Technical Standards for the Liquidation or Conservation of Extraordinary Assets in Financial Entities

ENTITIES
Approval: 02/29/2024
Effective Date: 03/15/2024

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

CONSIDERING:

I. That the first paragraph of Articles 72 of the Banking Law and 47 of the Cooperative Banks and Savings and Credit Institutions Law establish that extraordinary assets acquired by banks and cooperative banks must be liquidated within a period of five years, counted from the date of their acquisition, and must be provisioned as a loss in their accounting, during the first four years, through uniform monthly provisions.

II. That the first paragraph of Articles 199 of the Banking Law and 121 of the Cooperative Banks and Savings and Credit Institutions Law establish that it is prohibited for banks to acquire real estate for the purpose of subdivision and housing construction, nor to engage in such activities, except when it concerns extraordinary assets with prior authorization from the Superintendence.

III. That Article 155 of the Cooperative Banks and Savings and Credit Institutions Law establishes that savings and credit institutions shall be subject to the provisions of the Banking Law, except as provided in Book IV of the aforementioned Cooperative Banks Law.

IV. That Article 71 of the Investment Banks Law establishes that the provisions contained in Article 72 of the Banking Law shall apply to Investment Banks, insofar as they do not contravene the Investment Banks Law, nor the nature or purpose of Investment Banks. (1)

V. That Article 2, first paragraph, of the Law on Supervision and Regulation of the Financial System establishes that the Financial Supervision and Regulation System aims to preserve the stability of the financial system and ensure its efficiency and transparency, as well as to ensure the safety and solidity of the members of the financial system in accordance with what is established by said Law, other applicable laws, regulations, and technical standards issued for this purpose, all in concordance with international best practices on the matter. (1)

VI. That Article 99, third paragraph, letter a), of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Norms Committee of the Central Reserve Bank of El Salvador to approve technical standards, instructions, and provisions that the laws regulating the supervised entities establish must be issued to facilitate their application, especially those relating to solvency requirements, liquidity, provisions, reserves, classification of risky assets, criteria for establishing the need for consolidation, good corporate governance practices, information transparency, and on any other aspect inherent to risk management by the supervised entities. (1)

ENTITIES
Approval: 02/29/2024
Effective Date: 03/15/2024

VII. That in accordance with Article 101, fourth paragraph, of the Law on Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.
(1)

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 LIQUIDATION OR CONSERVATION OF EXTRAORDINARY ASSETS IN FINANCIAL ENTITIES

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish the criteria that subjects obligated to comply with them must meet for the liquidation or conservation of extraordinary assets.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Banks constituted in the country; b) Branches of foreign banks established in the country; c) Savings and credit institutions; d) Cooperative banks; e) Federations of both cooperative banks and savings and credit institutions regulated by the Cooperative Banks and Savings and Credit Institutions Law; f) The Mortgage Bank of El Salvador, S.A.; (1) g) The Agricultural Development Bank, insofar as it does not contradict its Creation Law; and (1) h) Investment banks constituted in the country. (1)

ENTITIES
Approval: 02/29/2024
Effective Date: 03/15/2024

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Extraordinary Assets: Those guarantees or movable and immovable property referred to in Article 71 of the Banking Law and its application regulated in Article 71 of the Investment Banks Law, and Article 46 of the Cooperative Banks and Savings and Credit Institutions Law; (1) b) Central Bank: Central Reserve Bank of El Salvador; c) Entity: Subject obligated to comply with these Standards; and d) Superintendence: Superintendence of the Financial System.

CHAPTER II
LIQUIDATION PERIOD AND PUBLIC AUCTION SALE

Art. 4.- Entities must liquidate their extraordinary assets within a period of five years, counted from the date of acquisition.

Art. 5.- The entity that has not disposed of the extraordinary assets after the fifth year from their acquisition has ended must sell them at public auction within sixty days following the date on which said period expires, prior to the publication of two notices in two printed media of national circulation or another digital publication platform with equal or greater coverage or on its website, in accordance with what is established in the current legal framework. In such publication, the place, day, and time of the auction, the value that will serve as the base for it, must be clearly expressed; and if it concerns real estate, a brief description of the property and its location must be included. In this same publication, the conditions of sale must also be mentioned, whether it will be strictly for cash or if financing will be provided for the purchase.

Art. 6.- The value that will serve as the base to initiate the auction will be the real value of the assets, as estimated by the entity itself.

Art. 7.- The entity must communicate to the Superintendence, at least ten business days in advance, the date, time, and place where the public auction will take place. The aforementioned communication must contain:
a) Evidence of the publication of the notices referred to in Article 5 of these Standards; b) Description of the property to be auctioned; c) Base price of the auction and value according to accounting records; d) Name of the expropriator of the property; and e) Detail of previous auctions, if any.

The process must be carried out by the unit responsible for extraordinary assets, in the presence of a delegate from internal audit and another from the legal unit. When the Superintendence deems it appropriate, it will appoint delegates to supervise the act. Upon concluding the event, a minutes document will be drawn up stating the place, day, time, and other aspects related to the auction, indicating the general details of the buyer. The minutes will be signed by the representatives of the entity and the buyer. The delegate of internal audit of the entity and of the Superintendence, if appointed, shall only prepare a report attaching a copy of the minutes. Within five business days following, the entity must send to the Superintendence a certified copy of the minutes and the internal audit report.

Art. 8.- In case there are no bidders, the auctions will be repeated at least every six months, as established in the fourth paragraph of Article 72 of the Banking Law and its application regulated in Article 71 of the Investment Banks Law and Article 47 of the Cooperative Banks and Savings and Credit Institutions Law. (1)

Art. 9.- If after attempting an auction, but before six months have passed, there is a buyer who offers a sum equal to or greater than the value that served as the base for said auction, the entity may sell the property without further procedure at the offered price.

Art. 10.- In case the Superintendence detects irregularities in the auction process, it may require the repetition of said process, provided that the sale has not been perfected. If the respective property has already been sold, the Superintendence must inform the Attorney General's Office for the corresponding legal effects. When for any cause the auction is not held, a minutes document must also be drawn up signed by the representatives of the entity, except the internal audit delegates, pointing out the incidents of the case.

ENTITIES
Approval: 02/29/2024
Effective Date: 03/15/2024

CHAPTER III
PROCEDURE FOR CONSERVING PROPERTY

Art. 11.- If an entity wishes to conserve an extraordinary asset for its own use, for cultural purposes, for the benefit of the community, or for the welfare of its personnel, it must submit its request to the Superintendence at least thirty days before the legal conservation period expires, that is, five years, attaching to said request the background information regarding the property and the justification of the use to be given to it. Similarly, said entity must demonstrate that the investment in net fixed assets, balances at the end of the month prior to the request, excluding twenty-five percent (25%) of the value of revaluations, does not exceed seventy-five percent (75%) of its Equity Fund, in accordance with what is established in Article 236 of the Banking Law, Article 45 of the Cooperative Banks and Savings and Credit Institutions Law, or Article 65 of the Investment Banks Law, respectively. (1)

Request for Authorization to Conserve Extraordinary Assets Art. 12.- The request referred to in Article 11 of these Standards must be submitted for authorization to the Superintendence in accordance with what is established in the seventh paragraph of Article 72 of the Banking Law and its application regulated in Article 71 of the Investment Banks Law and Article 47 of the Cooperative Banks and Savings and Credit Institutions Law. Said request must be signed by the President or Legal Representative of the entity. (1)

Documents Attached to the Request
Art. 13.- The authorization request must contain the following documentation:
a) Agreement taken by the Board of Directors or equivalent body for the approval of the procedure, signed by its Secretary; in said agreement, the use to be given to the extraordinary asset must be included; b) Investment budget to be carried out for the conditioning of the extraordinary asset as a fixed asset and the costs incurred for its maintenance; c) Impact analysis on the equity fund, with calculations on the investment in net fixed assets (balances at the end of the month prior to the request, excluding twenty-five percent (25%) of revaluations, must not exceed seventy-five percent (75%) of the Equity Fund); d) Updated valuation report of the extraordinary asset as of the date of the request; and e) Draft accounting entry, for the record to be made for the liquidation of the extraordinary asset.

The request and documentation may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in the first paragraph of Article 14 of these Standards will begin to run from the next business day after the request has been submitted.

Authorization Procedure for Conserving Extraordinary Assets Art. 14.- Upon receiving the request for authorization for the conservation of the extraordinary asset, in accordance with what is established in Articles 12 and 13 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined in these Standards and in the applicable legal framework, having up to thirty business days for the authorization or denial of the request. If the request is not accompanied by complete and proper information, as detailed in Articles 12 and 13 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the entity to present the missing documents within a period of ten business days counted from the day following the notification, a period that may be extended at the request of the entity, when there are reasons justifying it. The Superintendence in the same notice will indicate to the entity that if it does not complete the information within the aforementioned period, it will proceed without further procedure to archive the request, leaving it free to present a new request. If after analyzing the documentation presented in accordance with Articles 12 and 13 of these Standards, the Superintendence has observations or when the documentation or information presented does not prove sufficient to establish the facts or information intended to be accredited; the Superintendence will notify the respective entity to remedy the deficiencies communicated or present additional documentation or information requested. The entity will have a maximum period of ten business days, counted from the day following the notification, to resolve the observations or present the information required by the Superintendence. The Superintendence may, through a reasoned resolution, extend by up to another ten business days the period indicated in the previous paragraph, when the nature of the observations or deficiencies notified so requires.

Extension Period
Art. 15.- The entity interested in the authorization for the conservation of extraordinary assets may submit to the Superintendence a request for extension of the period indicated in the fifth paragraph of Article 14 of these Standards, before the expiration of said period, expressing the grounds on which it is based and proposing, if applicable, the pertinent proof. The extension period may not exceed ten business days and will begin from the next business day following the expiration date of the original period.

Suspension of the Period
Art. 16.- The thirty-business-day period indicated in the first paragraph of Article 14 of these Standards will be suspended for the days that elapse between the notification of the request for information or documentation referred to in the second and fifth paragraphs of said article, until the interested parties remedy the observations required by the Superintendence.

Art. 17.- Once the complete and proper documentation has been submitted, the Superintendence will respond to the request for authorization for the conservation of the extraordinary asset through a resolution.

ENTITIES
Approval: 02/29/2024
Effective Date: 03/15/2024

The Superintendence will proceed to notify the resolution in which it authorizes or denies the conservation of the extraordinary asset, within a maximum period of three business days from the date of issuance.

Art. 18.- If the request is favorably resolved, the accounting transfer of the property must be proceeded with, crediting the account in which the extraordinary asset was accounted for to the account of assets for the use of the entity, as appropriate and in accordance with the “Accounting Manual for Deposit-Taking Institutions and Holding Companies” (NCF-01), and in the case of investment banks, the “Accounting Manual for Investment Banks” (NCF-12). (1)

CHAPTER IV
PROPERTY FOR SUBDIVISION OR CONSTRUCTION

Art. 19.- The entity that acquires real estate as extraordinary assets may request authorization from the Superintendence to designate them for construction or subdivision, when upon acquiring them they were being or had been designated for the development of the mentioned activities.
The respective request must indicate the period in which the entity estimates it will finish and sell the real estate, so it must be accompanied by the necessary information to determine the legitimacy of what is requested.

Art. 20.- The resolution issued by the Superintendence must indicate the period granted, which may not be greater than five years, counted from the date it was acquired as an extraordinary asset.
If at the end of the granted period the entity has any real estate pending sale, it must provision it as a loss in its accounting.

CHAPTER V
OTHER PROVISIONS AND EFFECTIVE DATE

Sanctions
Art. 21.- 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.

Repeal
Art. 22.- These Standards repeal the “Standards for the Holding of Extraordinary Assets in Financial Entities” (NPB 4-30), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-27/2001 of May 31, 2001, whose Organic Law was repealed by Legislative Decree No. 592, which contains the Law on Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume 390, dated February 2, 2011.

Transitory
Art. 23.- Requests and procedures submitted in accordance with what is established in the “Standards for the Holding of Extraordinary Assets in Financial Entities” (NPB4-30) and that were in process at the moment these Standards entered into force, will continue and conclude in accordance with the regulation with which they began.

Unforeseen Aspects
Art. 24.- Unforeseen aspects in regulatory matters in these Standards will be resolved by the Central Bank through its Norms Committee.

Effective Date
Art. 25.- These Standards will enter into force from March 15, two thousand twenty-four.

MODIFICATIONS:
(1) Modifications to considerations IV, V, VI and incorporation of consideration VII and modifications in Articles 2, 3, 8, 11, 12, and 18, approved by the Central Bank through its Norms Committee, in Session No. CN-09/2025, of November 10, twenty-five, with effect from November 25, two thousand twenty-five.