Board Resolution No. 037/2003 Approving the Liquidity Credit Regulations for Financial Intermediation System Entities

BOARD RESOLUTION NO. 037/2003 SUBJECT: FINANCIAL ENTITIES MANAGEMENT – APPROVES THE REGULATIONS FOR LIQUIDITY CREDITS TO ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM IN APPLICATION OF ARTICLE 36 OF LAW 1670.

HAVING SEEN: Law 1670 of October 31, 1995. Law 1488 of April 14, 1993. Law 2297 of December 20, 2001 on Strengthening Financial Norms and Supervision of December 20, 2001. Board Resolution No. 033/2002, of April 2, 2002, which approves the Regulations for Liquidity Credits to Entities of the Financial Intermediation System. Board Resolution No. 081/2002, of July 30, 2002, which approves modifications to the Regulations for Liquidity Credits to Entities of the Financial Intermediation System. The Report from the Financial Entities Management GEF No. 106/2003 of April 16, 2003. The Report from the Legal Affairs Management SANO No. 068/2003 of April 22, 2003.

CONSIDERING: That Article 36 of Law 1670 empowers the BCB to meet the liquidity needs of the entities of the financial intermediation system in the country. That Chapter III of the Liquidity Credit Regulations, approved through Board Resolution No. 033/2002, establishes limitations on the participation of financial entities that are under the application of letters a), b), d), e), f), and g) of Article 112 of Law 1488. That the regularization process provided for in Article 112 of Law 1488 has a preventive character, seeking to preserve the solvency of financial entities through actions to correct probable problems that compromise their financial and patrimonial situation, without the need to interrupt their usual functioning. That the BCB's rules must grant equitable treatment to financial entities authorized by the SBEF for their normal functioning. That the BCB's liquidity credits, under Article 36 of Law 1670, will be fully collateralized with investment-grade securities, through repo operations, so there is no risk of patrimonial losses for the Issuing Institute. That the Financial Entities Management in its Report GEF No. 106/2003 recommends the approval by the Board of the project for the new Regulations for Liquidity Credits to Entities of the Financial Intermediation System. That the Legal Affairs Management, in its report SANO 068/2003, states that in consideration of letter o) of Article 54 of Law 1670, it corresponds to the Board of the BCB to consider the approval of the project for the Regulations for Liquidity Credits to Entities of the Financial Intermediation System.

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

Article 1.- Approve the Regulations for Liquidity Credits to Entities of the Financial Intermediation System in application of Article 36 of Law 1670, in its III Chapters and 20 Articles, which as an annex forms part of this Resolution.

Article 2.- The Regulations will enter into force on May 5, 2003.

Article 3.- Repeal, effective May 5, 2003, Board Resolutions 033/2002 of April 2, 2002 and 081/2002 of July 30, 2002.

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

La Paz, April 29, 2003.

---

Juan Antonio Morales A.

---

Juan Medinaceli V. Armando Méndez M.

---

Enrique Ackermann A.

ANNEX REGULATIONS FOR LIQUIDITY CREDITS TO ENTITIES OF THE FINANCIAL INTERMEDIATION SYSTEM IN APPLICATION OF ARTICLE 36 OF LAW 1670

CHAPTER I GENERALITIES

Article 1. – (Object) The present Regulations aim to regulate the requirements and procedures for granting credits to meet liquidity needs of financial intermediation entities, established in Article 36 of Law 1670 of the Central Bank of Bolivia.

Article 2.- (Abbreviations and Definitions) For the purposes of these Regulations, the following abbreviations and definitions are used: BCB : Central Bank of Bolivia COASIF : Financial System Analysis Committee of the BCB. COMA : Open Market Operations Committee of the BCB GG : General Management of the BCB GAL : Legal Affairs Management of the BCB GEF : Financial Entities Management of the BCB ME : Foreign Currency MN : National Currency MVDOL : National Currency with Value Maintenance relative to the United States Dollar. UFV : Housing Development Unit. REPO : Sale of securities by a financial entity (the seller) to the BCB (the buyer) with the commitment of the seller to repurchase the securities within a term and at a price pre-established on the transaction date. INITIAL PRICE : Price paid by the BCB for the purchase of the securities FINAL PRICE : Price to be paid by the Financial Entity for the repurchase of the securities UPDATE RATE : Interest rate, defined by the COMA, used for the determination of the present value of the Securities PREMIUM RATE : Interest rate, defined by the COMA, used to determine the final price. SBEF : Superintendence of Banks and Financial Entities SPVS : Superintendence of Pensions, Securities and Insurance TGN : General Treasury of the Nation

Article 3.- (Scope of Application) Entities of the financial intermediation system: banks, mutuals, cooperatives, and private financial funds, authorized for their functioning by the SBEF, may access the BCB's liquidity credits under the terms and conditions established in these Regulations.

Article 4.- (On Liquidity Credit Operations) Operations to meet liquidity needs will be implemented through repo operations, with securities owned by the financial intermediation entities indicated in Articles 14 and 17 of these Regulations.

Article 5.- (Operation Term) The term for the operations referred to in the previous Article may not exceed 90 (ninety) calendar days. Operations may be renewed under the conditions indicated in Article 13 of these Regulations.

Article 6.- (Required Documentation) Financial intermediation entities requesting a liquidity credit must present to the BCB the respective Special Power of Attorney testimony granted by their Board of Directors or equivalent body, in favor of their representative(s), with express powers to sign Liquidity Credit Contracts with the BCB under the terms and conditions established in these Regulations.

Article 7.- (Consultations to the SBEF) To consider liquidity requests, the BCB will make non-binding consultations to the SBEF, as provided by the second paragraph of Article 36 of Law 1670. The GEF of the BCB, through the President, will request inspection, supervision, and other reports performed in the last year by the SBEF on the entity requesting the credit, or in its absence, the last inspection report.

Article 8.- (Approval) The Board of Directors of the BCB will approve liquidity credit operations by an absolute majority of votes, based on the recommendation of the COASIF and the technical reports of the GEF and legal report of the GAL, respectively.

Article 9.- (Disbursement of Funds) Once the credit contract is signed with the requesting entity and the endorsement of ownership of the corresponding securities in favor of the BCB is completed, the GEF will disburse the funds by crediting the current and/or legal reserve account.

Article 10.- (Repurchase Commitment) The GEF will notify, before maturity, the reported entity to fulfill its commitment to repurchase the securities. If the repurchase is not made at maturity, said entity will be released from this commitment.

Article 11.- (Currency of the Operation) The repo operations established in these Regulations may be carried out indistinctly in Foreign Currency (ME), National Currency (MN), MVDOL, or UFV, and the operation may be executed in a currency different from that of the security (cross repo). Payments for the purchase and repurchase of securities in MVDOL will be made in bolivianos, taking into account the buying exchange rate of the dollar in effect on the day of the operation. Payments in UFV will be made in bolivianos taking into account the value of the UFV in effect on the day of the operation.

Article 12.- (Early Repurchase) Financial intermediation entities that have carried out repo operations with the BCB under the terms and conditions established in these Regulations may effect early repurchase of their securities. For this purpose, the final price of the repo will consider the effective term of use of the liquidity credit and no additional penalties will be applied.

Article 13.- (Renewal) The Board of Directors of the BCB will consider the renewal of liquidity credits granted under these Regulations, based on the recommendation of the COASIF and the corresponding technical and legal reports. The "premium rate" for the renewals of these operations, determined by the Board, will not be lower than the rate in effect for liquidity credit operations of the second tranche of the RAL Fund.

CHAPTER II LIQUIDITY CREDITS IMPLEMENTED THROUGH REPO OPERATIONS WITH SECURITIES OF THE TGN AND THE BCB

Article 14.- (Acceptable Instruments) Entities of the financial intermediation system may repo the following Securities: a) Treasury Bills of the General Treasury of the Nation b) Treasury Bonds of the General Treasury of the Nation c) Certificates of Deposit of the BCB d) Certificates of Deposit Refund of the BCB e) Bonds of the TGN and/or BCB, issued to support the solution processes indicated in letter b) of Article 125 of Law 1488.

Article 15.- (Request) To carry out the operations indicated in the previous article, financial intermediation entities will direct their requests to the Presidency of the BCB, justifying the need for liquidity and accompanying documentation of the strategies and actions for the management of the entity's liquidity, approved by its Board of Directors or equivalent body. The request will be forwarded to the GEF, through the GG, for its presentation to the COASIF, who will issue a recommendation to the Board of Directors of the BCB.

Article 16.- (Valuation and Premium Rates) The "update rates" for the valuation of the acceptable securities by the BCB, as well as the "premium rates" in effect, will be established by the COMA.

CHAPTER III LIQUIDITY CREDITS IMPLEMENTED THROUGH REPO OPERATIONS WITH SECURITIES OF ISSUERS DIFFERENT FROM THE TGN OR THE BCB

Article 17.- (Acceptable Instruments) The assets owned by the requesting financial intermediation entity, for liquidity credit operations implemented through repo operations with securities different from those indicated in Article 14 of these Regulations, will be accepted in the following order of preference: a) Fixed-income, endorsable securities of public entities abroad or foreign financial entities, which are registered in category I (risk weighting 0%) and III (risk weighting of 20%), respectively, as established in the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF. b) Non-convertible bank bonds, endorsable, issued by banking entities in the country, different from the requesting entity, and registered in category III (risk weighting of 20%), as established in the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF. c) Time Deposits, endorsable, of financial entities in the country, different from the requesting entity, and registered in category III (risk weighting of 20%), as established in the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF. d) First-rank participation certificates issued by the trusts indicated in Article 129 of Law 1488. e) Fixed-income, endorsable securities of private non-financial entities in the country, which are registered in category V (risk weighting 75%), as established in the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF. f) Fixed-income, endorsable securities of private non-financial entities abroad, rated with investment grade by a rating agency acceptable to the BCB's International Operations Management (GOI) for its international operations. The GOI will forward the corresponding report to the GEF for its presentation to the COASIF. The securities mentioned in this Article must have a residual maturity term of no less than 180 days.

Article 18.- (Request) Financial intermediation entities must present their request to the Presidency of the BCB, justifying the need for liquidity. The request of financial entities that are not under a regularization process by actions established in Article 112 of Law 1488, must be accompanied by the documentation detailed below, duly signed by their legal representatives: a) Strategy and policies for the management of the entity's liquidity, approved by its Board of Directors or equivalent body. b) Daily liquidity management plan, which includes actions to overcome the illiquidity situation within a term not exceeding 90 days. c) Detail of the securities offered in repo, with the most recent risk rating, granted by raters authorized by the SBEF and the SPVS. d) Financial matching by residual maturity term and by currencies. e) Stratification of deposits by amount and number of depositors. f) Detail of temporary and permanent investments. g) Detail of interbank borrowings and placements, by term, in the last 30 days. The request of financial entities under the application of Article 112 of Law 1488, must accompany the following documentation, duly signed by their legal representatives: a) Copy of the Regularization Plan. b) Legalized copy of the non-objection of the SBEF regarding the regularization plan. c) Strategy and policies for the management of the entity's liquidity, approved by its Board of Directors or equivalent body. d) Detail of the securities offered in repo, with the most recent risk rating granted by raters authorized by the SPVS and SBEF.

The GEF may request additional information it deems convenient to verify the financial situation of the entity requesting the credit. The request will be forwarded to the GEF, through the GG, for its presentation to the COASIF, who will issue a recommendation to the Board.

Article 19.- (Valuation and Premium Rate) The premium rates for repo operations will be: a) 95% of the present value of the securities of Foreign Public Entities, classified in category I of the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF will be considered. The "premium rate" will be established by the COMA. b) 90% of the present value of the securities of Foreign Financial Entities, classified in category III of the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF will be considered. The "premium rate" will be established by the COMA. c) 85% of the present value of Bank Bonds classified in category III of the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF will be considered. The "premium rate" will be established by the COMA. d) 85% of the present value of Time Deposits of financial intermediation entities, classified in category III of the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF will be considered. The "premium rate" will be established by the COMA. e) 85% of the present value of first-rank participations issued by the trusts indicated in Article 129 of Law 1488 will be considered. The "premium rate" will be established by the COMA. f) 82% of the present value of securities of private non-financial issuers in the country classified in category V of the Regulation on Capital Adequacy Control and Asset Weighting issued by the SBEF will be considered. The "premium rate" will be established by the COMA. g) 82% of the present value of securities of private non-financial issuers abroad that have investment grade will be considered. The "premium rate" will be established by the COMA. The present value of the securities referred to in this Article will be determined based on the update rate indicated in Article 16 of these regulations.

Article 20.- (Obligations) Financial intermediation entities benefited with a liquidity credit, implemented through repo operations with securities of issuers different from the TGN or BCB, must comply with the following obligations: a) Execute the actions presented in their liquidity management plan. b) Execute their regularization plan, in the case of entities under the application of Article 112 of Law 1488. c) Not have financial obligations due with the BCB during the validity of the repo. d) Maintain the capital sufficiency required by Law or indicated in the regularization plan. e) Not distribute dividends during the validity of the repo.

In the event of non-compliance with one of the obligations indicated above, the repo contract will be accelerated. During the validity of the liquidity credit, the financial intermediation entity must send weekly to the BCB, detailed information on the origin and use of funds, its observed and projected liquidity flows; and by the 10th day of the following month, an evaluation of the elapsed month on the compliance with its liquidity management plan, performed by its Internal Audit unit. Likewise, the GEF of the BCB, within the framework of Article 40 of Law 1670, will request from the SBEF all inspection and supervision reports it performs during the validity of the credit, as well as follow-up reports on the regularization plans. -o-