Circular RUNOR 1-161. Asset Rating for Investments with Pension Funds. Supplementary Rules.

CENTRAL BANK OF THE ARGENTINE REPUBLIC
__________________________________________________________________ COMMUNICATION "A" 2363 01/09/95 __________________________________________________________________ To FINANCIAL ENTITIES:
Ref.: Circular
RUNOR 1 - 161.
Asset Rating for Investments with Pension Funds. Supplementary Rules.

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

"1. Incorporate the following after subsection b) of the common provisions for points 1.1. and 1.2. of Communication "A" 2269:
"Once the option is exercised for the purposes foreseen above, it must be maintained for a term of one year counted from the date of submission of the information referred to in point 1.1. In these cases, the circumstance that only one of the two assigned ratings is equal to or higher than the minimum level established by this Institution will not enable entities to collect resources up to the amount established in subsection a)."

2. Replace the penultimate paragraph of the common provisions for points 1.1. and 1.2. contained in Communication "A" 2269, with the following:
   "Entities or issuers, as applicable, must have within ten (10) calendar days of the conclusion of each review period -which shall be at most quarterly- the updated ratings that have been granted to them so that they may continue receiving said deposits or so that the titles may continue to be maintained as investments of the funds."

3. Replace point 2. of the provisions disseminated through Communication "A" 2269, with the following:
   "2. Provide that for the purposes foreseen in points 1.1 and 1.2., the Central Bank will delegate -with the exception of situations contemplated in point 6. and when the entity opts for that alternative regime- the function of rating to risk rating societies registered in the registry enabled by the National Securities Commission that have been admitted by the Central Bank.

To this effect, said societies must present a request manifesting their interest in carrying out the ratings of the aforementioned instruments. Together with the request, they must ratify -under oath- before the Superintendency of Financial Entities and Currency -Area of Analysis of the Financial System- that the incompatibilities mentioned in articles 11 and 12 of Decree 656/92 are not present.

Notwithstanding this, and even though the persons mentioned below abstain from intervening in the evaluation process as provided in item 1. of article 19 of Decree 656/92, the evaluating companies cannot rate financial entities that have advisory or auditing services through:

• any of the directors, managers, shareholders or members of the rating council of those evaluating societies,
• companies dedicated to the aforementioned services in which the aforementioned persons have activity or participation, regardless of the nature.

The Central Bank reserves the right to exclude rating companies when, in its criterion, it considers it pertinent.
In this regard, automatic exclusion from the list of rating companies admitted by this Institution will be considered a cause if they renounce that function for any reason, when this occurs prior to the termination of the validity of a rating contract linked to these provisions.

In the case of rating of deposits in financial entities, evaluating companies must take into account the minimum guidelines contained in Annex I to this communication."

4. Replace point 3. of the norms contained in Communication "A" 2269, with the following:
   "3. State that rating societies will supply the corresponding rating reports for the assets indicated in points 1.2. and 1.3. of this communication to the Superintendency of Financial Entities and Currency -Area of Analysis of the Financial System-, with a copy to the Superintendency of Administrators of Pension and Retirement Funds, within 10 calendar days of the end of the review period, or upon the occurrence of the report in the case of those mentioned in point 1.3.

In the case of the assets indicated in point 1.1. (fixed-term deposits and/or current accounts), such reports will be sent both by the financial entities and by the rating companies, observing the form established in the previous paragraph, within 10 calendar days of the end of the review period.

When it concerns the first rating report that enables the financial entity to collect the deposits referred to in point 1.1., the transmission must count on the prior consent of the intermediary object of the evaluation.
That consent must appear in the body of said report through the following legend: "We authorize (indicate name of the evaluating company) to submit the preceding report to the Superintendency of Financial Entities and Currency". This authorization will be signed by the competent responsible official on the matter and the General Manager (or equivalent authority) of the entity.

The aforementioned companies must include in their evaluation reports, at a minimum, the following:

• date of the rating council meeting.
• member participants, indicating who participated or did not participate in it.
• specific ratings for short-term deposits and debts and the corresponding one for long-term obligations, according to the minimum guidelines contained in annex I to this communication.
• synthesis of the result of the evaluation of the fundamental elements considered for the examination -as provided in chapters 1. to 3. of point III of annex I to this communication-, in which the weighting factors of each of the determining elements of the rating and the criteria that justify the levels of weighting assigned to them will be described.
• signature of the responsible person or persons of the rating society.

Once the first rating report on the assets referred to in points 1.1. to 1.3. is presented, the rating company that produced it must formulate the periodic updates that must be made during the year following the date to which that evaluation refers. This requirement must also be complied with in the event that, subsequently, another rating society is designated.

Together with the note to be sent to the Superintendency of Financial Entities and Currency, another one will be attached signed by the president or legal representative of the rating society, in which explicit record is left that said society and the persons performing the different functions indicated in Decree 656/92, comply with what is established in the third paragraph of point 4. of this communication and in articles 17, 18 and 19 of that device, particularly regarding the rating of deposits and debts of the financial entity, regarding which they send the report.

The Superintendency of Financial Entities and Currency will analyze the reports produced regarding the assets indicated in point 1.1. in order to verify compliance with the minimum analysis guidelines contained in the annex to this communication and will issue an opinion thereon starting from fifteen days after its presentation.

Financial entities must disseminate the results of the rating reports.
To this effect, within a period of five calendar days after the aforementioned Superintendency formulates its conclusions, the result of the rating must be displayed on boards placed in places of attention to the public, especially in those that inform about the interest rates offered for deposits. Likewise, such ratings will be included in all advertising linked to the collection of public resources."

5. Replace point 10. of the norms disseminated by Communication "A" 2269, with the following:
   "10. Provide that the late submission of the periodic review reports of the rating of the assets indicated in points 1.1. to 1.3., or the verification of non-compliance with the minimum analysis guidelines, regarding the reports received by the Superintendency of Financial Entities and Currency, will determine that the entity must immediately cease collecting resources or that the affected securities must cease to be maintained as investment of the pension funds."

6. Replace the second paragraph of point I of Annex I to Communication "A" 2269 with the following:
   "To this effect, the rating company must evaluate the payment capacity of the entity in the current macroeconomic scenario at the time of evaluation, as well as in those alternative scenarios that the company judges most probable as provided in chapter 3. of point III.
   The evaluation must be carried out considering the last audited quarterly balance sheet and cannot be older than 60 calendar days counted from the date of the respective closing, without prejudice to which it is also possible to take into account for said analysis the situation of the entity according to the monthly balance sheets subsequent."

7. Clarify that for the purposes of the ratings referred to in point II of Annex I to Communication "A" 2269, the economic scenario current at the time of evaluation and the most unfavorable one or ones that the rating society foresees will be considered as provided in chapter 3. of point III of Annex I of said communication (text according to this resolution).

8. Replace numeral 13. of section B. of point III of Annex I to Communication "A" 2269, with the following:
   "13. Relations of irregular portfolio over total portfolio and over computable patrimonial responsibility; percentage of the irregular portfolio covered with guarantees;"

9. Replace chapter 3. of point III of Annex I to Communication "A" 2269, with the following:
   "3. SENSITIVITY TO ALTERNATIVE SCENARIOS FOR THE ARGENTINE ECONOMY.
   The projection of the entity's cash flow will be carried out in, at least, the context of the economic scenario current at the time of evaluation and two alternatives at the discretion of the evaluating company.
   In the three cases, the following must be described in detail:
   i) the economic and financial conditions that characterize each scenario, and ii) how the different hypotheses developed for each of those situations impact on the analyzed entity, especially on:

• the essential qualitative and quantitative factors determining the quality of its assets and its liquidity position,
• the projected cash flow, and
• its payment capacity.

Furthermore, the probabilities of realization, in the judgment of the evaluating company, of each of the alternative scenarios and the justification for the choice of those situations for the formulation of the sensitivity analysis must be indicated."

10. Incorporate as the last paragraph of the introduction of point III of Annex I to Communication "A" 2269, the following:
    "To this end, the levels and weighting criteria applied both with respect to each of the qualitative and quantitative elements that influence those three aspects and for the formulation of the final rating must be described in detail."

11. Leave without effect the obligation that the ratings of local branches of foreign financial entities expressly contemplate the case of deposits collected in the country under alternative economic scenarios (third paragraph of point 6. of the provisions contained in Communication "A" 2269)."

We salute you very attentively.
CENTRAL BANK OF THE ARGENTINE REPUBLIC
Alfredo A. Besio Miguel A. Kiguel
Manager of Standards for General Submanager
Financial Entities Area of Economy and Finance