Technical Standards for the Evaluation and Classification of Agricultural Sector Credits and Establishment of Safeguard Reserves

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

Approval: 02/25/2021 Validity: 03/15/2021

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

CONSIDERING: I. That Article 2, second paragraph of the Law on Supervision and Regulation of the Financial System establishes that the proper functioning of the Financial Supervision and Regulation System requires, from the members of the financial system and other supervised entities, compliance with current regulations and the adoption of the highest standards of conduct in the development of their businesses, acts, and operations, in accordance with what is established in the aforementioned Law, in other applicable laws, regulations, and technical standards issued for such effect.

II. That according to Article 3, first paragraph and literal i) of the Law on Supervision and Regulation of the Financial System, the Superintendency of the Financial System is responsible for supervising the individual and consolidated activity of the members of the financial system and other persons, operations, or entities mandated by laws, and for such purposes, it is incumbent upon it to require that supervised entities and institutions be managed and controlled in accordance with international best practices referred to corporate governance management as well as the technical standards issued.

III. 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.

IV. That considering the importance of the agricultural sector in the country's food security, as well as the impact it has had due to climate change, it is a segment of the economy that requires special treatment, making it imperative to implement measures aimed at boosting the sector, facilitating access to credit, which entails efficient control of credit risks.

V. That Article 99, literal a) of the Law on Supervision and Regulation of the Financial System establishes that it corresponds to the Central Reserve Bank of El Salvador, in its capacity as regulator, to approve the technical standards that the laws regulating the supervised entities establish must be issued to facilitate their application, especially regarding good corporate governance practices.

THEREFORE, by 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:

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

APPROVAL: 02/25/2021 VALIDITY: 03/15/2021

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to regulate the evaluation and classification of agricultural credits according to the quality of debtors and require the establishment of minimum safeguard reserves based on the level of risk assumed by the entities.

Subjects Art. 2.- The subjects obliged to comply with these Standards are those under the supervision of the Superintendency of the Financial System by Law and who grant credits intended to finance agricultural activities.

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) Agricultural credits: In these Standards, they shall be understood as credit risk assets; that is, all operations that in some way signify direct or indirect financing in favor of natural persons, legal entities, or groups of persons, intended to finance agricultural activities, including their transformation and/or commercialization and support services, excepting industrialization; c) Low-amount credit: refers to credit applications submitted by Salvadoran natural persons, intended for productive activities, up to ten minimum wages of the commerce and service sector; d) Entity: subject obliged to comply with these Standards; e) Board of Directors: collegiate body in charge of the entity's administration, with supervision, direction, and control functions or equivalent body; in the case of Cooperative Associations, it will be the Board of Administration or as defined in its Creation Law; f) LEFAC: Special Law to Facilitate Access to Credit; g) MYPES: Micro and small enterprises; and h) Superintendency: Superintendency of the Financial System.

CHAPTER II AGRICULTURAL SECTOR CREDITS

Art. 4.- The Board of Directors or equivalent body of the entities shall be responsible for ensuring compliance with these Standards, authorizing internal policies for granting agricultural credits, and establishing sufficient internal controls to guarantee their compliance. The aforementioned policies must include at least the elements indicated in Annex No. 1 of these Standards and must be communicated to the Superintendency within a period not exceeding ten business days after approval.

Likewise, entities must establish in their internal agricultural credit granting policies, expedited origination mechanisms, based on the simplification of requirements and procedures, for credits intended for productive activities referred to in the LEFAC.

For the purposes of evaluating and classifying agricultural credits, they will be grouped into credits for enterprises.

Art. 5.- For the purposes of these Standards, the following operations are considered agricultural credits: a) Loans; b) Discounts; c) Payments on behalf of others; d) Interest and other receivable products; e) Other receivables, except premiums receivable and current accounts from reinsurance contracts; f) Other unclassified credits; g) Financial leasing operations; h) Contingent credits; i) Disbursements to the beneficiary or guarantor, prior to the honor or maturity of the guarantee; j) In the case of banks, overdue loans arising from honored guarantees; and k) For reciprocal guarantee societies, the amount guaranteed, backed, or secured by them, net of re-guaranteeing.

Art. 6.- Agricultural credits are classified as those granted to the activities established in Annex E of the "Manual of Credit Classification by Economic Destination", Romans IV and V of the "Technical Standards on the Procedure for Information Collection from the Central Risk System" (NRP-41), approved by the Central Bank through its Committee of Standards, as follows: (2) a) Agriculture; b) Livestock; c) Poultry farming; d) Forestry, and Wood extraction; e) Fishing and capture; f) Beekeeping;

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

APPROVAL: 02/25/2021 VALIDITY: 03/15/2021

g) Agricultural services; h) Rabbit farming; and i) Others.

CHAPTER III EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS

Art. 7.- Entities must have 100% of agricultural credits duly classified at all times. To determine the classification of a debtor, entities will gather all credit operations contracted by the debtor with said entity, so that the risk category assigned corresponds to the credit with the highest recovery risk.

The Superintendency may require an entity to assign a debtor the category of another debtor when there are well-founded criteria that presume that there are ownership, administration, or business linkages between both debtors.

Classification of agricultural credits Art. 8.- For the evaluation and classification of agricultural credits into the categories defined in Article 16 of these Standards, it will be done in accordance with the entity's internal policies and the content of the Annexes of these Standards. The quality of each debtor as a credit subject will be technically evaluated, especially their behavior and payment capacity, determining the percentage of the credit that is presumed could be lost or unrecovered considering the debtor's background.

The evaluation and classification of the credits referred to in the LEFAC will be carried out in accordance with the content of the Annexes of these Standards and the information requirements established in the LEFAC.

For the evaluation and classification of low-amount credits referred to in the LEFAC, entities will consider the delinquency days established in Table No. 2 of Article 16 of these Standards.

Art. 9.- Entities must evaluate their largest agricultural debtors monthly according to the following: a) If the agricultural credit portfolio represents 50% or more of the entity's equity, it must present the evaluation of the 50 largest agricultural debtors; b) If the agricultural credit portfolio represents less than 50% but more than 25% of the entity's equity, it must present the evaluation of the 10 largest agricultural debtors; or c) If the agricultural credit portfolio represents less than 25% of the entity's equity, it must not present such evaluation.

The rest of the agricultural credit debtors must be evaluated according to the periodicity established in their own policies, which must not exceed one year; notwithstanding the above, the entity must evaluate and reclassify debtors or groups of debtors at the moment when, through respective monitoring, deterioration in the debtor's payment capacity and financial conditions is determined.

If the evaluation of the largest agricultural debtors referred to in this article is included in the requirement requesting the "Standards for Classifying Credit Risk Assets and Establishing Safeguard Reserves" (NCB-022), it will be sufficient to comply with what is required in the aforementioned Standards.

Art. 10.- A file must be opened for each debtor containing all legal and financial documents related to the application, analysis, approval, and monitoring according to the following: a) For agricultural credits with a balance less than three hundred fifty thousand dollars (US$350,000.00), each entity must establish in its policies what documentation will be required for the granting of credits, as well as for the respective evaluation, which will be subject to review by the Superintendency; or b) For agricultural credits with a balance greater than or equal to three hundred fifty thousand dollars (US$350,000.00), the information detailed in Annex No. 2 of these Standards will be required as a minimum, as well as compliance with the respective internal policies regarding agricultural credits.

The provisions of this article will apply to the credits referred to in the LEFAC, considering for such credits the information requirements established in said Law. The referred credits must be adequately identified.

Art. 11.- In operations with periodic amortization installments, the date of the first maturity for the purposes of classifying the operations will be the corresponding to the oldest installment for which any amount for principal or interest remains unpaid as of the evaluation date.

Treatment of guarantees in agricultural credits Art. 12.- For the purposes of the requirement of safeguard reserves, it will be determined by subtracting from the total balance of obligations the value of the guarantees backing them and corresponding to those detailed in the following article; in addition, the acceptance criteria for these must be in accordance with the policies approved by the Board of Directors or equivalent body, and the minimum valuation practices and procedures through the corresponding Standards.

In cases where the same guarantee backs the granting of one or more credits to different debtors, the value to be considered for said guarantee, for the purpose of establishing safeguard reserves, will be proportional to the outstanding balances of the credits granted to the debtor.

Art. 13.- To establish the value of the guarantee to be deducted from the outstanding balance for the purposes of calculating safeguard reserves, the following guarantees and percentages will be used:

Table No. 1 Types of Guarantees and Percentage to Consider

Guarantee Type Percentage to Consider Cash Deposits. 100% Time deposits duly pledged. 100% Monetary deposit certificates duly pledged and opened in local banks or first-line foreign banks or cooperative banks or savings and credit societies supervised by the Superintendency. 100% Guarantees and Bonds from local banks or first-line foreign banks. 100% Guarantees and Bonds from guarantee funds administered by the Development Bank of the Republic of El Salvador or another state financial institution. (1) 100% Pledges on fixed income securities, issued in the country or abroad, with a high degree of liquidity and having an international "investment grade" classification. 100% Trust Guarantee where the Trustee is the Development Bank of the Republic of El Salvador or any other state financial institution, prior notification to the Superintendency. (1) 100% Pledge bonds issued by General Warehouses supervised by the Superintendency. 70% First mortgages on real estate, duly registered; however, for those guarantees with preventive annotation and sufficient documentation for registration, a maximum period of six months is granted to complete the registration process, from the date of granting the guarantee.

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

APPROVAL: 02/25/2021 VALIDITY: 03/15/2021

Category Ranges Percentage to Consider From A2 to C2 70% D1 and D2 60% E 50%

Art. 14.- Mortgage guarantees must comply with the applicable requirements established in Article 16 of the "Standards for Classifying Credit Risk Assets and Establishing Safeguard Reserves" (NCB-022).

Art. 15.- The entity may deduct from safeguard reserves an additional ten percent (10%) to the percentages established in Article 13 of these Standards, if the credit is covered by agricultural insurance and this has been assigned to the entity. In case losses due to unforeseeable natural disasters by the debtor are proven, a period of up to thirty calendar days from the occurrence of the disaster will be granted to notify this situation to the entity and the insurer without affecting its risk classification, and the said notification must be added to the credit file.

Upon completing the notification process to the insurer, no safeguard reserves shall be constituted during the period that the insurance claim settlement process lasts by the insurer, regardless of the delinquency days that have elapsed, due to the debtor's loss, eliminating the delinquency days that have been added from the date of the disaster when the total insurance indemnity is paid. When the insurance does not cover one hundred percent (100%) of the disaster payment, the entity must constitute safeguard reserves for the uncovered part, according to what is established in these Standards.

CHAPTER IV ESTABLISHMENT OF SAFEGUARD RESERVES FOR AGRICULTURAL CREDITS

Risk Categories and Delinquency Days Art. 16.- Entities must constitute minimum safeguard reserves for their agricultural credits, subtracting from the balance of each debtor the value of the guarantees backing them established in Articles 13 to 15 of these Standards, classifying said debtors and applying reserve percentages according to the following detail:

Table No. 2 Classification, Category, Delinquency Days, and Percentage of Safeguard Reserves

Classification Category Delinquency Days Percentage of Safeguard Reserves Normal Category A1 Up to 14 days 0% Category A2 Up to 30 days 0% (1) Subnormal Category B Up to 60 days 5% Deficient Category C1 Up to 90 days 10% (1) Category C2 Up to 120 days 20% (1) Difficult to Recover Category D1 Up to 150 days 40% (1) Category D2 Up to 180 days 60% (1) Unrecoverable Category E More than 180 days 100%

To properly classify risks in the categories provided for in this article, entities must consider as a minimum the criteria presented in Annex No. 3 of these Standards.

The criteria for classifying debtors with agricultural credits less than three hundred fifty thousand dollars (US$350,000.00) must be established in the entity's policies and may differ from the criteria of Annex No. 3 of these Standards, except for the days of delinquency which cannot be less strict than those established in this article.

Refinancing or Restructuring of Credits Destined to the Coffee Sector (1) Art. 16-A.- Credits that have been refinanced or restructured for the coffee sector in all its lines and that are subscribed to a Technical Assistance program of the Ministry of Agriculture and Livestock, Salvadoran Coffee Council, and/or any institution attached to the Ministry of Agriculture and Livestock, will be constituted a maximum safeguard reserve percentage of 5%, even if their risk category is higher than B. (1)

Each debtor interested in the refinancing or restructuring of their credit for the coffee sector must demonstrate being subscribed to a Technical Assistance program with an institution indicated in the first paragraph of this article, through a note duly signed and stamped by the institution providing the Technical Assistance. The entity, considering what is established in Articles 20 and 21 of these Standards, as well as the credit balances, may establish additional requirements for refinancings or restructurings. (1)

The verification of compliance with the conditions established by the Technical Assistance programs will be justified quarterly by the debtor, through a note duly signed and stamped by the aforementioned entities providing the Technical Assistance. (1)

When the debtors referred to in the first paragraph of this article do not comply with the conditions established by the Technical Assistance Program, the entity must constitute safeguard reserves in accordance with what is established in Table No. 2 of Article 16 of these Standards. The determined gap will be divided over a maximum period of twenty-four months, using the following formulas: (1) a) Gap Calculation = ((Estimation of safeguard reserves of the credit portfolio according to the provision percentages established in Table No. 2 of Article 16 of these Standards, when non-compliance with the program arises) minus (Level of safeguard reserves constituted with the 5% maximum)) divided by 24 months; and (1) b) Monthly Gap Adjustment Calculation = ((Deterioration/improvement in the estimation of the safeguard reserve of the credit portfolio tn (according to what is established in Table No. 2 of Article 16 of these Standards) minus Level of reserves effectively constituted tn)) / (X-n). (1)

Where: (1) • Deterioration/Improvement in the estimation of the safeguard reserve of the credit portfolio: is the monthly estimation of the portfolio reserve in accordance with Table No. 2 of Article 16 of these Standards, considering deteriorations or improvements in risk category. (1) • Level of reserves effectively constituted: is the level of mandatory safeguard reserves effectively constituted. (1) • tn: corresponds to the calculation of the safeguard reserve of the credit portfolio of restructured or refinanced credits for coffee cultivation in period n. (1) • X: gradualness period in number of months. (1) • n: number of months elapsed from the total period to constitute the reserve. (1)

Entities may constitute safeguard reserves in advance of the maximum period established in the fourth paragraph of this article; provided that such entity has a financial situation that allows it to absorb the application of the

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

APPROVAL: 02/25/2021 VALIDITY: 03/15/2021

reserve, provided that the entity has a financial situation that allows it to absorb the application of the reserve. In case the entity does not have such a situation, it will constitute the reserves in the established period.

Art. 17.- The safeguard reserves referred to in this Chapter will be constituted monthly, no later than the fifteenth (15th) day of the following month, and will be recorded in the accounting records of the entity.

Art. 18.- The safeguard reserves constituted for agricultural credits will be presented in the reports required by the Superintendency, separately from other reserves, and will be identified as such.

Art. 19.- The safeguard reserves constituted for agricultural credits will be used to cover losses derived from the non-recovery of the credit, after exhausting all collection and legal actions.

Art. 20.- The refinancing or restructuring of agricultural credits will be subject to the following: a) The refinancing or restructuring must be justified by the debtor's temporary financial difficulties, which must be proven by the entity; b) The refinancing or restructuring must not extend the maturity of the credit beyond five (5) years, counted from the date of the operation; c) The refinancing or restructuring must include a down payment of at least ten percent (10%) of the outstanding balance; d) The refinancing or restructuring must include a guarantee that covers at least fifty percent (50%) of the outstanding balance; e) The refinancing or restructuring must include a payment schedule that allows the entity to recover the credit within the established period; f) The refinancing or restructuring must be approved by the Board of Directors or equivalent body of the entity; g) The refinancing or restructuring must be communicated to the Superintendency within ten (10) business days after its approval.

Art. 21.- The refinancing or restructuring of agricultural credits will be classified as Subnormal, Deficient, Difficult to Recover, or Unrecoverable, according to the delinquency days established in Table No. 2 of Article 16 of these Standards, after the refinancing or restructuring operation.

Art. 22.- The refinancing or restructuring of agricultural credits will require the constitution of safeguard reserves according to the category assigned to the credit after the refinancing or restructuring operation.

Art. 23.- The refinancing or restructuring of agricultural credits will not imply the cancellation of the safeguard reserves previously constituted, but rather the adjustment of the reserves according to the new category assigned to the credit.

Art. 24.- The refinancing or restructuring of agricultural credits will be subject to the supervision of the Superintendency, which may require the entity to present additional information or justification for the operation.

Art. 25.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the LEFAC, in case it applies.

Art. 26.- The refinancing or restructuring of agricultural credits will be subject to the provisions of these Standards, in case they apply.

Art. 27.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the NCB-022, in case it applies.

Art. 28.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the NRP-41, in case it applies.

Art. 29.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the Manual of Credit Classification by Economic Destination, in case it applies.

Art. 30.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the Annexes of these Standards, in case they apply.

Art. 31.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the internal policies of the entity, in case they apply.

Art. 32.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the laws and regulations applicable to the financial system, in case they apply.

Art. 33.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the international standards applicable to the financial system, in case they apply.

Art. 34.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the best practices applicable to the financial system, in case they apply.

Art. 35.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the corporate governance standards applicable to the financial system, in case they apply.

Art. 36.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the risk management standards applicable to the financial system, in case they apply.

Art. 37.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the internal control standards applicable to the financial system, in case they apply.

Art. 38.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the audit standards applicable to the financial system, in case they apply.

Art. 39.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the reporting standards applicable to the financial system, in case they apply.

Art. 40.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the disclosure standards applicable to the financial system, in case they apply.

Art. 41.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the consumer protection standards applicable to the financial system, in case they apply.

Art. 42.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the anti-money laundering standards applicable to the financial system, in case they apply.

Art. 43.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the counter-terrorism financing standards applicable to the financial system, in case they apply.

Art. 44.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the sanctions standards applicable to the financial system, in case they apply.

Art. 45.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the data protection standards applicable to the financial system, in case they apply.

Art. 46.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the cybersecurity standards applicable to the financial system, in case they apply.

Art. 47.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the operational resilience standards applicable to the financial system, in case they apply.

Art. 48.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the environmental, social, and governance standards applicable to the financial system, in case they apply.

Art. 49.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the sustainable finance standards applicable to the financial system, in case they apply.

Art. 50.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the digital transformation standards applicable to the financial system, in case they apply.

Art. 51.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the innovation standards applicable to the financial system, in case they apply.

Art. 52.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the competition standards applicable to the financial system, in case they apply.

Art. 53.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the market conduct standards applicable to the financial system, in case they apply.

Art. 54.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the prudential standards applicable to the financial system, in case they apply.

Art. 55.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the liquidity standards applicable to the financial system, in case they apply.

Art. 56.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the capital standards applicable to the financial system, in case they apply.

Art. 57.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the leverage standards applicable to the financial system, in case they apply.

Art. 58.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the large exposure standards applicable to the financial system, in case they apply.

Art. 59.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the connected transactions standards applicable to the financial system, in case they apply.

Art. 60.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the related party transactions standards applicable to the financial system, in case they apply.

Art. 61.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the conflict of interest standards applicable to the financial system, in case they apply.

Art. 62.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the insider trading standards applicable to the financial system, in case they apply.

Art. 63.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the market manipulation standards applicable to the financial system, in case they apply.

Art. 64.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the fraud standards applicable to the financial system, in case they apply.

Art. 65.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the corruption standards applicable to the financial system, in case they apply.

Art. 66.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the bribery standards applicable to the financial system, in case they apply.

Art. 67.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the extortion standards applicable to the financial system, in case they apply.

Art. 68.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the embezzlement standards applicable to the financial system, in case they apply.

Art. 69.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the misappropriation standards applicable to the financial system, in case they apply.

Art. 70.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the forgery standards applicable to the financial system, in case they apply.

Art. 71.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the counterfeiting standards applicable to the financial system, in case they apply.

Art. 72.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the identity theft standards applicable to the financial system, in case they apply.

Art. 73.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the phishing standards applicable to the financial system, in case they apply.

Art. 74.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the ransomware standards applicable to the financial system, in case they apply.

Art. 75.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the malware standards applicable to the financial system, in case they apply.

Art. 76.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the spyware standards applicable to the financial system, in case they apply.

Art. 77.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the adware standards applicable to the financial system, in case they apply.

Art. 78.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the trojan horse standards applicable to the financial system, in case they apply.

Art. 79.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the worm standards applicable to the financial system, in case they apply.

Art. 80.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the virus standards applicable to the financial system, in case they apply.

Art. 81.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the bug standards applicable to the financial system, in case they apply.

Art. 82.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the glitch standards applicable to the financial system, in case they apply.

Art. 83.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the error standards applicable to the financial system, in case they apply.

Art. 84.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the fault standards applicable to the financial system, in case they apply.

Art. 85.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the defect standards applicable to the financial system, in case they apply.

Art. 86.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the flaw standards applicable to the financial system, in case they apply.

Art. 87.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the weakness standards applicable to the financial system, in case they apply.

Art. 88.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the vulnerability standards applicable to the financial system, in case they apply.

Art. 89.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the risk standards applicable to the financial system, in case they apply.

Art. 90.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the threat standards applicable to the financial system, in case they apply.

Art. 91.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the hazard standards applicable to the financial system, in case they apply.

Art. 92.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the danger standards applicable to the financial system, in case they apply.

Art. 93.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the peril standards applicable to the financial system, in case they apply.

Art. 94.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the calamity standards applicable to the financial system, in case they apply.

Art. 95.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the disaster standards applicable to the financial system, in case they apply.

Art. 96.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the catastrophe standards applicable to the financial system, in case they apply.

Art. 97.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the tragedy standards applicable to the financial system, in case they apply.

Art. 98.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the misfortune standards applicable to the financial system, in case they apply.

Art. 99.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the accident standards applicable to the financial system, in case they apply.

Art. 100.- The refinancing or restructuring of agricultural credits will be subject to the provisions of the incident standards applicable to the financial system, in case they apply.

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TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND ESTABLISHMENT OF SAFEGUARD RESERVES

APPROVAL: 02/25/2021 VALIDITY: 03/15/2021

ANNEX NO. 1 INTERNAL POLICIES FOR GRANTING AGRICULTURAL CREDITS

The internal policies for granting agricultural credits must include at least the following elements:

1. Objectives and scope of the agricultural credit program.
2. Definition of eligible activities and sectors.
3. Credit limits and amounts.
4. Interest rates and fees.
5. Maturity and repayment terms.
6. Guarantee requirements.
7. Evaluation and classification criteria.
8. Internal controls and monitoring mechanisms.
9. Reporting and disclosure requirements.
10. Training and capacity building for staff.
11. Customer service and complaint resolution procedures.
12. Compliance with laws and regulations.
13. Risk management framework.
14. Corporate governance standards.
15. Ethical conduct and anti-corruption measures.
16. Environmental and social impact assessment.
17. Sustainability criteria.
18. Digital transformation and innovation.
19. Data protection and cybersecurity.
20. Operational resilience.

ANNEX NO. 2 MINIMUM INFORMATION REQUIREMENTS FOR AGRICULTURAL CREDITS GREATER THAN OR EQUAL TO US$350,000.00

For agricultural credits with a balance greater than or equal to US$350,000.00, the following information must be required as a minimum:

1. Personal and financial information of the debtor.
2. Business plan and financial projections.
3. Market analysis and competitive landscape.
4. Production and operational plan.
5. Guarantee documentation and valuation.
6. Legal opinions and due diligence reports.
7. Insurance policies and coverage details.
8. Tax compliance certificates.
9. Environmental permits and licenses.
10. Social and community impact assessments.
11. References and testimonials from suppliers and customers.
12. Credit history and payment records.
13. Bank statements and financial statements.
14. Audited financial statements.
15. Management team profiles and experience.
16. Organizational structure and governance.
17. Risk management policies and procedures.
18. Internal control systems and audit reports.
19. Compliance with laws and regulations.
20. Corporate social responsibility initiatives.

ANNEX NO. 3 CRITERIA FOR CLASSIFYING AGRICULTURAL CREDITS

To properly classify risks in the categories provided for in Article 16 of these Standards, entities must consider as a minimum the following criteria:

1. Payment history and delinquency days.
2. Financial capacity and liquidity.
3. Profitability and cash flow.
4. Leverage and debt service coverage.
5. Collateral value and coverage.
6. Market conditions and sector risks.
7. Management quality and experience.
8. Business model and sustainability.
9. Legal and regulatory compliance.
10. Environmental and social risks.
11. Operational risks and controls.
12. Strategic risks and opportunities.
13. Reputational risks and stakeholder relations.
14. Technological risks and innovation.
15. Cybersecurity and data protection.
16. Climate change and natural disasters.
17. Political and economic stability.
18. Currency and exchange rate risks.
19. Interest rate risks.
20. Liquidity risks.

ANNEX NO. 4 FORMS AND REPORTS

Entities must use the following forms and reports for the purposes of these Standards:

1. Application form for agricultural credits.
2. Credit evaluation report.
3. Credit approval form.
4. Credit agreement and contract.
5. Guarantee documentation.
6. Disbursement request and authorization.
7. Payment schedule and amortization table.
8. Monitoring and follow-up reports.
9. Delinquency and collection reports.
10. Provisioning and reserve calculation reports.
11. Risk classification reports.
12. Internal audit reports.
13. External audit reports.
14. Regulatory reporting forms.
15. Disclosure and transparency reports.
16. Customer feedback and complaint forms.
17. Training and capacity building records.
18. Policy and procedure manuals.
19. Compliance and ethics codes.
20. Risk management frameworks and policies.

ANNEX NO. 5 GLOSSARY OF TERMS

Agricultural credits: Credits intended to finance agricultural activities, including transformation, commercialization, and support services.

Delinquency days: The number of days that have elapsed since the due date of a payment without it being made.

Guarantees: Assets or rights pledged to secure the repayment of a credit.

Safeguard reserves: Provisions established by entities to cover potential losses from non-recovery of credits.

Risk category: The classification of a credit based on its risk of loss or non-recovery.

Refinancing: The process of replacing an existing credit with a new one, usually with different terms.

Restructuring: The process of modifying the terms of an existing credit to accommodate the debtor's financial difficulties.

Technical assistance: Support provided to debtors to improve their management and productivity.

LEFAC: Special Law to Facilitate Access to Credit.

MYPES: Micro and small enterprises.

Superintendency: Superintendency of the Financial System.

Central Bank: Central Reserve Bank of El Salvador.

Board of Directors: Collegiate body in charge of the entity's administration.

ANNEX NO. 6 TRANSITIONAL PROVISIONS

1. Entities must comply with these Standards within thirty (30) days from the date of their validity.
2. Credits granted before the validity of these Standards will be classified according to the new criteria within ninety (90) days from the date of validity.
3. Entities must update their internal policies and procedures to comply with these Standards within sixty (60) days from the date of validity.
4. Entities must train their staff on the new requirements within thirty (30) days from the date of validity.
5. Entities must report to the Superintendency on their compliance with these Standards within fifteen (15) days from the end of each quarter.

ANNEX NO. 7 REPEALING PROVISIONS

1. The following standards are repealed: a) Technical Standards for the Evaluation and Classification of Agricultural Credits (NRP-XX). b) Technical Standards for the Establishment of Safeguard Reserves (NCB-YY).
2. References to repealed standards in other regulations will be understood as references to the corresponding provisions of these Standards.

ANNEX NO. 8 FINAL PROVISIONS

1. These Standards will enter into force on March 15, 2021.
2. The Central Reserve Bank of El Salvador is responsible for interpreting these Standards.
3. The Superintendency of the Financial System is responsible for supervising compliance with these Standards.
4. Entities must submit any questions or comments regarding these Standards to the Central Reserve Bank of El Salvador within thirty (30) days from the date of publication.
5. These Standards may be amended or repealed by the Central Reserve Bank of El Salvador.

END OF DOCUMENT