Technical Standards for Real Estate Lease Contracts Between Banks and Related Parties

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-05/2024
NRP-72
TECHNICAL STANDARDS FOR REAL ESTATE LEASE CONTRACTS BETWEEN BANKS AND RELATED PARTIES Approval: 28/06/2024 Validity: 16/07/2024

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

CONSIDERING:

I. That Article 204 of the Banks Law establishes that related persons by ownership are those holding three percent or more of the shares of a bank. To determine this percentage, the shareholder's shares will be added to those of their spouse, relatives within the first degree of consanguinity, and the proportional share they hold when they have social participation in companies that are shareholders of a bank. Also considered related parties are companies whose ownership is in any of the circumstances established in letters a), b), c) and d) of the aforementioned article.

II. That Article 208 of the Banks Law establishes that the Superintendency of the Financial System may object on grounds that a bank has entered or has entered into service provision contracts, leases, or any other commercial transaction not prohibited by that Law with the persons referred to in Article 204 that harm the entity's equity.

III. That Articles 155 and 161 of the Law on Cooperative Banks and Savings and Credit Societies establish that savings and credit societies shall be subject to the provisions of the Banks Law insofar as they are pertinent.

IV. That Article 3, second paragraph, letter c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendency of the Financial System to proactively monitor the risks of the members of the financial system and the way in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.

V. That Article 7 of the Law on Supervision and Regulation of the Financial System establishes the entities subject to the supervision of the Superintendency of the Financial System.

VI. That Article 99, third paragraph, letter a) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to approve technical standards on any other aspect inherent to risk management by the supervised entities.

VII. 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 Reserve Bank of El Salvador.

THEREFORE,

by virtue of the regulatory powers conferred upon it by Article 99 of the Law on Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR REAL ESTATE LEASE CONTRACTS BETWEEN BANKS AND RELATED PARTIES

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object
Art. 1.- These Standards aim to establish the requirements and procedures that obligated subjects must comply with when signing real estate lease contracts with related parties.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Banks incorporated in the country; b) Branches of foreign banks established in the country; c) The Development Bank of the Republic of El Salvador, insofar as it does not contradict its creation law, nor what is provided by the Court of Accounts; d) The Mortgage Bank of El Salvador, S.A.; e) The Agricultural Development Bank, insofar as it does not contradict its Creation Law, nor what is provided by the Court of Accounts; and f) Savings and Credit Societies.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Reserve Bank of El Salvador; b) Entity: Subjects obligated to comply with these Standards; c) Related parties: Those referred to in Articles 203 and 204 of the Banks Law; and d) Superintendency: Superintendency of the Financial System.

CHAPTER II
REQUIREMENTS AND PROCEDURES

Art. 4.- If an entity obligated to comply with these Standards wishes to sign a lease contract with any of its related parties, it must obtain prior authorization from the Superintendency, unless it objects. To this end, the entity must submit a written request to the Superintendency prior to the celebration of the contract, indicating:
a) The object and justification of the contract, of which the draft must be attached; b) The agreement of the board of directors, shareholders' meeting or competent body to decide on the contracting; c) General information of the lessor and class of link with the entity; and d) Budget for investments to be made in adaptations and renovations. The Superintendency must issue the respective agreement within ten business days counted from the day following receipt of the request, with all the necessary information that the interested entity presents.

Art. 5.- The Superintendency will object to real estate lease contracts to be entered into between an entity obligated to comply with these Standards and any of its related parties, in the following cases:
a) When the terms are more favorable to the lessor than those signed with third parties in similar operations, within the financial system; b) When the financial analysis of the contract terms concludes that it will harm the entity's equity; and c) When it is determined that the contract has been made with the intention of favoring the lessor.

CHAPTER III
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 6.- 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. 7.- The Technical Standards for Real Estate Lease Contracts Between Banks (NPB4-31), approved by the Board of Directors of the Superintendency of the Financial System in Session No. CD22/2001 of May 10, 2001, whose Organic Law was repealed by Legislative Decree No. 592, which contains the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Transitory
Art. 8.- Requests presented in accordance with what is established in the Technical Standards for Real Estate Lease Contracts Between Banks (NPB4-31), and which were pending at the time these Standards entered into force, will continue in accordance with the regulations under which they began.

Unforeseen Aspects
Art. 9.- 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. 10.- These Standards will enter into force as of the sixteenth of July two thousand twenty-four.