Circular LISOL 1 - 132. OPRAC 1 - 401. Treatment of Mortgage as Preferred Guarantee

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2419 13/03/96 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 132.
OPRAC 1 - 401.
Treatment of Mortgage as
Preferred Guarantee

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

"1. It is ordered that, for the purposes of the regulations on credit gradation, debtor classification, minimum provisions for uncollectibility, credit risk fragmentation, and minimum capital, preferred guarantee treatment shall be granted to loans secured by mortgages - regardless of their priority rank - that concurrently meet the following conditions:

i) that they be encumbrances constituted on real estate intended for the debtor's own home, granted for the acquisition, construction, or improvement thereof, or for the cancellation of pre-existing mortgage loans agreed upon for those purposes.

ii) that the total credit support benefiting from mortgages with different degrees of privilege does not exceed 75% of the appraised value of the assets subject to the mortgage, and

iii) that mortgages in a priority rank other than first support complementary assistance to that which gives rise to the encumbrance in the first degree of preference.

Consequently, the assistance granted under the established conditions shall be weighted at 50% to determine the minimum capital requirement.

This weighting factor shall be applied by the various mortgage creditors to the extent that the financing granted by each, added to that agreed by creditors with better priority rank, does not exceed the proportion of 75% established in section ii). Coverage shortfalls shall be weighted at 100%.

For loans secured by mortgages - in the first degree - that do not have the destination specified in section i), the weighting factor of 75% referred to in point 3.1.6.2. of Annex I to Communication "A" 2136 shall be applied.

For the purposes of establishing the treatment as a preferred guarantee of the financings in question with respect to the remaining prudential provisions mentioned, the definitions established previously in matters of minimum capital shall be applied.

2. It is established, with effect from 1.3.96, that the financial assistance provided - in pesos or foreign currency - to clients who have an international rating no lower than that granted to national public titles, assigned by any of the rating agencies included in the list of point 6. of Communication "A" 2269, shall be assigned a risk indicator of 0.8, provided that the agreed interest rate - fixed or variable - does not exceed that of loans to first-line companies according to the survey published by the Central Bank, valid on the second day prior to the granting or the date on which the interest rate is contractually due to be renegotiated, plus two percentage points annually."

We clarify that what is stipulated in point 1. of the preceding resolution replaces the treatment provided for the first-degree mortgage in point 3.1.6.1. of Annex I to Communication "A" 2136 and applies to financings that have mortgage guarantees, regardless of the priority rank, that are granted from the day following the date of issuance of this communication.

Consequently, these new definitions and what is established in point 2. shall be considered to determine the minimum capital required starting from 30.4.96, for which effect such provisions shall apply with respect to the monthly average of daily balances of the included financings that are registered from the current month.

On its part, first-degree mortgages that back financings for the destinations referred to in section i) of point 1. of the resolution transcribed above that are granted until the date of this communication will continue to be weighted at 50% in accordance with what is established in said point 3.1.6.1.

Finally, we clarify that, for the purposes of the remaining prudential regulations referred to by the resolution communicated, loans backed by first-degree privilege mortgages for purposes other than those previously alluded to continue to be subject to the treatment of financings with preferred guarantee according to the respective regulations in force in the matter.

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio Miguel A. Kiguel
Manager of Standards for General Manager
Financial Entities Area of Economics and Finance