Technical Standards for Determining First-Line Foreign Financial Entities

NRP-80
FIRST-LINE FOREIGN FINANCIAL ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE OF EL SALVADOR,

CONSIDERING:

I. That Article 10, letter d) of the Banks Law, establishes that the ownership of shares of banks constituted in El Salvador may be acquired by banks and other foreign financial institutions, in whose country of origin there exists prudential regulation and supervision, in accordance with international practices on this matter, and that are qualified as first-line by internationally recognized risk rating agencies. Additionally, holding companies of banks and other foreign financial institutions that meet the aforementioned requirements and are subject to consolidated supervision in accordance with international practices on this matter.

II. That Article 3, first paragraph, of the Law on Cooperative Banks and Savings and Credit Societies, establishes that cooperative banks, savings and credit societies, and federations of cooperative banks shall be governed by their respective legal frameworks regarding their constitution, organization, and administration, provided they do not contradict what is established by said Law; in matters not provided for, the Banks Law shall apply.

III. That Article 157, first paragraph, of the Law on Cooperative Banks and Savings and Credit Societies, establishes that the provisions of the Banks Law contained in Title Two, relating to organization, administration, and operation, shall apply to savings and credit societies, with the exception of some modifications described in that same article of the referenced Law.

IV. That Article 6, letter c) of the Insurance Companies Law, establishes that the ownership of shares of insurance companies constituted in El Salvador must be maintained, at minimum at seventy-five percent, individually or jointly, in Central American insurance or reinsurance companies or other foreign ones, the latter being classified as first-line companies, based on classifications made by internationally recognized rating institutions. In both cases, it must be considered that they operate in accordance with the prudential regulation and supervision of their country of origin and that they are complying with the provisions applicable to them.

V. That Article 25, fourth paragraph, letter c) of the Investment Banks Law, establishes as a condition that the subordinated debt to be contracted by the investment bank must have as its creditor a first-line foreign financial institution. (1)

NRP-80
FIRST-LINE FOREIGN FINANCIAL ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024

VI. That Article 2, first paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that the Financial Supervision and Regulation System aims to preserve the stability of the financial system and ensure its efficiency and transparency, as well as to ensure the security and solidity of the members of the financial system in accordance with what is established by said Law, other applicable laws, regulations, and technical standards issued for this purpose, all in concordance with the best international practices on the matter. (1)

VII. That Article 3, letter c) of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Superintendence of the Financial System to preventively 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. (1)

VIII. That Article 3, letter h) of the Law on Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Superintendence of the Financial System to authorize the registrations, registry entries, modifications, and cancellations thereof, of the persons, institutions, and operations subject to such requirement, in accordance with the laws on the matter. (1)

IX. That Article 99, third paragraph, letter a) of the Law on Supervision and Regulation of the Financial System, establishes that it corresponds to the Committee of Standards of the Central Bank of Reserve of El Salvador the approval of technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, especially those relating to solvency, liquidity, provisions, reserves, classification of risky assets, criteria for establishing the need for consolidation, good corporate governance practices, information transparency, and on any other aspect inherent to risk management by the supervised entities. (1)

X. That in accordance with Article 101, fourth paragraph, of the Law on Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Bank of Reserve of El Salvador. (1)

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:

NRP-80
FIRST-LINE FOREIGN FINANCIAL ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024

TECHNICAL STANDARDS FOR DETERMINING FIRST-LINE FOREIGN FINANCIAL ENTITIES

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the criteria that must be considered to classify a foreign financial entity as First-Line or investment grade or first-tier entity, as well as the procedures that obligated subjects must fulfill to register them in the List of Banks and Foreign Financial Institutions classified as First-Line maintained by the Superintendence of the Financial System.

Subjects
Art. 2.- The obligated subjects for compliance with the provisions established in these Standards are:
a) Banks constituted in the country; b) Branches of foreign banks established in the country; c) Savings and credit societies; d) Cooperative banks; e) The Mortgage Bank of El Salvador, S.A.; f) The Agricultural Development Bank, insofar as it does not contradict its Creation Law; g) Insurance companies constituted in the country; h) Holding companies of exclusive purpose; (1) i) Foreign financial institutions that request authorization to establish a branch or information office in the country; and (1) j) Investment banks constituted in the country. (1)

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Bank of Reserve of El Salvador; b) Rating Agencies: Risk Rating Companies; c) Foreign Entities: Foreign banks or other financial institutions subject to first-line classification; d) List: List of First-Line Foreign Banks and Financial Institutions; e) First-Line: Refers to "investment grade" and "first-tier entities"; f) Entity(ies): Obligated subjects for compliance with these Standards; and g) Superintendence: Superintendence of the Financial System.

NRP-80
FIRST-LINE FOREIGN FINANCIAL ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024

CHAPTER II
ON THE LIST OF FOREIGN FINANCIAL ENTITIES

Submission of Request
Art. 4.- Entities interested in having foreign entities classified as First-Line and registered in the List maintained by the Superintendence must submit a written request attaching the report issued by the Rating Agency showing the assigned international rating.

Additional Requirements for Share Ownership Cases Art. 5.- For the case of foreign entities proposing to invest in shares of banks and insurance companies constituted in the country in more than one percent of the capital of these entities, in addition to what is established in the previous article, they must attach a note issued by their supervisory body, stating that in their country of origin there is prudential regulation and supervision in accordance with international practices. (1) The authorization for the ownership of shares of banks or insurance companies is regulated in the following norms: (1) a) "Technical Standards for the Authorization of Transfer of Shares of Banks, Investment Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies (NRP-55), issued by the Central Bank of Reserve of El Salvador through its Committee of Standards; and (1) b) "Technical Standards on the Transfer of Shares of Insurance Companies" (NRP-54), issued by the Central Bank of Reserve of El Salvador through its Committee of Standards.

Update of the List
Art. 6.- In the first ten business days of the months of June and December of each year, entities must update the rating of the foreign entities they have registered in the List; this being understood as the notification to the Superintendence of the rating report of each foreign entity. In case the update is not carried out or when the presented rating is of higher risk than those accepted by these Standards, such entities will lose their status as registered. The date of issuance of the report containing the international classification must not be older than one year.

Art. 7.- To keep the List updated, entities must monitor the ratings of the foreign entities they certify as First-Line and inform the Superintendence when any of them is rated with a category of higher risk than those admitted by these Standards, causing it to lose its

NRP-80
FIRST-LINE FOREIGN FINANCIAL ENTITIES
Approval: 15/08/2024
Validity: 30/08/2024 registered status in the List.

CHAPTER III
GENERAL PROVISIONS

Classification Criteria
Art. 8.- The ratings issued by the Rating Agencies will serve as a reference to classify banks or foreign financial entities as First-Line and will allow them to be registered in the List; the registration will enable them for the effects indicated in the Banks Law, Insurance Companies Law, Law on Cooperative Banks and Savings and Credit Societies, and the Investment Banks Law. (1)

Internationally Recognized Rating Agencies
Art. 9.- The Rating Agencies accepted by the Superintendence as internationally recognized, for the purposes of these Standards, are the following:
a) Fitch Ratings; b) Moody's Investors Service; c) Standard & Poor's Corporation; and d) A.M. Best Company, Inc.
Rating Agencies in which one of those mentioned in the preceding letters has an equity participation of at least ten percent are also accepted, as well as Rating Agencies registered with the Securities and Exchange Commission of the United States of America, a quality that must be convincingly demonstrated to the Superintendence.

International Risk Categories that Classify as First-Line Art. 10.- For the purposes of these Standards, first-line financial entities are those entities that have any of the international ratings described below:

Risk Rating Agency	Classification Categories
	Short-term Obligations	Long-term Obligations	Issuer Rating
Fitch Ratings	F1+, F1, F2, F3	AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-	A, A/B, B
Moody's Investors Service	P-1, P-2, P-3	Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3	Aaa, Aa1, Aa2, Aa3, A1, A2, A3
Standard & Poor's Corporation	A1+, A1, A2, A3	AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-	Short-term: A1+, A1, A2, A3; Long-term: AAA, AA+, AA, AA-, A+, A, A-
A.M. Best Company, Inc.	AMB-1+, AMB-1, AMB-2, AMB-3	aaa, aa, a, bbb	A++, A+, A, A-, B++, B+

Ratings of other Rating Agencies that have different nomenclature but have an equivalence to the above and are considered of "investment grade" quality will be accepted.

CHAPTER IV
OTHER PROVISIONS AND VALIDITY

Art. 11.- The First-Line classification is one of the requirements that foreign financial entities must fulfill to desire to acquire ownership of more than one percent of the shares of banks and insurance companies constituted in the country.
The criteria expressed in these Standards that classify foreign financial entities as First-Line do not constitute a suggestion or recommendation to invest, nor an endorsement or guarantee of the issuance or of the solvency of the foreign entity.

Sanctions
Art. 12.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal
Art. 13.- These Standards repeal the "Standards for Determining First-Line Foreign Financial Entities" (NPB4-43), approved in Board of Directors Session No. CD-45/2009 on October 28, 2009, by the Board of Directors of the Superintendence of the Financial System, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Transitory
Art. 14.- Requests presented in accordance with what is established in the "Standards for Determining First-Line Foreign Financial Entities" (NPB4-43), and that are pending at the time of entry into force of these Standards, will continue in accordance with the regulation under which they began.

Unforeseen Aspects
Art. 15.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 16.- These Standards will enter into force as of the thirtieth of August of two thousand twenty-four.

MODIFICATIONS:
(1) Modifications in Considerations V, VI, VII, VIII, and IX and incorporation of Consideration X and modifications of Articles 2, 5, and 8, approved by the Central Bank through its Committee of Standards, in Session No. CN-09/2025, of November 10, two thousand twenty-five, with validity as of November 25, two thousand twenty-five.