Technical Standards for the Modification of Social Pacts of Banks, Investment Banks, and Savings and Credit Societies

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022

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

CONSIDERING:
I. That Article 21, first paragraph, of the Banks Law and Article 13, first paragraph, of the Investment Banks Law, establish that banks and investment banks established require authorization from the Superintendence to merge with other societies and transfer all or the majority of their assets. (1)
II. That Article 229 of the Banks Law establishes the procedure that a bank must follow in cases where it wishes to modify its social pact due to an increase or decrease in its social capital, merger, or other changes.
III. That Article 62 of the Investment Banks Law establishes the procedure that an Investment Bank must follow in cases where it wishes to modify its social pact due to an increase or decrease in its social capital, merger, or other reforms. (1)
IV. That Article 161 of the Cooperative Banks and Savings and Credit Societies Law establishes that the provisions of the Banks Law contained in Title Seven, regarding general provisions, including those related to the modification of social pacts, shall apply to savings and credit societies. (1)
V. That Article 4, letter d), of the Law on Supervision and Regulation of the Financial System establishes that the Superintendence shall have the authority to authorize the public promotion, constitution, operation, and start of operations, modification of social pacts and statutes where applicable, and merger of the members of the financial system in accordance with what is provided in the special laws on the matter. (1)
VI. That Article 99 of the Law on Supervision and Regulation of the Financial System establishes that the Central Bank of Reserve, by virtue of said Law, is the institution responsible for the approval of the technical regulatory framework that must be issued in accordance with this Law and other laws regulating the supervised entities. In fulfilling this responsibility, the Central Bank of Reserve must ensure that the regulatory framework applicable to the financial system is periodically reviewed, seeking its timely update. (1)
VII. That it is necessary to have technical standards that establish the conditions and requirements that financial institutions must observe to request authorization for the modification of social pacts before the Superintendence of the

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022 Financial System. (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 MODIFICATION OF SOCIAL PACTS OF BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES (1)

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the information requirements and procedures to be followed by the obligated subjects when requesting authorization to modify their social pact, as well as the authorization for the merger of entities and their corresponding modification to the social pact.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the following:
a) Banks constituted in El Salvador; (1) b) Savings and credit societies; and (1) c) Investment banks. (1)

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Shareholder: Owners of the shares of the subjects obligated to the application of these Standards; b) Central Bank: Central Bank of Reserve of El Salvador; c) Entity or Entities: Subjects obligated to comply with these Standards; d) Social Pact: Constitutive and organizational instrument of the entity; and e) Superintendence: Superintendence of the Financial System.

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022

CHAPTER II
CASES OF MODIFICATION AND INFORMATION REQUIREMENTS

By increase of social capital
Art. 4.- When an entity agrees to increase its social capital, it must request authorization from the Superintendence to modify the social pact. Previously, it must have made the call for the Extraordinary General Meeting of Shareholders.
The request must be signed by the person designated to execute the corresponding agreement or by the legal representative, attaching the following documentation:
a) Certification of the point in the minutes of the Extraordinary General Meeting of Shareholders, issued by its secretary, where the agreement on:
i. The amount of the social capital increase and its form of payment;
ii. The modifications of the clauses of the entity's social pact; and
iii. The designation of the special executors of the agreement.
are found. b) Certification issued by the external auditor, which must contain:
i. The amount of social capital to be increased, the number of shares it represents, their nominal value, and the class of shares to be issued;
ii. The list of shareholders subscribing to the capital increase, detailing the paid and unpaid amounts; regarding the paid amount, it must indicate the account in which it is registered;
iii. The result of its investigation regarding the prohibitions for banks and savings and credit societies to carry out credit operations with guarantee of their own shares or with guarantee of shares of other banks, other savings and credit societies, or other societies belonging to the same financial conglomerate, and to grant loans to subscribe to shares of the same bank or savings and credit society or shares of societies belonging to the same financial conglomerate, as established in letters a) and b) of Article 209 of the Banks Law, when it concerns a capital increase paid with money. (1)
iv. The result of its investigation regarding proving that there are no subscribed shares pending payment, as required by Article 174 of the Commercial Code;
v. If the increase must be made with accumulated profits, it must inform that these are reflected in the accounting, that they have been effectively received, the period to which they correspond, and the accounting account where they are registered. In no case can profits that are registered as not received be capitalized.

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022 c) Copy or evidence of the publications of the call for the respective Extraordinary General Meeting of Shareholders; which must have been published in the Official Diary in accordance with what is provided in the Commercial Code and twice in two national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with the current legal framework. The publications must be made fifteen days in advance of the date of holding the referred Meeting, through the previously described means and alternately, as applicable; d) Draft of the deed of modification of the clauses of the social pact; e) Sworn declaration of the legal representative when it concerns capital increases paid in money, in a notarial instrument according to Annex No. 1 of these Standards, where it affirms that the entity has not granted loans to acquire shares of its own capital and reports the last loan granted to each shareholder. This provision is not applicable to Investment Banks; (1) f) Copy or evidence of the publications of the agreement on the social capital increase, which must have been published in two national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with what is established in the current legal framework, once, within a period not exceeding five business days following the date the respective agreement was granted; g) Request for authorization and documentation to acquire shares in excess of one percent (1%) or ten percent (10%) of the entity's capital, in the same way as if it were a transfer of shares, when applicable, as established in the "Technical Standards for the Authorization of Transfer of Shares of Banks, Investment Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies" (NRP-55). The determination of the mentioned percentage will be made considering the capital increase; (1) h) Comparative table of the share composition before and after the social capital increase, detailing the shareholder's name, paid social capital, number of shares, and percentage of participation; and i) Sworn declaration regarding the origin of funds for the payment of shares, attaching the documents that evidence the origin of the funds, according to Annex No. 2 of these Standards.

By use of treasury shares
Art. 5.- When the modification request is due to an increase in social capital by the use of Treasury Shares, the bank or savings and credit society must request authorization from the Superintendence for the modification of its social pact, which must be signed by the legal representative, attaching the following documentation:
(1)

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022 a) Certification issued by the external auditor, stating the quantity, nominal value, and amount of the shares that have been subscribed and paid; b) Report from the external auditor, which must contain:
i. The list of shareholders subscribing to the capital increase;
ii. The result of its investigation regarding the prohibitions for banks and savings and credit societies to carry out credit operations with guarantee of their own shares or with guarantees of shares of other banks, other savings and credit societies, or other societies belonging to the same financial conglomerate, and to grant loans to subscribe to shares of the same bank or savings and credit society or shares of other societies belonging to the same financial conglomerate, as established in letters a) and b) of Article 209 of the Banks Law, when it concerns a capital increase paid with money; (1)
iii. The result of its investigation regarding proving that there are no subscribed shares pending payment, as required by Article 174 of the Commercial Code.
c) Draft of the deed of modification of the clauses of the social pact; d) Sworn declaration of the legal representative when it concerns capital increases paid in money, in a notarial instrument, according to Annex No. 1 of these Standards, where it affirms that the entity has not granted loans to acquire shares of its own capital and reports the last loan granted to the shareholders; e) Request for authorization and documentation to acquire shares in excess of one percent (1%) or ten percent (10%) of the entity's capital, in the same way as if it were a transfer of shares, when applicable, as established in the "Technical Standards for the Transfer of Shares of Banks, Investment Banks, Exclusive Purpose Holding Companies, and Savings and Credit Societies" (NRP-55). The determination of the mentioned percentage will be made considering the capital increase. (1)

In no case can the shares subscribed by a bank or savings and credit society represent more than forty percent of its Primary Capital. (1) The public deed of modification of the social pact must be formalized within sixty days, counted from the last placement date or within the period indicated by the Superintendence, as established in Article 24 of the "Technical Standards on Issuance, Deposit, Placement, and Subscription of Treasury Shares" (NRP-09), approved by the Central Bank through its Committee of Norms.

By reduction of social capital
Art. 6.- When the entity intends to modify its social pact by reduction of social capital, the board of directors must request authorization from the Superintendence so that the General Meeting of Shareholders agrees to such reduction.

Art. 7.- Subsequent to what is described in Article 6 of these Standards, the entity must present to the Superintendence the request for authorization of modification of the social pact by reduction of social capital, which must be signed by the person designated to execute the capital reduction or by the legal representative, attaching the following documentation:
a) Certification of the point in the minutes of the Extraordinary General Meeting of Shareholders, issued by its secretary, where the corresponding agreement is found, which must contain the following:
i. The list of the authorization of the capital reduction, issued by the Superintendence;
ii. The amount of the social capital reduction, indicating whether it is a reduction of the nominal value of the shares or an amortization of the same. In the case of reduction of the nominal value of shares by absorption of losses, it will not be necessary that its value be one United States dollar or whole multiples of one, as provided in Article 129 of the Commercial Code. The reduction of the minimum capital established in Article 36 of the Banks Law, Article 157 of the Cooperative Banks and Savings and Credit Societies Law, and Article 23 of the Investment Banks Law, can only be carried out in the case of reduction by absorption of losses. All of the above, without prejudice to what is provided in the Commercial Code, the Banks Law, and the Investment Banks Law regarding the regularization of social capital; (1)
iii. The modifications of the pertinent clauses of the entity's social pact.
b) Draft of the deed of modification of the clauses of the social pact; c) Copy or evidence of the publications of the call for the respective Extraordinary General Meeting of Shareholders; which must have been published in the Official Diary in accordance with what is provided in the Commercial Code and three times in one national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with the current legal framework. The publications must be made fifteen days in advance of the date of holding the referred Meeting, through the previously described means and alternately, as applicable; d) Copy or evidence of the publications of the agreement on the social capital reduction, which must have been published alternately and three times in accordance with what is provided in the Commercial Code, in the Official Diary and in one national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with what is established in the current legal framework, within a period not exceeding five business days following the date the respective agreement was granted.

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022

For the case of capital reduction to absorb losses, in accordance with what is established in Article 229, letter b), of the Banks Law and Article 62, letter b), of the Investment Banks Law, the provisions contained in Articles 30, 181, and 182 of the Commercial Code will not apply. (1)

By merger
Art. 8.- When two or more entities intend to merge, each of them must take the agreement in an Extraordinary General Meeting of Shareholders, specially called for this purpose.

Art. 9.- The person designated to execute the merger or the legal representative of the absorbing entity must present a request to the Superintendence to be authorized for the merger.
The request must contain the type of merger to be carried out, the motives and justification for the decision of the merger, and the entities involved. The following documentation must be attached to said request:
a) Certifications of the point in the minutes of the Extraordinary General Meetings of Shareholders, issued by the secretaries of the entities to be merged, where the corresponding agreement is found; b) Copy or evidence of the publications of the call for the respective Extraordinary General Meetings of Shareholders; which must have been published in the Official Diary in accordance with what is provided in the Commercial Code and three times in one national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with the current legal framework. The publications must be made fifteen days in advance of the date of holding the referred Meeting, through the previously described means and alternately, as applicable; c) Merger plan containing a projected schedule of activities to be developed to execute the merger. Additionally, this must also contain the plan of the merger process at the technological level and validation of its functioning, detailing at minimum the following:
i. Description of the new information technology area including as minimum: organizational chart of the area, strategic plan, schedule of the merger project, security tools, physical location of the data center, and alternate site;
ii. Description of all implemented computer services, including for third-party providers, the provider's information;
iii. Inventory of applications that will remain in production, including description and characteristics;
iv. Data migration plan;

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022
v. Communication diagrams (in which it can be visualized how the network infrastructure of the entities is constituted), including links or connections to external entities, as well as whether the equipment are physical and/or virtual servers;
vi. Risk analysis and information security management system, implemented or to be implemented, including as minimum the Information Security Policy; and
vii. Documentation of the Information Technology (IT) tests that will be carried out in the merger process.
d) Manuals and risk management policies: credit, operational, market, liquidity, and anti-money laundering, counter-terrorism financing, and proliferation of weapons of mass destruction; e) Projected Financial Statements of the absorbing society consolidated with the absorbed societies; f) Projected equity fund of the absorbing society consolidated with the absorbed societies; g) Documentation establishing the non-objection of the parent company to carry out the merger, where applicable; h) Updates made by the merger process, referring to the following:
i. Business Impact Analysis (BIA);
ii. Business Continuity Plan (BCP); and
iii. Disaster Recovery Plan (DRP).
i) Action plan with defined dates and responsibilities regarding the compliance and management of risks of: credit, operational, market, liquidity, and anti-money laundering, counter-terrorism financing, and proliferation of weapons of mass destruction, to be implemented by the absorbing entity; j) Detail of the number of agencies and/or establishments, ATMs, and number of employees of the entities before and after the merger; and k) Detail of the image change process and substitution of stationery, if applicable.

Art. 10.- Once the authorization from the Superintendence to carry out the merger is obtained, the agreement will be registered in the Commerce Registry. The registration of the merger agreement and the last balance sheet of the entities must be published once in two national circulation printed media or another digital publication platform with greater or equal coverage, or on its website, in accordance with the current legal framework.

Art. 11.- After the merger agreement is registered, the absorbing entity will present a request to the Superintendence to modify the social pact, which must be signed by the person designated to execute the merger or by the legal representative, attaching the following documentation:

NRP-35
BANKS, INVESTMENT BANKS, AND SAVINGS AND CREDIT SOCIETIES Approval: 10/06/2022 Validity: 29/06/2022 a) The modifications of the pertinent clauses of the entity's social pact; b) Draft of the deed of modification by merger of the societies; c) Copy or evidence of the publications of the merger agreement, which must have been published once in two national circulation printed media or another digital publication platform with greater or equal coverage,