El Salvador: Reform to the Banking Law Expands Foreign Investment Opportunities

The Legislative Assembly approved an amendment to the Banking Law (the “Reform”), fully repealing Article 10 of such law.

Former Article 10 established requirements and conditions that Salvadoran banks were required to meet regarding their shareholding structure, based on nationality criteria and the regulatory supervision of shareholders in their country of origin. In practice, this provision limited the ability of certain foreign investors to acquire direct or indirect ownership interests in Salvadoran banks.

In summary, Article 10 required that at least fifty-one percent (51%) of the shares of Salvadoran banks be held by the following categories of investors:

  • Salvadoran or Central American individuals
  • Salvadoran legal entities whose majority shareholders are Salvadoran or Central American individuals
  • Central American banks
  • Other foreign banks or financial institutions meeting specific regulatory and credit rating requirements

Although these requirements did not prevent certain leading international financial institutions from becoming majority shareholders of local banks, they did restrict the participation of other international investors.

With the Reform, these limitations have been eliminated, allowing any investor—regardless of nationality—to participate in the share capital of Salvadoran banks, subject to compliance with other applicable legal requirements. This opens new investment opportunities in the banking market, including the potential entry of new foreign players or the development of mergers and acquisitions (M&A) transactions, which could strengthen competition within the sector.

However, the repeal of Article 10 does not eliminate regulatory oversight. The Banking Law and the technical regulations issued by the Central Reserve Bank continue to establish requirements that potential investors must meet before acquiring shareholder status in a bank.

In particular, Article 11 of the Banking Law provides that no person may own more than 1% of a bank’s shares without prior authorization from the Superintendence of the Financial System. This authority evaluates factors such as financial solvency, regulatory compliance, legitimacy of funds, and financial standing.

Therefore, although the Reform facilitates greater openness to new investors, regulatory controls over participation in bank shareholdings remain in place.

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