Circular CONAU 1-1110 and LISOL 1-633: Minimum Capital of Financial Entities and Distribution of Results Update

"2015 - YEAR OF THE BICENTENNIAL OF THE CONGRESS OF THE FREE PEOPLES" COMMUNICATION "A" 5746 27/04/2015 TO FINANCIAL ENTITIES:
Ref.: Circular
CONAU 1 - 1110
LISOL 1 - 633
"Minimum Capital of Financial Entities". "Distribution of Results". Update .

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

"- Substitute point 2. of Communication "A" 5737 with the following:

"7... Limit for entities belonging to Groups "B" and "C".
The requirement determined through the application of the expression described in point 7.1. shall not exceed 17% of the average of the last 36 months - prior to the month to which the determination of the requirement corresponds - of the minimum capital requirement for credit risk calculated as provided in Section 3. The maximum limit established above shall be reduced to 11% when the financial entity has a rating of 1, 2, or 3 according to the valuation granted by the Superintendence of Financial and Exchange Entities, at the time of the last inspection conducted, regarding all of the following aspects: the entity as a whole, its information systems, and the work of those responsible for the evaluation of their internal control systems. In cases where the financial entity has a rating of 1 or 2 in all the aforementioned aspects, the maximum limit shall decrease to 7%. The applicable limit shall apply provided that the following conditions are verified concurrently with respect to the financial entity:
7...1. on September 30 of the year prior to the calculation date, it belongs to Groups "B" or "C" (categorization as provided in point 7.1. of Section 7. "Separation of Executive and Management Functions", Chapter I of Circular CREFI - 2, text according to point 1. of Communication "A" 5106); and 7....2. it is not covered by the provisions of Communication "A" 5694 for being a branch or subsidiary of a foreign bank classified as systemically important (G-SIBs).

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In cases where the total of the conditions established in points 7...1. and 7…2. are not met, the operational risk requirement shall be calculated at 100% as provided in point 7.1. The additional reduction in the aforementioned limit to the operational risk capital requirement - from 17% to 11% or 7%, as applicable, of the average of the last 36 months prior to the month to which the determination of the credit risk capital requirement corresponds - shall be conditioned on the financial entity having increased its balance of financing in the consumer or housing portfolio. In this regard, this additional reduction of the operational risk capital requirement shall be applied according to the following expression:

ROcap17% – ROcap11% / 7% ≤ ∆ consumer or housing portfolio with respect to January 2015 x 8%

where:
ROcap17%: operational risk capital requirement calculated according to point 7.1., applying the 17% limit provided in this point.
ROcap11% / 7%: operational risk capital requirement calculated according to point 7.1., applying the 11% or 7% limit - as applicable, if corresponding - provided in this point. ∆ consumer or housing portfolio with respect to January 2015: increase in the balance of consumer or housing financing corresponding to the last day of the month immediately preceding the date to which the minimum capital position refers, with respect to January 2015. For the purpose of calculating the portfolio increase, financial entities will include in their calculation - on both dates - the amount of consumer or housing financing (residual capital, interest, and adjustments) that, being in force on that date, have been assigned to third parties. The financings to be calculated in the preceding paragraph shall be those granted to clients not linked by personal relationship to the financial entity - as provided in point 2.2.2. of the regulations on "Fragmentation of Credit Risk"."

Likewise, we point out to you that for the determination of the increase in the balance of financings referred to in point 2. of the aforementioned communication (text according to this communication), balances corresponding to the commercial portfolio assimilable to consumer shall not be calculated.

On the other hand, we clarify that for the financial entity to be able to apply the maximum limits of 7% or 11%, as applicable, the last rating reported for the calculation of the requirement that corresponds to integrate into the third month following that in which the notification takes place shall be considered.

Attached are the sheets that, in replacement of those previously provided, must be incorporated into the organized texts of the regulations on "Minimum Capital of Financial Entities" and "Distribution of Results".

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Finally, it is recalled that on this Institution's website www.bcra.gob.ar, by accessing "regulations" ("organized texts"), the modifications made with texts highlighted in special characters (strikethrough and bold) will be found.

We salute you attentively.
CENTRAL BANK OF THE ARGENTINE REPUBLIC
Darío C. Stefanelli Juan Carlos Isi
Chief Manager of Issuance and Regulatory Applications Deputy General Manager of Standards

ANNEX

• results from the sale of assets included in Section 2.
  of the regulations on "Valuation of debt instruments of the non-financial public sector and monetary regulation of the Central Bank of the Argentine Republic".

7.2. Limit for entities belonging to Groups "B" and "C".
The requirement determined through the application of the expression described in point 7.1. shall not exceed 17% of the average of the last 36 months - prior to the month to which the determination of the requirement corresponds - of the minimum capital requirement for credit risk calculated as provided in Section 3. The maximum limit established above shall be reduced to 11% when the financial entity has a rating of 1, 2, or 3 according to the valuation granted by the Superintendence of Financial and Exchange Entities, at the time of the last inspection conducted, regarding all of the following aspects: the entity as a whole, its information systems, and the work of those responsible for the evaluation of their internal control systems. In cases where the financial entity has a rating of 1 or 2 in all the aforementioned aspects, the maximum limit shall decrease to 7%. To this effect, the last rating reported for the calculation of the requirement that corresponds to integrate into the third month following that in which the notification takes place shall be considered. The applicable limit shall apply provided that the following conditions are verified concurrently with respect to the financial entity:
7.2.1. on September 30 of the year prior to the calculation date, it belongs to Groups "B" or "C" (categorization as provided in point 7.1. of Section 7.
"Separation of Executive and Management Functions", Chapter I of Circular CREFI - 2, text according to point 1. of Communication "A" 5106); and
7.2.2. it is not covered by the provisions of Communication "A" 5694 for being a branch or
subsidiary of a foreign bank classified as systemically important (GSIBs).
In cases where the total of the conditions established in points 7.2.1. and 7.2.2. are not met, the operational risk requirement shall be calculated at 100% as provided in point 7.1. The additional reduction in the aforementioned limit to the operational risk capital requirement - from 17% to 11% or 7%, as applicable, of the average of the last 36 months prior to the month to which the determination of the credit risk capital requirement corresponds - shall be conditioned on the financial entity having increased its balance of financing in the consumer or housing portfolio. In this regard, this additional reduction of the operational risk capital requirement shall be applied according to the following expression:

ROcap17% - ROcap11% / 7% ≤ ∆ consumer or housing portfolio with respect to January 2015 x 8%

Version: 6th COMMUNICATION "A" 5746
Validity:
31/03/2015
MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 7. Minimum capital for operational risk.

where:
ROcap17%: operational risk capital requirement calculated according to point 7.1., applying the 17% limit provided in this point.
ROcap11% / 7%: operational risk capital requirement calculated according to point 7.1., applying the 11% or 7% limit - as applicable, if corresponding - provided in this point. ∆ consumer or housing portfolio with respect to January 2015: increase in the balance of consumer or housing financing corresponding to the last day of the month immediately preceding the date to which the minimum capital position refers, with respect to January 2015. For the purpose of calculating the portfolio increase, financial entities will include in their calculation - on both dates - the amount of consumer or housing financing (residual capital, interest, and adjustments) that, being in force on that date, have been assigned to third parties. The financings to be calculated in the preceding paragraph shall be those granted to clients not linked by personal relationship to the financial entity - as provided in point
2.2.2. of the regulations on "Fragmentation of Credit Risk".

7.3. New entities.
The monthly minimum capital requirement for operational risk corresponding to the first month shall be equivalent to 10% of the sum of the requirements determined by credit and market risks - in this case, for the positions of the last day - of that month. From the second until the thirty-sixth month, the monthly requirement shall be equivalent to 10% of the average of the requirements determined for the months elapsed up to the calculation period - inclusive -, resulting from considering the risks mentioned in the preceding paragraph, according to the following expression:

C RO_t = 10% x ( (C VaR_p,t + RC_t) / n )

where for each month t:
RC_t: capital requirement for credit risk.
VaR_p,t: capital requirement for market risk for the positions of the last day of month t. n: number of months elapsed up to the month of calculation - inclusive - (2 ≤ n ≤ 36). From the thirty-seventh month, the monthly requirement shall be calculated in accordance with what is provided in points 7.1. and 7.2.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 7. Minimum capital for operational risk.
Version: 1st COMMUNICATION "A" 5746
Validity:
31/03/2015

10.1. Acquisitions of financial entities.
For the purposes of determining the computable equity liability on a consolidated basis, the consolidating entity may add the amount registered in the specific item in the Provisions of Liabilities section.

10.2. Merger of financial entities.
For the purposes of determining the computable equity liability, the amount corresponding to the "negative goodwill" registered in the specific item in the Provisions of Liabilities section may be added.

10.3. For the purposes of determining the computable equity liability, starting from
1.2.13, capital instruments that cease to meet the criteria to be considered additional level one capital (CAn1) or complementary net worth (PNc) in accordance with what is established in Section 8. will be excluded. For these purposes, while they maintain the conditions under which their inclusion was admitted at that time, the amount resulting from applying the methodology in force on that date to the book values of the instruments at the end of each month will be calculated. Their recognition as PNc will be limited to 90% of the value thus obtained from that date, with said limit decreasing by 10 percentage points every twelve months. This limit will be applied separately to each instrument - whether it is computed in CAn1 or in PNc.

10.4. For the purposes of attributing the concepts deductible from ordinary level one capital (CDCOn1) to participations in companies whose corporate object is the development of the activities of item iii) of point 8.4.1.14., the following schedule will be used:

Date Percentage to deduct
Until May 2015 0%
From June 2015 25%
From June 2016 50%
From June 2017 75%
From June 2018 100%

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 10. Transitional provisions.
Version: 6th COMMUNICATION "A" 5746
Validity:
28/04/2015

MINIMUM CAPITAL OF FINANCIAL ENTITIES
ORGANIZED TEXT SOURCE NORM
Section Point Paragraph Com.
Chap./
Annex
Point Paragraph
OBSERVATIONS
5.1. "A" 5369 II
2° "A" 5369 According to Com. "A" 5580.
5.1.1. "A" 5369 II According to Com. "A" 5580. Includes interpretative clarification.
5.1.2. "A" 5369 II According to Com. "A" 5580. Includes interpretative clarification.
5.2. "A" 5369 II
5.2.1. "A" 5369 II
5.2.2. "A" 5369 II
5.2.2.2. last "A" 5369 II According to Com. "A" 5580.
5.2.3. "A" 5369 II
6° "A" 5369 II According to Com. "A" 5580.
5.2.3.1. "A" 5369 II According to Com. "A" 5580.
5.2.3.2. "A" 5369 II According to Com. "A" 5580.
5.2.3.3. "A" 5369 II According to Com. "A" 5580.
5.3. "A" 5369 II
5.3.1. "A" 5369 II
5.3.2. "A" 5369 II
5.3.3. "A" 5369 II
5.3.4. "A" 5369 II
5.3.5. "A" 5369 II According to Com. "A" 5580.
5.
5.4. "A" 5369 II According to Com. "A" 5580.
6.1. and
6.2.
"A" 2461 unique I and II According to Com. "A" 4172, 4741 and 5180.
6.3. and
6.4.
"A" 2461 unique I and II According to Com. "A" 3959 and 4172.
6.5. "A" 2461 unique I and II According to Com. "A" 2736, 2768, 2948,
3959, 4172 and "B" 9074. The point
6.5.2. includes interpretative clarification.
6.6. "A" 2461 unique III According to Com. "A" 3161, 4172 and 5272.
6.7. "A" 2461 unique VI According to Com. "A" 4172.
6.
6.8. "A" 2461 unique VII According to Com. "A" 4172.
7.1. "A" 5272 2.
7. 7.2. "A" 5737 2. According to Com. "A" 5746.
7.3. "A" 5272 2. According to Com. "A" 5369, 5580 and 5737.
8.1. "A" 414
LISOL-1
VI 3.1. 1st According to Com. "A" 2279, 2453, 2793, 2914, 3039, 4172 and 5369 (Annex I).
8.2.1. "A" 414
LISOL-1
VI 3.1.1. According to Com. "A" 2223, 2227, 4296, (point 2.), 4576 (point 1.), 4665 and 5369 (Annex I).
8.2.2. "A" 5369 I
8.2.3. "A" 414
LISOL-1
VI 3.1.2. According to Com. "A" 2223, 2768, 2948, 4172, 4576 (point 3.), 4665, 4702, 5369 (Annex I) and "B" 9074.
8.
8.3. "A" 5369 I

MINIMUM CAPITAL OF FINANCIAL ENTITIES
ORGANIZED TEXT SOURCE NORM
Section Point Paragraph Com.
Chap./
Annex
Point Paragraph
OBSERVATIONS
8.3.1. "A" 5369 I
8.3.2. "A" 4576 2. According to Com. "A" 4591 (points 2.,3.,
4. and 5.), 4665, 4782 and 5369 (Annex I).
8.4.2. "A" 5369 I
8.4.2.2. "A" 5369 I According to Com. "A" 5580.
8.5. "A" 5369 I
8.6. "A" 414
LISOL-1
VI 3.4. According to Com. "A" 1858, 4172, 4631, 4652, 5369 (Annex I) and "B" 9186.
8.
8.7. "A" 4652 2.
9.1. "A" 2227 unique 5.2.1. last According to Com. "A" 2649 and 4172.
9.
9.2. "A" 2227 unique 5.1.1.,
5.1.7. and
5.2.2.
According to Com. "A" 2461, 2649, 4172,
5272 and 5369.
10.1. "A" 3985 According to Com. "A" 4172.
10.2. "A" 3985 According to Com. "A" 4172.
10.3. "A" 5369 8. According to Com. "A" 5580.
10.
10.4. "A" 5700 4.

2.2.3.3. adjustments made according to points 2.1.1. to 2.1.4.
2.2.4. the non-consideration of the limit provided in point 7.2. of the regulations on "Minimum Capital of Financial Entities".
Without prejudice to what is established above, under no circumstances shall the distribution of results be admitted while:

• the integration of minimum cash - in pesos, in foreign currency or in public securities - was less than the requirement corresponding to the last closed position or the projected considering the effect of the distribution of results, and/or
• the integration of minimum capital was less than the previously recalculated requirement,
  increased by 75 %, and/or
• it registers financial assistance for illiquidity from the Central Bank of the Argentine Republic, under the framework of article 17 of the Organic Charter of this Institution.
  For the case of financial entities that are branches of foreign entities, the Superintendence of Financial and Exchange Entities will take into account, in addition, the liquidity and solvency situation of their parent houses and of the markets in which they operate.

2.3. Authorization.
Express authorization from the Superintendence of Financial and Exchange Entities must be obtained, whose intervention will have the object of verifying the correct application of the procedure. The request must be made, at minimum, 30 business days in advance of the holding of the shareholders' assembly or equivalent corporate body, which will consider the distribution of results.

DISTRIBUTION OF RESULTS
B.C.R.A.
Section 2. General procedure.
Version: 5th COMMUNICATION "A" 5746
Validity:
31/03/2015

4.1. From 1.1.13, for the purposes of computing the minimum capital position for the verifications provided in these regulations, the capital requirement for credit risk for securitizations shall be calculated on all operations in force on the calculation date.
4.2. From 8.1.15 and for the purposes of the solvency verification referred to in point 2.2.,
local systemically important entities ("D-SIBs") shall compute the full additional capital requirement referred to in point 1. of Communication "A" 5694, without the application of the gradual implementation schedule provided in point 4. of said communication.
4.3. For the purposes of determining the distributable result referred to in point 2.1., the
financial entities that wish to distribute results during the year 2015 corresponding to the closed exercise in 2014 shall deduct the amount corresponding to the provision for administrative, disciplinary, and penal sanctions provided in Communication "A" 5689.

DISTRIBUTION OF RESULTS
B.C.R.A.
Section 4. Transitional provisions.
Version: 5th COMMUNICATION "A" 5746
Validity:
28/04/2015

ORGANIZED TEXT SOURCE NORM
Sec. Point Para. Com. Annex Chap. Sec. Point Para.
OBSERVATIONS
1.1. "A" 4589 1.
1.1.1. "A" 4589 1.1.
1.1.2. "A" 4589 1.2. According to Com. "A" 4591
(point 6.) and 5072.
1.1.3. "A" 4589 1.3.
1.1.4. "A" 4589 1.4. According to Com. "A" 5072.
1.
1.1.5. "A" 5485
2.1. "A" 4589 2. According to Com. "A" 4591
(point 6.) and 5273.
2.1.1. "A" 4589 2.1.
1° "A" 4589 2.2. 1° According to Com. "A" 4698, 4898, 4976, 5072 and "B" 9186.
2° "A" 4589 2.2. 2° According to Com. "A" 4591 (point 7.), 4664, 4898 and 4976.
3° "A" 4898 According to Com. "A" 4976,
5072 and 5180.
2.1.2.
4° "A" 4589 2.2. 3°
2.1.3. "A" 4589 2.3.
2.1.4. "A" 4589 2.4.
2.1.5. "A" 4686 3.
2.1.6. "A" 4702 4. According to Com. "A" 5180.
2.2. "A" 4589 3. According to Com. "A" 4591
(point 8.), 5072, 5273 and
"B" 9104.
2.2.1. "A" 4589 3.1. According to Com. "A" 4591
(point 8.).
2.2.2. "A" 4589 3.3. iv) According to Com. "A" 4591
(point 8.) and "B" 9104.
2.2.3. "A" 4589 3.3. According to Com. "A" 4591
(point 8.).
2.2.4. "A" 5737 4.
2.
2.3. "A" 4589 4.
3.1. "A" 4591 1. According to Com. "A" 5282.
3.1.1. "A" 4591 1. Incorporates the interpretative criterion of Com. "C"
46841. According to Com. "A"
5393.
3.
3.1.2. "A" 4591 1. According to Com. "A" 4686,
4702, 5072, 5180, 5282,
5369, 5580 and "B" 9104.
4. "A" 5272 9. According to Com. "A" 5282,
5369 and 5707.
B.C.R.A.
ORIGIN OF THE PROVISIONS CONTAINED IN THE REGULATIONS ON "DISTRIBUTION OF RESULTS"