Circular No. 40 - Credit and Financing Companies and Mixed-Type Companies - Additional Norms to Circular 27 - Direction of a Minimum 30% Share of the Global Value of Operational Limits Acquired by Placement of ORTNs in Installment Sales Operations

CIRCULAR NO. 000040

To
Credit and Financing Companies and Mixed-Type Companies

As an addendum to Circular No. 27, of March 25, 1966, which regulated Resolution No. 21, of March 15, 1966, we transmit the following provisions, as deliberated by the National Monetary Council, in a meeting held on this date:

1. Credit and Financing Companies and Mixed-Type Companies that have been participating in the savings mobilization system instituted by Resolution No. 21 and those that may participate in it shall allocate a minimum share of 30% of the global value of operational limits, acquired by placement of National Treasury Adjustable Bonds, in operations with companies that operate in the installment sales system.

2. Credit and Financing Companies and Mixed-Type Companies shall comply with the provisions of item 1, above, by June 30, 1966.

3. "Installment sales" is defined as sales made to the final buyer, for payment in successive monthly installments.

4. Contracts entered into with firms that carry out installment sales shall contain, in addition to the conditions established in item 8-II of Circular No. 27, a clause establishing the obligation of the financed company to maintain an amount of own working capital, as recommended below.

5. The own working capital of companies operating in installment sales shall maintain the following minimum percentages, in relation to the global value of credits granted to final buyers:

• 4%, from September 30, 1966
• 6%, from December 31, 1966
• 9%, from March 31, 1967
• 12.5%, from June 30, 1967
• 15%, from December 31, 1967
• 17.5%, from June 30, 1968
• 20%, from December 31, 1968

6. The supervision of this position shall be the responsibility of Credit and Financing Companies, which shall establish, as a requirement, the provision of periodic balance sheets, on the dates indicated in the previous item, data that they shall examine and keep in their files to be inspected by the Central Bank of the Republic of Brazil, at any time. They shall also notify this Management of any irregularities they verify regarding the position of the financed firm.

7. For the purposes of the previous items, own working resources are understood to be the amount of realized capital and free reserves minus the value of fixed assets and participations.

8. Operations provided for in item 9 of Circular No. 27 may also be secured by the pledge of promissory notes included in open credit extended by companies to final buyers for the acquisition of durable consumer goods.

9. To the maximum price increases provided for in items 8-h and 9-b of Circular No. 27, values related to fiscal charges inherent to the financial operation to be carried out may be added.

10. The deadline established in Circular No. 35 for the acceptance of titles representing the balance of sales made up to May 15, 1966, as collateral for operations of this kind, is extended to June 30, 1966.

11. From June 30, 1966, operations carried out in accordance with item 8-I - WORKING CAPITAL FINANCING - may only be secured by accounts receivable with a maturity period exceeding 90 days.

Rio de Janeiro-GB, May 31, 1966

BANKING OPERATIONS MANAGEMENT

Germano de Brito Lyra
Manager