Technical Standards for the Registration of Extraordinary Assets of Reciprocal Guarantee Societies

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

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

CONSIDERING:

I. That Article 60, letters a) and b) of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises, establishes the cases in which Guarantee Companies may acquire movable property, real estate, and other rights of any kind.

II. That Article 61, first paragraph, of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that the extraordinary assets acquired by Guarantee Companies must be liquidated by them within a period of two years from the date of their acquisition. In justified cases, this period may be extended by the Superintendence for up to one hundred and eighty days.

III. That Article 61, second paragraph, of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises establishes that, if the Guarantee Company has not liquidated the extraordinary assets, it will be obliged to provision them as a loss in its accounting and sell them at public auction within three years following the date on which the period expired.

IV. That Article 2, first paragraph, of the Law of 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 security 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.

V. That Article 3, letter c), of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendence 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.

VI. That Article 7 of the Law of Supervision and Regulation of the Financial System establishes the entities subject to the supervision of the Superintendence of the Financial System.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

VII. That Article 99, third paragraph, letter c), of the Law of Supervision and Regulation of the Financial System establishes that it is the responsibility of the Committee of Standards of the Central Reserve Bank of El Salvador to approve the Technical Standards for the preparation, presentation, and dissemination of Financial Statements and supplementary information of the members of the financial system; to determine accounting obligations and the principles according to which they must keep their accounting; and to establish criteria for the valuation of assets, liabilities, and the creation of provisions and reserves for risks.

VIII. That in accordance with Article 101, fourth paragraph, of the Law of 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.

THEREFORE,

by virtue of the regulatory powers conferred upon it by Article 99 of the Law of Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish uniform practices for the accounting registration and valuation of transactions involving the extraordinary assets of Reciprocal Guarantee Companies.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Reciprocal Guarantee Companies; and b) Reinsurers of Reciprocal Guarantee Companies.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Law: Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises; b) Guarantee Company(ies): Reciprocal Guarantee Company or Companies.

CHAPTER II
REGISTRATION OF EXTRAORDINARY ASSETS AND CREATION OF RESERVES

Case of acquisition of extraordinary assets by deed in payment Art. 4.- In cases of acquisition by deed in payment, the acquisition value will be that decided by the contracting parties, which must be established in the corresponding notarial instrument. The value thus determined is the one with which the initial registration of the asset will be made, in account 1220 Assets Received in Payment or Adjudicated, and the corresponding obligations owed by the participating member will be credited.

Art. 5.- When the value registered in account 1220 Assets Received in Payment or Adjudicated is greater than the balances that were owed by the debtor, the difference must be credited to the complementary account of these assets 1229 Assets Received in Payment or Adjudicated – Excess Registered Pending Receipt.

This accounting entry must be made on the same date that the acquisition value is registered.

The balances owed by the debtor must be established taking into account the reference date of the deed in payment.

If after the previous accounting application, the value at which the asset is accounted for is greater than the fair value, it must be adjusted to this latter value, and the resulting difference will be registered in account 8270000700 Impairment of Assets – Extraordinary Assets. This accounting entry must be made on the same date that the acquisition value is registered.

Taxes, duties, and professional fees necessary to acquire ownership of the assets must be added to the value of the asset.

The agreement accepting the deed in payment must refer to all balances owed by the debtor, without any exception.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

Case of acquisition by judicial adjudication
Art. 6.- In cases of judicial adjudication, the value of the extraordinary asset will be the total debt registered in the asset accounts, understood as the sum of the capital balance, interest registered in asset accounts, court costs, plus taxes, duties, and professional fees necessary to acquire ownership of the assets. The value thus determined is the one that will be registered in account 1220 Assets Received in Payment or Adjudicated, separating in a sub-account the adjudication value and in another, the remaining balance owed by the debtor; and the corresponding obligations owed by the aforementioned debtor will be credited. The acquisition value will be determined taking into account the date of the judicial adjudication resolution.

Interest that remains registered in off-balance sheet accounts shall not be counted as part of the value of the asset.

Art. 7.- When the value determined according to the first paragraph of the previous article is greater than the fair value, the difference must be applied to account 8270000700 Impairment of Assets – Extraordinary Assets. This accounting entry must be made on the same date that the acquisition value is registered.

Prohibition of profit recognition
Art. 8.- In the different cases of acquisition of extraordinary assets, when a value lower than the fair value results, no profit shall be registered for the acquisition.

Fair value
Art. 9.- In accordance with International Financial Reporting Standards, fair value is the amount for which an asset can be exchanged between a buyer and a seller, both properly informed, in a free transaction. In this sense, and for the purposes of these Standards, the expert appraisal of assets carried out by experts registered with the Superintendence, when it does not concern financial instruments, must be considered as such.

Treatment of provisions
Art. 10.- In the event that an extraordinary asset has not been liquidated by the end of the period established in the first paragraph of Article 61 of the Law, the Guarantee Company will be obliged to have a provision equivalent to one hundred percent of the asset, constituted charged to item 8240 Write-off of Assets Received in Payment or Adjudicated and credited to account 323001 Provisions – For Assets Received in Payment or Adjudicated.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

CHAPTER III
REMOVAL OF EXTRAORDINARY ASSETS

Art. 11.- Extraordinary assets lose such designation for the following reasons:
a) By sale; b) By transfer to fixed assets; c) By destruction; or d) By donation.

Cash sale
Art. 12.- The removal of an extraordinary asset due to sale will cause an increase in cash or in the Accounts Receivable portfolio, as applicable, and a decrease in account 1220 Assets Received in Payment or Adjudicated, by the corresponding book value.

If the sale is for cash and its value is greater than the gross book value of the asset, the difference must be registered in account 6310030200 Profit on Sale of Assets – Assets received in payment or adjudicated.

Conversely, if the sale value is lower than the gross book value of the asset, the difference must be registered in account 822002 Loss on Asset Sales – Assets Received in Payment or Adjudicated.

In the event that the extraordinary asset had a provision constituted, this must be liquidated as income from reserve release, in account 6310020500 Non-Operating Income – Prior Period Income – Release of Provisions of Extraordinary Assets charged to the respective Restricted Equity accounts.

Acquisitions by the guarantee company
Art. 13.- When an extraordinary asset is acquired as a fixed asset by the Guarantee Company, based on what is established in Article 61, penultimate paragraph, of the Law, it will be transferred to the corresponding account by the gross book value on the date of transfer. The provision that such asset had constituted must be liquidated as income from provision release, in account 6310020500 Non-Operating Income – Prior Period Income – Release of Provisions of Extraordinary Assets.

Destruction of the extraordinary asset
Art. 14.- The destruction of a good accounted for as an extraordinary asset must be recognized as a total loss and accounted for charged to account 8270000700 Impairment of Assets – Extraordinary Assets.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

When the value of the insurance of the extraordinary asset written off has been recovered, if any, it must be applied as profit to account 6310990000 Honored and Recovered Reinsurance – Others.

CHAPTER IV
OTHER PROVISIONS AND EFFECTIVE DATE

Art. 15.- The values and accounting practices established in these Standards do not affect the legal relationship between debtors and creditors; therefore, the right of the Guarantee Company to pursue its debtor participating members until recovering their credits is not modified. In the case of judicial adjudications, the Guarantee Company must maintain control in off-balance sheet accounts of the balances owed by debtors.

Art. 16.- Guarantee Companies must maintain auxiliary records, according to the model of Annex No. 1 of these Standards, duly updated.

Art. 17.- When groups of extraordinary assets are acquired, the value of each must be individualized and the provisions corresponding to them.

Sanctions
Art. 18.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

Repeal
Art. 19.- These Standards repeal the "Standards for the Accounting of Extraordinary Assets of Reciprocal Guarantee Companies" (NCSGR-002), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-42/2003 of October 8, 2003, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law of Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects
Art. 20.- Aspects not foreseen in regulatory matters in these Standards will be resolved by the Central Reserve Bank of El Salvador through its Committee of Standards.

Effective Date
Art. 21.- These Standards will enter into effect as of November 15, two thousand twenty-four.

NCF-07
TECHNICAL STANDARDS FOR THE REGISTRATION OF THE EXTRAORDINARY ASSETS OF RECIPROCAL GUARANTEE COMPANIES

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

Annex No. 1

Date	Description of Transaction	Approval	Location or Address	Acquisition	Provision Constituted	Extension	Auctions	Marketing Efforts	Removal
(1)	(2)	(3)	(4)	Form (5)	Value (6)	S.S.F. Note (8)	Due (9)	(10)	Cause (12)	Price (13)

INSTRUCTIONS

(1) Date of the transaction
(2) Description of the transaction, identifying the references of the ex-debtor (3) Number and date of the agreement of the J.D. or Committee that approved the acquisition, sale, conservation, or removal by destruction (4) Sufficient data to locate it (5) Deed in payment or adjudication (6) Acquisition value plus additions (7) The provision registered in the restricted equity account (8) Number and date of the note containing the extension, if any (9) Expiration of the extension (10) Date and base price of the last auction (11) Actions aimed at selling them (12) State the cause of removal, which can be sale, conservation, destruction, or donation (13) Price of the sale of the extraordinary asset