Circular CREFI 2-124 OPRAC 1-1063 REMON 1-1027 LISOL 1-914 RUNOR 1-1600: Financial Entity Authorities, Credit Interest Rates, Minimum Cash, Minimum Capital, and Adjustments

"2020 - YEAR OF GENERAL MANUEL BELGRANO"
COMMUNICATION "A" 7108 17/09/2020
TO FINANCIAL ENTITIES:
Ref.: Circular
CREFI 2 - 124
OPRAC 1 - 1063
REMON 1 - 1027
LISOL 1 - 914
RUNOR 1 - 1600
Authorities of financial entities. Interest rates on credit operations. Minimum cash. Spot and forward operations, repos, pledges, other derivatives and with common investment funds. Minimum capital of financial entities. Adjustments.
____________________________________________________________ We address you to inform you that this Institution adopted the resolution that, in its pertinent part, provides:

"1. Establish the classification of financial entities into Groups "A", "B" and "C" for the purposes of the separation of executive and administrative functions provided for in Section 4. of the regulations on "Authorities of financial entities", as follows:
i. Group "A" shall be composed of entities whose indicator – average of the assets corresponding to the months of July, August and September of the previous year, with respect to the total assets of the financial system, as provided in point 4.1. – is equal to or greater than 1%;
Group "B" shall be composed of entities whose indicator is less than 1% and greater than or equal to 0.25%; and Group "C" shall be composed of entities whose indicator is less than 0.25%.
ii. Group changes:
a. Entities included in Group "A" whose indicator falls between 1% (exclusive) and 0.50% (inclusive) will remain in Group "A" in the following calendar year and will only be classified in Group "B" if – for the subsequent calendar year – said indicator continues to be less than 1%; if their indicator falls between 0.50% (exclusive) and 0.25% (inclusive), they will be directly classified in Group "B" in the following calendar year; whereas, if their indicator becomes less than 0.25%, they will be directly classified in Group "C" in the following calendar year. b. Entities included in Group "B" whose indicator falls between 1% (inclusive) and 1.5% (inclusive) will remain in Group "B" in the following calendar year and will only be classified in Group "A" if – for the subsequent calendar year – said indicator continues to be greater than or equal to 1%; if their indicator rises above 1.5%, they will be directly classified in Group "A" in the following calendar year; whereas, when their indicator falls below 0.25%, they will remain in Group "B" in the following calendar year and will only be classified in Group "C" if – for the subsequent calendar year – said indicator continues to be less than 0.25%.

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c. Entities included in Group "C" whose indicator falls between 0.25% (inclusive) and 0.5% (inclusive) will remain in Group "C" in the following calendar year and will only be classified in Group "B" if – for the subsequent calendar year – said indicator continues to be greater than or equal to 0.25%; if their indicator rises above 0.5%, they will be directly classified in Group "B" in the following calendar year; whereas, if their indicator becomes greater than 1.5%, they will be directly classified in Group "A" in the following calendar year.
iii. The Superintendence of Financial and Currency Entities (SEFyC) will annually publish the list of financial entities classified in each group.
iv. New entities will be considered included in Group "A", "B" or "C", according to the amount of their assets on the date of commencement of their activities, until the necessary information is available to perform the calculation provided in the first paragraph of this point.

2. Establish that, for operations in pesos provided for in point 1.3.5.1. of the regulations on "Minimum cash" with a residual term of up to 29 days – subsection i) – and from 30 to 59 days – subsection ii) –, the reserve rates that financial entities belonging to Group "C" must apply will be 21% and 17%, respectively.

3. Provide that entities belonging to Group "C" will be subject to the limits for the net excess position of LELIQ indicated for 1.5.2020 in point 8.1.2. of the regulations on "Spot and forward operations, repos, pledges, other derivatives and with common investment funds", with the limits provided in points 8.1.2.1. and 8.1.2.2. not applying, nor the reduction established in point 8.3.

4. Establish that the minimum capital requirement for operational risk contained in point 7.2. of the regulations on "Minimum capital of financial entities" may not exceed, in the case of Group "C" entities, 14% of the average of the last 36 months – prior to the month corresponding to the determination of the requirement – of the minimum capital requirement for credit risk.
   This limit will be reduced to 8% when the financial entity has a rating of 1, 2 or 3 from the Superintendence of Financial and Currency Entities, as provided in the aforementioned point 7.2., or to 5% when the financial entity has a rating of 1 or 2.

5. Apply to entities belonging to Group "C" the treatment provided as of the date of this communication to entities of Group "B" in the regulations on: "Authorities of financial entities" regarding the separation of executive and administrative functions – point 4.2.; "Minimum cash" regarding their integration – point 1.3., except what is provided in point 2. of this communication; "Guidelines for risk management in financial entities" regarding the economic capital evaluation process – point 1.3.– and the standardized framework for interest rate risk management in the investment portfolio – point 5.4.–; "Large exposures to credit risk" regarding specific limits related to reciprocal guarantee societies, public guarantee funds and financial entities – point 2.2.–; "Distribution of results" regarding transitional provisions – point 7.2–; and "Term deposits and investments" regarding what is established for the remuneration of fixed-rate deposits – point 1.11.1.2.–.

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6. Establish that the compensatory interest rate for financing linked to credit cards that entities belonging to Group "C" may apply may not exceed the annual nominal rate established in point 2.1.2. of the regulations on "Interest rates on credit operations". This, without prejudice to the application of the limit established in Article 16 of Law 25.065 on Credit Cards and other provisions contained in the last 3 paragraphs of point 2.1.1. of the aforementioned regulations.

7. Establish that points 1. to 6. of this communication shall be effective from 1.10.2020 inclusive, and that points 2., 3. and 6. are transitional and shall be effective until 31.03.2021 inclusive."

Likewise, we inform you that we will subsequently send you the sheets that, in replacement of those previously provided, should be incorporated into the referenced regulations and those detailed in point 5. above.
We salute you attentively.

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA

Darío C. Stefanelli
Principal Manager of Issuance and
Normative Applications

María D. Bossio
General Deputy Manager of Financial Regulation