Circular LISOL 1-249: Minimum Capital of Financial Entities, Computable Equity Responsibility, and Treatment of Provisions for Default Risk for Debtors in Normal Status

"1999 - Year of Exportation"
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMMUNICATION "A" 2948 I 16/07/99 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 249.
Minimum capital of financial entities. Computable equity responsibility. Treatment of the provision for default risk for debtors in normal status.

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

"1. Substitute, with effect for the determination of the minimum capital whose integration is required from 31.8.99, point 3.4.1. of Section 3. of the regulations on minimum capital of financial entities with the following:

"3.4.1. Individual and consolidated monthly bases.
The concepts included shall be calculated based on the monthly averages of daily balances of the month prior to that corresponding to the determination of the requirement (capital, interest, premiums, and quotation differences, as applicable, net of provisions for default and devaluation risks and of accumulated depreciation and amortization attributable to them, without deducting 50% of the minimum required amount of the provision for default risk on the portfolio corresponding to debtors classified "in normal status" or "normal compliance" and financings that are covered with preferred guarantees "A")."

2. Replace, with effect to determine the positions of assets subject to market risk requirements registered from 1.9.99, in the second paragraph of point 6.5.3. of Section 6. of the regulations on minimum capital of financial entities, the concepts listed in the tenth and twelfth places, with the following:

"Securities loans, net of the provision for default risk, with the exception of 50% of the minimum required amount constituted on the portfolio corresponding to debtors classified "in normal status" or "normal compliance" and those covered with preferred guarantees "A" (+)"

"Loans in foreign currencies other than the US dollar, net of the provision for default risk, with the exception of 50% of the minimum required amount constituted on the portfolio corresponding to debtors classified "in normal status" or "normal compliance" and those covered with preferred guarantees "A" (+)"

3. Incorporate, with effect for the determination of computable equity responsibility from 31.8.99, in Section 7. of the regulations on minimum capital of financial entities, the following point:

"7.2.2.6. Provision for default risk on the portfolio corresponding to debtors classified "in normal status" or "normal compliance" and financings covered with preferred guarantees "A" (only 50% of the minimum required amount) (+)."

4. Substitute, with effect for the determination of the minimum capital whose integration is required from 31.8.99, point A 3. of the regulations on minimum capital requirement based on risk from interest rate variations (text according to Communication "A" 2922), with the following:

"3. In the case of credits, the cash flow to maturity of principal and interest shall be taken -considering, with respect to the latter, the suspension of accrual regarding credits where this option has been chosen- net of the application of the percentages of provisioning for default risk. In the case of debtors classified in normal status and financings covered with preferred guarantees "A", only 50% of the required amount shall be deducted. For these purposes, the cash flows from financings to be allocated in each time band shall be considered net of the computable provisions for default risk, taking into account the resulting proportion according to the debtor's classification for the month corresponding to the calculation of the "VaRr" value."

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Juan Carlos Isi Alfredo A. Besio
Manager of Regulatory Regime Manager of Regulations for Financial Entities