Circular LISOL 1 - 85. Computable Equity Liability of Financial Entities

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2223 27/06/94 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 85.
Computable Equity Liability of Financial Entities

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

"1. Establish that, from June 1994 onwards, the computable equity liability, for the purposes of technical relations, minimum capitals, monetary regulations, and other norms of the Central Bank referring to that concept, shall be equivalent to the computable integration of the minimum capital required, defined in point 2 of the provisions disseminated through Communication "A" 2136.

Therefore, point 3.1 of Chapter VI of Circular LISOL - 1 (text according to Communication "A" 2136) is replaced by the following:

"3.1. Determination. Computable Concepts.
The computable equity liability of financial entities, for the purposes of regulatory norms of the prescriptions of articles 30 and 32 of Law 21.526 and other dispositions of the Central Bank referring to that concept, will arise from the following expression:
RPC = PNb + PNc - Cd - D where
RPC : Computable Equity Liability
PNb : Basic Net Equity
PNc : Supplementary Net Equity, not exceeding 100% of PNb Cd : Deductible Accounts in accordance with point 3.2 of Chapter VI of Circular LISOL - 1 D : 50% of the positive amount of the restatement of non-monetary assets, except where they are concepts included in Cd -net of the amortizations attributable to them-, generated from the balances as of July 1993, to the extent that the assets are maintained in equity.

3.1.1. "Basic Net Equity" comprises the following items from Chapter "Net Equity" of the Minimum Chart of Accounts (Code 400000):

• Social capital
• Non-capitalized contributions
• Adjustments to equity
• Profit reserves
• Unassigned results. The positive result of the last closed fiscal year will be computed once the auditor's report is available.

3.1.2. "Supplementary Net Equity" comprises the positive or negative result of the algebraic sum of the following concepts:

3.1.2.1. Provisions for uncollectibility risk corresponding to the portfolio classified as "in normal situation" or "normal compliance" (only the minimum amount required by the Central Bank).

3.1.2.2. Obligations by securities of debt of the entity, contractually subordinated to other liabilities, issued under the following conditions:

3.1.2.2.1. that the weighted average maturity at the time of issuance is not less than 5 years.

3.1.2.2.2. that, if anticipated redemption is foreseen, the early redemption of the obligation can only be carried out at the debtor's option provided that:
a) it has prior authorization from the Superintendence of Financial Entities and Exchanges before exercising the option, considered granted if no objection arises within thirty days of presenting the request. b) the computable equity liability, after the redemption, results equal to or greater than the minimum capital requirement.

3.1.2.2.3. that, if conversion into shares of the issuer is foreseen, it can be carried out, under the terms established contractually, according to one of the following alternatives:
a) only at the debtor's option, or b) only at the creditor's option, or c) at the option of either party, indistinctly.

3.1.2.2.4. that the instrument does not contain clauses declaring the obligation due in case of failure to pay amortization or interest services of this or other debts or for any other reason, except bankruptcy.

3.1.2.2.5. that the instrument provides that, in case of bankruptcy of the entity and once all debts with other non-subordinated creditors have been satisfied, its holders will have priority in the distribution of funds solely and exclusively with respect to shareholders - regardless of the class of shares -, with express waiver of any general or special privilege.
Furthermore, it will be established that such distribution will be carried out among all subordinated debts proportionally to the verified liabilities.
From the beginning of each of the last five years of life of each issuance, the computable amount will be decreased by 20% of the nominal value issued.
The total of this concept may reach up to the equivalent of 50% of "Basic Net Equity."

Only the computation as "Supplementary Net Equity" will be admitted if there is prior authorization from the Superintendence of Financial Entities and Exchanges, whose intervention aims to verify compliance with the enumerated requirements and, in particular, that the entity meets the minimum capital requirement. If the Superintendence does not issue an explicit decision within the term of 30 days counted from the date of presentation by the entity, the authorization will be deemed granted. It is considered that a debt is subordinated with respect to other liabilities when, under equal conditions regarding eventual privileges or among unsecured creditors, the creditor of said debt accepts granting priority in the collection of the claim, in case of bankruptcy of the debtor, to other liabilities under equal conditions. In the case regulated herein, said character implies the situation described in the preceding point 3.1.2.2.5. The mere failure to pay some or all of the amortization or interest services of the subordinated debts will not be considered as a cause for revocation of the authorization to operate as a financial entity, as long as:
a) the method to extinguish the unpaid obligation is determined within the year of maturity, b) other non-subordinated obligations are normally attended to, c) dividends in cash are not distributed to shareholders, and d) fees are not paid to directors and trustees, except in cases where they perform executive functions. Non-compliance with these requirements by the entity will not imply any responsibility for the Central Bank, an aspect that must be expressly stated in the offering prospectuses and in the issued instrument.

3.1.2.3. 100% of the results recorded up to the last quarterly balance that has an auditor's report, corresponding to the last closed fiscal year and regarding which the auditor has not yet issued its opinion (positive or negative).

3.1.2.4. 100% of the results of the current fiscal year recorded at the close of the last quarterly balance, once it has an auditor's report (positive or negative).

3.1.2.5. 50% of gains and 100% of losses, from the last quarterly or annual balance that has an auditor's report or opinion. These percentages apply to the accumulated net balance calculated at the close of each month, as long as what is provided in the two preceding sections (positive or negative) does not apply.

3.1.2.6. 100% of losses not considered in the accounting statements, corresponding to the quantification of facts and circumstances reported by the auditor, in accordance with what is provided in point 2 of Annex IV to the Norms on external audits (negative).
For the purposes of computing 100% of the results recorded up to the last quarterly or annual balance, the respective accounting statement with the auditor's report must be presented prior to the date when the presentation of the monthly balance becomes mandatory."

2. Order, with effect from 1.6.94, that deviations from the credit assistance limits established through the provisions disseminated by Communication "A" 2140 and complementary ones, and from the relations that must be observed regarding global holdings of participations and other concepts referred to in points 3.3. and 3.4. of Annex II to said Communication, which originate from the application of what is disposed in the preceding point, will not be considered breaches to the extent that they arise from pre-existing operations or commitments formalized as of 31.5.94 and always that at that latter date they were included within the prevailing limits or in the situations provided in points 2. and 5. of the resolution made known by said communication.

This exemption will apply until the operations comprised expire. When their maturity occurs in the period 1.6/31.12.94, extensions, renewals, or other express or tacit facilities agreed upon on that portfolio will not be considered as new financings until that latter date, so they will be computed as such -with observance of the prevailing limits in the matter- from 1.1.95.

3. Establish that excesses that, due to the effect of what is disposed in point 1. of this resolution, are verified until December 1994 in matters of foreign currency deposit collection with adjustment to the regime of Communication "A" 1820 and complementary ones, will not be considered breaches.

4. Order, with effect from June 1994, that local banks shall not deduct the balance item "Subsidiaries abroad", for the purposes of computing the relations referred to in Annexes I and II to Communication "A" 2140."

We clarify that the definition adopted in accordance with point 1. of the preceding resolution is applicable for the determination of the computable equity liability as of 31.5.94, to be used for the purposes of the technical relations that must be observed from 1.6.94.

We will inform you opportune about the treatment that, consequently, corresponds to dispense from the point of view of funding to the operations (state of investment of own resources not immobilized, global net position of foreign currency, etc.), so that until then the dispositions used in the matter until now will continue to be observed.

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