Circular Liquidity and Solvency LISOL 1-24: Immobilization of Assets

CENTRAL BANK OF THE ARGENTINE REPUBLIC

COMMUNICATION "A" 1214
28/06/88

TO THE FINANCIAL INSTITUTIONS:

Ref.: Circular LIQUIDITY AND SOLVENCY - LISOL - 1 -
24. Immobilization of Assets

We address you to forward the text ordered to date of the provisions issued by this Institution, which are applicable on the subject of the reference.

For this reason, we accompany the sheets corresponding to Chapter III of Circular LISOL - 1, which replace those previously provided.

We greet you very attentively.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Alfredo A. Besio
Eduardo G. Castro
Manager of Standards for
Deputy General Manager
Financial Institutions

Annex: 6 sheets

CENTRAL BANK OF THE ARGENTINE REPUBLIC

ORDERED TEXT

Circular LIQUIDITY AND SOLVENCY	LISOL -1
III - Immobilization of assets.

1. Limits.

1.1. The total of immobilized assets must not exceed 85% of the computable net worth of each financial institution. Until 30/11/88 that ratio will be 92%.

1.2. Within that limitation, investments in securities referred to in point 2.8. must not exceed 3% of the net worth of the respective institution.

Excluded are participations in public service companies, necessary to obtain the service, and those acquired under franchises granted by tax relief regimes, as long as legal impediments exist for the free availability of the securities.

1.3. In the cases of new financial institutions authorized to establish themselves, without prejudice to compliance with the provisions of point 1.2., the total of immobilizations must not exceed 35% of the computable net worth of the institution at the start of its operations and during the first full fiscal year.

This percentage will be increased by 10 points in each of the successive full fiscal years, until reaching the proportion established generally in point 1.1. from the beginning of the sixth fiscal year.

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CONTENT

III - Immobilization of assets.	LISOL -1

1. Limitations.

2. Concepts included.

3. Concepts excluded.

4. Deductible concepts.

5. Assets taken in defense of credits.

5.1. General conditions

5.2. Shares or participations in the capital of companies whose holding implies the situation provided in article 28, subsection a), of Law 21.526.

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2. Concepts included.

2.1. Real estate, furniture, installations, machines, equipment, vehicles and other assets destined for the operation of the institutions.

2.2. Real estate destined for housing, club or recreation of the personnel.

2.3. Assets for future use of the institutions.

2.4. Payments made, if not charged to income accounts, on leased assets when the respective lease with option to purchase has been agreed.

2.5. Investments -construction, introduction of improvements, renovations, etc.- that originate from the use of third-party assets.

2.6. Assets subject to realization.

2.7. Assets intended for rent or for sale.

2.8. Securities not listed on stock exchanges, except those issued by national, provincial and municipal governments.

2.9. Assets taken in defense of credits.

2.10. Goodwill.

2.11. Facilities granted to enable the sale on credit of the entity's assets, even when they meet the characteristics of financial operations, the pertinent analyses and evaluations of the acquirer's financial situation have been carried out and the limitation regarding risk splitting has been verified, provided that the conditions agreed for the operations are of a nature different from those habitually applied in agreements to the general clientele as to term, form of payment, grace period, guarantees required, adjustment clauses, etc. Excepted are the facilities granted by the disposal of assets taken in defense of credits included in point 5., until 3 years or 6 months have elapsed counted from the date of incorporation into the assets of the asset in question, depending on whether this occurred before 01/08/87 or not, respectively.

2.12. Any other fixed asset not covered by provisions.

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3. Excluded concepts.

3.1. Medium-term loans.

3.2. Shares to be re-placed and financial leases.

3.3. Shares of other financial entities.

3.4. Assets taken in defense of credits, included in the provisions of point 5.

3.5. Financing granted to enable the sale on credit of the entity's real estate, under conditions different from those habitually applied to the general clientele, provided that these facilities observe the following requirements:

3.5.1. Minimum collection.

30% of the agreed sale price. For this purpose, the cash collection and the amortization installments received shall be taken into account.

3.5.2. Term.

7 years.

3.5.3. Amortization.

In periodic installments, at most quarterly, equal or increasing (German or French system).

The agreed installments shall be paid updated in accordance with the applicable adjustment clause.

3.5.4. Adjustment clause.

The debt balances shall be updated according to the variations experienced by any of the indices published by the Central Bank.

3.6. Compulsory savings (Laws 23.256 and 23.549).

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4. Deductible concepts.

4.1. Outstanding debts arising from the acquisition of movable or immovable property, contracted with suppliers or corresponding to loans obtained with specific and proven allocation of funds.

4.2. Advances received for the sale of assets.

4.3. Investments that national financial entities (public and private) make or have made - including the value of goodwill - on the occasion of the purchase of subsidiaries of entities in liquidation, auctioned by the Central Bank, according to the following percentages:

4.3.1. 100% during the first year, counted from the date of signing of the purchase-sale agreement, and

4.2.2. 50% during the second year.

The deductible investments shall not exceed in any case 20% of the computable equity responsibility recorded by the respective entity in the month in which the corresponding purchase operation begins execution.

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5. Assets taken in defense of credits.

5.1.1. Assets taken in defense or in payment of credits shall not be computed for the asset immobilization ratios during a term of 6 months, counted from the date of their incorporation into the entity's patrimony.

For assets received in the aforementioned condition before 01/08/87, that term shall be 3 years, counted from their entry into the patrimony.

5.1.2. Assets not realized at the end of the terms established in the previous point shall be subject from that moment to the ratios applicable in matters of immobilized assets.

5.1.3. The Central Bank may require specific schedules for the realization of assets taken in defense or in payment of credits and the formulation of restructuring plans under the terms of Law 22.529 when, in its judgment, such assets reach inappropriate values.

5.1.4. For the determination of the amounts at which the assets are brought in and the allocation of the differences with the amounts of the credits that are deemed cancelled, the rules established in accounting matters shall apply.

5.1.5. If the value of the incorporation of the assets taken exceeds the amount of the claims cancelled, the surplus shall be recorded as fixed assets.

5.2. Shares or holdings in the capital of companies whose holding entails the situation provided for in article 28, subparagraph a), of Law 21.526.

5.2.1. They shall not be considered as fixed assets and with respect to them the provisions of points 5.1.1., 5.1.2. and 5.1.5. shall not be observed.

5.2.2. Within 6 months from the date of incorporation of assets of this nature, the entities must submit to the Central Bank a liquidation plan, at least 30 days in advance of the end of the aforementioned period.

With respect to the holdings incorporated before 01/08/87, the periods referred to in the preceding paragraph shall be 2 years and 60 days, respectively.

5.2.3. In the event that the Central Bank makes observations to the plan submitted, the entity must adjust it in accordance with them within 10 calendar days of notification.

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5.2.4. The failure to submit the plan within the established terms, its rejection or non-compliance, shall give rise to the application of article 41 of Law 21.526.

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