Circular LISOL 1-419 / OPRAC 1-569: Foreign Currency Net Position Modifications and Treatment of Forward Operations in Credit Risk Fragmentation and Credit Grading Rules

"2004 - Year of the Antarctic"
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION "A" 4135 05/05/2004
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 419
OPRAC 1 - 569
Foreign Currency Net Position.
Modifications. Treatment of
Forward Operations in the Rules on
"Credit Risk Fragmentation" and
"Credit Grading"

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

"1. Replace, with effect from 1.7.04, point 1 of the resolution disseminated by Communication "A" 3889 with the following:

"1. Establish that the absolute value of the foreign currency net position - calculated as a monthly average of daily balances converted to pesos at the reference exchange rate - shall not exceed 30% of the computable equity responsibility of the month preceding the one in question.

When the foreign currency net position is positive, the amount shall not exceed this ratio or the liquid own resources, whichever is lower. Liquid own resources are understood as the computable equity responsibility minus immobilized assets and financing to related clients, according to the criteria established in the respective technical report.

Additionally and without prejudice to compliance with the previously established limit, the net position, considering balances in current accounts and other assets and liabilities included - regardless of their nature or the character of the operation - that are realizable (in the sense that they are assets negotiable in a habitual manner and in significant volumes in institutionalized markets) or with maturity within the following 180 days, shall not exceed the percentage - applied to the computable equity responsibility of the month preceding the one in question - that will be established at the appropriate time.

For the determination of the aforementioned position, only titles that are registered in the accounts at market value shall be considered, without prejudice to the computation in the position of services whose maturity occurs within 180 days.

In the global foreign currency position, all assets and liabilities for financial intermediation in foreign currency and in foreign currency titles (for spot and forward operations) shall be considered, including derivative contracts linked to these concepts, the items that correspond to be computed in the General Exchange Position, deposits in that currency in accounts opened at the Central Bank, as well as the gold position, time deposits in US dollars redeemable in pesos, and Letters of the Central Bank of the Republic of Argentina in US dollars.

The value of the position in currencies other than the US dollar shall be expressed in that currency, applying the respective swap rate published by this Institution.

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Excesses to these ratios shall be subject to a charge equivalent to twice the nominal annual interest rate due resulting from the tenders of the Letters of the Central Bank of the Republic of Argentina in US dollars or twice the 30-day LIBOR rate for operations in that currency, reported for the last business day of the relevant month, whichever is higher.

To determine the charge based on the interest rate of the Letters of the Central Bank of the Republic of Argentina, the accepted cut-off rate reported by this Institution shall be taken into account, which is expressed as a nominal annual rate due, corresponding to the last tender performed in the period under report.

If letters are awarded for different terms on the same date, the rate corresponding to the operation with the shortest term shall be considered."

2. Establish the following treatment for forward operations, whether or not linked to swaps, for the purposes of the rules on credit risk fragmentation and credit grading:

2.1. Operations covered with collateral not less than 20% of the current capital of the transaction, provided that the replenishment of the coverage up to that percentage, as a minimum, has been agreed within 24 hours when such margin is reduced by a maximum of 5 percentage points (to 15% or less): shall not be computed.

2.2. Operations covered with collateral less than 20% of the current capital of the transaction and/or when the replenishment of the coverage in case of decrease is not foreseen or is done on terms different from those provided in point 2.1.: shall be computed by the positive difference between the amount resulting from applying said percentage and the amount of the collateral constituted.

2.3. Operations not covered with collateral: shall be computed at 20% of the current capital of the transaction.

2.4. Operations with assets without normal and habitual quotation in institutionalized markets: 100% of the transacted capital.

3. Establish that financial entities shall provide information regarding the foreign currency net position 180 days from April 2004, through the procedural rules that will be made known at the appropriate time."

On the other hand, we point out that it is estimated that the limit to be established for the net position of up to 180 days could be lower than the current margin for the global net position (30%).

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio José Rutman
Manager of Standards Issuance Principal Manager of Standards