BANCO CENTRAL DE LA REPUBLICA ARGENTINA

COMUNICACION "A" 3366 I 22/11/01

TO FINANCIAL ENTITIES:

Ref.: Circular
OPRAC 1-509
LISOL 1-365
CONAU 1-390
Decree 1387/01. Swap of National Public Debt Securities for Guaranteed Loans. Normative Exceptions. Determination of Minimum Capital Requirement.

We address you to inform you that this Institution adopted, on the subject referenced, the following resolution:

“1. Exclude from the limitations established in the regulations on “Financing of the non-financial public sector” the financings that are instrumented through “Guaranteed Loans” that financial entities receive in exchange, within the framework of Decree 1387/01, of national public debt securities and promissory notes issued by the National Government (Financing program instrumented through Promissory Notes or Bonds).

2. Provide that the amount of credit assistance instrumented through Guaranteed Loans received in exchange for national public debt securities shall not be considered for the application of the maximum lending limits based on computable net worth, referred to in points 2.2.1 and 3.2. of Annex II to Communication “A” 2140, without prejudice to the observance of what is established in points 2. and 3. of the resolution disseminated by Communication “A” 3280 regarding Guaranteed Loans corresponding to the exchange of promissory notes issued by the National Government (Financing program instrumented through Promissory Notes or Bonds).

3. Replace, with effect from 12/01/01, Section 10. of the regulations on “Minimum capitals of financial entities”, with the following:

“10.1. Entities that exchange debt instruments issued by the Government - national public debt securities and promissory notes (Financing program instrumented through Promissory Notes or Bonds)- for Guaranteed Loans due to the operation referred to in Decree 1387/01, may:

• for the purposes of determining the minimum capital requirement for credit risk, apply the “modified duration” (“md”) corresponding to the delivered instruments, calculated at the moment of carrying out the exchange, admitting consideration of the value of “md” resulting from the special treatment established due to the exchange operation of Decree 648/01 or the risk weighting rate of 0% in the case where those instruments originate from financings granted prior to 06/01/00.

• for the purposes of determining the minimum capital requirement for interest rate risk, attribute the value of the Guaranteed Loans to the temporal band corresponding to the “duration” (average residual term) of the respective instruments delivered in exchange, at the moment of carrying out the operation.
  In the case of instruments delivered in exchange whose remuneration was established based on a local indicator (variable rate), the value of the Guaranteed Loans will be attributed to the temporal band corresponding to the delivered instruments.
  In both cases, the special treatment referred to in the preceding section will apply.

10.2. The decreases that hypothetically occur in the values of the “modified duration” and the “duration” of the instruments delivered in exchange, subsequent to the date of the latter, cannot be considered for the purposes of the franchise agreed upon by point 10.1., since -as taxatively established- it corresponds to take into account exclusively the values registered at the moment of concretizing the exchange.”

4. Establish that the positive difference between the accounting valuation value of the Guaranteed Loans received in exchange for national public debt securities and the value at which these are registered on the date of exchange, will be reflected in a regularizing asset account that will be enabled for this purpose. The balance of said account will be attributed monthly to results proportionally to the term of each of the Guaranteed Loans.

We send you attached the foundations of the measure adopted, and the sheets that, in replacement of those previously provided, correspond to incorporate into the ordered text of the regulations on “Minimum capitals of financial entities”.

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio José Rutman
Manager of Emission Principal Manager of of Norms Norms and Authorizations

ANEXO

B.C.R.A.
FOUNDATIONS OF THE REGULATION ON SWAP OF NATIONAL PUBLIC DEBT SECURITIES FOR GUARANTEED LOANS. DECREE 1387/01. NORMATIVE EXCEPTIONS.
DETERMINATION OF MINIMUM CAPITAL REQUIREMENT.

Annex
to Com.
“A” 3366

1. Within the framework of Decree 1387/01, insofar as it pertains to the “Reduction of the cost of national and provincial public debt”, the National Government instrumented the possibility of converting national public debt or provincial debt into Guaranteed Loans or Guaranteed National Bonds for the purpose of facilitating the reactivation of the economy through the reduction of financial costs.

For this, the Guaranteed Loans into which eligible Public Debt operations convert, will be at fixed or floating rate and will accrue an interest rate of 7% or up to 3% over Libor rate.

The conversion will be carried out at nominal value and in the same currency in which the converted obligation was expressed, provided that the interest rate of the Guaranteed Loan into which each public credit operation converts is at least 30% lower than that established in the instrument brought for its conversion, according to issuance conditions.

2. As exposed in the considerations of Decree 1387/01, the concreteness of the mentioned operations is of high importance for the country, so it is necessary to adopt a series of measures linked to the application of different prudential regulations, guided by that objective, enabling the participation of financial entities.

In this sense, it is foreseen:

2.1. exclude from the limitations established in the regulations on “Financing of the non-financial public sector” the Guaranteed Loans that are instrumented through the exchange of national public debt securities in the portfolio of financial entities, flexibility necessary due to the new legal form acquired by the recognition of indebtedness.

2.2. not compute the assistance thus instrumented for the purposes of applying the maximum lending limits based on computable net worth, currently in force generally, insofar as it originates from bonds excluded from computation. If it concerns the exchange of bonds/promissory notes issued by the National Government (Financing program instrumented through Promissory Notes or Bonds) for Guaranteed Loans, the criteria established in points 2. and 3. of the resolution made known through Communication “A” 3280 will be observed, so that the situation of entities in this matter is not altered.

2.3. regarding the minimum capital requirement on Guaranteed Loans received in exchange, a special procedure for its determination is established, which the entity may employ in replacement of the general method, so that the exchange operation does not generate an increase in the requirement:
a) regarding the requirement for credit risk for Guaranteed Loans, they may apply the “modified duration” (“md”) corresponding to the delivered instruments, at the moment of the operation. b) regarding the requirement for interest rate risk, their inclusion in the same temporal band corresponding to the instruments delivered at the moment of the operation will be allowed.

In both cases, the flexibility that already existed due to the exchange provided for in Decree 648/01 is taken into account, so the requirements resulting from the previous titles may be considered.

3. On the other hand, taking into account the eventual effect on equity -and consequently on the basic solvency parameter used for different prudential regulations- due to the different value of the Guaranteed Loans compared to the securities being exchanged, it is necessary to establish specific guidelines for valuation and attribution to results of the resulting differences, considering the nature and accounting valuation value of the debt instruments -bonds and promissory notes (Financing program instrumented through promissory notes or bonds)- brought to exchange.

In this order, it is disposed that positive differences between the accounting valuation value of the Guaranteed Loans and the exchanged debt instruments -as provided by Decree 1387/01-, be registered in a regularizing asset account that will be enabled for such effect. The balance of said account will be attributed monthly to results -as profit-, which will be done proportionally to the term of the Guaranteed Loans. Since the aforementioned loans may have different validity terms, for this effect the balance will be subdivided into as many parts as terms exist, to then distribute them each month linearly.

MINIMUM CAPITALS OF FINANCIAL ENTITIES B.C.R.A. Section 10. Transitional Provisions.

10.1. Entities that exchange debt instruments issued by the Government - national public debt securities and promissory notes (Financing program instrumented through Promissory Notes or Bonds)- for Guaranteed Loans due to the operation referred to in Decree 1387/01, may:

• for the purposes of determining the minimum capital requirement for credit risk, apply the “modified duration” (“md”) corresponding to the delivered instruments, calculated at the moment of carrying out the exchange, admitting consideration of the value of “md” resulting from the special treatment established due to the exchange operation of Decree 648/01 or the risk weighting rate of 0% in the case where those instruments originate from financings granted prior to 06/01/00.
• for the purposes of determining the minimum capital requirement for interest rate risk, attribute the value of the Guaranteed Loans to the temporal band corresponding to the “duration” (average residual term) of the respective instruments delivered in exchange, at the moment of carrying out the operation.
  In the case of instruments delivered in exchange whose remuneration was established based on a local indicator (variable rate), the value of the Guaranteed Loans will be attributed to the temporal band corresponding to the delivered instruments.
  In both cases, the special treatment referred to in the preceding section will apply.

10.2. The decreases that hypothetically occur in the values of the “modified duration” and the “duration” of the instruments delivered in exchange, subsequent to the date of the latter, cannot be considered for the purposes of the franchise agreed upon by point 10.1., since -as taxatively established- it corresponds to take into account exclusively the values registered at the moment of concretizing the exchange.

Version: 3rd Communication “A” 3366 Validity:
01.12.01

MINIMUM CAPITALS OF FINANCIAL ENTITIES

ORDERED TEXT ORIGIN STANDARD
Section Point Paragraph Com. Cap./
Annex
Point Paragraph Observations
8. 8.2.4.5. “A” 414
LISOL-1
VI 3.2.
“A” 1215 Specifications of the items of participations in financial entities not deductible to determine the computable net worth.
8. 8.2.4.6. “A” 414
LISOL-1
VI 3.2.
8. 8.2.4.7. “A” 2863 3.
8. 8.2.4.8. “A” 414
LISOL-1
VI 3.2.
8. 8.2.4.9. “A” 2730 Incorporates interpretative clarification.
8. 8.2.4.10. “A” 2545
8. 8.2.4.11. “A” 414
LISOL-1
VI 3.2. Modified by Com. “A”
986.
8. 8.2.4.12. “A” 414
LISOL-1
VI 3.2.
8. 8.2.4.13. “A” 2287 4.
“A” 2607 1.
8. 8.2.4.14. “A” 2893 1.
8. 8.2.4.15. “A” 3087
8. 8.3. “A” 414
LISOL-1
VI 3.4. According to Com. “A” 1858.
9. 9.1. “A” 2227 unique 5.2.1. last According to Com. “A” 2649.
9. 9.2. 1st “A” 2227 unique 5.1.1. and
5.1.7.
According to Com. “A” 2649.
“A” 2227 unique 5.2.2.
9. 9.2. last “A” 2461 unique V.
10. 10.1 “A” 3278 2. According to Com. “A” 3366.
10.2. “A” 3278 2. According to Com. “A” 3366.