Circular 1282: Consolidation of Trusts for Restructured Credits Denominated in Investment Units (UDIs)

Mexico, D.F., December 26, 1995
CIRCULAR No. 1282
SUBJECT: CONSOLIDATION OF TRUSTS FOR RESTRUCTURED CREDITS DENOMINATED IN INVESTMENT UNITS (UDIS). Applicable provisions for their consolidation with the financial statements of credit institutions.

TO CREDIT INSTITUTIONS:

In response to the various proposals made by these institutions, this Commission, pursuant to Article 99 of the Credit Institutions Law and Articles 4, sections III and XXXVI, of the Law of the National Banking and Securities Commission, informs you of the treatment to be followed to carry out the consolidation of the financial statements of trusts constituted for the restructuring of credits in UDIs under the programs agreed upon by the Federal Government and the Mexican Bankers Association, A.C., with those of these institutions, as follows:

1. RULES FOR THE CONSOLIDATION OF FINANCIAL STATEMENTS.

1.1 Frequency of consolidations.
The first consolidation period will cover operations carried out in the trusts from their constitution until December 31, 1995. Starting in 1996, the consolidation will be monthly, referring to the last day of each month.

1.2 Financial statements to be consolidated.
The financial statements of trusts and institutions to be consolidated must correspond to the same period and cutoff date.

For consolidation purposes, net profits that have been provisioned in the trusts must be considered on an accumulated basis.

1.3 Conversion of figures denominated in UDIs to their equivalent in national currency at the date of consolidation.

1.3.1 Asset and liability accounts.
Balances denominated in UDIs will be valued in national currency by applying the value of the UDI determined and published by the Bank of Mexico in the Official Gazette of the Federation for the last day of the relevant month.

1.3.2 Income statement accounts.
Those denominated in UDIs managed by the trusts must be valued based on the arithmetic daily average of the value of the UDI, corresponding to the consolidation period.

1.4 Operations to be eliminated.

To prevent the resulting figures from the consolidation from being distorted by the pyramiding of items arising from operations conducted between the institutions and the trusts, their elimination must be carried out beforehand.

1.4.1 Government bonds against fiduciary UDIs.
Government bonds acquired by institutions for the equivalent of the net amount of restructured credits in UDIs transferred to the trusts must be eliminated against the fiduciary values denominated in UDIs issued by the trusts.

The interest collected and paid corresponding to the operations referred to in the previous paragraph will be subject to offsetting. The result of this offsetting will be presented together with the interest collected by the UDIs trusts.

1.4.2 Recovery of administrative expenses.
Amounts for the recovery of administrative expenses that the trusts pay to the institutions will be eliminated from the debtor and creditor income statement accounts of the financial statements subject to consolidation.

1.4.3 Valuation adjustment.
The difference between the valued balances of the assets of the trusts and the sum of the valued balances of the liabilities and results will be recognized in the consolidated income statement under the item PROFIT OR LOSS FROM VALUATION OF UDIs TRUSTS.

1.5 Presentation in consolidated financial statements

1.5.1 Trust credit portfolio.
The restructured credit portfolio in UDIs of the trusts will be presented in the consolidated balance sheet under the item RESTRUCTURED CREDITS.

1.5.2 UDIs Programs Trusts.
The balance of this item will not be presented in the consolidated balance sheet.

2. DISCLOSURE IN CONSOLIDATED FINANCIAL STATEMENTS.

Credit institutions must disclose in the consolidated statements referred to in this Circular the following:

2.1 The sum of balances by item corresponding to the balances of the trusts.

2.2 The amount of eliminations, by concept, carried out in the consolidation.

2.3 The amount of the delinquent portfolio, by program of restructured credit portfolio in UDIs.

3. PUBLICATION OF CONSOLIDATED FINANCIAL STATEMENTS.

Starting from the first quarter of the year 1996, institutions must publish the consolidated financial statements, simultaneously with their own financial statements.

These consolidated statements will be identified as "Consolidated financial statements of the institution and its UDIs trusts".

The first consolidation period referred to in section 1.1 of this Circular will be published simultaneously with the institution's own financial statement corresponding to the 1995 period.