Circular LISOL 1-84 / CONAU 1-147: Classification of Debtors and Minimum Provisions for Credit Risk. Consolidated Text

BANCO CENTRAL DE THE REPUBLIC OF ARGENTINA
__________________________________________________________________ COMMUNICATION "A" 2216 09/06/94 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 84.
CONAU 1 - 147.
Classification of Debtors and Minimum Provisions for Credit Risk. Consolidated Text.

We address you to provide you with the consolidated text of the regulations on the topics cited in the reference, taking into account the provisions disseminated by Communications "A" 2180 and 2215:

"1. Establish that, from June 1994, debtors of financial entities shall be classified in accordance with the norms contained in Annex I to this communication.

2. Provide that, from June 1994, the minimum guidelines for provisioning for credit risk of the private sector credit portfolio, as set forth in Annex II to this communication, shall be applied; these must also be observed with respect to financial entities, with the exception of:
   i) non-matured inter-financial operations with a term of up to 30 days, and ii) public financial entities with majority state participation and which have the guarantee of the government of the respective jurisdiction.

These criteria, with the exception of clients in normal status, will also be used regarding unused balances of current account advances granted, guarantees, sureties, and other eventual commitments to third parties on behalf of clients - including those linked to foreign trade operations - recorded in Off-Balance Sheet Accounts, as determined by the classification assigned to them and the counter-guarantees covering the operations. The amounts determined shall be charged to the account established in the item "Provisions" of the "Chart of Accounts" for financial entities.

• Gradual Integration
  a) When, upon concluding the reclassification process of the entire portfolio, the higher provisions resulting from the aforementioned provisions determine - even if not accounted for - deficiencies in the integration of minimum capital, entities will have the following timeframes to meet capital requirements:

Deficiency in Minimum Capital Integration (measured against the requirement)	Maximum Timeframe to Observe Capital Requirement
up to 5%	August 1995
more than 5%	December 1995

To this effect, only the higher provisions resulting from the application of the new norms as of 6/30, 9/30, and 12/31/94, with respect to provisions established under previous norms as of 5/31, 8/31, and 11/30/94, will be taken into account for each fraction of the portfolio corresponding to classification for the first time on each of those occasions, including as of 6/30 consumer or housing credits.

Therefore, since the aforementioned exemption will apply to deficiencies derived exclusively from the registration of additional provisions, in cases where deficiencies superior to these justified amounts arise, the provisions of the relevant minimum capital norms (Communication "A" 2136 and complementary) will apply.

b) The higher provisions determined as of 6/30, 9/30, and 12/31/94 must be accounted for no later than 1/31/95, 4/30/95, and 7/31/95, respectively. If this option is exercised, the entity must inform in which months and for which amounts it plans to register these higher provisions, via a note sent to the Superintendency of Financial and Exchange Entities within 20 calendar days following the conclusion of each of those calendar quarters.

In the event that at any time - 6/30, 9/30, or 12/31/94 - within the transition period, it is determined that, due to higher provisions originating in this norm and assuming they are accounted for, a deficiency in the integration of minimum capital inferior to 5% is recorded, the entity must inform the measures it plans to adopt to meet the capital requirement within the established timeframes, via a note that must be submitted to the Superintendency of Financial and Exchange Entities within 20 calendar days following the date on which, for the first time, that fact is verified. If that percentage is exceeded, a capital adequacy plan must be presented.

Both the report and the plan must be reformulated as new fractions of reclassified portfolio are incorporated and upon conclusion of the process, as appropriate pursuant to point 5, and sent to the aforementioned Superintendency within 20 calendar days following 9/30 or 12/31/94, as applicable.

c) Consequently, a deficiency in minimum capital integration originating from the provisions of the first paragraph of this point will not constitute non-compliance, provided that the entity was categorized in the values required as of 5/31/94, with respect to minimum provisions and capital.

d) Regarding the portfolio not yet classified according to the new criteria, provisions will continue to be established according to previous norms, including those established by Communication "A" 2016.

e) The choice of the alternative to defer the establishment of higher provisions derived from the application of the new norms does not include additional provisions resulting from subsequent reviews of clients already reclassified under these provisions due to changes in their status.

Until the total review of the portfolio is concluded and all higher provisions resulting therefrom are accounted for, provisions established when those resulting from the application of the new norms are lower than previous ones may not be derecognized, nor will their imputation or compensation against the obligation to establish new ones be admitted.

3. Establish that, from June 1994, provisions must be established for 100% of interest and similar accessories accrued since that month, corresponding to debts of clients classified as "with problems" or "deficient compliance" or in lower quality grades, according to the classification contained in Annex I to this communication.

4. Establish that the minimum provision, with respect to the portfolio in "normal situation" or "normal compliance," required from June 1994 will be 0.50%, a percentage that will increase to 0.75% from January 1995 to reach the value indicated in Annex II (1%) in January 1996.

5. Provide that, regardless of the start date of the entity's economic year, it will be required that by 12/31/94 the review of the entire commercial portfolio has been concluded, applying the guidelines contained in Annex I.

Therefore, and given the provisions of point I.a of said Annex "Minimum Periodicity of Classification," the review process between 6/30/94 and 12/31/94 must adhere at minimum to the following guidelines:
- as of 6/30/94: classification of clients whose indebtedness - financings and other computable concepts - is equivalent to or greater than 5% of the integration of capital as of 5/31/94.
- as of 9/30/94: new classification of the clients mentioned in the preceding section and classification of clients whose indebtedness - financings and other computable concepts - is between 1% and 5% of said integration, as of 8/31/94, or $1,000,000, whichever applies.
- as of 12/31/94: new classification of the clients mentioned in the first section and client portfolio whose indebtedness - financings and other computable concepts - is less than 1% of the integration of capital, as of 11/30/94.

The consumer or housing portfolio must be classified monthly starting from 6/30/94.

6. Substitute, with effect from June 1994, in the resolution disseminated by Communication "A" 2136 (consolidated text on minimum capital requirement and integration) the aspects indicated:

   6.1.: In point 1.1., last two paragraphs:
   "Financings that, at origin, were weighted with values lower than 100%, will be subject to that weighter from the moment the debtor is classified as 'with problems' or 'deficient compliance' or in any of the following lower quality categories.
   To this effect, assets - immobilized or not - will be computed based on 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 credit risk and devaluation and accumulated amortizations attributable to them, without deducting provisions for credit risk on the portfolio classified in 'normal situation' or 'normal compliance')."

   6.2. In point 2., first concept of "Complementary Net Worth":
   "- provisions for credit risk corresponding to the portfolio classified 'in normal situation' or 'normal compliance' (only the minimum amount required by the Central Bank)."

During the period June to December 1994, the following provisions will apply:
- for the determination of the capital requirement of June 1994, the classification criteria in effect as of 5/31/94 will be used.
- for the determination of the capital requirement (point 1.1. "in fine" of the norm, according to the text of this communication) in subsequent months, provisions on the portfolio classified under the new dispositions in normal or normal compliance situation and on the normal portfolio, with delay or according to clients not yet reclassified, will not be taken into account.
- for the calculation of "Complementary Net Worth," a homogeneous computation criterion will be followed, according to the temperament exposed in the preceding sections.

7. Provide for the opening of accounts in the "Chart of Accounts" for financial entities that must separately reflect the provisions established pursuant to point 3 of this communication and those derived from the provisions of the second paragraph of point 2."

8. Admit that, until 12/31/95, the option referred to in the fifth paragraph of point 6 "Classification Process" of Annex I may be exercised regarding computable financings of commercial nature up to the equivalent of $100,000 without preferred guarantees or up to the equivalent of $200,000 with preferred guarantees, without prejudice to performing the weighting provided in the last paragraph of that point when financings with and without preferred guarantees coexist.

These caps will also apply, until 12/31/95, for the purposes provided in the second paragraph of section I. Commercial Portfolio, regarding classification within that portfolio of consumer credits whose repayment is subject to the commercial evolution of the client.

Consequently, from 1/1/96 and for such purposes, the amounts of $50,000 and $100,000 established in point 6 "Classification Process" will govern.

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

+--------------------------------------------------+-------------+ I I Annex I NORMS FOR THE CLASSIFICATION OF DEBTORS I to I I ICom. "A" 2216I +--------------------------------------------------+-------------+

Clients of the entity for financings (loan operations, other credit intermediation operations, and financial leasing operations), as well as those of beneficiaries of guarantees granted by it, must be classified from the perspective of the obligors' quality regarding the fulfillment of their commitments and/or the possibilities assigned to this effect based on an evaluation of their particular situation.

1. Basic Criterion.

Levels of client grouping have been provided in descending order of quality, directly proportional to the credit risk derived from the situations they present.

The basic criterion to be used for such classification is the ability to pay the debt in the future, or of the commitments subject to the entity's guarantee.

When evaluating repayment capacity, emphasis must be placed on the analysis of cash flows performed by the entity, considering as income, if applicable, the effect of:
a) guarantees constituted in cash (pesos and US dollars) and in gold (at their realization value), b) certificates of fixed-term deposit certificates issued by the entity itself, c) automatic reimbursement in export operations according to respective bilateral or multilateral agreement regimes, d) guarantees or certificates of national public securities, taking into account their permanently available market value, e) sureties granted by foreign banks included in the highest quality categories for investment ("investment grade") according to rating granted by a risk rating agency (Moody's, Standard & Poor's, or equivalents), f) the pledge of funds from federal tax sharing, in operations that have the relevant intervention of the Ministry of Economy and Public Works and Services, g) warrants on primary products and/or those resulting from their processing, insofar as their market value represents at least 125% of the obligation and always referring to merchandise with broad and habitual quotation in local or international markets, h) guarantees constituted by invoices to consumers, issued by public service providers of electricity, gas, telephone, water, etc., insofar as they represent no less than 125% of the obligation, i) guarantees constituted by credit card coupons, insofar as they represent no less than 125% of the obligation.

The supporting documentation of the aforementioned guarantees must be kept in a predetermined place - with adequate security safeguards - of the house where the client's file is maintained, and at all times must be available to the Superintendency of Financial and Exchange Entities for eventual verification.

Secondly, the possibility of liquidation of assets not essential for the company's operations must be considered.

2. Procedures to be followed in portfolio evaluation.

The entity must develop portfolio analysis procedures that ensure: a) adequate analysis of the company's economic and financial situation, and b) periodic review of its situation regarding the objective and subjective conditions of all assumed risks.

The implemented procedures will be recorded in a "Classification and Provisioning Procedures Manual" that allows appreciating the process followed in this matter. Additionally, this element must include the levels involved in the analysis and decision-making in the granting of facilities, according to the attributions assigned to each of them. The manual must be permanently available to the Superintendency of Financial and Exchange Entities.

3. Responsibility for the classification task.

The classification task may be entrusted to the sector responsible for granting credits and guarantees or to an independent area thereof.

If opting for the first alternative, the financial entity must have an independent office whose function will be to review the classifications assigned to clients by the credit sector.

This review - which may be under the responsibility of the entity's internal audit - must obligatorily include clients whose total indebtedness in pesos and foreign currency (by credits and guarantees) exceeds the equivalent of 1% of the integration of the entity's minimum capital of the month prior to classification or $1,000,000, whichever is lower, and reach at least 20% of the total active portfolio, which will be completed, if applicable, by incorporating clients whose total indebtedness - in descending order - is lower than those margins.

The review must be concluded before submitting the information to the Central Bank in the "Status of Debtors Report" that includes the classification of the aforementioned clients.

4. Periodicity.

The classification of credits and guarantees must be performed with a periodicity that attends to the importance of the debtor (considering all their credits and guarantees), and in all cases, the analysis performed must be documented.

5. Information to clients included in the "Risk Central".

At the request of these clients, within 10 calendar days of the request, the financial entity must communicate to them the last classification assigned to them, along with the justifications for it according to the evaluation performed by the entity, the total amount of debts with the financial system, and the classifications assigned that arise from the last information available in the "Risk Central".

The aforementioned clients must be notified that they have the possibility to request this data at the time of submitting credit applications, via an independent form from them.

6. Classification Process.

The portfolio will be grouped into two basic categories: a) commercial nature credits, and b) consumer credits (personal and family, for professionals, for the acquisition of consumer goods, credit card financing) or for own housing (purchase, construction, or renovation).

Credits assigned to the entity without responsibility for the assignor - economic unit receiving the funds - will be imputed to the signatory, drawer, debtor, co-debtor, or acceptor of the respective instruments, consequently becoming primary and direct payers, performing regarding them their evaluation as credit subjects with the pertinent opening of the file. In case of non-evaluation, for any reason, these clients will be classified as "Irrecoverable".

Credits (promissory notes, bills, confirmed invoices, etc.) assigned to the entity with responsibility for the assignor may be classified taking into account the category assigned to the signatory, drawer, or acceptor of the instruments, provided that, at the time of granting the credit, the following conditions are observed:
- that they are obligors included in the "Risk Central", whose level of indebtedness with the system is equal to or greater than $10,000,000, according to the last available information.
- that they are classified, in said central, as "normal situation" by all reporting entities.
- that the credit assistance received by the assignor under this modality does not exceed, at any time, $200,000.
This assistance must be considered within the commercial portfolio if the client has other types of financing that, by itself, determine that the treatment provided for that portfolio applies.
- that the total financing granted by the entity under this modality to the set of assignors, regarding the same signatory or obligor, does not exceed 10% of that obligor's debts with the financial system, reported in the "Risk Central" nor 5% of the integration of the entity's minimum capital, whichever is lower.

The non-verification of all these conditions at the time of granting the credit or subsequently determines the obligation to perform the credit evaluation of the assignor with responsibility according to the criteria applicable generally.

Financings in pesos and foreign currency (credits and guarantees) of commercial nature up to the equivalent of $50,000 ($100,000, until 12/31/95) without preferred guarantees or up to the equivalent of $100,000 ($200,000, until 12/31/95) with preferred guarantees, may be grouped, at the entity's option, together with consumer credits, receiving, for the purposes of these dispositions, the treatment provided for the latter. This option, if applicable, must be applied generally to the entire portfolio and be provided for in the "Classification and Provisioning Procedures Manual" and can only be changed with 6 months' notice to the Superintendency of Financial and Exchange Entities.

When financing with and without preferred guarantees coexists, credits with preferred guarantee will be weighted at 50% for the purpose of verifying the limit ($50,000 - $100,000, until 12/31/95-) up to which one may opt to include them together with consumer credits.

7. Client File.

The entity must maintain at the account's location, a file for each debtor in its portfolio in which all elements of judgment considered for performing evaluations and classifications will be gathered, records of reviews performed and the assigned classification will be left.

Additionally, it will be necessary to maintain at the entity's headquarters a copy of the file for each of the clients whose indebtedness (credits and guarantees granted) is equivalent to or greater than 1% of the integration of minimum capital.

Such file must contain information regarding the entire credit margin assigned to the client and guarantees granted, regardless of the concept or credit line.

On the other hand, the updated balance of all debts as well as the guarantees granted—which will include facilities assigned by all subsidiaries and operational units of the entity—must be available, according to the accounting information system used by the entity, at the location of the client's file or the head office, if a copy is to be kept there, broken down by concept.

It will be admitted that the client's file is located in a place different from the location of the account (e.g., headquarters or branch that is the seat of regional management), when this has been determined for operational reasons—related to the evaluation, granting, and monitoring of credits—and this circumstance is included in the "Classification and Provision Procedures Manual".

I. Commercial Portfolio

For the purposes of these provisions, this concept includes all financing and guarantees, with the exception of those that do not exceed the equivalent of $ 50,000 ($ 100,000, until 12.31.95) without preferred guarantees or $ 100,000 ($ 200,000, until 12.31.95) with preferred guarantees—if the entity exercises this option—and those considered as consumer or housing loans. When the client maintains financing for both concepts, consumer or housing credits will be added to the commercial portfolio credits to determine their classification into one or the other portfolio based on the indicated amounts, for which purpose credits with preferred guarantee will be weighted at 50%.

Consumer credits that exceed said limits, depending on the case, whose repayment is not linked to the client's fixed or periodic income but to the evolution of their productive or commercial activity, will be classified within the commercial portfolio.

The review of the commercial portfolio will be carried out based on updated financial information—balances and supplementary statements, investment projects, etc.—that clients must provide upon request by the entities, applying parameters valid for each sector and considering other circumstances of the economic activity.

a. Minimum periodicity of classification.

The basic evaluation criterion will be taken into account, which is based on the debtor's repayment capacity in function of the estimated financial flow and, only secondarily, on the basis of the liquidation of the client's assets, given that the granting of financing must be carried out under amortization conditions that respond to their true credit needs and the real possibilities of return that their activity and fund generation allow.

The review must be carried out at least with the periodicity indicated below, leaving a record of this in the file of the analyzed client:

i) during each calendar quarter, with respect to individually considered clients whose debts and guarantees granted at some point are equivalent to 5% or more of the integration of the minimum capital of the month prior to the end of said period. For these purposes, the group or economic set will be treated as a single client.

ii) during each calendar semester, with respect to individually considered clients whose debts and guarantees sum at some point between 1% -or the equivalent to $ 1,000,000, whichever is lower- and less than 5% of the integration of the minimum capital of the month prior to the end of said period. For these purposes, the group or economic set will be treated as a single client.

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, counting the clients referred to in item i), so that, if necessary to reach that value, it will be completed with the review of clients whose debts and guarantees are less than 1% of said integration of minimum capital or the equivalent to $ 1,000,000, following a decreasing order based on their magnitude.

iii) during the economic year, in other cases, so that at its conclusion the review must have reached the entire commercial portfolio included.

b. Mandatory reconsideration of classification.

In addition to the minimum periodicity previously stated, it must be analyzed—leaving documented evidence of this in the client's file—and, if necessary, modify the classification each time:

i) modifications occur in the objective classification criteria arising from these rules (delinquency term, client's legal situation, etc.), or

ii) at least another financial entity, whose credits represent at least 10% of the total reported by all entities, negatively modifies the classification of a client, lowering it to a grade inferior to that of the entity, exposing it in the "Risk Central", or

iii) a decrease of more than one level occurs in the classification assigned by a risk rating agency to the securities issued by the client.

The reevaluation must be immediate when it concerns clients whose debts and guarantees equal or exceed 1% of the integration of the entity's minimum capital or $ 1,000,000, whichever is lower, and within three months in which any of the mentioned circumstances have occurred with respect to the other clients included.

c. Maximum discrepancies between financial entities.

Only a discrepancy of one level will be admitted between the classification given by the financial entity and the worst classification granted by at least two other financial entities whose credits represent at least 20% of the total reported by all entities.

The existence of greater differences will obligate to carry out a recategorization when the classification assigned by the entity is higher than the aforementioned worst classification, except in cases where the entirety of the client's debts and guarantees are covered by the guarantees mentioned in the third paragraph of point 1. of this annex.

To this effect, the last available information in the "Risk Central" will be considered.

d. Classification of commercial debtors.

Each client, and the entirety of their debts (for capitals, quotation differences, interests, and premiums corresponding to the respective operations) and guarantees, will be included in one of the following five categories, which are defined taking into account the conditions detailed in each case.

In the case of debtors who have requested their preventive bankruptcy, the credits granted to them after that request, to the extent that they have third-party guarantees that allow their collection at maturity without the need for the intervention of the client in bankruptcy, for the purposes of this classification, may be imputed—at the entity's option—to the third party constituted as principal or direct payer or guarantor or co-debtor who has waived the benefit of excussion.

The same treatment may be observed when it comes to credits regarding documents or values ceded by the debtor in bankruptcy that can be considered as "self-liquidating" because they are collectible directly from the third party responsible for the document (e.g.: confirmed invoices, invoices to consumers issued by public service companies providing electricity, gas, etc., credit card coupons, etc.). In the cases of debtors for public services or credit cards, the opening of the file referred to in point 7. will not be mandatory.

In order to verify compliance with obligations without resorting to new direct or indirect financing or refinancing, it will be taken into account that periodic renewals of credit for working capital will not be considered included in those definitions, to the extent that these are consistent with the normal course of business and that there is capacity to meet the rest of the financial obligations. Nor will refinancing granted to agricultural producers be considered within that concept when this results from the application of provisions linked to the Agricultural Emergency Law.

d.1. In normal situation.

The analysis of the client's cash flow shows that they are capable of comfortably meeting all their financial commitments.

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

a) presents a liquid financial situation, with a low level and adequate debt structure in relation to their profit capacity; shows a high capacity to pay debts (capital and interest) under the agreed conditions generating funds—measured through 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 activity sector.

b) complies punctually with the payment of their obligations, understood to occur when the client cancels them without resorting to new direct or indirect financing from the entity.

c) has qualified and honest direction, very professional and technical, with adequate internal control systems.

d) has an adequate information system, which allows knowing the financial and economic situation of the company permanently. The information is consistent and up to date.

e) 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.

f) is located above the sector average and is highly competitive in its activity.

Clients whose debts and guarantees are entirely covered by the guarantees mentioned in the third paragraph of point 1. of this annex will be included in this category.

In this category, debtors whose debt titles have received a rating lower than "B" granted by any risk rating company in the country cannot be included. This circumstance will determine their incorporation, at minimum, in the next level.

d.2. With potential risk.

The analysis of the client's cash flow shows that, at the time of the review, 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 can reflect this situation, it is highlighted that the client:

a) presents a good financial and profitability situation, with moderate debt and adequate cash flow for the payment of capital and interest debts. The cash flow tends to weaken to face 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.

b) incurs in reduced and occasional delays in payments, some possibility of non-compliance with contractual conditions.

It will be understood that the client makes the payment of their obligations when they do not resort to new direct or indirect financing from the entity.

c) has qualified and honest direction.

d) has an adequate information system, which allows knowing the financial and economic situation of the client permanently. The information is consistent. There may be some delays in its presentation.

e) belongs to a sector of economic activity or business branch whose future trend presents questionable aspects, possibility of income decrease, increase in competition or structural costs.

f) maintains payment agreements resulting from homologated judicial concordats to mature when at least 35% of the amount involved in the cited agreement has been cancelled.

d.3. With problems:

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

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

a) presents an illiquid financial situation and a cash flow level that does not allow them to meet the payment of the entirety of the 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 predictable modifications of significant variables, further weakening their payment possibilities.

b) incurs in delays greater than 90 days and up to 180 days. For this purpose, the counting of the terms will not be interrupted by the granting of renewals when the effective cancellation of the matured obligations has not previously occurred, that is, without resorting to direct or indirect financing from the entity.

c) has a direction of little capacity and/or experience and/or of unclear honesty and/or weak and/or with objectionable internal control systems.

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

e) has repeated and systematic refinancing of the owed capital linked to an insufficient capacity for its payment even when paying the interest and provided that there are no haircuts on the capital, that the agreed interest rates 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 40% of the refinanced obligations has been punctually paid and there are additional quick-realization guarantees to those originally offered, whose market value allows recovering the debts without losses and are constituted on assets not linked to the exploitation, the debtor may be reclassified to the immediate superior level if, in addition, the other conditions provided in the cited level are observed.

f) maintains payment agreements resulting from homologated judicial concordats to mature when the 35% of the amount involved in the cited agreement has not yet been cancelled.

g) incurs in recurrent delays, non-compliance of more than 90 days with respect to contractual conditions or null movement in accounts with the entity.

h) belongs to a sector of economic activity or business branch whose future trend is not firm, perspective of decrease in income and benefits, possibility of reduction in the demand for products.

i) is located below the sector average with difficulties to face competition and with minor problems in terms of technology adaptation. Presents problems in its relationship with suppliers and clients.

The debtor who remains for prolonged periods in this category or in any inferior one will generate the presumption that they must be incorporated into the inferior level.

d.4. With high insolvency risk

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

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

a) presents an illiquid financial situation and a very high level of indebtedness, with negative results in exploitation and forced to sell important assets 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, being feasible to presume that they will also have difficulties to comply with eventual refinancing agreements.

b) incurs in delays greater than 180 days and up to 1 year. For this purpose, the counting of the terms will not be interrupted by the granting of renewals when the effective cancellation of the matured obligations has not previously occurred, that is, without resorting to direct or indirect financing from the entity.

c) has incompetent and/or dishonest direction. Lack of control in internal systems.

d) has an inadequate information system, which prevents knowing with exactness the real financial and economic situation of the company. The information presented is not reliable because it does not have the adequate supporting documentation. In general, the information is not consistent and is not up to date.

e) has refinancing of the owed capital and accrued interest linked to an insufficient capacity for its payment, with granting of haircuts or with reduction in the agreed interest rates—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 50% of the refinanced obligations has been punctually paid and there are additional quick-realization guarantees to those originally offered, whose market value allows recovering the debts without losses and are constituted on assets not linked to the exploitation, the debtor may be reclassified to the immediate superior level if, in addition, the other conditions provided in the cited level are observed.

f) has been judicially sued by the entity for the collection of its credit when this is linked to the inability to pay. Cases are excluded where the actions refer to the discussion of other contractual aspects.

g) has requested preventive bankruptcy or their bankruptcy has been requested, as long as it has not been declared, for obligations that are equal to or greater than 5% of the client's equity. In case the bankruptcy petition is lifted, the debtor may be reclassified into superior levels, according to the previous situation, if the conditions provided there are observed.

h) is permanently late in payment, with non-compliance greater than 180 days with respect to contractual conditions.

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

j) is located very far below the sector average with very serious problems to face competition and has a technology that requires urgent modernization. Serious difficulties in its relationship with clients and suppliers.

The debtor who remains for prolonged periods in this category or in any inferior one will generate the presumption that they must be incorporated into the inferior level.

d.5. Uncollectible.

The 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 the analysis.

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

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

b) incurs in delays greater than 1 year, has refinancing of capital and its interest and with financing of exploitation losses.

For this purpose, the counting of the terms will not be interrupted by the granting of renewals when the effective cancellation of the matured obligations has not previously occurred, that is, without resorting to direct or indirect financing from the entity.

When at least 60% of the refinanced obligations has been punctually paid and there are additional quick-realization guarantees to those originally offered, whose market value allows recovering the debts without losses and are constituted on assets not linked to the exploitation, the debtor may be reclassified to the immediate superior level if, in addition, the other conditions provided in the cited level are observed.

c) has incompetent and/or dishonest direction and/or capable of committing fraudulent acts. Null internal control.

d) has an inadequate information system, which prevents knowing with exactness the real financial and economic situation of the company. The information presented is not reliable because it does not have the adequate supporting documentation. In general, the information is not consistent and is not up to date.

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

f) is located in the lowest portion within its sector, not being in conditions to compete and with obsolete, non-rentable technology.

Financing to clients who are themselves debtors in irregular situation with financial entities in liquidation will also be included, according to the list provided by the Central Bank.

In addition, it will correspond to classify in this category clients who, for any reason (including not having a file), have not been evaluated with the corresponding periodicity.

II. Credits for consumption or housing.

Without prejudice to the fact that analyses prior to granting financing must also take into account the debtors' payment capacity, evaluating the impact of their periodic income on the total credit commitments assumed, the classification of these clients will be carried out considering -at the end of each month- exclusively objective guidelines linked to the degree of compliance in terms of their obligations or their legal situation and the information arising from the "Risk Central" when it reflects quality levels lower than those assigned by the entity.

In such situations, a discrepancy of one level regarding the worst classification granted by at least two other financial entities whose claims represent at least 20% of the total reported by all entities will be admitted; therefore, the existence of greater differences will require recategorization when the classification granted by the entity is superior to the aforementioned worst classification.

Financing in pesos and foreign currency (credits and guarantees) of a commercial nature up to the equivalent of $ 50,000 ($ 100,000, until 12.31.95) without preferred guarantees, or up to the equivalent of $ 100,000 ($ 200,000, until 12.31.95) with preferred guarantees may also be included in this set, at the entity's option.

Consumer credits that exceed these limits, depending on the case, whose repayment is not linked to the client's fixed or periodic income but to the evolution of their productive or commercial activity, will be classified within the commercial portfolio.

1. Normal Compliance.

It includes the amount of financing to clients who attend to the payment of their obligations punctually or with delays not exceeding 31 days.

2. Inadequate Compliance.

It includes the amount of financing to clients who register occasional non-compliance in the attention of their obligations, with delays of more than 31 up to 90 days.

3. Deficient Compliance.

It includes the amount of financing to clients who show some inability to cancel their obligations, with delays of more than 90 up to 180 days.

4. Difficult to Recover.

It includes the amount of financing to clients who are in judicial collection management or with delays of more than 180 days up to one year.

5. Irrecoverable.

It includes the amount of financing to insolvent clients, in judicial management or bankruptcy with null or slight possibility of credit recovery, or with delays exceeding one year.

Financing to clients who are also debtors in irregular situation with financial entities in liquidation will also be included, according to the list provided by the Central Bank.

+--------------------------------------------------+-------------+

MINIMUM PROVISIONING GUIDELINES FOR	Annex II CLIENTS OF THE PRIVATE SECTOR
I	a to I
ICom. "A" 2216I
+--------------------------------------------------+-------------+

According to the classification that must be assigned to clients, taking into account what is provided in Annex I, the following minimum provisioning guidelines must be applied to the total debts of clients:

Category	With Preferred Guarantees	Without Preferred Guarantees
1) Situation and Normal Compliance	1%	1%
2) With Potential Risk and Inadequate Compliance	3%	5%
3) With Problems and Deficient Compliance	12%	25%
4) With High Insolvency Risk and Difficult Recovery	25%	50%
5) Irrecoverable	50%	100%

These guidelines must also be observed with respect to financial entities, excluding non-matured inter-financial operations up to 30 days in term and public financial entities with majority state participation and which have the guarantee of the government of the respective jurisdiction.

These criteria must also be applied to unused balances of current account advances granted, and by guarantees, endorsements, and other eventual commitments in favor of third parties on behalf of clients - including those linked to foreign trade operations - registered in Off-Balance Sheet Accounts, as resulting from the classification assigned to them and the counter-guarantees covering the operations. No provision need be made when dealing with clients classified in normal situation and compliance.

The provision on the normal portfolio will be global, while that corresponding to the other categories will have individual allocation.

When existing preferred guarantees do not cover the total assistance to the client, the part not reached with that coverage will have the treatment established for debts without preferred guarantees.

Debts and guarantees covered by the guarantees or counter-guarantees mentioned in the third paragraph of point 1. of Annex I will be separated from the remaining debts and guarantees, observing on the fraction of disbursed credits the provision established generally for the normal portfolio. On the remaining debts and guarantees, the minimum provisions resulting from these rules will be applied.

Entities may make provisions for amounts higher than those resulting from the preceding scales, if they deem it reasonable, but in such cases it must be kept in mind that the application of percentages corresponding to other subsequent levels will determine the automatic reclassification of the client by assimilation to the quality degree associated with the minimum provision, except in the cases referred to in the last two paragraphs of this annex.

In the case of assistance with preferred guarantees, the stay in the categories "with high insolvency risk" and "difficult to recover" and "irrecoverable" for a period of 24 consecutive months will determine that, from the twenty-fifth month, the minimum provision corresponding to operations without preferred guarantees must be applied.

Provisions must be made for 100% of the interest and similar accessories accrued corresponding to the debts of clients classified as "with problems" or "deficient compliance" or in degrees of lower quality, according to the classification contained in Annex I, from the moment they are classified in any of those categories. The greater coverage for this cause will not imply the obligation to reclassify the client in lower 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", "deficient compliance", "with high insolvency risk", "difficult to recover", with or without preferred guarantees, and "irrecoverable", with preferred guarantees, will not generate

deallocation of the provisions constituted, unless the 100% of the accounted claims by capital and accessories and by other computable concepts (unused balances of current account advances and eventual obligations) is covered, all considered per client. The collection of the cited concepts that had not been accrued accounting-wise, having opted to interrupt their accrual, will not generate profits, except that the indicated coverage is met by constituting the pertinent provisions. The greater coverage with provisions for these circumstances will not determine the obligation to reclassify the client in lower categories.