June 4, 2020, establishes that the Central Bank through its Standards Committee will issue the necessary technical regulation for the application of the Law Creating the Development Bank of the Republic of El Salvador, which must be carried out taking into account the nature of this entity.

THEREFORE, in virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System, AGREES to issue the following:
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF ENTITIES OF DEVELOPMENT BANKING

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- The objective of these Standards is to provide guidelines applicable to development banking operations for the adequate management of credit risk, and criteria for the adoption of policies and procedures related to the development of methodologies for their identification and measurement, as well as for the establishment of limits and mechanisms for monitoring, control, and mitigation of exposure levels to this risk, in accordance with the nature, scale of activities, and risk profile. Likewise, they also aim to regulate the application of limits in the granting of credits by the obligated subjects to persons or groups of related persons, domiciled or not in the country.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
These standards complement the provisions established in the standards to classify credit risk assets and constitute soundness reserves for development banking.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are entities that perform development banking operations and that by Law are under the supervision of the Superintendence of the Financial System, and where applicable, insofar as it does not contradict their creation law and what is provided by the Court of Accounts. Development banking operations constitute credits granted to subjects and financial institutions, discounted documents, bonds and other debt instruments acquired, sureties, guarantees, and any form of direct or indirect financing or other operation that represents an obligation for the entity.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Senior Management: The President, Executive President, Executive Director, General Manager, or whoever acts on their behalf, and the main executive positions recognized as such, by the Board of Directors; b) Governors' Assembly: The highest body that normally transfers guidelines and supervises the performance of the Board of Directors in some Development Institutions; c) Risk Appetite: The level and types of risks that an entity is willing to assume in relation to its activities, to achieve its strategic objectives for development purposes; d) Guarantee: A guarantee is understood as a financial commitment, ancillary to the entity, to respond to a credit obligation of a third party, committing to the creditor in whole or in part, if the principal debtor does not fulfill it; e) Central Bank: Central Bank of Reserve of El Salvador; f) Development Banking: Banks or financial institutions that support economic and social development, channeling resources mainly to medium and long term, assigning resources to public and private banking in lines of financing and guarantee to productive sectors, especially to sectors of the economy traditionally excluded or neglected by commercial banking, including access to education and business training; and that within their funding mechanisms do not include the capture of deposits;

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ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020 g) BANDESAL: Development Bank of the Republic of El Salvador; h) Credit Concentration: Refers to the exposure in amount and number of credits that an Institution has with individual counterparties, groups of individual counterparties or related parties, counterparties in specific geographic locations, economic sectors, service providers, and specific products; i) Credit risk concentration: Refers to the potential exposure to produce large losses, sufficient to threaten the stability of an entity or the ability to maintain its main operations. The potential for loss reflects the size of the exposure and the magnitude of the loss given a particular adverse circumstance; j) Entity or Institution: Is the subject obligated to comply with the provisions established in these Standards; k) Risk Factors: Represent those variables that entities must consider for adequate identification and mitigation of the risks to which they are exposed; l) Credit Management: Is the process by which the Entity or Institution, based on internal policies and procedures approved, manages a credit, from prospecting, to its recovery; m) Credit Risk Management: Process that incorporates the identification, measurement, control, and mitigation of risks associated with the granting of credits, as well as the monitoring and timely communication of the same; n) Board of Directors: Collegiate body or equivalent body responsible for the direction and administration of the entity, with functions of supervision, direction, and control; o) Development banking operations: Are financial operations performed by Institutions or Development Banks, and are characterized by having terms normally at medium and long term; that are granted without charging any type of commissions, at interest rates usually lower in relation to commercial banking, that contribute to correcting market failures, and that seek to complement the operations performed by commercial banking; p) Related Parties: Those who have the ability to influence credit granting decisions or who have a conflict of interest when making those decisions; q) Credit Risk: Is the possibility of loss, due to the non-compliance of contractual obligations assumed by a counterparty, understood as a borrower or a debt issuer, also incorporates credit concentration; r) Credit Concentration Risk: Is the possibility of loss originating from the concentration in the granting of credits to clients or sectors of the economy; s) Superintendence: Superintendence of the Financial System; and

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020 t) Risk Tolerance: Levels of risk-taking acceptable to achieve a specific objective or manage a category of risk. Risk tolerance represents the practical application of risk appetite and, generally, is aligned with categories of risk, such as strategy, finance, people, or reputation.

CHAPTER II
CREDIT RISK MANAGEMENT

Organizational System
Art. 4.- Entities must establish an adequate organizational or functional structure for the management of operations typical of development banking, which must allow for adequate segregation and delimitation of functions and responsibilities, as well as the levels of dependence and interrelation that correspond to each of the areas involved in credit risk management. All these aspects must be contemplated in the respective Manual or Policies, approved by the Board of Directors of the entity.

Responsibilities of the Board of Directors
Art. 5.- The Board of Directors of the entity is the body directly responsible for the management of credit risk and credit concentration, and therefore must:
a) Approve strategies, policies, and manuals for the management of credit risk and credit concentration, which must treat, at a minimum, the diversification of risks, credit and investment limits by country, and within these, sub-limits by economic sector, term of operations, among others, and ensure that Senior Management effectively implements them; b) Assign and approve the necessary resources to implement and maintain the management of credit risk and credit concentration in an effective and efficient manner; c) Designate the administrative unit responsible for the control and monitoring of credit risk and credit concentration; d) Schedule periodic evaluations on the compliance with strategies, policies, and prudential regulations; e) Ensure that internal audits are performed by personnel independent of the area responsible for credit risk and credit concentration; f) Implement internal control procedures that allow the identification, measurement, monitoring, and control of credit risk and credit concentration; and g) Receive monthly information on the situation of credit risk and credit concentration, as well as the exposure of these risks with respect to the main debtors.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
The agreements of the Board of Directors must be duly expressed in the respective minutes book.

Responsibilities of Senior Management
Art. 6.- Senior Management is responsible for the implementation of the management of credit risk and credit concentration, of the strategies, policies, and manuals authorized by the Board of Directors.

Stages of the management process
Art. 7.- For the management of credit risk and credit concentration, entities must have a continuous and documented process to determine credit assets exposed to credit risk; as well as to identify, measure, control, and mitigate, monitor, and communicate the referred risk.

Identification
Art. 8.- Entities must establish a process for identifying factors that may cause an increase in credit risk or credit concentration in each operation, product, or business line they develop, whether with their own resources or with third-party resources.

Measurement
Art. 9.- Entities must estimate expected losses derived from credit activity, considering the criteria of frequency and severity of defaults.

Control and mitigation
Art. 10.- Entities must implement controls for the management of credit risk and credit concentration, as well as evaluate their adequate functioning. This phase includes the application of measures aimed at mitigating the effect on the financial situation of the entity that could result from the materialization of this risk. Similarly, the Internal Audit area must include in its work plans the verification of compliance with policies related to credit risk and credit concentration, whether from the point of view of development banking or risk management itself.

Monitoring and communication
Art. 11.- Entities must establish mechanisms for the continuous monitoring of this risk, including processes that help to timely adjust, based on changes in the economic environment, policies, processes, and procedures to manage credit risk and credit concentration. The monitoring activity is the responsibility of Senior Management, which includes the Risk Area and the Risk Committee, as well as other instances involved in the process, which will have sufficient and timely information to support decision-making.

CHAPTER III
CREDIT RISK MANAGEMENT POLICIES

Risk management policies
Art. 12.- Entities must have explicit policies for the management of credit risk and credit concentration, which must be approved by the Board of Directors and be adequate to the characteristics of their products and target market. Such policies must at least orient towards establishing levels of tolerance for exposure to credit risk, as well as performing a correct valuation of credit risk assets based on the probability of portfolio recovery. The aspects specifically related to credit risk management must be duly documented and identified. The entities' policies must contain aspects of credit granting, follow-up, collection, recovery, and treatment of exceptions to policies. The same must be consistently understood by those involved in credit management, and therefore must be widely disseminated.

Procedures manuals
Art. 13.- Entities, based on their policies, must establish adequate processes and procedures for the granting, follow-up, collection, and recovery of credit; including, in addition, the stages of the credit risk management process. The foregoing must be documented in the respective manual, approved by the Board of Directors.

CHAPTER IV
CREDIT CONCENTRATION RISK

Credit concentration policies
Art. 14.- Subjects must have a policy regarding credit concentration risk, according to the segmentation that each entity defines in accordance with their legal frameworks, which must be duly documented and approved by the Board of Directors and subject to periodic reviews to take into account eventual changes in risk limits and in the economic environment; in addition, they must contain the treatment of exceptions to the limits.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Credit concentration risk management
Art. 15.- Entities must establish adequate internal procedures for the identification, measurement, control, monitoring, and communication of credit concentration risk, in accordance with the nature, risk profile, and scale of their activities.

Establishment of limits
Art. 16.- Entities must establish, according to a prior analysis, limits, thresholds, or similar concepts of credit concentration, as well as the procedures to be followed in the application of these, in order to guarantee that the level of credit risk determined by the Board of Directors is not exceeded. Entities must perform concentration analysis of their credit and investment portfolios, as well as estimates of the trends they present, considering at least the following aspects:
a) Large individual exposures to the same counterparty, to linked counterparties, and to related groups. For these purposes, the definition of linked must be broad enough to include exposures linked by common factors, such as ownership and administration. The entity may consider in this definition cases of linked guarantors or guarantors; b) Exposures to counterparties in the same sector or economic segment or geographic region, including exposures for non-domiciled credits; c) Levels of delinquency and recovery; d) Effectiveness of mitigants for credit risk; and e) Similarities between risk factors to non-linked exposures or exposures to common factors. The results of these analyses must serve to adjust procedures and the limits established in the management of credit concentration risk, and if deemed necessary, must be submitted to their respective approval by the Board of Directors.

Monitoring
Art. 17.- The management and communication systems for credit concentration risks must incorporate monitoring functions, such as:
a) Review of the risk environment of the sector or segment in question; b) Scenario analysis including stress tests; c) Economic results of large individual exposures; d) Review of authorization levels for new operations; or e) Periodic review of risk mitigants, their value, and legal feasibility in case of recovering the loan with the guarantee.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
The results of these analyses must be submitted to the Risk Committee or the Board of Directors, so that they take the pertinent measures.

Risk coverage
Art. 18.- Entities must ensure that their levels of provisions and capital are sufficient to cover credit risk and credit concentration risk.

CHAPTER V
INFORMATION SYSTEMS AND DETERMINATION OF DATABASES

Managerial information systems
Art. 19.- Entities must have an internal information system to manage credit risk and credit concentration risk, in order to measure their exposure and facilitate decision-making. The managerial information system must allow the entity to identify, measure, control, monitor, and follow up on credit risk and credit concentration risk.

Databases
Art. 20.- Entities must have databases that allow them to estimate their expected loss, for which they will use the following components:
a) Probability of default; b) Loss given default; and c) Exposure at default.
The database must be constructed in accordance with the risk profile of Development Banking and with the activities and economic sectors it attends; likewise, it must be updated in a timely and consistent manner. The elements considered that support the estimation of these components must be documented and available to the Superintendence, when it so requires. The duration of the observation period of the database for the measurement of expected loss must be at least five years.

CHAPTER VI
RELATED PARTIES

Related parties
Art. 21.- Related parties are considered members of the Assembly of

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Governors, the Board of Directors, Senior Management, and any person who, directly or indirectly, has the ability to influence the granting of credit decisions or who has a conflict of interest when making those decisions. This includes, but is not limited to, family members of the aforementioned individuals, companies in which they hold a significant interest, or entities controlled by them.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Limits on credits to related parties
Art. 22.- Development banking entities must establish limits on the total amount of credits granted to related parties. These limits must be approved by the Board of Directors and must not exceed the limits established by the Superintendence of the Financial System.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Monitoring of credits to related parties
Art. 23.- Entities must establish mechanisms for the continuous monitoring of credits granted to related parties, including the identification, measurement, control, and mitigation of risks associated with these credits.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020
Reporting on credits to related parties
Art. 24.- Entities must report to the Superintendence of the Financial System on the credits granted to related parties, in the manner and frequency established by the Superintendence.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Transitory provisions
Art. 25.- The provisions of these Standards will enter into force on the date of their publication in the Official Journal.

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ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Art. 26.- Entities have a period of one year from the date of entry into force of these Standards to comply with the provisions established herein.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Art. 27.- These Standards are published in the Official Journal and enter into force on the date of their publication.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020
Given in the Central Bank of Reserve of El Salvador, on December 3, 2020.

The Committee of Standards

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
[End of Document]

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
Governors, Board of Directors and Senior Management of the Institution, as well as spouses and relatives within the first degree of consanguinity. The foregoing, without prejudice to other related provisions that might be applicable. Direct relationship by administration Art. 22.- Related persons in direct administrative relationship with the institution are operational directors and managers of the entity, as well as spouses and relatives within the first degree of consanguinity. The foregoing, without prejudice to other related provisions that might be applicable.
CHAPTER VII
CREDIT LIMITS AND CREDITS CONSIDERED FOR THE CALCULATION OF THE LIMITS Limit of related credits Art. 23.- The limit of credits to related persons and of credits considered related, may not exceed five percent (5%) of the social capital and capital reserves of the Institution. For the purposes of calculating the limit, credits to related persons must be considered, determined according to the Standards of the preceding chapter. Presumed related operations Art. 24.- The limit of related operations includes those established by the Superintendence in the presumption resolution, when it estimates the fulfillment of any of the conditions indicated in article 206 of the Banks Law and that may be applicable to development banking entities, or when, due to known facts, the Superintendence determines that the aforementioned operation has been granted due to the influence of related persons or for their benefit. Credits to spouses and relatives Art. 25.- The limit of related credits includes those granted to spouses and relatives up to the second degree of consanguinity and first degree of affinity of directors, managers, members of the Board of Directors and of the Assembly of Governors. The foregoing, without prejudice to other related provisions that might be applicable. Indirect credits Art. 26.- Also included in the global calculation of the aforementioned limits are those granted to persons identified under the concept of indirect liabilities, when one of the contracting parties is not a related subject.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
For the purposes of these Standards, indirect liabilities shall be understood as obligations affecting persons who, without being the beneficiaries of the credit, have undertaken the responsibility to answer with their assets for the fulfillment of the obligation, such as guarantors, joint and several debtors, acceptors, drawers and endorsers of bills of exchange, and in general when the acquired obligation implies a responsibility for one of the parties, even if that party is not a related subject. For the calculation of each of the obligations mentioned in the preceding articles, the value of interest, including those accounted for in off-balance sheet accounts, must be added to each obligation. Conditions of related credits Art. 27.- The credits referred to in this chapter may not be granted on more favorable terms, regarding duration, interest rates or guarantees, than those granted to third parties in similar operations. Art. 28.- The credits and other operations carried out by the entity, which are granted to related persons and related persons in direct administrative relationship, must be authorized by the Board of Directors, without the interested party's presence. Note to Financial Statements Art. 29.- External auditors, when issuing their report on the financial statements of development banking entities, will indicate in a separate note the set of related credits, clearly indicating whether as of the reference date the entity is within the limits indicated in article 23 of these Standards. Register of related persons Art. 30.- Entities must maintain a separate, updated register that allows them to automatically know the credits to related persons, in accordance with article 205 of the Banks Law. This register must be available to the Superintendence.
CHAPTER VIII
APPLICATION OF LIMITS IN THE ASSUMPTION OF RISKS BY ENTITIES Persons and groups of persons considered in the affectation of credit limits Art. 31.- The persons or groups of persons affected by the credit or risk limits granted by entities are the following:

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020 a) Natural persons; b) Legal entities, including autonomous state-owned companies, except when it concerns the Central Reserve Bank, the State and the Deposit Guarantee Institute; c) Groups formed by companies among which there is unity or control of decision. It shall be understood that there is unity of control or decision when a person or a set of persons acting jointly, directly or through third parties, participates in the ownership of the company or has the power to carry out any of the following actions:
i) Ensure the majority of votes in general shareholders' meetings or elect the majority of directors. ii) Control at least ten percent (10%) of the capital with voting rights of the company, unless there is another person or group of persons with a joint action agreement, who controls, directly or through third parties, a percentage equal to or greater than the aforementioned. d) Groups of companies with common shareholders owning more than fifty percent (50%) of the capital; e) Groups formed by general partnerships or limited partnerships in which there is a joint and several partner; and f) Groups formed by the shareholder or partner of companies in which they hold more than fifty percent (50%) of the paid-up social capital or of the profits. In the case where the participation is greater than ten percent (10%) and does not exceed fifty percent (50%), the inclusion of obligations will be made pro rata. Presumed linkage Art. 32.- The Superintendence may accumulate obligations to a group or to an individual natural or legal person, when in its judgment there are facts that presume that credits granted to various debtors constitute a single operation or credit risk. To guarantee the right to be heard by entities, the presumption shall be resolved as follows:
a) The Superintendence will communicate a reasoned resolution to the Institution in question, in order that within a term not exceeding eight business days counted from the day following the date of notification, it presents its arguments of defense; and b) In the case that the Institution does not present the necessary arguments within the indicated period or if they are not satisfactory to the Superintendence, it will resolve that the credit constitutes a single operation or credit risk and will accumulate it to the individual debtor or to a group of economically linked persons, as

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020 applicable. From the resolution, a request for rectification and appeal will be admitted, as provided in articles 64 and 66 of the Law on Supervision and Regulation of the Financial System.
CHAPTER IX
CONDITIONS AND COVERAGE OF GUARANTEES
Conditions of guarantees
Art. 33.- Real guarantees, in addition to being legally constituted, must meet the following conditions:
a) Mortgages and pledges must be duly registered in the corresponding Public Registries, according to the following detail:
i) Mortgages on real estate are granted a term of one year; and ii) Mortgages on ships, aircraft and commercial enterprises; and pledge guarantees are granted a term of six months. These terms for definitive registration in the corresponding registries shall be counted from the date of submission of the documentation in the respective Registry. The term will be granted if the respective preventive annotation and the necessary legal documentation have been presented, or in its case only the latter, as applicable. b) Physical assets given as collateral must be executable according to the laws of the country. Value of guarantees Art. 34.- Entities must define in their credit granting policies, the parameters to consider for the purposes of coverage of the guarantees backing the credit.
CHAPTER X
CREDITS THAT AFFECT LIMITS
Direct liabilities
Art. 35.- Credits to a natural or legal person constitute loans granted, discounted documents, acquired bonds, sureties, guarantees granted and any form of direct financing or other operation that represents an obligation for it. For the calculation of the global amount of credits subject to the limits referred to in article 197 of the Banks Law, the following concepts will be considered:
a) Loan balances; b) Amount of authorized overdrafts and balances of eventual overdrafts; c) Guarantees and sureties; d) Opening of letters of credit for export and import net of previous deposits and prepayment; e) Investments in obligations issued by the credit subject; f) Investments in repo operations, outside the stock exchange, in this case the repo party will be considered debtor; and g) Any other obligation that has the characteristic of credit, financing or implies a direct or indirect obligation of the persons or group of persons for with the Institution. Indirect liabilities Art. 36.- By indirect liabilities, it shall be understood the obligations affecting persons who, without being the beneficiaries of the credit, have undertaken the responsibility to answer with their assets for the fulfillment of the obligation, such as guarantors, joint and several debtors, acceptors, drawers and endorsers of bills of exchange, and in general when an obligation implies a responsibility for the person or group of persons among whom there is economic linkage. In no case will the debt balance be weighted by more than one hundred percent (100%), when it concerns persons corresponding to the same economic group.

Art. 37.- To establish the calculation of each of the obligations mentioned in articles 35 and 36 of these Standards, the value of accessories must be added to them, such as: current interest registered in the assets, commissions, surcharges and others.
CHAPTER XI
GENERAL PROVISIONS
Financing control and information to the Superintendence Art. 38.- Institutions must have computer means that allow them automated control of the limits of credits granted to persons and groups of persons, and of financing excesses relative to legal limits in relation to their equity fund. Similarly, the computer means of Institutions must have the capacity to keep control of the credits granted to persons and groups of persons not domiciled in relation to the limits established by Law, or by authorization of the Superintendence. In the event that an Institution exceeds the established limits for any reason, it must inform the Superintendence within seven business days following the previous month, except those corresponding to the months of June and December, which must be sent within the first ten business days, according to the models attached to these Standards. Handling of control files Art. 39.- Entities must maintain files with updated documentation of persons or groups of persons, classified as a single debtor, which will be available to the Superintendence, and must contain as minimum information regarding active credits, the constitution of guarantees, and the analysis carried out to determine that it meets the limit established for this type of credit. Contracting requirements Art. 40.- Entities must require legal entities that apply for credit, the credential registered in the Commerce Registry of the board of directors of the company, as well as the list of its partners or shareholders; and when granting the document formalizing the credit, they must include a clause that obligates these companies to inform the entity, within thirty days following the occurrence of the event, changes in the composition of their board of directors and in the ownership of the social participations of their assets. Equity fund for the determination of financing limits Art. 41.- For the purposes of these Standards, limits must be determined based on the unconsolidated equity fund of the last day of the month prior to the date of the report or review by the Superintendence. In specific cases of limits for persons and groups of persons affected, the equity fund of the last day of the month prior to the date of granting the credit will be used as a reference. Adaptation Plan Art. 42.- Entities, to comply with the provisions established in these Standards, must submit to the Superintendence an adaptation plan, within sixty calendar days following the validity of these Standards. Once the plan is submitted, entities must implement it within a maximum term of one hundred eighty days counted from its submission.

NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
CHAPTER XII
OTHER PROVISIONS AND VALIDITY
Sanctions
Art. 43.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is provided in the Law on Supervision and Regulation of the Financial System. Unforeseen aspects Art. 44.- Aspects not provided for in the matter of regulation in these Standards will be resolved by the Central Bank through its Standards Committee. Validity Art. 45.- These Standards will enter into force on December 22, two thousand twenty.
Annex No. 1
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ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
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Validity: 22/12/2020
CONTROL REPORT OF LIMITS IN THE GRANTING OF CREDITS BY BANDESAL THROUGH DIRECT OPERATIONS, ACCORDING TO ART. 45 OF THE LAW OF THE DEVELOPMENT BANK OF THE REPUBLIC OF EL SALVADOR REFERENCE DATE:____________________ (IN US DOLLARS) Project/Subject/ Economic Group Shareholder Participation Group Participation Credit Reference Date of Granted Class of Credit Type of Guarantee Value of the Guarantee Amount Granted Balance Interest Debt Total Percentage of project financing (Max 80%) Limit (Max 15% Net Equity) Projects:

Subjects
Individual:

Economic Group:
GROUP "x"
Debtor "1"
(Detail of
Shareholders)
Total per Debtor
Debtor "2"
(Detail of
Shareholders)
Total per Debtor
Total per Debtor
Etc.

Annex No.2
NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
CONTROL REPORT OF LIMITS IN THE GRANTING OF CREDITS FROM THE ECONOMIC DEVELOPMENT FUND, ACCORDING TO ART. 66 OF THE LAW OF THE DEVELOPMENT BANK OF THE REPUBLIC OF EL SALVADOR REFERENCE DATE:____________________ (IN US DOLLARS) Project/Subject/ Economic Group Shareholder Participation Group Participation Credit Reference Date of Granted Class of Credit Type of Guarantee Value of the Guarantee Amount Granted Balance Interest Debt Total Percentage of project financing (Max 90%) Limit (Max 15% Equity Fund) Projects:
Subjects
Individual:

Economic Group:
GROUP "x"
Debtor "1"
(Detail of
Shareholders)
Total per Debtor
Debtor "2"
(Detail of
Shareholders)
Total per Debtor
Total per Debtor
Etc.

Annex No. 3
NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
CONTROL REPORT OF LIMITS IN THE GRANTING OF GUARANTEES FROM THE SALVADORIAN GUARANTEE FUND, ACCORDING TO ARTS. 79 AND 81 OF THE LAW OF THE DEVELOPMENT BANK OF THE REPUBLIC OF EL SALVADOR REFERENCE DATE:____________________ (IN US DOLLARS) Beneficiary Credit Reference Date of Granted Class of Credit Type of Guarantee Value of the Guarantee Amount Granted Balance Interest Debt Total Percentage guaranteed (Max 8 times Equity Fund) Limit of guarantees to the same beneficiary (Max 3% Equity Fund)

Annex No. 4
NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
CONTROL REPORT OF THE 10% INDIVIDUAL LIMIT OF THE EQUITY FUND IN CREDITS GRANTED TO NON-RESIDENT PERSONS OR FOR BEING INVESTED ABROAD IN THE IMPORTATION AND MARKETING OF GOODS AND SERVICES OF SALVADORIAN ORIGIN REFERENCE DATE:____________________ (IN US DOLLARS) CAT NIT Name Debtor No. reference Destination Code Country of Destination Nationality Date of Granting Date of Maturity Balance Owed Amount Granted Equity Fund Relationship Debt/FP

Annex No. 5
NASF-08
ASSUMPTION OF RISKS AND CREDITS TO RELATED PARTIES OF DEVELOPMENT BANKING ENTITIES Approval:
03/12/2020
Validity: 22/12/2020
CONTROL REPORT OF THE 10% INDIVIDUAL LIMIT OF THE EQUITY FUND IN DEPOSITS CONSTITUTED IN FOREIGN FINANCIAL ENTITIES, ACCORDING TO ART. 197 OF THE BANKS LAW REFERENCE DATE:____________________ (IN US DOLLARS) Name of Depository Country Total Deposits Checking Plus its credits Minus its debits Real availability at sight Date of opening Time Deposits Interest to receive Total Deposits Equity Fund Relationship Dep/FP Limit 10% FP Margin or Excess