Circular 1322: Agreement for the Financing of the Agricultural and Fisheries Sector

Mexico, D.F., August 26, 1996
CIRCULAR No. 1322
SUBJECT: AGREEMENT FOR THE FINANCING OF THE AGRICULTURAL AND FISHERIES SECTOR.- Applicable provisions.
TO CREDIT INSTITUTIONS:
In relation to the Agreement for the Financing of the Agricultural and Fisheries Sector (hereinafter the Agreement) signed between the Federal Government, represented by the Secretariat of Finance and Public Credit and the Association of Banks of Mexico, A.C., which contemplates benefits for debtors of credits for the agricultural and fisheries sector, this National Banking and Securities Commission, based on articles 99 of the Credit Institutions Law and 4, fractions III and XXXVI, of the National Banking and Securities Commission Law, informs you of the following:

1. BENEFICIARIES.
   The Agreement will benefit, starting from September 1, 1996, the debtors of credits for the agricultural, fisheries, forestry, and silvicultural sectors, denominated in national currency, United States dollars, or Investment Units (UDIs), as indicated below:
   a) Those granted or restructured prior to June 30, 1996, and b) Those that are restructured under the programs of multiple banking, those established by development banking, and the economic development trusts constituted by the Federal Government or in UDIs, no later than December 31, 1996, provided they were granted prior to June 30, 1996. The benefit of the discount in payments will apply to the first $4,000,000 per active or accredited partner, without exceeding $20,000,000 for legal entities that do not belong to the social sector and always provided that in the latter case, the resources from the credit in question have been channeled to their partners to be used in agricultural, fisheries, forestry, and silvicultural production. For the purposes of the Agreement, the social sector shall be understood as that referred to in the second paragraph of item 1.1 of Circular 1281 and which was defined through Office No. 368-701 dated November 29, 1995, issued by the Secretariat of Finance and Public Credit. Debts eligible to receive the benefits of the Agreement are those arising from supply credits, refinancing credits, as well as pledge and unsecured credits whose destination is the production referred to in the second paragraph of this item, including previous consolidations of debts. Financing derived from credit cards, special vehicle loans, housing loans, and luxury item loans are not included. The benefits of the Agreement will be extended to debtors of credit unions, financial lessors, and factoring companies, for credits that have been discounted with the institutions or with the aforementioned economic development trusts.

2. BENEFITS.
   2.1 Discount in payments.
   The discount scheme in payments established by the Agreement will apply during the term agreed upon in the respective restructuring, which may not exceed ten years, or otherwise, during the remaining term of the originally agreed credit contract, according to the following table and explanations by debt balance ranges indicated below:

Range by debt balances (in pesos)	Discount by range	Total weighted discount
Up to 500,000	40%	40%
Greater than 500,000 and up to 1,000,000	20%	40% - 30%
Greater than 1,000,000 and up to 2,000,000	18%	30% - 24%
Greater than 2,000,000 and up to 4,000,000	16%	24% - 20%

The applicable total weighted discount will be maintained for the corresponding term in accordance with the previous paragraph, regardless of whether the debtor's debt balance registered with the institution on June 30, 1996, is modified.

2.1.1 Debts up to $500,000
Accredited persons whose debts do not exceed $500,000 will receive a 40% discount on their payments.

2.1.2 Debts greater than $500,000 and up to $1,000,000
Accredited persons whose debts are greater than $500,000 and up to $1,000,000 will receive a 40% discount on their payments on the first $500,000 and a 20% discount on their payments on the remaining amount. In this way, they will receive a weighted discount on their payments that will range between 40% and 30% depending on the amount of their debt.

2.1.3 Debts greater than $1,000,000 and up to $2,000,000
Accredited persons whose debts are greater than $1,000,000 and up to $2,000,000 will receive discounts on their payments on the first $1,000,000 in accordance with item 2.1.2 above and a 18% discount on their payments on the remaining amount. In this way, they will receive a weighted discount on their payments that will range between 30% and 24% depending on the amount of their debt.

2.1.4 Debts greater than $2,000,000 and up to $4,000,000
Accredited persons whose debts are greater than $2,000,000 and up to $4,000,000 will receive discounts on their payments on the first $2,000,000 in accordance with item 2.1.3 above and a 16% discount on their payments on the remaining amount. In this way, they will receive a weighted discount on their payments that will range between 24% and 20% depending on the amount of their debt.

2.1.5 Debts greater than $4,000,000
Accredited persons whose debts are greater than $4,000,000 will receive a 20% discount on their payments on the first $4,000,000. In this way, they will receive a weighted discount that will be the result of multiplying 20% by the quantity resulting from dividing $4,000,000 by the debt balance.
The procedure for determining the discount in payments referred to in this and the previous items, as well as the exemplification of the calculations to be made, are attached to this Circular as Annex 1.

2.1.6 Application of the discount amount
The difference between the payment to be made by the accredited person in accordance with the respective credit contract and that resulting once the corresponding discount has been applied as indicated in the previous items, will be absorbed by the Federal Government and the institutions in accordance with item 3 of this Circular. In all cases, the discount amount will be applied to the payment of principal and interest of the credit itself in accordance with the terms and conditions agreed upon.

2.2 Debtors who are up to date on their payments.
Debtors who are up to date on their payments as of September 1 of the current year will receive the benefit of the discount in payment, retroactive to July 1 of this year, or to the date on which their credit was restructured, if this was after the aforementioned July 1 and prior to the date of signing the Agreement. This benefit will be the difference between the payments made by the accredited person and those that would have been made using the discount in payment, the same difference being applied to the payment corresponding to the month of September or, in case no payments are due in the aforementioned month of September, to the outstanding balance of the credit. Those debtors who were up to date during the months of July and August and made advance payments or liquidated their entire debts will receive the benefit of the discount in payment in accordance with item 2.1 above, during the month of September, or in case they do not have to make payments in that month, by applying it to the outstanding balance of the credit or other credits with the institution.

2.3 Debtors who are not up to date on their payments.
Debtors who are not up to date on their payments may receive the benefits of the Agreement by restructuring their debts under the Agreement itself starting from September 1 of the current year, or by liquidating their overdue obligations, except for the installments corresponding to July and August 1996, which may be covered using the respective discount in payment.

2.4 Discount for advance payments.
Debtors will receive the weighted discount corresponding to them in accordance with item 2.1 above when they make advance payments.

2.5 Credits denominated in United States dollars or in UDIs.
Debtors whose debts are denominated in United States dollars or in UDIs will enjoy the benefits of the discount in their payments in accordance with item 2.1 above. For the purpose of determining only the percentage of the applicable discount, the debt must be converted to pesos, using for the case of United States dollars the exchange rate published by the Bank of Mexico in the Official Gazette of the Federation for settling obligations denominated in foreign currency payable in the Mexican Republic on June 28, 1996, and for UDIs, the national currency value determined by the Bank of Mexico for June 30 of the current year, based on the variation of the National Consumer Price Index, published in the Official Gazette of the Federation on June 25, 1996.

2.6 Conservation of benefits.
Debtors will retain the benefits of the Agreement, provided they remain up to date in the payment of their obligations.

3. DISTRIBUTION OF THE COST OF DISCOUNTS IN PAYMENTS.
   3.1 Mechanics of cost distribution between the Federal Government and the institutions.
   The distribution of the costs of discounts in payments of debtors between the Federal Government and the institutions will depend on the net flow of resources that the institutions themselves inject into the agricultural sector, and will be carried out in accordance with the table and explanations by debt balance ranges indicated below:

Range by debt balances (in pesos)	Total weighted discount	Discount by range	Federal Government (Unconditional)	Federal Government (Conditional)	Institution (Unconditional)
Up to 500,000	40%	40%	10%	20%	10%
Greater than 500,000 and up to 1,000,000	40% - 30%	20%	5%	5%	10%
Greater than 1,000,000 and up to 2,000,000	30% - 24%	18%	0%	8%	10%
Greater than 2,000,000 and up to 4,000,000	24% - 20%	16%	0%	6%	10%

3.1.1 Debts up to $500,000
3.1.1.1 The institution absorbs the first 10%.
3.1.1.2 The Federal Government absorbs another 10%.
3.1.1.3 The remaining 20% will be assumed by the Federal Government to the extent that the institution injects net flow of resources into the sector according to the following formula: for every 3 pesos of credit that the institution grants during the first three years, the Federal Government assumes 1 peso of the discount, limiting said contribution to the aforementioned 20% as a maximum.
3.1.1.4 The residual part, that is, that which does not correspond to be covered by the Federal Government derived from the previous item, will be assumed by the institution.

3.1.2 Debts greater than $500,000 and up to $1,000,000
The costs associated with the discount in payment for the first $500,000 have the same treatment described in item 3.1.1 above. The distribution of the additional costs between the institution and the Federal Government will be as follows:
3.1.2.1 The institution absorbs the first 10%.
3.1.2.2 The Federal Government absorbs another 5%.
3.1.2.3 The remaining 5% will be assumed by the Federal Government to the extent that the institution injects net flow of resources into the sector according to the following formula: for every 3 pesos of credit that the institution grants during the first three years, the Federal Government assumes 1 peso of the discount, limiting said contribution to the aforementioned 5% as a maximum.
3.1.2.4 The residual part, that is, that which does not correspond to be covered by the Federal Government derived from the previous item, will be assumed by the institution.

3.1.3 Debts greater than $1,000,000 and up to $2,000,000
The costs associated with the discount in payment for the first $1,000,000 have the same treatment described in item 3.1.2 above. The distribution of the additional costs between the institution and the Federal Government will be in accordance with the following:
3.1.3.1 The institution absorbs the first 10%.
3.1.3.2 The remaining 8% will be assumed by the Federal Government to the extent that the institution injects net flow of resources into the sector according to the following formula: for every 3 pesos of credit that the institution grants during the first three years, the Federal Government assumes 1 peso of the discount, limiting said contribution to the aforementioned 8% as a maximum.
3.1.3.3 The residual part, that is, that which does not correspond to be covered by the Federal Government derived from the previous item, will be assumed by the institution.

3.1.4 Debts greater than $2,000,000 and up to $4,000,000
The costs associated with the discount in payment on the first $2,000,000 have the same treatment described in the previous item. The distribution of the additional costs between the institution and the Federal Government will be as follows:
3.1.4.1 The institution absorbs the first 10%.
3.1.4.2 The remaining 6% will be assumed by the Federal Government to the extent that the institution injects fresh net flow of resources into the sector according to the following formula: for every 3 pesos of credit that the institution grants during the first three years, the Federal Government assumes 1 peso of the discount, limiting said contribution to 6% as a maximum.
3.1.4.3 The residual part, that is, that which does not correspond to be covered by the Federal Government derived from the previous item, will be assumed by the institutions.

3.1.5 Debts greater than $4,000,000
The costs will be assumed in the same way as credits less than $4,000,000.
In the case of credits greater than $4,000,000, their discount will be the result of multiplying 20% by the quantity resulting from dividing $4,000,000 by the debt balance.

3.2 Payment to the institutions of the amount of the discounts at the charge of the Federal Government.
The Federal Government may cover the amount of the discounts at its charge, in cash or by credit granted by the institutions themselves, for five years with one year of grace and with interest at the CETES rate for 91 days, capitalizable quarterly during the first year and payable with the same periodicity from the second year. The principal of the credit will be liquidated at its maturity. The CETES rate will be determined based on the arithmetic average of the rates of the immediately preceding month.

4. LOSS OF BENEFITS.
   When a debtor receiving the benefits of the Agreement fails to cover two consecutive partial payments, either of principal, interest, or both, or four payments for the same concepts considering all their agricultural credits in an institution, or, in its case, fails to cover for more than 60 days any credit whose payment must be made at the end of the productive cycle, they will lose said benefits in the institution, so that from any of these events, the institutions will suspend the discount in payments. The debtor whose benefits have been cancelled in accordance with the previous paragraph will only be able to enjoy them again from the date on which they cover their overdue payments without the discount referred to in item 2.1 above.

5. GRANTING OF NEW CREDITS.
   Institutions will grant new credits to the agricultural sector, representing net flows of resources not coming from restructurings or renewals of credits, accrued interest, or consolidation of debts and maintaining said resources for 3 years. The amount of resources recovered in the first year must be granted in the following year, updated by inflation. In the same way, that which is recovered in the second year will be granted in the third updated by inflation. The distribution of the costs of discounts in payments of debtors between the Federal Government and the institution will depend on the net flow of resources that the institution itself injects into the agricultural sector in accordance with the Agreement and in conformity with the procedure described in Annex 2 of this Circular. Institutions may not channel new financing to a reduced number of accredited persons, so the distribution of resources must have a configuration similar to that which the agricultural portfolio of each institution currently has, classifying it between credits granted for amounts up to $2,000,000 and credits for amounts greater than said quantity. The National Banking and Securities Commission, hearing the opinion of the Trusts Established in Relation to Agriculture (FIRA), may approve exceptions to the distribution of new credit when justified.

6. STRENGTHENING OF FIRA PROGRAMS.
   To guarantee that there are flows of resources to the sector additional to those that institutions will grant in accordance with the previous item, a guarantee scheme will be implemented through FIRA, in accordance with the following:

6.1 Credits to low-income producers.
A system of credits to low-income producers will be implemented that will be granted with resources coming 100% from FIRA and will have a guarantee service for the outstanding balance of the credit.
Eligible producers will be those with annual net incomes of up to 3,000 times the daily zonal minimum wage, whose supply or advance credits do not exceed $65,000 per year and, in their case, per active partner, who present viable and profitable projects in the rural area and who meet other requirements established for this purpose by FIRA. These credits will not be considered as part of the net flow of resources referred to in item 5 of this Circular.

6.2 Credits to other producers.
For credits granted to other producers for amounts greater than $65,000, the guarantee service offered by FIRA is expanded to cover, in addition to the percentage of the guaranteed principal, the interest accrued by the credit.
At the end of each productive cycle, the recovery levels of the credits granted by institution will be evaluated, in order to establish a differential cost for the guarantee service, so that institutions that show better credit recovery levels will pay a lower cost for the service.

6.3 Additional supports to reactivate credit.
6.3.1 Financial support program for the water market.
In view of the scarcity of water for ordinary irrigation mainly due to the deterioration of aquifers and hydro-agricultural infrastructure, which has intensified in these last productive cycles due to the absence of rain, within the "Program for the Efficient Use of Energy and Water" FIRA will include financing for the acquisition or leasing of water rights, in order to promote economies of scale, favoring the competitiveness of producers, as well as the preservation and efficient management of this resource.

6.3.2 Financing for the purchase or leasing of used assets.
As an alternative to promote the capitalization of the countryside, the possibility will be opened for FIRA to grant credits for the acquisition or leasing of used assets, including real estate and agricultural land, in order for producers to grow and achieve higher levels of production and competitiveness. The acquisition of real estate will be carried out under criteria of efficiency and complementarity in administrative, technical-productive, and marketing aspects among the goods to be integrated, according to the production lines in operation and the location of the markets to be served.

6.3.3 Interest rate for new supply credits.
For new supply loans, FIRA will implement a mechanism that limits the financial cost, in terms of real interest rate, in order to give greater certainty to the accredited persons.

7. ACCOUNTING REGISTRATION.
   7.1 Interest accrued by the credit portfolio affected by the Agreement.
   Institutions will register the interest accrued by credits at the rates originally agreed in the respective credit contracts, using the corresponding accounts established in the account catalog.

7.2 Payment by accredited persons and distribution of the cost of discounts.
For the amount of payments received by institutions from accredited persons, once the discount determined in accordance with item 2.1 of this Circular has been applied, the following registrations will be made:
They will credit the portfolio accounts in which the principal and interest to be paid are recognized, the amount that would correspond to liquidate to the debtor in accordance with the terms and conditions agreed in the respective credit contract, complementing said credits with the following charges:
a) The amount paid by the accredited person will be entered into the corresponding asset account. b) The unconditional part of the discounts to be absorbed by institutions will be charged to account 2505.- PREVENTIVE PROVISIONS FOR COVERAGE OF CREDIT RISKS, sub-account 01.- "Low (B)". c) The unconditional part of the discounts to be absorbed by the Federal Government in accordance with item 3 of this Circular, will be charged to account 1335.- FEDERAL GOVERNMENT. DISCOUNT IN PAYMENT OF CREDITS. AGRICULTURAL AND FISHERIES SECTOR AGREEMENT. d) For the additional conditional cost at the charge of the Federal Government or the institutions, to be determined in accordance with the procedure for its calculation established in Annex 2 of this Circular, the temporary asset account 1336.- TEMPORARY CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONED COST. AGRICULTURAL AND FISHERIES SECTOR AGREEMENT, must be charged temporarily. The accounts 1335 and 1336 referred to in items c) and d), respectively, will have the sub-accounts 01.- "Principal" and 02.- "Capitalized Interest".

7.3 Interest accrued on the credit charged to the Federal Government.
The interest accrued on the amounts recorded in account 1335 cited, in accordance with the preceding numeral 3, shall be recorded as a charge to asset account 1319.- ACCRUED INTEREST ON LOANS AND CREDITS IN FORCE, subaccount 26.- “Loan to the Federal Government. Agricultural and Fishing Sector Agreement” and as a credit to income statement account 5201.- INTEREST COLLECTED, subaccount 67.- “Agricultural credits. Agricultural and Fishing Sector Agreement”. For the quarterly capitalization of these interests, account 1335.- FEDERAL GOVERNMENT CREDIT PAYMENT DISCOUNT. AGRICULTURAL AND FISHING SECTOR AGREEMENT, subaccount 02.- “Capitalized interest” shall be charged and account 131926 cited above shall be credited.

7.4 Interest accrued on the transitional credit to the Federal Government for conditional cost.
The amount recorded in account 1336.- TRANSITIONAL CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONAL COST. AGRICULTURAL AND FISHING SECTOR AGREEMENT, shall accrue interest at the 91-day CETES rate, capitalizable quarterly. The accrued interest shall be recorded as a charge to 1319.- ACCRUED INTEREST ON LOANS AND CREDITS IN FORCE, subaccount 27.- “For transitional credit to the Federal Government for conditional cost. Agricultural and Fishing Sector Agreement” and as a credit to deferred credit account 2615.- INTERESTS ASSIGABLE BY TRANSITIONAL CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONAL COST. AGRICULTURAL AND FISHING SECTOR AGREEMENT.

Quarterly, in accordance with the proportion in which the institution has granted new credits to the agricultural sector in accordance with the procedure established in Annex 3 of this Circular, they shall transfer the amount to be absorbed by the Federal Government from subaccount 133601.- “Principal” to subaccount 133501.- “Principal”. The interest accrued by the portion transferred to the Federal Government under this paragraph shall be transferred from subaccount 131927.- “For transitional credit to the Federal Government for conditional cost. Agricultural and Fishing Sector Agreement” to subaccount 133502.- “Capitalized interest”. Likewise and for the same amount, institutions shall charge account 2615.- INTERESTS ASSIGABLE BY TRANSITIONAL CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONAL COST. AGRICULTURAL AND FISHING SECTOR AGREEMENT and credit income statement account 5201.- INTEREST COLLECTED, subaccount 67.- “For agricultural credits. Agricultural and Fishing Sector Agreement”.

The remaining balance of subaccount 131927 cited in the preceding paragraph shall be capitalized by charging account 1336.- TRANSITIONAL CREDIT FOR CONDITIONAL COST TO THE FEDERAL GOVERNMENT. AGRICULTURAL AND FISHING SECTOR AGREEMENT, subaccount 02.- “Capitalized interest”.

7.5 Application of conditional cost charged to the institution.
Annually, in case there is a balance in account 1336.- TRANSITIONAL CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONAL COST. AGRICULTURAL AND FISHING SECTOR AGREEMENT, institutions shall cancel it against account 2615.- INTERESTS ASSIGABLE BY TRANSITIONAL CREDIT TO THE FEDERAL GOVERNMENT FOR CONDITIONAL COST. AGRICULTURAL AND FISHING SECTOR AGREEMENT and if there is still a remainder in the cited account 1336, it shall be canceled against 2505.- PREVENTIVE PROVISIONS FOR COVERAGE OF CREDIT RISKS, subaccount 01.- “Low (B)”.

7.6 Payment of credits subject to UDIS trusts.
For the settlement that institutions make to UDIS trusts for the amount effectively paid by the borrower plus the discount in payments established by the Agreement, such institutions shall temporarily credit the cash account. Likewise, for the amount of the discount, UDIS trusts shall amortize UDIS fiduciary values, and the Federal Government shall redeem government bonds in advance for the same amount, so that institutions shall charge the cash account with a credit to 1201.- GOVERNMENT VALUES, subaccount corresponding.

The accounting record of the discount in credits denominated in UDIS shall be in pesos in accordance with the provisions of the preceding numerals 7.2 to 7.5.

8. COMMITMENTS OF THE ADE.
   The banking sector will maintain the benefits established in the ADE, consisting of the waiver of late interest and the non-enforceability of additional guarantees in the latter case, regarding credits to companies whose amount is less than $400,000, when subscribing the Restructuring Agreement with the debtor. Likewise, the banking sector reiterates its commitment to absorb the notary fees for credits less than $200,000 that are restructured and to offer the borrower financing for the total amount of registration costs.

9. COMPLIANCE WITH THE AGREEMENT.
   Institutions that assume any of the operational facilities derived from the Agreement must comply with the regulations issued by the financial authorities and contained in this Circular.
   This Commission will supervise that institutions apply the benefits and general conditions established in the Agreement.
   When exercising its supervisory powers, if this Commission knows and proves deviations by institutions in the execution of the Agreement, it may recommend to the Federal Government to reduce or temporarily suspend the payments that, in accordance with this Agreement, it must make to institutions, without prejudice to the debtors continuing to enjoy the benefits of the Agreement during its validity.

10 SUPPLEMENTARY PROVISIONS.
In matters not provided for in this Circular, the accounting practices and criteria applicable to credit institutions shall apply.

11. ANNEXES.
    In addition to the annexes cited in this Circular, the pages of the account catalog affected by the provisions contained herein are attached.

Sincerely,
NATIONAL BANKING AND SECURITIES COMMISSION
Eduardo Fernández García
President