2023 Laws of Puerto Rico › TITLE SEVEN - Banking (§§ 1 — 3116) › PART III - Other Financial Institutions (§§ 551 — 1390) › Chapter 86 - Cooperative Savings and Credit Associations Act of 2002 (§§ 1361 — 1371b) › Subchapter VI - Operating Capital, Loans and Limitations (§§ 1366 — 1366i) › § 1366a - Indivisible capital

(a) Cooperatives shall maintain an indivisible capital reserve that shall be known as indivisible capital. Thirty-five percent (35%) of the indivisible capital reserve shall be maintained in liquid assets. As of December 31 of the year of approval of this act, each cooperative must have a minimum indivisible capital of three percent (3%) of its total risk assets. From this date on, the indivisible capital of each cooperative must reach the following levels on the dates listed below, regarding the risk assets defined in subsection (d) of this section:
(1) As of December 31, 2003, a minimum of four percent (4%) of its total risk assets.
(2) As of December 31, 2004, a minimum of five percent (5%) of its total risk assets.
(3) As of December 31, 2005, a minimum of five and a half percent (5.5%) of its total risk assets.
(4) As of December 31, 2006, a minimum of six percent (6%) of its total risk assets.
(5) As of December 31, 2007, a minimum of six and a half percent (6.5%) of its total risk assets.
(6) As of December 31, 2008, a minimum of seven percent (7%) of its total risk assets.
(7) As of December 31, 2009, a minimum of seven and a half percent (7.5%) of its total risk assets.
(8) As of December 31, 2010, a minimum of eight percent (8%) of its total risk assets.
(A) As of January 1, 2011, each cooperative shall keep a minimum indivisible capital of eight percent (8%) of its total risk assets. In the case of newly-created cooperatives, the Corporation shall define through regulations or an administrative order, the sequential levels of indivisible capital and the corresponding reasonable installments to achieve them. For a the [sic] purposes of this chapter, the risk assets of the cooperative shall be figured according to the risk parameters defined in subsection (d) of this section. Once the cooperative meets the minimum requirements provided in this section, it shall have the discretion to reduce the share that it must incorporate to the indivisible capital.
(B) Every cooperative whose indivisible capital reserve meets the sums required in this subsection and has no accrued losses, shall be deemed to be adequately capitalized, and no penalties shall be imposed nor shall it be submitted to memoranda of understanding nor to an agreement to continue operations, for the sole reason of lack of capitalization. The Corporation shall have the power to require additional capital through regulations adopted to such goals, to the percentages required in this subsection, pursuant to the risk profile of the cooperative, taking into consideration the types of financial activity in which it is engaged, and the risk levels they imply.
(C) In the case of those cooperatives whose indivisible capital reserve does not meet the sums required in this subsection, they shall proceed as follows:
(i) After issuing a formal administrative finding to the effect that the cooperative does not meet the established minimum level of indivisible capital, the Corporation shall require the cooperative to submit a capitalization plan that reasonably indicates the steps that the institution shall take to overcome said difficulties. The capitalization plan shall at least specify, the following:
(I) Specific measures that the cooperative shall adopt to increment its contributions to the indivisible capital reserve. Said measures shall include adjustments of the annual contribution to the indivisible capital reserve contemplated in subsection (c) of this section;
(II) the level of indivisible capital that the cooperative hopes to achieve for each year covered by the plan;
(III) the financial activities in which the cooperative shall engage and the volumes of business projected by it for each year covered by the plan;
(IV) the level of control in the growth of the assets of the cooperative for each year covered by the plan;
(V) the level of net savings projected for each year covered by the plan, and
(VI) the financial support that the cooperative shall receive, if any, from other first, second or third degree cooperative entities.
(ii) The minimum content required for a capitalization plan and the terms to submit and implement the plan, shall be provided by the Corporation through regulations. In the event that the capitalization plan is not approved, or that after its approval it is subject to substantial noncompliance, the Corporation may consider other regulatory actions. In the case of regulatory actions that affect the continuity of operations or the existence of the cooperative, the imposition of said restrictions must be ratified by the two-thirds (2 / 3) vote of the Board of Directors of the Corporation.
(b) The following shall be deemed as elements of the indivisible capital reserve:
(1) Indivisible capital reserves, including the sum that the cooperative has accrued up to the effective date of this act, after subtracting any accrued or current loss;
(2) any capital reserves made by the cooperative, except the reserve for unearned profits or losses in marketable securities available for sale as required by the pronouncement issued by the Financial Accounting Standards Board;
(3) fifteen percent (15%) of the undistributed profit withheld by the cooperative;
(4) the portion of the reserves established by the cooperative to absorb possible future losses in loans or financing, that are not delinquent. Furthermore, the Corporation may also establish by regulations, such portion of the reserves established by the cooperative to absorb possible future losses in delinquent loans or financing, that may be used as part of the undividable capital reserve, for which the corresponding studies shall be made, taking into consideration the standards that are applicable to other financial institutions;
(5) capital obligations issued by the cooperative and those other financial instruments expressly authorized by the Corporation, for inclusion as part of the undividable capital, and
(6) other elements established by the Corporation through regulations or an administrative determination.
(c) Every cooperative whose indivisible capital reserve is less than eight percent (8%) shall annually separate twenty-five percent (25%) of its net savings and incorporate that amount to the indivisible capital until the reserves have reached and stay at eight percent (8%) of its risk assets. Every cooperative whose indivisible capital has reached and remains at eight percent (8%) of its risk assets, shall have the discretion [and] power to reduce the contribution that it shall incorporate to the indivisible capital to not less than five percent (5%).
After issuing a formal administrative determination to the effect that a cooperative has not achieved the minimum undividable capital required, the Corporation shall require the cooperative to produce a capitalization plan that shall reasonably demonstrate the steps that the institution shall take to achieve said requirement. With regard to these cooperatives, the Corporation may impose regulatory or administrative restrictions to their operations for lack of capitalization. Said restrictions, as well as the contents of an acceptable capitalization plan and the terms to submit and implement it, shall be defined by the Corporation through regulations. In the event that the capitalization plan is not approved, or that after approval, is subject to substantial noncompliance, the Corporation may consider other regulatory actions, including ordering its fusion to another cooperative. Any involuntary fusion or transaction for the purchase and assumption of assets shall only take place with another savings and credit cooperative that is authorized in this chapter.
(d) The total risk assets of a cooperative shall be determined by applying the following parameters or risk weighting:
(1) The following assets shall be deemed non-risk assets, thus with a weighting of zero percent (0%):
(A) Cash on hand held by the cooperative in its offices or in transit;
(B) loans, obligations, and debt instruments, including portions of each that are issued, insured, or unconditionally guaranteed by the Commonwealth of Puerto Rico or its agencies, or by the Government of the United States or its agencies, including the Federal Reserve System banks, the Government National Mortgage Association (GNMA), Veterans Administration (VA), Federal Housing Administration (FHA), Farmers Home Administration (Fm HA), Export-Import Bank (ExIm Bank), Overseas Private Investment Corporation (OPIC), Commodity Credit Corporation (CCC) and the Small Business Administration;
(C) student loans insured under Title IV, Part B of the 1965 Higher Education Act.
(D) the portion of the loans of members secured by shares, deposits or both, that cannot be withdrawn from the cooperative;
(E) the investments of the cooperative in the Corporation, and
(F) loans fully-secured by first mortgages on residential properties of one to four families. These loans must qualify for sale on the secondary mortgage market, not show delinquency in excess of ninety (90) days, and have a maximum loan-to-value rate of eighty percent (80%); Provided, That the Corporation may authorize, through regulations or administrative determination, higher total loan-to-value rates that are consonant with the secondary market parameters.
(2) The following assets shall be deemed as risk assets with a weight of twenty percent (20%):
(A) Collectible assets. — The Corporation shall determine by regulations which assets may be included under this subsection;
(B) the portion of the loans to non-members secured by liquid assets that secure loans as provided in subsection (a)(2) of § 1362b of this title);
(C) loans, obligations and debt instruments, including portions thereof, that are issued, insured or unconditionally secured by the Commonwealth of Puerto Rico and its agencies, or by the Government of the United States, whose obligations are not explicitly endorsed by the full faith and credit of the United States Government, including the [Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Farm Credit System, Federal Home Loan Bank System, and Student Loan Marketing Association (SLMA)];
(D) deposits, loans, obligations and securities, including portions thereof, that are issued, insured or guaranteed by depositary institutions of the United States and Puerto Rico, including the Puerto Rico Cooperative Bank. Stocks of profitable entities are excluded;
(E) historical cost of the real property, or the appraised value as certified by a duly-qualified appraiser, whichever is less, that is being used or projected to be used as offices, branches, service centers, parking areas or other facilities, the net of any debt that is directly secured by a constituted and formalized mortgage lien on said property, and
(F) prepaid insurance corresponding to the risks of the institution.
(3) The following assets shall be deemed to be moderate risk assets with a fifty percent (50%) weighting:
(A) Loans fully-secured by first mortgages on residential properties of one to four families. — Loans fully-secured by first mortgages on residential properties that do not comply with the secondary market parameters shall be deemed as moderate risk assets with a weighting of fifty percent (50%); Provided, That these loans may not show delinquency in excess of ninety (90) days.
(B) The investment that represents a share in such loans as described in paragraph (A) of this clause.
(4) All other assets not recognized in any of the above categories shall be deemed as 100% [risk] weighting assets.
(5) The Corporation is empowered to add any other assets, through legislation or other administrative determination, to the above categories, that merit a risk weighting of less than one hundred percent (100%).
(e) By decision of its Board of Directors, any cooperative may accelerate the accrual of indivisible capital by contributing an amount to it in excess of what is required in this section.
History —Oct. 28, 2002, No. 255, § 6.02; Feb. 1, 2006, No. 57, § 1; Feb. 1, 2006, No. 58, § 1; Sept. 1, 2006, No. 185, § 1; Dec. 14, 2007, No. 204, § 1; July 23, 2008, No. 127, § 1; Aug. 15, 2008, No. 283, § 2.