Circular OPRAC 1 - 356. LISOL 1 - 68. Operations with clients linked to financial entities and credit assistance limits

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2109 29/06/93 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
OPRAC 1 - 356.
LISOL 1 - 68.
Operations with clients linked to financial entities and credit assistance limits

We address you to inform you that this Institution adopted the following resolution:

"1. Replace, effective as of July 1993, the provisions of point 4.1. of Chapter I of Circular OPRAC - 1 with those contained in Annex I to this communication.

2. Establish, effective as of July 1993 and until new regulations are established on the matter, that operations with directors, administrators, and members of the control bodies of the financial entities referred to in point 4.2. of Chapter I of Circular OPRAC - 1, may not exceed, at any time, 5% of the computable equity responsibility of the entity as of the last day of the month immediately preceding the one in question, measured individually for each of the aforementioned persons.

These operations shall be computed together with those contracted with linked clients - preceding point 1 - in order to observe the global limit established pursuant to point 2.4. of Annex I.

To this end, the existence of indirect linkage through common directors provided for in the second paragraph of point 4.2.2.1., shall be determined in accordance with what is provided in point 1.1.3. of Annex I.

Excesses to these limits are subject to the provisions of point 6.1. of Annex I.

3. Establish that excesses to the relationships referred to in the preceding point 2. and points 2.1., 2.2., 2.4. and the last paragraph of point 3. of Annex I, originated exclusively in the application of the new limits, will not be subject to charges to the extent that the entities fit within them gradually, according to the plan that they must present to the Superintendence of Financial and Exchange Entities by 10.8.93.

4. Replace, effective as of July 1993, the provisions of points 1. to 3. and 5. and 6. of Chapter II of Circular LISOL - 1 with those contained in Annex II to this communication.

5. Establish that excesses to the relationships referred to in points 2. and 3. of Annex II, originated exclusively in the application of the new limits, will not be subject to charges to the extent that the entities fit within them gradually, according to the plan that they must present to the Superintendence of Financial and Exchange Entities by 10.8.93.

6. Provide that financings and participations in the share capital of companies that provide services complementary to the activity developed by the financial entity, without prejudice to the application of the provisions contained in Annexes I and II, shall be considered as fixed assets, from July 1993 for the purpose of determining the minimum capital required starting in August.

7. Establish, effective as of July 1993, that the coverage margins for passive repos and for the forward purchases and sales of national public securities in the situations referred to in points 1.1.4.2. and 4.3.2. of Annex I to Communication "A" 1465 may be agreed upon to the satisfaction of the financial entities.

8. Replace, effective as of July 1993, the first paragraph of point 1. of the Annex to Communication "A" 467 (text according to Communication "A" 612) with the following:

"The total of operations in national or foreign currency that each financial entity grants may not exceed 100% of the computable equity responsibility of the clients, established in accordance with the norms contained in point 6.1., whether natural or legal persons, groups or economic sets, linked or not.

Participations in companies that do not have as their corporate object the provision of services complementary to the activity developed by the financial entity may not exceed 12.5% of their computable equity, without prejudice to which financial support for any concept may not exceed 100%."

9. Repeal, effective as of July 1993, the following provisions:

9.1. Global financing limits to directors or administrators and linked companies (points 4.3.1.2. and 4.3.1.3. of Chapter I of Circular OPRAC - 1 and its modifications).

9.2. Impediments to carry out intermediation operations with public securities and foreign currency with natural or legal persons linked to the financial entities (points 5. and 4. of Annexes I to Communications "A" 1465 and "A" 1590, respectively).

9.3. Treatment of excesses from operations with linked clients originated in the increase due to the accumulation of positive results in participations in the share capital of companies whose object is linked to the provision of services complementary to the financial activity (Communication "A" 1873).

9.4. Investment limit in non-marketable securities (point 1. of Chapter III of Circular LISOL - 1; text according to Communication "A" 1883).

9.5. Investment limit in new issuances of shares with funds from the issuance of negotiable bonds of financial entities related to their computable equity responsibility (point 1.3.2.2. of the resolution disseminated through Communication "A" 1907).

9.6. Treatment regarding the graduation of credit for financings to stock exchange companies (second paragraph of the resolution made known through Communication "A" 2056)."

We salute you very attentively.
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
Alfredo A. Besio Martha L. Blanco
Supervisor of Monetary and Exchange Standards General Sub-manager Area of Economic Studies

ANNEXES

ANNEX I to
Com. "A" 2109
OPERATIONS WITH PRIVATE SECTOR PERSONS OR COMPANIES NOT FINANCIAL LINKED TO FINANCIAL ENTITIES

1. Concepts.
   1.1. Natural and legal persons linked to the financial entity are considered to be:
   1.1.1. any company or person that, directly or indirectly, exercises control over the financial entity or any company or person that, directly or indirectly, is controlled by who or who exercises control over the financial entity;
   1.1.2. any company or person that, directly or indirectly, is controlled by the financial entity, which must take into account the provisions of article 28, item a), of Law 21.526 (text according to Law 24.144) and its regulations;
   1.1.3. any company that has common directors with the company that exercises control over the financial entity or with the financial entity, provided that these directors form the simple majority of the governing bodies of each of these companies or the financial entity;
   1.1.4. exceptionally, by resolution of the Board of Directors upon proposal of the Superintendent of Financial and Exchange Entities, any company or person that, as determined, has a relationship with the financial entity or with its controller, that could result in financial detriment to the financial entity.

1.2. Control exists by a company or person over another when:
1.2.1. said company or person, directly or indirectly, owns or controls 25% or more of the total votes of any instrument with voting rights in the other company;
1.2.2. said company or person, directly or indirectly, has had 50% or more of the total votes of the instruments with voting rights in assemblies or meetings in which their directors or other persons exercising similar functions have been elected;
1.2.3. said company or person, directly or indirectly, holds participation in the other by any title, even if their votes are lower than provided in point 1.2.1., in such a way as to have the necessary votes to form the social will in shareholders' assemblies or to adopt decisions in board meetings or similar bodies;
1.2.4. by resolution, the Board of Directors upon proposal of the Superintendent of Financial and Exchange Entities, determines that said company or person, directly or indirectly, exercises controlling influence over the direction and/or policies of the other company. Guidelines indicating controlling influence include, among others, the following:
1.2.4.1. the ownership of a percentage of the capital of the linked company that grants the votes necessary to influence the approval of its financial statements and the distribution of profits, for which the way in which the rest of the capital is distributed must be taken into account;
1.2.4.2. representation on the board or higher administrative bodies of the linked company, for which the existence of agreements, circumstances or situations that could grant direction to some minority group must also be taken into account;
1.2.4.3. participation in the setting of corporate policies;
1.2.4.4. the existence of important operations with the linked companies;
1.2.4.5. the exchange of executive personnel;
1.2.4.6. the technical-administrative dependence of the linked company.

1.3. Operations included are those registered in the accounting under the following balance sheet items:
1.3.1. loans;
1.3.2. other credits by financial intermediation;
1.3.3. goods in financial leasing;
1.3.4. participations in other companies;
1.3.5. diverse credits;
1.3.6. off-balance sheet debtor accounts:

• Beneficiaries of agreed credits
• Beneficiaries of granted guarantees
• Beneficiaries of commitments for foreign trade operations
• Financial entities - Rediscounted documents

The following operations will also be computed:
1.3.7. financings, in all their modalities, granted by and/or through subsidiaries abroad and banks abroad over which the local entity exercises control under the terms provided in point 1.2.;
1.3.8. financings, in all their modalities, granted by the parent company or bank abroad that exercises control over the local financial entity under the terms contained in point 1.2., or by their branches in other countries, when they correspond to financing lines assigned to them by the local financial entity.

Repo operations and forward purchases and sales of foreign currency (Communication "A" 1590); of national public securities (Communication "A" 1465); private and others with quotation (Communication "A" 2061), will be computed at 25%, 33% and 50% of the capitals effectively transacted, respectively.

In the case of stock pledges and repos, the corresponding percentages will be applied, depending on the security traded.

Assignments in favor of financial entities of rights or credit titles when the obligors or drawers are third parties not linked, without responsibility for the linked assignors, will affect the credit margin that can be granted to the latter.

Also included within that limit are instruments purchased or discounted from third parties not linked -with or without responsibility- when the drawer, debtor, co-debtor or acceptor is a linked person.

1.4. It is considered that two or more natural or legal persons form a set or economic group -linked or not to the financial entity- when, according to the criteria contained in point 1.1., the existence of linkage between them is determined.

2. Relationships.
   2.1. The total of the operations included without guarantee of a linked company or person may not exceed, at any time, 5% of the computable equity responsibility of the entity as of the last day of the month preceding the one in question.

When it concerns a linked company that exclusively provides services complementary to the activity developed by the financial entity, the total of the operations without guarantee may reach up to 10% of said computable equity.

2.2. Without prejudice to what is established in point 2.1., the total of the operations included of a linked company or person, including operations with guarantees under the terms provided in point 4., may not exceed, at any time, 10% of the computable equity responsibility of the entity as of the last day of the month preceding the one in question.

2.3. For the purposes of the limits established in points 2.1. and 2.2., sets or economic groups of the non-financial private sector shall be considered as a single client.

2.4. The total of the operations included of all companies or persons linked to the financial entity may not exceed, at any time, 20% of the computable equity responsibility of the entity as of the last day of the month preceding the one in question.

3. Exclusions.
   For the purposes of determining the relationships indicated in point 2., the following will be excluded:

3.1. The holding of securities with public offering under the regime of Law 17.811 (ordinary or preferred shares, negotiable bonds or other debt instruments and any other instrument with similar characteristics to all the aforementioned) of linked companies that are classified by another financial entity -not linked- in a normal situation and that possess a widely available market value publicly -in the country or abroad-, not exceeding 10% of the residual value in circulation of each of the issuances placed in the case of bonds or of the subscribed and paid-in capital when it comes to shares.

It is considered that there is a widely available market value when there are daily quotations of relevant transactions in whose amount the eventual liquidation of that holding cannot significantly distort the quoted price.

This exclusion will not be applicable when any of the securities of the issuing company has a rating lower than BB granted by a risk rating agency of the country.

3.2. The financing of exports when the operations have automatic reimbursement according to regimes of bilateral or multilateral foreign trade agreements.

3.3. Prior resolution of the Board of Directors, upon proposal of the Superintendent of Financial and Exchange Entities, participations in the share capital of companies whose object is not complementary to the financial activity, when these investments have a transitory nature that, in no case, may be greater than 180 days.

The operations indicated in points 3.1. (considered at their market value) and 3.3., added to those included in the relationships established in points 2.1. and 2.2., may not exceed, considered for each client or set or economic group, the limits of 15% and 25% referred to in points 3.1. and 3.2. of Annex II, for which the guarantees required according to the following point will be taken into account.

4. Computable Guarantees.
   4.1. For the purposes established in point 2.2., guarantees, measured with respect to the debt or equivalent concept, that may not be lower than:
   4.1.1. 100% when it comes to securities representing obligations of the National Government, taking into account their market value.
   4.1.2. 125% in the case of certificates of deposit of money -in national or foreign currency- in the creditor entity itself.
   4.1.3. 125% for private debt securities with public offering (Law 17.811), taking into account their market value.
   4.1.4. 125% in the case of invoices to consumers for collection, issued by public service companies providing electricity, gas, telephone services, drinking water and sewage, whose collection rights are assigned to the entity.
   4.1.5. 125% for credit card coupons.

The market value of the securities referred to in points 4.1.1. and 4.1.3. must arise from daily quotations of relevant transactions in whose amount the eventual liquidation of the securities offered as collateral cannot significantly distort the stated value.

4.2. The following may not be considered as guarantees:
4.2.1. Participations in the share capital, securities or obligations issued by a company or person linked to the entity.
4.2.2. Securities issued by non-linked clients that are classified by any financial entity in a situation other than normal or have a rating lower than BB granted by a risk rating agency of the country.
4.2.3. preferred guarantees according to point 3.1.3.1. of the procedure norms of the "Statement of debtor situation", except those admitted according to point 4.1.

5. Other provisions.
   Financial entities may not agree, directly or indirectly, new financing or renewal, extension, grace (express or tacit) of existing facilities (whether they correspond to be included or not in the relationships established in points 2.1. and 2.2.), to companies or persons linked that are classified by any financial entity in a situation other than normal or any of whose securities has a rating lower than BB granted by a risk rating agency of the country.

6. Non-compliance.
   6.1. Excesses to the maximum relationships established in points 2.1., 2.2., 2.4. and 3. (last paragraph) are subject to the charge -currently fixed at 18% nominal annual- and other provisions referred to in point 4.3.2. of Chapter I of Circular OPRAC - 1 (text according to Communication "A" 2019).

6.2. The application of what is provided in the preceding point may not imply the overlap of charges when, with respect to the same client, excesses to the relationships established in points 2.1. and 2.2. and in the last paragraph of point 3. are verified.

6.3. Non-compliance with the deadline established in point 3.3. will determine the recalculation of the positions of the corresponding periods and, if applicable, the application of the provisions referred to in point 6.1.

6.4. Deviations from what is established in point 5. will determine the application of the charge and other provisions mentioned in point 6.1. on the total of the new financings granted, so these will not be considered for the purpose of determining the relationships established in points 2.1., 2.2. and 3. (last paragraph).

ANNEX II to
Com. "A" 2109
CREDIT RISK FRAGMENTATION

1. Operations included.
   The relationships of points 2. and 3. cover the operations registered in the accounting under the following balance sheet items:
   1.1. loans;
   1.2. other credits by financial intermediation;
   1.3. goods in financial leasing;
   1.4. participations in other companies;
   1.5. diverse credits;
   1.6. off-balance sheet debtor accounts:

• Beneficiaries of agreed credits
• Beneficiaries of granted guarantees
• Beneficiaries of commitments for foreign trade operations
• Financial entities - Rediscounted documents

The following operations will also be computed:
1.7. financings, in all their modalities, granted by and/or through subsidiaries abroad and banks abroad over which the local entity exercises control under the terms provided in point 1.2. of Annex I;
1.8. financings, in all their modalities, granted by the parent company or bank abroad that exercises control over the local financial entity under the terms contained in point 1.2. of Annex I, or by their branches in other countries, when they correspond to financing lines assigned to them by the local financial entity.

Repo operations and forward purchases and sales of foreign currency (Communication "A" 1590); of national public securities (Communication "A" 1465); private and others with quotation (Communication "A" 2061), will be computed at 25%, 33% and 50% of the capitals effectively transacted, respectively.

In the case of stock pledges and repos, the corresponding percentages will be applied, depending on the security traded.

2. Risk Concentration.
   2.1. Concept.
   It is the sum of the operations included -net of admitted exclusions- carried out with companies or persons or sets or economic groups -linked or not- when those, measured by each of these clients, are equivalent or superior at any time to 10% of the computable equity responsibility of the entity as of the last day of the month preceding the one in question.

In the case of linked clients, the total of the operations contracted with them will be considered.

2.2. Limit.
It may not exceed, at any time:
2.2.1.: 3 times the computable equity responsibility of the entity as of the last day of the month preceding the one in question, without considering local financial entities.
2.2.2.: 5 times said computable equity for the set of clients included according to point 2.1., including local financial entities, without prejudice to observing the cap referred to in the preceding point with respect to the rest of the clients.

3. Limits of operations with the clientele.
   They may not exceed, at any time, the percentages indicated below, which must be applied on the computable equity responsibility (CER) of the entity as of the last day of the month preceding the one in question:

3.1. The total of the operations included without guarantee of a non-linked company or person and those contracted with linked clients referred to in the last paragraph of point 3. of Annex I, except those mentioned in points 3.5. and 3.6.: 15% of the CER.

3.2. Without prejudice to what is established in point 3.1., the total of the operations included of a non-linked company or person, including operations with guarantees under the terms provided in point 5., and those contracted with linked clients referred to in the last paragraph of point 3. of Annex I, except those mentioned in points 3.5. and 3.6.: 25% of the CER.

To determine the available credit assistance margin of each client within this bracket, 33% of the value of the liens or pledges constituted on their assets (debt or credit titles, shares, credit card coupons, real estate or furniture, etc.), offered as guarantee for the fulfillment of obligations assumed by third parties for the purpose of credit facilities granted to these latter by the entity, must be computed.

3.3. Total holding of non-marketable shares: 15% of the RPC.
3.4. Total holding of marketable or non-marketable shares, fund shares, and securities lending and borrowing operations, when it is not possible to identify the credit subject regarding these latter transactions: 50% of the RPC.
Marketable shares must have a widely available market value according to the definition contained in the second paragraph of point 3.1. of Annex I. When this condition is not met, they shall be considered within the margin referred to in point 3.3. Shares and fund shares shall be calculated at said market value. In the case of the latter, information provided by the management company shall be taken into account.
3.5. Financing granted to another local financial entity, including balances in accounts at each correspondent in the country, except where they are accounts computable for the integration of the minimum cash in national currency: 25% of the RPC.
3.6. Balances in current accounts and placements at each correspondent abroad, except those made in accounts computable for the integration of the minimum cash referred to in Annex I to Communication "A" 1820:
3.6.1. in banks included in the highest quality investment categories ("investment grade"), according to the rating granted by an international risk rating agency (Moody's, Standard and Poors, or equivalents): 15% of the RPC.
3.6.2. in other banks: 5% of the RPC.
3.7. For the purposes of the limits established in points 3.1. and 3.2., sets or economic groups of the non-financial private sector shall be considered as a single client. To this end, the definitions of point 1.4. of Annex I shall be taken into account.
3.8. Regarding operations with companies or persons linked to the non-financial private sector, the provisions of Annex I shall be observed, without prejudice to considering the specific rules of this annex that are applicable.

4. Exclusions.
   For the purposes of determining the relationships indicated in points 3.1. and 3.2., the following shall be excluded:

4.1. Export financing when the operations have automatic reimbursement under regimes of bilateral or multilateral foreign trade agreements.
4.2. Assignments of rights or credit titles in favor of financial entities, without responsibility for the assignors.
Such operations will affect the maximum credit assistance margin that may be granted to the drawers, debtors, co-debtors, or acceptors of the respective instruments, for which their pertinent evaluation as credit subjects must be carried out.
4.3. Financing granted to the parent company of the local financial entity or to its branches in other countries, without prejudice to observing what is provided in point 1.8.
This exclusion shall only be applicable when the parent company is included in the highest quality investment categories ("investment grade"), according to the rating granted by an international risk rating agency (Moody's, Standard and Poors, or equivalents).
4.4. Holding of fund shares.

5. Computable Collateral.
   5.1. For the purposes established in point 3.2., collateral, measures regarding the debt, or an equivalent concept shall be required, which shall not be less than:
   5.1.1. 100% when dealing with securities representing obligations of the National Government, taking into account their market value.
   Financing to the National Government shall be considered as guaranteed.
   5.1.2. 125% in the case of the remaining preferred collateral according to point 3.1.3.1. of the procedure rules of the "Statement of Debtors," with the inclusion provided by point 1. of the resolution disseminated via Communication "A" 2074, taking into account, if applicable, the respective market value.
   5.1.3. 125% for private debt securities with public offering (Law 17.811), taking into account their market value.
   5.1.4. 125% for invoices to consumers receivable, issued by public service companies providing electricity, gas, telephone services, drinking water, and sewage, whose collection rights are assigned to the entity.
   5.1.5. 125% for credit card coupons.
   The market value of the securities referred to in points 5.1.1. and 5.1.3. must arise from daily quotes of relevant transactions in whose amount the eventual liquidation of the securities offered as collateral cannot significantly distort the stated value.
   5.2. The following may not be considered as collateral:
   5.2.1. Participations in social capital, securities, or obligations issued by a company or person linked to the entity.
   5.2.2. Securities issued by non-linked clients that are classified by any financial entity in a situation other than normal or have a rating lower than BB granted by a country's risk rating agency.

6. Defaults.
   6.1. Excesses of the maximum relationships established in points 2. and 3. are subject to the charge (currently fixed at 18% nominal annual) and other provisions referred to in point 3.2. of Chapter V of Circular LISOL-1 (text according to Communication "A" 2019).
   6.2. The application of the provisions in the previous point may not imply the overlapping of charges when, regarding the same client, excesses of the relationships established in points 2.2., 3.1. and 3.2. are verified.
   6.3. Defaults on what is established in the second paragraph of point 4.2. -credit evaluation- will determine excesses by an amount equivalent to the financing granted, which will be subject to the provisions mentioned in point 6.1.

7. Distribution of the Credit Portfolio.
   Particular attention must be paid to the diversification of the credit portfolio, in its different financing modalities, among the largest possible number of persons or companies and among the different economic activities, in order to avoid the concentration of risk due to operations with a reduced set of persons or companies or referring to a specific sector that could significantly compromise the assets of financial entities.