Circular LISOL 1-93, OPASI 2-122, OPRAC 1-372: Subordinated Debt Requirements and Treatment for Computable Net Worth. Complementary Standards

BANCO CENTRAL DE LA REPUBLICA ARGENTINA __________________________________________________________________ COMUNICACION " A " 2264 01/11/94 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 93.
OPASI 2 - 122.
OPRAC 1 - 372.
Subordinated Debt. Requirements and treatment for the purposes of computable net worth responsibility. Complementary Standards

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

"1. Incorporate, with effect for the determination of the computable net worth responsibility required from 30.11.94, among the concepts referred to in point 3.2. of Chapter VI of Circular LISOL - 1 that must be deducted for this purpose ("Cd") according to the expression contained in point 3.1. of that chapter (text according to Communication "A" 2223), the following:

• holding of debt securities, contractually sub-
  ordinated to other liabilities, issued by other financial entities. This deduction will be made for the amount of the highest balance registered during the month to which the determination of computable net worth responsibility corresponds.

2. Provide that financial entities may not purchase for
   subsequent redistribution their own issuances of such subordinated debt that has been or is considered for the purposes of the determination of computable net worth responsibility.

3. Replace point 3.1.2.2. of Chapter VI of Circular LISOL

• 1 (text according to Communication "A" 2223), with the following:
  "3.1.2.2. obligations by debt securities of the entity, contractually subordinated to other liabilities, issued under the following conditions:

3.1.2.2.1. that the weighted average term to
maturity at the time of issuance is not less than 5 years. This term will be the result of dividing by 365 the sum of the days between the issuance date and the maturity date of each of the capital amortization services, multiplied by the proportion that each of the services represents in relation to the total instrument, considered at their nominal value. In the event that the interest provided for in the issuance results, in the opinion of the Superintendence of Financial and Exchange Entities, otably higher than those usually established in issuances of similar characteristics, in order to establish the weighted average term of the obligation, the "duration" method will be used. This term will arise from weighting the number of days between the issuance date and the maturity date of each of the future services in terms of capital and interest, as applicable, by the proportion that represents the economic value of each of the services in relation to the economic value of the instrument. For this latter effect, the net present value of future cash flows discounted at its internal rate of return will be considered.

3.1.2.2.2. that, if provided for, the early
redemption of the obligation can only be exercised at the option of the debtor, provided that:
a) it has authorization from the Super- intendence of Financial and Exchange Entities prior to the exercise of the option. b) the computable net worth responsibility, after redemption, results equal to or greater than the minimum capital requirement.

3.1.2.2.3. that, if provided for, the conversion
into shares of the issuer can be concluded, under the terms established contractually, according to one of the following alternatives:

a) only at the option of the debtor, or b) only at the option of the creditor, or c) at the option of either of them, indistinctly.

3.1.2.2.4. that the instrument does not contain clauses
that declare the obligation of term due in case of non-payment of the 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 the total of debts with other non-subordinated creditors has been satisfied, holders will have priority in the distribution of funds only 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 this distribution will be carried out among all subordinated debts proportionally to the verified liabilities. Starting from the beginning of each of the last five years of life of each issuance, the amount computable will be decreased by 20% of the nominal value issued net of effective amortizations. In no case will the computable amount at the start of each of these periods be greater than the result of applying cumulatively said percentage on the residual obligation at the end of each of these years, according to the schedule of capital amortization services fixed. The total of this concept may reach up to equivalent to 50% of "Basic Net Worth. In the case that the placement is made below par, for the determination of computable net worth responsibility, the amount actually received will be taken into account, i.e., after deducting issuance discounts, not considering as such commissions retained by the intervening placement agent.

Only the computation as "Complementary Net Worth" will be admitted if prior authorization from the Superintendence of Financial and Exchange Entities is granted, whose intervention will have the purpose of verifying compliance with the enumerated requirements and, in particular, that the entity complies with the minimum capital requirement. If the Superintendence does not issue an express ruling 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 such 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 that is regulated, this character implies the situation described in point 3.1.2.2.5. prior. The sole non-payment of one or more of the services of amortization or interest of the subordinated debts will not be considered as a cause for revocation of the authorization to operate as a financial entity, provided that:
a) the manner of extinguishing the unpaid obligation is determined within the year of maturity, b) other non-subordinated obligations are normally met, c) no cash dividends are distributed to shareholders, and d) no fees are paid to directors and trustees, except in cases where they perform executive functions. The 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."

We salute you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA Alfredo A. Besio Miguel A. Kiguel Manager of Standards for General Manager Financial Entities Area of Economics and Finance