Credit Evaluations. Debtor Classification. Credit Risk Segmentation. Financial Assistance for Transitory Illiquidity. Minimum Capital of Financial Entities. Allocation of Assets in Guarantee. Circular RUNOR-1, Chapter XVI, Section 1

"2014 - YEAR OF TRIBUTE TO ADMIRAL GUILLERMO BROWN, ON THE BICENTENNIAL OF THE NAVAL BATTLE OF MONTEVIDEO" COMMUNICATION “A” 5671 28/11/2014 TO FINANCIAL ENTITIES, TO EXCHANGE HOUSES, AGENCIES, OFFICES AND BROKERS, TO ELECTRONIC CLEARING HOUSES:
Ref.: Circular
LISOL 1 - 615
RUNOR 1 - 1102
OPASI 2 - 467
OPRAC 1 - 751
REMON 1 - 892
Credit evaluations. Debtor classification. Credit risk segmentation. Financial assistance for transitory illiquidity. Minimum capital of financial entities. Allocation of assets in guarantee. Circular RUNOR - 1, Chapter XVI, Section 1 . ______ We address you to inform you that this Institution has adopted the following resolution:

“1. Approve the norms on “Credit Evaluations” and the “Table of correspondence of the new qualification requirements for financial entities” which are attached in Annexes I and II, respectively, to this communication.
The criteria contained in these norms will replace the provisions issued by this Institution that contain qualification requirements granted by any local risk rating agency, leaving those requirements without effect. When the provisions require having a minimum international risk rating, the criteria will have a complementary character.

2. Repeal the norms on “Evaluation of Financial Entities” and point 4 of Communication “A” 5183 and its amendments.

3. Substitute points 1.3.4. (text according to Communications “A” 4631 and 5093), 1.5.2.1., 1.5.2.2. and 1.5.2.3. (text according to Communication “A” 3795) of Section 1. of Chapter XVI of Circular RUNOR - 1, with the following:

“1.3.4. Patrimonial Liability.

-2-
1.3.4.1. For the purposes indicated in these norms, patrimonial liability is defined as integrated by the following concepts:
i) Share capital. ii) Equity adjustments. iii) Non-capitalized contributions. iv) Profit reserves. v) Unassigned results. The positive result of the last closed fiscal year will be computed once the auditor’s report is available. The balances in favor resulting from the application of the minimum presumptive income tax -net of provisions for devaluation risk- will be deducted for amounts exceeding 5% of the patrimonial liability computable corresponding to the previous semester. In the particular case of exchange houses, balances registered in the asset in correspondent accounts with foreign banks that do not comply with the provisions of point 3.1. of the norms on “Credit Evaluations” or that do not have an international risk rating included in the “investment grade” category will additionally be computed as deductible concepts.

1.3.4.2. For the purposes of all regulations related to capital, its integration and increase, contributions may be made:
i) By crediting accounts opened in local financial entities. ii) In national public securities -which appear in the volatility list published by this Central Bank- and/or in monetary regulation instruments of the Central Bank of the Republic of Argentina, for which only one type may be chosen. To this effect, the 72-hour spot quotation of the Electronic Open Market will be considered.”

“1.5.2.1. National public securities -which appear in the volatility list published by this Central Bank- and/or monetary regulation instruments of the Central Bank of the Republic of Argentina, for which only one type may be chosen. To this end, a pledge in favor of the Central Bank of the Republic of Argentina will be constituted regarding the cited securities deposited in Caja de Valores S.A., according to the procedure enabled for this purpose.

1.5.2.2. Certificates of time deposits issued by local financial entities.

-3-
The deposit certificate must be issued in the name of the exchange house, agency or office, as applicable, and to the order of the Central Bank of the Republic of Argentina, where it will remain in pledge until its maturity.

1.5.2.3. Guarantees in favor of the Central Bank of the Republic of Argentina granted by local financial entities.
The documents representing these guarantees must be sent to the Central Bank of the Republic of Argentina by the granting financial entity/bank.”

4. Repeal point 6.4.3. and the last paragraph of point 6.5.1., and substitute the first and second paragraphs of subsection vii) of point 6.5.2.1. and the first and second paragraphs of point 6.5.3.10. of the norms on “Debtor Classification” with the following:

“vii) maintain private arrangements with the financial entity that have the opinion of the entity’s external auditor on the feasibility of compliance with the refinancing, when at least 15% of the amount involved in the cited agreement has been cancelled, and always provided that such agreement was reached when the debtor was categorized at the levels “with high risk of insolvency” or “unrecoverable”. To determine the amount of the cancellation, it will be admitted to compute 50% of the additional guarantees offered originally, constituted on assets not linked to the debtor’s business operations -with the exception of mortgages on rural real estate which, therefore, will be computable-, observing the coverage margins established in the norms on “Guarantees”. It will be an indispensable requirement, in addition, to have the favorable opinion on the quality of the guarantees formulated by the external auditor.”

“6.5.3.10. maintain private arrangements with the financial entity that have the opinion of the entity’s external auditor on the feasibility of compliance with the refinancing, when the 15% of the amount involved in the cited agreement has not yet been cancelled, and always provided that such agreement was reached when the debtor was categorized at the levels “with high risk of insolvency” or “unrecoverable”. To determine the amount of the cancellation, it will be admitted to compute 50% of the additional guarantees offered originally, constituted on assets not linked to the debtor’s business operations -with the exception of mortgages on rural real estate which, therefore, will be computable-, observing the coverage margins established in the norms on “Guarantees”. It will be an indispensable requirement, in addition, to have the favorable opinion on the quality of the guarantees formulated by the external auditor.”

5. Replace point 5.3.5.1. of the norms on “Credit Risk Segmentation” with the following:

“5.3.5.1. If the clients have at least one classification other than “in normal situation”, according to the latest information available in the “Central Registry of Debtors of the Financial System”.”

-4-

6. Repeal subsection vii) of point 2.1.2.2., and substitute subsection ii) of point 2.1.2.1. of the norms on “Financial Assistance for Transitory Illiquidity” with the following:

“ii) The constitution of the trust has a report from the review and control agent designated, when its intervention is foreseen in the trust contract.”

7. Substitute point 8.4.1.4. of the norms on “Minimum Capital of Financial Entities” with the following:

“8.4.1.4. Securities issued by governments of foreign countries that do not comply with what is provided in point 3.3. of the norms on “Credit Evaluations”.
This deduction will be made for the amount of the highest balance registered during the month to which the determination of the RPC corresponds.
To this end, mandatory investments that branches or subsidiaries -subject to the consolidated supervision regime- of local financial entities must make due to requirements imposed by the monetary or control authority of the country where they operate will not be considered.”

8. Substitute points 2.2.2., 2.3.2., 2.3.3.1., 2.4.1., 2.4.2.1. and 3.2. of the norms on “Allocation of Assets in Guarantee” with the following:

“2.2.2. Authorized Entities.
Financial entities that comply with what is provided in point 2.1.1. of the norms on “Credit Evaluations”.”

“2.3.2. Authorized Borrowing Entities.
Local financial entities, subject to compliance with the limits provided in point 3.2.”

“2.3.3.1. Local financial entities.”

“2.4.1. Authorized Lending Entities.
Local financial entities, subject to compliance with the limits provided in point 3.2.”

“2.4.2.1. Local financial entities or foreign banks -except those included in point 2.4.2.2.- that have an international risk rating of “A” or higher and that comply with what is provided in point 3.1. of the norms on “Credit Evaluations”.”

“3.2. For allocations by passive repos and lending operations between financial entities -points 2.3., 2.4. and 2.5.-.
The total of appraisals and coverage margins constituted by the set of transactions

-5- that are currently in force must not exceed 50% of the net worth or the computable patrimonial liability, whichever is lower, of the second previous month.
This limit will be extended to 100% when the financial entity complies with what is provided in point 2.1.1. of the norms on “Credit Evaluations”.”

9. The provisions adopted in this communication will be in effect for operations carried out from 12/01/14.”

Finally, we note that we will timely send you the sheets that should be incorporated into the pertinent ordered texts.
We salute you attentively.
CENTRAL BANK OF THE REPUBLIC OF ARGENTINA
Matías A. Gutiérrez Girault Darío C. Stefanelli Manager of Issuance of Norms Deputy General Manager of Norms

ANNEXES

• Index -
  Section 1. General Provisions.
  Section 2. Credit evaluations for residents.
  2.1. Financial Sector.
  2.2. Non-financial Private Sector.
  2.3. Non-financial Public Sector.
  Section 3. Credit evaluations for non-residents.
  3.1. Financial Sector.
  3.2. Non-financial Private Sector.
  3.3. Non-financial Public Sector.
  Correlation Table.
  Version: 1st. COMMUNICATION “A” 5671
  Validity:
  01/12/2014

ANNEX I
B.C.R.A.
ORDERED TEXT OF THE NORMS ON
“CREDIT EVALUATIONS”

The provisions contained in these norms constitute basic guidelines to adequately evaluate the credit risk that financial entities must observe when complying with provisions of this Central Bank that contemplate the requirement of a certain rating, and do not replace the credit evaluation that each financial entity must carry out regarding its counterparties. The international risk ratings to which these provisions refer must be issued by risk rating agencies that have a code of conduct based on the “Principles of the Code of Conduct for Risk Rating Agencies” made known by the International Organization of Securities Commissions (IOSCO).

CREDIT EVALUATIONS
B.C.R.A.
Section 1. General Provisions.
Version: 1st. COMMUNICATION “A” 5671
Validity:
01/12/2014

Must comply with the following requirements:
2.1. Financial Sector.
2.1.1. Have a rating 1 or 2 granted by the Superintendence of Financial and Exchange Entities.
2.1.2. Have a rating 1, 2 or 3 granted by the Superintendence of Financial and Exchange Entities.
The last reported rating will be considered.
In the case of new financial entities, until the Superintendence of Financial and Exchange Entities communicates their rating, to carry out the operation in question, prior authorization from this Central Bank will be required.

2.2. Non-financial Private Sector.
2.2.1. Companies that register a level of indebtedness in the total system equal to or greater than $ 6,000,000, contracted with two or more entities different from the one analyzing the credit exposure in question and that are classified “in normal situation” -according to the latest information available in the “Central Registry of Debtors of the Financial System”- by all those financial entities. In addition, they must not have registered bounced checks due to the cause “insufficient funds” in the last 12 months, in the “Central Registry of Bounced Checks”.

2.2.2. Insurance companies authorized to operate by the Superintendence of Insurance of the Nation: financial entities must carry out the credit analysis taking into account the information published by said Superintendence (namely: general indicators -premiums and surcharges per entity and in the total market-, patrimonial indicators and management indicators).

2.2.3. Markets authorized by the National Securities Commission: no additional requirement is established to the own credit evaluation that the financial entity must carry out.

2.3. Non-financial Public Sector.
No additional requirement is established to the own credit evaluation that the financial entity must carry out.

CREDIT EVALUATIONS
B.C.R.A.
Section 2. Credit evaluations for residents.
Version: 1st. COMMUNICATION “A” 5671
Validity:
01/12/2014

3.1. Financial Sector.
The following requirements must be verified concurrently:
3.1.1. Have a Money Laundering and Terrorist Financing Prevention Manual that contemplates the international standards regarding this matter and have designated a responsible person for its implementation.
3.1.2. Conduct business in the jurisdiction where it is authorized to carry out the financial activity, employ full-time executive and administrative staff at its registered office, maintain a record of operations at its domicile and be subject to supervision by the authority that authorizes it to conduct the financial business and/or the competent body for this purpose (i.e., not be a “shell bank”).
3.1.3. That the control authority of the country where the entity is located adheres to the “Basic Principles for Effective Banking Supervision”, disseminated by the Basel Committee on Banking Supervision.
3.1.4. That the authority indicated in point 3.1.3. applies consolidated supervision assuming the monitoring of liquidity and solvency, as well as the evaluation and control of risks and patrimonial situations in those terms.
3.1.5. Not be located in countries not considered “cooperators for the purposes of fiscal transparency”, within the framework of what is provided by Decree No. 589/13, its complementary and amending norms.
To these effects, what is provided in the second, third, fifth and last paragraphs of point 2.2. of the norms on “Correspondent Accounts” must be observed.
Regardless of the simultaneous observance of these requirements, and additionally to the analysis that the entity must carry out regarding its counterparty’s risk, an international risk rating as indicated in each case in the specific regulation governing the operation in question must be held.

3.2. Non-financial Private Sector.
In the case of institutionalized markets, insurance companies, stock exchanges and other companies, regardless of the analysis that the entity must carry out regarding its counterparty’s risk, they must have the international risk rating as indicated in each case in the specific regulation governing the operation in question.

3.3. Non-financial Public Sector.
It is required to have an international risk rating not lower than investment grade, except when a specific rating is specified.

CREDIT EVALUATIONS
B.C.R.A.
Section 3. Credit evaluations for non-residents.
Version: 1st. COMMUNICATION “A” 5671
Validity:
01/12/2014

B.C.R.A.
ORIGIN OF THE PROVISIONS CONTAINED IN THE
NORMS ON “CREDIT EVALUATIONS”
ORDERED TEXT ORIGINATING NORM
Sec. Point Para. Com. Annex Chap. Sec. Point Para.
OBSERVATIONS

1. “A” 5671 I
   2.1. “A” 5671 I
   2.2. “A” 5671 I
   2.
   2.3. “A” 5671 I
   3.1. “A” 5671 I
   3.2. “A” 5671 I
   3.
   3.3. “A” 5671 I

“Table of correspondence of the new qualification requirements for financial entities” ANNEX II Ordering or Communication Point Topic Rating required by previous regulation Type Object New requirement (corresponding point of the norms on “Credit Evaluations”) 2.2.1.1. Institutionalized markets operating in stock exchanges and markets of countries members of the O.C.D.E. (derivative transactions). AA International Institutionalized markets of O.C.D.E. member countries. 3.2. 2.2.1.2. i) Foreign banks (counterparties outside institutionalized markets). For futures, options and other derivative products. A International Foreign banks. 3.1.
2.3.3.2. Foreign banks (authorized counterparties for passive repo operations).
Investment grade International
Foreign banks. 3.1.
2.4.2.2.
For lending operations between financial entities. Authorized lending entities: foreign banks that are controlling entities or parent houses of local financial entities.
Investment grade International
Foreign banks. 3.1.
2.1.2. Authorized financial entities, for credit lines from abroad.
A National
National financial entity. 2.1.2.
Allocation of assets in guarantee
2.6.3.
Financial entities (agreement that ensures the liquidation of assets not admitted for the integration of minimum cash/obligations related to electronic clearing houses).
A National
National financial entity. 2.1.2.

Ordering or Communication Point Topic Rating required by previous regulation Type Object New requirement (corresponding point of the norms on “Credit Evaluations”) 5.1.10.2.
Preferred guarantees
A: discounted credit titles (deferred payment checks, promissory notes, bills of exchange and credit invoices) with liability for the cedent. One of the conditions is that the obligor maintains negotiable obligations or other debt titles in the local market that have local risk rating and all of them are, as a minimum, “A” or higher, and they are for a nominal sum of $6,000,000. A National National securities. 2.2.1. Credit cooperative boxes (Law 26.73) 5.1.9. Preferred guarantees A: pledges or liens on securities titles (shares or bonds) privately issued by national or foreign companies which must maintain negotiable debt papers that have local risk rating “A” or higher. A National National securities. 2.2.1. Minimum capital of financial entities 3.2.3.2. Exclusions of credit risk for financing and advances and other liabilities granted by branches and local subsidiaries of foreign financial entities, on behalf and order of their parent house or their branches in other countries or of the controlling entity, always that the following requirement is observed, among others: the entity must have an international risk rating included in the “Investment grade” category, granted by any of the rating agencies admitted by the norms on “Evaluation of Financial Entities”. Investment grade International Foreign banks. 3.1.

Ordering or Communication Point Topic Rating required by previous regulation Type Object New requirement (corresponding point of the norms on “Credit Evaluations”) 3.9.3.
Calculation of the credit valuation adjustment CVa. wi: weighter applicable to counterparty i, which is established at 0% for the non-financial public sector and Central Bank, and at 3% for the rest of the counterparties -except when it is a matter of foreign entities that are not “Investment grade”, in which case a weighter of 10% will be applied to them-. win: weighter applicable to the coverages provided by credit default swaps on indices, which is established at 0% for the non-financial public sector and Central Bank, and at 3% for the rest of the counterparties -except when it is a matter of foreign entities that are not “Investment grade”, in which case the weighter will be 10%. Investment grade International Markets and foreign banks. 3.1. and 3.2. 8.4.1.2. Deductible concepts of the RPC/balances in correspondent accounts and other placements in foreign banks that do not have the international risk rating. Investment grade International Foreign banks. 3.1. 2.1.6. Sale of linked portfolios. Foreign banks: prior authorization will not be required if they possess rating “A”. A International Foreign banks. 3.1. 2.2.2. If it is a matter of acquirers other than financial trusts and foreign banks (cedent entities/rating 3 granted by the SEFyC) must comply with certain requirements. A International Foreign banks. 3.1. Cession of credit portfolios
2.2.3. Foreign banks (cedent entities/ratings 4 and 5 granted by the SEFyC).
A International
Foreign banks. 3.1.

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
2.2.4.2. | Comprehended Financings. Exclusions: head offices or their branches in other countries or of the controlling entity (exclusions of financings and guarantees, sureties and other liabilities), which do not have the "Investment grade" rating. | Investment grade International | Foreign Banks. | 3.1. |
3.1. | Classification of debtors | 6.5.6.2. | Financings granted to foreign banks that do not have the "Investment grade" rating are included in "unrecoverable by technical provision". | Investment grade International | Foreign Banks. | 3.1. |
Communication "A" 4742 | 1. c) ii) | Hedging contracts carried out by the entity. The hedging must be carried out in institutionalized markets that operate in the country's stock exchanges and markets or, only when local contracting is not possible, agreed with the following counterparties, in accordance with the current exchange regulations: - institutionalized markets of countries members of the Organisation for Economic Co-operation and Development (O.E.C.D.) whose international risk ratings are "AA" or higher, or - foreign entities that have an international risk rating of "A" or higher granted by any of the rating agencies admitted by the norms on "Evaluation of Financial Entities". | AA or A International | Institutionalized Markets and Foreign Banks. | 3.2. and 3.1.

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
2.5.3.2. | Time Deposits and Investments | The coverage of the risks linked to the variable remuneration offered -producing the assumed commitment- will be contracted with entities that have an international risk rating of "A" or higher, or carried out in institutionalized markets of the country or of countries members of the O.E.C.D. that have an international risk rating of "AA" or higher. | A or AA | National and International | Banks and institutionalized markets of the country and abroad. | 2.1.2., 2.2., 3.1. and 3.2.
3.1.9. | Performance of custodian and registry agent functions | Foreign Banks (sub-custodians and/or registry agents). | AA International | Foreign Banks. | 3.1. |
Minimum Cash 1.4.1.3. | Determination of the residual term in refinanciable time obligations with foreign banks. | A International | Foreign Banks. | 3.1. 3.2.4.7. | Concepts excluded from the authorization request for assistance to the public sector: the debt instruments issued by the trustee or fiduciary fund for the financing of the construction of the works that have for their public offering a determined rating. | A National | Trustees and fiduciary funds for public works construction -National-. | 2.3. | Financing to the non-financial public sector 5.1.8. | One of the requirements for assistance to trustees or fiduciary funds constituted with specific purposes is that the debt instruments that are placed by public offering have a determined rating. | B+ National | Trustees or fiduciary funds constituted with specific purposes -National-. | 2.3. |

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
3.2.1.19. | General Exclusions: financings and guarantees, sureties and other liabilities granted by local branches or subsidiaries of foreign financial entities, on behalf and order of their head offices or their branches in other countries or of the controlling entity, provided that the established requirements are observed, among them: ii) the foreign entity has an international risk rating included in the "Investment grade" category, granted by any of the rating agencies admitted by the norms on "Evaluation of Financial Entities". | Investment grade International | Foreign Banks. | 3.1. |
3.2.1.5. | General Exclusions: financings to the controlling foreign bank of the local financial entity or to its branches or foreign financial subsidiaries, as long as the controlling entity fulfills all the conditions contemplated. | A International | Foreign Banks. | 3.1. |
5.3.1.4. | Maximum individual limits applicable to non-linked clients of the foreign financial sector. Financings imputable to each foreign bank with an international risk rating included in the "Investment grade" category, granted by any of the rating agencies admitted by the norms on "Evaluation of Financial Entities". | Investment grade International | Foreign Banks. | 3.1. |
Credit Risk Fractionation 5.3.2.4. | Financing limits to clients of the foreign financial sector linked by a control relationship. | Investment grade International | Foreign Banks. | 3.1. |

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
1.1.11. | Direct guarantees issued by central governments, agencies or dependencies of central governments of countries members of the O.E.C.D. that have a determined rating. | AA International | Central Governments, agencies or foreign dependencies. | 3.3. |
1.1.13. | Guarantees or sureties of private securities issued by national or foreign companies, taking into account their market value, which must respond to a normal and habitual quotation in the markets, of wide dissemination and easy access to public knowledge. The local and foreign issuing companies must maintain outstanding debt instruments that have a determined rating. | A National and International | National and foreign securities. | 2.2.1. and 3.2. |
Guarantees 1.1.14.2. | Credit titles (deferred payment checks, promissory notes, bills of exchange and credit invoices) discounted with liability for the assignor, in which one of the legally obligated subjects to payment, a condition that meets is to maintain outstanding negotiable obligations or other debt titles in the local market that have a determined rating and for an amount not less than $6,000. | A National | National securities. | 2.2.1. |

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
1.1.16. | Export credit insurance that covers commercial risk and, if applicable, extraordinary risk, including credit risk insurance "with public buyer scope", regardless of the term of the operation. Insurance companies must have a determined rating. | AA or A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |
1.1.6. | Foreign banks that issue guarantees and letters of credit. | A or AA International | Foreign Banks. | 3.1. |
Credit Management 1.8.2. | In operations on behalf and order of the head office, clients who only receive financings and guarantees, sureties and other liabilities granted by branches and subsidiaries that observe, among others, the requirement of having a determined rating are excluded from having the general requirements. | Investment grade International | Foreign Banks. | 3.1. | Credit Graduation 2.2.15. | Exclusions: export financings backed by commercial risk credit insurance, including credit risk insurance "with public buyer scope". The policy that covers the commercial risk must be issued by local insurance companies and branches and subsidiaries of foreign insurance companies that have a determined rating. | AA or A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |

Order or Communication | Point | Topic | Rating required by previous regulation | Type | Object | New requirement (corresponding point of the norms on "Credit Evaluations") ---|---|---|---|---|---|---
1.1.10.1. | Life insurance in mortgage loans. | A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |
1.1.10.2. | Property damage insurance in mortgage loans. | A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |
4.1.10.1. | Life insurance in pawn loans on motor vehicles. | A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |
Loan Origination and Administration Manuals 4.1.11. | Motor vehicle damage insurance in pawn loans on motor vehicles. | A National and International | Local insurance companies and branches and local subsidiaries of foreign insurance companies and reinsurance in foreign companies. | 2.2.2. and 3.2. |