Technical Standards for the Application of the Equity Capital Requirement for Investment Banks

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

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

CONSIDERING:

I. That Article 24, first paragraph, of the Investment Banks Law establishes that, in order to constantly maintain their solvency, investment banks must present at all times a ratio of at least eight percent between their equity capital and the sum of their weighted assets, net of depreciation, reserves, and provisioning for impairment.

II. That Article 24, second paragraph, of the Investment Banks Law establishes that the equity capital ratio with respect to the weighted assets of the Investment Bank must be maintained at a minimum of eight percent during the first three years of its constitution. Subsequently, the Superintendency may review said percentage through an evaluation process.

III. 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 safety and solidity of the members of the financial system in accordance with what is established by said Law, other applicable laws, regulations, and technical norms issued for this purpose, all in concordance with international best practices on the matter.

IV. That Article 7, letter u), 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 supervise the other entities, institutions, and operations indicated by the laws.

V. 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 Norms Committee of the Central Reserve Bank of El Salvador to approve technical norms, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, especially those related to solvency requirements, 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.

THEREFORE,

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

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Norms aim to establish the provisions that allow the calculation of equity capital requirements for Investment Banks, in accordance with the Investment Banks Law.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Norms are:
a) Investment Banks constituted in El Salvador; b) Subsidiaries established abroad of Investment Banks constituted in El Salvador; and c) National subsidiaries and joint venture companies of Investment Banks constituted in El Salvador.

Terms
Art. 3.- For the purposes of these Norms, the terms indicated below have the following meaning:
a) Central Bank: Central Reserve Bank of El Salvador; b) Entity(ies): Subjects obligated to comply with these Norms; and c) Superintendency: Superintendency of the Financial System.

CHAPTER II
DETERMINATION OF EQUITY CAPITAL

Equity Capital
Art. 4.- Equity capital shall be the sum of Primary Capital plus Supplementary Capital, deducting from these, when applicable:
a) The value of the participation in the capital of subsidiaries located abroad; b) The value of participations in the capital of subsidiaries and joint venture companies, in accordance with Article 24 of the Banks Law applicable to entities according to Article 71 of the Investment Banks Law; c) Additional resources that entities provide in any form to their subsidiaries abroad, as well as guarantees, sureties, and bonds issued to respond for the obligations of their subsidiaries located abroad; and d) Other participations in the capital of any company.

Primary Capital
Art. 5.- The components of primary capital are:
a) Subscribed share capital; b) Legal reserve; and c) Other capital reserves, derived from received profits.

Supplementary Capital
Art. 6.- The components of supplementary capital are:
a) Results from previous exercises, on which no decision has been taken; b) Undistributable profits referred to in the first paragraph of Article 29 of the Investment Banks Law; c) Fifty percent (50%) of the profits of the current exercise, net of the provision for Income Tax; d) Fifty percent (50%) of voluntary impairment reserves, which shall not be subtracted from the loan portfolio for the purposes of weighted assets; e) Subordinated debt with five or more years to maturity, up to fifty percent (50%) of the value of Primary Capital. For the purposes of the amount computable in equity capital, this shall be calculated as follows:
i) Before five years to maturity, up to the value of the loan balance. ii) From the beginning of the five years to maturity, the debt balance decreased by an accumulative 20% annually, as follows:
5.0 years before maturity: 80%
4.0 years before maturity: 60%
3.0 years before maturity: 40%
2.0 years before maturity: 20%
Last year before maturity: 0% h) Convertible loans into shares, when the term is greater than one year. From the sum of all the previous components, the value of accumulated losses and current exercise losses, if any, shall be deducted. For the purposes of determining equity capital, Supplementary Capital will be accepted up to a sum equal to Primary Capital.

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

CHAPTER III
EQUITY CAPITAL REQUIREMENT

Regarding Weighted Assets
Art. 7.- Entities must present, at all times, a ratio between their equity capital and the sum of their weighted assets of at least eight percent during the first three years of their constitution. Subsequently, the Superintendency may review said percentage considering the following elements for this purpose:
a) Financial Statements of the Investment Bank; b) Detail of the composition of Equity Capital; c) Detail of the assets of the Investment Bank; and d) Risk management and internal controls. In the event that the Superintendency determines an increase in the percentage established in the first paragraph of this article, entities will have a period of twelve months, counted from the notification of the respective resolution, to make the corresponding adjustments in order to comply with the new percentage.

Weighting of Assets and Contingent Rights
Art. 8.- The weighting of assets, contingent rights, net of depreciation, reserves, and provisioning for impairment, shall be carried out as follows:

1. Unweighted:
   a) Cash availability. Remittances in transit shall not be included in this concept; b) Money deposits in the Central Reserve Bank of El Salvador; c) Investments in securities issued or guaranteed by the State, the Central Reserve Bank of El Salvador, or the Deposit Guarantee Institute; d) Stock market investments made in securities issued or guaranteed by the State and by the Central Reserve Bank; e) Assets and contingencies deducted from equity capital, which are mentioned in letters a), b), c), and d) of Article 4 of these Norms; f) Deposits and high-liquidity, low-risk securities that constitute the liquidity reserve referred to in Chapter III of the Investment Banks Law; g) Credits, guarantees, sureties, and bonds, fully guaranteed with deposits in legal tender and with easily liquidable assets in the same entity;

2. Weighted at twenty percent (20%): Funds in transit for local and foreign remittances;

3. Weighted at fifty percent (50%):
   a) Loans guaranteed by other local investment banks; b) Credits granted to other Investment Banks, except for convertible loans into shares, which will be weighted at one hundred percent; c) Money deposits in local banks and investment banks; d) The value of letters of credit, net of guarantee deposits, prepayments, and provisions; e) Guarantees, sureties, and bonds that are not fully guaranteed with deposits in legal tender or easily liquidable assets in the entity; f) Loans guaranteed by Salvadoran reciprocal guarantee societies; g) Other payment commitments on behalf of third parties.

4. Weighted between zero and one hundred fifty percent:
   Investments in securities issued by foreign states or central banks according to the country risk rating of the issuer, as follows:

Risk Category | AAA to AA- | A- to BBB+ | BBB+ to BBB- | BB+ to B- | Below B- and unclassified Risk Weighting | 0% | 20% | 50% | 100% | 150%

For the equivalence of country risk categories issued by different Risk Classifiers, the table described in numeral 7 of Section VI Constitution of Reserves for Country Risk of the Accounting Manual for Investment Banks (NCF-XX), issued by the Central Bank through its Norms Committee, will be used.

5. Weighted between twenty and fifty percent:
   Money deposits in first-line foreign banks or with investment grade and loans, guarantees, sureties, and bonds guaranteed by first-line banks or with investment grade are weighted according to their risk rating as follows:

Risk Category | AAA to A- | BBB+ to BBB-
Risk Weighting | 20% | 50%

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

6. Weighted at one hundred percent (100%):
   The total value of assets not contemplated in the previous numerals will be weighted at one hundred percent (100%).

Requirement regarding Liabilities and Contingent Commitments Art. 9.- The equity capital of entities shall not be less than seven percent (7%) of their total obligations or liabilities with third parties.

Minimum Equity Capital
Art. 10.- In no case shall the equity capital of an entity be less than the minimum required subscribed share capital, determined in accordance with the Investment Banks Law.

CHAPTER IV
CALCULATION DATE AND SUBMISSION TO THE SUPERINTENDENCY

Art. 11.- Entities must establish the position of their equity capital on the last day of each month and submit it to the Superintendency within the first five business days of the following month, according to models presented in Annex No. 1 and No. 2, with handwritten or simple/certified electronic signature of the manager or whoever holds an equivalent position; except for those corresponding to the months of June and December of each year, which shall be within the first ten business days of the immediately following month.

Additionally, entities must calculate the equity capital requirement on the last business day of each week, except when this corresponds to the last day of the month; said calculation must be submitted to the Superintendency in the first two business days of each week.

The deadlines mentioned in the previous provision do not constitute an exception to inform about equity capital insufficiencies, and if such insufficiency occurs, it must be reported to the Superintendency with a mention of the details of the measures and commitments considered necessary to remedy the deficiency.

Art. 12.- Entities must keep in their files for a period of no less than one year, the documents and off-balance sheet information used for the calculation of the equity capital requirement.

Art. 13.- The Superintendency may request the calculation of equity capital requirements at any date it deems convenient.

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

CHAPTER V
OTHER PROVISIONS AND VALIDITY

Art. 14.- The calculation and equity capital requirement for holding companies of exclusive purpose and for financial conglomerates as a whole, are regulated in the [Reference to Holding Companies Norms - NCF-62], issued by the Central Bank through its Norms Committee.

Sanctions
Art. 15.- Non-compliance with the provisions contained in these Norms will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Unforeseen Aspects
Art. 16.- Aspects not provided for in the matter of regulation in these Norms will be resolved by the Central Bank through its Norms Committee.

Validity
Art. 17.- These Norms will enter into force starting from October 15, 2025.

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

Annex No. 1
EQUITY CAPITAL REQUIREMENT CALCULATION REPORT
(In thousands of US$)

Entity: _______________________________________ Reference Date: ___________

I. EQUITY CAPITAL

1. Primary Capital
2. Supplementary Capital
3. Less: Deductions

II. ASSET REQUIREMENT

1. Total Assets
2. Total Weighted Assets
3. 8% Requirement on Weighted Assets
4. Surplus or (Deficit) (I - II.3)
5. Equity Ratio (I / II.2)

III. LIABILITY REQUIREMENT

1. Total Liabilities and Contingent Commitments
2. 7% Requirement on Liabilities
3. Surplus or (Deficit) (I - III.2)
4. Equity Ratio (I / III.1)

Responsible Executive: ______________________________

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

Annex No. 2
ENTITY: _____________________________________________________________________________

CALCULATION OF EQUITY CAPITAL REQUIREMENT ON ________ OF ___________ OF ______ (IN THOUSANDS OF US$)

Account Code | Assets and Contingent Rights Subject to Risk Weighting | Balance | Weighting Factor | Weighted Balance 1110 AVAILABILITIES 01 CASH 0101 Head Office - LC 0.0% 0102 Head Office - FC 0.0% 0201 Branches - LC 0.0% 0202 Branches - FC 0.0% 0301 Petty Cash - LC 0.0% 0302 Petty Cash - FC 0.0% 0401 Local Remittances in Transit - LC 20.0% 0402 Local Remittances in Transit - FC 20.0% 9701 Others - LC 100.0% 9702 Others - FC 100.0% 02 DEPOSITS IN THE CBR 0.0% 03 DOCUMENTS PAYABLE BY OTHER BANKS 0100 Pending Compensations 20.0% 0200 Rejections for Compensation 100.0% 04 DEPOSITS IN LOCAL BANKS 50.0% 05 DEPOSITS IN INVESTMENT BANKS 50.0% 06 DEPOSITS IN OTHER FINANCIAL SYSTEM ENTITIES 50.0% 07 DEPOSITS IN FOREIGN BANKS

• Deposits in first-line foreign banks
• Deposits for Liquidity Reserve 0.0%
• Deposits in FLB rated AAA to A- 20.0%
• Deposits in FLB rated BBB+ to BBB- 50.0%

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

Annex No. 2
ENTITY: _____________________________________________________________________________

CALCULATION OF EQUITY CAPITAL REQUIREMENT ON ________ OF ___________ OF ______ (IN THOUSANDS OF US$)

Account Code | Assets and Contingent Rights Subject to Risk Weighting | Balance | Weighting Factor | Weighted Balance

• Deposits in non-first-line banks 100.0%

0301 Remittances in Transit - LC 20.0%
0302 Remittances in Transit - FC 20.0%
9901 Interest and Other Receivables - LC 100.0% 9902 Interest and Other Receivables - FC 100.0% 08 RESTRICTED DEPOSITS 100.0% 1121 OPERATIONS WITH REPURCHASE AGREEMENTS 01 REPURCHASE OPERATIONS WITH THE CENTRAL RESERVE BANK 0.0% 02 REPURCHASE OPERATIONS WITH STATE ENTITIES 0.0% 03 REPURCHASE OPERATIONS WITH PRIVATE COMPANIES 100.0% 04 REPURCHASE OPERATIONS WITH INDIVIDUALS 100.0% 05 REPURCHASE OPERATIONS WITH LOCAL BANKS 100.0% 06 REPURCHASE OPERATIONS WITH OTHER FINANCIAL SYSTEM ENTITIES 100.0% 07 REPURCHASE OPERATIONS WITH INVESTMENT BANKS 100.0% 08 STOCK MARKET OPERATIONS 0101 Issued by the Central Reserve Bank - LC 0.0% 0102 Issued by the Central Reserve Bank - FC 0.0% 0201 Issued by State Entities - LC 0.0% 0202 Issued by State Entities - FC 0.0% 0301 Issued by Private Companies - LC 100.0% 0302 Issued by Private Companies - FC 100.0% 0401 Issued by Investment Banks - LC 100.0% 0402 Issued by Investment Banks - FC 100.0% 0501 Issued by Banks - LC 100.0% 0502 Issued by Banks - FC 100.0% 0601 Issued by other Financial System Entities - LC 100.0%

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

Annex No. 2
ENTITY: _____________________________________________________________________________

CALCULATION OF EQUITY CAPITAL REQUIREMENT ON ________ OF ___________ OF ______ (IN THOUSANDS OF US$)

Account Code | Assets and Contingent Rights Subject to Risk Weighting | Balance | Weighting Factor | Weighted Balance 0602 Issued by other Financial System Entities - FC 100.0% 0701 Issued by Foreign Entities - LC 100.0% 0702 Issued by Foreign Entities - FC 100.0% 0801 Issued by the Deposit Guarantee Institute - LC 0.0% 0802 Issued by the Deposit Guarantee Institute - FC 0.0% 0901 Issued by Securitization Funds - LC 100.0% 0902 Issued by Securitization Funds - FC 100.0% 09 REPURCHASE OPERATIONS WITH FOREIGN BANKS 100.0% 1130 AT FAIR VALUE WITH CHANGES IN RESULTS (FVCI) 01 HELD FOR TRADING DEBT OTHER THAN DERIVATIVES 0101 Issued by the Central Reserve Bank - LC 0.0% 0102 Issued by the Central Reserve Bank - FC 0.0% 0201 Issued by the State - LC 0.0% 0202 Issued by the State - FC 0.0% 0301 Issued by Private Companies - LC 100.0% 0302 Issued by Private Companies - FC 100.0% 0401 Issued by Investment Banks - LC 100.0% 0402 Issued by Investment Banks - FC 100.0% 0501 Issued by Banks - LC 100.0% 0502 Issued by Banks - FC 100.0% 0601 Issued by other Financial System Entities - LC 100.0% 0602 Issued by other Financial System Entities - FC 100.0% 0701 Issued by Foreign Institutions - LC

• Securities with country risk rating of issuer categories AAA to AA- 0.0%
• Securities with country risk rating of issuer A+ to A- 20.0%
• Securities with country risk rating of issuer BBB+ to BBB- 50.0%
• Securities with country risk rating of issuer BB+ to B- 100.0%

TECHNICAL STANDARDS FOR THE APPLICATION OF THE EQUITY CAPITAL REQUIREMENT FOR INVESTMENT BANKS

Validity: 10/15/2025

Annex No. 2
ENTITY: _____________________________________________________________________________

CALCULATION OF EQUITY CAPITAL REQUIREMENT ON ________ OF ___________ OF ______ (IN THOUSANDS OF US$)

Account Code | Assets and Contingent Rights Subject to Risk Weighting | Balance | Weighting Factor | Weighted Balance

• Securities with country risk rating of issuer below B- and unclassified 150.0%
  0702 Issued by Foreign Institutions - FC
• Securities with country risk rating of issuer categories AAA to AA- 0.0%
• Securities with country risk rating of issuer A+ to A- 20.0%
• Securities with country risk rating of issuer BBB+ to BBB- 50.0%
• Securities with country risk rating of issuer BB+ to B- 100.0%
• Securities with country risk rating of issuer below B- and unclassified 150.0%
  0801 Issued by the Deposit Guarantee Institute - LC 0.0% 0802 Issued by the Deposit Guarantee Institute - FC 0.0% 9801 Adjustments for Fair Value Fluctuation - LC 100.0% 9802 Adjustments for Fair Value Fluctuation - FC 100.0%

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