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Rule · BCRA · 4 Jul 2007 · A 4686

Circular CONAU 1‑815 / LISOL 1‑473 – Judicial Deposits, “Dolarization”, Minimum Capital of Financial Entities, Distribution of Results, Net Global Foreign Currency Position Framing Program

capital

Financial entities must create a liability provision for the difference between the peso equivalent of judicial deposits in their original currency and the accounting value of those deposits in foreign currency, as defined by Law 25.561 and Decree 214/02, and record the provision with a result offset, adjusting it monthly for exchange‑rate movements and allowing activation up to the original exchange‑rate amount. The activation, representing the net amortization, must be amortized in equal monthly installments no later than June 2009 and is deductible for the calculation of computable patrimonial responsibility (Cd) in capital‑minimum requirements. The resolution amends the “Distribution of Results” rules to include activation balances, modifies deduction exceptions, and requires the use of alfa1 and alfa2 coefficients for capital‑minimum recalculations. Entities with excess net global foreign‑currency positions must submit a framing program to the Superintendence of Financial and Currency Entities within 30 days and adjust the position by 31 March 2008, while also disclosing the applied criteria and deferred loss in quarterly and annual financial statements.

ArgentinaBanco Central de la Republica Argentina

“2007 – Year of Road Safety”

CENTRAL BANK OF THE ARGENTINE REPUBLIC

COMMUNICATION “A” 4686 04/07/2007

TO FINANCIAL ENTITIES:

Reference: Circular CONAU 1‑815 / LISOL 1‑473 – Judicial Deposits. “Dolarization”. Minimum Capital of Financial Entities. Distribution of Results. Net Global Foreign Currency Position Framing Program.

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

  1. Establish that financial entities must constitute a provision for the amount resulting from the difference between the peso‑equivalent value of considering judicial deposits in the original currency of the imposition and the accounting value of those deposits constituted in foreign currency that, as of 5.1.02, were covered by Law 25.561 and Decree 214/02.
    • For the purpose of this calculation, partial payments made previously will be considered at the amount paid in foreign currency; the amounts realized in pesos will be converted to that currency using the corresponding Central Bank reference exchange rate (Communication “A” 3500) of the payment date. If no reference exchange rate exists, the closing seller rate for Argentine National Bank bills of that day will be used.
    • The provision will be recorded in liabilities, with a counterpart in results, and will be derecognized as judges issue rulings concerning the cases to which the impositions on their constitution in foreign currency correspond.
    • Monthly, the difference between the foreign‑currency quotation at month‑end and the quotation on the original activation date will be compared:
      1.1. If the difference is positive due to appreciation of the foreign currency, the provision constituted (and, if applicable, the activation admitted in the next point) will be increased to reflect the quotation difference.
      1.2. If the difference is negative due to depreciation of the foreign currency, the provision constituted (and, if applicable, the activation admitted in the next point) will be adjusted to reflect the quotation difference.
    • In no case may the activation exceed the amount that would correspond by applying the exchange rate in force on the original constitution date.
    • The difference to be considered will be the accrued amount between such foreign‑currency deposits, considered at the peso equivalent using the Central Bank reference exchange rate (Communication “A” 3500), and the amount accounted for according to the current standards, each month.

-2-

  1. Admit that financial entities may activate – wholly or partially – the losses indicated in point 1 of this communication.

    • The net activation of the accumulated amortization will be deductible for the calculation of the Computable Patrimonial Responsibility (term “Cd” in point 7.1 of Section 7 of the “Minimum Capital of Financial Entities” rules).
    • The amortization will be carried out in equal, consecutive monthly installments and may not be extended – for any reason – beyond June 2009. If the provisions of points 1.1 and 1.2 of the preceding paragraph apply, the remaining installment amounts must be recalculated.
    • Balances recorded as of 31 May 2007 corresponding to the activation recorded under the regime of Communication “A” 3916 and complementary measures, which derive from judicial measures on justice deposits, will continue to receive the treatment provided in those dispositions.

  2. Incorporate into Section 2 of the “Distribution of Results” rules the following point:

    • 2.1.5. the activation balances referred to in point 2 of this communication.

  3. Replace point 3.1.2 of Section 3 of the “Distribution of Results” rules with the following:

    • 3.1.2. To determine the existence of sufficient balance to proceed with payment, the general procedure set out in points 2.1 and 2.2 concerning the determination of distributable result capacity will be used, with the following exceptions:
      • 3.1.2.1. Amounts corresponding to the concepts in points 2.1.1 and 2.1.2 will not be deducted from unassigned results, nor will they be considered for the recalculation of minimum capital positions (point 2.2).
      • 3.1.2.2. The amount corresponding to the concept contemplated in point 2.1.5 will not be deducted from unassigned results (point 2.1) nor considered as a deduction in the computable patrimonial responsibility (term “Cd” in point 7.1 of Section 7) for the recalculation of minimum capital positions (point 2.2).
      • 3.1.2.3. The values of the “alpha1” and “alpha2” coefficients will be used for the recalculation of minimum capital positions established in the current transitional provisions on the matter (points 9.5 and 9.6 of Section 9 of the “Minimum Capital of Financial Entities” rules).

  4. Establish that entities that record excesses in the net global negative foreign‑currency position resulting from the provision in point 1 shall have until 31 March 2008 to adjust to the limits in force generally.

-3-

To do so, they must submit a framing program to the Superintendence of Financial and Currency Entities within thirty (30) calendar days from the date of this communication.

We remind you of the obligation to disclose in a note to the quarterly and annual financial statements the criterion employed and to quantify the deferred loss.

We clarify that the “peso‑ified” judicial deposit and the provision created pursuant to point 1 of this communication form part of the net global foreign‑currency position and are subject to the minimum capital requirement for market risk. However, they will not be counted in the determination of loan‑granting capacity arising from deposits constituted in foreign currency.

We indicate that, subsequently, the specific accounts to be used for the accounting registration of the process foreseen in this communication will be disclosed.

We also take this opportunity to adjust the title corresponding to point 2.2 of the index sheet of the “Minimum Capital of Financial Entities” rules.

Finally, we enclose in annex the sheets that, in replacement of those previously provided, must replace the texts ordered in the “Minimum Capital of Financial Entities”, “Distribution of Results”, and “Net Global Foreign Currency Position” rules. We also remind that on this Institution’s website www.bcra.gov.ar, accessing “normativa” (“ordered texts”), the modifications will be found with highlighted characters (strikethrough and bold).

Sincerely,

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Darío C. Stefanelli José I. Rutman

Manager of Norms Emission Deputy General Manager of Norms

ANNEX

B.C.R.A.

ORDERED TEXT OF THE RULES ON MINIMUM CAPITAL OF FINANCIAL ENTITIES

-Index-

Section 1. Minimum Capital.

  • 1.1. Requirement.
  • 1.2. Increase of requirement due to custody function and/or registration agent.
  • 1.3. Integration.
  • 1.4. Non‑compliance.

Section 2. Basic Minimum Capital.

  • 2.1. Requirements.
  • 2.2. Banks operating as of 30 June 2005.
  • 2.3. Commercial banks acting as custodians and/or registration agents.

Section 3. Minimum Capital for Credit Risk.

  • 3.1. Requirement.
  • 3.2. Eventual liabilities included.
  • 3.3. Exclusions.
  • 3.4. Asset computation.
  • 3.5. Risk weightings.

Section 4. Risk‑weighting Table.

Section 5. Minimum Capital for Interest‑Rate Risk.

  • 5.1. Requirement.
  • 5.2. Present values.
  • 5.3. Temporal bands.
  • 5.4. Included assets and liabilities.
  • 5.5. Computation of included concepts.
  • 5.6. Allocation to temporal bands.

Section 6. Minimum Capital for Market Risk.

  • 6.1. Requirement.
  • 6.2. Value‑at‑risk of the national‑asset portfolio.
  • 6.3. Value‑at‑risk of the foreign‑asset portfolio.
  • 6.4. Value‑at‑risk of foreign‑currency positions.
  • 6.5. Definitions and values.
  • 6.6. Computation.
  • 6.7. Responsibilities.
  • 6.8. Sanctions.

Version: 10a. COMMUNICATION “A” 4686
Validity: 04/07/2007

B.C.R.A.

ORDERED TEXT OF THE RULES ON MINIMUM CAPITAL OF FINANCIAL ENTITIES

-Index-

Section 7. Computable Patrimonial Responsibility.

  • 7.1. Determination.
  • 7.2. Computable concepts.
  • 7.3. Capital contributions.
  • 7.4. Procedure.

Section 8. Observance Bases of the Rules.

  • 8.1. Individual basis.
  • 8.2. Consolidated basis.

Section 9. Transitional Provisions.

  • 9.1. Value of “k”.
  • 9.2. Allocation in temporal bands for determining the minimum‑capital requirement for interest‑rate risk.
  • 9.3. Acquisitions by Financial Entities.
  • 9.4. Merger of Financial Entities.
  • 9.5. Coefficient “alpha1”.
  • 9.6. Coefficient “alpha2”.
  • 9.7. Differences resulting from judicial measures.

Version: 11a. COMMUNICATION “A” 4686
Validity: 04/07/2007

MINIMUM CAPITAL OF FINANCIAL ENTITIES

B.C.R.A.

Section 9. Transitional Provisions

9.6. Coefficient “alpha2”.
From January 2004, a coefficient “alpha2” will be applied to temporarily reduce the interest‑rate‑risk capital requirement. The following values are set for the “alpha2” coefficient:

Periodalpha2
Jan/Dec 20040.20
Jan/Dec 20050.40
Jan/Dec 20060.70
From Jan 2007 onward1.00

9.7. Differences resulting from judicial measures. Until June 2009, the amount admitted by activation resulting from the difference between the peso‑equivalent value of considering judicial deposits in the original currency of the imposition and the accounting value of those deposits constituted in foreign currency (as of 5.1.02, covered by Law 25.561 and Decree 214/02) will constitute a deductible concept for the calculation of computable patrimonial responsibility.

Version: 5a. COMMUNICATION “A” 4686
Validity: 04/07/2007

MINIMUM CAPITAL OF FINANCIAL ENTITIES

ORDERED TEXT OF ORIGINAL RULE

SectionPointParagraphComm.AnnexNote
7.2.5.4“A”22641.According to Comm. “A” 4172 and 4576 (point 7.)
7.2.5.5“A”414LISOL‑1VI 3.2According to Comm. “A” 4172, 4539 and 4665
–“A”1215––Specifications of non‑deductible participation items in financial entities for determining computable patrimonial responsibility. According to Comm. “A” 4172
7.2.5.6“A”414LISOL‑1VI 3.2According to Comm. “A” 4172, 4539 and 4665
7.2.5.7“A”28633.According to Comm. “A” 4172
7.2.5.8“A”414LISOL‑1VI 3.2According to Comm. “A” 4172
7.2.5.9“A”2730––Incorporates interpretative clarification. According to Comm. “A” 4172
7.2.5.10“A”2545––According to Comm. “A” 4172
7.2.5.11“A”414LISOL‑1VI 3.2Modified by Comm. “A” 986 and 4172
7.2.5.12“A”414LISOL‑1VI 3.2According to Comm. “A” 4172
7.2.5.13“A”22874.According to Comm. “A” 4172
–“A”26071.According to Comm. “A” 4172
7.2.5.14“A”28931.According to Comm. “A” 4172
7.2.5.15“A”3087––According to Comm. “A” 4172
7.2.5.16“A”3918––According to Comm. “A” 4172
7.3“A”414LISOL‑1VI 3.4According to Comm. “A” 1858, 4172, 4631 and 4652
7.4“A”46522.–
8.1“A”2227unique5.2.1. lastAccording to Comm. “A” 2649 and “A” 4172
8.21st “A”2227unique5.1.1. and 5.1.7.According to Comm. “A” 2649 and “A” 4172
–“A”2227unique5.2.2.According to Comm. “A” 4172
8.2last “A”2461uniqueV.According to Comm. “A” 4172
9.1“A”3959––According to Comm. “A” 4172
9.2“A”3959––According to Comm. “A” 4172
9.3“A”3985––According to Comm. “A” 4172
9.4“A”3985––According to Comm. “A” 4172
9.5“A”39862. and 4.–According to Comm. “A” 4172 and “A” 4270
9.6“A”39863. and 4.–According to Comm. “A” 4172
9.7“A”46861. and 2.–

2.1. Determination of Distributable Result

Entities not covered by some of the situations provided in point 1.1 may distribute results up to the positive amount that arises after deducting, extracontably, from the balances at the end of the fiscal year recorded in the “Unassigned Results” account (code 450000), the amounts of legal and statutory reserves – whose constitution is required – and then the amounts corresponding to the concepts (recorded on the same date) detailed below:

  • 2.1.1. the balances representing activation of differences resulting from payments made in compliance with judicial measures originated in cases questioning the applicable legislation on “peso‑ified” deposits, regardless of whether new long‑term loans are granted, as referred to in the resolution disseminated by Communication “A” 4439.
  • 2.1.2. the positive difference between the accounting value and the market quotation, in the case where the financial entity records public securities not valued at market prices.
    • For public‑debt instruments without market quotation, the lower amount resulting from comparing the technical value and the present value (discounting cash flows at the annual‑closing month rates) will be used, taking into account the “TM” rate that this Institution will publish monthly.
    • The same criteria will apply for valuation differences in participation certificates (or debt securities) of financial trusts, proportionally, when their underlying assets consist of the aforementioned non‑market‑valued instruments.
  • 2.1.3. valuation adjustments of assets notified by the Superintendence of Financial and Currency Entities – whether accepted by the entity or not – that are pending registration and/or those indicated by external audit that have not been recorded.
  • 2.1.4. individual valuation franchises granted by the Superintendence of Financial and Currency Entities, including adjustments derived from not considering agreed‑upon adaptation plans.
  • 2.1.5. the balances representing activation of the difference between the peso‑equivalent value of considering judicial deposits in the original currency of the imposition and the accounting value of those deposits constituted in foreign currency that, as of 5.1.02, were covered by Law 25.561 and Decree 214/02.

DISTRIBUTION OF RESULTS – B.C.R.A.

Section 2. General Procedure.

Version: 2a. COMMUNICATION “A” 4686
Validity: 04/07/2007

3.1. Conditions for Application. Determination of Distributable Result and Verification of Liquidity and Solvency.

For the payment of financial services corresponding to the issuance of debt‑representative instruments referred to in point 7.2.2 of Section 7 of the “Minimum Capital of Financial Entities” rules, the specific procedure detailed below will be used:

  • 3.1.1. The issuance of such debt instruments must have prior approval from the shareholders’ meeting or equivalent corporate body, which must issue a resolution on the issuance and its conditions. In those issuance conditions and in any offers made, the requirements that condition, under this regime, the payment of financial services must be explicitly stated, referencing the applicable Central Bank provisions.
    • When dealing with negotiable bonds, the requirement will also be considered fulfilled if the Ordinary General Assembly or equivalent corporate body authorizes a generic program for issuing debt‑representative instruments, delegating to its Board the determination of specific terms and conditions, observing the provisions of article 9° of Law No 23.576.
    • This is without prejudice to the analyses that, regarding this aspect and others pertinent to each issuance and placement, correspond to the National Securities Commission in its role as the authority applying Law No 17.811 on public offering of securities.
  • 3.1.2. To determine the existence of sufficient balance to proceed with payment, the general procedure set out in points 2.1 and 2.2 concerning the determination of distributable result capacity will be used, with the following exceptions:
    • 3.1.2.1. Amounts corresponding to the concepts in points 2.1.1 and 2.1.2 will not be deducted from unassigned results, nor will they be considered for the recalculation of minimum‑capital positions (point 2.2).
    • 3.1.2.2. The amount corresponding to the concept contemplated in point 2.1.5 will not be deducted from unassigned results (point 2.1) nor considered as a deduction in the computable patrimonial responsibility (term “Cd” in point 7.1 of Section 7) for the recalculation of minimum‑capital positions (point 2.2).
    • 3.1.2.3. The values of the “alpha1” and “alpha2” coefficients will be used for the recalculation of minimum‑capital positions established in the current transitional provisions (points 9.5 and 9.6 of Section 9 of the “Minimum Capital of Financial Entities” rules).

DISTRIBUTION OF RESULTS – B.C.R.A.

Section 3. Specific Procedure.

Version: 2a. COMMUNICATION “A” 4686
Validity: 04/07/2007

The Superintendence of Financial and Currency Entities, without prejudice to the prior authorization granted to the issuance, will annually verify, based on the corresponding distribution proposal submitted, the correct application of the procedure for calculating the cleaned‑up unassigned results according to these provisions and the required solvency and liquidity levels, and the constitution of the corresponding reserve for the provision of financial services.

Consequently, debt‑instrument issuances that do not satisfy the applicable requirements or, at the entity’s option, will be subject to the general‑procedure provision set out in Section 2.

DISTRIBUTION OF RESULTS – B.C.R.A.

Section 3. Specific Procedure.

Version: 1a. COMMUNICATION “A” 4686
Validity: 04/07/2007

B.C.R.A.

ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE RULES ON “DISTRIBUTION OF RESULTS”

SectionPointParagraphComm.AnnexCap./Section
1.1“A”45891.–
1.1.1“A”45891.1.–
1.1.2“A”45891.2.According to Comm. “A” 4591 (point 6.)
1.1.3“A”45891.3.–
1.1.4“A”45891.4.–
2.1“A”45892.According to Comm. “A” 4591 (point 6.)
2.1.1“A”45892.1.–
2.1.21st “A”45892.2.1°
2nd “A”45892.2.2°According to Comm. “A” 4591 (point 7.) and 4664
3° “A”45892.2.3°
2.1.3“A”45892.3.–
2.1.4“A”45892.4.–
2.1.5“A”46863.–
2.2“A”45893.According to Comm. “A” 4591 (point 8.)
2.2.1“A”45893.1.According to Comm. “A” 4591 (point 8.)
2.2.2“A”45893.2.According to Comm. “A” 4591 (point 8.)
2.2.3“A”45893.3.iv) According to Comm. “A” 4591 (point 8.)
2.2.4“A”45893.3.According to Comm. “A” 4591 (point 8.)
2.3“A”45894.–
3.1“A”45911.–
3.1.1“A”45911.Incorporates the interpretative criterion of Comm. “C” 46841
3.1.2“A”45911.According to Comm. “A” 4686

The entities that record excesses in the net global foreign‑currency position derived from the computation of the provision for the amount resulting from the difference between the peso‑equivalent value of considering judicial deposits in the original currency of the imposition and the accounting value of those deposits constituted in foreign currency that, as of 5.1.02, were covered by Law 25.561 and Decree 214/02, will have until 31 March 2008 to adjust to the generally applicable limit.

To do so, they must submit a framing program to the Superintendence of Financial and Currency Entities by 3 August 2007.

POSITION OF NET GLOBAL FOREIGN CURRENCY – B.C.R.A.

Section 4. Transitional Provisions.

Version: 2a. COMMUNICATION “A” 4686
Validity: 04/07/2007

ORDERED TEXT OF ORIGINAL RULE

SectionPointParagraphComm.AnnexObservations
1.1“A”38891.According to Comm. “A” 4135, 4140, 4150 and 4577
1.2“A”43502.–
2.1“A”38891.According to Comm. “A” 4577 and “A” 4598
2.2“A”38891.According to Comm. “A” 4350 and “A” 4598
3“A”38891.According to Comm. “A” 4350
4“A”46865.–

ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE RULES ON “POSITION OF NET GLOBAL FOREIGN CURRENCY”

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