Technical Standards for the Evaluation and Classification of Credits Granted by Development Banking

Alameda Juan Pablo II, between 15 and 17 North Avenue, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-21/2020
NASF-09

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

Approval: 10/12/2020
Validity: 04/01/2021

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

CONSIDERING:

I. That in accordance with Article 3, letter c) of the Law on Supervision and Regulation of the Financial System, it is the responsibility of the Superintendency of the Financial System to proactively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.

II. That Article 7, letter n) of the Law on Supervision and Regulation of the Financial System, establishes that the Development Bank of the Republic of El Salvador, formerly the Development Bank of El Salvador and formerly the Multisectorial Investment Bank, is a member of the financial system.

III. That in accordance with Article 35, letter d) of the Law on Supervision and Regulation of the Financial System, the directors, managers, and other officials holding positions of direction or administration of the members of the financial system, must conduct their business, acts, and operations complying with the highest ethical standards of conduct, acting with the due diligence of a good merchant in their own business, being obligated to comply with and ensure that in the entity they direct or work for, the adoption and updating of policies and mechanisms for risk management are fulfilled, including among other actions, identifying, evaluating, mitigating, and revealing them in accordance with international best practices.

IV. That Article 99, letter a) of the Law on Supervision and Regulation of the Financial System, stipulates that it will be the responsibility of the Standards Committee to approve technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, including aspects inherent to risk management by the supervised entities.

V. That by Legislative Decree No. 847, dated September 22, 2011, published in the Official Diary No. 197, Volume No. 393, of October 21 of the same year, the Financial System Law for Development Promotion was issued.

VI. That by Legislative Decree No. 653, dated June 4, 2020, published in the Official Diary No. 117, Volume No. 427, of June 9 of the same year, the Financial System Law for Development Promotion was reformed, changing its name to the Law of the Development Bank of the Republic of El Salvador, among others.

VII. That Article 34 of Legislative Decree No. 653 dated June 4, 2020, establishes that the Central Reserve Bank of El Salvador through its Standards Committee will issue the necessary technical standards for the application of said Law, which must be carried out taking into account the nature of the Development Bank of the Republic of El Salvador.

VIII. That one of the objectives of Development Banking is to facilitate access to financing that contributes to promoting the development of productive sectors, in accordance with sectoral public policies, micro, small, and medium enterprise policies, job generation, and consequently the economic and social development of the country.

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:

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to regulate the evaluation and classification of risk assets, according to the quality of the debtors, especially their behavior and payment capacity, and to require the establishment of minimum health reserves for the respective credits.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are the entities that carry out development banking operations and that by Law are under the supervision of the Superintendency of the Financial System, and where applicable, insofar as it does not contradict their creation law and what is provided by the Court of Accounts.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Risk Assets: are credits for productive purposes granted directly or indirectly, guarantees, sureties, discounted documents, bonds, and other debt securities acquired, and any form of direct or indirect financing or other operation that represents an obligation for the entity;

b) Development Banking: banks or financial institutions that support economic and social development, channeling resources mainly in the medium and long term, assigning resources to public and private banking in lines of financing and guarantee to productive sectors, especially to sectors of the economy traditionally excluded or neglected by commercial banking, including access to education and business training; and that within their funding mechanisms does not include the collection of deposits;

c) Central Bank: Central Reserve Bank of El Salvador;

d) 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;

e) Credits: in the text of these Standards, it shall be understood as credit risk assets;

f) Entity: subjects referred to in Article 2 of these Standards;

g) Board of Directors: collegiate body in charge of administration, with functions of supervision, direction, and control of the entity;

h) LEFAC: Special Law to Facilitate Access to Credit; and

i) Superintendency: Superintendency of the Financial System.

CHAPTER II
RESPONSIBILITIES OF THE BOARD OF DIRECTORS

Art. 4.- The Board of Directors of the entity shall be responsible for ensuring compliance with these Standards; authorizing internal policies for credit granting and the establishment of 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.

For the case of entities that carry out indirect credit operations, they must define in their internal policy the evaluation and classification of the institutions through which they will carry out said operations.

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

Each entity will define in its internal policies what it will understand as productive activities, taking into consideration what is established in Article 2, letter d) of LEFAC.

CHAPTER III
GROUPING, EVALUATION, AND CLASSIFICATION OF CREDIT RISK ASSETS

Art. 5.- For the purposes of evaluating and classifying credit risk assets, they shall be grouped by sector and company size in accordance with what is established in Annex No. 5 of these Standards.

Art. 6.- Entities must have 100% of their credit risk assets duly classified at all times.

To determine the classification of a debtor, each entity will gather all credit operations contracted by the debtor with said entity, so that the risk category assigned to it is the one corresponding to the credit with the highest risk of recovery.

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

Evaluation and classification of credits
Art. 7.- The evaluation and classification of credits for companies in the categories defined in Article 16 of these Standards, each entity will do so in accordance with the content of the Annexes of these Standards. It is a matter of technically evaluating the quality of each debtor as a credit subject, 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 LEFAC will be carried out in accordance with the content of the Annexes of these Standards and the information requirements established in LEFAC.

For the evaluation and classification of low-amount credits referred to in LEFAC, each entity will consider what is established regarding the days of delinquency corresponding to company credits established in Annex No. 3 of these Standards.

Art. 8.- Each entity must evaluate its top fifty debtors from its credits on a monthly basis. The rest of the credit debtors must be evaluated according to the periodicity established in their own policies, which must not be greater than one year; however, the foregoing, it 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.

Art. 9.- For each debtor, a file must be opened containing all legal and financial documents related to the application, analysis, approval, and monitoring according to the following:
a) For credits whose balance is less than three hundred fifty thousand dollars (US$350,000.00), it must be established 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; and

b) For credits whose balance is greater than or equal to three hundred fifty thousand dollars (US$350,000.00), the detailed information in Annex No. 2 of these Standards will be required as a minimum, as well as compliance with the respective policies.

What is provided in this article applies to credits granted for productive activities referred to in LEFAC, considering for such credits the information requirements established in said Law. The aforementioned credits must be adequately identified.

Art. 10.- 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, at the date of evaluation, any amount remains unpaid for principal or interest.

Treatment of guarantees
Art. 11.- For the purposes of the requirement of health reserves, the risk of a debtor will be determined by subtracting from the total balance of obligations, the value of the guarantees that back them up and that correspond to those detailed in Articles 12 to 14 of these Standards; in addition, the criteria for accepting guarantees must be in accordance with the policies approved by their Board of Directors 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 health reserves, will be proportional to the outstanding balances of the credits granted to the debtor.

Art. 12.- For the purposes of the previous article, the following guarantees will be considered:

Table No. 1
TYPE OF GUARANTEE Percentage to consider
Cash deposits 100%
Monetary deposit certificates duly pledged and that have been opened in local banks or in first-line foreign banks or in non-bank financial intermediaries supervised by the Superintendency.
100%
Sureties and Guarantees from local banks or first-line foreign banks.
100%
Sureties and Guarantees from guarantee funds administered by the Development Bank of the Republic of El Salvador.
100%
Pledges on fixed income securities, issued in the country or abroad, with a high degree of liquidity and that have an international classification of "investment grade".
100%
Trust guarantee where the Trustee is the Development Bank of the Republic of El Salvador, prior notification to the Superintendency.
100%
Pledge bonds issued by General Warehouses of Deposits 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 conclude 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
1/ 50%
Note 1/ Includes categories E1, E2 and E3 that apply to debtors in Own Account or self-employment; Micro and Small enterprise.

Art. 13.- Mortgage guarantees must comply with what is established in the respective current regulations, including their valuation.

Movable guarantees
Art. 14.- In the case of movable guarantees, the percentage to be considered in the calculation of the health reserves referred to in Article 11 of these Standards, cannot be greater than 50% of their value. To consider the aforementioned guarantees, they must comply at least with the following:
a) That the guarantee to be received is on movable goods given in pledge without displacement, such as machinery and agricultural equipment;

b) That the values of the goods given as collateral are supported by ownership documents;

c) That the guarantee is valued annually; and

d) That adequate maintenance is given so that these guarantees maintain the same conditions in which they are received in pledge.

Art. 15.- Due to the fact that one of the characteristics of development banking is to contribute to correcting market failures, the level of credit concentration by sector could vary, including its risk profile, which requires special treatment for debtors in Own Account or self-employment; Micro and Small enterprise, as well as the definition of the prudential delinquency index for this size of enterprise. Which will be established in the entity's internal policy, considering that this indicator reveals the level of risk of the entities to recover a credit.

CHAPTER IV
ESTABLISHMENT OF HEALTH RESERVES

Risk Categories and Reserve Percentages
Art. 16.- Each entity must establish minimum health reserves for its credit risk assets, subtracting the balance of each debtor the value of the guarantees that back them up from those established in Articles 11 to 14 of these Standards, classifying said debtors and applying them reserve percentages in accordance with the following detail:

Table No. 2
Risk Categories and Reserve Percentages
Category
% of reserves
Medium and Large enterprise
Category
% of reserves
Own account or self-employment; Micro and
Small enterprise
A1 0% A1 0%
A2 0% A2 0%
B 5% B 0%
C1 10% C1 5%
C2 20% C2 10%
D1 40% D1 20%
D2 60% D2 30%
E 100%
E1 40%
E2 60%
E3 100%

The percentages established in Table No. 2 above do not limit that the entity may voluntarily establish health reserves.

Restructurings and refinancings of debts
Art. 17.- Extension shall be understood as the prolongation of the payment term of an obligation, without issuing a new contractual document and without there being a change in the credit reference.

Restructured credit shall be understood as the modification in the amortization conditions of the original credit, possibly including modification of the term, without issuing a new document and without there being a change in the credit reference.

Credits that have been extended, rescheduled, or that have been the subject of any other legal or financial arrangement that modifies the originally agreed conditions, will be called 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 term of the credit to maintain the amount of the installment.

Art. 18.- Refinanced credit shall be understood as a credit granted that cancels in total or in part other credits with problems of delinquency or payment capacity and that change the conditions of the previous credits.

Credits destined for agricultural purposes whose originally agreed conditions are modified by exogenous conjunctural factors to the debtor that affect said sector in a systemic manner, such as climatic 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. 19.- Debtors whose original credits are restructured or refinanced, will conserve their risk category in accordance with the criteria defined in Annex No. 1 of these Standards, provided that the debtor satisfies by its own means, before the restructuring or refinancing, the total of the interest owed at the date of the transaction, without these last 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 category C2 or a higher risk category, in accordance with the symptoms presented.

Debtors of the company sector are exempt from the provisions established in the preceding paragraphs of this article, who must be classified 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.

If the restructured or refinanced operation that does not comply with the payment of the total of the interest owed continues with delays in the payment of the established installments, for reasons of prudent and sound risk evaluation practice, it will be classified as D1 or a higher risk category, in accordance with the symptoms whenever the following occurs:

a) Six months have not elapsed from the new agreed term, for credits intended for investment, and three months from the new agreed term for credits intended for working capital; or,

b) Six months have not elapsed from the new agreed term in credits for housing or consumption.

Likewise, for qualification purposes, in the file of these debtors, the accumulated delinquency of said credits must be recorded, on the date the restructuring or refinancing is carried out.

Credits that, due to exogenous conjunctural factors to the debtor and that affect their payment behavior in a systemic manner, such as climatic conditions, and are restructured or refinanced, it will not be a necessary condition that the debtor satisfies by its own means, before the restructuring or refinancing, the interest owed at the date of the transaction, in accordance with what is established in its internal policy.

Reclassification of restructured or refinanced credits Art. 20.- Debtors with credits that have been restructured or refinanced may be reclassified to a lower risk category if they meet the conditions of said category and in addition to the following:
a) Evidence a regular service of their debts of at least six months from the new agreed term for credits intended for investment, and at least three months from the new agreed term for credits intended for working capital; and

b) Cancel at least five percent (5%) of the principal.

"Regular service of their debts" and "normality in their payments" are considered the service of the debt, capital and interest, with a delay not greater than fourteen calendar days for credits for companies.

The above conditions will be required in the first reclassification that is carried out to the risk category corresponding to the debtor, according to the criteria described in these Standards.

Art. 21.- Debt consolidation shall be understood as credits granted to pay obligations that the client has with the granting entity or with another entity of the financial system, to take advantage of better market conditions.

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

Art. 23.- The Superintendence may require the establishment of additional soundness reserves in those cases where, due to a restructured or refinanced loan, uncollected and unprovisioned interest is charged to Income.

Art. 24.- Each entity must report to the Superintendence the restructurings or refinancings of its credit assets that it carries out during the month, within the first seven business days after the month ends, except in March, June, September, and December, in which case they will do so within the first ten business days following said months.

Reclassification of Credit Assets

Art. 25.- The classification of credit assets and, consequently, the amount of soundness reserves required may vary month by month due to the granting and payment of loans, the receipt of extraordinary assets, the write-off of loans, the reclassification of debtors, and other circumstances. However, the entity will make the corresponding adjustments in the classifications and soundness reserves established at the end of each month.

Art. 26.- Each entity must report to the Superintendence the reclassifications to a lower risk category and the reasons supporting them, for the 50 largest debtors, within the first seven business days of each month, except in March, June, September, and December, in which case they will do so within the first ten business days following said months.

Art. 27.- When the Superintendence determines that a debtor is inadequately classified, it will order the reclassification and the corresponding adjustment in the soundness reserves. The Superintendence will carry out the necessary verifications by the means and dates it deems appropriate.

Information to the Superintendence

Art. 28.- 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 soundness reserves for both first-tier and second-tier loans, referring to the balances at the end of the month, within the first seven business days following, except in the months of March, June, September, and December, in which case they will do so within the first ten business days following said months. This information must also support the information service regarding credit users as indicated by the Banks Law and other applicable laws to each entity. Likewise, each entity must identify in its registry all loans granted by LEFAC.

Furthermore, for the purposes of sending information to the Risk Central, it must comply 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)

Since the Risk Central only has 8 categories of loans, the detail of the classification of loans from categories E1, E2, and E3 for debtors in Own Account or Self-Employment, Micro and Small Enterprise, must be maintained by the entity in its internal systems, and the entity must report said portfolio breakdown in Excel format, through the means established by the Superintendence.

The period for sending the information in Excel format referred to in the previous paragraph will be carried out only for the time it takes the Superintendence to make changes in its systems to specifically receive the detail of the classification of loans from categories E1, E2, and E3 of Development Banking.

Technical Details of Information Submission

Art. 29.- The Superintendence will send to each entity, within a maximum period of seven days after the effective date 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.

Transitional Provision for Modification to Annex No. 5 (1)

Art. 29-A.- From the effective date of the modifications in Annex No. 5, approved by the Standards Committee of the Central Reserve Bank of El Salvador in Session No. 05/2026, on June 30, 2026, entities will have until January 31, 2027, to make the corresponding adjustments for implementation. For this purpose, they must begin sending information to the Superintendence with the new fields starting from February 1, 2027. (1)

CHAPTER V
OTHER PROVISIONS AND VALIDITY

Art. 30.- The Board of Directors must pronounce itself at least once a year and, in any case, in connection with the financial statements closing the fiscal year, regarding the sufficiency of the soundness reserves established in accordance with these Standards. Such pronouncement must be recorded in the corresponding minutes book.

Art. 31.- The external auditors of each entity must document in their working papers the compliance with internal credit policies and report it to the Superintendence within the first 60 (sixty) days of each year or within the first ten business days, when they determine any non-compliance with said policies.

Art. 32.- Each entity, when granting loans guaranteed by a reciprocal guarantee society, must not evaluate, qualify, or establish soundness reserves for said loans, an exception that does not imply undermining the procedures and internal controls necessary for the granting of loans.

Art. 33.- Reciprocal Guarantee Societies will have a maximum period of sixty days to honor the obligation with the respective entity, counted from the date on which said entity notifies them of the claim for payment of the guarantee due to non-compliance with the amortization quota payments of the loan or the balance thereof, assigning the debtor the category corresponding to them, according to the time of delinquency, counted from the date on which the respective payment should have been made.

Art. 34.- The policies referred to in Articles 4 and 18 of these Standards must be sent to the Superintendence within the first thirty days after the validity of these standards.

Sanctions

Art. 35.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is provided in the Law on Supervision and Regulation of the Financial System.

Unforeseen Aspects

Art. 36.- Aspects not foreseen in regulatory matters in these Standards will be resolved by the Central Bank through its Standards Committee.

Validity

Art. 37.- These Standards will enter into force starting from January 4, 2021.

MODIFICATIONS:
(1) Modifications in Article 28 and in Annexes Nos. 4 and 5 and incorporation of Article 29-A, approved by the Central Bank through its Standards Committee, in Session No. CN-05/2026, on June 30, 2026, with validity starting from July 15, 2026.

Annex No. 1

GENERAL CRITERIA FOR THE CLASSIFICATION OF DEBTORS

1. 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 client. The Board of Directors of financial holding companies will ensure that said policies, methods, and procedures are homogeneous for all entities belonging to the same group.

2. Based 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 of the entity and of the controlling entity in the case of entities dependent on financial conglomerates.

b) Be adequately justified and documented. The necessary documentation must include the proposals and opinions of the corresponding internal departments of the entity, such as Internal Audit, Risk Management, and Legal and Regulatory Compliance;

c) Detail the following:

i. The criteria for granting operations, which will include 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 in charge of granting, formalizing, monitoring, valuing, and controlling operations, including the delegation of authorization of policies;

iv. The requirements that studies and analyses of operations 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 impairment losses, including in the latter the parameters to be used in the estimation; and

vii. The limit parameters corresponding to financial ratios and other factors that objectify each category of risk analyzed.

d) The Audit Committee and the Internal Audit Department or, if applicable, the Risk Unit that has authorized the Board of Directors 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 to evaluate the risk of the operations for which it must have the means and experience adequate to the complexity and volume of credit activities; the evaluation it carries out must be independent of the Unit that granted the credit and the respective responsible credit officer; and

e) The documentation referred to in this section will be available to the Superintendence and external auditors.

3. The Board of Directors will be responsible for ensuring that the following criteria are applied in the entity, in any case:

a) They will exercise the utmost care and diligence in the rigorous and individualized study of the credit risk of operations, not only at the time of their granting, but also continuously during their validity, and will not delay their reclassification to a higher risk category due to deterioration of credit quality, nor their adequate coverage through soundness reserves, which must be carried out as soon as the existence of an abnormal situation or deterioration of credit risk is observed. 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 to estimate 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 enumerated, past experience, the geographic or business areas in which the debtor's and group's activity takes place, risk levels, and all available information at the date on which 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 variations in demand; and

d) In the analysis of credit risk and the estimation of losses, the effective amount disbursed by the entity pending amortization will be considered, as well as the amounts presumably exposed to risk in contingent operations, including the amounts in which there is an irrevocable commitment to disburse by the entity.

4. The Board of Directors 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.

Annex No. 1

In cases of non-compliance with the respective policies, the debtor will be classified in category D.

Categories and Criteria for the Classification of Debtors for Business Loans in accordance with the following:

5. To adequately classify risks in the categories provided for in Article 16 of these Standards, each entity must consider as a minimum the criteria presented in Annex No. 3.

6. The criteria to classify debtors with loans less than three hundred fifty thousand dollars (US$350,000.00) must be established in the policies of each entity and may differ from the criteria of Annex No. 3 except for the days of delinquency, which cannot be less strict than those established in said annex.

Annex No. 2

FILE OF LOANS FOR BUSINESSES

This file must contain, as a minimum, where applicable, the documents detailed below:

1. Loan Application;

2. Loan contract or credit instrument with executive force;

3. Credit viability study performed on the debtor, which served as the basis for the approval of the loan, which must include at least payment capacity, financial situation, debtor's payment behavior, clear identification of the use of funds, and original sources of repayment. When the loan is a refinancing, it must also be supported by an analysis. (Weight of 10%);

4. Financial statements of the last two fiscal years, prepared in accordance with the accounting basis established by the Council for the Supervision of the Public Accounting and Auditing Profession (Weight of 10%). The aforementioned financial statements must coincide with those presented to the Commerce Registry. The weighting of this paragraph will not apply to loans requested by debtors in Own Account or Self-Employment, Micro and Small Enterprise, regardless of their amount;

5. Projected monthly Operating Cash Flow for one year, with the premises supporting it. This flow may be prepared by the bank and will be required only for decreasing operations with terms exceeding twelve months. (Weight of 10%);

6. Resolution of the level that approved the loan;

7. Updated report on debt service and the monitoring carried out by the responsible executive, detailing sources of repayment used;

8. If the loan is backed by mortgage guarantees, an appraisal report, which does not exceed three years;

9. Report on other loans held by the same debtor and the location of their files;

10. Financial information of the co-signer;

11. Copy of the correspondence between the entity and the debtor;

Annex No. 2

12. Record or history of credit evaluations performed by the entity 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 the same;

13. Copy of the income tax declaration of the last fiscal year;

14. In the case that the debtor is a legal entity, the file must also contain the following: external auditor's opinion (weight of 10%); updated list of shareholders; certification of the minutes of the Board of Directors meeting of the entity, where it was agreed to contract the loan under the agreed conditions; deed of incorporation and its modifications, and credentials of the Board of Directors of the society, duly registered;

15. In the case of loans for the construction sector, the file must contain the following:

a) The necessary permits for the execution of the project, such as those granted by the National Aqueduct and Sewerage Administration (ANDA), the corresponding Municipal Mayor's Office, the Ministry of the Environment, the Ministry of Public Works, the Metropolitan Area Planning Office of San Salvador (OPAMSS), the National Council for Culture and Art (CONCULTURA), and by electricity distribution companies (Weight of 10%);

b) The progress of the work prepared by a technician from the construction department of the granting bank related to the loan disbursements. (Weight of 10%);

c) Annual progress report of the work prepared by an independent expert registered with the Superintendence. (Weight of 10%); and

d) Pre-sale and reservation reports, when applicable.

16. When it comes to recently constituted companies, for which there is no historical financial information, 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%);

17. The assigned weight corresponds to the weighting that will be given to the documentation of the file, 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 Debtors for Business Loans" detailed in Annex No. 3 of these Standards;

18. To analyze the financial situation to determine the debtor's payment capacity, the following indicators will be used at a minimum:

Annex No. 2

a) Operating Profit / Sales;

b) Net Profit / Total Assets;

c) Net Profit / Equity Capital;

d) Current Assets / Current Liabilities;

e) Current Assets - Inventory / Current Liabilities;

f) Working Capital = Current Assets – Current Liabilities;

g) Total Liabilities / Equity Capital;

h) Current Liabilities / Long-term Debt;

i) Historical Operating Cash Flow / Debt Service;

j) Historical Operating Cash Flow / Current Liabilities;

k) Inventory Turnover;

l) Accounts Payable Turnover; and

m) Accounts Receivable Turnover.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-21/2020
NASF-09

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

Approval: 10/12/2020
Validity: 28/12/2020

CRITERIA FOR THE EVALUATION AND CLASSIFICATION OF CREDITORS OF CREDITS FOR ENTERPRISE

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 E1, E2 and E3)
Payment behavior and documentation in accordance with policies
- A1: Credits granted with delinquency not greater than 14 days in the last 12 months. (CB)<br>May have this category be new debtors of the entity, 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 to 90 days in the payment of their obligations. (CB)<br>C2: Delays of 91 days to 120 days in the payment of their obligations. (CB)	- D1: Delays of 121 days that may reach up to 150 days in the payment of their obligations (CB)<br>- D2: Delays of 151 days that may reach up to 180 days in the payment of their obligations (CB)	- E: Delays of 181 days or more in the payment of their obligations. (CB)<br>For debtors in Own Account or self-employment; Micro and Small enterprise, the following will apply:<br>- E1: Delays of 181 days that may reach up to 270 days in the payment of their obligations (CB)<br>- E2: Delays of 271 days that may reach up to 360 days in the payment of their obligations (CB)<br>- E3: Delays of 361 days or more in the payment of their obligations. (CB)
- Well-structured credit according to the expected fund flows of the debtor and in accordance with the policies approved by the entity. (CB)	- Credit structured according to the expected fund flows of the debtor and with some degree of justified non-compliance with policies approved by the entity. (CS)	- Credit structured according to the expected fund flows of the debtor with unjustified exceptions 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 well-founded doubts about its cancellation according to the terms of the contract. (CB)	- No instrument with executive force. (CB)
- Complete and updated documentation in accordance with Annex No. 2 of these Standards and the policies approved by the entity. (CB)	- Minor document non-compliance remediable, in accordance with Annex No. 2 of these Standards or the policies approved by the entity. (CB)	- Non-compliance up to 10% of the information requirements of Annex No. 2 of these Standards. (CB)	- Non-compliance up to 30% of the information requirements of Annex No. 2 of these Standards. (CB)	- Incomplete documentation more than 30% of the information requirements of Annex No. 2 of these Standards. (CB)
- Destination of funds and repayment sources identified and duly supervised by the entity. (CB)	- Destination of lent funds and repayment sources without evidence of identification or supervision by the entity. (CS)	- Indications that lent funds are destined to finance losses or are diverted to related companies or outside the business, without alternative repayment sources. (CS)	- Deviation of funds from loans to other destinations different from those declared. (CB)	- There are indications that new credits granted are destined or diverted to pay pending obligations with payment problems in other financial entities, or of companies related to the debtor. (CS)
- Renewal of revolving credit lines with limit increase, because it includes outstanding balances of interest. (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. (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 the capital. (CS)	- Negative profitability in at least two of the last three periods, with accumulated losses of 50% or more of the capital. (CB)	- Incurs in the causes of dissolution and liquidation of the Commercial Code, although the creditors have not requested it. (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)	- Low liquidity, according to documented experience of the entity and in conformity with its policies, or supported exclusively by bank debts or in accounts receivable and inventories of slow recovery. (CB)	- No liquidity, according to documented experience of the entity and in conformity with its policies or supported in accounts receivable and inventories of doubtful recovery. (CB)	- No liquidity to cover its obligations (CB)
- Adequate level of indebtedness, according to the documented experience of the entity, and in conformity with its policies. (CB)	- Level of slightly elevated indebtedness, according to the documented experience of the entity, and in conformity with its policies. (CS)	- Level of elevated indebtedness and with an upward trend, according to documented experience of the entity and in conformity with its policies, not justified by the level of expansion of the company during the current year. (CS)	- Some suppliers have suspended financing, reducing the supply of inventories to levels that make it difficult for the company to operate. (CS)	- Supplier financing has been suspended, reducing the supply of inventories to levels that make it impossible for the company to operate. (CB)
- Operational cash flow 1 covers the payment of capital plus interest widely. (CB)	- Operational cash flow covers the payment of capital plus interest scarcely. (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 they can recover the situation. Although there is partial service of the debt, this comes from sources outside the business, and the company operates with operational loss. (CB)	- Operational cash flow does not recover production and commercialization costs. (CB)

1 For the purposes of these standards, the 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.

• 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 justified 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 willingness to support the capitalization of the company, worsening the perspectives of indebtedness and future viability. (CS)
• Fire, sabotage and generally force majeure situations not covered by insurance that affect the viability of the company. (CB)

(CB) Basic criterion, with one of them being met, determines the risk category, except in categories A1 and A2 which must have all 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.
Annex No.3

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-21/2020
NASF-09

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

Approval: 10/12/2020
Validity: 28/12/2020

Annex No. 4

PRUDENTIAL ASPECTS TO BE CONSIDERED IN THE ISSUANCE OF GUARANTEES

Each entity must consider prudential aspects of risk management and necessary documentation, before the issuance of guarantees in accordance with the following:

1. The Board of Directors of each entity will define and approve:
   a) The policies and norms in matters of guarantee subscription and obtaining guarantees, marketing, monitoring of guaranteed obligations, risk management, as well as strategic objectives in these matters and mechanisms to monitor and evaluate compliance; b) The constitution of advisory committees that report, directly or through the general manager or his proxy, to the Board of Directors and whose object is to assist in the determination of policy and strategy in matters of risk management, guarantee subscription, obtaining guarantees; and c) That, in the granting of guarantees, the entity without prejudice to collecting the necessary guarantees 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 rating.

2. Risk Management
   The objectives, guidelines and policies in matters of guarantees must contemplate, in general form, 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 for the issuance of different types of guarantees, establishing the levels of authorization or granting both by amount and by type; and c) The strategies and policies for the issuance of guarantees, which, in addition to maintaining congruence with the characteristics and capacity of the entity, may consider the following elements:

• Types of guarantees that will be granted
• Maximum levels of granting by type of guarantee

Each entity must have a guarantee manual containing the processes, methodologies, procedures and other necessary information for the issuance and administration of guarantees.
The risk committee or the audit committee will be responsible for reviewing that the guarantee manual is in accordance with the objectives, guidelines and policies in matters of issuance and administration of guarantees, approved by the Board of Directors.
Each entity must give periodic follow-up, in accordance with its policies, to each of the guarantees, requiring all relevant information that indicates the situation of the guarantor in relation to the covered event and the situation of the guarantees obtained, if any.
Without prejudice to the foregoing, each entity must establish stricter evaluation and follow-up procedures for those guarantees whose coverage object presents symptoms indicating that it will not be fully complied with the terms and conditions agreed between the guarantor and the beneficiary.

3. Files and Documentation
   Each entity must include in its policies and procedures related to guarantees, the requirements for integration and maintenance of 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 to follow-up, control and recovery.
   Notwithstanding the foregoing, each entity must integrate a file for each guarantor containing the information and documentation of all guarantee operations celebrated with the same.
   The file must contain, as appropriate and in accordance with its own policies, the following information:
   a) Guarantee application; b) Customer evaluation statement, financial analysis, selection of covered risk, etc.; c) Minute point of the guarantee committee or equivalent body in which the issuance of the guarantee was approved; d) Photocopy 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; (1) f) Audited financial statements of the guarantor, if it is a legal person if it is a natural person not obliged to carry out external audit, must present financial statements certified by an external auditor; g) Photocopy of the contract between the guarantor and the beneficiary that gave rise to the guarantee; and h) Photocopy of the guarantee document received for the granting of the guarantee. The information and documentation contained in the file must be kept updated as required by the policies of each entity.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-21/2020
NASF-09

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

Approval: 10/12/2020
Validity: 28/12/2020

Annex No. 5

PRODUCTIVE SECTORS AND COMPANY SIZE

The classification by sector of credits for productive purposes will be defined in the internal policy of each entity, and may take as reference the valid characters and the explanation of each of the codes that are available in Table 24 of Annex B and Annex E, both of the "Technical Standards on the Procedure for the Collection of Information from the Central Risk System" (N RP-41), approved by the Central Bank through its Standards Committee. Likewise, to classify the size of the company, the valid characters available in Table 20 of Annex B of the aforementioned Standards must be considered. (1)

Sectors of Destination / Size of company	Own Account or self-employment (PA)	Subsistence Microenterprise (MS) (1)	Accumulation Microenterprise (MA) (1)	Expansion Microenterprise (MX) (1)	Small Enterprise (PE)	Medium Enterprise (ME)	Large Enterprise (GE)
Agropecuario	May include all codes.
Manufacturing Industry	May include all codes.
Commerce	May include all codes.
Services	May include all codes.
Construction	May include all codes.
Other sectors	Other sectors not classified previously.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador.
Tel. (503) 2281-8000 www.bcr.gob.sv
CNBCR-21/2020
NASF-09

TECHNICAL STANDARDS FOR THE EVALUATION AND CLASSIFICATION OF CREDITS GRANTED BY DEVELOPMENT BANKING

Approval: 10/12/2020
Validity: 28/12/2020