Circular OPRAC 1-565 / LISOL 1-406: Modifications to Rules on Guarantees, Minimum Provisions for Uncollectible Risk, and Credit Graduation

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMUNICACIÓN “A“ 4055 02/12/2003
TO FINANCIAL ENTITIES:
Ref.: Circular
OPRAC 1 - 565
LISOL 1 - 406
Rules on “Guarantees”, “Minimum Provisions for Uncollectible Risk” and “Credit Graduation”.
Modifications

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

“1. Replace the first paragraph of points 1.1.14.1. and 1.1.14.2. of point 1. of Section 1. of the rules on “Guarantees” with the following:

“1.1.14.1. Register a level of indebtedness with the system equal to or greater than $ 2,000,000, according to the latest information available in the “Central of debtors of the financial system” and be informed by at least two financial entities in which the indebtedness -in each of them- is at least $ 1,000,000.”

“1.1.14.2. Maintain valid negotiable obligations or other debt instruments in the local market that have local risk rating and all of them are, at minimum, "A" or higher, for a sum not less than $ 6,000,000.”

2. Replace point 2.2.5. of Section 2. of the rules on “Minimum Provisions for Uncollectible Risk” with the following:

“2.2.5. Additional credit.
New financings that imply fund disbursements for amounts that do not exceed the result of applying to the debt balance -in each entity- on the day prior to their granting, the proportions established below, may be provided for based on the percentage established for clients in normal situation:

Category %
5 10
4 20
3 30
2 40

The modification to higher levels of the classification assigned to the client will determine the change in the assistance limit as previously provided. Defaults in the payment of services corresponding to the additional assistance will determine the obligation to provide for the assistance according to the objective standards of delay or legal situation established for the purposes of classifying debtors included in the consumer or housing portfolio, even when it concerns borrowers included in the commercial portfolio, for which purpose the additional financing will be treated independently of the rest of the client's debt.

The additional financing granted is independent of the assistance that may be provided in operations that are fully covered with preferred “A” guarantees, for which there are no other limitations than those provided in the relevant rule.”

3. Replace the first paragraph of point 9.1. of Section 9. of the rules on “Credit Graduation” with the following:

“9.1. Shares received in payment of credits.
With validity until 31.12.04, financial entities may receive shares or participations in the capital of companies in payment of credits, up to the limit of 20% of the share capital, without exceeding 20% of the votes, with respect to companies that do not provide complementary services to the financial activity, subject to the following conditions.”

4. Establish that debtors who on 31.12.01 were classified in categories “high risk of insolvency”, “difficult recovery” and/or “uncollectible” may remain in those categories for an additional period of up to 18 consecutive months to those contemplated in points 2.2.3.1. to 2.2.3.2., provided that with respect to the computation of said additional period, June 30, 2004 is not exceeded.”

We send you attached the sheets that in replacement of those previously provided correspond to be incorporated into the ordered texts of the rules on “Guarantees”, “Minimum Provisions for Uncollectible Risk” and “Credit Graduation”. We salute you very attentively. BANCO CENTRAL DE LA REPUBLICA ARGENTINA Alfredo A. Besio José Rutman Manager of Emission Manager Principal of Norms of Norms

ANEXO

GUARANTEES
B.C.R.A.
Section 1. Classes.
Version: 5th. COMMUNICATION “A“ 4055
Validity:
02/12/2003
In all cases where in this point the mention of "subject/s obligated/s to payment" is referring to any of the signatories of the documents that hold that condition in their capacity as drawer, endorser, acceptor or guarantor.

1.1.11. Direct guarantees issued by central governments, agencies or departments of central governments of countries members of the Organisation for Economic Co-operation and Development (O.E.C.D.) that have international risk rating “A” or higher granted by any of the rating agencies admitted by the rules on “Evaluation of financial entities”.

1.1.12. Guarantees constituted by the assignment of rights over the collection of tariffs and taxes in public works concessions, provided that it does not exceed 50% of the projected income.

1.1.13. Guarantees or sureties of securities (shares or bonds) privately issued by national or foreign companies, taking into account permanently their market value, which must respond to a normal and usual quotation in local or international markets, widely disseminated and easy access to public knowledge.
The local issuing companies must maintain valid debt papers that have local risk rating “A” or higher, granted by any of the rating agencies admitted by the rules on “Evaluation of financial entities”. Foreign titles must correspond to companies whose debt papers have international risk rating “A” or higher granted by any of those rating agencies.

1.1.14. Credit titles (deferred payment checks, promissory notes, bills of exchange and credit invoices), discounted with responsibility for the assignor, in which any of the subjects legally obligated to payment, holding that condition in their capacity as drawer, endorser, acceptor or guarantor, meets at least one of the following conditions:

1.1.14.1. Register a level of indebtedness with the system equal to or greater than $ 2,000,000, according to the latest information available in the "Central of debtors of the financial system" and be informed by at least two financial entities in which the indebtedness -in each of them- is at least $ 1,000,000.

GUARANTEES
B.C.R.A.
Section 1. Classes.
Version: 4th. COMMUNICATION “A“ 4055
Validity:
02/12/2003
Must be classified, in said central, "in normal situation" by all financial entities and, in the case of maintaining valid negotiable obligations or other debt titles, these must have rating at the levels fixed in point 1.1.14.2. The total financing granted to different assignors and assigned by the entity in this modality to the same subject legally obligated to payment, may not exceed 10% of the debts of the latter with the financial system, reported in the "Central of debtors of the financial system", nor 5% of the computable equity responsibility of the entity of the month prior to that which corresponds, of both the lesser. This last limit will not be observed in case that the entity has credit file of said obligated, so the operations will be computed within the assistance margins that the applicable rules in the matter provide.

1.1.14.2. Maintain valid negotiable obligations or other debt titles in the local market that have local risk rating and all of them are, at minimum, "A" or higher, for a sum not less than $ 6,000,000.
The total financing granted to different assignors and assigned by the entity in this modality to the same subject legally obligated to payment, may not exceed 5% of the computable equity responsibility of the entity of the month prior to that which corresponds. This limit will not be observed in case that the entity has credit file of said obligated, so the operations will be computed within the assistance margins that the applicable rules in the matter provide.

1.1.15. Guarantees or sureties granted by reciprocal guarantee societies registered in the Registry enabled at the Central Bank of the Republic Argentina or by provincial funds constituted with the same object as those societies, admitted by this Institution, regardless of the term of the operation, provided that they effectuate the non-cancelled credits within 30 calendar days of their maturity.

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE RULES ON GUARANTEES ORDERED TEXT ORIGIN RULE
Section Point Paragraph Com. Annex Point Paragraph Observations
1. 1.1. “A” 2932 Unique 1.1.
1. 1.1.1. “A” 2216 I 1. 3rd, a) According to Com. “A” 2443, “A”
2932 and “A” 4055.
1. 1.1.2. “A” 2216 I 1. 3rd, a) According to Com. “A” 2443, “A”
2932 and “A” 4055.
1. 1.1.3. “A” 2216 I 1. 3rd, b) According to Com. “A” 2932 and “A”
4055 .
1. 1.1.4. “A” 2216 I 1. 3rd, c) According to Com. “A” 2932.
1. 1.1.5. “A” 2216 I 1. 3rd, d) According to Com. “A” 2932.
1. 1.1.6. “A” 2216 I 1. 3rd, e) According to Com. “A” and “A” 4055.
1. 1.1.7. “A” 2216 I 1. 3rd, g) According to Com. “A” 2932.
1. 1.1.8. “A” 2216 I 1. 3rd, h) According to Com. “A” 2932.
1. 1.1.9. “A” 2216 I 1. 3rd, i) According to Com. “A” 2932.
1. 1.1.10. “A” 2932 unique 1.1.11. According to Com. “A” 3104.
1. 1.1.11. “A” 2932 unique 1.1.12.
1. 1.1.12. “A” 2932 unique 1.1.13.
1. 1.1.13.
1.1.13. 2nd
“A” 2932 unique 1.1.14.
According to Com. “A” 4055
1. 1.1.14. “A” 3114 1.
1. 1.1.14.1. 1st “A” 3114 According to Com. “A” 3918 and “A”
4055
1. 1.1.14.2. “A” 3114 1. According to Com. “A” 3918 and “A”
4055
1. 1.1.15. “A” 3141 According to Com. “A” 3307 and “A”
4055.
1. 1.1.16. “A” 3314
1. 1.1.17. “A” 4055 5.
1. 1.2. “A” 2932 unique 1.2. According to Com. “A” 3104.
1. 1.2.1. “A” 2419 1. 1st According to Com. “A” 2563 (points 1. and 2.), “A” 2932 and “A”
3314.
1. 1.2.2. “A” 2448 Statement of debtors (point 6.1.2.2.2.),
Com. “A” 2932 and “A” 4055.
“A” 2448 Statement of debtors (point 6.1.2.2.2.), Com. “A” 2932 and “A” 4055.
1. 1.2.3.
“A” 2410 7. According to Com. “A” 3141.
1. 1.2.4. “A” 3259 1. According to Com. “A” 3314.
1. 1.2.5. “A” 3314
1. 1.2.6. “A” 2932 unique 1.2.4.
1. 1.3. “A” 7 Specifications of the items of “other guarantees
received”, modified by
Com. “A” 2932.
2. 2.1. 1st “A” 2448 Statement of debtors (point 6.1.2.2.2.).
2. 2.1. 2nd “A” 2932 unique 2.1. 2nd

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE RULES ON GUARANTEES
2. 2.2. “A” 2216 I 1. 4th

MINIMUM PROVISIONS FOR UNCOLLECTIBLE RISK
B.C.R.A.
Section 2. Minimum guidelines.
Version: 6th. COMMUNICATION “A“ 4055
Validity:
02/12/2003
2.2.3.4. Collective payment agreements.
The general criterion may be excluded in situations where there are judicial or extrajudicial homologated agreements or private arrangements concerted jointly with creditor financial entities and do not register defaults.

2.2.4. Debtors in category 6.
The inclusion of debtors in this category will determine the obligation to provide for 100% of the financings, including renewals, extensions, stays -express or tacit-, etc., that are granted after that incorporation, once 90 or 180 days have elapsed counted from the day on which the first of those financings was agreed, depending on whether they are debtors included in point 6.5.6.1. sections ii) to iv) or section i), respectively, of Section 6. of the rules on “Classification of debtors”. In the remaining situations provided for this category, the 100% provision will be applied to the total debt.

2.2.5. Additional credit.
New financings that imply fund disbursements for amounts that do not exceed the result of applying to the debt balance -in each entity- on the day prior to their granting, the proportions established below, may be provided for based on the percentage established for clients in normal situation:

Category %
5 10
4 20
3 30
2 40

The modification to higher levels of the classification assigned to the client will determine the change in the assistance limit as previously provided. Defaults in the payment of services corresponding to the additional assistance will determine the obligation to provide for the assistance according to the objective standards of delay or legal situation established for the purposes of classifying debtors included in the consumer or housing portfolio, even when it concerns borrowers included in the commercial portfolio, for which purpose the additional financing will be treated independently of the rest of the client's debt.

The additional financing granted is independent of the assistance that may be provided in operations that are fully covered with preferred “A” guarantees, for which there are no other limitations than those provided in the relevant rule.

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE
ORDERED TEXT OF THE RULES ON
“MINIMUM PROVISIONS FOR UNCOLLECTIBLE RISK”
ORDERED TEXT ORIGIN RULE
Section Point Para. Com. Annex Point Para.
Observations
1.1. “A” 2216 2. 1st
1.2.1. “A” 2216 2. 1st
1.2.2. “A” 2216 II 2nd Includes interpretative clarification.
1.2.3. “A” 2216 II 2nd
1.2.4. “A” 2216 II 3rd According to Com. “A” 3040 (point 3.).
1.2.5. “A” 3040
1.
1.2.6. "A"3064
2.1.1. 1st and
chart
“A” 2216 II 1st Modified by Com. “A” 2440,
“A” 3339.
2.1.2.1. “B” 6331 6.
2.1.2.2. “A” 2826 2nd
2.1.2.3.
2.1.2.4.
“A” 2932 7th
Includes interpretative clarification.
2.1.2.5. “A” 3314
2.2.1. “A” 2216 II 6th According to Com. "A" 2932 (point
15.).
2.2.2. “A” 2216 II 9th and
last
According to Com. “A” 3040 (point 5.).
Includes interpretative clarification,
“A” 3339 and Com. “A” 4055
2.2.3.1. “A” 2216 II 8th According to Com. “A” 2442 and “A”
3091.
2.2.3.2. “A” 3091
2.2.3.3. “A” 3091
2.2.3.4. “A” 2216 II 8th According to Com. “A” 2442 and “A”
3091.
2.2.4. “A” 2440 2. 1st Modified by the Com. "A"
2890 (point 2.) and “A” 3157 (point
1.) and 3339.
2.2.5. “A” 3157 2. According to Com.“A” 3918 and “A” 4055
2.3. “A” 2216 II 7th
2.4. “A” 2216 II 4th
2.5. 1st “A” 2357 1.
2.5. last Incorporates criterion not given to known with general character with
previously.
2.6. “A” 2287 4. Modified by the Com. "A" 2893
(point 2.).
2.6.1. “A” 2287 4. Idem previous.
2.6.2. “A” 2287 4. Idem previous.
“A” 2607 1.
2.7. “A” 2893 3.
2.
2.8. “A” 2893 3.
3.1. 1st “A” 2373 8. and 3. Includes interpretative clarification.
3.1. 2nd “A” 2373 8.
3.
3.1. last “B” 5902 3. Includes interpretative clarification.
4.1. “A” 2227 unique 5.2.1. last According to Com. “A” 2649.
“A” 2227 unique 5.1.5. According to Com. “A” 2649.
4.
4.2.
“A” 2227 unique 5.2.2.

CREDIT GRADUATION B.C.R.A.
Section 9. Transitional provisions.
Version: 2nd. COMMUNICATION “A“ 4055
Validity:
02/12/2003
9.1. Shares received in payment of credits.
With validity until 31.12.04, financial entities may receive shares or participations in the capital of companies in payment of credits, up to the limit of 20% of the share capital, without exceeding 20% of the votes, with respect to companies that do not provide complementary services to the financial activity, subject to the following conditions.

9.1.1. Holdings that confer control.
When the incorporation of these assets confers control of the company, within 90 days counted from the date of their incorporation, the financial entity must present to the Central Bank of the Republic Argentina an action plan in order to liquidate the holding. In the event that the Central Bank formulates observations to the presented plan, the entity must adjust it according to them within 10 calendar days of the notification. The non-presentation of the plan within the fixed terms, its rejection or non-compliance will give rise to the application of article 41 of Law 21.526. Such assets must be liquidated within a term of 1 year until reaching the admitted holding limit of 12.5% of the share capital or less that does not confer control, according to what is established in the current regulation on “Credit Graduation”. The said term may be extended for a maximum of one year, provided there is prior authorization of the Superintendence of Financial and Exchange Entities, for which the corresponding request must be presented with no less than 30 days of advance to the expiration of the term referred to in the previous paragraph.

9.1.2. Holdings that do not confer control.
They must be liquidated within a maximum term of 1 year until reaching the admitted holding limit of 12.5% of the share capital or less that corresponds.
The incorporation of these assets must be made at the value of the credit (net of the provisions for uncollectible risk attributable to it) or, if applicable, the proportional equity value resulting from an audited balance with an age not exceeding 60 days, of both the lesser. Positive adjustments that are subsequently made on the incorporation value of these assets must have the prior opinion of the external auditor of the entity. The shares or participations of companies received will be subject to the limit established in Section 7. of the rules on “Relationship for immobilized assets and other concepts”.

CREDIT GRADUATION
ORDERED TEXT ORIGIN RULE
Section Point Paragraph Com. Annex Point Paragraph Observations
4. 4.1. “A” 467 unique 5.
5.1.1. except
“A” 467 unique 6.1. 1st
5.1.1.1.i) 2nd “B” 1460 2nd
5.1.1.2. “A” 490 unique 9.
5.1.2. “A” 467 unique 6.1. 1st
5.2.1.1. “A” 467 unique 6.1. last
“A” 2373 2.
5.2.1.2. “A” 490 unique 8.
5.2.2. “A” 467 unique 6.1. last
5.2.3. Incorporates interpretative criterion.
5.
5.2.4. “B” 5902 7.
6.1. “A” 3002 6.1.1. 2nd
6.2. 1st “A” 3161 1. and 2. According to Com. “A” 3171.
6.2. 2nd “A” 2019 6. According to Com. “A” 3161 and 3171.
6.3. “A” 2019 5. last
6.
6.4. “A” 3183 1.
7.1. “A” 2227 unique 5.1.
and 5.2.1. last
According to Com. “A” 2649.
7.2.1. “A” 2227 unique 5.1.4. According to Com. “A” 2649.
“A” 2227 unique 5.2.2.
7.
7.2.2. “B” 5902 5. Includes interpretative clarification.
8.1. “A” 467 unique 1. last According to Com. “A” 2373.
8. 8.2. “A” 467 3rd
8.3. “A” 490 unique 17.
9. 9.1. “A” 4055 According to Com. “A” 4055