Circular A 4155: Mortgage Refinancing System under Law 25.798. Normative Treatment

"2004 - Year of the Argentine Antarctic"
CENTRAL BANK OF THE ARGENTINE REPUBLIC
COMMUNICATION "A" 4155 18/06/2004
TO FINANCIAL ENTITIES:
Ref.: Circular
CONAU 1 - 657
LISOL 1 - 425
OPRAC 1 - 572
Mortgage Refinancing System of
Law 25.798. Normative Treatment.

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We address you to inform you that this Institution adopted the following resolution:

"1. Admit that, at the time of the assignment of eligible loans to the Trust for Mortgage Refinancing - Law 25.798 -, financial entities shall reverse up to 65% of the provisions constituted, with respect to those loans, that are attributable to capital with its updates.

The accrued interest on overdue installments of the aforementioned credits shall be eliminated from the asset with a counterpart in the relevant provision or in results, as appropriate. This criterion shall also apply to other accessories that the entity has activated for these credits - punitive interest, collection expenses and legal fees to recover, etc.-.

The balance of provisions resulting from this procedure shall be imputed to a regularizing account that will be enabled for this purpose.

2. Provide that the debt instruments that financial entities receive within the framework of the Mortgage Refinancing System - Law 25.798 -, shall be valued in accordance with the provisions disseminated by Communications "A" 3911 and 4084.

For the purpose of calculating the present value, the implicit inflation rate used to adjust the flows of assets and liabilities updateable by CER and CVS in the determination of the minimum capital requirement for interest rate risk will be added -as a multiplicative factor- to the nominal rates established for each period.

Initially, the difference between the amount thus determined and the corresponding nominal value shall be imputed against the regularizing account enabled for these instruments referred to in the present point. Subsequently, the valuation differences that arise each month from the application of the present value method shall also be imputed against the regularizing account or, failing that, once the balance is exhausted, directly to results.

From the moment that the bonds received for the overdue and unpaid installments have normal and usual quotation - that is, when the Central Bank communicates their volatility for the purposes of determining the minimum capital requirement for market risk -, they shall be valued according to their market value, and the balance of the regularizing account shall be reversed with a counterpart in results, in the proportion that they represent with respect to the total nominal value received for this concept - 60%, 40% or 100%, depending on whether it is the bond with a maturity of 2.5 years, 10 years or both, respectively.-

3. Replace the first paragraph of point 8. of the resolution disseminated by Communication "A" 3911 with the following:

"8. Establish that the excesses to the ratios referred to in point 7. of the present resolution and 2.2.1. of Annex II to Communication "A" 2140 originated exclusively in the application of the new limits and conditions for the computation of financings, shall not constitute non-compliance insofar as the excesses arise from operations pre-existing to 31.3.03 or are determined or increased by the receipt of compensation bonds or promissory notes in accordance with articles 28 and 29 of Decree 905/02 or by those that may be received as a result of the application of other specific provisions, after that date, derived from Law 25.561 of Public Emergency and Exchange Regime Reform, as well as by those received within the framework of the Mortgage Refinancing System established by Law 25.798."

We send you attached the update of the regime for the Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector (annex to Communication "A" 4084).

We greet you very respectfully.
CENTRAL BANK OF THE ARGENTINE REPUBLIC
Alfredo A. Besio José Rutman
Manager of Standards Issuance Principal Manager of Standards

ANNEX

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector.
(Text updated according to Communications "A" 3911, 4084, 4155 and "B" 7782)
Annex to
Com. "A"
4155

1. Establish that the following assets that entities maintain in their portfolio or incorporate in the future shall be recorded at their present value according to the guidelines established in point 2. of this resolution or at their "technical value" - amount, updated, if applicable, for the "Reference Stabilization Coefficient" plus accrued interest according to contractual conditions -, whichever is lower:
   a) "Guaranteed Loans" issued by the National Government within the framework of Decree 1387/01. b) Public titles that have not been subject to minimum capital requirement for market risk for not meeting the established requirements for it, usual quotation in the markets for relevant transactions, etc. - except for the instruments detailed in item v).-. c) Promissory notes issued by the Fiduciary Fund for Provincial Development within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms and other loans to the non-financial public sector. d) "Guaranteed Bonds" issued by the Fiduciary Fund for Provincial Development received within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms. The use of this valuation method will be optional - in replacement of the market value - and cannot be used for incorporations not linked to the provisions cited above.

This choice may be modified subsequently by the "market value" criterion which, once used, must encompass the entire portfolio and will have the character of a definitive option.

Promissory notes that financial entities have received or receive in exchange for compensation bonds in accordance with the option contained in article 28 of Decree 905/02, may be kept at their "technical value", the application of the present value being optional according to what was established above. The exercise of that option will have definitive character.

Assets delivered as collateral for advances granted by the Central Bank of the Argentine Republic for the subscription of the bonds provided for in articles 10, 11 and 12 of Decree 905/02, ratified by article 71 of Law 25.827, may be excluded from the preceding treatment, at the definitive option of the entities - in part or in total of the advances - given the provisions of article 17 of the aforementioned decree, in which case they will be recorded by the value admitted for the purposes of the constitution of the guarantees.

Consequently, this valuation criterion is not applicable in the following cases:
i) Titles that entities have accounted for in investment accounts and maintained the corresponding capital requirement. ii). Compensation bonds received in accordance with what is established in articles 28 and 29 of Decree 905/02 that can be kept at technical value (point 3.6. of Section 3. of the norms on "Holdings of securities in investment accounts"). iii) Titles that must be valued according to their quotation in the market.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector.
(Text updated according to Communications "A" 3911, 4084, 4155 and "B" 7782)
Annex to
Com. "A"
4155

iv) Letters and other titles issued by the Central Bank of the Argentine Republic. v) External Letters of the Argentine Republic in United States dollars "Encuesta + 4.95% 2001-2004" and "Badlar + 2.98% 2001-2004", "Tax Credit Option Certificates", "Fiscal Credit Certificates", including coupons issued within the framework of Decree 979/01, and other instruments of the non-financial public sector that are overdue and unpaid. All these instruments, from January 2004, will be recorded at the accounting value at 31.12.03 or by the amount that is obtained -if this were lower- by applying to the corresponding nominal value at that date, in its case net of write-offs or of the proportional part of transformation into tax options that could be exercised subsequently, of the lowest percentage resulting from the net present value method with respect to the assets covered by this criterion - currently, items c) and d) of this point.-

2. Establish that for the purpose of determining the present value of the portfolio comprised in point 1., from the March 2003 balances onwards, the cash flows (amortization and interest) of the aforementioned instruments, according to the contractual conditions fixed in each case - contemplating, if applicable, the accumulated accrual at the end of each month by the application of the "Reference Stabilization Coefficient" -, will be discounted at the interest rates established in the following schedule:

Period
Annual Nominal Rate
March - December/03 3.00 %
January - June/04 3.25 %
July - December/04 3.50 %
January - June/05 4.00 %
July - December/05 4.50 %
January- December/06 5.00 %
January- December/07 5% + 0.5 (TM - 5 %)
From January 2008 TM

where:
TM: average market rate - expressed in percentage - that this Institution will inform determined based on the internal rates of return arising from the quotations in the market of national public titles of similar average life term ("modified duration"), grouped in tranches (zones) according to that term.

For the calculation of the present value, the number of calendar days from each month-end to the maturity of each amortization and/or interest service will be considered.

The interest rate assigned for each tranche of the preceding schedule will be the only one that must be used to calculate the present value of the entire cash flow of the assets comprised, in each of the months of the corresponding periods, regardless of the dates on which the pertinent services and/or payments mature.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector.
(Text updated according to Communications "A" 3911, 4084, 4155 and "B" 7782)
Annex to
Com. "A"
4155

3. Establish that the sum of the differences between the present value determined for March 2003 - or subsequent periods - for each instrument comprised, according to the preceding points or the technical value - the lower - and the respective "theoretical values" as defined in point 4. of the present resolution, will be reflected in a regularizing asset account that will be enabled for this purpose, insofar as the final result is positive. If the result is negative, it shall be imputed to results.

Monthly, the balance yielded by that account will be adjusted based on the amount determined by performing the calculation of the sum of the differences between said concepts until exhausted. If there is an unapplied remainder, it shall be imputed to results.

Once said balance is exhausted, the differences - positive or negative - that are subsequently registered by the valuation according to the "present value" criterion shall be imputed directly to results.

When amortizations of the instruments occur, if there is a balance in the regularizing account, it will be adjusted with a counterpart in results for up to the amount obtained by applying the proportion that the amortization represents, calculated on the nominal value, to the difference between the accounting value (present value or technical value, the lower) and the theoretical value of the instrument.

The updates by the "Reference Stabilization Coefficient" "CER" that, if applicable, are applied to the theoretical values and the accrued interest according to the issuance or contractual conditions of the instruments shall be imputed to results.

In the cases of incorporations of assets comprised after 28.2.03, without prejudice to the observance of the regulations resulting applicable for them, the registration of the differences originating from the application of the procedure referred to in this point will be carried out in a specific regularizing account, distinct from that used to reflect the effects of the calculations regarding holdings at 28.2.03.

4. Establish that the "theoretical value" of the instruments that will be considered for these purposes will be the result of applying the guidelines detailed below:
   a) Holding at 28.2.03:
   i) Guaranteed Loans issued within the framework of Decree 1387/01:
   The balance registered at 28.2.03 in the accounting - capitals - for each instrument net of the asset regularizing account according to point 4. of Communication "A" 3366 (accounts 131140 and 131193, respectively), will be considered.

At the end of each month, if applicable, the amount of the theoretical value - net of the proportion of amortizations that would have corresponded - will be updated by the "Reference Stabilization Coefficient" adding the corresponding accrued interest according to contractual conditions, to establish the respective theoretical value.

As a consequence of the new valuation procedure, in March 2003 the balance registered in that regularizing account (code 131193) must be reversed.

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector.
(Text updated according to Communications "A" 3911, 4084, 4155 and "B" 7782)
Annex to
Com. "A"
4155

ii) Promissory Notes or Bonds (according to option) issued by the Fiduciary Fund for Provincial Development within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms.

Initially, the amount at which the respective instruments that were delivered in exchange were registered at 28.2.03 will be considered, updated, if applicable, by the "Reference Stabilization Coefficient" at the end of each month, considering the proportion of the amortizations that would have corresponded and adding the corresponding accrued interest according to the issuance conditions.

iii) Others.

If applicable, it will be updated by the application of the "Reference Stabilization Coefficient", considering any amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.

b) Incorporations after 28.2.03:

The incorporation value in the asset will be considered, which, if applicable, will be updated by the "Reference Stabilization Coefficient", considering any amortizations and adding the corresponding accrued interest according to the issuance or contractual conditions.

5. Provide that the debt instruments that financial entities receive within the framework of the Mortgage Refinancing System - Law 25.798 -, shall be recorded at their present value according to the guidelines established in point 2., without exceeding the technical value.

For the purpose of calculating the present value, the implicit inflation rate used to adjust the flows of assets and liabilities updateable by CER and CVS in the determination of the minimum capital requirement for interest rate risk will be added -as a multiplicative factor- to the nominal rates established for each period.

Initially, the difference between the amount thus determined and the corresponding nominal value shall be imputed against the regularizing account enabled for these instruments referred to in the present point. Subsequently, the valuation differences that arise each month from the application of the present value method shall also be imputed against the regularizing account or, failing that, once the balance is exhausted, directly to results.

From the moment that the bonds received for the overdue and unpaid installments have normal and usual quotation - that is, when the Central Bank communicates their volatility for the purposes of determining the minimum capital requirement for market risk -, they shall be valued according to their market value, and the balance of the regularizing account shall be reversed with a counterpart in results, in the proportion that they represent with respect to the total nominal value received for this concept - 60%, 40% or 100%, depending on whether it is the bond with a maturity of 2.5 years, 10 years or both, respectively.-