Circular No. 27 — Clarifications and Recommendations for the Prompt Execution of Resolution No. 21/1966 Regarding Working Capital Financing and Consumer Financing of Durable Goods

CIRCULAR NO. 000027

To
Credit and Financing Societies and Mixed-Type Societies

We transmit the following clarifications and recommendations, with a view to the prompt execution of the provisions set forth in Resolution No. 21, of March 15, 1966.

1. Credit and Financing Societies and Mixed-Type Societies that meet the conditions established in item VIII of the aforementioned Resolution may register with the Banking Operations Management of this Central Bank. By December 31, 1966, provided they are integrated into a consortium that meets the conditions stated in the cited item VIII, other Societies may participate in the system.

2. The Central Bank of Brazil will deliver, on consignment (model No. 1, attached), to duly accredited Credit and Financing Societies and Mixed-Type Societies, National Treasury Adjustable Obligations, owned by it, for placement in the market, observing for each consignee a maximum rotating limit of its paid-in capital and reserves.

3. Weekly, the qualified Societies will render accounts, remitting the proceeds from the Obligations sold during the period, minus a 4% commission, and returning those not placed, regardless of any charge or expense for this Bank. The Obligations not placed during the period may remain in the possession of the Finance Companies, upon signing a new consignment term.

4. On the last business day of each month, the debtor Societies, by consignment, of National Treasury Adjustable Obligations, will have their debts automatically increased by the adjustment that applies to said Obligations.

5. The Central Bank will credit to a special account - Refinancing Fund for Financial Institutions - the resources derived from the sale of these Obligations.

6. The constituted Fund will be applied in the refinancing of Credit and Financing Societies and Mixed-Type Societies, accredited, as follows:

a) initially, for each Company, up to the value of the National Treasury Adjustable Obligations placed by them, safeguarding the ceiling established in item VII of Resolution No. 21;

b) following market trends and situation, it may be fixed that Finance Companies will only obtain refinancing based on 75% of the value of the Obligations they place in the market.

7. The National Treasury Adjustable Obligations are redeemable, at their maturity, at the expense of this Central Bank, through the Credit and Financing Societies and Mixed-Type Societies, members of the system, from Banco do Brasil S.A. and other Banking Establishments.

8. Based on the ceilings established for each duly qualified Finance Company, operations carried out in favor of companies that have adhered to the price stabilization program referred to in Decree No. 57.271, of November 16, 1965, and that are intended for working capital financing, sale of durable goods, and consumer credit, will be refinanced, under the following conditions:

I - WORKING CAPITAL FINANCING:

a) credit instrument: credit opening, represented in its use by a promissory note;

Note: a clause must be included in which the financed company expressly declares, for all appropriate legal purposes and effects, under the penalties of the law, that it has adhered to the price stabilization program referred to in Decree No. 57.271, of November 16, 1965, and that it is faithfully complying with the scheme established by the National Price Stabilization Commission (CONEP);

b) guarantees: pledge or lien on accounts receivable; the guarantee must represent, at minimum, 110% of the financing value;

c) term: minimum of 180 days and maximum of 360 days;

d) rate: not exceeding 12% per annum, may be charged in advance;

e) commission: variable, corresponding to the maximum monetary correction of 12% per annum, due only at the closing of the operation;

f) a clause providing for the substitution of guarantees up to 30 days before the maturity of the obligation may be admitted in the instrument, provided that no guarantee may have a maturity date later than that of the contract.

II - FINANCING OF SALES TO CONSUMERS OF DURABLE CONSUMER GOODS

a) credit instrument: credit opening, represented in its use by a promissory note;

b) term: minimum of 180 days and maximum of 360 days;

c) rate: not exceeding 12% per annum, may be charged in advance;

d) commission: variable, corresponding to the maximum monetary correction of 12% per annum, due only at the closing of the operation;

e) guarantees: pledge or lien on accounts receivable and pledge of promissory notes integral to credit opened by companies to consumers for the acquisition of goods, in a term not exceeding 12 months; in the case of accounts receivable, when sale on installment, only the complete series of the invoiced sale must be received as guarantee, which must be accompanied by a copy of the respective invoice, declaring in the accounts receivable the portion corresponding to the cash price of the merchandise object of the transaction; when linked as guarantee to a promissory note representing credit to a consumer, for the acquisition of goods, it must accompany the contract of which it is an integral part, together with the appropriate proofs attesting to the use of the credit;

f) financing may not exceed 100% of the portion referring to the cash price of the invoiced or financed merchandise;

g) rotation of guarantees linked to operations of this kind will not be admitted; however, the credit instrument may be represented by promissory notes corresponding to monthly amortizations, quantified based on the principal of the linked guarantee and their respective maturities; in these cases, the interest and commissions due will be calculated on the quantified amortization installments of the principal of the constituted debt;

h) financing will not be granted for invoiced sales or credits granted for the acquisition of goods burdened by interest, commissions, rates, and other charges whose total exceeds 2.25% per month.

9. Installment sales of durable goods may also be financed, up to a term of 24 months, in accordance with the above established, provided that:

a) the value exceeds Cr$500,000 for each invoice whose accounts receivable are the object of financing;

b) the total burden corresponding to interest, commissions, rates, and other charges does not exceed 2.5% per month.

10. Rules for operations of the Central Bank with Credit and Financing Societies and with Mixed-Type Societies:

a) credit instrument: refinancing of promissory notes representing the credits opened by Finance Companies to assisted companies, linking, as guarantee, the received pledge;

b) rate: 6% per annum, charged at the time;

c) commission: variable, corresponding to the maximum monetary correction of 12% per annum, due only at the closing of the operation;

d) the guarantee must be listed in an adequate transfer term (form No. 2, attached), in increasing order of maturity, declaring where the commercial effects are in collection;

e) the proceeds from the realization of matured guarantees in each month, in the possession of Finance Companies, must be remitted to the Central Bank by the end of the following month;

f) in cases where guarantee rotation is provided for, by delivery of a complementary transfer term, listing the new guarantees received, the remittance of the proceeds from the collection carried out in the same period is waived;

g) in cases of early redemption of refinanced operations, interest corresponding to the advance will be returned, provided that this is greater than 30 days; Finance Companies will be obliged to return to the financed company the product of the restitution.

11. For the record, we state that the Central Bank does not provide coverage for any risks arising from the granted financing.

Rio de Janeiro-GB, March 25, 1966

BANKING OPERATIONS MANAGEMENT

Germano de Brito Lyra
Manager