Technical Standards on Credit Limits for Cooperative Banks

NRP-64
COOPERATIVE BANK CREDITS
Approval: 05/06/2024
Validity: 20/06/2024

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

CONSIDERING:
I. That Article 2, letters a.1 and a.2 of the Cooperative Banks and Savings and Credit Societies Law establishes that regulated entities under said Law are Savings and Credit Cooperatives that, in addition to collecting funds from their members, also collect from the public, and those whose sum of deposits and contributions exceeds the figure established in letter a.2 of said article of the referenced law.
II. That Article 3 of the Cooperative Banks and Savings and Credit Societies Law establishes that entities subject to said Law shall be governed by their respective legal frameworks regarding their constitution, organization, and administration, provided they do not contradict what is established by that Law; in matters not provided for, the Banks Law shall apply.
III. That Article 48 of the Cooperative Banks and Savings and Credit Societies Law establishes the maximum credit limits or other risks that may be assumed with the same natural or legal person. Likewise, cooperatives that infringe this article shall be sanctioned by the Superintendence.
IV. That Article 7, letter g) of the Financial System Supervision and Regulation Law establishes that it is the responsibility of the Financial System Superintendence to supervise cooperative banks, savings and credit societies, and federations regulated by the Cooperative Banks and Savings and Credit Societies Law.
V. That Article 101, fourth paragraph of the Financial System Supervision and Regulation Law establishes that the powers to approve, modify, and repeal technical standards that must be complied with by members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.

THEREFORE,

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

AGREES to issue the following:

TECHNICAL STANDARDS ON CREDIT LIMITS FOR COOPERATIVE BANKS

NRP-64
COOPERATIVE BANK CREDITS
Approval: 05/06/2024
Validity: 20/06/2024

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish the criteria that cooperative banks must use regarding the application of limits in granting credit to a single person or group of persons among whom there is an economic link, as established in Article 48 of the Cooperative Banks and Savings and Credit Societies Law.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are cooperative banks defined in Article 2, letter a) of the Cooperative Banks and Savings and Credit Societies Law.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Cooperative Banks: Savings and Credit Cooperative Associations and Societies, Workers' Banks, and Rural Credit Caisses; b) Law: Cooperative Banks and Savings and Credit Societies Law; and c) Superintendence: Financial System Superintendence.

CHAPTER II
RISK LIMITS AND RISK UNITS

Limit
Art. 4.- Cooperative banks may not grant credit or assume risks for more than ten percent of their equity with the same natural or legal person. To calculate the maximum credit limit or other risk that may be assumed with a single person, the direct and contingent liabilities of a person or group of persons among whom there is an economic link shall be accumulated.

Determination of groups and their obligations
Art. 5.- For the purposes of these Standards, the linked groups and the risks that must be attributed to them are as follows:
a) The investing society and the issuers, when the participation of the former in the latter is at least ten percent of the share capital.

When the direct participation is more than fifty percent, the obligations or risks shall be taken as those of the investor in their entirety; but when it is higher than ten percent without exceeding fifty percent, the obligations shall be taken in proportion to their participation in the share capital of the issuer. In the case of indirect participation through one or more societies in which the ownership of shares is more than fifty percent, the obligations shall be taken as those of the investor in their entirety; otherwise, the obligations shall be taken as those of the investor in proportion to their participation in the share capital of the issuer. In the case of societies with reciprocal investments, provided that the investment of at least one is in excess of ten percent, the obligations of both shall be considered as those of the group in one hundred percent. The determination of the group's debt using the procedures described above shall be made until all obligations are concentrated in a single economic entity; b) Societies with common shareholders with a participation of more than fifty percent of the share capital. In this case, all obligations of each of the societies shall be attributed to the group in their entirety; c) Those granted to the member, the general partnerships, and the limited partnerships when the partner responds in these societies jointly and severally. In these cases, all obligations of each of the societies and those of the joint and several partner shall be attributed to the group in their entirety; and d) Societies subject to common control, which is understood as the capacity to direct the financial and operational policies of a company, to obtain benefits from its activities. In this case, all obligations of each of the societies shall be attributed to the group in their entirety.

Presumed Linkage
Art. 6.- The Superintendence may accumulate as obligations of the same person when there are facts that lead to the presumption that credits granted to various debtors constitute a single operation or credit risk.
In cases where the Superintendence determines the presumption, the following shall be done:
a) The Superintendence shall communicate its decision to the cooperative bank in writing and duly reasoned, so that within five business days counted from the day following the notification, it presents its defense arguments; if these are not presented within the indicated period or are not satisfactory to the Superintendence, the presumption shall be considered certain; and b) In any case, the Superintendence's resolution must be communicated to the cooperative bank within a maximum period of ten business days counted from the day following the presentation of the defense arguments or the deadline granted for such purpose.

CHAPTER III
RISKS TO BE CONSIDERED

Direct Obligations
Art. 7.- For the determination of the limit referred to in Article 4 of these Standards, the following direct obligations must be considered:
a) Overdraft balances; b) Loan balances; c) Debtor balances for discounted documents; d) Negotiable obligations; e) Investments in off-exchange repo operations; f) Cooperative bank's equity investments in debtor societies; and g) Sureties, guarantees, and collateral granted. Sureties in favor of any person may be removed from the accounting when:
i. The beneficiary party has issued the corresponding settlement, a situation that must be demonstrated reliably by the entity;
ii. The cooperative bank has obtained written confirmation from the beneficiary and the original contract with a stamp or other mark indicating the release of responsibilities for the entity;
iii. In the case of bid sureties or guarantees, when the entity demanding the products or services has communicated the corresponding award, which must be demonstrated convincingly by the cooperative bank; or
iv. When the three years of prescription established in Article 1550 of the Commercial Code have elapsed, the legal representative of the cooperative bank must issue a sworn declaration before a notary, stating that the surety contracts have not been renewed, as well as present a certificate issued by the corresponding instance of the Judicial Branch, stating that no judicial action has been filed against the cooperative bank in the last three months, derived from the respective surety.
In addition to the obligations described above, any form of direct or indirect financing or any operation that implies credit risk must be considered.

To all the aforementioned obligations, the value of accessories such as interest, commissions, surcharges, etc., including those accounted for in off-balance sheet accounts, must be added.

Indirect Obligations
Art. 8.- For the purposes of these Standards, indirect or contingent liabilities are those that affect persons who, without being beneficiaries of the credit, respond with their assets for the fulfillment of the obligation, such as guarantors, joint and several co-debtors, acceptors, drawers, and endorsers of bills of exchange.

Exempt Credits
Art. 9.- For the purposes of the credit limit contained in Article 4 of these Standards, those that, without worsening their own solvency, have been granted by agreement of their Board of Directors or Administrative Council, with prior authorization from the Superintendence, to a cooperative bank that is experiencing solvency problems, according to Article 70 of the Law, in the nature of a loan convertible into shares. This loan may not represent more than forty percent of the primary capital of the creditor cooperative bank.

CHAPTER IV
OTHER PROVISIONS AND VALIDITY

Art. 10.- Cooperative banks must maintain an updated register of credits granted to a debtor or a group due to economic linkage, figures that must be verified by the internal auditor, from which a report must be issued to the Board of Administration within the first eight business days of each month, regarding the operations of the immediately preceding month.

Sanctions
Art. 11.- Non-compliance with the provisions contained in these Standards shall be sanctioned in accordance with what is established in the Financial System Supervision and Regulation Law.

Repeal
Art. 12.- Limits on the Granting of Credit by Cooperative Banks (3-02), approved by the Board of Directors of the Financial System Superintendence in Session No. CD-43/2001, of September 5, 2001, whose Organic Law was repealed by Legislative Decree No. 592 containing the Financial System Supervision and Regulation Law, published in Official Gazette No. 23, Volume No. 390, dated February 2, 2011.

NRP-64
COOPERATIVE BANK CREDITS
Approval: 05/06/2024
Validity: 20/06/2024

Unforeseen Aspects
Art. 13.- Matters not provided for in the regulatory matter of these Standards shall be resolved by the Central Reserve Bank of El Salvador, through its Committee for Standards.

Validity
Art. 15.- These Standards shall be valid starting from June 20, two thousand twenty-four.