Título II. Constitucion, autorizacion, capital y administracion de Bancos

National private banks shall be constituted in the form of stock corporations, in accordance with the general legislation of the Republic and shall observe the provisions of this Law.

Foreign banks may:

a)Establish branches in the Republic; and,

b)Register representative offices solely for the promotion of business and the granting of financing in the national territory.

For that purpose, the interested foreign bank shall appoint a legal representative to operate the representative office it establishes in the country. Said legal representative shall register in the register established by the Superintendency of Banks and remit to it the periodic or occasional information it may require from such representative, relating to the business that such office carries out in the national territory.

The Monetary Board shall regulate the requirements, formalities and procedures for the registration of representative offices of foreign banks.

The Monetary Board shall grant or deny authorization for the incorporation of banks. The incorporation of a bank may not be authorized without a prior opinion of the Superintendency of Banks. The notarial copy of the instrument of incorporation, together with the certification of the decision of the Monetary Board regarding said authorization, shall be submitted to the Mercantile Register, which, on the basis of such documents, shall proceed without further formality to effect its definitive registration.

Likewise, it is for the Monetary Board to grant or deny authorization for the establishment of branches of foreign banks. The establishment of a branch of a foreign bank may not be authorized without a prior opinion of the Superintendency of Banks. For such purpose, there shall be considered, among other aspects, that in the country of the parent bank supervision exists in accordance with international standards; that the supervisor of the parent bank grants its consent for the establishment in the country of the corresponding branch; and that institutional exchange of information may be carried out between the supervisors of both countries.

For purposes of the corresponding opinion, the Superintendency of Banks shall ensure, through such investigations as it deems appropriate, compliance with the following requirements:

a)That the feasibility study submitted is broad and sufficient to support the establishment, operations and business of the entity for which authorization is requested; such study shall include its strategic plans;

b)That the origin and amount of the capital, the bases of financing, the organization and administration reasonably ensure savings and investment;

c)That the economic solvency, seriousness, good repute and responsibility of the founding shareholders ensure adequate financial and reputational backing for the entity;

d)That the economic solvency, seriousness, good repute, responsibility, as well as the knowledge and experience in banking, securities and financial activities of the organizers, the members of the board of directors and the proposed managers ensure adequate management of the entity;

e)That the affiliations, associations and corporate structures, in its judgment, do not expose the future entity to significant risks or hinder effective supervision of its activities and operations by the Superintendency of Banks; and,

f)That the other formalities, requirements and procedures established by the applicable regulations have been complied with.

The requirements, formalities and procedures for the incorporation and authorization of banks, the establishment of branches of foreign banks and the registration of representative offices of foreign banks shall be regulated by the Monetary Board.

The Monetary Board in any case shall, without any liability and upon a prior report of the Superintendency of Banks, and observing due process, revoke the authorization granted when it is proven that the applicant or applicants submitted false information.

If the bank in question were definitively registered in the Mercantile Register and the matter referred to in the preceding paragraph were proven, the Monetary Board shall, upon a prior report of the Superintendency of Banks, and without any liability, revoke the authorization granted and shall request said Register to proceed, without liability on its part, to cancel the corresponding registration.

The application to organize a bank, establish a branch of a foreign bank or register a representative office of a foreign bank shall be submitted to the Superintendency of Banks, indicating the entity that pursuant to this Law is intended to be organized, established or registered, together with the information and documentation established by the respective regulations.

The Superintendency of Banks, in the case of banks and branches of foreign banks, shall order, at the expense of the interested parties, publication in the official gazette and in another newspaper of wide circulation in the country of the authorization applications submitted to it, including the names of the organizers and prospective shareholders, so that any person who considers himself affected may assert his rights before the competent authority.

Legal persons may participate as organizers and/or shareholders of banks, provided that the ownership structure thereof allows the identity of the individual persons who are the final owners of the shares in a succession of legal persons to be determined precisely. For purposes of subparagraph c) of Article 7, the interested parties shall provide to the Superintendency of Banks the list of the individual shareholders who hold more than five percent (5%) of the paid-in capital of said legal persons, as well as any other information that said Superintendency deems necessary to obtain. For purposes of the foregoing computation, the shares of the spouse and minor children shall be added together.

Legal persons that are listed on a stock exchange in regulated and supervised financial markets are exempted from the identification of the final owners of shares referred to in the preceding paragraph, up to the amount of the capital listed in said markets and provided they hold an international risk rating granted by a risk rating agency recognized by the Securities and Exchange Commission of the United States of America (Securities and Exchange Commission -SEC-).

The Monetary Board, upon proposal of the Superintendency of Banks, shall regulate the provisions established in this article.

Banks and branches of foreign banks, upon prior authorization from the Superintendency of Banks, shall commence operations within the time limit of six months following the date of notification of the authorization for incorporation or for establishment by the Monetary Board, which time limit, upon reasoned request, may be extended by the Superintendency of Banks a single time, for up to an equal time limit.

Failure to commence operations within the established time limit shall automatically cause the granted authorization to lapse, the Mercantile Register having to cancel the corresponding registration, for which purpose the Superintendency of Banks shall send the pertinent official communication to said Register.

The opening, relocation, closure of branches or agencies of domestic banks, as well as agencies of branches of foreign banks already established in the country, may be carried out with no further formality than giving written notice to the Superintendency of Banks at least one month in advance. When the entity is subject to a regularization plan, the opening, relocation or closure of branches or agencies shall require the prior authorization of the Superintendency of Banks.

The modification of the constitutive deed of national banks or of the head office agreement for the establishment of branches of foreign banks operating in the country shall require authorization from the Monetary Board, upon prior opinion of the Superintendency of Banks. A modification of the aforementioned instruments derived exclusively from increases in authorized capital shall not require authorization from the Monetary Board.

The merger of banks and/or finance companies or the acquisition of shares of a bank or a finance company by another of a similar nature, as well as the assignment of a substantial part of the balance of a bank or a finance company, shall be authorized or denied by the Monetary Board. Such authorization may not be granted without the prior opinion of the Superintendency of Banks.

The sale, assignment or any other form of alienation of the credit portfolio carried out by a bank or a finance company to another bank or to another finance company, as well as the adjudication of property in favor of a bank or a finance company, whether voluntary or by virtue of judicial action, for the partial or total cancellation of credits in its favor, are exempt from payment of the Value Added Tax -VAT-, Decree Number 27-92 of the Congress of the Republic.

The documents or contracts by means of which the sale, assignment or any other form of alienation of the credit portfolio carried out by a bank or a finance company to another bank or to another finance company is formalized, as well as those documents or contracts in which the adjudication of property in favor of a bank or a finance company is recorded, whether voluntary or by virtue of judicial action, for the partial or total cancellation of credits in its favor, are exempt from the Tax on Fiscal Stamps and Special Stamped Paper for Protocols, Decree Number 37-92 of the Congress of the Republic.

The second paragraph of Article 1444 of the Civil Code, Decree-Law Number 106, shall not be applicable to the transactions referred to in the second paragraph of this article.

What is established in the first paragraph of this article shall be regulated by the Monetary Board, upon proposal of the Superintendency of Banks.

Only banks authorized in accordance with this Law may use in their corporate name or denomination, in their trade name or in the description of their businesses, the words “bank”, “banker”, “banking operations” or others derived from these terms.

The following may not act as organizers, shareholders, or proposed administrators of the bank in formation:

a)The members of the Monetary Board, as well as the public officials of the Bank of Guatemala and of the Superintendency of Banks who intervene in its study and authorization process;

b)Minors;

c)Bankrupts or insolvent persons, until they have been rehabilitated;

d)Persons who are notoriously delinquent debtors;

e)The directors and administrators of banks in collective enforcement proceedings upon the request of the Monetary Board or the Superintendency of Banks;

f)Persons convicted of culpable or fraudulent bankruptcy;

g)Persons who have been convicted of crimes involving lack of probity;

h)Persons who have been convicted of unlawful acts related to asset laundering or misappropriation of funds;

i)Persons disqualified from holding public office or administration or management positions in banking and financial entities; and,

j)Persons who for any other reason are legally incapable.

The Superintendency of Banks shall ensure due compliance with the provisions of this article and, consequently, shall open the corresponding investigation into the possible violation thereof, and where appropriate shall deny participation to the person or persons having any of the indicated impediments.

National banks may establish branches abroad. For such purpose, the Superintendency of Banks may authorize the procedure for the establishment of branches of national banks abroad, provided that in the host country there is supervision in accordance with international standards that permits consolidated supervision to be carried out. The specific regulation issued on this matter by the Monetary Board shall require the consent of the supervisory authority of the host country to carry out exchanges of information.

It is the obligation of national banks to inform the Superintendency of Banks, and the latter to inform the Monetary Board, when they establish branches or offices abroad, as well as regarding the operations and actions they carry out.

The share capital of national banks shall be divided into and represented by shares, which shall be nominative.

The minimum amount of initial paid-in capital of banks and branches of foreign banks that are organized or established in the national territory shall be set by the Superintendency of Banks based on the mechanism approved by the Monetary Board, which may be modified by said Board when it deems it advisable.

The minimum amount of initial paid-in capital shall be reviewed by the Superintendency of Banks at least once a year, which shall publish in the official gazette the amount of initial paid-in capital determined. Such capital must be fully paid in cash.

Without prejudice to the cases in which requiring a mandatory increase of corporate capital to avoid situations of insolvency or illiquidity is appropriate, banks and branches of foreign banks may increase their authorized capital, of which they shall inform the Superintendency of Banks within the five days following such increase. In the case of national banks, the shares representing such increase shall be nominative. Any payment corresponding to a capital increase, in both cases, must be made entirely in cash.

The paid-in capital of branches of foreign banks shall be brought into, established in and effectively maintained in the country and may not be withdrawn without the prior and express authorization of the Monetary Board.

Foreign banks that obtain authorization to establish branches in the country shall be liable without limitation with all their property for the operations they carry out therein, and they shall so evidence it.

The Monetary Board shall regulate matters concerning this article and the withdrawal from the country of branches of foreign banks.

Persons who directly or indirectly acquire a holding equal to or greater than five percent (5%) of the paid-in capital of a bank shall have the authorization of the Superintendency of Banks, which shall verify compliance with the requirements for shareholders of new banking entities. The same procedure shall be followed in the case of those shareholders of the bank who increase the amount of their shareholding and thereby reach the indicated percentage. If the respective authorization is not obtained, the bank may not admit them as shareholders or, as the case may be, may not record nor recognize their shareholding in excess of the indicated percentage. The Monetary Board shall regulate the provisions of this article.

Banks shall submit in the month of January of each year to the Superintendency of Banks information containing the composition of their shareholders, as well as the amount and percentages of participation of each in the corporate capital thereof, as of December 31 of the previous year, without prejudice to the latter's right at any time to require such information as of the date it deems appropriate.

The names of the members of the boards of directors or boards of administration and managements of the banking entities shall be published by the latter in dissemination media available to the general public.

Banking entities shall keep a register of nominative shares that permits identification, at all times, of who are the shareholders of the entity.

Banks shall have a board of directors composed of three or more directors, who shall be responsible for the general direction of the business thereof.

The members of the board of directors and general managers, or those acting in their stead, shall prove that they are solvent, honorable persons, with knowledge and experience in the banking and financial business, as well as in the management of financial risks.

Any change of members on the board of directors and general managers shall be communicated to the Superintendency of Banks within fifteen days following their appointment, for verification of compliance with the provisions of the preceding paragraph. If the Superintendency of Banks finds that one or more of the appointed persons do not meet the established requirements, it shall order the bank to proceed to make new appointments, no later than within the sixty calendar days following the date on which said Superintendency has notified it of such circumstance. Otherwise, the objected appointments shall be without effect.

The Board of Directors, without prejudice to the other legal and contractual provisions applicable to it, shall have the following duties and powers:

a)Be responsible for the liquidity and solvency of the bank;

b)Define the financial and credit policy of the bank and control its execution;

c)Ensure that the policies, systems and processes necessary for proper administration, assessment and control of risks are implemented and instruct that they be maintained in adequate functioning and execution;

d)Ensure that active and contingent operations do not exceed the limits established in this Law;

e)Take cognizance of and order what is necessary for the compliance with and execution of the measures of any nature ordered by the Monetary Board or the Superintendency of Banks, within the framework of their respective competencies, in relation to the bank;

f)Take cognizance of the monthly financial statements and approve the annual financial statements of the banking entity and of the financial group, as applicable, which must be supported by internal audit and, annually, by the external auditors' report, with its corresponding opinion and notes to the financial statements. As well as decide on the recommendations derived therefrom; and,

g)In general, comply with and enforce the provisions and regulations applicable to the bank.

Members of the Board of Directors and General Managers shall be civilly, administratively and criminally liable for their actions or omissions in the fulfillment of their duties and powers.

Any act, decision or omission of the members of the Board of Directors that contravenes legal or regulatory provisions, or that causes damage or harm to the bank, shall cause them to incur liability to the same and to third parties, and they shall respond unlimitedly to them with their personal property.

Those who have caused their dissenting vote to be stated in the record of the session in which the matter was addressed shall be exempt from liability.

When any attendee at the sessions of the board of directors or credit committee of a bank has any personal interest in the discussion or decision on a particular matter, or such interest is held by the individual or legal persons linked to such attendee by ownership, administration or any other relationship duly regulated by the Monetary Board, such attendee shall not participate in such discussion or decision, nor influence the same by any means, and shall withdraw from the respective session during the discussion of such matter, with a record of this fact being entered in the respective record. Decisions contravening this provision shall be void and shall produce no effect whatsoever.

Members of the board of directors, general managers, officers and employees of any other bank may not be members of the board of directors or general managers of a national bank or administrators of a branch of a foreign bank. Members of the board of directors and general managers of the companies forming part of the same financial group are excepted from this provision.

The disqualifications that Article 13 of this Law establishes for organizers, shareholders, and proposed administrators of new banks shall be applicable to members of the board of directors and general managers, except as provided in subsection a) of said article for members of the Monetary Board.

No bank may engage the services, as officers or employees, of persons who are related by kinship, within the fourth degree of consanguinity or second degree of affinity, to the members of the board of directors, general manager and other officers thereof.

However, the Monetary Board, at the request of the respective bank, may make exceptions to this restriction when it deems that doing so is not detrimental to the sound operation of the bank.

It shall not be necessary for branches of foreign banks to be administered by a board of directors, but they shall have one or more administrators domiciled in the country, responsible for the general direction and administration of the business of the branch, authorized to act in the country and to execute the operations corresponding to the nature of the branch in question.

The administrators of branches of foreign banks operating in the country shall be subject to the same disqualifications and, as applicable, shall have the same duties and powers as the administrators of national banks.