Circular LISOL 1 - 184. Liquidity Position (Communication "A" 2671). Modifications. Consolidated Text.

"1998 - Year of the Municipalities"
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION "A" 2690 22/04/98 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 184.
Liquidity Position. (Communication "A" 2671). Modifications. Consolidated Text

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

"1. Replace point 3.1.1.1. of the Annex to Communication "A" 2671 with the following:
"3.1.1.1. national public bonds and private securities of the country, except those to be reported in points 3.1.1.7. and 3.1.1.8., with daily quotation in national or foreign securities markets, referring to relevant transactions in whose amount the eventual liquidation of the holding cannot distort the indicated quotation. All holdings of securities under these conditions will be considered, declaring them at market value, according to the quotation at the close of operations on the last day of the previous month. Securities that have a quotation that does not meet these conditions will be considered as non-marketable and, as such, included in point 3.1.2."

2. Replace the penultimate and antepenultimate paragraphs of point 3.1. of the Annex to Communication "A" 2671 with the following:
   "The assets referred to in points 3.1.2. and 3.1.3. will be reported in the respective period according to their maturity.
   The provisions for uncollectibility risk attributable to the financing referred to in section 3.1.3. will be reported separately and in aggregate."

3. Replace point 3.1.3. of the Annex to Communication "A" 2671 with the following:
   "3.1.3. loans, other credits by financial intermediation, and goods in financial leasing, separated by category according to the rules on debtor classification (Communication "A" 2216), discriminated as follows:
   i) with self-liquidating guarantee, taking into account the concepts detailed in subsections a) to j) of section 1 of Annex I to Communication "A" 2216 and complementary regulations. ii) commercial portfolio. iii) consumer portfolio (total), including credits of a commercial nature regarding which the option to classify them within the consumer portfolio has been exercised. Additionally, the following will be reported:
   a) pledged b) mortgage (for housing) iv) to the financial sector. v) to the public sector. vi) others.
   In the case of concepts included under the heading "other credits by financial intermediation," operations for the purchase and sale of securities and foreign currency - cash for settlement and forward transactions linked or not linked with repos - will not be included, but settlement lags will be included.

4. Replace the second paragraph of point 4.1.1. of the Annex to Communication "A" 2671 with the following:
   "The difference between the initial balance of computable assets and liabilities and the sum of the amounts of the flows reported in each column must be equal to zero, except in the case of minimum liquidity requirements."

5. Replace the first paragraph of point 4.1.2. of the Annex to Communication "A" 2671 with the following:
   "4.1.2. All assets and liabilities and contingent commitments will be computed, as provided in point 3."

6. Replace the heading of point 4.2.2.c) of the Annex to Communication "A" 2671 with the following:
   "loans, other credits by financial intermediation, and goods in financial leasing."

7. Replace point 4.2.2.e) of the Annex to Communication "A" 2671 with the following:
   "e) other obligations by financial intermediation.
   According to the contractual situation (point 4.1.), except for credits received from local financial entities and foreign banks regarding which the following will be observed for each case:
   i) effectively instrumented: the previously stated in the subsection "liquid assets" (point 4.2.2. a) will be taken into account. ii) not effectively instrumented (those that as such should not be included in the contractual situation, point 4.1.): the initial balance and its cancellation will be reported as resulting from considering the average renewal of the three immediate months prior to the one corresponding to the information."

8. Replace the first paragraph of point 4.3.c) of the Annex to Communication "A" 2671 with the following:
   "It will be considered that recoveries of credits from the commercial and consumer or housing portfolios to borrowers from the non-financial private sector classified in the categories 'in normal situation' or 'normal compliance' and 'with potential risk' or 'inadequate compliance' are equivalent to 20% and 10%, respectively, of the amount of the maturities reported according to the contractual situation for the first week, renewing or granting new financing for the rest, with maturity to the following month. In the case of maturities in subsequent periods, the same recovery scheme will be considered, taking into account additionally the effect of renewals or financing of preceding periods."

9. Replace the heading of point 4.3.d.) of the Annex to Communication "A" 2671 with the following:
   "other credits by financial intermediation and goods in financial leasing."

10. Replace point 4.3.f.) of the Annex to Communication "A" 2671 with the following:
    "f) other obligations by financial intermediation.
    According to the contractual situation (point 4.1.)."

11. Replace the first paragraph of point 4.4.c) of the Annex to Communication "A" 2671 with the following:
    "4.4.c) loans and goods in financial leasing.
    It will be considered that recoveries of credits from the commercial and consumer or housing portfolios to borrowers from the non-financial private sector classified in the categories 'in normal situation' or 'normal compliance' and 'with potential risk' or 'inadequate compliance' are equivalent to 10% and 5%, respectively, of the amount of the maturities reported according to the contractual situation for the first week, renewing or granting new financing for the rest, with maturity to the following month. In the case of maturities in subsequent periods, the same recovery scheme will be considered, taking into account additionally the effect of renewals or financing of preceding periods."

12. Replace point 4.4.d.) of the Annex to Communication "A" 2671 with the following:
    "The criterion previously exposed (loans) will be applied."

13. Replace point 4.4.f.) of the Annex to Communication "A" 2671 with the following:
    "f) other obligations by financial intermediation.
    According to the contractual situation (point 4.1.)."

14. Replace the last paragraph of point 4. of the Annex to Communication "A" 2671 with the following:
    "In determining the values of the minimum liquidity requirements (point 3.1.1.10.), the projected effect of increases or decreases in liabilities included, according to the assumed scenarios, must be taken into account in the different periods."

15. Replace the last paragraph of point 5. of the Annex to Communication "A" 2671 with the following:
    "The values of the coefficients 'k' will be fixed based on the experience recorded in the period May/September 1998 and will be valid from November 1998. They may eventually be differential by type of entity, taking into account their specialization and size."

16. Nullify what is provided in points 3.1.1.9., 3.1.1.11., 3.1.4., 3.4., 4.2.2.g), 4.2.2.h), 4.3.h), 4.3.i), 4.4.h) and 4.4.i) of the Annex to Communication "A" 2671.

17. Extend, until 1.5.98, the entry into force of the provisions contained in the Annex to Communication "A" 2671."

In attachment, we send you the consolidated text of the regulations on liquidity position, while clarifying that for the purposes provided in point 6.1, what is established in that matter according to the resolution disseminated by Communication "A" 2649 applies. We salute you very attentively. BANCO CENTRAL DE LA REPUBLICA ARGENTINA Juan Carlos Isi Alfredo A. Besio Deputy Manager of Rules for Financial Entities Manager of Rules for Financial Entities

ANEXO

B.C.R.A.	LIQUIDITY POSITION	Annex to
	(Text according to Communication "A" 2690)	Com. "A" 2671

1. Financial entities must adopt management and control policies that ensure the availability of reasonable levels of liquidity to efficiently attend, in different alternative scenarios, their deposits and other financial nature commitments.
   These policies must foresee the procedures that will be used to evaluate with sufficient advance the liquidity conditions of the entity in the context of the market, with the consequent review of estimates and their adequacy to new scenarios, arbitrating the measures leading to the elimination of liquidity gaps or adopting precautions to foresee the obtaining of resources at market cost -similar to that which their competitors must pay- and sufficient to sustain prudently the longer-term assets. In this order, the degree to which their liabilities or assets are concentrated in certain clients, the general situation of the economy and the market and its probable evolution, their repercussion on the availability of credit lines and the capacity to obtain resources through the sale of public bonds and/or active portfolio, etc., must be taken into account. The organizational structure of the entity must contemplate the areas and levels of responsibility of those who will have the task requiring daily monitoring. Necessarily, the participation and coordination of the highest managerial authority of the entity (e.g.: General Manager) will correspond. Additionally, a member of the board must be designated to whom information will be provided at least weekly, or more frequently if circumstances so require, especially when changes in liquidity conditions force defining new courses of action to safeguard the entity.

2. For the analysis of the liquidity position, consolidated cash flows in pesos and foreign currency must be available, contemplating each of the following alternative scenarios to face specific liquidity situations, namely:
   2.1. contractual situation.
   2.2. current situation.
   2.3. situation with signs of individual illiquidity.
   2.4. generalized illiquidity situation.

3. The liquidity position will be elaborated monthly according to the information regime established and taking into account the following concepts:
   3.1. The assets (capitals) will be considered according to the following breakdown:
   3.1.1. liquid assets, which include:
   3.1.1.1. national public bonds and private securities of the country, except those to be reported in points 3.1.1.7. and 3.1.1.8., with daily quotation in national or foreign securities markets, referring to relevant transactions in whose amount the eventual liquidation of the holding cannot distort the indicated quotation. All holdings of securities under these conditions will be considered, declaring them at market value, according to the quotation at the close of operations on the last day of the previous month.
   Securities that have a quotation that does not meet these conditions will be considered as non-marketable and, as such, included in point 3.1.2.
   3.1.1.2. credit lines available upon simple request, granted by local financial entities, effectively instrumented.
   3.1.1.3. availability in foreign banks not computable as integration of minimum liquidity requirements. Only those maintained in banks with international rating "A" or higher granted by one of the evaluating companies listed in point 2.2. of Section 2. of the regulations on financial entity rating (Communication "A" 2521, Consolidated Text) will be considered.
   3.1.1.4. foreign public bonds, with habitual quotation in foreign exchanges or markets, issued by central governments of countries members of the OECD (Organization for Economic Cooperation and Development) that have at least one international rating "A" or equivalent granted by one of the international evaluating agencies listed in point 2.2. of Section 2. of the regulations on financial entity rating (Communication "A" 2521, Consolidated Text).
   3.1.1.5. credit lines available upon simple request, granted by foreign financial entities with the rating provided in point 3.1.1.3., effectively instrumented.
   3.1.1.6. other availability abroad of unrestricted use, including balances of the account "Liquidity Requirements - Com. "A" 2350" opened at Deutsche Bank, New York.
   3.1.1.7. Holding of public bonds linked to passive repos for the Central Bank.
   3.1.1.8. other securities not included in the preceding sections, time deposit certificates issued by foreign banks and mutual fund shares, provided that holdings under these concepts are computable as integration of minimum liquidity requirements.
   3.1.1.9. minimum liquidity requirements, with a negative sign.
   When applicable, the amounts will be recorded in the first period of "maturities."
   3.1.2. public and private bonds, of the country or abroad, except those integrating the concept of "liquid assets," discriminated as national, provincial, and municipal, and foreign.
   Depreciation provisions will be reported separately and in aggregate.
   3.1.3. loans, other credits by financial intermediation, and goods in financial leasing, separated by category according to the rules on debtor classification (Communication "A" 2216), discriminated as follows:
   i) with self-liquidating guarantee, taking into account the concepts detailed in subsections a) to j) of section 1 of Annex I to Communication "A" 2216 and complementary regulations. ii) commercial portfolio. iii) consumer portfolio (total), including credits of a commercial nature regarding which the option to classify them within the consumer portfolio has been exercised. Additionally, the following will be reported:
   a) pledged b) mortgage (for housing) iv) to the financial sector. v) to the public sector. vi) others.
   In the case of concepts included under the heading "other credits by financial intermediation," operations for the purchase and sale of securities and foreign currency - cash for settlement and forward transactions linked or not linked with repos - will not be included, but settlement lags will be included. The assets referred to in points 3.1.2. and 3.1.3. will be reported in the respective period according to their maturity. The provisions for uncollectibility risk attributable to the financing referred to in section 3.1.3. will be reported separately and in aggregate. On its part, provisions on normal portfolio will also be reported separately.
   3.2. The liabilities (capitals) will be considered according to the following breakdown:
   3.2.1. deposits by type and investment certificates:
   i) current account, ii) savings account and special accounts, iii) fixed-term securities, iv) fixed-term in pesos and foreign currency, v) qualified investment certificates, vi) term investments with variable remuneration vii) other deposits and term investments viii) others. Within each type of deposit -only when dealing with current accounts, savings accounts, fixed-term, and term investments- the amounts will be discriminated based on:
   a) balances or deposits in accounts of residents in the country, with the following breakdown:
   a) 1. balances or deposits up to $ 10,000 or $ 20,000, as applicable, insofar as they are covered by deposit insurance (Com. "A" 2337 and complementary regulations). a) 2. balances or deposits up to $ 100,000 or its equivalent, excluding those included in the previous section. a) 3. balances or deposits exceeding $ 100,000 or its equivalent. The breakdown according to section a) 1. will be optional. b) balances or deposits in accounts of non-residents in the country, regardless of the balance or amount of the deposit. Deposits and other demand obligations will be considered in the first maturity period, while the remaining liabilities will be reported in the respective period according to their maturity -taking into account, in the case of term investments with early cancellation option or automatic renewal, that resulting from the date on which the investor can exercise their right-.
   3.2.2. other obligations by financial intermediation, except -with the established caveats, according to the scenario- for operations for the purchase and sale of securities and foreign currency - cash for settlement and forward transactions linked or not linked with repos -, but including settlement lags, with discrimination of:
   i) bonds, ii) credits from local financial entities, iii) credits from foreign banks, iv) balances owed to the Central Bank for the use of advances and rediscounts for illiquidity and v) other commitments under the heading.
   3.2.3. commitments linked to credit lines granted to local entities, effectively instrumented (counterpart of point 3.1.1.2.).
   3.3. Contingent commitments for:
   3.3.1. unused balances of current account advances granted, insofar as their use cannot be restricted by the entity and
   3.3.2. guarantees, sureties, and other eventual responsibilities assumed by the entity on behalf of third parties for their clients, registered in off-balance sheet accounts, net of operations that have "self-liquidating" counter-guarantees. They will be computed at 25%, 30%, and 35% of their value, when dealing with debtors classified in categories 1., 2., and remaining, respectively, according to the regime of Communication "A" 2216 and complementary regulations. Their attribution in the various periods will be carried out based on the entity's experience.

4. In the elaboration of cash flows for liquidity positions for each of the scenarios, as required in point 2., the following criteria will be taken into account:
   4.1. contractual situation:
   4.1.1. In each period of "maturities," the amounts whose recovery or payment must be concretized -according to contractual clauses (taking into account cancellation or automatic renewal options in the case of investments, when applicable) or issuance- within the indicated timeframes, counted from the last day of the previous month, excluding what was declared in the previous period/s, will be reported.
   The difference between the initial balance of computable assets and liabilities and the sum of the amounts of the flows reported in each period must be equal to zero, except in the case of minimum liquidity requirements.
   4.1.2. All assets and liabilities and contingent commitments will be computed, as provided in point 3.
   Available margins of local and foreign financial entities will be recorded in the first week and their maturity according to what is provided in the contracts.
   4.2. current situation:
   4.2.1. The recovery of assets, the renewal of liabilities and/or eventual increases or decreases in computable assets and liabilities are equal to those observed -on average- in the three immediate months prior to the one corresponding to the information. The total of collections or renewals and/or increases or decreases of the observed quarter will be calculated and compared with respect to the pertinent maturities of the contractual situation of that same period.
   This average will be calculated based on the comparison between the balances on the last day of each of the months and the respective immediate previous month, starting from the situation corresponding to the last month included in that observation. The ratio obtained, as a percentage, will be applied to the contractually provided maturities, unless the average variation rate for the observed quarter is superior to 100 (increase), in which case the resulting rate will be used under the following conditions:

• with 100% of the growth, up to the third month of maturities, inclusive.
• with 50% of the growth, between the fourth and the sixth month of maturities.
• with 25% of the growth, between the seventh and the twelfth month of maturities.
• without growth (0%), from the thirteenth month of maturities.
  The computable percentage ratios on the behavior regarding the contractual situation that assets and liabilities experience as provided in this point, will be applied to determine the amounts of renewals, increases, decreases, and/or recoveries to be reported in each period, separately from the maturities.

4.2.2. The concepts indicated in point 3. will be computed according to the following guidelines:
a) liquid assets.
Taking into account the contractual situation (point 4.1.), with the following caveat:

• available margins upon simple request from lines of local financial entities and foreign banks effectively instrumented:
  It will be considered that they are used in their entirety in the first week and that their cancellation will occur after 24 months.
  In the case that a part of these margins has been used previously, their cancellation will be reported in the first week and simultaneously integrated as available margin to reach the agreed quota. b) non-marketable securities. According to the contractual situation (point 4.1.). c) loans, other credits by financial intermediation, and goods in financial leasing. According to the contractual situation (point 4.1.) and what is provided in point 4.2.1. d) deposits and investment certificates. According to the contractual situation (point 4.1.) and what is provided in point 4.2.1. e) other obligations by financial intermediation. According to the contractual situation (point 4.1.), except for credits received from local financial entities and foreign banks regarding which the following will be observed for each case:
  i) effectively instrumented: the previously stated in the subsection "liquid assets" (point 4.2.2. a) will be taken into account.

ii) no instrumented in a reliable manner (which as such should not be included in the contractual situation, point 4.1.): the initial balance and its cancellation shall be reported based on considering the average of renewals from the three immediate preceding months corresponding to the information.

f) contingent commitments.
According to the contractual situation, taking into account, in the case of unused balances of current account advances, what is provided in point 4.2.1.

4.3. Situation with signs of individual illiquidity:
The concepts indicated in point 3 shall be computed according to the following guidelines:

a) Liquid assets.
According to the contractual situation (point 4.1.), with the following caveat:

• Available margins upon simple request through lines of local financial entities and foreign banks reliably instrumented:
  It will be considered that they are used in their entirety and that they are cancelled at their maturity without renewal.

b) Unclassified securities.
According to the contractual situation (point 4.1.).

c) Loans.
It will be considered that the recoveries of credits from the commercial and consumer or housing portfolios to non-financial private sector borrowers classified in the categories "in normal situation" or "normal compliance" and "with potential risk" or "inadequate compliance" are equivalent to 20% and 10%, respectively, of the amount of maturities reported according to the contractual situation for the first week, renewing or granting new financings for the remainder, with maturity in the following month. In the case of maturities in subsequent periods, the same recovery scheme will be considered, additionally taking into account the effect of renewals or financings from preceding periods.

The funds recovered according to the above provision cannot be allocated to new financings and, in no way, may an increase in the loan balance be registered.
In the case of loans from both portfolios classified in the remaining categories, it will be considered that, at their maturity according to the contractual situation (point 4.1.), they are renewed in their entirety (no recoveries are registered). On the other hand, loans to the financial and non-financial public sectors shall be recorded as reported in the current situation (point 4.2.).

d) Other credits by financial intermediation and goods in financial leasing.
The criterion exposed previously (loans) shall be applied.

e) Deposits.

• In current accounts and other demand deposits:
  99% of the variation rate calculated as provided in point 4.2.1. shall be applied, without exceeding 100%, that is, it will be taken into account at most that they are renewed in their entirety but do not register growth.
• Savings accounts and special accounts:
  95% of the variation rate calculated as provided in point 4.2.1. shall be applied, without exceeding 100%, that is, it will be taken into account at most that they are renewed in their entirety but do not register growth.
• Time deposits and other concepts referred to in point 3.2.1., sections v) to vii):
  90% of the variation rate calculated as provided in point 4.2.1. shall be applied.

f) Other obligations by financial intermediation.
According to the contractual situation (point 4.1.).

g) Contingent commitments.
According to the contractual situation.

4.4. Generalized illiquidity situation:
a) Liquid assets.
According to the contractual situation (point 4.1.), with the following caveats:

• Public and private securities:
  They shall be valued at 60% and 40% of their respective market prices, except for the portion of holdings regarding which the entity has effected a spot sale to settle or forward-linked or not with swaps) or is holder of the right to exercise a put option with a foreign bank -or its local branch or subsidiary- with international rating "A" or higher granted by one of the risk rating agencies according to the list contained in point 2.2., Section 2. of the ordered text of norms on financial entity rating (Communication "A" 2521). In these cases, the exercise value stipulated in the contract shall be considered.
• Available margins upon simple request through lines of local financial entities reliably instrumented:
  0% utilization shall be considered.
• Available margins upon simple request through lines of foreign banks reliably instrumented:
  It will be considered that they are used in their entirety in the first week and that they are cancelled at their maturity, without renewal.
• 50% of the minimum liquidity requirements shall be computed.

b) Unclassified securities.
According to the contractual situation (point 4.1.).

c) Loans and goods in financial leasing.
It will be considered that the recoveries of credits from the commercial and consumer or housing portfolios to non-financial private sector borrowers classified in the categories "in normal situation" or "normal compliance" and "with potential risk" or "inadequate compliance" are equivalent to 10% and 5%, respectively, of the amount of maturities reported according to the contractual situation for the first week, renewing or granting new financings for the remainder, with maturity in the following month. In the case of maturities in subsequent periods, the same recovery scheme will be considered, additionally taking into account the effect of renewals or financings from preceding periods.

The funds recovered according to the above provision cannot be allocated to new financings and, in no way, may an increase in the loan balance be registered.
In the case of loans from both portfolios classified in the remaining categories, it will be taken into account that, at their maturity according to the contractual situation (point 4.1.), they are renewed in their entirety (no recoveries are registered). On the other hand, it will be taken into account that loans to the financial sector are renewed in their entirety at their maturity, while credits to the non-financial public sector shall be recorded as reported in the contractual situation (point 4.1.).

d) Other credits by financial intermediation.
The criterion exposed previously (loans) shall be applied.

e) Deposits.
They shall be recorded according to the individual illiquidity situation (point 4.3. e).

f) Other obligations by financial intermediation.
According to the contractual situation (point 4.1.).

g) Contingent commitments.
According to the contractual situation.

In determining the values of the minimum liquidity requirements (point 3.1.1.9.), the projected effect by increases or decreases in the liabilities comprised, according to the assumed scenarios, shall be taken into account in the different periods.

5. Liquidity indicators.
   The accumulated global lag of the cash flows prepared for each of the alternative scenarios referred to in point 2., considering the effects of calculations as indicated in point 4., must be positive and reflect in each of the periods from the first week to the third month of maturities the following values, measured as the relationship between the accumulated global lag and the accumulated liabilities maturing in each period.

5.1. Current situation: equal to or greater than coefficient k1.
5.2. Current situation with signs of individual illiquidity: equal to or greater than coefficient k2.
5.3. Generalized illiquidity situation: equal to or greater than coefficient k3.

The values of the "k" coefficients shall be fixed based on the experience recorded in the period May/September 1998 and shall be valid from November 1998. They may eventually be differential by type of entity, taking into account their specialization and size.

6. Financial entities covered by the provisions on consolidated basis supervision (Communication "A" 2227 and its complementary ones), shall present the information regarding:
   6.1. The entity in the country.
   6.2. The entity in consolidated form.

The liquidity indicators established -preceding point 5.- shall be observed individually and in consolidated form.