Technical Standards on the Relationship Between Foreign Currency Active and Passive Operations of Financial Entities

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

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

I. That Article 62 of the Banks Law establishes that banks must ensure that risks arising from differences in term and currency remain within ranges of reasonable prudence.

II. That Article 63, first paragraph, of the Banks Law and Article 44, first paragraph, of the Investment Banks Law establish that banks and investment banks must elaborate and implement policies and control systems that allow them to adequately manage their financial and operational risks; considering, among others, provisions related to the management, destination, and diversification of credit and investments, liquidity administration, interest rates, and foreign currency operations, as well as those carried out abroad. (1)

III. That Article 155 of the Cooperative Banks Law and Savings and Credit Societies Law establishes that savings and credit societies are subject to the provisions of the Banks Law, except as provided in Book IV of said Law.

IV. That Article 71 of the Investment Banks Law establishes that the provisions contained in Article 62 of the Banks Law shall apply to Investment Banks, insofar as they do not contravene the Investment Banks Law, nor the nature or purpose of Investment Banks. (1)

V. That Article 3, literal c), of the Supervision and Regulation of the Financial System Law establishes that it is the responsibility of the Superintendence of the Financial System to monitor the risks of the members of the financial system and the way in which they manage them, ensuring the prudent maintenance of their solvency and liquidity. (1)

VI. That Article 7 of the Supervision and Regulation of the Financial System Law establishes the entities subject to the supervision of the Superintendence of the Financial System. (1)

VII. That Article 99, third paragraph, literal a), of the Supervision and Regulation of the Financial System Law establishes that it is 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, especially those related to solvency requirements, liquidity, provisions, reserves, classification of risky assets, criteria for establishing the need for consolidation, good corporate governance practices, information transparency, and on any other aspect

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

inherent to risk management by the supervised entities. (1)

VIII. That in accordance with Article 101, fourth paragraph, of the Supervision and Regulation of the Financial System Law, 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.
(1)

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

AGREES to issue the following:
TECHNICAL STANDARDS ON THE RELATIONSHIP BETWEEN ACTIVE AND PASSIVE OPERATIONS IN FOREIGN CURRENCY OF FINANCIAL ENTITIES

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to determine the maximum absolute difference between active and passive operations in foreign currency that obligated subjects must operate with for the purpose of reducing risks derived from exchange rate fluctuations.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Banks constituted in the country; b) Branches of foreign banks established in the country; c) Cooperative banks; d) Savings and credit societies; e) The Agricultural Development Bank, insofar as it does not contradict its Creation Law; f) The Mortgage Bank of El Salvador, S.A.; g) Entities that make up a financial conglomerate; (1) h) Federations of cooperative banks or savings and credit societies regulated by the Cooperative Banks Law and Savings and Credit Societies Law; and (1) i) Investment banks. (1)

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

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) Entity: Subject obligated to comply with these Standards; c) Foreign currency: currencies that are distinct from the legal tender currencies in the country; and d) Superintendence: Superintendence of the Financial System.

CHAPTER II
GENERAL PROVISIONS

Art. 4.- The difference between the total of assets and contingent rights and the total of liabilities and contingent commitments, in foreign currency, shall not exceed ten percent (10%) of the equity fund.

Art. 5.- The items in the chart of accounts that must be considered to establish the difference mentioned in the previous paragraph are those represented accounting-wise in foreign currency. The equity fund for the purposes of these Standards shall be that established in Article 42 of the Banks Law, Article 25 of the Investment Banks Law, and Article 26 of the Cooperative Banks Law and Savings and Credit Societies Law, as applicable, taking the non-consolidated position. (1)

Art. 6.- The calculation of the maximum absolute difference between active and passive operations in foreign currency referred to in Article 4 of these Standards shall be made with end-of-month balances. The equity fund shall be the balance corresponding to the last day of the same month.

Art. 7.- Entities must submit the determination of the absolute difference between assets and liabilities in foreign currency, by specific currency and total, as well as calculate the relationship with respect to the equity fund, according to attached models, within the first five business days of the following month, except in the months of June and December of each year, in which it shall be submitted within the first ten business days of the immediately following month. (1)

Art. 8.- The assets presented to establish the absolute difference of each foreign currency must originate from debtors and other assets in those currencies.

CHAPTER III
OTHER PROVISIONS AND VALIDITY

Art. 9.- The Superintendence may verify the information provided by the entities through the means it deems convenient.

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

Sanctions
Art. 10.- Non-compliance with the provisions contained in these Standards shall be sanctioned in accordance with what is established in the Supervision and Regulation of the Financial System Law.

Repeal
Art. 11.- These Standards repeal the "Standards on the Relationship Between Active and Passive Operations in Foreign Currency of Banks" (NPB3-07), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-64/2000 of December 7, 2000, whose Organic Law was repealed by Legislative Decree No. 592, which contains the Supervision and Regulation of the Financial System Law, published in the Official Gazette No. 23, Volume 390, dated February 2, 2011.

Unforeseen Aspects
Art. 12.- Aspects not foreseen in regulatory matters in these Standards shall be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 13.- These Standards shall enter into force as of March 15, two thousand twenty-four.

MODIFICATIONS:

(1) Modifications in considerations II, IV, V, VI, and VII and incorporation of consideration VIII and modifications in Articles 2, 5, and 7 and incorporation of model, approved by the Central Bank through its Committee of Standards, in Session No. CN-09/2025, of November 10, two thousand twenty-five, with validity starting from November 25, two thousand twenty-five.

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

DETERMINATION OF THE DIFFERENCE BETWEEN ACTIVE AND PASSIVE OPERATIONS IN FOREIGN CURRENCY (month-end accounting balances, in thousands of dollars) Entity: Reference Date:

Account
Currency 1 Currency 2 Currency 3 Currency 4 Currency 5 Currency 6 Currency 7 Currency 8 Currency 9 Total ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate
I. ASSETS
111 Liquidity
112 Repurchase Agreements
113 Investment Financial Instruments
114 Loans
12 Other Assets
41 Financial Guarantees Granted
Total

II. LIABILITIES
210 Financial Liabilities at Fair Value with
Changes in Results (FV-PL)
Deposits (2110, 2111, 2112, 2113, 2114)
Loans (2116, 2117, 2118)
212 Own Issuance Titles
213 Demand Obligations
2115 Reverse Repurchase Agreements
Convertible Obligations into Shares
(211611, 212002, 212005)
2119 Subordinated Loans
22 Other Liabilities
Total
III. Absolute Difference (I - II)
IV. Equity Fund
V. Relationship (III/IVx100)
Note: In the currency columns, specify which currency it is: quetzal, lempira, euros, yen, etc. ex. rate: exchange rate dollars per monetary units Name and signature of Responsible Executive:

OF FINANCIAL ENTITIES
Approval: 02/29/2024
Validity: 03/15/2024

DETERMINATION OF THE DIFFERENCE BETWEEN ACTIVE AND PASSIVE OPERATIONS IN FOREIGN CURRENCY FOR INVESTMENT BANKS (1) (month-end accounting balances, in thousands of dollars) Entity: Reference Date:

Account
Currency 1 Currency 2 Currency 3 Currency 4 Currency 5 Currency 6 Currency 7 Currency 8 Currency 9 Total ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate ex. rate
I. ASSETS
111 Liquidity
112 Repurchase Agreements
113 Investment Financial Instruments
114 Loans
12
1330
Other Assets
Intangible Cryptocurrencies (133001, 133002)
41 Financial Guarantees Granted
Total

II. LIABILITIES
210 Financial Liabilities at Fair Value with
Changes in Results (FV-PL)
Deposits (2110, 2111, 2112, 2113, 2114)
Loans (2116, 2117, 2118)
212 Own Issuance Titles
213 Demand Obligations
2115 Reverse Repurchase Agreements
2116 Loans Agreed Up to One Year Term
(211609)
2119 Subordinated Loans
22 Other Liabilities
Total
III. Absolute Difference (I - II)
IV. Equity Fund
V. Relationship (III/IVx100)
Note: In the currency columns, specify which currency it is: quetzal, lempira, euros, yen, etc. ex. rate: exchange rate dollars per monetary units Name and signature of Responsible Executive: