Technical Standards for the Calculation and Use of the Liquidity Reserve on Deposits and Other Obligations

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

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

CONSIDERING:

I. That Article 45, fourth clause, of the Banking Law establishes the need to issue pertinent norms that allow the application of provisions related to the constitution of the Liquidity Reserve.

II. That Article 47 of the Banking Law establishes the provisions regarding the calculation and use of the Liquidity Reserve for Banks.

III. That Article 28, fourth clause, of the Law of Cooperative Banks and Savings and Credit Societies establishes the provisions regarding the constitution of the Liquidity Reserve and the need to issue pertinent regulations regarding the same.

IV. That Article 30 of the Law of Cooperative Banks and Savings and Credit Societies establishes the provisions regarding the calculation and use of the Liquidity Reserve for Cooperative Banks.

V. That Article 31, fourth clause, of the Investment Banks Law establishes the need to issue pertinent norms that allow the application of provisions related to the constitution of the Liquidity Reserve. (1)

VI. That Article 33 of the Investment Banks Law establishes the provisions regarding the calculation and use of the Liquidity Reserve for Investment Banks. (1)

VII. That Article 99, letter a), of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Standards Committee to issue resolutions such as the approval of technical norms, instructions, and provisions that the laws regulating supervised entities establish must be issued to facilitate their application, especially those related to solvency and liquidity requirements. (1)

VIII. That it is necessary to issue regulation on the gradualness of the calculation of the Liquidity Reserve, in order to establish a liquidity requirement that allows maintaining the stability of the Financial System, following the provisions that were issued of a temporary nature related to the reduction of the Liquidity Reserve requirement due to the context of the COVID-19 Pandemic. (1)

THEREFORE,

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

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- The object of these Technical Standards is to provide the parameters for the calculation of the Liquidity Reserve requirement that obligated subjects must maintain, as well as the provisions for its use.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Norms are the following:
a) Banks constituted in El Salvador; b) Branches of foreign banks established in El Salvador; c) Savings and credit societies; d) Cooperative banks; (1) e) Federations formed by cooperative banks and also by savings and credit societies; and (1) f) Investment banks. (1)

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) Entities: Subjects obligated to comply with these Norms according to Article 2 thereof; c) Reserve or LR: Liquidity Reserve; and d) Superintendence: Superintendence of the Financial System.

CHAPTER II
CALCULATION OF THE LIQUIDITY RESERVE REQUIREMENT

Coefficients of obligations subject to Reserve Art. 4.- The obligations subject to Reserve and their corresponding coefficients for the obligated subjects are the following:

Code	Account Names	% Coefficients
211001	Demand deposits – checking accounts	18
211002	Demand deposits – savings accounts	16
211003	Demand deposits – savings accounts – simplified savings account deposits	16
2111	Agreed deposits up to one year term	12
211201	Time deposits	12
211202	Time deposits with special reserve (CEDEVIV and CEDAGRO)	10
211202	Time deposits with special reserve (For the cancellation of agricultural and livestock debt)	1
211203	In guarantee of letters of credit	12
211204	Programmed savings	12
211401	Restricted and inactive deposits – savings accounts	16
211402	Restricted and inactive deposits – time deposits	12
211403	Seized deposits – checking accounts	18
211404	Seized deposits – savings account	16
211406	Inactive deposits – checking accounts	18
211407	Inactive deposits – savings	16
211408	Deposits in guarantee – simplified savings account	16
211409	Seized deposits – simplified savings account	16
211410	Inactive deposits – simplified savings account	16
2121080101	Owed to foreign banks for letters of credit	3
2121080102	Owed to foreign banks for letters of credit ME	3
2121080201	Owed to foreign banks for credit lines	3
2121080202	Owed to foreign banks for credit lines ME	3
2121080301	Owed to foreign banks – others	3
2121080302	Owed to foreign banks – others – ME	3
2121080501	Owed to foreign cooperatives *	3
2121080502	Owed to foreign cooperatives *	3
2121089901	Interest and others to pay	3
2121089902	Interest and others to pay – ME	3
2122080101	Owed to foreign banks for letters of credit	3
2122080102	Owed to foreign banks for letters of credit ME	3
2122080201	Owed to foreign banks for credit lines	3
2122080202	Owed to foreign banks for credit lines ME	3
2122080301	Owed to foreign banks – others –	3
2122080302	Owed to foreign banks – others – ME	3

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

Code	Account Names	% Coefficients
2122080501	Owed to foreign cooperatives *	3
2122080502	Owed to foreign cooperatives *	3
2122089901	Interest and others to pay	3
2122089902	Interest and others to pay – ME	3
2130010201	Certified checks	18
2130010202	Certified checks – ME	18
2141	Own issuance titles agreed for less than one year term	15
2141	Own issuance titles for one year term	5
2142	Own issuance titles agreed for more than one year term (Includes those agreed for 5-year term guaranteed with State bonds for the Conversion and Consolidation of guaranteed internal debt).	1
2142	Own issuance titles agreed for more than one year term (All not included in the previous account)	5
5120010002	Guarantees for less than five years term ME	5
5120020002	Bonds for more than five years term ME	5

• Accounts applicable only to cooperative banks and federations

In the text of these Norms, the expression "obligations" will encompass all the liabilities described above.

Daily average balances.
Art. 5.- The daily average balances of the accounts mentioned in Article 4 of these Norms must be those corresponding to the calculation period of the Reserve requirement. Said period will comprise fourteen consecutive days, prior to the compliance period, which will always start on Tuesday and end on Monday. In the case of non-business days included within a calculation period of the Reserve requirement, the balance of the previous business day will be taken. For the purposes of these Norms, non-business days will be Saturdays, Sundays, and closure days established by the Superintendence; business days comprise Monday to Friday, even if they correspond to balance preparation days.

CHAPTER III
CONSTITUTION OF THE LIQUIDITY RESERVES

Constitution of the Reserve
Art. 6.- The Reserve may be constituted totally or partially in the Central Bank, in the form of demand deposits in United States dollars or in securities issued by it in the same currency, and may also be invested abroad. Said Reserve must be integrated by the following tranches:
a) The equivalent to twenty-five percent (25%) of the Reserve requirement, in the form of a demand deposit in the Central Bank or in the foreign bank in question; b) The equivalent to twenty-five percent (25%) of the Reserve requirement, in the form of demand deposits in the Central Bank or the foreign bank in question; or securities issued by the Central Bank for the purposes of the Liquidity Reserve; and c) The remaining fifty percent (50%) in securities issued by the Central Bank or demand deposits in the Central Bank for the purposes of the Liquidity Reserve.

In the case that the obligated subject decides to invest part of the Reserve in foreign banks, it must be subject to what is established in the "Technical Standards for the Investment of Liquidity Reserves Abroad" (NPB3-10).

The obligated subjects described in letters d) and e) of Article 2 of these Norms, according to the Law of Cooperative Banks and Savings and Credit Societies, cannot invest the Liquidity Reserve abroad; consequently, the provisions described in the previous clauses referring to those investments do not apply to them.

In the case that cooperative banks decide to invest up to 50% of the Reserve in time deposits in local banks, they must be subject to what is established in Annex No. 4 of these Norms.

Communication of the Liquidity Reserve requirement Art. 7.- The Superintendence will calculate and inform each of the obligated subjects, on the business day after the calculation period has concluded, the required Reserve.

CHAPTER IV
COMPLIANCE AND USE OF THE LIQUIDITY RESERVE

Compliance period
Art. 8.- The compliance period of the Reserve comprises fourteen days, which will start on the Wednesday after the conclusion of the Reserve requirement calculation period.

It will be understood that an entity has complied with the Reserve requirement when, at the end of the compliance period, an average equal to or greater than the required Reserve is obtained.

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

Calculation of compliance
Art. 9.- The Superintendence will be responsible for calculating the compliance of the Reserve, as well as for quantifying daily surpluses or deficiencies and for sending to the Central Bank the information regarding the liquidity situation of each obligated subject.

Surpluses or deficiencies will be determined daily and will be the result of the difference between the required Reserve and the constituted one.

Reserve surpluses will compensate for deficiencies during a compliance period; however, at the end of said period, the average of the constituted Reserve must not be lower than the Reserve requirement for that period.

For the purposes of daily compliance with the LR, the daily balance of the constituted Reserve will be computed.

Utilization of the Reserves
Art. 10.- In order to solve liquidity problems, an obligated subject may use the resources of the first tranche, equivalent up to twenty-five percent (25%) of the required Reserve, automatically and without withdrawal fees.

For the same purpose, it may dispose of the second tranche equivalent to twenty-five percent (25%) automatically. In this case, the Central Bank will charge and apply a fee proportional to the amount of funds withdrawn from this tranche.

The resources of the third tranche, which constitute fifty percent (50%) of the Reserve, may be used by the obligated subjects through the operations determined by the applicable law, with prior authorization from the Superintendent of the Financial System, in which case, the obligated subject must present a regularization plan as established in letter b) of Article 76 and Article 77 of the Banking Law, Article 72 of the Law of Cooperative Banks and Savings and Credit Societies, and Article 47 of the Investment Banks Law, depending on the type of obligated subject. (1)

Management of deposits
Art. 11.- Obligated subjects may carry out debit and credit operations on the demand deposits they maintain in the Central Bank, in accordance with the regulations issued by the Central Bank and the contract they sign for such effect.

CHAPTER V
DAILY INFORMATION OF THE LIQUIDITY RESERVE AND BALANCES OF DEPOSITS AND OTHER OBLIGATIONS

Registration of the Liquidity Reserve
Art. 12.- The Superintendence will establish daily the constituted Reserve of each obligated subject, based on the information provided by them and the Central Bank.

Transmission of information
Art. 13.- The information on the daily balances of obligations and additional information must be sent by each obligated subject to the Superintendence and the Central Bank, in the form established in Annex No. 1 of these Norms, no later than 9:30 a.m. on the following business day.

In the case that obligated subjects present or substitute the daily information on the situation of obligations after the stated hour, the Superintendence, in order to calculate compliance, will take the lowest recorded balance of the constituted Reserve in the immediate preceding fourteen-day period.

When the constituted Reserve determined according to the previous clause results in being greater than that of the day of non-compliance, the latter will be taken.

Superintendence Reports
Art. 14.- The Superintendence must inform the Central Bank daily, on the situation of the Reserve of the obligated subjects, no later than 3:30 p.m. on the next business day; and one business day after the conclusion of the compliance period, the information reflecting the situation of the Reserve of each of the obligated subjects, whether they present surpluses or deficiencies.

The information referred to in this article must be sent using the forms established in Annexes Nos. 2 and 3 of these Norms.

Central Bank Reports
Art. 15.- The Central Bank must inform the Superintendence and the obligated subjects daily, no later than 9:00 a.m. and through a statement of account, the balance in admissible securities for the computation of the Liquidity Reserve; likewise, it must inform the balances of its deposit accounts corresponding to the immediate previous business day, through the systems implemented for such effects.

The balances in deposit accounts that obligated subjects maintain as part of the third tranche of the Liquidity Reserve must be communicated separately from the balances in deposit accounts where the first two tranches of the Liquidity Reserve are maintained.

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

CHAPTER VI
OTHER PROVISIONS AND VALIDITY

Electronic transmission of information
Art. 16.- The information referred to in Articles 13, 14, and 15 of these Norms must be provided electronically.

Requirements of securities
Art. 17.- The securities constituting the Reserve must be free of any encumbrance; however, they may be pledged only through repo operations carried out directly with the Central Bank.

Remuneration of Liquidity Reserves
Art. 18.- Regarding the remuneration of demand deposits that obligated subjects maintain in the Central Bank, as Liquidity Reserve, it will be in accordance with what is established in the Banking Law, the Law of Cooperative Banks and Savings and Credit Societies, and the Investment Banks Law, depending on the obligated subject. (1)

The Central Bank will establish the remuneration to be paid for demand deposits and investment in securities that obligated subjects maintain as Liquidity Reserve.

Transitory- Calculation of the required liquidity reserve during the gradualness period Art. 19.- The Liquidity Reserve requirement, for the gradualness period of 26 fortnights, which will start from June 23, 2021, and end on June 21, 2022, will be the amount resulting from applying the coefficients established in Article 4 of these Norms to the daily average balance of the obligations subject to Reserve as established in Article 5 of these Norms, with the exception of those corresponding to checking and savings accounts, to which the coefficients detailed in this article will be applied.

The following discounts will be applied to the resulting amount:
a) A percentage of the average balance that entities subject to the "Temporary Technical Standards for the Calculation of the Liquidity Reserve" (NPBT-04) reported in account 111001 Cash on Hand, and which was used for the calculation of the Liquidity Reserve requirement in the fortnights from March 31 to May 11, 2021 (rounded to two decimal places); and b) A percentage of the amount that entities subject to the "Temporary Technical Standards to Incentive the Granting of Credits" (NPBT-05) reported as a discount for the calculation of the Liquidity Reserve requirement in the fortnight from June 9 to June 22, 2021 (rounded to two decimal places).

As provided in the first clause of this article, the coefficients applicable to checking account deposits (211001, 211403, 211406, 2130010201, and 2130010202) and savings account deposits (211002, 211003, 211401, 211404, 211407, 211408, 211409, and 211410) will gradually increase during the 26 fortnights of the gradualness period, according to the following detail:

Number of fortnight	Fortnight Period	Applicable Coefficients	% of average balance of account 111001 applied as discount	% of Productive Credits Balance applied as discount
			Checking Account	Savings Account
1	23/6/2021	6/7/2021	15.30%	12.45%	86.00%	96.20%
2	7/7/2021	20/7/2021	15.60%	12.90%	72.00%	92.40%
3	21/7/2021	3/8/2021	15.90%	13.35%	58.00%	88.60%
4	4/8/2021	17/8/2021	16.20%	13.80%	44.00%	84.80%
5	18/8/2021	31/8/2021	16.50%	14.25%	30.00%	81.00%
6	1/9/2021	14/9/2021	16.80%	14.70%	16.00%	77.20%
7	15/9/2021	28/9/2021	17.00%	15.00%	0.00%	73.40%
8	29/9/2021	12/10/2021	17.05%	15.05%	0.00%	69.60%
9	13/10/2021	26/10/2021	17.10%	15.10%	0.00%	65.80%
10	27/10/2021	9/11/2021	17.15%	15.15%	0.00%	62.00%
11	10/11/2021	23/11/2021	17.20%	15.20%	0.00%	58.20%
12	24/11/2021	7/12/2021	17.25%	15.25%	0.00%	54.40%
13	8/12/2021	21/12/2021	17.30%	15.30%	0.00%	50.60%
14	22/12/2021	4/1/2022	17.35%	15.35%	0.00%	46.80%
15	5/1/2022	18/1/2022	17.40%	15.40%	0.00%	43.00%
16	19/1/2022	1/2/2022	17.45%	15.45%	0.00%	39.20%
17	2/2/2022	15/2/2022	17.50%	15.50%	0.00%	35.40%
18	16/2/2022	1/3/2022	17.55%	15.55%	0.00%	31.60%
19	2/3/2022	15/3/2022	17.60%	15.60%	0.00%	27.80%
20	16/3/2022	29/3/2022	17.65%	15.65%	0.00%	24.00%
21	30/3/2022	12/4/2022	17.70%	15.70%	0.00%	20.20%
22	13/4/2022	26/4/2022	17.75%	15.75%	0.00%	16.40%
23	27/4/2022	10/5/2022	17.80%	15.80%	0.00%	12.60%
24	11/5/2022	24/5/2022	17.85%	15.85%	0.00%	8.80%
25	25/5/2022	7/6/2022	17.90%	15.90%	0.00%	5.00%
26	8/6/2022	21/6/2022	18.00%	16.00%	0.00%	0.00%

NRP-28

TECHNICAL STANDARDS FOR THE CALCULATION AND USE OF THE LIQUIDITY RESERVE ON DEPOSITS AND OTHER OBLIGATIONS

Approval: 16/06/2021
Validity: 23/06/2021

The Liquidity Reserve requirement, from the conclusion of the gradualness period referred to in this article, will be the amount resulting from applying the coefficients established in Article 4 of these Norms to the daily average balance of the obligations subject to Reserve.

Technical details of information transmission
Art. 20.- The Superintendence will send to the entities, with a copy to the Central Bank, within a maximum period of thirty days after the date of entry into force of these Norms, the technical details related to the transmission of the information requested in Annex No. 1 and No. 5 of these Norms.

The information requirements will be limited to the collection of information as regulated in these Norms.

With respect to Annex No. 1-A of these Norms, the Superintendence will send to the entities described in letter f) of Article 2 of these Norms, with a copy to the Central Bank, within a maximum period of thirty days after the date of entry into force of the modifications to these Norms, the technical details related to the transmission of the information requested in said Annex. (1)

Art. 21.- Entities will have up to ninety days from the communication of the technical details by the Superi...