Título VI. Administracion de riesgos

Banks, before granting financing, shall reasonably ascertain that applicants have the capacity to generate sufficient flows of funds to meet timely payment of their obligations within the time limit of the contract. Likewise, they shall carry out adequate monitoring of the evolution of the payment capacity of the debtor or debtors during the period in which the financing is in force.

Banks shall require from financing applicants and their debtors, at a minimum, the information determined by the Monetary Board through general provisions issued for such purpose.

If after the granting of the financing the bank verifies falsity in the statement and documentation provided by the debtor or debtors, it may declare the time limit expired and demand immediate performance of the obligation extrajudicially or judicially.

Credits granted by banks shall be backed by an adequate fiduciary, mortgage, or pledge guarantee, or a combination thereof, or other movable guarantees, in accordance with the law.

Credits subject to real guarantee shall not exceed seventy percent of the value of the pledge guarantees, nor eighty percent (80%) of the value of the mortgage guarantees.

In the process of granting and while the credit is in force, the following shall be observed:

a.The bank shall require from the debtor all information and access enabling it continuously to assess the debtor's payment capacity. The Superintendency of Banks may, when it deems necessary, assess the payment capacity of the debtors, for which purpose the bank shall place at its disposal the information and all documentation that it requires from it; and,

b.Every extension must be express. The term of the credit shall not be deemed extended by mere forbearance or by the act of receiving payments toward principal or total or partial payment of overdue interest.

The extension or cancellation of the obligations in favor of banks, whether or not mortgage-secured, may be effected by means of a notation at the foot of the respective document, made by whoever has legal authority to do so.

Such notation with signature legalization by a Notary shall be sufficient instrument for the respective Registry to make the corresponding operation.

Banks and the companies of the financial group that grant financing shall value their assets, contingent operations and other financial instruments that involve risk exposures, in accordance with the corresponding regulations. Banks and, as applicable, the companies of the financial group, shall establish, against the results of the fiscal year, sufficient reserves or provisions, in accordance with the valuation performed. In the event that the reserves or provisions to be established exceed the maximum legally permitted as a deductible expense for tax purposes, such excess amounts may be created directly against capital accounts.

In case of non-compliance, the Superintendency of Banks may order the reclassification of assets and the corresponding establishment of reserves or provisions, without prejudice to the applicable sanctions.

When, in the judgment of the Superintendent of Banks, in certain assets, contingencies and other financial instruments there are risk factors that require the establishment of special reserves or additional provisions to those indicated in the first paragraph of the present article, the Superintendent shall order, in each case, the establishment thereof in order to cover the risk to the extent necessary.

The Monetary Board, at the proposal of the Superintendency of Banks, shall issue the regulations referred to in the first paragraph of the present article, determining the regime for the classification of assets and of reserves or provisions, taking into account the payment capacity and performance of the debtor, for the purposes indicated in said paragraph.

Notwithstanding the prohibitions and limitations imposed by this Law, banks and, as applicable, the other companies of the financial group may receive all kinds of guarantees and acquire real property, commercial establishments, merchandise, shares, credit documents, securities, pledges and property of all kinds, provided that such acceptance or acquisition is made in good faith, in the following cases:

a.As additional guarantee, in the absence of better guarantee, when they are indispensable to secure payment of credits in their favor, resulting from operations carried out previously;

b.When, for lack of other means to obtain payment, they must accept them in total or partial payment of credits in favor of the bank itself and, as applicable, the other companies of the financial group, resulting from operations legally carried out in the course of their business;

c.When they must purchase them, to enforce credits in their favor, or for the security of their own creditor status; and,

d.When they are adjudicated to them by virtue of judicial action brought against their debtors.

The assets held and those acquired by banks in accordance with the foregoing shall be called extraordinary assets, which must be sold within a time limit of two years, counted from the date of their acquisition.

Once these assets have been incorporated into the bank, they must be appraised. The Superintendency of Banks may require new appraisals by third parties and the establishment of the corresponding reserves or provisions.

If the sale of the extraordinary assets is not carried out within the time limit of two years, banks shall be obligated to offer them at public auction immediately after expiration of said time limit; if there are no bidders, the auction must be repeated every three months.

When economic and financial conditions so require, the Monetary Board may suspend the auctions or may extend the time limits referred to in this article, for fixed time limits not exceeding six months.

The sale and the application of profits from extraordinary assets shall be regulated by the Monetary Board.

Banks and the companies that form part of financial groups shall have comprehensive processes that include, as applicable, the management of credit, market, interest rate, liquidity, foreign exchange, transfer, operational and other risks to which they are exposed, which include information systems and a risk management committee, all for the purpose of identifying, measuring, monitoring, controlling and preventing risks.

Banks and companies that are part of financial groups must have updated written policies relating to the granting of credits, investments, evaluation of asset quality, sufficiency of provisions for losses and, in general, policies for the adequate administration of the various risks to which they are exposed. Likewise, they must have policies, practices and procedures that allow them to have adequate knowledge of their clients, so that banks and financial groups are not used to carry out illicit operations.

Banks and the companies that are part of financial groups shall maintain an internal control system appropriate to the nature and scale of their business, which shall include clear and defined provisions for the delegation of authority and responsibility, separation of functions, disbursement of their funds, accounting for their operations, safeguarding of their assets, and appropriate independent internal and external audit, as well as an administrative unit responsible for ensuring that personnel comply with these controls and applicable laws and provisions.

The Monetary Board, upon proposal by the Superintendency of Banks, shall establish, through rules of general application, minimum requirements that banks shall meet with respect to the matters contained in the two preceding articles and in this article.

The Superintendency of Banks shall implement a risk information system, for which the entities referred to in this Law are obligated to provide the information determined for such purpose by said Superintendency.

Banks and financial groups and other financial intermediation entities approved by the Monetary Board at the request of the Superintendency of Banks shall have access to the risk information system, exclusively for credit analysis purposes.

Banks, financial companies and offshore entities or offshore entities shall annually obtain a risk rating issued by a risk rating agency recognized by the United States Securities and Exchange Commission (Securities and Exchange Commission -SEC-) or representatives thereof that issue ratings at the regional level, or other risk rating agencies that meet equivalent standards. In all cases, the risk rating agencies shall register with the Superintendency of Banks in accordance with the general instructions issued by the latter. The report on the rating issued by the rating agency shall be sent to the supervisory body and the updated rating shall be published by the rated entity with the graduality established by the Monetary Board.

In the case of branches of foreign banks, the rating of the parent bank shall be accepted, provided it was issued by a risk rating agency of those indicated in this article.

The risk rating is an opinion issued, under its strict liability, by the rating agency, referring to a determined period, regarding the general financial capacity of the rated entity to meet its obligations, without committing the State, whose supervision and inspection function corresponds exclusively to the Superintendency of Banks.

The provisions of this article shall be regulated by the Monetary Board, upon proposal of the Superintendency of Banks.