Circular 34/2020 — Modifies Circular 25/2020

Friday, September 11, 2020 OFFICIAL JOURNAL BANK OF MEXICO CIRCULAR 34/2020 addressed to Multiple Banking and Development Banking Institutions, regarding the modifications to the Rules applicable to Bank of Mexico financings guaranteed by qualified credit assets of the Banking Sector, for their channeling to micro, small, and medium-sized enterprises.

A logo appears at the margin, stating: Bank of Mexico.- "2020, Year of Leona Vicario, Meritorious Mother of the Fatherland".

CIRCULAR 34/2020 TO MULTIPLE BANKING AND DEVELOPMENT BANKING INSTITUTIONS: SUBJECT: MODIFICATIONS TO THE RULES APPLICABLE TO BANK OF MEXICO FINANCINGS GUARANTEED BY QUALIFIED CREDIT ASSETS OF THE BANKING SECTOR, FOR THEIR CHANNELING TO MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES.

The Bank of Mexico has considered it convenient to make adjustments to the operations it can carry out with credit institutions, as part of the facility to provide resources to said institutions for the financing of micro, small, and medium-sized enterprises, which it has implemented considering the effects that the COVID-19 pandemic has had on the global economy and on the behavior of the financial markets in our country, as well as on credit granting channels, with the purpose of contributing to the existence of conditions that facilitate credit institutions in fulfilling their priority function of providing financing to the economy. In particular, this Central Institute, considering market practices and the prevailing economic and financial stress conditions, has decided to adjust the conditions foreseen for repo operations that credit institutions enter into pursuant to the referred facility, specifically regarding the methodology for calculating the obligations on them for interest or premium of the corresponding financing operations that must be covered with titles guaranteeing said obligations, in order to facilitate a more efficient provision of resources to said banking institutions so they can continue granting credit to the referred enterprises. The modifications to the operations subject to this facility will be framed within the financing scenarios recognized by law, pursuant to the mandate and parameters that the Political Constitution of the United Mexican States imposes on the Central Bank, ensuring at all times that they fully comply with the financing objectives and limitations established in the Bank of Mexico Law.

For the above, based on Articles 25, second paragraph, and 28, sixth and seventh paragraphs, of the Political Constitution of the United Mexican States; Articles 7, fractions I, II, and X, 8, 14, first paragraph, 15, 16, 24, and 36, of the Bank of Mexico Law; Articles 54 and 96 Bis, of the Credit Institutions Law; Article 22, of the Law for Transparency and Ordering of Financial Services; Articles 4, first paragraph, 8, fourth and eighth paragraphs, 10, 14 Bis, first paragraph, in relation to Article 17, fraction I, 14 Bis 1, first paragraph, in relation to Article 25 Bis 1, fraction IV, 19 Bis 1, fraction XI, and 25, fraction VII, of the Internal Regulations of the Bank of Mexico, which grant it the authority to issue provisions through the General Legal Directorate, the General Directorate of Financial System Affairs, the Operations Support Directorate, and the Financial Stability Directorate, respectively; as well as Article Second, fractions I, IV, VI, and X, of the Agreement on the Assignment of Administrative Units of the Bank of Mexico, it has resolved the following:

OFFICIAL JOURNAL Friday, September 11, 2020 Paragraphs third, fourth, and fifth of section 3.7 and paragraphs first, second, third, and fourth of section "Valuation of titles subject to the repo" of section 4.4 of the "Rules applicable to Bank of Mexico financings guaranteed by qualified credit assets of the Banking Sector, for their channeling to micro, small, and medium-sized enterprises", issued by the Bank of Mexico through Circular 25/2020, are modified, to read as follows:

RULES APPLICABLE TO BANK OF MEXICO FINANCINGS GUARANTEED BY QUALIFIED CREDIT ASSETS OF THE BANKING SECTOR, FOR THEIR CHANNELING TO MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES

"3.7 Guarantee Trust. ... ... The Assigned Institution shall affect the Guarantee Trust, pursuant to the trust contract in question, Eligible Assets whose adjusted valuation by discount factors must be equal to or greater than, on each Banking Business Day during the term of the corresponding financing operation, the amount of principal that said Institution has disbursed pursuant to said financing operation plus the estimated interest for said financing operation and any other agreed expenses. For these purposes, the value of the Eligible Assets shall be determined according to the corresponding discount factors that the Bank of Mexico determines based on the credit risk of the Eligible Assets and its prospects. For the scenario provided in the preceding paragraph, the estimated interest shall be calculated as follows, on each Banking Business Day that passes during the term of the financing operation, from and including the day of its execution until, but excluding, the day of its maturity: The estimated interest corresponding to each Banking Business Day on which the respective calculation is carried out shall be the result of applying the interest rate indicated in section 3.3 of these Rules, as follows: (a) the number of days to be used in said calculation shall be equal to the sum of all days that pass from the date of execution of the financing operation until the day that concludes the ninety-day period counted from the Banking Business Day referred to in which the estimated interest calculation is carried out, or, if the period between the Banking Business Day on which the referred calculation is carried out and the day on which the financing operation must be settled is less than ninety days, only the days up to the day corresponding to said settlement shall be added, and (b) as the interest rate, the average of the one-day interbank interest rate that the Governing Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimal places, which is made known on the Bank's website and is in effect on each of the days comprised from the date of execution of the financing operation until the Banking Business Day on which the estimated interest calculation is carried out, assuming, for the purposes of this calculation, that said rate will remain constant during the remaining term of the estimated interest calculation period for the financing operation provided for in subsection (a) above. Additionally, in the event that, during the period in which the estimated interest calculation is carried out pursuant to this paragraph, the referred target interest rate is modified by decision of the Governing Board of the Bank of Mexico, the current value of said rate shall be taken as applicable for each of the days that pass from the day on which it takes effect until the date of the term of the estimated interest calculation indicated in subsection (a) above. Without prejudice to the foregoing, the interest that the accredited Institution must pay shall be that resulting from the calculation performed, at the maturity of the financing operation term, in accordance with section 3.3 of these Rules and the respective contract. ... "

Friday, September 11, 2020 OFFICIAL JOURNAL "4.4 Repo Operations. ... Valuation of titles subject to the repo. The reporting Institution shall deliver to the Bank of Mexico, pursuant to the repo in question, titles whose adjusted valuation by discount factors must be equal to or greater than, on each Banking Business Day during the term of the repo, the Price of the repo plus the Estimated Premium for the repo operation and any other agreed expenses. For these purposes, the value of the titles shall be determined according to the prices and corresponding discount factors that the Bank of Mexico makes known to the Institutions, through the internet portal located at the address: << http://webdgobc >>. For the scenario provided in the preceding paragraph, the Estimated Premium shall be calculated as follows, on each Banking Business Day that passes during the term of the repo in question, from and including the day of its perfection until, but excluding, the day of its settlement: The Estimated Premium corresponding to each Banking Business Day on which the respective calculation is carried out shall be the result of applying the formula indicated previously in this section 4.4, as follows: (a) the number of days to be used in said calculation shall be equal to the sum of all days that pass from the day on which the repo is perfected until the day that concludes the ninety-day period counted from the Banking Business Day referred to in which the Estimated Premium calculation is carried out, or, if the period between the Banking Business Day on which the referred calculation is carried out and the day on which the repo must be settled is less than ninety days, only the days up to the day corresponding to said settlement shall be added, and (b) as the Interest Rate, the average of the one-day interbank interest rate that the Governing Board of the Bank of Mexico has determined as the target rate for monetary policy purposes, expressed annually and in percent with rounding to two decimal places, which is made known on the Bank's website and is in effect on each of the days comprised from the date of perfection until the Banking Business Day on which the Estimated Premium calculation is carried out, assuming, for the purposes of this calculation, that said rate will remain constant during the remaining term of the Estimated Premium calculation period for the repo provided for in subsection (a) above. Additionally, in the event that, during the period in which the Estimated Premium calculation is carried out pursuant to this paragraph, the referred target interest rate is modified by decision of the Governing Board of the Bank of Mexico, the current value of said rate shall be taken as applicable for each of the days that pass from the day on which it takes effect until the date of the term of the Estimated Premium calculation indicated in subsection (a) above. Without prejudice to the foregoing, the Premium that the reporting Institution must pay to the Bank of Mexico shall be that resulting from the calculation performed, at the expiration of the repo term, in accordance with the "Premium" heading of this section. The value of the titles subject to the repo shall be determined on each Banking Business Day, until such time as the repo is settled, according to the valuation carried out by the Bank of Mexico and, derived from said determination, the following shall be done: a) ... b) ... ... "

TRANSITORY SINGLE. This Circular shall enter into force on the day of its publication in the Official Journal of the Federation.

OFFICIAL JOURNAL Friday, September 11, 2020 Mexico City, September 7, 2020.- BANK OF MEXICO: The General Legal Director, Luis Urrutia Corral.- Signature.- The General Director of Financial System Affairs, José Luis Negrín Muñoz.- Signature.- The Operations Support Director, Joaquín Rodrigo Cano Jauregui Segura Millan.- Signature.- The Financial Stability Director, Jorge Luis García Ramírez.- Signature.

For any inquiries regarding the content of this Circular, the Bank of Mexico is at your disposal through the Directorate of Central Bank Authorizations and Sanctions at phone number (55) 5237-2000 extension 3200.