Technical Standards for the Evaluation and Classification of Agricultural Sector Credits and Establishment of Prudential Reserves — BCR — SV

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26

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

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

THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE 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 business, 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 for 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 Bank of Reserve 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,

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

AGREES to issue the following:

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26

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

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

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

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
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 prudential 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 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 Bank of Reserve 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 shall 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 expedient 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 shall be grouped into credits for companies.

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 receivable premiums 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, secured, or guaranteed by them, net of re-guaranteeing.

Art. 6.- Credits 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, are classified as agricultural credits, as follows: (2) a) Agriculture; b) Livestock; c) Poultry farming; d) Forestry, and Wood extraction; e) Fishing and capture; f) Beekeeping;

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26

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

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

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 that entity, so that the risk category assigned corresponds to the credit with the highest risk of recovery.

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 shall 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 not recovered considering the debtor's background.

The evaluation and classification of the credits referred to in the LEFAC shall 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 days of delinquency 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 payment capacity and financial conditions of the debtor is determined.

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

Art. 10.- A file containing all legal and financial documents related to the application, analysis, approval, and monitoring must be opened for each debtor 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 aforementioned 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 of which, on the date of evaluation, any amount remains unpaid for principal or interest.

Treatment of guarantees in agricultural credits Art. 12.- For the purposes of the requirement of prudential 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 criteria for their acceptance 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 prudential 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 discounted from the outstanding balance for the purposes of calculating prudential reserves, the following guarantees and percentages will be used:

Table No. 1
Types of Guarantees and Percentage to Consider

TYPE OF GUARANTEE	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.

Ranges of Categories	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 to Classify Credit Risk Assets and Establish Prudential Reserves" (NCB-022).

Art. 15.- The entity may deduct from prudential 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 from 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, prudential reserves shall not be established during the period of the insurer's claims settlement process, regardless of the days of delinquency elapsed due to the debtor's loss, eliminating the days of delinquency 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 establish prudential reserves for the uncovered part, according to what is established in these Standards.

CHAPTER IV
ESTABLISHMENT OF PRUDENTIAL RESERVES FOR AGRICULTURAL CREDITS

Risk categories and days of delinquency
Art. 16.- Entities must establish minimum prudential 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 in accordance with the following detail:

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

Classification	Category	Days of Delinquency	Percentage of Prudential 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 at least the criteria presented in Annex No. 3 of these Standards.

The criteria to classify 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 for 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 established a maximum prudential reserve percentage of 5%, even if their risk category is greater than B. (1)

Each debtor interested in the refinancing or restructuring of their credit destined 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 establish prudential 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 prudential reserves of the credit portfolio according to the provisioning percentages established in Table No. 2 of Article 16 of these Standards, when the program non-compliance arises) minus (Level of prudential reserves established with the 5% maximum)) divided by 24 months; and (1) b) Monthly Gap Adjustment Calculation = ((Deterioration/improvement in the estimation of the prudential reserve of the credit portfolio tn (according to what is established in the

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26

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

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

Table No. 2 of Article 16 of these Standards) minus Level of prudential reserves
actually constituted tn)) / (X-n). (1)
Where: (1)

Deterioration/Improvement in the estimation of the prudential 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 deterioration or
improvement of risk category. (1)
Level of prudential reserves actually constituted: is the level of mandatory prudential
reserves actually constituted. (1)
tn: corresponds to the calculation of the prudential reserve for the portfolio of
restructured or refinanced credits destined 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 prudential 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 aforementioned prudential reserves and maintain its equity strength. (1)

Entities that apply what is established in the first paragraph of this article must have a separate and updated register of debtors and credit operations that have been subject to such measure. (1)

Recognition in the establishment of prudential reserves

Art. 17.- When establishing the minimum prudential reserves to be constituted quarterly for the agricultural credit portfolio in accordance with Article 16 of these Standards, each entity may apply a discount recognition of such reserves, according to the following:

a) The entity may have a quarterly discount on the amount of prudential reserve for the agricultural sector depending on the weight represented by SMEs within the total of its agricultural credit portfolio in accordance with Table No. 3 of these Standards, as follows:

Table No. 3 Percentage of reserve to be discounted
Weight represented by SMEs within the total of the agricultural credit portfolio (Percentage) Quarterly discount on the amount of prudential reserve for the agricultural sector (Percentage) 0% - 25% 2.5% 26%-50% 5.0% 51%-75% 7.5% 76%-100% 10.0%

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26
TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND THE ESTABLISHMENT OF PRUDENTIAL RESERVES Approval: 02/25/2021 Validity: 03/15/2021

b) Additionally, if the entity shows a quarterly growth of the portfolio of SME credit in force, it may deduct quarterly from the amount of prudential reserve for the agricultural sector an additional 2.5% to that established in paragraph a); and c) The Superintendence may review the estimation of the quarterly prudential reserve discount.

Restructuring and refinancing of debts

Art. 18.- An extension is understood as the prolongation of the payment term of an obligation, without issuing a new contractual document and without any change of the credit reference.

A reprogrammed credit is understood as the modification of the amortization conditions of the original credit, possibly including a modification of the term, without issuing a new contractual document and without any change in the credit reference.

Credits that have been extended, reprogrammed, or that have been subject to any other legal or financial arrangement that modifies the originally agreed conditions, shall be referred to as restructured credits.

The above concepts exclude those modifications that, due to macroeconomic conditions and not due to problems attributable to the debtor, the entity adjusts the interest rate. As a consequence of the foregoing, the entity may modify the credit term to maintain the installment amount.

Art. 19.- A refinanced credit is understood as a credit granted that cancels total or partially other credits with delinquency or payment capacity problems and that change the conditions of the previous credits.

Credits whose originally agreed conditions are modified by exogenous conjunctural factors outside the debtor that affect the sector in a systemic manner, such as weather conditions, among others, in accordance with what is established in its internal policy, may maintain their risk category, during the period that such conjuncture lasts.

Art. 20.- Debtors whose original credits are restructured or refinanced will retain their risk category in accordance with the criteria defined in Annex No. 3 of these Standards provided that the debtor satisfies by its own means, before the restructuring or refinancing, the total of the accrued interest at the date of the transaction, without these latter being the product of new financing, direct or indirect.

Debtors with restructured or refinanced credits that do not meet the previous condition will be classified in a higher risk category, in accordance with the risk category corresponding to the symptoms they present at the time of refinancing or restructuring, established in Annex No. 3 of these Standards.

The present provision excludes debtors of restructured or refinanced credits whose originally agreed conditions are modified by exogenous conjunctural factors outside the debtor that affect the sector in a systemic manner, such as weather conditions, among others, in accordance with the parameters established in the internal policy of each entity to determine if there is a weather impact.

The entity must consider in its analysis the nature of the sector to which the credit belongs, as well as the payment frequency of the credit.

Likewise, for qualification purposes, the file of these debtors must contain the accumulated delinquency of said credits, at the date when the restructuring or refinancing is effectuated.

Reclassification of restructured or refinanced credits

Art. 21.- Debtors with agricultural credits that have been restructured or refinanced may be reclassified to a lower risk category if they meet the conditions of that category, and additionally, the following:

a) For agricultural credits with annual payment form, having canceled at least their first installment observing normality in their payments; that is, a delay not greater than fourteen days; b) For agricultural credits with payment frequency other than annual, the debtor must evidence a regular service of their debts of at least six months of the new term agreed for credits destined for investment, and at least three months of the new term agreed for credits destined for working capital; and c) Cancel at least two percent (2%) of the principal.

Agricultural credits that have been restructured or refinanced will be evaluated in accordance with Annex No. 3 of these Standards.

“Regular service of their debts” and “normality in their payments” are considered, the service of the debt, capital and interest, when applicable, with a delay not greater than fourteen calendar days.

The above conditions will be required from the first reclassification that is effectuated to the risk category that corresponds to the debtor, according to the criteria described in these Standards.

Art. 22.- Debt consolidation is understood as credits granted to pay obligations that the customer has with the granting entity or with another entity of the financial system, to take advantage of better market conditions. All types of obligations that the debtor may have incurred may be consolidated, provided that agricultural credits prevail in the consolidation in a percentage of at least 50%, otherwise the provisions of the “Standards for Classifying Credit Risk Assets and Establishing Prudential Reserves” (NBC-022) must be applied.

When one or more of the credits to be consolidated have been granted by the same entity and present delinquency greater than thirty days in the last ninety days, the consolidation will be considered as refinancing.

Art. 23.- Restructured or refinanced risk assets must be adequately identified in the entity's accounting and in its computer systems. The entity's information systems must allow for the tracking of said risks, segregate the products effectively received by the same credited to results, identify their origin, as well as facilitate the control of their payment behavior.

Art. 24.- The Superintendence may require the constitution of additional prudential reserves in those cases where, due to a restructured or refinanced credit, unaccrued and unprovisioned interest is carried to Income.

Art. 25.- The entity must inform the Superintendence of the restructuring or refinancing of agricultural credits it carries out during the month, within the first seven business days after the month ends, except in March, June, September, and December, when they will do so within the first ten business days following said months.

Reclassifications of credit assets

Art. 26.- The classification of credit assets and, consequently, the amount of the prudential reserves required may vary month to month due to the granting and payment of credits, the receipt of extraordinary assets, the write-off of credits, the reclassification of debtors, and other circumstances. However, the entity will make the corresponding adjustments in the classifications and prudential reserves constituted at the end of each month.

Art. 27.- The entity must inform the Superintendence of the reclassifications to lower risk categories and the reasons supporting them, of the largest agricultural debtors in accordance with what is stipulated in Article 9 of these Standards, within the first seven business days of each month, except in March, June, September, and December, when they will do so within the first ten business days following said months.

Art. 28.- When the Superintendence determines that a debtor is inadequately

classified, it will order their reclassification and the corresponding adjustment in the prudential reserves. The Superintendence will carry out the necessary verifications by the means and dates it deems appropriate.

Information to the Superintendence

Art. 29.- Without prejudice to the information required in other articles of these Standards, each entity must send to the Superintendence, the classification of the portfolio of all its credit assets and the respective prudential reserves, referring to the balances closing the month, within the first seven business days following, except in the months of March, June, September, and December, when they will do so within the first ten business days following said months. This information must also allow the support of the information service regarding credit users as indicated by the Banks Law and other applicable laws. Likewise, the entity must identify in its register all credits granted by LEFAC.

The submission of information must be carried out in accordance with what is established in the “Technical Standards on the Procedure for the Collection of Information from the Central Risk System” (NRP-41), approved by the Central Bank through its Standards Committee. (1) (2)

Technical details of information submission

Art. 30.- The Superintendence will send to the entities, within a maximum period of ten days after the date of entry into force of these Standards, with a copy to the Central Bank, the technical details related to the submission of the required information. The information requirements will be limited to the collection of information as regulated in these Standards.

CHAPTER V
OTHER PROVISIONS AND VALIDITY

Art. 31.- The policies referred to in Article 4 of these Standards must be sent to the Superintendence within the first ninety days after the entry into force of these Standards.

Art. 32.- The Board of Directors' statement on the sufficiency of prudential reserves will be in accordance with what is established in the “Standards for Classifying Credit Risk Assets and Establishing Prudential Reserves” (NCB-022), and the Board of Directors may make a single statement for the total credit portfolio of the entity.

Art. 33.- The external auditors of the entities must document in their working papers the compliance with the internal credit policies and inform it to the

Superintendence within the first sixty days of each year or within the first ten business days, when they determine any non-compliance with said policies.

Art. 34.- The entity, when granting credits with the guarantee of a reciprocal guarantee society, must not evaluate, qualify, or establish prudential reserves for said credits, an exception that does not imply undermining the procedures and internal controls that are necessary for the granting of the credits.

Art. 35.- Entities must maintain an updated register of the guarantees and the necessary background that demonstrates their existence, as well as their proper formalization, the registration in the corresponding registries, and the corresponding valuations.

Art. 36.- For the corresponding fiscal purposes, these Standards will be communicated to the General Directorate of Internal Taxes of the Ministry of Finance, when the Standards Committee of the Central Bank approves them.

Art. 37.- At the date of validity of these Standards, the validity periods of the valuations of all those mortgage guarantees associated with the credits in force, in accordance with what is established in Article 14 of these Standards, will continue to be valid in accordance with what is established in the “Standards for Credit Risk Assets and Establishing Prudential Reserves” (NCB-022).

Sanctions

Art. 38.- 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. (1)

Unforeseen Aspects

Art. 39.- The aspects not foreseen in regulatory matters in these Standards will be resolved by the Central Bank through its Standards Committee.

Validity

Art. 40.- These Standards will enter into force as of March 15, 2021.

MODIFICATIONS:

(1) Modifications to Articles 13, 16, 29, and 38 and incorporation of Article 16-A approved by the Central Bank through its Standards Committee, in Session CN-17/2021, dated December 20, 2021, with validity as of January 6, 2022.

(2) Modifications in Articles 6 and 29, and Annexes No. 2 and 4, approved by the Central Bank through its Standards Committee, in Session No. CN-04/2026, on May 25, 2026, with validity as of June 9, 2026.

Annex No. 1
GENERAL CRITERIA FOR THE CLASSIFICATION OF DEBTORS

Entities will establish the policies, methods, and procedures that they will apply in
the granting, study, and documentation of their credit risks and contingent commitments (hereinafter, operations), as well as in the identification of their deterioration and the calculation of the amounts necessary to cover their credit risk due to insolvency attributable to the debtor. The Board of Directors or equivalent body of the holding companies will ensure that said policies, methods, and procedures are homogeneous for all entities belonging to the same group.
Depending on the size of the entities' operations, considering their volume and
complexity, the policies, methods, and procedures must comply with the following:

a) Be approved by the Board of Directors, or equivalent body of the entity, and ratified by the holding entity in the case of entities dependent on financial conglomerates; b) Be adequately justified and documented. Among the necessary documentation, proposals and opinions from the corresponding internal departments of the entity must be included; c) Detail, among others, the following:

i. The criteria for granting operations, including aspects such as markets, products,
type of clientele, etc., in which the entity will operate, as well as the global limits of the risks to be assumed for each of them, and the requirements that clients and guarantees must meet to be granted operations, specifying the minimum review period of the evaluation, both of information, solvency, and indebtedness, capacity to service their debts, as well as liquidity and other relevant factors, according to the business segment and type of operation;
ii. The pricing policy to be applied;
iii. The responsibilities and delegated powers of the different bodies and persons
responsible for granting, formalizing, monitoring, valuing, and controlling the operations, including the delegation of authorization of policies;
iv. The requirements that studies and analyses of operations to be carried out
must meet before their granting and during their validity;
v. The minimum documentation that different types of operations must have for
their granting and during their validity;
vi. The definition of criteria to classify operations based on their credit risk
and the way to quantify individual estimates and, if applicable, group estimates of deterioration losses, including in the latter case the parameters to be used in the estimation;
vii. The limit parameters corresponding to financial ratios and other factors that
objectify each risk category analyzed. d) The Audit Committee and the Internal Audit Department or, if applicable, the Risk Unit that has authorized the Board of Directors or equivalent body will ensure that the policies, methods, and procedures are adequate, effectively implemented, and reviewed at least once a year and adjusted if necessary.

It will also have the responsibility of evaluating the risk of the operations for which it must have the means and experience appropriate to the complexity and volume of the credit activities; the evaluation it performs must be independent of the Unit that granted the credit and of the respective credit officer responsible; and e) The documentation referred to in this section will be available to the Superintendence and to external auditors.

The Boards of Directors or equivalent body will be responsible for ensuring that the following criteria are applied in entities, in any case:
a) They will exercise the utmost care and diligence in the rigorous and individualized study of credit risk in operations, not only at the time of their granting, but also continuously during their validity, and will not delay their reclassification into a higher risk category due to deterioration in credit quality, nor their adequate coverage through prudential reserves, which must be made as soon as an abnormal situation or deterioration in credit risk is perceived. Likewise, they will implement mechanisms that allow the adequate application of the criteria in cases of reclassifications to lower risk categories; b) They will adequately document all operations; c) The methods or procedures they use for the estimation of impairment due to credit risk will be integrated into the entity's risk management system and must take into account, in addition to all the factors listed, past experience, the geographic or business areas in which the entity's and group's activity takes place, risk levels, and all information available on the date the estimation is made, including the sensitivity of the estimates to the phase of the economic cycle, as well as reasonable fluctuations in interest rate levels, input prices, and demand variations; and d) In the analysis of credit risk and in the estimation of losses, the effective amount disbursed by the entity pending amortization, as well as the amounts predictably exposed to risk in contingent operations, including amounts in which there is an irrevocable commitment to disburse by the institution, will be considered.
In overdrafts and other current debit balances, the term to compute the age of unpaid amounts will be counted from the first repayment request made by the entity, or from the first settlement of interest that results unpaid.
The Board of Directors or equivalent body will establish policies for the granting, documentation, and control of revolving credit lines and will be responsible for ensuring that disbursements are used in accordance with the purpose for which they were originally agreed. In cases of non-compliance with the respective policies, the debtor will be classified in category D1.

THE FILE OF AGRICULTURAL CREDITS MUST CONTAIN AS A MINIMUM, IN THE RELEVANT ASPECTS, THE DOCUMENTS DETAIL BELOW The file of agricultural credits must contain as a minimum, in the relevant aspects, the following documents:

Credit application;
Credit contract or credit instrument with executive force;
Credit feasibility study performed on the debtor, which served as the basis for the approval of the credit, which must include at least payment capacity, financial situation, debtor's payment behavior, clear identification of the destination of funds and original sources of repayment. When the credit is a refinancing, it must also be supported by an analysis. (Weight of 10%);
Financial Statements of the last two fiscal years, prepared in accordance with the accounting basis established by the Council for the Supervision of the Accounting and Auditing Profession (Weight of 10%). The aforementioned financial statements must match those presented to the Commerce Registry. The weighting of this item will not be applied to credits requested by SMEs 1/ regardless of their amount;
Analysis of the production cycle of the activities detailed in article 6 of these Standards, which evidences their exploitation and includes their viability. This analysis will be prepared by the financial entity;
Projected Operational Cash Flow for one year, with monthly reviews and with the premises supporting it. This flow may be prepared by the financial entity, and will be required only for decreasing operations with terms greater than twelve months; (Weight of 10%);
Resolution of the level that approved the credit;
If the credit is backed by guarantees, the following:
a) Appraisal report, which does not exceed three years for mortgage guarantees; and b) Documents proving ownership of the guarantee.
Report on other credits owed by the same debtor and the location of their files;
Financial information of the co-debtor;
Copy of the correspondence between the financial entity and the debtor;
File or record of the credit evaluations performed by the institution with identification of the official who performed the evaluation, as well as its review by the management level responsible for the unit in charge of it;

1/ For the purposes of these Standards, micro and small enterprises are defined, in accordance with the Law for the Promotion, Protection and Development of Micro and Small Enterprises, as follows: (2) a) Microenterprise: "Natural or legal person, who operates in the various sectors of the economy, through an economic unit, with a level of income from gross annual sales of goods or services up to 500 current minimum monthly salaries of the commerce and services sector and who has up to 10 workers". Including their respective sub-classifications. (2) b) Small enterprise: "Natural or legal person, who operates in the various sectors of the economy, through an economic unit with a level of income from gross annual sales of goods or services greater than 500 up to 5,000 current minimum monthly salaries of the commerce and services sector and from 11 up to a maximum of 50 workers". (2)

Copy of the income tax declaration of the last fiscal year; for debtors of agricultural credits who are legal persons. In the case of natural persons, only those obligated to declare must present it;
In the case that the debtor is a legal person, the file must contain, in addition to the above, the external auditor's opinion (weight of 10%); updated list of shareholders; certification of point of minutes of the Board of Directors or equivalent body of the entity, where it was agreed to contract the credit under the agreed conditions; deed of incorporation and its modifications and credentials of the Board of Directors or equivalent body of the society, duly registered;
When applicable, the file must contain the necessary permits for the realization of the project, such as those granted by the National Administration of Aqueducts and Sewers (ANDA), the corresponding Municipal Mayor's Office, the Ministry of the Environment, etc.; (Weight of 10%);
When it comes to recently constituted companies, of which no historical financial information is available, the file must contain the respective study on the viability of the business, which includes an analysis of the market, technical, and financial feasibility of the project; (weight of 10%);
The assigned weight corresponds to the weighting that will be given to the file documentation, for the purpose of determining the percentage of non-compliance with the information requirements referred to in the "Criteria for the Evaluation and Classification of Agricultural Credit Debtors", detailed in Annex No. 3 of these Standards;
Photocopy of insurance policies, duly endorsed in favor of the entity, which cover the risks on the assets that guarantee the credit assets; and
To analyze the financial situation for the purpose of determining the debtor's payment capacity, at minimum the following indicators will be used:
a) Operating Profit / Sales b) Net Profit / Sales c) Net Profit / Total Assets d) Net Profit / Equity Capital e) Current Assets / Current Liabilities f) Current Assets - Inventory / Current Liabilities g) Working Capital = Current Assets – Current Liabilities h) Total Liabilities / Equity Capital i) Current Liabilities / Long-term Debt j) Projected Operational Cash Flow / Debt Service k) Projected Operational Cash Flow / Projected Current Liabilities l) Current Liabilities / Equity m) Long-term Liabilities / Equity n) Inventory Turnover o) Accounts Payable Turnover p) Accounts Receivable Turnover The application of the above indicators will consider the product cycle, depending on the debtor's activity.

A1:
-Credits granted with late payment not greater than 14 days in the last 12 months. (CB) New debtors of the entity may have this category, provided they meet the other criteria of the category.
A2:
Delays of up to 30 days in
the payment of their obligations
(CB)
Delays up to 60 days in the
payment of their obligations.
(CB)
C1: Delays from 61 days
up to 90 days in the payment of their obligations. (CB)
C2: Delays of 91 days up to
120 days in the payment of their obligations. (CB)
D1: Delays of 121 days that
can reach up to 150 days in the payment of their obligations (CB)
D2: Delays of 151 days that
can reach up to 180 days in the payment of their obligations (CB)
Delays of 181 days or more in
the payment of their obligations.
(CB)
Credit well structured
according to the expected cash flows of the debtor and in accordance with the policies approved by the entity. (CB)
Credit structured
according to the cash flows expected from the debtor and with some degree of justified non-compliance with policies approved by the entity. (CS)
Credit structured
according to the expected cash flows of the debtor with exceptions not justified to the policies approved by the entity. (CB)
Structure and conditions of the
credit disproportionate to the solvency and payment capacity of the debtor, raise doubts about their cancellation in accordance with the terms of the contract. (CB)
Complete and updated
documentation in accordance with Annex No. 2 and the policies approved by the entity. (CB)
Minor unsolvable documentation
non-compliance, in accordance with Annex No. 2 or the policies approved by the entity. (CB)
Non-compliance up to
10% of the information requirements of Annex No.

(CB)

Non-compliance up to 30%
of the information requirements of Annex No. 2. (CB)
Incomplete documentation more than 30% of the
information requirements of Annex No.

(CB)

No instrument with
executive force. (CB)
Destination of funds and
sources of repayment identified and properly supervised by the entity. The source of repayment may not be fully identified, provided it has been affected by adverse climatic phenomena, or pest and disease attack, outside the norm according to the entity's experience and its internal policy. (CB)
Destination of the loaned funds and sources of
repayment without evidence of identification or supervision by the entity. (CS)
Indications that the loaned funds are destined to finance
losses or are diverted to related companies or outside the business, without alternative sources of repayment. (CS)
Diversion of funds from
loans to other destinations different from those declared.
(CB)
There are indications that the
new credits granted are destined or diverted to the payment of pending obligations with payment problems in other financial entities, or of companies related to the debtor. (CS)

Normal Credits
(Category A1 and A2)
Subnormal Credits
(Category B)
Deficient Credits
(Category C1 and C2)
Difficult Recovery Credits
(Category D1 and D2)
Unrecoverable Credits
(Category E)

Renewal of revolving credit
lines with increase in limit, due to including outstanding balances of interests. (CB)
Credits in judicial collection (CB)
Financial situation and payment capacity
Satisfactory profitability indicators,
according to the documented experience of the entity, and in conformity with its policies. The economic and financial impacts that climatic conditions may have, among others, will be taken into account. (CB)
Minor problems in
profitability, according to the documented experience of the entity, and in conformity with its policies. (CS)
Decreasing profitability,
according to documented experience of the entity and in accordance with its policies, possibly negative in the last period, or with accumulated losses of 25% or more of capital. (CS)
Negative profitability in at
least three of the last four periods, with accumulated losses of 50% or more of capital. (CB)
Incurs in the causes of
dissolution and liquidation of the Commercial Code, although the creditors have not requested it. (CB)
Voluntarily the
owners of the company have decided the definitive closure of the same. (CB)
Satisfactory liquidity ratios,
according to the documented experience of the entity, and in conformity with its policies. (CB)
Occasional liquidity problems,
according to the documented experience of the entity, and in conformity with its policies. (CS)
Scarce liquidity, according
to documented experience of the entity and in conformity with its policies, or supported exclusively by bank debts or by accounts receivable and slow-recovery inventories. (CB)
No liquidity, according to documented
experience of the entity and in conformity with its policies or supported by accounts receivable and inventories of doubtful recovery. (CB)
No liquidity to cover its
obligations (CB)
Adequate debt level, according to the
documented experience of the entity, and in
Slightly elevated debt level, according to the
documented experience of the entity, and in conformity with its policies. (CS)
Elevated debt level and with an upward trend, according to experience
documented of the entity and in conformity with its policies, not justified by the level of expansion of the company during the year in course. (CS)
Some suppliers have
suspended financing, reducing the supply of inventories to levels that hinder the company's business. (CS)
Supplier financing has been
suspended, reducing the supply of inventories to levels that make it impossible the company's business. (CB)

Normal Credits
(Category A1 and A2)
Subnormal Credits
(Category B)
Deficient Credits
(Category C1 and C2)
Difficult Recovery Credits
(Category D1 and D2)
Unrecoverable Credits
(Category E) conformity with its policies. (CB) the entity, and in conformity with its policies. (CS) of conformity with its policies, not justified by the level of expansion of the company during the year in course. (CS) inventories to levels that hinder the company's business. (CS) to levels that make it impossible the company's business. (CB)

Operational cash flow 2 covers
broadly the payment of capital plus interest. The climatic conditions, among others, that affect cash flows will be additionally evaluated. (CB).
Operational cash flow
covers scarcely the payment of capital plus interest. The climatic conditions, among others, that affect cash flows will be additionally evaluated. (CS).
Operational cash flow
is insufficient to attend to the normal payment of principal and interest. (CB)
Negative operational cash flow without evidence that in the
short term the situation can be recovered. Although there is a partial service of the debt, this comes from sources outside the business, and the company operates at an operational loss. (CB)
Operational cash flow
does not recover production and marketing costs. (CB)
Satisfactory rotation of accounts
receivable and inventories, according to the documented experience of the entity, and in conformity with its policies. (CB)
Slightly elevated rotation of accounts
receivable and inventories, according to documented experience of the entity, and in conformity with its policies. (CS)
Tendency to accumulate
inventories, accounts receivable and investments, without justification, whose realization and value have not been adequately founded and evaluated. (CS)
Evident difficulties in the
rotation of inventories, accounts receivable and investments, with reasonable doubts about their realization value. (CB)
The payment of its
obligations comes from the sale of fixed assets essential for its operation (CB)
There is no evidence that the
owners have means or will to support the capitalization of the company, worsening the perspectives of indebtedness and future viability. (CS) (CB) Basic criterion, with one of them being met, determines the risk category, except in categories A1 and A2 which must have all the basic criteria present. (CS) Secondary criterion, with three or more of them being met, determines the risk category considering the initial assumptions (of operations, profitability, solvency, leverage and debt service) that preceded the granting of the credit. Note: Delinquency days are considered calendar days.

2 For the purposes of these standards, historical and projected operational cash flow will be that obtained from operating profit before taxes and interest service, adding depreciations (includes amortization of intangibles and provisions for impairment of accounts receivable, inventories and other investments) and deducting increases in net working capital.

PRUDENTIAL ASPECTS TO CONSIDER IN THE ISSUANCE OF GUARANTEES

Entities must consider prudential aspects of risk management and necessary documentation before issuing guarantees, in accordance with the following:

The board of directors or equivalent body of the entity shall define and approve:

a) Policies and standards regarding the underwriting of guarantees and obtaining collateral, marketing, monitoring of guaranteed obligations, risk management, reinsurance in the case of insurance companies, as well as strategic objectives in these matters and mechanisms to monitor and evaluate compliance;

b) The establishment of consultative committees that report, directly or through the general manager or their designee, to the board of directors and whose purpose is to assist in determining policy and strategy regarding risk management, underwriting of guarantees, obtaining collateral, and reinsurance, in the case of insurance companies;

c) That, in granting guarantees, the entity, without prejudice to collecting necessary collateral, must reasonably estimate that the guarantor will fulfill the guaranteed obligations, considering the economic viability of the projects related to the obligations to be guaranteed, the technical and financial capacity of the guarantor to fulfill the obligation, their credit history, as well as their administrative and moral standing; and

d) In the case of insurance companies, the adequate diversification of responsibilities assumed by the issuance of guarantees, requiring the celebration of reinsurance contracts. Likewise, in carrying out reinsurance cession operations, the entity must ensure adequate dispersion in the use of reinsurers.

Risk Management:

The objectives, guidelines, and policies regarding guarantees must generally contemplate the following aspects:

a) The functions and responsibilities of the different organizational areas and personnel involved in the issuance and administration of guarantees;

b) The powers of authorized personnel to issue different types of guarantees, establishing authorization or granting levels both by amount and by type;

c) The strategies and policies for issuing guarantees, which, in addition to being consistent with the characteristics and capacity of the entity, may consider the following elements:

i. Types of guarantees that the entity will issue; and

ii. Maximum granting levels by type of guarantee.

Entities must have a guarantee manual containing the processes, methodologies, procedures, and other necessary information for the issuance and administration of guarantees.

Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-03/2021
NRP-26
TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF AGRICULTURAL SECTOR CREDITS AND TO ESTABLISH RESERVES FOR RESTRUCTURING Approval: 02/25/2021 Validity: 03/15/2021
Annex No. 4

The risk committee or audit committee shall be responsible for reviewing that the guarantee manual is consistent with the objectives, guidelines, and policies regarding the issuance and administration of guarantees, approved by the board of directors or equivalent body.

Entities must provide periodic follow-up, in accordance with their policies, to each of the guarantees, requiring all relevant information indicating the status of the guarantor in relation to the covered event and the status of the collateral obtained, if any.

Without prejudice to the foregoing, entities must establish stricter evaluation and follow-up procedures for those guarantees whose coverage object shows signs indicating that the terms and conditions agreed upon between the guarantor and the beneficiary will not be fully complied with.

Files and Documentation:

Entities must include in their policies and procedures regarding guarantees the requirements for assembling and maintaining the files that they must have for each type of guarantee they issue.

These requirements must provide for the incorporation of pertinent information and documentation based on the stages of the guarantee process, relating to the evaluation, approval, and issuance of the guarantee, as well as follow-up, control, and recovery.

Notwithstanding the foregoing, entities must assemble a file for each guarantor containing the information and documentation of all guarantee operations conducted with the same.

The file must contain, as appropriate and in accordance with the entity's own policies, the following information:

a) Guarantee application;

b) Record of client evaluation, financial analysis, selection of covered risk, etc.;

c) Excerpt from the minutes of the guarantee committee or equivalent body in which the issuance of the guarantee was approved;

d) Copy of the issued guarantee document;

e) Sworn declaration for compliance with the Special Law for the Prevention, Control and Sanction of Money Laundering, Terrorism Financing and Financing of the Proliferation of Weapons of Mass Destruction; (2)

f) Audited financial statements of the guarantor, if it is a legal entity; if it is a natural person not required to have external audit, they must present financial statements certified by an external auditor;

g) Copy of the contract between the guarantor and the beneficiary that gave rise to the guarantee; and

h) Copy of the collateral document received for the granting of the guarantee.

The information and documentation contained in the file must be kept updated as required by the entity's policies.

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