Circular No. 49 — Financial Operations by Credit, Financing and Investment Companies — Acceptance of Commercial Paper — Implementation of Resolution 32 of July 30, 1966 — Revocation of Circulars 27, 40, 80 and 83

CIRCULAR NO. 000049

To
Credit and Financing Companies, Mixed-type Companies, and Investment Banks

The CENTRAL BANK OF THE REPUBLIC OF BRAZIL, having in view a deliberation of the National Monetary Council aiming at the implementation of the provisions of Resolution No. 32 of July 30, 1966, communicates:

1. For the purposes of the provisions of letters "b" of items II and III of the aforementioned Resolution, "sales made to buyers of durable goods" are understood as transactions carried out with the end user of the goods, whether for consumption or production, such as:

1.1 - the sale of durable consumer goods (household appliances, furniture, and others) made directly to the consumer;

1.2 - the sale of durable production goods (technical instruments, office equipment, vehicles, machine tools, etc.) made to professionals or companies that use them in their services.

2. The refinancing of installment sales made to buyers of durable goods through the operations covered by items II and III, previously cited,

2.1 - may have as collateral the pledge of the credit opening contract signed between the seller and the buyer, whose installment repayments are represented by promissory notes or bills of exchange; in this case, the commercial paper must necessarily accompany the respective contract, for collection by the financing company, directly or through a bank acting as its agent;

2.2 - furthermore, financing companies may trade complete series of bills of exchange or promissory notes, starting from the first, but titles with a maturity of less than 120 days may not back bills of exchange, and must be subject to negotiation with resources of another origin, such as those of the financier itself, those from participation funds, shareholder deposits, and others.

3. Operations contracted with a monetary correction clause under any of the forms established in letter "d", item III, of Resolution No. 32, until December 31, 1966, and observing the provisions of item 4 below, may be carried out in accordance with the following provisions:

3.1 - have as collateral the regularly constituted pledge of goods that are easy to place and difficult to deteriorate, fiduciary alienation, or the pledge of titles representing legitimate commercial transactions;

3.2 - admit the turnover of pledged titles and the substitution of the commercial pledge or fiduciary alienation with titles also representing legitimate commercial transactions;

3.3 - unequivocally identify the goods subject to fiduciary alienation or pledge; the possession of the pledged goods shall be transferred to the financier at the time, prohibiting the institution of a fiduciary depositary directly or indirectly linked to the financed entity; and

3.4 - observe a maximum term of 6 months for the validity of the contracts.

4. The value of the collateral in operations with a monetary correction clause shall be equivalent, at a minimum, to the sum of the following portions:

4.1 - nominal value of the bill on the date of issuance;

4.2 - 20% (twenty percent) of the aforementioned nominal value; and

4.3 - value of the contracted monetary correction.

5. Financing companies shall carry out the exceptional operations referred to in item 3 above, strictly respecting the following percentages, which shall be calculated on operations with a monetary correction clause contracted from this date:

5.1 - until the 31st of the current month, at most 70% of the value of new operations contracted;

5.2 - from September 1 to October 31, at most 50% of the value of operations contracted in the period; and

5.3 - from November 1 to December 31, at most 30% of the value of operations contracted in the period.

6. The negotiation of bills of exchange resulting from the operations contemplated in Resolution No. 32 shall obey the following norms:

6.1 - the placement in the market directly by the accepting companies shall be made by order, account, and risk of the drawer;

6.2 - the payment of brokerage fees for the intermediation in the sale of bills shall be made, obligatorily, via receipt and identification of the beneficiary of the commission.

7. The calculation of the limit established in item VI of Resolution No. 32 shall obey the following norms:

7.1 - only the legal reserve (art. 130 of Decree-Law No. 2,627 of September 26, 1940) and reserves duly approved by a shareholders' general meeting, or constituted by express statutory determination, shall be computed as reserves; accounts classified as passive regularization of assets (depreciation or amortization), nor provisions or funds for risks of any nature, shall not be considered reserves, even if so named;

7.2 - from the sum of the paid-in capital and reserves, participations of a permanent nature in the capital of other companies shall be deducted, thus considered those that do not result from subscription guarantee operations or those that do not have a high degree of negotiability, as defined in Resolution No. 16 of this Bank; and

7.3 - balances remaining from operations carried out within the system established by Resolution No. 21 of this Bank, nor those resulting from operations executed in the capacity of financial agent for government funds, shall not be computed among passive operations.

8. As subsidiary collateral for the operations referred to in items II and III of Resolution No. 32, and in item 3 hereof, accepting companies may receive, in addition to others, the following, understood, however, that only after the constitution of the main guarantees may the bill of exchange be accepted:

8.1 - pledge of a promissory note issued or endorsed by directors of the financed company or by third parties;

8.2 - pledge, duly formalized, of shares that possess a high degree of negotiability, as defined in Resolution No. 16 of this Bank;

8.3 - pledge, duly formalized, of debentures issued by commercial or industrial companies; and

8.4 - guarantee from foreign banks, regularly constituted.

9. The operations referred to in Resolution No. 32, which aim to obtain resource complementation for refinancings carried out in the capacity of financial agent for government funds, shall remain under the exception regime established in item 3, until their guarantees are regulated.

10. Investment Banks may receive deposits with monetary correction for a minimum term of 6 months, observing the following:

10.1 - the deposits shall be governed by the conditions fixed in item III of Resolution No. 31;

10.2 - the issuance of bank deposit certificates will continue to obey the provisions of the legislation and regulations in force;

10.3 - interest, calculated on the corrected principal, may be paid monthly, but monetary correction shall be paid only at the maturity of the deposit; in the case of certificate issuance, the payment of interest shall be registered on the reverse of this document;

10.4 - nominal differences resulting from monetary correction, in accordance with the provisions of art. 27, § 1, of Law No. 4,728 of July 14, 1965, do not constitute taxable income for the purposes of income tax, except in the case of prefixed monetary correction if this, added to the interest rate, is higher than the monetary correction that would result from the application of the correction coefficients approved by the National Council of Economics; in this case, the excess shall be considered interest and shall be subject to the incidence of income tax, except for deposits made until December 31, 1966, whose interest, for the period elapsed until December 31, 1967, are exempt from income tax (art. 1, § 2 of Decree-Law No. 13 of July 18, 1966) even when advanced monthly.

11. Circulars No. 27, 40, 80, and 83, respectively of March 25, 1966, May 31, 1966, July 29, 1963, and October 10, 1963, the first two of this Bank and the last two of the extinct Superintendence of Currency and Credit, are hereby revoked.

Rio de Janeiro-GB, August 16, 1966

CAPITAL MARKETS MANAGEMENT

Murilo Gomes Bevilaqua
Manager