Board Resolution No. 005/2001 Approving the Regulation of Liquidity Credits for Financial Intermediation System Entities

BOARD RESOLUTION NO. 005/2001 SUBJECT: FINANCIAL ENTITIES MANAGEMENT – APPROVES REGULATION OF LIQUIDITY CREDITS FOR ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM.

HAVING SEEN: Law No. 1670 of October 31, 1995. Board Resolution No. 180/97 dated December 23, 1997, which approves the Legal Reserve Regulation. Board Resolution No. 059/98 of June 9, 1998, which approves the Liquidity Credits Regulation of the BCB. Board Resolution No. 078/99 of September 16, 1999, which temporarily relaxes the financial conditions of Liquidity Credits for Banking Entities. Board Resolution No. 088/2000 of November 28, 2000, which approves the Unified Text of the Legal Reserve Regulation. The report from the Legal Affairs Management SANO No. 01/2001 of January 5, 2001. The reports from the Financial Entities Management GEF No. 292/2000 of December 8, 2000 and GEF No. 04/2001 of January 8, 2001.

CONSIDERING: That Article 36 of Law 1670 empowers the BCB to attend to the temporary liquidity needs of the entities of the financial intermediation system of the country. That it is necessary to adapt the current Regulation of Liquidity Credits of the BCB to the evolution of the regulations issued by the SBEF and the BCB, as well as to the development of the activity of the financial intermediation system of the country.

//2. B.R. No. 005/2001 That the security of recovery of the credits granted by the BCB to attend temporary liquidity needs of the banking system must be increased. That the Financial Entities Management in its reports GEF No. 292/2000 and GEF No. 04/2001 recommends the approval of a new Regulation of Liquidity Credits, compatible with the new Legal Reserve Regulation, the norms on capital adequacy approved by the CONFIP and the new conditions of the economic environment in which the financial intermediation system operates. That the Legal Affairs Management, in its report SANO 01/2001, states that the Board of Directors of the BCB has the authority to regulate liquidity credits to financial intermediation entities, in accordance with Article 36 of Law 1670 of October 31, 1995.

THEREFORE: THE BOARD OF DIRECTORS OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Approve the Regulation of Liquidity Credits for Entities of the Financial Intermediation System, which, as an annex, forms part of this Resolution.

Article 2.- The Regulation will enter into force on January 15, 2001.

Article 3.- Board Resolutions No. 059/98 dated June 9, 1998 and No. 078/99 of September 16, 1999 are hereby repealed effective January 15, 2001.

Article 4.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

La Paz, January 9, 2001

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Juan Antonio Morales A.

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Armando Pinell S. Jaime Ponce G. Armando Méndez M

//3. B.R. No. 005/2001 ANNEX REGULATION OF LIQUIDITY CREDITS FOR ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM.

CHAPTER I GENERALITIES

Article 1.- (Liquidity Credit Operations of the Central Bank) Pursuant to Articles 6 and 36 of Law 1670, the Central Bank of Bolivia has the following instruments and operations to attend to the liquidity needs of financial entities: a) Automatic liquidity credits regulated by the Legal Reserve Regulation approved by Board Resolution No. 088/2000. b) Repo monetary operations regulated by the Repo Operations Regulation approved by Board Resolution No. 083/2000. c) Repos with securities of the General Treasury of the Nation and/or Central Bank of Bolivia to attend specific liquidity needs of a financial entity. d) 90-day liquidity credits.

Article 2.- (Object) This Regulation aims to regulate the requirements and procedures for the granting of the liquidity credits indicated in letters c) and d) of Article 1.

Article 3.- (Abbreviations) For the purposes of this Regulation, the following abbreviations are used: BCB: Central Bank of Bolivia. COASIF: Committee for the Analysis of the Financial System of the BCB.

COMA: Open Market Operations Committee of the BCB. GEF: Financial Entities Management of the BCB. //4. B.R. No. 005/2001 GAL: Legal Affairs Management of the BCB. SBEF: Superintendent of Banks and Financial Entities. SPVS: Superintendent of Pensions, Securities and Insurance. TGN: General Treasury of the Nation.

Article 4.- (Debits in Account) Upon maturity of the liquidity credits, the Administration of the BCB is authorized to debit the amount owed from the accounts that the financial entity maintains at the BCB.

Article 5.- (Early Payment) Liquidity credits may be prepaid at any time, in which case interest will be calculated on the effective period of use of the loans.

CHAPTER II REPO OPERATIONS TO ATTEND SPECIFIC LIQUIDITY NEEDS

Article 6.- (Scope of Application) All entities of the financial intermediation system, authorized for operation by the SBEF, may access Repo operations to attend specific liquidity needs.

Article 7.- (Application) Applications for these operations shall be directed to the GEF of the BCB, justifying the liquidity need, demonstrating that other sources of financing have been exhausted, and attaching a photocopy of the security to be repoed. Once the application is received, the GEF will present it to the COASIF for approval.

//5. B.R. No. 005/2001 Article 8.- (Approval of the operation) The COASIF, based on the joint report of the GEF and the GAL, will approve these operations for a term that cannot exceed 90 days nor be less than 15 days.

Article 9.- (Interest rate and documentation) The repo premium rate will be the rate of the first tranche of credits with guarantee of the RAL Fund, according to the corresponding currency, established weekly by the COMA, plus 50 basis points. The securities must be duly endorsed in favor of the BCB and the credit operation will be documented through a contract.

CHAPTER III 90-DAY LIQUIDITY CREDITS

Article 10.- (Scope of Application) Banking entities with authorization for operation by the SBEF, which comply with the Capital Adequacy Coefficient established by Law according to reports from the SBEF, may access the 90-day liquidity credits of the BCB.

Article 11.- (Application) Banking entities may request 90-day liquidity credits from the BCB justifying their requirement and demonstrating that they have exhausted other alternative sources of financing. In the event that they are using the second tranche of loans with guarantee of the RAL Fund, they may request a 90-day credit with the obligation to cancel, with the disbursement of the credit, the debtor balance of the second tranche.

Article 12.- (Required Information) To access BCB resources, the financial entity will present the credit application to the GEF accompanied by a plan to overcome the illiquidity situation, duly signed by its legal representatives, and which includes the following supporting information:

//6. B.R. No. 005/2001 a) Financial Statements and the Statement of Capital Sufficiency corresponding to the month prior to the date of the credit application. b) The most recent Issuer Risk Rating, granted by raters authorized by the SPVS. c) Financial matching by residual maturity term and by currencies. d) Projected cash flow for 90 days. e) Monthly profit projection for the following 90 days. f) Monthly projections of delinquent portfolio and provisions for the following 90 days. g) List of the portfolio and/or securities that will constitute the guarantee. h) Stratification of deposits by amount and number of depositors. i) Detail of temporary and permanent investments. j) Detail of interbank captations and placements. k) Goals for the reduction of administrative expenses in relation to the average recorded in the last three months. The GEF may request additional information it deems convenient to verify the financial situation of the credit applicant entity.

Article 13.- (Obligations) Financial entities that access a 90-day liquidity credit must comply with the following obligations: a) Execute the actions presented in their plan to overcome the illiquidity situation. b) Have no overdue financial obligations with the BCB during the validity of the credit. c) Comply with the requirements established by the SBEF in their inspection reports. d) Maintain the capital sufficiency required by Law during the validity of the credit. e) Do not distribute dividends during the validity of the credit. f) Others established by the Board of Directors of the BCB.

In the event of non-compliance with one or more of the obligations indicated above, the BCB may apply additional administration conditions.

During the validity of the credit, the borrower must send weekly detailed information to the BCB on the origin and use of funds, as well as their observed and projected liquidity flows, and monthly a report on the compliance

//7. B.R. No. 005/2001 of their plan and of the administration conditions. Likewise, they will be obliged to send monthly a report on the truthfulness of the aforementioned information, carried out by an external auditor, hired by the borrowing entity with the non-objection of the President of the BCB.

Article 14.- (Non-binding consultations to the SBEF) To consider applications for 90-day liquidity credits, the BCB will make non-binding consultations to the SBEF as provided by Article 36 of Law 1670.

Article 15.- (Internal Evaluation Reports) The COASIF will recommend the consideration of the credit application by the Board of Directors, based on the GEF report on the financial situation of the applicant entity.

Article 16.- (Approval) By decision of the absolute majority of the members of the Board of Directors present in meeting, the BCB may grant 90-day liquidity credits.

Article 17.- (Credit Contract) The credit operation will be instrumented through a Credit Contract that will contain the amount and conditions of the loan established by the Board of Directors of the BCB, including the commitment to subscribe the Guarantee Trust Contract as a prior condition to disbursement. The contract must be signed by the President of the Board of Directors and the General Manager of the credit applicant entity, according to the powers regime established by said entity and presented to the BCB.

Article 18.- (Credit Disbursements) The BCB will disburse the credit, by credit to the current and legal reserve account that the banking entity maintains at the BCB, under the terms established in the respective credit contract, once the applicant banking entity has signed the corresponding trust contract.

//8. B.R. No. 005/2001 Article 19.- (Access to liquidity tranches of the RAL Fund) During the validity of the 90-day liquidity credit, the banking entity may only use the first tranche of liquidity loans with guarantee of the RAL Fund. It cannot access the second tranche.

Article 20.- (Interest) 90-day liquidity credits are subject to the application of the following interest rates: a) For the first 45 days of the loan, the interest rate is the one in force for the second tranche of the RAL Fund plus 75 (seventy-five) basis points. b) For the second 45 days of the loan, the interest rate is the one in force for the second tranche of the RAL Fund plus 150 (one hundred fifty) basis points. c) For credit renewals, the lower rate between the interest rate in force for the second tranche of the RAL Fund plus 200 (two hundred) basis points and the effective active interest rate for ninety days of the banking system, in force the week prior to the date of the credit application, will be applied.

Article 21.- (Acceleration of the Credit Contract) The following will be causes for the granted credits to be declared due: a) Default in the payment of financial obligations with the BCB. b) Non-compliance with Article 28 of this Regulation. c) Intervention of the entity for liquidation or forced sale.

Article 22.- (Renewal) To consider a credit renewal application, the Board of Directors of the BCB will take into account the degree of compliance with the plan to overcome the illiquidity situation and of the administration conditions. Based on the GEF report which takes into account the reports of the SBEF on the solvency of the entity, the Board of Directors of the BCB will determine the conditions of the renewal or the rejection of the application.

//9. B.R. No. 005/2001 CHAPTER IV GUARANTEES FOR 90-DAY LIQUIDITY CREDITS

Article 23.- (Guarantees) The guarantees of the 90-day liquidity credits will be formed by the following assets of the applicant bank and in the following order of preference:

a) Endorsable securities of the TGN and/or BCB b) Fixed income securities, endorsable, of public and financial entities from abroad whose risk rating of the title is not lower than:

MOODY'S STANDARD & POORS IBCA SHORT TERM P-1 A-1 F1+ LONG TERM Aa3 AA- AA-

c) Fixed income securities, endorsable, of public and financial entities from abroad whose risk rating of the title is not lower than: DUFF & PHELPS THOMSON BANKWATCH SHORT TERM D-1 TBW- LONG TERM AA- AA-

d) Endorsable bank bonds, issued by other banking entities of the country, with local risk rating not lower than: DUFF & PHELPS THOMSON BANKWATCH SHORT TERM BD-2 T-2 LONG TERM BA T-A

and/or similar rating granted by another rater authorized by the SPVS. e) Credit portfolio with all its rights and accessories, preferably with rating 1 (normal), in no case lower than 2 according to SBEF norms.

//10. B.R. No. 005/2001 f) Other documents qualified as eligible by the Board of Directors of the BCB.

Additionally, the BCB may require real guarantees and/or securities from the shareholders of the entity, excluding the shares of the bank itself, when the total of obligations for 90-day liquidity credits exceeds 100% of the book equity of the bank or when it requests a renewal upon maturity of the credit.

The assets offered as guarantee must have a residual maturity term of no less than 180 days.

Article 24.- (Value and proportion of guarantees) The valuation of the guarantees will be carried out according to the following procedures: a) TGN and/or BCB securities: The 100% of the present value of the titles that, in a 1 to 1 proportion, guarantees an equivalent amount of credit. b) Securities of public and financial entities from abroad with risk rating granted by Moody's, Standard & Poors and IBCA: The 95% of the present value of the titles that, in a 1 to 1 proportion, guarantees an equivalent amount of credit. c) Securities of public and financial entities from abroad with risk rating granted by Duff and Phelps or Thomson Bankwatch: The 90% of the present value of the titles that, in a 1 to 1 proportion, guarantees an equivalent amount of credit. d) Bank bonds: The 85% of the present value of the titles that, in a 1 to 1 proportion, guarantees an equivalent amount of credit.

e) Capital balance of portfolio rated 1 (normal), with real guarantees from clients who have been in the entity for at least two years and whose amortizations and interest payments have not suffered more than two delays in the last year: This balance guarantees a credit amount in a 1.5 to 1 proportion; that is, the covered amount of the credit will be equivalent to two-thirds of the guarantee.

//11. B.R. No. 005/2001 f) Capital balance of the rest of the credit portfolio with rating 1 (normal) and capital balance of portfolio with rating 2 (potential problems): These balances guarantee a credit amount in a 1.75 to 1 and 2 to 1 proportion, respectively; that is, the covered amount of the credit will be equivalent to 57.14% and 50% of the guarantees respectively.

g) Real estate owned by shareholders, according to commercial value, based on a recent appraisal by an independent professional expert registered in a banking entity different from the credit applicant entity. This value guarantees a credit amount in a 2 to 1 proportion; that is, the covered amount of the credit will be equivalent to 50% of the guarantee.

h) Securities of shareholders: Securities of the country with local risk rating not lower than: DUFF & PHELPS THOMSON BANKWATCH SHARES PC-N-2 CATEGORY -2 SHORT TERM BD-2 T-2 LONG TERM BA T-A

and/or similar rating granted by another rater authorized by the SPVS, at 80% of the lower value between the market value and the book value of the title.

Securities issued abroad will be accepted under the terms indicated in letters b) and c) of Article 23 of this Regulation and accepted according to the proportions established in letters b) and c) of this Article. Securities without risk rating, issued in the country, at 50% of the book value of the title.

This balance guarantees a credit amount in a 3 to 1 proportion; that is, the covered amount of the credit will be equivalent to one-third of the guarantee.

For the determination of the present value in letters a), b), c) and d), the base premium rate for BCB Repo operations, defined by the COMA, in force at the moment of approval of the operation plus 200 basis points will be used as the discount factor.

//12. B.R. No. 005/2001 Article 25.- (Constitution of the trust) The guarantees will be constituted through a "Guarantee Trust Contract", subject to the Commercial Code, the norms of the SBEF and this Regulation. The delivery of the guarantees to the trust estate must have the express authorization of the Board of Directors of the applicant bank. In addition to the respective documents of the assets, the entity must deliver to the trustee the following documentation: a) Sworn declaration of the Legal Representative and Internal Auditor of the bank, attesting to the truthfulness and authenticity of the securities, credit documents and guarantees delivered, under the prevention of administrative, civil and criminal responsibilities from which they may be subject. b) Opinion of the External Auditor on the suitability of the credit portfolio rating, to be issued within a period not exceeding 10 calendar days from the signing of the corresponding credit contract. c) Certified copy of the reports signed by the members of the Management or Risk Area of the financial institution on the assets given as guarantee.

Article 26.- (Of the guarantee trust contract) The trust will have the purpose of backing the credit operation granted by the BCB. The trust will have the BCB as beneficiary creditor and a financial entity designated by the BCB as trustee.

Through the guarantee trust contract, which will be signed by the applicant banking entity with the financial entity designated by the BCB, the settlor will impart irrevocable instructions to the trustee to:

a) The custody and administration of the trust assets. b) The realization of the assets. c) Pay on behalf of the settlor institution the credits granted by the Central Bank in the event of incurring the causes indicated in Article 21 of this Regulation.

//13. B.R. No. 005/2001 The trustee may contract the services of duly qualified institutions for the fulfillment of some functions.

Article 27.- (Trust Estate) The estate of the guarantee trust will be constituted by the assets indicated in Article 23 of this Regulation, offered as guarantee by the entity applying for the loan, as well as their products and recoveries.

Article 28.- (Substitution of assets in guarantee) The trustee will have 15 days to request the substitution of the trust assets that do not meet the requirements established in this Regulation. The settlor, within a period not exceeding 15 days from the notification by the trustee, must proceed to the corresponding substitution.

Article 29.- (Notification to assigned debtors) At the time of constituting the trust, the settlor will notify the debtors involved in the autonomous estate of its constitution and the obligation to make their payments to the trustee.

Article 30.- (Costs of the trust) The expenses, fees, commissions and taxes required by the guarantee trust, for its constitution, administration and execution, must be paid by the settlor.

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