BANCO CENTRAL DE LA REPUBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2484 22/10/96 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
RUNOR 1 - 199.
Asset Rating for Investments with Pension and Retirement Funds. Consolidated Text

We address you to deliver to you the consolidated text of the norms issued regarding the subject of the reference, taking into account the provisions disseminated by Communications "A" 2269, 2363 and 2436.

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Juan Carlos Isi Alfredo A. Besio
Deputy Manager of Standards Deputy Manager of Standards for Financial Entities for Financial Entities

ANNEX

+----------+---------------------------------------+-------------+ I I CONSOLIDATED TEXT OF THE NORMS ON CA-I Annex I I B.C.R.A. I SET RATING FOR INVESTMENTS I a to I WITH PENSION AND RETIREMENT FUNDS I Com. "A" 2484 I (COM. "A" 2269 AND ITS MODIFICATIONS) I I +----------+---------------------------------------+-------------+ -Index-
Section 1. Required Ratings.
Section 2. Rating Function. Societies Admitted by Delegation.
Section 3. Rating Reports.
Section 4. Validity and Dissemination of the Rating.
Section 5. Non-Compliance and Sanctions.
Section 6. Assets Not Subject to Evaluation.
Section 7. Minimum Guidelines for the Rating of Financial Entities.
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+----------+-----------------------------------------------------+ I I ASSET RATING FOR INVESTMENTS WITH PENSION I AND RETIREMENT FUNDS I I B.C.R.A. +-----------------------------------------------------+ I I Section 1. Required Ratings. I +----------+-----------------------------------------------------+ In order to comply with the rating requirements referred to in the first paragraph of Article 79 of Law 24.241, the elements mentioned in each case shall be taken into account:

1.1. Time deposits and/or current accounts with resources from pension and retirement funds and reserves (paragraph g) of Article 74, and Articles 77 and 89 of Law 24.241).

Financial entities that wish to be recipients of these resources, with a prior notice of no less than 10 calendar days before the date scheduled to start this function, must provide, for each type of deposit to be received - time deposits, discriminated by term: less than one year and more than one year, and current accounts -, the ratings that, as a minimum, are established in the common provisions. To this effect, the total amount that the set of pension and retirement fund administrators will make in deposits will be taken into consideration.

1.2. Securities included in paragraph b) of Article 74 of Law 24.241.

Issuers of these securities, who wish to have the possibility that they be acquired by pension and retirement funds, must supply, regarding the securities, the ratings that, as a minimum, are established in the common provisions. To this effect, the total of the issuances susceptible to being acquired with resources from pension and retirement funds will be taken into consideration.

• Common Provisions for points 1.1. and 1.2.
  a) Total of deposits (in current account and time deposits) or securities issuances not exceeding the equivalent of $ 10,000,000: one rating.
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+----------+-----------------------------------------------------+ I I ASSET RATING FOR INVESTMENTS WITH PENSION I AND RETIREMENT FUNDS I I B.C.R.A. +-----------------------------------------------------+ I I Section 1. Required Ratings. I +----------+-----------------------------------------------------+ b) Total of deposits (in current account and time deposits) or securities issuances exceeding the equivalent of $ 10,000,000: two ratings.

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 does not enable the entities to collect resources up to the amount established in paragraph a).

The entities or issuers, as applicable, must have within 10 calendar days of the conclusion of each review period - which will be at most quarterly - the updated ratings that have been granted to them in order to continue receiving the aforementioned deposits or for the securities to continue being maintained as investments of the funds.

When the ratings show discrepancies greater than one level, the Central Bank may require that a rating from another company be provided.

1.3. Securities issued by foreign governments or international organizations (paragraph k) of Article 74 of Law 24.241).

Ratings issued by at least two of the following risk rating agencies: Duff & Phelps, Fitch Investors Service, Moody's Investors Service and Standard & Poor's Corporation.
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2.1. For the purposes foreseen in points 1.1 and 1.2., the Central Bank will delegate - with the exception of the situations contemplated in point 2.2. and when the entity opts for that alternative regime - the rating function 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, these 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 Superintendence of Financial and Exchange Entities - Analysis and Monitoring Area - that the incompatibilities mentioned in Articles 11 and 12 of Decree 656/92 do not apply.

Periodically, this Superintendence will publish the updated list of rating companies admitted to perform this function.

Notwithstanding this, and even if the persons mentioned below abstain from intervening in the evaluation process as provided in paragraph 1 of Article 19 of Decree 656/92, the evaluating companies cannot rate the financial entities that have the service of advice or auditing through:

• any of the directors, managers or members of the rating council of those evaluating societies,
• shareholders who own at least 10% of the capital of the companies and/or decisive action or participation, regardless of the nature in which it is exercised, in the power of control and/or decision of those evaluating societies, and/or
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• companies dedicated to the aforementioned services in which the aforementioned persons have action or participation, regardless of the nature.

The Central Bank reserves the faculty to exclude rating companies when, in its criterion, it deems it pertinent.

Regarding this, automatic exclusion from the list of rating companies admitted by this Institution will be considered a cause if they renounce this function for any reason, when this occurs prior to the end of the validity of a rating contract linked with these provisions.

Financial entities that have contracted the services of evaluating companies that are excluded from the list admitted by the Central Bank will have a term of 15 calendar days to replace them, counted from the day they are notified of the aforementioned exclusion. The first evaluation formulated by the new chosen company must be presented within 60 calendar days from that date.

In the case of rating deposits in financial entities, the evaluating companies must take into account the minimum guidelines for the rating of financial entities contained in Section 7.

2.2. The Central Bank will have the rating in charge, in replacement of the regime established in the preceding point and when so requested by the included entities that wish to collect the deposits referred to in point 1.1., in the following cases:

2.2.1. local branches of foreign financial entities.

2.2.2. financial entities that have guarantees or bonds extended by banks abroad that expressly guarantee the return in time and form of the deposits contracted - capital and, if applicable, interest - constituted by pension and retirement fund administrators.

To these effects, the included entities must provide the Central Bank with at least two international ratings issued by some of the following international risk rating agencies, regarding the head office of the branch operating in the country or the foreign bank that extends its guarantee:

• Duff & Phelps
• Fitch Investors Service
• International Bank Credit Analysis (IBCA)
• Moody's Investors Service
• Standard & Poor's Corporation
• Thompson Bank Watch

The submission, with a copy of the rating reports, must be made to this Institution, within 5 calendar days of their occurrence.

In cases where the rating of foreign banks is required, it can be understood that it refers to the entity as such or to its debt instruments that do not have guarantees affecting the bank's assets.

2.3. The financial entity regarding which the local rating society issues an opinion on the deposit and debt instruments must send a note to the Central Bank, upon obtaining each rating, in which it explicitly states that said society
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+----------+-----------------------------------------------------+ I I ASSET RATING FOR INVESTMENTS WITH PENSION I AND RETIREMENT FUNDS I I B.C.R.A. +-----------------------------------------------------+ I I Section 3. Rating Reports. I +----------+-----------------------------------------------------+ Rating societies will supply the rating reports corresponding to the assets indicated in point 1.1 to the Superintendence of Financial and Exchange Entities - Analysis and Monitoring Area - with a copy to the Superintendence 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 for the cases mentioned in point 1.3.

When it is the first rating report that enables the financial entity to collect the deposits referred to in said point 1.1., the transmission will be made both by the financial entity and by the rating company and must have the prior consent of the intermediary object of the evaluation.

That consent must be recorded in the body of said report through the following legend: "We authorize (indicate the name of the evaluating company) to present the preceding report to the Superintendence of Financial and Exchange Entities". This authorization will be signed by the competent responsible official on the matter and the General Manager (or equivalent authority) of the entity.

Likewise, a note must be attached in which, under the character of a sworn declaration, it is indicated that in the judgment of the financial entity and regarding what concerns it, the incompatibilities or restrictions referred to in Articles 11, 12, 17, 18 and 19 of Decree 656/92 and the fourth paragraph of point 2.1. do not apply, regarding the intervening rating society.

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

• date of the rating council meeting.
• member members, indicating who participated or did not participate in it.
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• specific ratings for short-term deposits and debts and the corresponding one for long-term obligations, according to the minimum guidelines for the rating of financial entities contained in Section 7.
• synthesis of the result of the evaluation of the fundamental elements considered for the examination - as provided in points 7.3.1. to 7.3.3.-, in which the weighting factors of each of the determining elements of the rating will be described, the criteria that justify the weighting levels assigned to them and the rating level corresponding to each element taking into account a scale of 1 to 10.
• 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 fulfilled in case that, subsequently, another rating society is designated.

Together with the note to be sent to the Superintendence of Financial and Exchange Entities, another one signed by the president or legal representative of the rating society will be attached, in which it explicitly states that said society and the persons who perform the different functions indicated in Decree 656/92, comply with what is established in the second paragraph of point 2.1. 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. +--------------+------------------------------------+------------+ I Version: 1st I Communication "A" 2484 I Page 2 I +--------------+------------------------------------+------------+

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4.1. The Superintendence of Financial and Exchange Entities will analyze the reports produced regarding the assets indicated in point 1.1. in order to verify compliance with the minimum guidelines for the rating of financial entities contained in Section 7. and will issue a ruling on it from 15 days after its presentation.

The rating granted will have validity for a period equivalent to the number of days of a review period (maximum 90 days), counted from the date on which that Superintendence issues a ruling on the matter, without this implying any modification in the dates on which subsequent rating reports must be issued. The validity period may be extended by that Superintendence as long as the new reports are under analysis and no ruling has been issued on the matter at its expiration. This circumstance will be made known by note to the Superintendence of Administrators of Pension and Retirement Funds and to the entity.

4.2. Financial entities may disseminate, totally or partially, the content and/or results of the rating reports.
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5.1. The entity must immediately cease the collection of resources or the securities affected must cease to be maintained as investment of the pension and retirement funds, when any of the following situations arise:

5.1.1. non-presentation in due time of the periodic review reports of the rating of the assets indicated in points 1.1. to 1.3.,

5.1.2. verification of non-compliance with the minimum analysis guidelines (Section 7.), regarding the reports received by the Superintendence of Financial and Exchange Entities,

5.1.3. expiration of the validity of the rating (point 4.1.).

5.2. Non-observance by the rating companies of the provisions contained in these norms will be subject to the application by the Central Bank of the following measures:

5.2.1. Warning.

5.2.2. Temporary exclusion from the list of rating companies admitted by the Central Bank.

5.2.3. Permanent exclusion from the list of rating companies admitted by the Central Bank.

Without prejudice to the above, rating societies and their members will be subject to the provisions and sanctions of Article 41 of Law 21.526, as established in Law 24.627.
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6.1. "Rural Mortgage Certificates" and "Special Mortgage Certificates" issued by the Bank of the Argentine Nation, will have the same treatment applicable to a national public title of equal characteristics.

6.2. The deposits made in that entity will also be considered with that character, so they will not be subject to the requirement of evaluation by rating companies referred to in point 2.1.
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ASSET CLASSIFICATION FOR INVESTMENTS WITH PENSION AND RETIREMENT FUNDS

B.C.R.A.

Section 7. Minimum Guidelines for the Rating of Financial Entities.

7.1. Objective.

The objective of these guidelines is that rating agencies of deposits in financial entities that wish to receive or receive deposits from Pension and Retirement Fund Administrators (AFJP), analyze a minimum set of characteristics of the entities and clearly express their opinion on each of these particularities as well as on the payment capacity of the capital and interest of the debt, in the terms agreed. To this end, the rating company must evaluate the entity's payment capacity in the current macroeconomic scenario at the time of the evaluation, as well as in those alternative scenarios that the company considers most probable as provided for in point 7.3.3. The evaluation must be carried out considering the last audited quarterly balance sheet and may not be older than 90 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. These minimum guidelines do not constitute a manual for the rating of financial entities, since the rating company may give each of the elements mentioned in these guidelines the weight it deems appropriate and may also consider all those other additional elements that, in its opinion, are necessary to define the rating. In its rating, it must analyze each of the chapters and points mentioned below, following the order in which they are presented -to facilitate reading- and adding in each chapter or section the additional factors it considers relevant.

7.2. Rating System.

The rating must be issued for short-term deposits or debts (payment period less than one year: S) and long-term (payment period of one to five years: L). If deemed necessary based on the alternative macroeconomic scenarios the company foresees, it may discriminate between rating of instruments in national currency and foreign currency. Short-term rating does not necessarily coincide with long-term rating, nor national currency with foreign currency. The following symbols must be used to refer to payment capacity, which will entail the implication mentioned in each case. When discriminating between national and foreign currency, the letters P and D, respectively, will be added to each rating. If the rating is equal to or lower than S8 or L8, as applicable, the rating agency must issue an opinion on the magnitude of the possible loss of capital to which the creditor would be exposed.

S1, L1: Minimal probability of default of the agreed terms. Excellent payment capacity, even in the most unfavorable foreseeable economic scenario.

S2, L2: Very low probability of default of the agreed terms. Excellent payment capacity. In the most unfavorable foreseeable economic scenario, the risk of default is very low.

S3, L3: Very low probability of default of the agreed terms. Very good payment capacity. In the most unfavorable foreseeable economic scenario, the risk of default is low.

S4, L4: Low probability of default of the agreed terms if the current economic scenario at the time of evaluation is maintained. Payment capacity is maintained even under more unfavorable economic and financial conditions, but is reduced in the most unfavorable scenario.

S5, L5: Low probability of default of the agreed terms if the current economic scenario at the time of evaluation is maintained. Payment capacity is significantly reduced under more unfavorable economic and financial conditions, being low in the most unfavorable scenario.

S6, L6: Low probability of default of the agreed terms if the current economic scenario at the time of evaluation is maintained. Payment capacity is significantly reduced under more unfavorable economic and financial conditions, being very low in the most unfavorable scenario.

S7, L7: There are factors that may significantly increase the risk of default of the agreed terms, even in the current economic scenario at the time of evaluation. Payment capacity is low under more unfavorable economic and financial conditions, being extremely low in the most unfavorable scenario.

S8, L8: There is a risk of default of the agreed terms, even in the current economic scenario at the time of evaluation. Payment capacity is very low under more unfavorable economic and financial conditions, being null in the most unfavorable scenario.

S9, L9: There is a clear risk of default of the agreed terms in the current economic scenario at the time of evaluation. This is a speculative investment, with low payment capacity, even if more unfavorable economic scenarios did not occur.

S10, L10: Highly speculative, with high risk of default of the agreed terms.

S11, L11: In default.

S12, L12: Entities that, having requested the rating, do not supply the required information.

7.3. Basic Chapters of the Rating.

The three fundamental elements to consider for formulating the rating are: entity positioning; entity situation, and sensitivity to alternative scenarios for the Argentine economy.
To this end, the levels and weighting criteria applied both with respect to each of the qualitative and quantitative elements that influence these three aspects as well as for the formulation of the final rating must be described in detail.

7.3.1. Entity Positioning.

The possible evolution of the Argentine financial system as well as the current and future positioning of the entity within the system as a whole must be analyzed. To this end, among others, these factors must be considered:

7.3.1.1. Evolution of the national financial system as a whole; perspectives of banking concentration and competition by non-financial national entities and/or financial entities from abroad;

7.3.1.2. Evolution of the segment of the financial system in which the financial entity specializes;

7.3.1.3. Degree of competitiveness achieved by the entity in the products it offers;

7.3.1.4. Evolution of the different products and markets in which the entity operates; its impact on its competitiveness;

7.3.1.5. Difficulties experienced by the entity in its relationship with the B.C.R.A. during the last five years.
Compliance with prudential regulations.
Rehabilitation plans; their compliance.
Existence of summary proceedings; their possible economic impact. Assistance via rediscounts for illiquidity.

7.3.2. Entity Situation.

The fundamental qualitative and quantitative aspects that serve to determine the entity's repayment probability will be examined. Among them, the following will be analyzed:

• Capitalization
• Assets
• Administration
• Profits
• Liquidity

In each case, it is necessary to analyze: the evolution of each variable in the past, its current level and its probable evolution in the future, and the value of each variable in relation to the average value for financial entities of similar characteristics.

7.3.2.1. Capitalization.

The factors that may be important to take into account the level of backing that an entity provides with its capital to deposits must be analyzed, and among others:

7.3.2.1.1. Relationship between capital and total assets, and between capital and risk assets;

7.3.2.1.2. Quality of capital: its composition; participation of the different components; participation of subordinated debt in the total;

7.3.2.1.3. Capacity of current shareholders to increase capital in order to meet potential requirements; in the case of companies listed on capital markets, the recent volatility of the company's stock quotation, in relation to the market average, as well as its history of stock placements, must be analyzed, for the purpose of evaluating its possibility of resorting to such markets to increase its capital;

7.3.2.1.4. Entity's experience with subordinated debt issuances; possibilities of resorting to this instrument to increase capital;

7.3.2.1.5. Possibility of reducing without major losses the level of total assets, maintaining an adequate level of profitability, in order to meet capital requirements without having to increase capital;

7.3.2.1.6. Existence of explicit guarantees on operations in the case of public banking.

7.3.2.2. Assets.

All factors that make up the quality of the bank's assets must be taken into account, and among others:

7.3.2.2.1. Asset composition: immobilized assets, public securities, private securities, loans, guarantees, others;

7.3.2.2.2. Concentration by clients and economic groups;

7.3.2.2.3. Sectoral concentration;

7.3.2.2.4. Regional concentration;

7.3.2.2.5. Currency mismatch: currency in which assets are expressed with respect to the currency in which the cash flow backing them is expressed;

7.3.2.2.6. Guarantees backing risk assets; percentage of the portfolio covered by preferred guarantees; quality and valuation of guarantees;

7.3.2.2.7. Sensitivity of the cash flows backing loans to modifications in the level of activity, and to changes in relative prices;

7.3.2.2.8. Loans to companies and linked economic groups;

7.3.2.2.9. Operations registered in off-balance sheet accounts, and in particular derivative products; risk they introduce;

7.3.2.2.10. Maturity mismatch between active and passive portfolio, at fixed and floating rate: interest rate risk;

7.3.2.2.11. Central Bank risk indicator for national and foreign currency loans; implicit average rate; its relationship with the implicit average rate for the system;

7.3.2.2.12. Quality of assets. Analysis of credit files of the main debtors. Weighted risk of the portfolio, based on the different factors listed above;

7.3.2.2.13. Non-performing portfolio to total portfolio and to computable equity ratio; percentage of non-performing portfolio covered by guarantees;

7.3.2.2.14. Level of provisions; write-off portfolio; relationship between provisions and write-off portfolio; provisions/profit ratio; provisions constituted with provisions required by Central Bank regulations;

7.3.2.2.15. Ratio of non-performing portfolio net of provisions/average annual profit of the last fiscal years; same on net equity;

7.3.2.2.16. Growth rate of risk assets: absolute and relative to the risk portfolio of the financial system as a whole.

7.3.2.3. Administration.

Some aspects capable of informing about the organization and decision-making processes of the entity will be analyzed. Among them:

7.3.2.3.1. Suitability of general management and the governing body; shareholding control: harmony in decisions;

7.3.2.3.2. Decision-making process: granting of loans; rating of agreed loans; systems for measuring global portfolio risk. Frequency and characteristics of decision review. Delegation of functions by activity and by branches;

7.3.2.3.3. Personnel policy: methods of staff recruitment; training system; qualification and promotion system; evaluation of current staffing; professional and financial system background of main managers; managerial staff turnover;

7.3.2.3.4. Internal audit: control mechanisms implemented; level of execution of such controls;

7.3.2.3.5. External audit: review of audit reports; control mechanisms implemented and level of execution of such controls; relationship with the Board of Directors and Management;

7.3.2.3.6. Information: information system for decision-making; quality, horizon and relevance of the information used for decision-making;

7.3.2.3.7. Level of risk tolerance in operations assumed by the bank, control systems or limits for risk assumed by operations, product, business units, etc.;

7.3.2.3.8. Capacity to maintain consolidated control of the financial entity and its subsidiaries;

7.3.2.3.9. Capacity of Management to understand with precision the risks associated with derivative products;

7.3.2.3.10. Bank's participation in other financial or non-financial companies; role played by such companies in the entity's strategy and results;

7.3.2.3.11. Shareholders' participations in other companies; credit assistance policy to linked companies; compliance with Central Bank regulations;

7.3.2.3.12. Compliance with Central Bank regulations, especially prudential ones; mechanisms developed for compliance with such regulations.

7.3.2.4. Profits.

Some factors capable of informing about the evolution of the entity's profits will be examined. Among them:

7.3.2.4.1. Level of profits with respect to net equity, non-performing portfolio -net of provisions-, and total assets;

7.3.2.4.2. Evolution of profits: variability of quarterly profits;

7.3.2.4.3. Composition of profits: from financial intermediation, from services, from other concepts;

7.3.2.4.4. Entity costs: main cost items.

7.3.2.5. Liquidity.

Some factors capable of informing about the financial entity's liquidity position will be examined. Among them:

7.3.2.5.1. Availability in relation to total deposits: legal requirements, technical requirements, surplus;

7.3.2.5.2. Securities, private and public, that trade in institutional markets, in relation to total liabilities;

7.3.2.5.3. Access to credit lines from other financial entities, local and foreign;

7.3.2.5.4. Maturity structure of liabilities; relationship with the three previous concepts;

7.3.2.5.5. Maturity mismatch between assets and liabilities; its impact on liquidity;

7.3.2.5.6. Concentration of deposits; participation of AFJP in the total deposits of the entity;

7.3.2.5.7. Analysis of alternative scenarios and their impact on liquidity: run on the entity and run on the financial system.

ASSET CLASSIFICATION FOR INVESTMENTS WITH PENSION AND RETIREMENT FUNDS

B.C.R.A.

Section 7. Minimum Guidelines for the Classification of Financial Entities.

7.3.3. Sensitivity to Alternative Scenarios for the Argentine Economy.

The projection of the financial entity's cash flows shall be carried out in, at least, the context of the current economic scenario at the time of evaluation and two alternative scenarios at the discretion of the evaluating firm.

In all three cases, the following shall be described in detail:

7.3.3.1. the economic and financial conditions that characterize each scenario, and

7.3.3.2. how the different hypotheses developed for each of those situations impact the analyzed entity, especially regarding:

7.3.3.2.1. the essential qualitative and quantitative factors determining the quality of its assets and its liquidity position,

7.3.3.2.2. the projected cash flow, and

7.3.3.2.3. its payment capacity.

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

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