Circular 1362: Additional Benefits Agreement to the Credit Support Program for States and Municipalities

Mexico, D.F., June 23, 1997
CIRCULAR No. 1362
SUBJECT: AGREEMENT FOR ADDITIONAL BENEFITS TO THE CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES.- Applicable provisions.

TO MULTIPLE BANKING INSTITUTIONS:

In relation to the Agreement for Additional Benefits to the Credit Support Program for States and Municipalities celebrated between the Federal Government represented by the Secretariat of Finance and Public Credit and the Association of Banks of Mexico, A.C. (hereinafter the Agreement), this Commission, based on articles 97 and 99 of the Credit Institutions Law, 4, fractions III and XXXVI and 19 of the Law of the National Banking and Securities Commission, makes known to these institutions provisions regarding the benefits for states and municipalities that are debtors of credits denominated in Investment Units (UDIS), established in addition to those provided in the Credit Support Program for States and Municipalities (hereinafter the Program).

1. BENEFICIARIES.

The Agreement will be extended to all federal entities and municipalities, including their decentralized bodies and public companies, that so decide sovereignly and that have restructured their credits in accordance with the Program.

The credits of the states and municipalities, including their decentralized bodies and public companies, that having adhered to the Program do not incorporate into the Agreement, will continue to be governed by the provisions applicable to the Program.

2. BENEFITS.

2.1 Options for extension of the restructuring term agreed under the Program.

All credits restructured under the Program will have the option to extend their restructuring term by up to 12 additional years from the date they incorporate into the Agreement, in one of the following two modalities:

2.1.1 Credits restructured for 8 years and up to 2 years of grace.

These credits, deducting the amount of early amortization, if any, effected, will be restructured for a term of 18 years for total amortization without a grace period.

2.1.2 Credits restructured for 5 years without a grace period.

These credits, deducting the amount of early amortization, if any, effected, will be restructured for a term of 15 years for total amortization without a grace period.

The states and municipalities, including their decentralized bodies and public companies, may incorporate into the Agreement, no later than the last business day of the month in which two years have passed since they restructured their debts under the Program.

2.2 Payments.

The principal and accrued interest on the restructured credits will be covered through a scheme of equal payments in UDIS, with monthly or quarterly periodicity at the choice of the borrower.

2.3 Interest rates.

The originally agreed interest rates under the Program will be maintained. However, debtors whose credits, according to the Program itself, currently accrue an interest rate of 9.5 and 8.5 percentage points and make an advance payment of 20% and 10% of the amount of their outstanding obligations, respectively, may access an interest rate of 7.5%. Likewise, debtors whose credits, pursuant to the Program, currently accrue an interest rate of 9.5% may access an interest rate of 8.5% if they make an advance payment of 10% of their debts.

3. ACCOUNTING RECORD.

The accounting record of the credits that are restructured and affect the corresponding trust, of the two that comprise the Agreement, will be as follows:

3.1 Settlor Institution.

3.1.1 Cancellation and opening in the institution's accounting of the trusts established pursuant to the Program and the Agreement, respectively.

The credits restructured under the Agreement will be cancelled from the trusts registered in the institution's accounting by debiting account 6529.- TRUSTORS CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES, UDIS and crediting account 6229.- TRUSTS CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES, UDIS, subaccount 01.- "Option 1.- 8 years and up to 2 years of grace" or 02.- "Option 2.- 5 years without grace period", as applicable.

The accounting of the new trusts contemplated by the Agreement will be effected in UDIS, in accounts 6241.- TRUSTS ADDITIONAL BENEFITS AGREEMENT TO THE CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES, UDIS and its corresponding creditor account 6541.- TRUSTORS ADDITIONAL BENEFITS AGREEMENT TO THE CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES, UDIS.

The first of the accounts mentioned in the previous paragraph will have the following subaccounts:
01.- Option 1.- 18 years without grace period.
02.- Option 2.- 15 years without grace period.

The balances of these accounts and subaccounts controlling the institution must invariably coincide with those of the special accountings that must be opened for each trust.

3.1.2. Cancellation of accounting records in the institutions, associated with the credits that are restructured under the Agreement.

The institutions will temporarily enter in national currency, in the accounts of Group 13.- CREDIT PORTFOLIO, the debts subject to restructuring under the Agreement. This record will be complemented by the cancellation of account 1203.- BONDS HELD TO MATURITY, subaccount 02.- "Government Bonds. Credit Support Program for States and Municipalities" for the equivalent in national currency of the fiduciary values corresponding to the credit in question.

Likewise, amounts registered in the equity of the trusts derived from the credits that are restructured under the Agreement will be recognized in the creditor income account 5241.- PROFIT MARGIN. TRUSTS CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES.

The liquidity generated in the trusts associated with the credits that are restructured that has not been transferred to the institutions will be registered in the cash account.

3.1.3 Registration of new investment in government bonds.

For the amount of the restructuring of the debts under the Agreement, the institutions will credit the accounts of Group 13.- CREDIT PORTFOLIO. Likewise, they will register the investments linked to the Agreement by debiting account 1203.- BONDS HELD TO MATURITY, subaccount 16.- "Government Bonds. Additional Benefits Agreement to the Credit Support Program for States and Municipalities".

This subaccount will have the sub-subaccounts 01.- "Acquisition value" in which the entry of the bonds at their acquisition value will be registered and 02.- "Capitalized interest" in which the monthly capitalization of interest will be accounted for, against account 5201.- INTERESTS CHARGED, subaccount 48.- "For Government Bonds UDIS Programs".

The investment in government bonds will be equivalent to 100% of the amount of the restructured and transferred credits to the trusts related to the Agreement.

The remaining balance in account 1203.- BONDS HELD TO MATURITY, subaccount 02.- "Government Bonds. Credit Support Program for States and Municipalities" for those credits that are restructured under the Agreement, will be transferred to account 1203.- BONDS HELD TO MATURITY, subaccount 16.- "Government Bonds. Additional Benefits Agreement to the Credit Support Program for States and Municipalities".

3.1.4 Cancellation and recognition of the recovery of administrative expenses, linked to the Program and to the Agreement, respectively.

The institutions, at the time of entering into their balance sheets the credits that are restructured under the Agreement in accordance with paragraph 3.1.2 above, will cancel, if applicable, the amount of recovery for administrative expenses that was generated by them under the Program and that is pending to be covered by the trust in question.

With respect to the Agreement, for the concept of recovery of administrative expenses, the trust will pay the institution quarterly an amount equivalent to its financial margin, taking into consideration the different active interest rates established in the Agreement itself, deducted by ½ percentage point, calculated on the outstanding balances of the restructured credit portfolio. The record will be made under the accrual criterion monthly by debiting account 1505.- OTHER DEBTORS, subaccount 08.- "For administrative expenses to recover. Additional Benefits Agreement to the Credit Support Program for States and Municipalities" and crediting account 5207.- RECOVERIES, subaccount 07.- "Recovery of administrative expenses", sub-subaccount 11.- "Trusts Additional Benefits Agreement to the Credit Support Program for States and Municipalities".

For the quarterly payments made by the trust to the institution, the cash account will be debited with credit to account 1505.- OTHER DEBTORS, subaccount 08.- "For administrative expenses to recover. Additional Benefits Agreement to the Credit Support Program for States and Municipalities".

3.1.5 Amortizations and early capital payments.

The liquidity generated in the trusts from resources coming from portfolio amortizations and/or early capital payments will be applied to settle the liability of the trusts constituted by UDIS FIDUCIARY VALUES. Likewise, collections from interest, in the part corresponding to the funding cost, will be applied to pay trust liabilities, provided that it has liquidity, once administrative expenses for its management have been covered.

The Federal Government, in turn, will amortize early government bonds of the Agreement that appear in the institution's assets, for the amount equivalent to the resources received.

3.1.6 Withdrawal of surpluses in the trusts.

The withdrawal of surpluses in the profit margin of the trusts that, if any, authorizes the National Banking and Securities Commission, will be registered by crediting the creditor income account 5242.- WITHDRAWAL OF SURPLUSES IN THE PROFIT MARGIN. ADDITIONAL BENEFITS AGREEMENT TO THE CREDIT SUPPORT PROGRAM FOR STATES AND MUNICIPALITIES, against the corresponding cash account.

3.2 Trusts.

For the benefit of uniformity in the accounting of operations in the trusts that are constituted pursuant to the Agreement, the institutions will observe the following guidelines:

3.2.1 Registration procedure for operations involving UDIS and national currency.

The accounting of operations celebrated in UDIS will be done precisely in that unit of account. To facilitate the registration of those that simultaneously involve UDIS and national currency, they will use a mechanism similar to the "buy-sell system" for foreign exchange operations, opening for this purpose the following bridge accounts:

CONTROL OF UDIS OPERATIONS
CONTROL OF PESOS OPERATIONS

3.2.2 Exit of the restructured credits registered in the trusts related to the Program.

For those credits that are restructured under the Agreement, in the trusts related to the Program, all asset and liability accounts corresponding to the cited credits must be cancelled by debiting equity.

3.2.3 Entry of the restructured credit portfolio in UDIS under the Agreement.

The credits restructured in UDIS under the Agreement will be registered in the asset account CREDIT PORTFOLIO UDIS, for 100% of the amount in which they were accounted for in the trusts corresponding to the Program, deducting, if applicable, the early amortizations that the debtors have agreed with the institution for 10% or 20% of the balance at the time of their restructuring.

3.2.4 Funding of the restructured portfolio under the Agreement.

The trust will issue fiduciary values denominated in UDIS at an annual interest rate of 5.5%, for the equivalent to the restructured portfolio, determined as established in paragraph 3.2.3 above, which it will register in its liability in the account UDIS FIDUCIARY VALUES. This will have the following subaccounts: 01.- "Nominal value" and 02.- "Capitalized interest", affecting the latter monthly for the interest that accrues, by debiting the income account INTERESTS ACCRUED ON UDIS FIDUCIARY VALUES.

3.2.5 Payment to the institution for administrative expenses.

For the administrative expenses that the trust must pay to the institution for an amount equal to its financial margin, deducted by ½ percentage point and calculated on the outstanding balances of the credit portfolio subject to the Agreement, it will monthly register the amount that accrues by debiting the income account RECOVERY OF ADMINISTRATIVE EXPENSES TO THE SETTLOR and crediting the liability account SETTLOR. RECOVERY OF ADMINISTRATIVE EXPENSES. The payment of these administrative expenses will be effected quarterly, so in the trust the liability will be cancelled with credit to the cash account.

3.2.6 Investment of the liquidity of the trusts.

When this is generated for any concept, it will be invested in values issued by the Federal Government denominated in UDIS at an annual interest rate of 5.5%.

This investment will be registered at acquisition cost and affected by the monthly capitalization of interest in the account UDIS GOVERNMENT BONDS, which will have subaccounts 01.- "Acquisition cost" and 02.- "Capitalized interest". The interest that accrues will be credited to the creditor income account INTERESTS ACCRUED ON UDIS GOVERNMENT BONDS.

The financial authorities will review the accumulated amount of these instruments and according to the evolution of the portfolio will authorize, if applicable, their partial or total withdrawal.

3.2.7 Interest on the credit portfolio.

Interest will be registered based on the accrual in the asset account INTERESTS ACCRUED ON LOANS AND CREDITS UDIS against the creditor income account INTERESTS CHARGED UDIS PROGRAM.

3.2.8 Amortizations and early capital payments.

The liquidity that is generated in the trusts for the concept of portfolio amortizations, as well as for the concept of early payments, will be destined to the early payment of the capital of the liability of the trust constituted by UDIS FIDUCIARY VALUES. If there is liquidity, once administrative expenses have been covered to the institution, the interest collected from the principal of the portfolio in the part corresponding to the funding cost, will be used to pay liabilities of the trust.

At the moment when the trust settles the fiduciary values and/or their corresponding interest, the Federal Government will redeem early, in turn, up to the amount of the resources received, the government bonds subject to the Agreement.

3.2.9 Amortization of principal and interest of the credits.

The principal and accrued interest on the restructured credits will be covered through a scheme of equal payments in UDIS, with monthly or quarterly periodicity, at the choice of the borrower. The amount of the amortizations to be made will be determined by applying the annuity method or the linear amortization calculation.

3.2.10 Withdrawal of the profit margin.

At the end of each year, the PROFIT MARGIN (financial margin minus recovery of administrative expenses) obtained during the period will be determined. In case that margin is positive, it may be requested from the National Banking and Securities Commission the release of these resources in favor of the institutions, by debiting the equity of the trust.

3.2.11 Preparation of financial statements.

For the purposes of formulation of the monthly and year-end financial statements, the balances of the accounts denominated in UDIS must be valued at the national currency value of the UDI that determines the Bank of Mexico based on the variation of the National Consumer Price Index and publishes in the Official Gazette of the Federation for the last day of the month in question.

3.2.12 Supplementary accounting regulations.

In what is not provided for in the preceding provisions relating to the particular accounting of the trusts, the regulations, practices and accounting criteria that apply to credit institutions will be followed.

4. COMPLIANCE WITH THE AGREEMENT.

The institutions that assume the operational facilities derived from the Agreement must comply with the regulations issued for that effect by the financial authorities and contained in this Circular.

4.1 This Commission will supervise that the institutions apply the financial margins established in the credit restructurings, without allowing them to exceed the maximum interest rates agreed in the Agreement.

4.2 When exercising its inspection and surveillance powers, if the Commission knows and proves deviations in the execution of the Agreement, it may proceed to:

4.2.1 Fix a higher capitalization index for the portfolio of values constituted by government bonds subject to the Agreement.

4.2.2 Order the reversal of the operations that have been celebrated irregularly, which will entail the reincorporation of the restructured credits to the asset of the institution precisely in UDIS, as well as the early payment of the UDIS fiduciary values and of the government bonds subject to the Agreement received when affecting the portfolio in trust, without prejudice to the debtors continuing to enjoy the benefits of the Agreement during its validity.

4.2.3 Recommend to the Federal Government to modify upwards the interest rate that accrues on the financing granted to the trusts.

4.2.4 Order the extinction of the trust in question and the consequent reversal of the operations in the terms and with the effects indicated in paragraph 4.2.2.

5. APPENDICES.

The sheets of the account catalog that are affected by the modifications established in paragraph 3.1 "Settlor Institution" corresponding to the accounting record are attached.

6. TRANSITIONAL PROVISIONS.

6.1 The restructurings may be carried out even when the government bonds and fiduciary values that support the Agreement have not been issued, for which a transitional mechanism must be created for the registration in accordance with the terms of this Circular, of the amounts to be restructured determined in strict compliance with the reference Agreement.

6.2 Due to the incorporation of the two new options considered in the Agreement, Annex 3 of Circular 1240 relating to the "Monthly report on restructurings within the Credit Support Program for States and Municipalities" is modified, by which it accompanies this Circular.

Respectfully,
NATIONAL BANKING AND SECURITIES COMMISSION
Eduardo Fernández García
President