Technical Standards on the Granting of Credits to Persons Related to a Cooperative Bank

Approval: 15/08/2024
Validity: 30/08/2024

NRP-75
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

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

CONSIDERING:

I. That Article 49 of the Law on Cooperative Banks and Savings and Credit Societies establishes that cooperatives may not have in their portfolio credits, guarantees, and sureties granted to managers and members of the Governing Body of the cooperative, as well as to directors, managers, and employees of the federation of which the cooperative is a shareholder, for a global amount exceeding five percent of the equity fund. These operations must be reported to the Superintendence.

II. That Articles 50 and 51 of the Law on Cooperative Banks and Savings and Credit Societies establish who are considered related persons to Cooperative Banks and their treatment, and also provide that members of the corresponding Governing Body must disclose the existence of a conflicting interest and may not participate in the voting or analysis of credit, guarantee, or surety applications in which they have a direct interest or interests affecting their spouse or relatives up to the fourth degree of consanguinity and second degree of affinity.

III. That Article 3 literal c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Financial System Superintendence 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.

IV. That Article 7 literal g) of the Law on Supervision and Regulation of the Financial System establishes that among the entities subject to the supervision of the Financial System Superintendence are cooperative banks, savings and credit societies, and federations regulated by the Law on Cooperative Banks and Savings and Credit Societies.

V. That Article 32, first paragraph, of the Law on Supervision and Regulation of the Financial System, among other things, establishes that the Superintendence, through the Superintendent, Deputy Superintendents, or persons to whom they delegate, may require supervised entities direct access to all data, reports, or documents regarding their operations through the means and form it defines.

VI. That Article 35 literal c) of the Law on Supervision and Regulation of the Financial System establishes that directors, managers, and other officials holding management or administrative positions in members of the financial system must comply with the adoption and updating of policies on ethical standards

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Approval: 15/08/2024
Validity: 30/08/2024

NRP-75
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

of conduct, management of conflicts of interest, use of insider information, prevention of behaviors that could imply manipulation or abuse of the market, as well as compliance with principles, rules, or standards in the management of business that they establish to achieve corporate objectives.

VII. That Article 36, second paragraph, of the Law on Supervision and Regulation of the Financial System, establishes that directors, administrators, managers, internal and external auditors, other officials, and other persons who provide services to any member of the financial system, must report to the Superintendence the operations that it has required of them, particularly those carried out or that have been carried out between them and their shareholders or administrators and those related to the financial conglomerate to which they belong, if applicable. The form, periodicity, and circumstances in which these operations must be reported will be established in the technical standards issued for this purpose.

VIII. That Article 99 literal a) of the Law on Supervision and Regulation of the Financial System stipulates that it will be the responsibility of the Committee of Standards 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, including aspects inherent to risk management by the supervised entities.

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 ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

CHAPTER I
OBJECTIVE, SUBJECTS, AND TERMS

Objective
Art. 1.- These Standards aim to establish the minimum guidelines that the corresponding entities must observe regarding aspects related to the granting of credits to persons related directly to the administration, to the federation where the cooperative is a shareholder, and to societies where they are shareholders.

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Approval: 15/08/2024
Validity: 30/08/2024

NRP-75
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Cooperative Banks; and b) Federations of Cooperative Banks.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Reserve Bank of El Salvador; b) Cooperative Bank: Cooperative Associations and Cooperative Savings and Credit Societies, including Rural Credit Caisses and Banks of Workers; c) Federations of Cooperative Banks: Federations of Cooperative Savings and Credit Associations, Cooperative Savings and Credit Societies, and Savings and Credit Societies, or only one of them. d) Board of Directors or Governing Body: Collegiate body or equivalent body in charge of the administration of the entity, with supervision, direction, and control functions; for the case of Cooperative Associations, it will be the Board of Administration or as defined in its Creation Law; e) Law: Law on Cooperative Banks and Savings and Credit Societies; and f) Superintendence: Financial System Superintendence.

CHAPTER II
RELATED PERSONS

Art. 4.- Related persons to a cooperative bank are members of the Governing Body, managers, and other employees of the cooperative bank, as well as directors, managers, and employees of the federation of which the cooperative bank is a shareholder.

Societies whose ownership is in any of the following circumstances are also considered related:
a) Societies in which a director or manager of the cooperative bank is the holder, directly or through a legal entity in which they have participation, of ten percent (10%) or more of the voting shares of the referred society; and b) Societies in which two or more directors or managers together are the holders, directly or through a legal entity in which they have participation, of twenty-five percent (25%) or more of the voting shares.

To determine the aforementioned percentages, the equity participation of the director or manager will be added to that of their spouse and relatives within the first degree of consanguinity.

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Approval: 15/08/2024
Validity: 30/08/2024

NRP-75
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

Of the Classes and Degrees of Kinship
Art. 5.- For the purposes of the provisions established in these Standards, the following classes and degrees of kinship are determined:
a) Classes of kinship:
i. Consanguinity: It occurs when the bond that unites people is of blood, that is, the existing between people who descend from one another, or from a common ancestor. When the line of the people is ascending from the other, consanguinity is in a straight line; and when both people proceed from a common ancestor, and one of them is not an ancestor of the other, consanguinity is in a collateral or transverse line;
ii. Affinity: It is the kinship that exists between a person and the blood relatives of their spouse or partner. The line of affinity is qualified by the line of consanguinity of the spouses or partners; and
iii. Adoption: It is the kinship that originates between the adopted, the adopters, and the relatives of the latter, with the same effects as consanguineous kinship.
b) Degrees of kinship:
i. The degree of kinship by consanguinity is determined by the number of generations, in the following manner:
1. First degree of consanguinity is the kinship between father and child;
2. Second degree of consanguinity is that which exists between grandparent and grandchild, and between siblings;
3. Third degree of consanguinity is the kinship with great-grandparents, great-grandchildren, uncles, and nephews; and
4. Fourth degree of consanguinity is the relationship that exists with cousins, grand-nephews, great-uncles.
ii. The degree of affinity is determined by that of the blood relatives of the spouses or partners, in the following manner:
1. First degree of affinity is that which exists between the spouse, parents-in-law, son-in-law, daughter-in-law, and between stepfather and stepchild; and
2. Second degree of affinity is that which exists between brothers-in-law, grandparents of the spouse, spouses of grandchildren.
iii. For the case of degrees of kinship by adoption, the same effects are established as for consanguineous kinship.

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Approval: 15/08/2024
Validity: 30/08/2024

NRP-75
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK

CHAPTER III
CONDITIONS AND LIMITS OF CREDIT GRANTING

Limit to Natural Persons
Art. 6.- The credits referred to in Article 49 of the Law may not be granted on more favorable terms, regarding deadlines, interest rates, or guarantees, than those granted to third parties in similar operations; except those that a cooperative bank or federation grants as a labor benefit to its own staff. In no case may loans to managers be granted on more favorable terms than to the rest of the employees.

Credits granted to a related natural or legal person constitute the loans granted, the discounted documents, the acquired bonds, the sureties, the guarantees and sureties granted, and any other form of direct or indirect financing or other operation in their favor, that represent an obligation for them.

The credits referred to in the previous paragraph will be subject to the following limit: The total sum of the outstanding balances of credits granted to managers and members of the Governing Body of a cooperative bank, as well as to directors, managers, and employees of the federation of which the cooperative bank is a member, must not exceed five percent (5%) of its equity fund, understanding the global amount as the total of credits granted to such persons.

Limits to Legal Persons
Art. 7.- The total balance of credits, sureties, bonds, and guarantees that, in any way, directly or indirectly, are granted to a society in which the cooperative bank has participation, may not exceed ten percent (10%) of the equity fund of said cooperative bank.

Art. 8.- For the calculation of the global amount of credits subject to limits, the following modalities are considered:
a) Overdraft balance; b) Credit opening; c) Granted loans; d) Documents discounted at their nominal value; e) Sureties, bonds, and guarantees; f) Credit cards; and g) Any other form of direct or indirect financing that represents an obligation.

In addition to direct credits, indirect credits will be computed, understood as such the obligation that affects the person who, without being the beneficiary of the credit, has contracted personal responsibility for it; responding with their assets for the

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CNBCR-06/2024	NRP-75
Approval: 15/08/2024	TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK	GOVERNMENT OF EL SALVADOR
Validity: 30/08/2024

fulfillment of the obligations, as in the case of joint debtors, guarantors, acceptors, drawers, and sureties of bills of exchange.

Art. 9.- Cooperative banks must send to the Superintendence, within the first thirty days of each year, a list of persons related with a sworn declaration where they manifest the names of their spouse and relatives up to the second degree of consanguinity and first degree of affinity, the societies where they are directors or direct shareholders and through legal entities in which they have participation, indicating the percentage of share participation.

In the event of changes regarding the Directors and Managers of the entities, they must inform them within thirty days following the occurrence.

Art. 10.- Cooperative banks must keep an updated register of the persons mentioned in Article 50 of the Law, and another containing the related credits, a detail of these records must be sent to the Superintendence within the first five business days of each month, except in the months of June and December of each year, in which it must be sent within the first ten business days.

The figures corresponding to the month of December of each year must be verified by the internal auditor, from which they must issue a report, which will be sent to the Superintendence within the first thirty days of each year. External auditors, when issuing their opinion on the financial statements of cooperative banks, will indicate in a separate note the set of related credits, the percentage they represent, and if they are within the limit established in Article 49 of the Law.

Art. 11.- For the purpose of complying with the credit limit and contracts with related persons of Article 49 of the Law, cooperative banks may not grant new credits to related persons until the total of credits does not exceed five percent of the equity fund. These operations must be notified to the Superintendence.

CHAPTER IV

OTHER PROVISIONS AND VALIDITY

Art. 12.- For the purpose of complying with Article 51 of the Law, members of the corresponding Governing Body must disclose the existence of a conflicting interest and may not participate in the voting or analysis of credit, guarantee, or surety applications in which they have a direct interest or interests affecting their spouse or relatives up to the fourth degree of consanguinity and second degree of affinity, having to withdraw from the respective session at the moment when the point is discussed on which the decision on the submitted credit application must be taken. The aforementioned withdrawal must be recorded in the minutes.

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CNBCR-06/2024	NRP-75
Approval: 15/08/2024	TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO A COOPERATIVE BANK	GOVERNMENT OF EL SALVADOR
Validity: 30/08/2024

Sanctions

Art. 13.- 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. 14.- These Standards will repeal the "Standards for the Granting of Credits to persons related to a Cooperative Bank" (NPNB4-01), 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 in accordance with Legislative Decree No. 592 which contains the Law on Supervision and Regulation of the Financial System, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects

Art. 15.- Unforeseen aspects in regulatory matters in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity

Art. 16.- These Standards will enter into force as of August 30, two thousand twenty-four.