2018 - YEAR OF THE CENTENARY OF THE UNIVERSITY REFORM

COMMUNICATION “A” 6464
09/03/2018

TO FINANCIAL INSTITUTIONS:

Ref.: Circular
CONAU 1 - 1276

Distribution of results. Adjustments.

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We address you to inform you that this Institution adopted the resolution that, in its pertinent part, provides:

“1. Replace Section 1., the first two paragraphs of Section 2., Section 3. and point 6.2. of the rules on “Distribution of results” with the following:

“Section 1. General criterion.

To distribute results, financial institutions must comply with these rules.

The payment of dividends –unless they are dividends in ordinary shares–, the purchases of own shares, the payments on other tier 1 capital instruments –determined in accordance with the provisions of point 8.1. of the rules on “Minimum capital of financial institutions”– and/or the payment of economic incentives (bonuses) to staff –in this case, subject to the regulations of public labor order (legal, collective bargaining and contractual) governing the relations of financial institutions with their staff– shall be subject to these rules.”

Section 2. Determination of distributable result.

“Institutions may distribute results up to the positive amount arising from the off-account calculation provided for in this point, without exceeding the limits established in these rules.

For this purpose, the sum of the balances recorded, at the close of the annual period to which they correspond, in the “Unassigned results” account and in the optional reserve for future distributions of results must be computed, from which the amounts –recorded at the same date– of the legal and statutory reserves –whose constitution is required– and of the concepts detailed below must be deducted:”

“Section 3. Verification of liquidity and solvency.

The amount to be distributed, which may not exceed that determined in Section 2., must not compromise the liquidity and solvency of the institution. This requirement shall be considered met when the non-existence of integration defects in the minimum capital position –both individual and consolidated– of the close of the period to which the unassigned results considered correspond or in the last closed position, whichever presents the lower ex-

CENTRAL BANK
OF THE ARGENTINE REPUBLIC

cess of integration with respect to the requirement, recalculating them also computing –for that sole purpose– the following effects based on the corresponding data at each of those da- tes:

3.1. Those resulting from the deduction from assets of the concepts mentioned in points 2.1. to 2.5., if applicable.

3.2. The non-consideration of the exemptions granted by the SEFyC that affect the requirements, integrations or the minimum capital position.

3.3. The deduction from unassigned results of the amounts corresponding to the following concepts:

3.3.1. the amount to be distributed and, if applicable, the amount allocated to constitute the reserve for the purpose of remunerating debt instruments eligible to form part of computable equity;

3.3.2. balances in favor from the application of the minimum presumed income tax –net of provisions for impairment risk– that have not been deducted from basic net equity, in accordance with the provisions of the rules on “Minimum capital of financial institutions”; and

3.3.3. adjustments made according to points 2.1. to 2.5.

3.4. The non-consideration of the limit provided for in point 7.2. of the rules on “Minimum capital of financial institutions”.

Without prejudice to the foregoing, distribution of results shall only be admitted to the extent that none of the following conditions is verified:

• they are within the provisions of articles 34 “Regularization and restructuring” and 35 bis “Restructuring of the entity in safeguard of credit and bank deposits” of the Financial Institutions Law;

• they record financial assistance from the BCRA due to illiquidity, within the framework of article 17 of its Charter;

• they present delays or non-compliances in the reporting regime established by this Institution;

• they record deficiencies in minimum capital integration –individually or consolidated– (without computing for such purposes the effects of individual exemptions granted by the SE-FyC);

• the integration of minimum cash on average –in pesos, in foreign currency or in public securities– was less than the requirement corresponding to the last closed position or to the projected one considering the effect of the distribution of results;

• the institution has not complied with the additional capital margins applicable to it in accordance with the provisions of Section 4.”

“6.2. To determine the existence of sufficient balance to proceed with payment, the general procedure provided for in Sections 2., 3. and 4. regarding the de- termination of the capacity to distribute results shall be used, with the following exception: no amounts corresponding to the concepts provided for in point 2.3. shall be deducted from unassigned results, nor shall they be considered for the recalculation of the minimum capital positions –Section 3.– to the concepts provided for in point 2.3. Consequently, issues of debt instruments that do not satisfy the applicable requi- rements in the matter or, at the option of the institution, shall be subject to the general proce- dure provided for in Section 3.”

2. Repeal Section 5. of the rules on “Distribution of results”.

3. Order that until 31.3.20 financial institutions that, in order to determine the distributable result, have not increased the net COn1 ranges of deductions (CDCOn1) provided for in the tables of points 4.2.3. and 4.2.4. of the rules on “Distribution of results” by 1 percentage point must have the prior authorization of the SEFyC for the distribution of results. This requirement will also apply to the payment of financial services corresponding to issues of debt instruments provided for in Section 5. of the aforementioned rules.”

On the other hand, we send you in annex the sheets that, in replacement of those previously provided, should be incorporated into the rules on “Distribution of results”. Likewise, it is recalled that on the website of this Institution www.bcra.gob.ar, by accessing “Sistema Financiero - MARCO LEGAL Y NORMATIVO - Ordenamientos y resúmenes - Textos ordenados de normativa general”, you will find the modifications made with texts highlighted in special characters (strikethrough and bold).

We greet you attentively.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Darío C. Stefanelli
Agustín Torcassi
Principal Manager of Issuance and
Aplicaciones Normativas
Subgerente General de Normas

ANNEX

B.C.R.A.
CONSOLIDATED TEXT OF THE RULES ON
“DISTRIBUTION OF RESULTS”

-Index-

Section 1. General criterion.

Section 2. Determination of the distributable result.

Section 3. Verification of liquidity and solvency.

Section 4. Additional capital margins.

4.1. Capital conservation margin.

4.2. Countercyclical margin.

4.3. Basis of compliance.

Section 5. Specific procedure.

Section 6. Transitional provisions.

Correlation table.

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DISTRIBUTION OF RESULTS
B.C.R.A.
Section 1. General criterion.

CENTRAL BANK OF THE ARGENTINE REPUBLIC

In order to distribute results, financial institutions must comply with these rules.

The payment of dividends –unless they are dividends in ordinary shares–, the purchases of own shares, the payments on other tier 1 capital instruments –determined in accordance with the provisions of point 8.1. of the rules on “Minimum capital of financial institutions”– and/or the payment of economic incentives (bonuses) to personnel –in this case, subject to the regulations of public labor order (legal, conventional and contractual) that govern the relations of financial institutions with their personnel– will be subject to these regulations.

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B.C.R.A.
DISTRIBUTION OF RESULTS
Section 2. Determination of the distributable result.

Institutions may distribute results up to the positive amount arising from the off-account calculation provided for in this point, without exceeding the limits established in these rules.

For this purpose, the sum of the balances recorded, at the close of the annual period to which they correspond, in the account “Unassigned results” and in the optional reserve for future distributions of results must be computed, from which the amounts –recorded at the same date– of the legal and statutory reserves –whose constitution is required– and of the concepts detailed below must be deducted:

2.1. 100 % of the debit balance of each of the items recorded in the “Other accumulated comprehensive results” line item.

2.2. The result from the revaluation of property, plant, equipment and intangibles and of investment properties.

2.3. The positive net difference resulting between the measurement at amortized cost and the fair market value that the financial institution records with respect to public debt instruments and/or monetary regulation instruments of the Central Bank for those instruments valued at amortized cost.

2.4. The asset valuation adjustments notified by the Superintendency of Financial and Exchange Institutions (SEFyC) –accepted or not by the institution–, which are pending registration and/or those indicated by the external audit that have not been recorded accounting-wise.

2.5. The individual exemptions –for asset valuation– granted by the SEFyC, including the adjustments derived from not considering the agreed adequacy plans.

Additionally, financial institutions may not make distributions of results with the gain arising from the first-time application of the International Financial Reporting Standards (IFRS), and must constitute a special reserve that may only be released for capitalization or to absorb eventual negative balances of the “Unassigned results” item.

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Section 3. Verification of liquidity and solvency.

The amount to be distributed, which may not exceed that determined in Section 2., must not compromise the liquidity and solvency of the institution. This requirement will be considered fulfilled when the non-existence of integration defects is verified in the minimum capital position –both individual and consolidated– at the close of the period to which the unassigned results considered correspond or in the last closed position, whichever of both presents the lower integration excess with respect to the requirement, recalculating them by also computing –for that sole purpose– the following effects based on the corresponding data for each of those dates:

3.1. Those resulting from the deduction from assets of the concepts mentioned in points 2.1. to 2.5., if applicable.

3.2. The non-consideration of the exemptions granted by the SEFyC that affect the requirements, integrations or the minimum capital position.

3.3. The deduction of undistributed results of the amounts corresponding to the following concepts:

3.3.1. the amount to be distributed and, where applicable, the amount allocated to constitute the reserve for the purpose of remunerating debt-representative instruments, capable of forming part of computable net worth;

3.3.2. balances in favor from the application of the minimum presumed income tax –net of provisions for risk of impairment– that have not been deducted from basic net worth, in accordance with the provisions of the rules on “Minimum capital of financial institutions”; and

3.3.3. adjustments made according to points 2.1. to 2.5.

3.4. The non-consideration of the limit provided in point 7.2. of the rules on “Minimum capital of financial institutions”.

Without prejudice to the foregoing, distribution of results shall only be admitted to the extent that none of the following conditions is verified:

• they are covered by the provisions of articles 34 “Regularization and restructuring” and 35 bis “Restructuring of the entity in safeguard of credit and bank deposits” of the Law on Financial Institutions;

• they record financial assistance for illiquidity from the BCRA, within the framework of article 17 of its Charter;

• they present delays or non-compliances in the reporting regime established by this Institution;

• they record deficiencies in minimum capital integration –on an individual or consolidated basis– (without computing for such purposes the effects of individual exemptions granted by the SEFyC);

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B.C.R.A.
DISTRIBUTION OF RESULTS
Section 3. Verification of liquidity and solvency.

• the integration of minimum cash on average –in pesos, in foreign currency or in public securities– was less than the requirement corresponding to the last closed position or the projected one considering the effect of the distribution of results;

• the entity has not complied with the additional capital margins applicable to it in accordance with the provisions of Section 4.

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Section 5. Specific procedure.

For the purposes of determining the distributable result and verifying liquidity and solvency, for the payment of financial services corresponding to issues of debt-representative instruments, referred to in point 8.2.2. of the rules on “Minimum capital of financial institutions”, the specific procedure detailed below shall be used:

5.1. The issuance of such debt instruments must have the prior approval of the shareholders' meeting or equivalent corporate body, which must rule on the issuance and its conditions. In said issuance conditions and in the offers made, the requirements that condition, in accordance with this regime, the payment of financial services must be specified, making reference to the BCRA provisions applicable in this matter.

In the case of negotiable obligations, the aforementioned requirement shall also be considered fulfilled if the Ordinary General Meeting or equivalent corporate body authorizes a program for the issuance of debt-representative instruments in a generic form, delegating to its Board of Directors the determination of the specific terms and conditions, observing the provisions of article 9 of Law 23.576. This, without prejudice to the analyses that, on this aspect and others pertaining to each issuance and placement, correspond to the National Securities Commission in matters of legality control, in accordance with the public offering regime for securities, in its capacity as enforcement authority of Law 26.831.

5.2. To determine the existence of sufficient balance to proceed with payment, the general procedure provided in Sections 2., 3. and 4. regarding the determination of the capacity to distribute results shall be used, with the following exception: the amounts corresponding to the concepts provided in point 2.3. shall not be deducted from undistributed results, nor shall they be considered for the recalculation of minimum capital positions –Section 3.–

Consequently, issues of debt instruments that do not satisfy the applicable requirements in the matter or, at the option of the entity, shall be subject to the general procedure provided in Section 3.

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DISTRIBUTION OF RESULTS
B.C.R.A.
Section 6. Transitional provisions.

6.1. From 1.1.13, for the purposes of computing the minimum capital position for the verifications provided in these rules, the capital requirement for credit risk for securitizations must be computed on all operations in force at the computation date.

6.2. The countercyclical capital margin that financial institutions must apply to their exposures in Argentina, in accordance with the provisions of point 4.2., is established, as of 1.4.16, at 0 %.

6.3. Until 31.3.20, financial institutions that, to determine the distributable result, have not increased the ranges of net COn1 of deductions (CDCOn1) provided in the tables of points 4.2.3. and 4.2.4. by 1 percentage point must have the prior authorization of the SEFyC for the distribution of results.

This requirement shall also apply to the payment of financial services corresponding to issues of debt-representative instruments provided in Section 5.

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B.C.R.A.
ORIGIN OF THE PROVISIONS CONTAINED IN THE RULES ON “DISTRIBUTION OF RESULTS”

TEXT ORDERED	STANDARD OF ORIGIN	OBSERVATIONS
Sect. Point	Para.	Comm.	Annex Ch. Sect. Point	Para.
1.			"A" 4589		1.		According to Comm. "A" 5827 and 6464.
2.		1st and 2nd	"A" 4589			2.		According to Comm. "A" 4591 (point 6.), 5273, 5827, 6327 and 6464.
	2.1.		"A" 6327			12.
	2.2.		"A" 6396			4.
	2.3.		"A" 6327			12.
	2.4.		"A" 4589			2.3.
	2.5.		"A" 4589			2.4.
		last	"A" 6327			26.
3.		1st	"A" 4589			3.		According to Comm. "A" 4591 (point 8.), 5072, 5273, 5827, 5985, 6464 and "B" 9104.
	3.1.		"A" 4589			3.1.		According to Comm. "A" 4591 (point 8.) and 6428.
	3.2.		"A" 4589			3.3.	iv)	According to Comm. "A" 4591 (point 8.) and "B" 9104.
	3.3.		"A" 4589			3.3.		According to Comm. "A" 4591 (point 8.), 6428 and 6464.
	3.4.		"A" 5737			4.
		last	"A" 4589			1.1. to 1.4.		According to "A" 4591, 5072 and 6464.
4.			"A" 5827
			"A" 4591			1.		According to Com. "A" 5282 and 5827.
5.	5.1.		"A" 4591			1.		It incorporates the interpretive criterion of Com. "C" 46841. According to Com. "A" 5393.
	5.2.		"A" 4591			1.		According to Com. "A" 4686, 4702, 5072, 5180, 5282, 5369, 5580, 5827, 6013, 6464 and "B" 9104.
6.			"A" 5272			9.		According to Com. "A" 5282, 5369, 5707, 5827, 5938, 5985, 6013 and 6464.