Circular LISOL1 - 97. OPRAC 1 - 374. Classification of debtors and provisions for uncollectible debts for certain financings and treatment of other assets for the purpose of computable equity responsibility

BANCO CENTRAL DE LA REPUBLICA ARGENTINA __________________________________________________________________ COMUNICACION " A " 2274 25/11/94 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 97.
OPRAC 1 - 374.
Classification of debtors and provisions for uncollectible debts for certain financings and treatment of other assets for the purposes of computable equity responsibility

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

"1. Establish, with effect for balances from November 1994, that financial entities must classify as irrecoverable and provide 100% provisions for financings under any concept to banks abroad and other borrowers not domiciled in the country who do not have a rating included in the "investment grade" category granted by at least two of the rating companies included in the list of point 6 of the ordered text disseminated through Communication "A" 2269. To this end, the following will be excluded:

• balances in correspondent accounts and other term
  placements and financings granted to:
  i) the parent house of local branches of foreign capital or its subsidiaries in other countries and other banks abroad authorized to intervene in the regimes of agreements on reciprocal payments and credits to which this Institution has adhered. ii) subsidiaries of local financial entities that are subject to the consolidated supervision regime (Communication "A" 2227).
• financings that have a guarantee from a foreign bank
  whose rating is included in the "investment grade" category granted by at least two of the rating companies included in the list of point 6 of the ordered text disseminated by Communication "A" 2269.

2. Incorporate, with effect for the determination of the
   computable equity responsibility required since 30.11.94, among the concepts referred to in point 3.2 of
   Chapter VI of Circular LISOL - 1 and complementary
   norms that correspond to be deducted for that purpose ("Cd") according to the expression contained in point 3.1 of that
   chapter (text according to Communication "A" 2223), the
   following concept:

• balances in correspondent accounts and other demand
  placements in foreign banks that do not have a rating included in the "investment grade" category granted by at least two of the rating companies included in the list of point 6 of the ordered text made known through Communication "A" 2269. This deduction will be carried out by the highest balance recorded during the month corresponding to the determination of the computable equity responsibility. To this end, the following will not be deducted:
• balances in correspondent accounts and other demand
  placements registered in:
• the parent house of local branches of foreign capital
  or its subsidiaries in other countries and in other foreign banks authorized to intervene in the regimes of agreements on reciprocal payments and credits to which this Institution has adhered.
• subsidiaries of local financial entities that are
  subject to the consolidated supervision regime (Communication "A" 2227).
• balances in correspondent accounts that, temporarily
  and circumstantially, originate from customer operations, such as those related to foreign trade operations or other types of accreditation ordered by third parties that do not imply equity responsibility for the entity.

3. Admit that financial entities grant financings whose
   destination is the application of funds outside the country, mainly in activities and services linked to production and foreign trade that favor exchange with our country, provided that they are foreign clients who have a rating included in the "investment grade" category granted by an internationally accepted rating agency.

Without prejudice to compliance with other applicable provisions to that credit assistance, said rating will be updated respecting the same periodicity that must be observed for the classification of the debtor in accordance with the current regulations in the matter referred to in Annex I to Communication "A" 2216 and complementary. The determination of the category in which the debtor should be classified will be made based on the content of the rating report of the period or immediate previous one in question.
4. Clarify that assets that must be deducted for the purposes of
the calculation of computable equity responsibility in accordance with the provisions established in the matter by this Institution will not be considered for determining:

• the requirement of minimum capital (Communication "A" 2136 and
  complementary).
• credit assistance limits (Annexes I and II to
  Communication "A" 2140).
• classification of debtors and minimum provisions for
  uncollectible debts (Communication "A" 2216 and complementary).
• global net position of foreign currency, when the
  assets are denominated in that species."

We point out that what is established in point 3 of the preceding resolution does not imply the modification of the provisions by which specific destinations have been established for certain resources, such as those coming from savings deposits and fixed-term deposits in foreign currency (Communication "A" 1820 and complementary) or from the placement of negotiable bonds (Communication "A" 1907 and complementary).

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