Circular LISOL 1 - 312. Minimum Capital and Technical Ratio Breaches. Applicable Criteria. Consolidated Text

BANCO CENTRAL DE LA REPUBLICA ARGENTINA

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COMMUNICATION "A" 3161 I 19/09/00

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TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 312
Minimum Capital and Technical Ratio Breaches.
Applicable Criteria.
Consolidated Text

We address you to bring to your knowledge that this Institution adopted the following resolution:

"1. Approve, with effect from 1.9.00, the norms on "Minimum Capital and Technical Ratio Breaches.
Applicable Criteria" which appear in the annex that forms part of this communication.
2. State that, as a consequence of what is provided in the preceding point,
the payment of charges and interest for amounts not deposited in time and form, originating from breaches of the concepts included in the norms referred to in point 1 of this communication, registered until 31.8.00, will not be payable.
3. Repeal, with effect from 1.9.00, the norms
on "Minimum Capital and Technical Ratio Breaches.
Charges".

It is highlighted that the new regime should not be interpreted as an alternative for compliance with the regulations established by the Central Bank.

Consequently, we send you the consolidated text as of today of the norms in force in this matter.
We greet you very respectfully.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio Alejandro Henke
Manager of Issuance Deputy General Manager of
Regulatory Norms Regulation and Information Regime

ANNEX: 8 pages

B.C.R.A. CONSOLIDATED TEXT OF THE NORMS ON MINIMUM CAPITAL AND TECHNICAL RATIOS. APPLICABLE CRITERIA

• Index -
  Section 1. Minimum capital deficiencies.
  1.1. Breaches reported by the entities.
  1.2. Breaches detected by the Superintendence of Financial and Exchange Entities.
  1.3. Daily capital deficiency.
  1.4. Application of Article 41 of the Financial Entities Law.
  Section 2. Excesses in the ratio of immobilized assets and other concepts and in the limits of
  credit risk fragmentation, financing to related clients and credit grading.
  2.1. Breaches reported by the entities.
  2.2. Breaches detected by the Superintendence of Financial and Exchange Entities.
  2.3. Limitations on liability growth.
  2.4. Accounting exposure.
  2.5. Application of Article 41 of the Financial Entities Law.
  Section 3. Special cases of inapplicability of the higher minimum capital requirement.
  3.1. Suspension.
  3.2. Elimination.
  Version: 1a. Communication "A" 3161 Validity:
  01.09.00

B.C.R.A. APPLICABLE CRITERIA
Section 1. Minimum capital deficiencies.
1.1. Breaches reported by the entities.
The entity must comply with the requirement at the latest in the second month following that in which the breach is registered, or present a regularization and recovery plan within 30 calendar days following the last day of the month to which the breach corresponds. The obligation to present plans will determine, while the deficiency persists, that the amount of deposits and other obligations for financial intermediation - in national and foreign currencies - cannot exceed the level that, in average monthly daily balances, it had reached during the month in which the breach originated, without prejudice to the other effects provided for in point 1.4. of Section 1. of the norms on "Minimum Capital of Financial Entities".

1.2. Breaches detected by the Superintendence of Financial and Exchange Entities.
1.2.1. Defense.
The entity will have 30 calendar days counted from the notification of the determination made by the Superintendence of Financial and Exchange Entities to formulate its defense, on which it must rule within 30 calendar days following the presentation.

1.2.2. Final Determination.
1.2.2.1. When the entity does not present its defense within the period indicated in point 1.2.1., the breach will be considered final, applying the procedure established in point 1.1. in the case that breaches persist. The periods will be calculated from the month in which the breach became final as provided above.
1.2.2.2. If the defense formulated is dismissed - totally or partially - by the Superintendence of Financial and Exchange Entities, the entity will adjust to the procedure established in point 1.1., in the case that breaches persist. The periods will be calculated from the month in which the notification of the adopted decision is made.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

B.C.R.A. APPLICABLE CRITERIA
Section 1. Minimum capital deficiencies.
1.3. Daily capital deficiency.
1.3.1. Immediate Compliance.
In the event that a daily integration defect occurs regarding the capital requirement for market risk, originating in the calculation of the requirement by the sum of the risk values of the assets included ("VaRp"), the financial entity must replenish the capital and/or reduce its financial asset positions until it complies with the established requirement, for which it will have a period of ten business days, counted from the first deficiency.

1.3.2. Persistent Deficiency.
1.3.2.1. If the defect persists for a term greater than 10 business days, the entities must present a regularization and recovery plan within 5 business days following, with the effects indicated in the second paragraph of point 1.1.
1.3.2.2. When it concerns deficiencies determined by the Superintendence of Financial and Exchange Entities and to the extent that the deficiency is persistent according to the last available information, the terms referred to in point 1.2.1. for the presentation of the defense and that the Superintendence rules on it will be 5 and 10 business days, respectively, while for the regularization of the breach, in the manner provided in point 1.3.1., the entity will observe the period of 10 business days, counted from the date the integration defect becomes final.
Once that term has expired without the breach having been regularized, what is established in point 1.3.2.1. will be observed.

1.4. Application of Article 41 of the Financial Entities Law.
Summary proceedings will be initiated according to the guidelines defined by the Superintendence of Financial and Exchange Entities.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

APPLICABLE CRITERIA
B.C.R.A. Section 2. Excesses in the ratio of immobilized assets and other concepts and in the limits of credit risk fragmentation, financing to related clients and credit grading.
2.1. Breaches reported by the entities.
2.1.1. Information submitted on time.
They will originate the increase in the minimum capital requirement for credit risk by an amount equivalent to 100% of the excess to the ratio, from the month in which the breaches are registered and while they remain. In the case of credit ratios, the calculation of the deviation will be carried out based on the monthly average of daily excesses.

2.1.2. Information submitted late.
They will originate the increase in the minimum capital requirement for credit risk by an amount equivalent to 100% of the excess to the ratio, from the month in which the information is submitted, while the breach subsists, and additionally, by a number of months equal to the number of periods during which the excess not reported timely by the entity was verified. In the case of credit ratios, the calculation of the deviation will be carried out considering the highest daily excess amount, with respect to the clients who originated it, registered in the periods included in the information submitted late and in the following ones, as long as the breach is maintained and even if the information of the following periods is submitted on time and in due form.

2.1.3. Repeated Breaches.
2.1.3.1. Definition.
It refers to the non-compliance with the ratios - considering each of them separately - in successive periods or with an interval of less than 3 months, derived from voluntary acts (for example: granting financing to a client whose assistance already exceeds the limits, distribution of profits that decrease the computable equity, excesses of assistance to different clients in different periods).

2.1.3.2. Consequences.
It will determine that the increase in the minimum capital requirement for credit risk be equivalent to 130% of the excess registered in the respective ratio.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

APPLICABLE CRITERIA
B.C.R.A. Section 2. Excesses in the ratio of immobilized assets and other concepts and in the limits of credit risk fragmentation, financing to related clients and credit grading.
2.2. Breaches detected by the Superintendence of Financial and Exchange Entities.
2.2.1. Defense.
The entity will have 30 calendar days counted from the notification of the determination made by the Superintendence of Financial and Exchange Entities to formulate its defense, on which it must rule within 30 calendar days following the presentation.

2.2.2. Final Determination.
2.2.2.1. When the entity does not present its defense within the period indicated in point 2.2.1., the determination will be considered final on the day the period to formulate the defense expires.
2.2.2.2. If the defense formulated is dismissed - totally or partially - by the Superintendence of Financial and Exchange Entities, the breach will be considered final on the date of notification of the adopted decision.

2.2.3. Treatment of the determined breach.
It will originate the increase in the minimum capital requirement for credit risk by an amount equivalent to 150% of the excess to the ratio from the month in which it becomes final, while the breach subsists, and additionally, by a number of months equal to the number of periods during which the breach detected by the Superintendence was verified. In the case of credit ratios, the calculation of the deviation will be carried out considering the highest daily excess amount, with respect to the clients who originated it, registered in the aforementioned periods and in the following ones, as long as the breach is maintained and even if the information of the following periods is submitted on time and in due form.

2.3. Limitations on liability growth.
When the sum of the increases in the minimum capital requirement for credit risk resulting from the breaches of the technical ratios included in this Section exceeds the equivalent to 5% of said requirement - without considering the increases - and while this situation subsists, the amount of deposits and other obligations for financial intermediation - in national and foreign currencies - cannot exceed the level that, in average monthly daily balances, it had reached during the month in which that fact is registered.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

APPLICABLE CRITERIA
B.C.R.A. Section 2. Excesses in the ratio of immobilized assets and other concepts and in the limits of credit risk fragmentation, financing to related clients and credit grading.
2.4. Accounting exposure.
Breaches must be reported in notes to the financial statements according to the criteria established by the Superintendence of Financial and Exchange Entities.

2.5. Application of Article 41 of the Financial Entities Law.
Summary proceedings will be initiated according to the guidelines defined by the Superintendence of Financial and Exchange Entities.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

APPLICABLE CRITERIA B.C.R.A. Section 3. Special cases of inapplicability of the higher minimum capital requirement.
3.1. Suspension.
The suspension of a financial entity according to what is provided in Article 49 of the Organic Charter of the Central Bank of the Republic of Argentina will have the same effect with respect to the increases in the minimum capital requirement for credit risk determined by reason of what is established in Section 2.

3.2. Elimination.
In the event that any of the restructuring mechanisms provided for in points I - subclauses c) and d) - and III of Article 35 bis of the Financial Entities Law apply, the increases in the minimum capital requirement for credit risk determined by reason of what is established in Section 2. will be repealed.

Version: 1a. Communication "A" 3161 Validity:
01.09.00

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE TEXT
CONSOLIDATED NORMS ON
APPLICABLE CRITERIA
CONSOLIDATED TEXT ORIGIN NORM
Section Point Paragraph Com. Cap. Point Paragraph Observations
1.1. "A" 3161 1.1.
1.2. "A" 3161 1.2.
1.2.1. "A" 3161 1.2.1.
1.2.2. "A" 3161 1.2.2.
1.2.2.1. "A" 3161 1.2.2.1.
1.2.2.2. "A" 3161 1.2.2.2.
1.3. "A" 3161 1.3.
1.3.1. "A" 3161 1.3.1.
1.3.2. "A" 3161 1.3.2.
1.3.2.1. "A" 3161 1.3.2.1.
1.3.2.2. "A" 3161 1.3.2.2.
1.4. "A" 3161 1.4.
2.1. "A" 3161 2.1.
2.2. "A" 3161 2.2.
2.2.1. "A" 3161 2.2.1.
2.2.2. "A" 3161 2.2.2.
2.2.2.1. "A" 3161 2.2.2.1.
2.2.2.2. "A" 3161 2.2.2.2.
2.2.3. "A" 3161 2.2.3.
2.3. "A" 3161 2.3.
2.4. "A" 3161 2.4.
2.5. "A" 3161 2.5.
3.1. "A" 3161 3.1.
3.2. "A" 3161 3.2.