Technical Standards for the Valuation of Assets Eligible for Securitization and Assets Constituting a Securitization Fund

CNBCR-09/2024
NDMC-36
TECHNICAL STANDARDS FOR THE VALUATION OF ASSETS ELIGIBLE FOR SECURITIZATION AND OF ASSETS THAT CONSTITUTE A SECURITIZATION FUND Approval: 09/23/2024 Effective Date: 10/09/2024 Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.

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

CONSIDERING:
I. That Article 46, letter a) of the Asset Securitization Law, establishes that Securitization Funds may be constituted and integrated with real estate assets that must be valued by experts registered with the Financial System Superintendence or in other registries recognized by it.
II. That Article 51, second paragraph, of the Asset Securitization Law, establishes that prior to the alienation of assets by the originator to a Securitization Fund, the assets must be subjected to the opinion of an appraiser qualified by the Financial System Superintendence.
III. That Article 9, letter a) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Superintendence to authorize, suspend, or cancel the public offering of securities and the operation of persons or transactions carried out in the stock market, in accordance with the provisions applicable.
IV. That Article 7, letter q) of the Law on Supervision and Regulation of the Financial System establishes that securitizers are subject to the provisions of said Law and therefore to the supervision of the Financial System Superintendence.
V. That Article 99 of the Law on Supervision and Regulation of the Financial System establishes that the Central Reserve Bank, 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 supervised entities. In compliance with this responsibility, the Central Reserve Bank must ensure that the regulatory framework applicable to the financial system is periodically reviewed, seeking its timely update.

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:

CNBCR-09/2024
NDMC-36
TECHNICAL STANDARDS FOR THE VALUATION OF ASSETS ELIGIBLE FOR SECURITIZATION AND OF ASSETS THAT CONSTITUTE A SECURITIZATION FUND Approval: 09/23/2024 Effective Date: 10/09/2024 Alameda Juan Pablo II, between 15 and 17 Norte Ave, San Salvador, El Salvador.

TECHNICAL STANDARDS FOR THE VALUATION OF ASSETS ELIGIBLE FOR SECURITIZATION AND OF ASSETS THAT CONSTITUTE A SECURITIZATION FUND

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish general guidelines for the valuation of assets eligible for securitization and of assets that constitute a Securitization Fund.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the Securitizers.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Assets: The assets that constitute a Securitization Fund; b) Central Bank: Central Reserve Bank of El Salvador; c) Fund(s): Securitization Funds; d) Securitization Law: Asset Securitization Law; e) Methodology: Valuation model that incorporates technical and statistical criteria, considering economic variables provided by specialized official sources in this matter, which provides for each of the assets according to its nature, a fair value for its valuation; f) Originator: Person owning assets eligible for securitization in accordance with the Asset Securitization Law; g) Expert or Appraiser: Natural or legal person authorized to perform the valuation of assets in accordance with what is established in the Securitization Law and norms issued by the Committee of Standards of the Central Reserve Bank of El Salvador, that are applicable; h) Representative of Security Holders: Legal person responsible for representing the owners of the securities of each Fund in accordance with what is established in the Asset Securitization Law; i) Superintendence: Financial System Superintendence; j) Securitizer: Legal person that administers Securitization Funds, registered with the Financial System Superintendence; k) Fair Value: The amount for which a certain security or financial asset can be exchanged between an informed buyer and seller, or to cancel an obligation between an informed debtor and creditor, who carry out a free transaction between independent parties, acting under market conditions. It is assumed, in any case, that the going concern principle is met for both parties participating in the transaction; and l) Replacement Value: The amount estimated to be necessary to replace a building or property, if it were destroyed totally or partially by natural causes or by the decision of an originator.

CHAPTER II
VALUATION CRITERIA FOR REAL ESTATE ASSETS ELIGIBLE FOR SECURITIZATION

Valuation
Art. 4.- The valuation of real estate assets for the purpose of constituting a Securitization Fund shall be carried out by an expert registered with the Superintendence or in another registry recognized by it for the Recognition and Qualification of Appraiser Experts for Assets in Processes (Norms -37), approved by the Central Bank through its Committee of Standards.

Basic principles of real estate valuation
Art. 5.- The valuation of real estate assets shall be subject to the basic principles (Norms -27), approved by the Central Bank through its Committee of Standards. Likewise, the appraiser responsible for the valuation of a property must state in the report issued the description of the method used for its valuation, based on their technical criteria and experience, in accordance with what is established in the aforementioned Norms.

Technical valuation methods
Art. 6.- The principles, techniques, and methods for the valuation of real estate assets shall be based on the standards and criteria defined in the International Financial Reporting Standards (IFRS) and in the International Valuation Standards, issued by the International Valuation Standards Council (IVSC), provided that there is no local law or norm that provides for a different treatment than that established by said standards.

Minimum content of the appraisal report
Art. 7.- The valuation report must be signed by an appraiser registered with the Superintendence or another registry recognized by it. In any case, the report must include as a minimum the requirements mentioned in the (Norms -27) approved by the Central Bank through its Committee of Standards, and if it concerns a company, it must be signed by its legal representative.

CHAPTER III
VALUATION CRITERIA FOR FINANCIAL ASSETS ELIGIBLE FOR SECURITIZATION

Valuation
Art. 8.- The valuation of financial assets for the purpose of constituting a Securitization Fund shall be carried out by an expert qualified by the Superintendence, in accordance with what is established in the (Norms -37), approved by the Central Bank through its Committee of Standards.

Valuation principles
Art. 9.- The valuation of financial assets shall be carried out attending to the following principles:
a) Efficiency: Estimates must adequately reflect the realization value in the market of assets eligible for securitization; b) Independence: In the development of valuation functions, appropriate mechanisms must be established to minimize the possible emergence of conflicts of interest; c) Responsibility: The responsibility for the estimation of the value of financial assets eligible for securitization must be clearly assigned; d) Timeliness: The valuation of assets eligible for securitization must be carried out prior to the alienation of the financial assets, in order to have a professional parameter in the onerous transaction that is carried out; e) Objectivity: The determination and assignment of the fair exchange value or price of a security or title must be carried out based on technical and professional criteria, which recognize the effects derived from changes in the behavior of variables that may affect said price; f) Transparency: The fair exchange value or price of a security or financial asset must be determined and assigned with the purpose of revealing a certain, neutral, verifiable, and representative economic result of the rights incorporated in the respective security or financial asset; and g) Professionalism: The determination of the fair exchange value or price of a financial asset eligible for securitization must be based on the analysis and study that a prudent and diligent expert would carry out, aimed at the search, obtaining, knowledge, and evaluation of all relevant available information, in such a way that the determined value reflects the amounts that would reasonably be received for its sale.

Art. 10.- The general principles for the valuation of financial assets eligible for securitization shall be those defined by the International Financial Reporting Standards (IFRS), provided that there is no local law or norm that provides for a different treatment than that established by said standards.

Art. 11.- In the valuation report of financial assets eligible for securitization, the appraiser must describe the principles, techniques, and methods used for the valuation of financial assets that will constitute the Fund; likewise, they must incorporate information such as its source and other economic variables originated by specialized official entities, specific for each of the assets, according to their nature. If there are no changes in the valuation method, this information may be presented only once, adding a summary of the valuation in subsequent valuation reports.

Methods for determining fair value
Art. 12.- The methodology used to calculate the fair value of financial assets eligible for securitization must consider as fair value the following:
a) For Funds to be constituted by securities traded on the stock exchange, that provided by some specialized agent in securities valuation authorized by the Superintendence; and b) For Funds to be constituted by financial assets other than those established in the previous letter, that determined through financial valuation methods of assets. In any case, the expert must evaluate the reasonableness of the assumptions that have been considered to establish the future cash flows of the underlying assets to be securitized.

CHAPTER IV
VALUATION OF ASSETS THAT CONSTITUTE A SECURITIZATION FUND

Asset identification report
Art. 13.- The Securitizer shall be responsible for sending to the Superintendence a monthly report on the individualized assets that constitute the Securitization Funds they administer. In the case of future financial flows, the Securitizer must include in said report an evaluation of the projections initially presented for the constitution of the Fund, comparing them with the actual flows generated by the underlying assets.

Fair value of the Fund
Art. 14.- The Securitizer must send to the Superintendence, in the monthly trial balance of each of the Securitization Funds, the total fair value of them calculated based on the methodology described in the policies and procedures as required in these Standards, considering that the prices come from, according to the following criteria:
a) For Funds constituted by securities traded on the stock exchange, those provided by some specialized agent in securities valuation authorized by the Superintendence. In the event that there are no price vectors from specialized agents, the price vector published by the Superintendence regarding the pension topic will be used. For the valuation of securities and other financial assets quoted in international markets, financial information systems recognized by the Superintendence will be used; b) For Funds constituted by rights on future financial flows, the Securitizer will use the present value of the future flows determined through financial asset valuation methods; likewise, they must evaluate the reasonableness of the assumptions that have been considered to calculate the future flows. When deemed necessary, they may require the valuation of the rights on future financial flows carried out by an expert qualified by the Superintendence, who must also issue an opinion on the reasonableness of the assumptions to calculate said flows; c) In the case of Funds constituted by credit portfolios and other assets of a credit nature, the Securitizer must calculate the fair value of the Fund monthly. When deemed necessary, they may require that an expert qualified by the Superintendence values the portfolios from the date that the last valuation report was issued; and d) The valuation reports of real estate assets that constitute the Fund must be valued at least once every twelve months, for which the date on which they were acquired must be considered, and they must be carried out by experts recognized by the Superintendence. The Securitizer must calculate the fair value of the Fund monthly considering the last appraisal carried out by an expert recognized by the Superintendence.

Art. 15.- When there is an event that, according to the Securitizer, may significantly and negatively affect the value of the securitized asset, the Securitizer must obtain, no later than eleven business days after the event has occurred, a valuation report from an expert qualified for such effect.

Art. 16.- The accounting records must reflect the fair value of the assets that constitute the Fund, in accordance with the provisions of these Standards.

CHAPTER V
GENERAL NORMS FOR THE CONTRACTING OF APPRAISER EXPERTS

Contracting of the expert
Art. 17.- In the contract signed by the Securitizer with the appraiser, the deadline for the issuance and delivery of the valuation report must be defined. Likewise, the method to resolve potential conflicts of interest arising from the contracted expert must be recorded.

Valuation reports
Art. 18.- The expert must deliver within ten business days after the date of completion of the respective report, the notarially certified copies that the Securitizer needs.

Art. 19.- The Securitizer is the entity responsible for sending the certifications on appraisal reports to the Superintendence and keeping them available to the Representative of Security Holders (Norms - Technical Standards for the Submission and Disclosure of Information of Companies -34), approved by the Central Bank through its Committee of Standards.

CHAPTER VI
VALUATION AND LIQUIDATION OF EXTRAORDINARY ASSETS AND SUBSTITUTION OF ASSETS OF THE FUND

Art. 20.- For the purposes of what is established in the first paragraph of Article 23 of the Securitization Law, extraordinary assets that the Securitizer intends to sell or pledge on behalf of the Securitization Fund must be previously valued by an expert qualified or recognized by the Superintendence, according to the nature of the asset.

Art. 21.- In the case that Funds are constituted that consider the substitution of assets, the Securitizer must establish the rules and percentages of substitution in the securitization contract.

Art. 22.- The Securitizer, prior to the substitution being carried out, must have an appraisal from an expert qualified or recognized by the Superintendence and with the approval of the Representative of Holders.

CHAPTER VII
OTHER PROVISIONS AND EFFECTIVE DATE

Internal control and database
Art. 23.- For the valuation of assets that constitute the Securitization Funds, the Securitizer must have policies and procedures to determine the fair value of the Funds they administer, which must contain at least the following:
a) Description of the methodology to determine the fair value, according to the type of assets to be valued; b) Definition of roles of the people and authorities involved in the valuation process, as well as those responsible for making decisions when situations arise where the application of a defined procedure in the methodology is not viable; and c) Description of the procedures that will be used to periodically monitor the valuation and the correct application of the methodology. The Securitizer must send to the Superintendence the policies and procedures to determine the fair value for each Fund they administer, five business days after approval by its Board of Directors, with the corresponding minute point of approval. When there are deviations from the application of the methodology, the Board of Directors must reason before the Superintendence the reasons that originated the deviation. The Board of Directors shall be responsible for the determination of the fair value of the Funds that the Securitizer administers.

Art. 24.- The Securitizer must maintain the information of the price vectors and the amounts of the appraisals that they use to value the assets of each of the Securitization Funds they administer, including the database and the source of information used for its respective calculation, as well as that provided by appraiser experts or by specialized agents in the valuation of securities.

Constitution of reserves
Art. 25.- The constitution of reserves or provisions for deterioration of the quality of financial assets is optional for each Fund. The policy adopted in this regard, together with other prudential measures, shall be expressly recorded in the securitization contract of the Fund, in accordance with the (Norms -28), approved by the Central Bank through its Committee of Standards.

Sanctions
Art. 26.- Non-compliance with the provisions contained in these Standards shall be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal
Art. 27.- These Standards repeal the Standards for the Valuation of Assets (RCTG-15/2010), approved by the Board of Directors of the Securities Superintendence in Session on May 25, 2010, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen aspects
Art. 28.- Aspects not provided for in regulatory matters in these Standards shall be resolved by the Central Bank through its Committee of Standards.

Effective Date
Art. 29.- These Standards shall enter into effect starting from the ninth of October of two thousand twenty-four.