Circular LISOL 1-358: Classification of Debtors. Minimum Provisions for Credit Risk. Modifications

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
COMUNICACION " A " 3339 I 28/09/01
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 358
Classification of Debtors. Minimum Provisions for Credit Risk. Modifications.

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

“1. Approve the text of Section 6. of the regulations on “Classification of Debtors” which is attached as an Annex to this communication.

2. Replace point 7.3. of Section 7. of the regulations on “Classification of Debtors”, with the following:

“7.3. Mandatory Recategorization.
A debtor must be recategorized when there is a discrepancy of more than one level between the classification given by the financial entity and those granted by at least two other entities or financial trusts in categories lower than that assigned by the latter, whose claims - together - represent 40% or more of the total reported by all creditors, according to the latest information available in the “Central of Debtors of the Financial System”.

The recategorization of the debtor will take effect from the month following the availability of the relevant information from said central, at least in the immediate superior category to that in which it registers the highest level of indebtedness considering, for this purpose, that set of entities and financial trusts that represent at least 40% of the total reported by all creditors according to the latest information available in the “Central of Debtors of the Financial System”.

To this end, the classifications made according to the evaluation of the entities will be taken into account, i.e., categories 1 to 5.”

3. Replace the table appearing in point 2.1.1. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, with the following:

“Category With preferred guarantees Without preferred guarantees
1. In normal situation and compliance 1% 1%
2. a) In observation and inadequate compliance
b) In negotiation or with refinancing agreements 3% 6% 5% 12%
3. With problems and deficient compliance 12% 25%
4. With high risk of insolvency and difficult recovery 25% 50%
5. Unrecoverable 50% 100%
6. Unrecoverable by technical provision 100% 100%”

4. Replace point 2.2.2. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, with the following:

“2.2.2. Treatment of accrued interest.
2.2.2.1. Debtors classified in category “in negotiation or with refinancing agreements”.
Provisions must be established for 100% of interest and similar accessories regarding the debts of clients classified “in negotiation or with refinancing agreements” when defaults exceeding 90 days in the payment of obligations are registered. The entity may opt directly to interrupt the accrual of interest. It will be necessary to release provisions once the debt refinancing agreement is reached.

2.2.2.2. Debtors classified in categories 3, 4 or 5.
Provisions must be established for 100% of interest and similar accessories corresponding to the debts of clients classified “with problems” or “deficient compliance”, “with high risk of insolvency” or “difficult recovery”, or “unrecoverable”, accrued from the moment they are classified in any of these categories. The entity may opt, directly, to interrupt the accrual of these concepts. The amount of interest and similar accessories accrued that are collected, corresponding to debts of clients included in the categories “with problems” or “deficient compliance”, “with high risk of insolvency” or “difficult recovery”, with or without preferred guarantees, or “unrecoverable”, with preferred guarantees, shall not generate the release of provisions established, unless the 100% of the accounting claims by capital and accessories and other computable concepts (contingent obligations) is covered, all considered for each client. The collection of the aforementioned concepts that had not been accrued accounting-wise, having opted to interrupt their accrual, shall not generate profits, unless the indicated coverage is met by establishing the pertinent provisions. The greater coverage with provisions resulting from the preceding requirements shall not determine the obligation to reclassify the client into lower categories.”

5. Replace, with effect from October 2001, point 2.2.4. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, with the following:

“2.2.4. Debtors in category 6.
The inclusion of debtors in this category determines the obligation to provision 100% of the financings, including renewals, extensions, stays -express or tacit-, etc., that are granted after such incorporation, once 90 or 180 days have elapsed from the day on which the first of those financings was agreed, depending on whether they are debtors included in point 6.5.6.1. subsections ii) to iv) or subsection i), respectively, of Section 6. of the regulations on “Classification of Debtors”. In the remaining situations provided for this category, 100% provision shall be applied to the total debt.”

6. Establish that the provisions referred to in points 1. to 4. above shall apply from October 2001. Financial entities may opt to apply them from September 2001.”

We send you attached the sheets that, in replacement of those previously provided, must be incorporated into the ordered texts of the regulations on “Classification of Debtors” and “Minimum Provisions for Credit Risk”.

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Ana M. Lemmi Alfredo A. Besio
Submanager of Emission Manager of Norms
Norms Emission of Norms

ANNEXES

B.C.R.A.
UPDATED ORDERED TEXT OF THE REGULATIONS ON
CLASSIFICATION OF DEBTORS
-Index
Section 1. Debtors included.
1.1. General criteria.
1.2. Special allocation criteria.
Section 2. Financings included.
2.1. Concepts included.
2.2. Exclusions.
Section 3. Classification task.
3.1. Portfolio analysis procedures.
3.2. Classification periodicity.
3.3. Classification and provision procedures manual.
3.4. Client file.
3.5. Responsibility for the classification task.
3.6. Approval of the classification.
Section 4. Classification criteria.
4.1. Classification levels.
4.2. Basic classification criterion.
4.3. Evaluation of payment capacity.
4.4. Financings covered with preferred guarantees "A".
4.5. Debtors that should not be subject to classification.
Section 5. Portfolio categories.
5.1. Categories.
Section 6. Classification of commercial portfolio debtors.
6.1. Basic information.
6.2. Classification criterion.
6.3. Minimum classification periodicity.
6.4. Mandatory reconsideration of the classification.
6.5. Classification levels.
6.6. Mandatory recategorization.
Version: 3rd. Communication “A” 3339 Validity:
28.09.01

B.C.R.A. ORDERED TEXT OF THE REGULATIONS ON
CLASSIFICATION OF DEBTORS
-Index
Section 7. Classification of debtors in the consumer or housing portfolio.
7.1. Classification criterion.
7.2. Classification levels.
7.3. Mandatory recategorization.
Section 8. Information to clients.
8.1. Information to be supplied.
Section 9. Bases for observance of the regulations.
9.1. Individual basis.
9.2. Consolidated basis.
Section 10. Others obliged to observe the regulations on classification of
debtors.
10.1. Non-financial entities issuing credit cards in the
“closed system” modality.
10.2. Trustees of financial trusts included in the law
on financial entities.
10.3. Mutual guarantee companies.
Version: 3rd. Communication “A”3339 Validity:
28.09.01

CLASSIFICATION OF DEBTORS B.C.R.A. Section 2. Financings included.
2.2.1.2. Term purchases by passive repos, term repos not linked to passive repos and cash to be settled and their
corresponding premiums to be accrued.
2.2.1.3. Premiums for purchased and sold options.
2.2.1.4. Advances for payment of pensions and retirement benefits.
2.2.1.5. Advances and loans to the Deposit Guarantee Fund.
2.2.1.6. Negotiable obligations purchased (own issuances).
2.2.1.7. Credits against the Central Bank of the Republic of Argentina.
2.2.2. The following guarantees granted:
2.2.2.1. For direct obligations.
2.2.2.2. In favor of the Central Bank of the Republic of Argentina.
2.2.3. Assets that must be deducted for the calculation of computable patrimonial responsibility.
2.2.4. Financings and guarantees, bonds and other liabilities granted by branches and local subsidiaries of financial entities
from abroad, on behalf and order of their head office or their branches in other countries or by the controlling entity, provided that the following requirements are observed:
Version: 5th. Communication “A” 3339 Validity:
28.09.01

6.1. Basic information.
The review of the commercial portfolio will be carried out based on updated financial information - accounting statements and complementary information, investment projects, etc.- which must be provided by clients upon request by the entities, applying parameters valid for each sector and considering other circumstances of the economic activity.
6.2. Classification criterion.
The basic evaluation criterion is the debtor's repayment capacity based on the estimated financial flow and, only secondarily, on the basis of the liquidation of the client's assets, given that the granting of financings must respond to their true credit needs and be carried out in conditions of amortization consistent with the real possibilities of repayment that their activity and fund generation allow. In the case of financial entities, the analysis must take into account the liquidity of the debtor intermediary and the quality of its portfolio.
6.3. Minimum classification periodicity.
The review must be carried out at least with the periodicity indicated below, leaving a record of it in the file of the analyzed client:
6.3.1. During each calendar quarter, with respect to individually considered clients whose financings included at some point are equivalent to 5% or more of the computable patrimonial responsibility or the asset of the financial trust of the month prior to the end of said period depending on whether they are entities or financial trusts, respectively. For these purposes, the group or economic unit will be treated as a single client.
6.3.2. During each calendar semester, with respect to individually considered clients whose included financings sum at some point between 1% - or the equivalent to $ 1,000,000,
whichever is lower - and less than 5% of the computable patrimonial responsibility or the asset of the financial trust of the month prior to the end of said period depending on whether they are entities or financial trusts, respectively. For these purposes, the group or economic unit will be treated as a single client. Version: 2nd. Communication “A” 3339 Validity:
28.09.01

At the close of the first calendar semester, the examination must have reached no less than 50% of the total amount of the commercial portfolio included, computing the clients referred to in point 6.3.1., so that, if necessary to reach that value, it will be completed with the review of clients whose included financings are less than 1% of said computable patrimonial responsibility or the asset of the financial trust, or the equivalent to $ 1,000,000, following a decreasing order based on their magnitude.
6.3.3. During the economic year, in other cases, so that by its end the review must have reached the entirety of the commercial portfolio included.
6.4. Mandatory reconsideration of the classification.
In addition to the minimum periodicity previously exposed, the classification must be analyzed - leaving a reasoned record of the decision adopted in the client's file - and, if necessary, modified each time any of the following circumstances occur:
6.4.1. Modification of any of the objective classification criteria arising from these regulations (term of delinquency, legal status of the client or their debts, compliance with refinancing and requests for refinancing of obligations).
6.4.2. Negative modification in the classification of the client in the “Central of Debtors of the Financial System”, lowering it to a degree lower than that of the entity, by at least one other financial entity or financial trust whose claims represent at least 10% of the total reported by all creditors.
6.4.3. Decrease of more than one level in the classification assigned by a risk rating agency to the securities issued by the client.
6.4.4. Notification of the final determination of the Superintendence of Financial and Exchange Entities of the adjustment of provisions, as provided in the matter as a result of inspection tasks.
6.4.5. When there is a discrepancy of more than one level between the classification given by the financial entity and those granted by at least two other entities or financial trusts in categories lower than that assigned by the latter, whose claims together represent at least 20% and are less than 40% of the total reported by all creditors, according to the latest information available in the “Central of Debtors of the Financial System”.
Version: 3rd. Communication “A” 3339 Validity:
28.09.01

The reevaluation must be immediate when it concerns clients whose included financings equal or exceed 1% of the computable patrimonial responsibility of the entity or the asset of the financial trust, of the month prior to the presentation of any of the mentioned circumstances or the equivalent to $ 1,000,000, whichever is lower, and within three months with respect to other included clients.
6.5. Classification levels.
Each client, and the entirety of their included financings, will be included in one of the following six categories, which are defined taking into account the conditions detailed in each case.
To verify compliance with obligations without resorting to new direct or indirect financing or refinancing, periodic credit renewals for working capital will not be considered included in those definitions, to the extent that they are consistent with the normal course of business and there is capacity to meet the rest of the financial obligations, nor new financings and refinancing associated with greater investment derived from the expansion of activities, and provided that it can be demonstrated that the projected cash flow will allow meeting all their obligations. Nor will refinancing granted to agricultural producers be considered within that concept when it results from the application of provisions linked to the Agricultural Emergency Law, without prejudice to the fact that, for classification purposes, the projected cash flow for the moment when the declared emergency expires must be taken into account. The treatment dispensed within that framework shall not imply an improvement in the classification assigned to the client based on their pre-existing individual situation, nor shall its application extend beyond the validity fixed for it.
6.5.1. In normal situation.
The client's cash flow analysis demonstrates that they are capable of adequately meeting all their financial commitments.
Among the indicators that may reflect this situation, it is highlighted that the client:
Version: 3rd. Communication “A” 3339 Validity:
28.09.01

6.5.1.1. presents a liquid financial situation, with a low level and adequate debt structure in relation
to their earning capacity, and shows a high capacity to pay debts (principal and interest) under the agreed conditions generating funds - measured through cash flow analysis - to an acceptable degree. The cash flow is not susceptible to significant variations in response to important modifications in the behavior of variables both own and linked to their sector of activity.
6.5.1.2. regularly complies with the payment of their obligations,
even if they incur delays of up to 31 days, understanding that this occurs when the client cancels the obligations without resorting to new direct or indirect financing from the entity.
6.5.1.3. has qualified and honest management, very professional and technical, with adequate internal control systems.
6.5.1.4. has an adequate information system that allows
permanent knowledge of the financial and economic situation of the company. The information is consistent and up-to-date. When financings have preferred guarantees "B", according to the regulations applicable in that matter, the entity may request this information with the frequency that allows it to evaluate the debtor observing the minimum periodicity established in point 6.3.
6.5.1.5. belongs to a sector of economic activity or business branch that registers an acceptable future trend, considering, among other aspects, demand and
an adequate relationship between profit and income.
6.5.1.6. is competitive in their activity.
Version: 3rd. Communication “A” 3339 Validity:
28.09.01

In this category, debtors whose debt titles have received a rating lower than “BB” granted by any risk rating agency in the country may not be included. This circumstance determines their inclusion, at minimum, in the next level (point 6.5.2.1. “in observation”).
6.5.2. With special monitoring.
6.5.2.1. In observation.
The client's cash flow analysis demonstrates that, at the time of making it, they can meet all their financial commitments.
However, there are possible situations that, if not controlled or corrected in a timely manner, could compromise the client's future payment capacity.
Among the indicators that may reflect this situation it is highlighted that the client:
i) presents a good financial and profitability situation, with moderate debt and adequate cash flow for the payment of debts by principal and interest. The cash flow tends to weaken to meet payments because it is extremely sensitive to the variation of one or two variables, over which there is a significant degree of uncertainty, being especially susceptible to changes in circumstances linked to the sector. ii) incurs delays of up to 90 days in the payment of their obligations. It is understood that the client makes the payment of their obligations when they do not resort to new direct or indirect financing from the entity. iii) has qualified and honest management. iv) has an adequate information system that allows regular knowledge of the financial and economic situation of the client. The information is consistent. When financings have preferred guarantees "B", according to the regulations applicable in that matter, the entity may request this information with the frequency that allows it to evaluate the debtor observing the minimum periodicity established in point 6.3. Version: 2nd. Communication “A” 3339 Validity:
28.09.01

v) belongs to a sector of economic activity or business branch whose future trend presents questionable aspects, possibility of decline in income, increase in competition or structure costs. vi) maintains payment agreements resulting from judicial or extrajudicial homologated concordats to expire or private arrangements agreed jointly with financial creditor entities when at least 30% of the amount involved in the cited agreement has been cancelled. To determine the amount of cancellation, 50% of additional guarantees to those originally offered, constituted on assets not linked to the exploitation of the debtor - with the exception of mortgages on rural real estate which, therefore, will be computable - will be admitted, observing the coverage margins established in the regulations on “Guarantees”. vii) maintains private arrangements with the financial entity that have the opinion of the entity's external auditor on the feasibility of compliance with refinancing when the amount does not exceed $ 1,000,000 and additionally, in the cases where it exceeds that amount, by a risk rating agency admitted by the regulations on “Evaluation of Financial Entities”, when at least 30% of the amount involved in the cited agreement has been cancelled and always that such agreement was reached when the debtor was categorized in the levels “with high risk of insolvency” or “unrecoverable”. To determine the amount of cancellation, 50% of additional guarantees to those originally offered, constituted on assets not linked to the exploitation of the debtor - with the exception of mortgages on rural real estate which, therefore, will be computable - will be admitted, observing the coverage margins established in the regulations on “Guarantees”. It is an indispensable requirement, in addition, to have the favorable opinion on the quality of the guarantees, formulated by the external auditor and, if applicable, by the risk rating agency. Version: 3rd. Communication “A” 3339 Validity:
28.09.01

In cases of agreements exceeding $5,000,000, the initial reclassification of the client to this category may be carried out provided there is no objection from the Superintendencia de Entidades Financieras y Cambiarias (Superintendence of Financial and Currency Entities), to which each situation must previously be presented individually.

When the situations referred to in paragraphs vi) and vii) are observed, the debtor may be reclassified into the normal situation category if the other conditions provided for that category are also observed.

6.5.2.2. In negotiation or with refinancing agreements.

This includes those clients who, facing the impossibility of meeting the payment of their obligations under the agreed conditions, manifest unequivocally within 60 days counted from the date on which the default in the payment of obligations was verified, the intention to refinance their debts, observing the other pertinent indicators from point 6.5.2.1.

Debtors whose obligations have been refinanced by the entity under this modality in the last 24 months may not be included.

The agreement with the financial entity must be concluded within 90 or 180 days counted from the date on which the default in the payment of obligations was verified, depending on whether it is necessary to reach agreements with up to two entities or with more than two, respectively.

If the agreement has not been reached within the established deadline, the debtor must be reclassified into the lower category corresponding, according to the indicators established for each level.

Debtors who have paid at least 15% of the refinanced obligations plus the accrued interest may be classified in “normal situation” if they also observe the other conditions provided for that category. If these latter conditions are not observed, the debtor may be recategorized in the level established in point 6.5.2.1.

Debtors who have not paid at least the accrued interest within 180 days of the refinancing being concluded must be reclassified into the “with high insolvency risk” category.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

For the purposes provided in the last two paragraphs above, and even if the mentioned percentages of debt have been paid, debtors who have received additional credit under the terms referred to in point 2.2.5. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, and to the extent that such additional financing has not been cancelled, must remain in this category for at least 180 days, counted from the date on which additional credit was granted or from when the refinancing agreement was celebrated, whichever is the most recent circumstance. This, unless by application of other guidelines it corresponds to categorize them in the lower level.

Debtors who incur delays of more than 31 days with respect to the conditions agreed upon in the refinanced obligations must be recategorized in the immediately lower level “with problems”.

6.5.3. With problems.

The analysis of the client's cash flow demonstrates that they have problems to normally meet all their financial commitments and that, if not corrected, these problems may result in a loss for the financial entity.

Among the indicators that may reflect this situation, it is highlighted that the client:

6.5.3.1. presents an illiquid financial situation and a cash flow level that does not allow them to meet the payment of the total capital and interest of the debts, being able to cover only the latter. Scarce profit capacity. The cash flow projection shows a progressive deterioration and high sensitivity to minor and foreseeable modifications of own or environmental variables, further weakening their payment possibilities.

6.5.3.2. incurs delays of up to 180 days, excluding debtors included in point 6.5.2.2. For this purpose, the calculation of deadlines will not be interrupted by the granting of renewals when effective cancellation of the due obligations has not previously occurred, that is, without resorting to direct or indirect financing by the entity.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

6.5.3.3. has a management with little capacity and/or experience and/or of unclear and/or weak honesty and/or with objectionable internal control systems.

6.5.3.4. has an information system not entirely adequate, which makes it difficult to know with precision the real financial and economic situation of the client. The information is not entirely consistent and there is no adequate update process that allows having it at the opportune moment.

6.5.3.5. has repeated and systematic refinancings of the owed capital linked to insufficient capacity for payment even when paying interest and always that there are no write-offs on the capital, that interest rates agreed upon are not reduced (unless this derives from market conditions) or that it is not necessary to accept goods in payment of part of the obligations.

When at least the payment, without incurring delays superior to 31 days, of 15% of the refinanced obligations and the total of the accrued interest, plus the accumulated percentage that might correspond if the refinancing had been granted having found the debtor in lower categories, has been fulfilled, they may be reclassified into higher levels (“in observation” or “in normal situation”) if, in addition, the other conditions provided in the corresponding category are observed.

The debtor who, being classified in this category, has refinanced their debt -even if they have cancelled the percentage established in the preceding paragraph- and received additional credit under the terms referred to in point 2.2.5. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, and to the extent that such additional financing has not been cancelled, must remain in this category for at least 180 days counted from the date on which additional credit was granted or from when the refinancing agreement was celebrated, whichever is the most recent circumstance. This, unless by application of other guidelines it corresponds to categorize them in the lower level.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

6.5.3.6. maintains payment agreements resulting from judicial or extrajudicial concordats homologated to expire or private arrangements concluded jointly with creditor financial entities when the 30% of the amount involved in the said agreement has not yet been cancelled.

To determine the amount of the cancellation, 50% of the additional guarantees offered originally, constituted on goods not linked to the debtor's exploitation - with the exception of mortgages on rural real estate, which therefore will be computable - will be admitted, observing the coverage margins established in the regulations on “Guarantees”.

6.5.3.7. incurs recurrent delays, non-compliance of up to 180 days with respect to contractual conditions or null movement in accounts with the entity.

6.5.3.8. belongs to a sector of economic activity or business branch whose future trend is not firm, and has a perspective of decrease in income and benefits, or there is the possibility that the demand for products will be reduced.

6.5.3.9. is located below the sector average with difficulties to face competition and with slight problems in terms of technology adaptation. Presents problems in their relationship with suppliers and clients.

6.5.3.10. maintains private arrangements with the financial entity that have the opinion of the entity's external auditor on the feasibility of compliance with the refinancing when the amount does not exceed $1,000,000 and additionally, in cases where it exceeds that amount, of a risk rating agency admitted by the regulations on “Evaluation of Financial Entities”, when the 30% of the amount involved in the said agreement has not yet been cancelled and always that such agreement has been reached when the debtor was categorized in the levels “with high insolvency risk” or “uncollectible”.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

To determine the amount of the cancellation, 50% of the additional guarantees offered originally, constituted on goods not linked to the debtor's exploitation - with the exception of mortgages on rural real estate, which therefore will be computable - will be admitted, observing the coverage margins established in the regulations on “Guarantees”.

It is an indispensable requirement, in addition, to have the favorable opinion on the quality of the guarantees, formulated by the external auditor and, in its case, by the risk rating agency.

In cases of agreements exceeding $5,000,000, the initial reclassification of the client to this category may be carried out provided there is no objection from the Superintendencia de Entidades Financieras y Cambiarias (Superintendence of Financial and Currency Entities), to which each situation must previously be presented individually.

6.5.3.11. has been judicially sued by the entity for the collection of its claim, when this is linked to the lack of payment and registers default in the payment of obligations not superior to 180 days. Cases are excluded where the actions refer to the discussion on other contractual aspects.

6.5.4. With high insolvency risk.

The analysis of the client's cash flow demonstrates that it is highly improbable that they can meet all their financial commitments.

Among the indicators that may reflect this situation, it is highlighted that the client:

6.5.4.1. presents a bad financial situation with suspension of payments, declared bankruptcy or request for their own bankruptcy, with the obligation to sell at a loss assets of importance for the activity developed and that are materially of significant magnitude. The cash flow is manifestly insufficient, not reaching to cover the payment of interest, and it is feasible to presume that they will also have difficulties to comply with eventual refinancing agreements.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

6.5.4.2. incurs delays of up to one year. For this purpose, the calculation of deadlines will not be interrupted by the granting of renewals when effective cancellation of the due obligations has not previously occurred, that is, without resorting to direct or indirect financing by the entity.

6.5.4.3. has incompetent and/or dishonest management.

Internal systems are observed to be uncontrolled.

6.5.4.4. has an inadequate information system, which prevents knowing with precision the real financial and economic situation of the company. The information presented is not reliable because it does not have adequate supporting documentation. In general, the information is not consistent and is not updated.

6.5.4.5. has refinancings of the owed capital and accrued interest linked to insufficient capacity for payment, with granting of write-offs or with reduction in the interest rates agreed upon (unless this derives from market conditions) or when it has been necessary to receive goods in payment of part of the obligations.

When at least the payment, without incurring delays superior to 31 days, of 20% of the refinanced obligations and the total of the accrued interest, plus the accumulated percentage that might correspond if the refinancing had been granted having found the debtor in the lower category, has been fulfilled, they may be reclassified into the immediate higher level if, in addition, the other conditions provided in the said level are observed.

The debtor who, being classified in this category, has refinanced their debt -even if they have cancelled the percentage established in the preceding paragraph- and received additional credit under the terms referred to in point 2.2.5. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, and to the extent that such additional financing has not been cancelled, must remain in this category for at least 180 days counted from the date on which additional credit was granted or from when the refinancing agreement was celebrated, whichever is the most recent circumstance. This, unless by application of other guidelines it corresponds to categorize them in the lower level.

Version: 4th. Communication “A” 3339 Validity: 28.09.01

6.5.4.6. has been judicially sued by the entity for the collection of its claim when this is linked to the lack of payment and registers default in the payment of up to one year. Cases are excluded where the actions refer to the discussion on other contractual aspects.

In case of verifying delays greater than one year, the immediate reclassification of the debtor into the next lower level corresponds.

6.5.4.7. has requested preventive bankruptcy, celebrated an extrajudicial preventive agreement not yet homologated or has been required their bankruptcy, as long as it has not been declared, for obligations that are equal to or superior to 5% of the client's equity. In case of lifting the bankruptcy request, the debtor may be reclassified into higher levels, according to the previous situation, if the conditions provided there are observed.

6.5.4.8. is permanently delayed in payment, with non-compliance superior to 180 days with respect to contractual conditions.

6.5.4.9. belongs to a sector of economic activity or business branch with a poor future trend, perspectives of income and benefits scarce or negative.

6.5.4.10. is located very far below the sector average with very serious problems to face competition and has technology that requires urgent modernization. Serious difficulties are observed in their relationship with clients and suppliers.

6.5.5. Uncollectible.

Debts of clients incorporated into this category are considered uncollectible. Although these assets could have some recovery value under a certain set of future circumstances, their uncollectibility is evident at the time of analysis.

Among the indicators that may reflect this situation, it is highlighted that the client:

Version: 4th. Communication “A” 3339 Validity: 28.09.01

6.5.5.1. presents a bad financial situation with suspension of payments, declared bankruptcy or request for their own bankruptcy, with the obligation to sell at a loss assets of importance for the activity developed and that are materially of significant magnitude. The cash flow does not reach to cover production costs.

6.5.5.2. incurs delays superior to one year, has refinancing of capital and its interest and with financing of operating losses. For this purpose, the calculation of deadlines will not be interrupted by the granting of renewals when effective cancellation of the due obligations has not previously occurred, that is, without resorting to direct or indirect financing by the entity.

When at least the payment, without incurring delays superior to 31 days, of 25% of the refinanced obligations and the total of the accrued interest, has been fulfilled, the debtor may be reclassified into the immediate higher level if, in addition, the other conditions provided in the said level are observed.

The debtor who, being classified in this category, has refinanced their debt -even if they have cancelled the percentage established in the preceding paragraph- and received additional credit under the terms referred to in point 2.2.5. of Section 2. of the regulations on “Minimum Provisions for Credit Risk”, and to the extent that such additional financing has not been cancelled, must remain in this category for at least 180 days counted from the date on which additional credit was granted or from when the refinancing agreement was celebrated, whichever is the most recent circumstance.

6.5.5.3. has incompetent and/or dishonest management and/or capable of performing fraudulent acts. There is practically no internal control.

6.5.5.4. has an inadequate information system, which prevents knowing with precision the real financial and economic situation of the company. The information presented is not reliable because it does not have adequate supporting documentation. In general, the information is not consistent and is not updated.

Version: 4th. Communication “A” 3339 Validity: 28.09.01

6.5.5.5. belongs to a sector of economic activity or business branch in extinction, with serious structural problems or that are requiring a generalized restructuring.

6.5.5.6. is located in the lowest portion within their sector, not being in conditions to compete and with obsolete technology that is not profitable.

In addition, it corresponds to classify in this category clients who, regardless of the reason (among them for not having a file or for not having provided reliable and/or updated information), have not been evaluated with the corresponding periodicity.

6.5.6. Uncollectible by Technical Disposition.

The following will be included:

6.5.6.1. Clients who are also debtors in irregular situation -considering such those who register delays superior to 180 days in the compliance of their obligations-, according to the list that, for this purpose and based on the information that administrators of credit portfolios must supply, the Banco Central de la República Argentina (Central Bank of the Argentine Republic) elaborates and provides:

i) Entities liquidated by the Central Bank. ii) Residual entities of public financial entities privatized or in the process of privatization or dissolution. iii) Financial entities whose authorization to function has been revoked by the Central Bank and are in a state of judicial liquidation or bankruptcy. iv) Trusts in which SEDESA is the beneficiary.

Debtors are excepted from being classified in this category when the financings granted to them are destined to cancel the loans that originated their inclusion in the list of delinquent debtors and always that the funds are credited directly in the accounts of the former creditor entities.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

6.5.6.2. Banks, other foreign financial institutions and other borrowers not domiciled in the country that do not have international risk rating included in the “investment grade” category, granted by any of the rating agencies admitted by the regulations on “Evaluation of Financial Entities”.

The following will be excluded:

a) The following debtors:

• Parent company of local branches of foreign banks or their subsidiaries and subsidiaries in other countries, to the extent that the latter is subject to supervision on a consolidated basis.
• Banks or other foreign financial institutions subject to supervision on a consolidated basis that exercise control of local financial entities constituted in the form of joint-stock companies.
• Other foreign banks authorized to intervene in the regimes of payment agreements and reciprocal credits to which the Central Bank of the Argentine Republic has adhered, as well as their branches and subsidiaries, even if they are not included in those agreements, always that the parent company or controlling banking entity is subject to regimes of supervision on a consolidated basis, to the satisfaction of the Superintendencia de Entidades Financieras y Cambiarias (Superintendence of Financial and Currency Entities).
• Branches and subsidiaries of local financial entities subject to the consolidated supervision regime.

b) Debtors who only register the following operations:

• Financings that have the guarantee of a foreign bank with international risk rating included in the “investment grade” category, granted by any of the rating agencies admitted by the regulations on “Evaluation of Financial Entities”.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

• Financings linked to securities sales and purchase operations concluded with residents abroad, which are channeled through Caja de Valores S.A., Cedel, Euroclear or Depositary Trust Company (DTC), and which originate in the compliance, by the intervening financial entity, of the obligation incumbent on them (deliver the traded asset or make the agreed payment) without the counterparty cancelling their commitment on the same day, due to usual settlement modalities in those markets.
• Financings linked to foreign trade operations.
• Active swaps of US dollars and national public securities, always that:
• the traded assets have a market of habitual and relevant operations,
• the agreed prices respond to market conditions and
• the coverage margins are sufficient and are deposited in the following custody or registration agents:
  • Banco Central de la República Argentina, for operations channeled through the Central Registry and Settlement of Public Debt Instruments (“CRYL”),
  • Caja de Valores S.A.,
  • Cedel, Euroclear, Depositary Trust Company (DTC) and
  • Deutsche Bank, New York.
• Credit assistance granted through the branches or subsidiaries abroad of local financial entities subject to the consolidated supervision regime, always that it has been granted with resources that do not come from funds provided, directly or indirectly, by local financial entities.

Version: 3rd. Communication “A” 3339 Validity: 28.09.01

Previously excluded debtors shall be classified and their debts provided for in accordance with general provisions.

6.5.6.3. Non-financial private sector clients, whose debt (for all concepts) plus the amount of requested financing, at the time of granting thereof, exceeds 2.5% of the entity's computable equity responsibility of the last day of the previous month or the equivalent to $ 1,000,000, whichever is less, and who have not filed a sworn declaration stating whether they hold or do not hold the status of related parties to the respective financial intermediary or whether their relationship with it implies the existence of controlling influence, or have not updated the previously filed declaration.

This treatment shall apply from the date of granting of the assistance, when it concerns the first declaration, or from December 1st, in the cases of subsequent updates, and until the month prior to the date on which the client makes the pertinent filing.

6.6. Mandatory Recategorization.

A debtor must be recategorized when there is a discrepancy of more than one level between the classification given by the financial entity and those granted by at least two other entities or financial trusts in categories lower than that assigned by the latter, whose claims - collectively - represent 40% or more of the total reported by all creditors, according to the latest information available in the "Central Registry of Debtors of the Financial System".

The recategorization of the debtor shall take effect from the month following the making available of the pertinent information from said central, at least in the immediate superior category to that in which it registers the highest level of indebtedness considering, for this purpose, that set of entities and financial trusts that represent 40% or more of the total reported by all creditors, according to the latest information available in the "Central Registry of Debtors of the Financial System".

To this end, classifications made according to the evaluation of the entities shall be taken into account, i.e., categories 1 to 5, except when the debtor must be recategorized into category 2, in which case he shall be considered "under observation" (point 6.5.2.1.).

Version: 2nd Communication "A" 3339 Validity:
28.09.01

DEBTOR CLASSIFICATION
B.C.R.A. Section 7. Classification of debtors in the consumer or housing portfolio.

7.2.4. Difficult to Recover.

It includes clients with delays of more than 180 days up to one year or who are under judicial collection management, as long as they do not register more than one year of default.

7.2.5. Irrecoverable.

It includes insolvent clients, under judicial management or in bankruptcy with null or scarce possibility of credit recovery, or with delays exceeding one year.

Clients who are under judicial management shall also be included, once one year of default has elapsed, even if there are possibilities of credit recovery.

7.2.6. Irrecoverable by Technical Provision.

It includes clients meeting the conditions foreseen in point 6.5.6. of Section 6.

7.3. Mandatory Recategorization.

A debtor must be recategorized when there is a discrepancy of more than one level between the classification given by the financial entity and those granted by at least two other entities or financial trusts or non-financial entities issuing credit cards in the "closed system" modality in categories lower than that assigned by the latter, whose claims - collectively - represent 40% or more of the total reported by all creditors, according to the latest information available in the "Central Registry of Debtors of the Financial System".

The recategorization of the debtor shall take effect from the month following the making available of the pertinent information from said central, at least in the immediate superior category to that in which it registers the highest level of indebtedness considering, for this purpose, that set of entities, financial trusts and non-financial entities issuing credit cards in the "closed system" modality that represent at least 40% of the total reported by all creditors according to the latest information available in the "Central Registry of Debtors of the Financial System".

To this end, classifications made according to the evaluation of the entities shall be taken into account, i.e., categories 1 to 5.

Version: 3rd Communication "A" 3339 Validity:
28.09.01

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE
ORDERED TEXT OF THE NORMS ON
DEBTOR CLASSIFICATION

ORDERED TEXT	ORIGIN NORM	Observations
Sec. Point Para. Com. Annex Point Para.
1. 1.1. “A” 2216 I 1º		Includes interpretative clarification
1. 1.2.1. “A” 2216 I 6. 2º
1. 1.2.2. “A” 2216 I I.d. 2º y 3°
2. 2.1.1. a “A” 2216 I 1º
2.1.3. y “A” 2216 I I.d. 1º
2.1.5. “A” 2448		Statement of position of debtors (point 6.1.)
“A” 2587		Table of correspondence between the Statement of position of debtors and the Balance of balances (modified by Com. “A” 2514)
2. 2.1.4. “A” 2736 3.
2. 2.2.1.1. a 2.2.1.4. “A” 2448		Statement of position of debtors (pt. 6.1., modified by Com. “A” 2421)
2. 2.2.1.5. “A” 2448		Statement of position of debtors (point 6.1., modified by Com. “A” 2421 and 3064)
2. 2.2.1.6 a 2.2.1.7 “A” 2448		Statement of position of debtors (pt. 6.1., modified by Com. “A” 2421)
2. 2.2.2. “A” 2448		Statement of position of debtors (point 6.2.)
2. 2.2.3. “A” 2287 5.
2. 2.2.4. “A” 2412		In the 2nd paragraph of point 2.2.4.3. incorporates criterion not previously disclosed generally
3. 3.1. “A” 2216 I 2. 1º
3. 3.2. “A” 2216 I 4.
3. 3.3. 1º “A” 2216 I 2. 2º
3. 3.3.1. “A” 2216 I 2. 2º
3. 3.3.2. “A” 2216 I 2. 2º		Includes interpretative clarification
3. 3.3.3. “A” 2216 I 6. último		According to Com. “A” 2358
3. 3.3.4. “A” 2216 I 7. último
3. 3.3.5. “B” 5644 2.
3. 3.3.6.		Incorporates criterion not previously disclosed generally

ORDERED TEXT	ORIGIN NORM	Observations
Sec. Point Para. Com. Annex Point Para.
5. 5.1.1.1. “A” 2216 I I. 1º		According to Com. “A” 2410
“A” 2216 I I. 2º		Modif. by Com. “A” 2410
“A” 2216 I II. 4º		Modif. by Com. “A” 2410
5. 5.1.1.2. 1º “A” 2216 I 6. último		According to Com. “A” 2358
5. 5.1.1.2. 2º “A” 2216 I I. 1º		According to Com. “A” 2410
5. 5.1.1.2. último “A” 2216 I 6. último		According to Com. “A” 2358
5. 5.1.2.1. “A” 2216 I 6. 1º
5. 5.1.2.2. “A” 2216 I 6. 1º
5. 5.1.2.3. “A” 2216 I II. 3º		According to Com. “A” 2358
6. 6.1. “A” 2216 I I. último
6. 6.2. 1º “A” 2216 I I.a. 1º
6. 6.2. 2º		Incorporates criterion not previously disclosed generally
6. 6.3. “A” 2216 I I.a. 2º
6. 6.3.1. “A” 2216 I I.a. 2º, i)		Modified by Com. “A” 2223 (point 1.) and “A” 3339
6. 6.3.2. “A” 2216 I I.a. 2º, ii)		Modified by Com. “A” 2223 (point 1.) and “A” 3339
6. 6.3.3. “A” 2216 I I.a. 2º, iii)
6. 6.4. 1º “A” 2216 I I.b. 1º		Modif. by Com. “A” 3339
6. 6.4.1. “A” 2216 I I.b. 1º, i)		Modif. by Com. “A” 3339
6. 6.4.2. “A” 2216 I I.b. 1º, ii)		Modif. by Com. “A” 3339
6. 6.4.3. "A" 2216 I I.b. 1º, iii)
6. 6.4.4. "A" 2893 4.
6. 6.4.5. “A” 3339 único
6. 6.4. último “A” 2216 I I.b. último		Modif. by Com. “A” 2223 (point 1.) and “A” 3339
6. 6.5. 1º “A” 2216 I I.d. 1º		Modif. by Com. “A” 2440
6. 6.5. 2º “A” 2216 I I.d. último		Modif. by Com. “A” 3339
6. 6.5. último “A” 2216 I I.d. último		Includes interpretative clarification.
6. 6.5.1. “A” 2216 I I.d.1.		According to Com. "A" 2932 (point 16.) and “A” 3339
6. 6.5.1.1. “A” 2216 I I.d.1.a)
6. 6.5.1.2. “A” 2216 I I.d.1.b)		Modif. by Com. “A” 3339
6. 6.5.1.3. “A” 2216 I I.d.1.c)
6. 6.5.1.4. “A” 2216 I I.d.1.d)		According to Com. “A” 2932 (point 5.)
6. 6.5.1.5. “A” 2216 I I.d.1.e)
6. 6.5.1.6. “A” 2216 I I.d.1.f)		Modif. by Com. “A” 3339
6. 6.5.1. último “A” 2216 I I.d.1. último		Modif. by Com. “A” 3339
6. 6.5.2. “A” 2216 I I.d.2.		Modif. by Com. “A” 3339
“A” 2216 I I.d.2. 1º, 2º y 3º		According to Com. “A” 3339
i) “A” 2216 I I.d.2.a)		According to Com. “A” 3339
ii) “A” 2216 I.d.2.b)		Modif. by Com. “A” 3339
6. 6.5.2.1. iii) “A” 2216 I I.d.2.c)		According to Com. “A” 3339

ORDERED TEXT	ORIGIN NORM	Observations
Sec. Point Para. Com. Annex Point Para.
iv) “A” 2216 I I.d.2.d)		According to Com. "A" 2932 (point 5.) and “A” 3339
v) “A” 2216 I I.d.2.e)		According to Com. “A” 3339
vi) “A” 2216 I I.d.2.f)		According to Com. “A” 2427. Modif. by Com. “A” 2947 (point 1.) and “A” 3339
vii) “A” 2947 2.		Modif. by Com. “A” 3339
6. 6.5.2.1 último “A” 2947 2.		Modif. by Com.“A” 3339
6. 6.5.2.2. “A” 3339 único
6. 6.5.3. 1º “A” 2216 I I.d.3. 1º
6. 6.5.3.1. “A” 2216 I I.d.3.a)		Modif. by Com.“A” 3339
6. 6.5.3.2. “A” 2216 I I.d.3.b)		Modif. by Com.“A” 3339
6. 6.5.3.3. “A” 2216 I I.d.3.c)
6. 6.5.3.4. “A” 2216 I I.d.3.d)
6. 6.5.3.5. “A” 2216 I I.d.3.e)		Modif. by Com.“A” 3339
6. 6.5.3.6. “A” 2216 I I.d.3.f)		According to Com. “A” 2427. Modif. by Com. “A” 2947 (point 1.) and “A” 3339
6. 6.5.3.7. “A” 2216 I I.d.3.g)		Modif. by Com.“A” 3339
6. 6.5.3.8. “A” 2216 I I.d.3.h)		Modif. by Com.“A” 3339
6. 6.5.3.9. “A” 2216 I I.d.3.i)
6. 6.5.3.10. “A” 2947 2.		Modif. by Com.“A” 3339
6. 6.5.3.11. “A” 3339 único
6. 6.5.4. 1º “A” 2216 I I.d.4. 1º
6. 6.5.4.1. “A” 2216 I I.d.4.a)
6. 6.5.4.2. “A” 2216 I I.d.4.b)		Modif. by Com.“A” 3339
6. 6.5.4.3. “A” 2216 I I.d.4.c)		Modif. by Com.“A” 3339
6. 6.5.4.4. “A” 2216 I I.d.4.d)
6. 6.5.4.5. “A” 2216 I I.d.4.e)		Modif. by Com.“A” 3339
6. 6.5.4.6. “A” 2216 I I.d.4.f)		Modif. by Com.“A” 3339
6. 6.5.4.7. “A” 2216 I I.d.4.g)		According to Com. “A” 2414
6. 6.5.4.8. “A” 2216 I I.d.4.h)
6. 6.5.4.9. “A” 2216 I I.d.4.i)
6. 6.5.4.10. “A” 2216 I I.d.4.j)		Modif. by Com.“A” 3339
6. 6.5.5. “A” 2216 I I.d.5.		Modif. by Com. “A” 2440
6. 6.5.5.1. A” 2216 I I.d.5.		Modif. by Com. “A” 2440
6. 6.5.5.2. A” 2216 I I.d.5.		Modif. by Com. “A” 2440 and “A” 3339
6. 6.5.5.3. A” 2216 I I.d.5.		Modif. by Com. “A” 2440 and “A” 3339
6. 6.5.5.4. A” 2216 I I.d.5.		Modif. by Com. “A” 2440
6. 6.5.5.5. A” 2216 I I.d.5.		Modif. by Com. “A” 2440
6. 6.5.5.6. A” 2216 I I.d.5.		Modif. by Com. “A” 2440
6.5.5. último “A” 2216 I I.d.5.		According to Com. "A" 2826
6. 6.5.6.1. “A” 2216 I I.d.6.		According to Com. “A” 2440
6. 6.5.6.1. i) “A” 2216 I I.d.6. i)		According to Com. “A” 2440
6. 6.5.6.1. ii) “A” 2216 I I.d.6. ii)		According to Com. “A” 2440
6. 6.5.6.1. iii) “A” 2216 I I.d.6. iii)		According to Com. “A” 2440
6. 6.5.6.1. iv) “A” 2216 I I.d.6. iv)		According to Com. “A” 2580

ORDERED TEXT	ORIGIN NORM	Observations
Sec. Point Para. Com. Annex Point Para.
6. 6.5.6.1. último “A” 2440 2. último
6. 6.5.6.2. “A” 2287 2.		Modified by Com. “A” 2890 (point 3.) except b), 2nd clause
“A” 2287 2.3.		Modified by Com. “A” 2497 (point 1.)
b), último inciso “A” 2287 2.5.		Modified by Com. “A” 2497 (point 1.)
6. 6.5.6.3. “A” 2573 1.
6. 6.6. “A” 2216 I I.c.		Modified. by Com. "A" 2932 (point 6.) and “A” 3339
7. 7.1. 1° “A” 2216 I II. 1º
7. 7.1 2° “A” 3142
7. 7.1. último “A” 3142
7. 7.2.1. 1º “A” 2216 I II.1.
7. 7.2.1. último		Incorporates criterion not previously disclosed generally
7. 7.2.2. “A” 2216 I II.2.
7. 7.2.3. “A” 2216 I II.3.
7. 7.2.4. “A” 2216 I II.4.		Includes interpretative clarification
7. 7.2.5. “A” 2216 I II.5.		Includes interpretative clarification
7. 7.2.6. “A” 2216 I II.6.		According to Com. “A” 2440
7. 7.3. “A” 2216 I II. 1º y 2º		Modified by Com. "A" 2932 (point 6.) and “A” 3339
8. 8.1. “A” 2216 I 5.		Modif. by Com. “A” 2562
9. 9.1. “A” 2227 único 5.2.1. último		According to Com. “A” 2649
9. 9.2. “A” 2227 único 5.1.5.		According to Com. “A” 2649
“A” 2227 único 5.2.2.
10. 10.1. “A” 2389 2.
10. 10.2.1. “A” 2703 3.		According to Com. “A” 3145 (point 1.)
10. 10.2.2. “A” 2703 4.
10. 10.3. “A” 3141 4.