UTF-8 encoded `/etc/issue` special chars not shown while doing ssh, why?

Issue

• While accessing the RHEL6.4 server via ssh , the contents of /etc/issue, which includes special characters Ñ, á, ó, etc, are shown with numeric codes \321, \341, \363, etc.

• Versions of openssh on source and target servers:

MASTER:

[root@master ~]# rpm -qa | grep openssh
openssh-clients-5.3p1-94.el6.x86_64
openssh-server-5.3p1-94.el6.x86_64
openssh-5.3p1-94.el6.x86_64

SLAVE:

[root@slave ~]# rpm -qa | grep openssh
openssh-clients-5.3p1-94.el6.x86_64
openssh-server-5.3p1-94.el6.x86_64
openssh-5.3p1-94.el6.x86_64

• While opening ssh session get the following:

[root@master ~]# ssh slave
ESPA\321A 
Los  puestos de trabajo inform\341ticos s\363lo deben utilizarse para
los fines espec\355ficos del trabajo asignado, siendo responsabilidad
del usuario hacer un uso correcto de los equipos.