Circular 1294: Consolidation of Trusts for Restructured Credits Denominated in Investment Units (UDIs)

Mexico, D.F., February 27, 1996

CIRCULAR No. 1294

SUBJECT: CONSOLIDATION OF TRUSTS FOR RESTRUCTURED CREDITS DENOMINATED IN INVESTMENT UNITS (UDIS).- Modifications to the provisions applicable for their consolidation with the financial statements of credit institutions.

TO CREDIT INSTITUTIONS:

In response to the proposals made by these institutions, this National Banking and Securities Commission, pursuant to Article 99 of the Credit Institutions Law and Articles 4, fractions III and XXXVI, of the National Banking and Securities Commission Law, has resolved to modify paragraphs 1.2, 1.5.1, 2.1, and 3 of Circular 1282, regarding the treatment to which the financial statements of trusts constituted for the restructuring of UDIS credits must be subject for consolidation with those of the institutions, as indicated below:

“1.2 Financial statements to be consolidated.

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For consolidation purposes, institutions must consider the total provisions created in the trusts, including those constituted through the application of net profits. In view of the foregoing, institutions shall not recognize any profit or loss in their results due to the consolidation process, except for what derives from the valuation adjustment referred to in paragraph 1.4.3.

In the consolidation process, the debit income account of the trusts APPLICATION FOR PROVISIONS FOR CREDIT RISK COVERAGE, will be added to account 5125.- ALLOCATIONS FOR THE CONSTITUTION OF GLOBAL PROVISIONS FOR THE CREDIT PORTFOLIO of the institutions.

Regarding trusts in which it was not established that it was necessary to create provisions for credit risk coverage, institutions must consider cumulatively the net profits generated in the trusts, for the period being consolidated.”

“1.5.1 Credit portfolio of the trusts

The presentation in the consolidated financial statement of the restructured UDIS credit portfolio coming from the trusts will be made, with respect to the outstanding portion, under the item of RESTRUCTURED CREDITS and with respect to the overdue portion, under OVERDUE AMORTIZATIONS AND CREDITS.”

“2.1 The main items of the financial statements of all trusts for restructured portfolios denominated in UDIS indicated below:

Government securities
Credit portfolio
Provisions for credit risks
Fiduciary securities

Regarding trusts constituted under the Credit Support Program for States and Municipalities and the Credit Support Program for States and Municipalities accredited with the National Bank of Public Works and Services, S.N.C., the results of the fiscal year must additionally be included.”

“3. PUBLICATION OF CONSOLIDATED FINANCIAL STATEMENTS.

The consolidated statements will be identified as “Consolidated financial statements of the institution and its UDIS trusts”. Regarding annual consolidated statements, these will be subject to an opinion by an independent public accountant.

Starting from the first quarter of the year 1996, institutions will only have to publish the consolidated financial statements or, if applicable, the consolidated annual balance sheet. For these purposes, the consolidated financial statements will be published within the month immediately following the reported quarter and, regarding the consolidated annual balance sheet, within 60 natural days following the corresponding year.

For the purposes of this paragraph, the first consolidation exercise will be published no later than February 29, 1996.”