Circular Letter No. 2.899

CIRCULAR LETTER No. 002899 ------------------------ Amends, in COSIF, procedures for recording credit operations and the establishment of provisions to cover doubtful liquidation credits. In view of the provisions of Resolutions Nos. 2.682 of 21 December 1999, and 2.697 of 24 February 2000, and based on item 4 of Circular No. 1.540 of 6 October 1989, the following subgroup breakdowns, titles and subtitles are created in the Chart of Accounts for Institutions of the National Financial System - COSIF: I - with the ESTBAN and publication codes, 174 and 169, respectively: a) with the attributes UBDKIFJSWERLMNZ: 1.6.9.20.00-2 (-) PROVISION FOR LOANS AND DISCOUNTED SECURITIES 1.6.9.30.00-9 (-) PROVISION FOR FINANCINGS; b) with the attributes UBDKIFJSWEROLMNZ: 1.6.9.40.00-6 (-) PROVISION FOR RURAL AND AGROINDUSTRIAL FINANCINGS; c) with the attributes UBDKIFJSWELMZ: 1.6.9.50.00-3 (-) PROVISION FOR REAL ESTATE FINANCINGS; d) with the attributes UBDKIFJACTSWEROLMNHZ: 1.6.9.60.00-0 (-) PROVISION FOR FINANCINGS OF SECURITIES AND MARKETABLE SECURITIES; e) with the attributes UBDKIFJSWELMNZ: 1.6.9.70.00-7 (-) PROVISION FOR INFRASTRUCTURE AND DEVELOPMENT FINANCINGS; II - with the ESTBAN and publication codes, 184 and 179, respectively, and with the attributes UBDKIFJASWELMNZ: 1.7.9.30.00-8 (-) PROVISION FOR FINANCIAL LEASES 1.7.9.40.00-5 (-) PROVISION FOR OPERATING LEASES 1.7.9.50.00-2 (-) PROVISION FOR SUBLEASES; III - with the ESTBAN code 300 and the attributes UBDKIFJACTSWEROLMNHZ: 3.1.0.00.00-0 CREDIT PORTFOLIO CLASSIFICATION 3.1.1.00.00-3 AA Level Risk Operations 3.1.1.10.00-0 AA LEVEL CREDIT OPERATIONS 3.1.1.20.00-7 AA LEVEL MERCANTILE LEASING OPERATIONS 3.1.1.30.00-4 AA LEVEL OTHER CREDITS 3.1.2.00.00-6 A Level Risk Operations 3.1.2.10.00-3 A LEVEL CREDIT OPERATIONS 3.1.2.20.00-0 A LEVEL MERCANTILE LEASING OPERATIONS 3.1.2.30.00-7 A LEVEL OTHER CREDITS 3.1.3.00.00-9 B Level Risk Operations 3.1.3.10.00-6 B LEVEL CREDIT OPERATIONS 3.1.3.10.10-9 Operations in Normal Course 3.1.3.10.20-2 Overdue operations 3.1.3.20.00-3 B LEVEL MERCANTILE LEASING OPERATIONS 3.1.3.20.10-6 Operations in Normal Course 3.1.3.20.20-9 Overdue operations 3.1.3.30.00-0 B LEVEL OTHER CREDITS 3.1.3.30.10-3 Operations in Normal Course 3.1.3.30.20-6 Overdue operations 3.1.4.00.00-2 C Level Risk Operations 3.1.4.10.00-9 C LEVEL CREDIT OPERATIONS 3.1.4.10.10-2 Operations in Normal Course 3.1.4.10.20-5 Overdue operations 3.1.4.20.00-6 C LEVEL MERCANTILE LEASING OPERATIONS 3.1.4.20.10-9 Operations in Normal Course 3.1.4.20.20-2 Overdue operations 3.1.4.30.00-3 C LEVEL OTHER CREDITS 3.1.4.30.10-6 Operations in Normal Course 3.1.4.30.20-9 Overdue operations 3.1.5.00.00-5 D Level Risk Operations 3.1.5.10.00-2 D LEVEL CREDIT OPERATIONS 3.1.5.10.10-5 Operations in Normal Course 3.1.5.10.20-8 Overdue operations 3.1.5.20.00-9 D LEVEL MERCANTILE LEASING OPERATIONS 3.1.5.20.10-2 Operations in Normal Course 3.1.5.20.20-5 Overdue operations 3.1.5.30.00-6 D LEVEL OTHER CREDITS 3.1.5.30.10-9 Operations
in Normal Course 3.1.5.30.20-2 Overdue operations 3.1.6.00.00-8 E Level Risk Operations 3.1.6.10.00-5 E LEVEL CREDIT OPERATIONS 3.1.6.10.10-8 Operations in Normal Course 3.1.6.10.20-1 Overdue operations 3.1.6.20.00-2 E LEVEL MERCANTILE LEASING OPERATIONS 3.1.6.20.10-5 Operations in Normal Course 3.1.6.20.20-8 Overdue operations 3.1.6.30.00-9 E LEVEL OTHER CREDITS 3.1.6.30.10-2 Operations in Normal Course 3.1.6.30.20-5 Overdue operations 3.1.7.00.00-1 F Level Risk Operations 3.1.7.10.00-8 F LEVEL CREDIT OPERATIONS 3.1.7.10.10-1 Operations in Normal Course 3.1.7.10.20-4 Overdue operations 3.1.7.20.00-5 F LEVEL MERCANTILE LEASING OPERATIONS 3.1.7.20.10-8 Operations in Normal Course 3.1.7.20.20-1 Overdue operations 3.1.7.30.00-2 F LEVEL OTHER CREDITS 3.1.7.30.10-5 Operations in Normal Course 3.1.7.30.20-8 Overdue operations 3.1.8.00.00-4 G Level Risk Operations 3.1.8.10.00-1 G LEVEL CREDIT OPERATIONS 3.1.8.10.10-4 Operations in Normal Course 3.1.8.10.20-7 Overdue operations 3.1.8.20.00-8 G LEVEL MERCANTILE LEASING OPERATIONS 3.1.8.20.10-1 Operations in Normal Course 3.1.8.20.20-4 Overdue operations 3.1.8.30.00-5 G LEVEL OTHER CREDITS 3.1.8.30.10-8 Operations in Normal Course 3.1.8.30.20-1 Overdue operations 3.1.9.00.00-7 H Level Risk Operations 3.1.9.10.00-4 H LEVEL CREDIT OPERATIONS 3.1.9.10.10-7 Operations in Normal Course 3.1.9.10.20-0 Overdue operations 3.1.9.20.00-1 H LEVEL MERCANTILE LEASING OPERATIONS 3.1.9.20.10-4 Operations in Normal Course 3.1.9.20.20-7 Overdue operations 3.1.9.30.00-8 H LEVEL OTHER CREDITS 3.1.9.30.10-1 Operations in Normal Course 3.1.9.30.20-4 Overdue operations; IV - with the ESTBAN code 800 and the attributes UBDKIFJACTSWEROLMNHZ: 9.1.0.00.00-2 CREDIT PORTFOLIO CLASSIFICATION 9.1.1.00.00-5 Credit and Mercantile Leasing Operations 9.1.1.10.00-2 CLASSIFIED CREDIT PORTFOLIO. 2. The accounting titles referred to in items I and II of item 1 are intended for the recording of provisioned amounts arising from the classification of the corresponding credit operations in the different risk levels based on the characteristics of the debtor and its guarantors, as well as of the operation. 3. The titles referred to in item 1, subitem III are intended for the recording of the accounting amounts of credits classified in the respective risk levels based on the characteristics of the debtor and its guarantors, as well as of the transaction, provided that transactions with characteristics of credit granting, which cannot be classified as credit or financial leasing transactions, must be recorded in the appropriate title intended for the recording of other credits. 4. Title 9.1.1.10.00-2 CLASSIFIED CREDIT PORTFOLIO is intended for the recording of the accounting amounts of credits classified based on the characteristics of the debtor and its guarantors, as well as of the transaction. It offsets with the titles of subgroup 3.1.0.00.00-0 CLASSIFICATION OF THE CREDIT PORTFOLIO. 5. As of 1 September 2000, the names of the subgroup breakdowns
below are changed: I - 1.6.9.00.00-8 Credit Operations in Liquidation to 1.6.9.00.00-8 (-) Provisions for Credit Operations; II - 1.7.9.00.00-7 Financial Leasing Credits in Liquidation to 1.7.9.00.00-7 (-) Provisions for Financial Leasing Operations; III - 1.8.9.00.00-6 Other Credits in Liquidation to 1.8.9.00.00-6 (-) Provisions for Other Credits. 6. Codes 174 - Provision for Credit Operations and 184 - Provision for Financial Leasing Operations are created in the documents Monthly Banking Statistics, code 4500, and Global Banking Statistics, code 4510. 7. The ESTBAN code of titles 1.8.9.97.00-2 PROVISIONS FOR LOSSES ON REALIZATION OF OTHER CREDITS and 1.8.9.99.00-0 PROVISIONS FOR OTHER DOUBTFUL LIQUIDATION CREDITS is changed to 174. 8. The following titles and subtitles are excluded from COSIF: 1.6.1.90.00-7 LOANS AND DISCOUNTED TITLES OVERDUE 1.6.1.90.10-0 Loans 1.6.1.90.20-3 Discounted Titles 1.6.1.90.95-9 (-) Income to be Appropriated 1.6.2.90.00-0 FINANCINGS OVERDUE 1.6.2.90.10-3 Financings 1.6.2.90.15-8 Financings to Financial Agents 1.6.2.90.20-6 Export Financings 1.6.2.90.30-9 Financings with Intervention 1.6.2.90.50-5 Refinancings of Leasing Operations 1.6.2.90.95-2 (-) Income to be Appropriated 1.6.3.90.00-3 RURAL AND AGROINDUSTRIAL FINANCINGS OVERDUE 1.6.3.90.03-4 Rural - Agricultural - Costing 1.6.3.90.06-5 Rural - Agricultural - Investment 1.6.3.90.09-6 Rural - Agricultural - Commercialization 1.6.3.90.12-0 Rural - Livestock - Costing 1.6.3.90.15-1 Rural - Livestock - Investment 1.6.3.90.18-2 Rural - Livestock - Commercialization 1.6.3.90.40-5 Agroindustrial 1.6.3.90.95-5 (-) Income to be Appropriated 1.6.4.90.00-6 REAL ESTATE FINANCINGS OVERDUE 1.6.4.90.20-2 Real Estate Developments 1.6.4.90.30-5 Housing 1.6.4.90.35-0 Without FCVS Coverage - Decree 97.222/88 1.6.4.90.95-8 (-) Income to be Appropriated 1.6.5.90.00-9 FINANCINGS OF TITLES AND SECURITIES OVERDUE 1.6.5.90.10-2 Rights from Stock Lending 1.6.5.90.20-5 Margin Account Financings 1.6.5.90.30-8 Procap Financings 1.6.5.90.40-1 Rights from Gold Lending 1.6.5.90.95-1 (-) Income to be Appropriated 1.6.6.90.00-2 INFRASTRUCTURE AND DEVELOPMENT FINANCINGS OVERDUE 1.6.6.90.10-5 Infrastructure and Development Financings 1.6.6.90.95-4 (-) Income to be Appropriated 1.7.1.90.00-6 FINANCE LEASES RECEIVABLE OVERDUE 1.7.1.90.10-9 Internal Resources 1.7.1.90.20-2 External Resources 1.7.1.90.60-4 Advances to Suppliers on Behalf of Lessees 1.7.1.90.95-8 (-) Income to be Appropriated 1.7.2.90.00-9 OPERATING LEASES RECEIVABLE OVERDUE 1.7.2.90.10-2 Internal Resources 1.7.2.90.20-5 External Resources 1.7.2.90.95-1 (-) Income to be Appropriated 1.7.3.90.00-2 SUBLEASES RECEIVABLE OVERDUE 1.7.3.90.10-5 Subleases 1.7.3.90.60-0 Advances to Suppliers on Behalf of Sublessees 1.7.3.90.95-4 (-) Income to be Appropriated. 9. Credit operations transferred by 29 February 2000 to the credit-in-liquidation accounts may remain recorded in those accounts until 31 August 2000, provided they are classified as risk
level H, and from 1 March 2000, entries in the credit-in-liquidation accounts that entail an increase in balance are not permitted. 10. The following titles and subtitles are excluded from COSIF, from 1 September 2000: 1.6.9.10.00-5 CREDIT OPERATIONS IN LIQUIDATION 1.6.9.10.05-0 Advances to Depositors 1.6.9.10.10-8 Loans 1.6.9.10.15-3 Discounted Securities 1.6.9.10.20-1 Financing 1.6.9.10.25-6 Export Financing 1.6.9.10.30-4 Financing with Intervenience 1.6.9.10.35-9 Financing to Financial Agents 1.6.9.10.40-7 Refinancing of Lease Operations 1.6.9.10.42-1 Rural Financing - Agricultural - Costing 1.6.9.10.43-8 Rural Financing - Agricultural - Investment 1.6.9.10.44-5 Rural Financing - Agricultural - Commercialization 1.6.9.10.46-9 Rural Financing - Livestock - Costing 1.6.9.10.47-6 Rural Financing - Livestock - Investment 1.6.9.10.48-3 Rural Financing - Livestock - Commercialization 1.6.9.10.50-0 Agroindustrial Financing 1.6.9.10.65-8 Real Estate Project Financing 1.6.9.10.70-6 Housing Financing 1.6.9.10.77-5 Financing without FCVS Coverage - Decree 97.222/88 1.6.9.10.80-9 Financing of Securities and Marketable Securities 1.6.9.10.90-2 Infrastructure and Development Financing 1.6.9.95.00-6 (-) INCOME TO BE APPROPRIATED FROM CREDIT OPERATIONS IN LIQUIDATION 1.6.9.99.00-2 (-) PROVISION FOR DOUBTFUL LIQUIDATION CREDIT OPERATIONS 1.7.9.10.00-4 FINANCIAL LEASE CREDITS IN LIQUIDATION 1.7.9.10.10-7 Financial Leases Receivable - Internal Resources 1.7.9.10.20-0 Financial Leases Receivable - External Resources 1.7.9.10.30-3 Subleases Receivable 1.7.9.20.00-1 OPERATING LEASE CREDITS IN LIQUIDATION 1.7.9.20.10-4 Operating Leases Receivable - Internal Resources 1.7.9.20.20-7 Operating Leases Receivable - External Resources 1.7.9.95.00-5 (-) INCOME TO BE APPROPRIATED FROM LEASE CREDITS IN LIQUIDATION 1.7.9.95.10-8 Financial Lease 1.7.9.95.20-1 Operating Lease 1.7.9.99.00-1 (-) PROVISION FOR DOUBTFUL LIQUIDATION LEASE CREDITS 1.7.9.99.10-4 Financial Lease 1.7.9.99.20-7 Operating Lease 1.8.9.10.00-3 OTHER CREDITS IN LIQUIDATION 1.8.9.10.10-6 Credits from Honored Guarantees and Sureties 1.8.9.10.20-9 Advances on Exchange Contracts 1.8.9.10.99-3 Others 1.8.9.95.00-4 (-) INCOME TO BE APPROPRIATED FROM OTHER CREDITS IN LIQUIDATION 1.8.9.95.10-7 Credits from Honored Guarantees and Sureties 1.8.9.95.20-0 Advances on Exchange Contracts 1.8.9.95.90-1 Others. 11. Any balances existing in the items excluded in the previous item must be written off against provision or reclassified to the appropriate accounting title. 12. We further clarify that: I - upon the monthly review referred to in art. 4, item I, of Resolution No. 2.682, of 1999, the reclassification of the operation to a lower-risk category, due to the reduction of delay, is limited to the level established in the previous classification; II - for the purposes of the provisions of the previous item, the previous classification shall be considered the most recent classification made based on the criteria established
in arts. 2 and 3 of Resolution No. 2.682, of 1999, observing the requirement set forth in art. 4, item II, of that Resolution; III - the provision for doubtful liquidation credits must be constituted on the book value of the credits through a debit entry to OPERATIONAL PROVISION EXPENSES and a credit to the appropriate provision account for credit operations. In case of insufficiency, the balance of the provision accounts is adjusted by debiting the expense account. In the event of an excess, the balance of the provision accounts is readjusted to the debit of the expense account, to the amounts provisioned in the period, or to the credit of REVERSAL OF OPERATIONAL PROVISIONS, if already transferred to the balance sheet; IV - the provisions of the preceding item also apply to additional provisions eventually constituted as a result of the classification of credit operations contracted up to 29 February 2000, at the different risk levels established in art. 1 of Resolution no. 2,682, of 1999; V - for the purpose of constituting provisions in leasing operations, the present value of the contract considerations must be considered as the calculation basis, using the internal rate of return of each contract in accordance with the provisions of Circular no. 1,429, of 20 January 1989; VI - an operation classified as risk level H must be transferred to a suspense account, observing the provisions of art. 7 of Resolution no. 2,682, of 1999, provided that it presents a delay exceeding 180 days; VII - credits written off as a loss must be recorded in specific accounts of the suspense system, in subheadings adequate to identify the period in which the record occurred, and an analytical control of these credits must be maintained, with identification of the characteristics of the operation, debtor, recovered amounts, guarantees and respective administrative and judicial measures, aiming at their recovery; VIII - the gain eventually obtained upon renegotiation of credit operations, calculated by the difference between the renegotiation value and the book value of the credits, must be recorded in a subheading for internal use of the account that records the credit and must be recognized in income only upon its receipt, by recording in the account INCOME FROM CREDIT OPERATIONS, according to criteria provided for in the renegotiation or proportionally to the new maturity terms; IX - credits written off as a loss and possibly renegotiated must be recorded at the exact renegotiation value, observing the provisions of the preceding item regarding the recording of the gain eventually obtained, to the credit of the account RECOVERY OF CREDITS WRITTEN OFF AS A LOSS, with simultaneous write-off of their amounts from the respective suspense accounts; X - in the case of recovery of credits through dation of assets in payment, the following procedures must be observed: a) when the valuation of the assets is higher than the book value of the credits, the amount to be
recorded must be equal to the amount of the credit, and the recognition of the difference as income is not permitted; b) when the valuation of the assets is lower than the book value of the credits, the amount to be recorded is limited to the amount of the valuation of the assets; XI - in the recovery of credits not yet written off as a loss that comply with the provisions of paragraph "b" of the preceding item, the amount exceeding the valuation value of the asset must be recorded as a debit to the appropriate provision account for credit operations, up to its limit, and the difference, if any, as a debit to EXPENSES ON OPERATIONAL PROVISIONS. 13. For the purposes of the provisions of this Circular Letter, the book value of credits is considered to be the value of the operation on the reference date, including revenues and charges of any nature, observing the provisions of art. 9 of Resolution no. 2,682, of 1999. 14. This Circular Letter enters into force on the date of its publication. Brasilia, 01 March 2000. DEPARTMENT OF NORMS OF THE DEPARTMENT OF SUPERVISION FINANCIAL SYSTEM Carlos Eduardo Sampaio Lofrano Tereza Cristina Grossi Togni Chief Chief