CMN Resolution No. 2682 — Criteria for Classifying Credit Operations and Rules for Establishing Provisions for Doubtful Collection Credits

RESOLUTION NO. 2682

Dispenses with criteria for the classification of credit operations and rules for the establishment of provisions for doubtful collection credits.

The CENTRAL BANK OF BRAZIL, in accordance with Article 9 of Law No. 4,595, of December 31, 1964, makes public that the MONETARY COUNCIL, in a session held on December 21, 1999, based on Article 4, items XI and XII, of the aforementioned Law,

RESOLVES:

Article 1. It is determined that financial institutions and other institutions authorized to operate by the Central Bank of Brazil must classify credit operations, in increasing order of risk, at the following levels:

I - level AA;

II - level A;

III - level B;

IV - level C;

V - level D;

VI - level E;

VII - level F;

VIII - level G;

IX - level H.

Article 2. The classification of the operation at the corresponding risk level is the responsibility of the institution holding the credit and must be carried out based on consistent and verifiable criteria, supported by internal and external information, encompassing, at least, the following aspects:

I - regarding the debtor and its guarantors:

a) economic-financial situation;

b) degree of indebtedness;

c) capacity for generating results;

d) cash flow;

e) administration and quality of controls;

f) punctuality and delays in payments;

g) contingencies;

h) economic activity sector;

i) credit limit;

II - regarding the operation:

a) nature and purpose of the transaction;

b) characteristics of the guarantees, particularly regarding sufficiency and liquidity;

c) value.

Sole Paragraph. The classification of credit operations held by natural persons must also take into account income and asset situations as well as other registration information of the debtor.

Article 3. The classification of credit operations of the same client or economic group must be defined considering that which presents the highest risk, admitting exceptionally a different classification for a specific operation, observing the provisions of Article 2, item II.

Article 4. The classification of the operation at the risk levels referred to in Article 1 must be reviewed, at minimum:

I - monthly, upon the preparation of balance sheets and financial statements, due to any delay verified in the payment of a portion of principal or charges, observing the following:

a) delay between 15 and 30 days: risk level B, at minimum;

b) delay between 31 and 60 days: risk level C, at minimum;

c) delay between 61 and 90 days: risk level D, at minimum;

d) delay between 91 and 120 days: risk level E, at minimum;

e) delay between 121 and 150 days: risk level F, at minimum;

f) delay between 151 and 180 days: risk level G, at minimum;

g) delay exceeding 180 days: risk level H;

II - based on the criteria established in Articles 2 and 3:

a) every six months, for operations of the same client or economic group whose amount exceeds 5% (five percent) of adjusted net worth;

b) once every twelve months, in all situations, except in the case provided for in Article 5.

Paragraph 1. Advance operations on foreign exchange contracts, import financing operations, and those with terms less than one month, which present delays exceeding thirty days, as well as advances to depositors starting from thirty days of their occurrence, must be classified, at minimum, as risk level G.

Paragraph 2. For operations with a remaining term exceeding 36 months, double counting of the periods provided for in item I is admitted.

Paragraph 3. Failure to comply with the provisions of this article implies the reclassification of the debtor's operations to risk level H, regardless of other administrative measures.

Article 5. Credit operations contracted with a client whose total liability is less than R$50,000.00 (fifty thousand reais) may have their classification reviewed automatically solely based on the delays recorded in Article 4, item I, of this Resolution, observing that the original classification must be maintained when the review corresponds to a lower risk level.

Paragraph 1. The Central Bank of Brazil may alter the value referred to in this article.

Paragraph 2. The provisions of this article apply to operations contracted until February 29, 2000, observing the value referred to in the caput and the classification, at minimum, as risk level A.

Article 6. The provision to cover doubtful collection credits must be established monthly, and may not be less than the sum resulting from the application of the following percentages, without prejudice to the responsibility of the institutions' administrators for establishing provisions in amounts sufficient to cover probable losses in the realization of credits:

I - 0.5% (zero point five percent) on the value of operations classified as risk level A;

II - 1% (one percent) on the value of operations classified as risk level B;

III - 3% (three percent) on the value of operations classified as risk level C;

IV - 10% (ten percent) on the value of operations classified as risk level D;

V - 30% (thirty percent) on the value of operations classified as risk level E;

VI - 50% (fifty percent) on the value of operations classified as risk level F;

VII - 70% (seventy percent) on the value of operations classified as risk level G;

VIII - 100% (one hundred percent) on the value of operations classified as risk level H.

Article 7. An operation classified as risk level H must be transferred to a clearing account, with the corresponding debit in provision, after six months have elapsed since its classification at this risk level, with no registration period admitted to be shorter.

Sole Paragraph. The operation classified in the manner provided in the caput of this article must remain registered in a clearing account for a minimum period of five years and while all collection procedures are not exhausted.

Article 8. An operation subject to renegotiation must be maintained, at minimum, at the same risk level in which it is classified, observing that that registered as a loss must be classified as risk level H.

Paragraph 1. Reclassification to a lower risk category is admitted when there is significant amortization of the operation or when new relevant facts justify the change in risk level.

Paragraph 2. Any gain eventually obtained at the time of renegotiation must be appropriated to the result upon its effective receipt.

Paragraph 3. Renegotiation is considered to be debt composition, extension, novation, granting of a new operation for partial or full settlement of a previous operation, or any other type of agreement that implies alteration in the original maturity dates or payment conditions originally agreed upon.

Article 9. It is prohibited to recognize in the period's result revenues and charges of any nature related to credit operations that present a delay equal to or greater than sixty days in the payment of a portion of principal or charges.

Article 10. Institutions must adequately document their policy and procedures for granting and classifying credit operations, which must be made available to the Central Bank of Brazil and the independent auditor.

Sole Paragraph. The documentation referred to in the caput of this article must evidence, at least, the type and risk levels it intends to administer, the minimum requirements required for granting loans, and the authorization process.

Article 11. Detailed information regarding the composition of the credit operations portfolio must be disclosed in explanatory notes to the financial statements, observing, at minimum:

I - distribution of operations, segregated by type of client and economic activity;

II - distribution by maturity range;

III - amounts of renegotiated operations, recorded against losses, and of recovered operations, in the fiscal year.

Article 12. The independent auditor must prepare a detailed report reviewing the criteria adopted by the institution regarding classification at risk levels and the evaluation of the provision recorded in the financial statements.

Article 13. The Central Bank of Brazil may issue complementary norms necessary for the fulfillment of the provisions of this Resolution, as well as determine:

I - reclassification of operations based on the criteria established in this Resolution, at the risk levels referred to in Article 1;

II - additional provisioning, due to the debtor's liability within the National Financial System;

III - corrective measures to be adopted by institutions, with a view to ensuring their liquidity and adequate equity structure, including in the form of capital allocation for operations classified as inadequate;

IV - alteration of credit classification criteria, accounting, and provision establishment;

V - content of information and explanatory notes contained in the financial statements;

VI - procedures and controls to be adopted by institutions.

Article 14. The provisions of this Resolution also apply to financial leasing operations and other operations with characteristics of credit granting.

Article 15. The provisions of this Resolution do not contemplate tax aspects, being the sole responsibility of the institution to observe the pertinent norms.

Article 16. The provisions of this Resolution enter into force on the date of its publication, producing effects from March 1, 2000, when Resolutions Nos. 1,748, of August 30, 1990, and 1,999, of June 30, 1993, Articles 3 and 5 of Circular No. 1,872, of December 27, 1990, item "b" of item II of Article 4 of Circular No. 2,782, of November 12, 1997, and Communication No. 2,559, of October 17, 1991, are hereby repealed.

Brasília, December 21, 1999

Arminio Fraga Neto
President