Circular CONAU 1-1612 LISOL 1-1037: Minimum Capital, Debtor Classification, Minimum Provisions, Result Distribution, and Amendments

"1983/2023 - 40 YEARS OF DEMOCRACY"
COMMUNICATION “A” 7928 28/12/2023
TO FINANCIAL ENTITIES:
Ref.: Circular
CONAU 1-1612,
LISOL 1-1037:
Minimum capital of financial entities.
Debtor classification. Minimum provisions for uncollectible risk. Distribution of results. Amendments.
___________________________________________________________________________ We address you to inform you that this Institution adopted the resolution that, in its pertinent part, establishes:

“- To order, with effect from 31.12.23, that financial entities of groups B and C must observe the provisions regarding point 5.5 of IFRS 9 established for regulatory purposes for financial entities of group A, considering the prorating methodology provided in Communication “A” 6847. Financial entities of groups B and C that have not yet applied that point of IFRS 9 may opt –irrevocably and after communication to the SEFyC by 31.1.24– to postpone its implementation until 1.1.25.”

Regarding this, we provide you with the sheets that, in replacement of those previously provided, must be incorporated into the referenced standards. In this sense, it is recalled that on this Institution’s website www.bcra.gob.ar, by accessing “Financial System - LEGAL AND REGULATORY FRAMEWORK - Orders and summaries - Ordered texts of general regulations”, the modifications made with text highlighted in special characters (strikethrough and bold) will be found.

We salute you attentively.
CENTRAL BANK OF THE ARGENTINE REPUBLIC
Enrique C. Martin Darío C. Stefanelli
Manager of Issuance
Manager of Norms
Principal Manager of Issuance and
Normative Applications

ANNEX

11.1. Acquisitions of financial entities.
For the purposes of determining the computable net worth on a consolidated basis, the consolidating entity may add the amount recorded in the specific item under Provisions of Liabilities.

11.2. Merger of financial entities.
For the purposes of determining the CNW (Computable Net Worth), the amount corresponding to the “negative goodwill” recorded in the specific item under Provisions of Liabilities may be added.

11.3. For the purposes of determining the CNW, from 1.2.13, capital instruments that cease to meet the criteria to be considered additional level one capital (CAn1) or supplementary equity (PNc) in accordance with what is established in Section 8 will begin to be excluded.
For these purposes, while they maintain the conditions under which their inclusion in the CNW was admitted, the amount resulting from applying the methodology in force at that date to the accounting values of the instruments at the end of each month will be computed. Their recognition as CNW will be limited to 90% of the value thus obtained from that date, with this limit decreasing by 10 percentage points every twelve months. This limit will be applied separately to each instrument –whether it is computed in CAn1 or in PNc–.

11.4. For the purposes of determining the CNW, financial entities may compute as ordinary level one capital (COn1) the positive difference between the new accounting provision computed according to point 5.5 of IFRS 9 –taking into account, if applicable, the prorating methodology provided in Communication “A” 6847– and the “regulatory” provision calculated according to the norms on “Minimum provisions for uncollectible risk” or the accounting provision corresponding to the balance sheet of 30.11 of the year prior to the first application of said point of IFRS 9 –whichever is higher–.

11.5. For the purposes of determining the minimum capital requirement for credit risk of all financing agreed from 18.5.2020 to clients with agricultural activity that are not MiPyME (Small and Medium Enterprises) and maintain a stock of their production with a value greater than 5% of their annual harvest capacity, the amount resulting from applying what is established in Section 2. must be multiplied by a factor equal to 4.

11.6. National public bonds in pesos with dual-currency yield receive the same treatment as securities issued in pesos.

B.C.R.A. MINIMUM CAPITAL OF FINANCIAL ENTITIES
Section 11. Other provisions.
Version: 13th COMMUNICATION “A” 7928 Validity:
31/12/2023 Page 1

MINIMUM CAPITAL OF FINANCIAL ENTITIES
ORDERED TEXT ORIGIN OF THE NORM OBSERVATIONS Section Point Paragraph Com. Cap./
Annex Point Paragraph
11.
11.1. “A” 3985 According to Com. “A” 4172.
11.2. “A” 3985 According to Com. “A” 4172.
11.3. “A” 5369 8. According to Com. “A” 5580.
11.4. “A” 6938 12. According to Com. “A” 7007 and 7928.
11.5. “A” 7018 5.
11.6. “A” 7545 1.
12. 1° “A” 7470 2. According to Com. “A” 7524.
2° “A” 7470 3. According to Com. “A” 7524.

11.1. Until 31.12.24, entities of groups B and C that are not branches or subsidiaries of foreign banks classified as globally systemically important (G-SIB) that have opted –irrevocably– to postpone until 1.1.25 the application of point 5.5 of IFRS 9:
11.1.1. Will enter into a “Manual of classification and provision procedures” the application of criteria more rigorous than the minimum established for the classification of debtors in the consumer or housing portfolio in accordance with what is established in point 7.1. and the description of the adopted procedure, for the purposes of constituting provisions for uncollectible risk in order to what is established in point 5.1.4. of the norms on “Minimum provisions for uncollectible risk”.
11.1.2. Without prejudice to what is established in point 7.1. of these norms, for the purposes of constituting provisions for uncollectible risk, higher than the minimum established by the BCRA in accordance with what is provided in point 5.1.4. of the norms on “Minimum provisions for uncollectible risk” (regulatory provision) –which will be of individual attribution for debtors in situations other than normal and of a global nature for those in normal situations–, they may adopt more rigorous criteria based on the objective guidelines referred to in the first paragraph of said point 7.1., provided that this constitutes a policy of a general nature, which must be explicitly stated in the “Manual of classification and provision procedures”, without affecting the classification that should be assigned to the debtors included in accordance with these provisions and the objective criterion or criteria with studies on their behavior that support the higher provisions (whether for the entire active portfolio or by type of financing) must be duly founded in it. The approval of such criteria and their modifications will require the authorization of the same officials who have the approval of “Significant Financings” (point 1.4.3. of the norms on “Credit Management”).

11.2. Until 31.12.23, for those producers to whom the provisions related to the Agricultural Emergency Law apply, for the purposes of computing the term of default to consider a debtor classified in:

• category 1 (referred to in points 6.5.1. and 7.2.1. –normal situation–): up to 75 days of delay in the payment of their obligations is admitted;
• category 2 (in accordance with points 6.5.2. and 7.2.2. –special monitoring or low risk, respectively–): this term will be 76 and up to 135 days of delay;
• category 3 (in accordance with points 6.5.3. and 7.2.3. –problems or medium risk, respectively–): this term will be 136 and up to 225 days of delay.
  The treatment dispensed within this framework cannot imply an improvement in the classification assigned to the client based on their individual situation, pre-existing to the declaration of emergency, nor its application extend beyond the validity fixed for it. This provision is applicable from the information of the Debtors Central of the Financial System of the month of January 2023 to be sent to this BCRA in February.

B.C.R.A. DEBTOR CLASSIFICATION
Section 11. Transitional provisions.
Version: 18th COMMUNICATION “A” 7928 Validity:
29/12/2023 Page 1

DEBTOR CLASSIFICATION
ORDERED TEXT ORIGIN OF THE NORM OBSERVATIONS Sec. Point Par. Com. Annex Point Par.
8. 8.1. “A” 2216 I 5. According to Com. “A” 2562.
9.
9.1. “A” 2227 unique 5.2.1. Last According to Com. “A” 2649.
9.2. “A” 2227 unique 5.1.5.
and
5.2.2.
According to Com. “A” 2649.
10.
10.1. “A” 2389 According to Com. “A” 5593 and 7146.
10.2.1. “A” 2703 3. According to Com. “A” 3145 and 7443.
10.2.2. “A” 2703 4. According to Com. “A” 6851 and 7443.
10.3. “A” 3141 4. According to Com. “A” 5275.
10.4. “A” 7406 1. According to Com. “A” 7423.
11.
11.1. “A” 6851 a. According to Com. “A” 6938, 7181, 7427,
7443, 7659 and 7928.
11.1.1. “A” 4683 2. According to Com. “A” 6851, 6938, 7181,
7427 and 7443.
11.1.2. 1° “A” 2216 I II. 1º According to Com. “A” 3142, 4325 (point 1.),
4559 (point 7.), 4648, 4660, 4683,
4738, 4972 (point 10.), 5975, 6851,
6938, 7181, 7427 and 7443.
11.2. “A” 7687

5.1. Until 31.12.24, entities of groups B and C that are not branches or subsidiaries of foreign banks classified as globally systemically important (G-SIB) that have opted –irrevocably– to postpone until 1.1.25 the application of point 5.5 of IFRS 9:
5.1.1. Must apply the provisions contained in these norms for accounting and regulatory purposes.
5.1.2. Must observe the following complementary guidelines regarding the treatment of accrued interest and similar accessories.
5.1.2.1. Debtors classified in category “in negotiation or with refinancing agreements”.
Provisions must be constituted for 100% of interest and similar accessories –including updates by the application of the Salary Variation Coefficients “CVS” and Reference Stabilization “CER” and exchange rate differences– regarding the debts of clients classified “in negotiation or with refinancing agreements” when defaults exceeding 90 days in the payment of obligations are registered. The entity may opt directly to interrupt the accrual of interest. It will be necessary to effect the release of provisions once the debt refinancing agreement is reached.

5.1.2.2. Debtors classified in categories 3, 4 or 5.
Provisions must be constituted for 100% of interest and similar accessories –including updates by the application of the Salary Variation Coefficients “CVS” and Reference Stabilization “CER” and exchange rate differences– corresponding to the debts of clients classified “with problems” or “medium risk”, “with high insolvency risk” or “high risk”, or “uncollectible”, accrued from the moment they are classified in any of those categories. The entity may opt, directly, to interrupt the accrual of these concepts. The amount of interest and similar accessories accrued that are collected, corresponding to debts of clients included in the categories “with problems” or “medium risk”, “with high insolvency risk” or “high risk”, with or without preferred guarantees, or “uncollectible”, with preferred guarantees, cannot generate the removal of provisions constituted, unless 100% of the capitalized claims for capital and accessories and for other computable concepts (contingent obligations) is covered, all considered per client. The collection of said concepts that had not been accrued accounting-wise, having opted to interrupt their accrual, cannot generate profits, except if the indicated coverage is met by constituting the pertinent provisions.

B.C.R.A. MINIMUM PROVISIONS FOR UNCOLLECTIBLE RISK
Section 5. Transitional provisions.
Version: 3rd COMMUNICATION “A” 7928 Validity:
29/12/2023 Page 1

MINIMUM PROVISIONS FOR UNCOLLECTIBLE RISK
ORDERED TEXT ORIGIN OF THE NORM OBSERVATIONS Section Point Par. Com. Annex Point Par.
2.
2.5.2. “A” 2287 4. According to Com. “A” 2893 (point 2.), 6851 and
7443.
“A” 2607 1.
2.6. “A” 2893 3. According to Com. “A” 6851 and 7443.
2.7. “A” 2893 3. According to Com. “A” 6167, 6851 and 7443.
3.
3.1. 1° “A” 2373 8. and 3. According to Com. “A” 6851 and 7443. Includes
interpretative clarification.
2° “A” 2373 8. According to Com. “A” 6851 and 7443. last “B” 5902 3. According to Com. “A” 6851 and 7443. Includes interpretative clarification.
4. 4.1. “A” 2227 unique 5.2.1. last According to Com. “A” 2649.
4.2. “A” 2227 unique 5.1.5. According to Com. “A” 2649.
“A” 2227 unique 5.2.2.
5.
5.1. “A” 6851 a. According to Com. “A” 6938, 7181, 7427,
7443, 7659 and 7928.
5.1.1. “A” 2216 II 9° and
last
According to Com. “A” 3040 (point 5.), includes interpretative clarification. According to Com.
“A” 3339, 3955, 6851,6938, 7181, 7427,
7443, and “B” 9074.
5.1.2. “A” 2216 II 4° According to Com. “A” 4738.
5.1.3. “A” 4060 6. According to Com. “A” 6851, 6938, 7181, 7427
and 7443.
5.1.4. “A” 2216 II 7° According to Com. “A” 4683 (point 5.), 6851,
6938, 7181, 7427 and 7443.
5.1.5. “A” 2216 II 4° According to Com. “A” 4738, 6851, 6938,
7181, 7427 and 7443.
5.1.6. 1° “A” 2357 1. According to Com. “A” 6327, 6851, 6938,
7181, 7427 and 7443. Incorporates criterion not disclosed previously in a general character.
5.1.7. “A” 2287 4. According to Com. “A” 2893 (point 2.), 6851,
6938, 7181, 7427 and 7443.
5.1.7.1. “A” 2287 4. According to Com. “A” 2893 (point 2.), 6851,
6938, 7181, 7427 and 7443.
5.1.7.2. “A” 2287 4. According to Com. “A” 2893 (point 2.), 6851,
6938, 7181, 7427 and 7443.
“A” 2607 1. According to Com. “A” 6851, 6938, 7181, 7427 and 7443.
5.1.8. “A” 2893 3. According to Com. “A” 6851, 6938, 7181, 7427
and 7443.

7.1. The countercyclical capital margin that financial entities must apply to their exposures in Argentina, in accordance with what is established in point 4.2., is established, from 1.4.16, at 0 %.
7.2. For the purposes of determining the distributable result, the increase in the computable net worth (CNW) resulting from the application of point 11.4. of the norms on “Minimum capital of financial entities” and the lower provisions and higher CNW resulting from the treatments established in point 2. of Communication “A” 6946 (and modifications) –for financings to MiPyME intended for the payment of salaries–, in point 2. of Communication “A” 7427, in point 3. of Communication “A” 7659 and in Communication “A” 7928 –which postponed until 1.1.25, on an optional and irrevocable basis for financial entities of groups B and C that are not branches or subsidiaries of foreign banks classified as globally systemically important (G-SIB), the application of point 5.5 of IFRS 9–, must be deducted from the computations provided in Sections 2. and 3.
7.3. The distribution of results of financial entities is suspended from 1.1.23 and until 31.3.23.
7.4. From 1.4.23 and until 31.12.23, financial entities that have the authorization of the BCRA –in accordance with what is provided in Section 6.–, may distribute results in 6 equal, monthly, and consecutive installments for up to 40% of the amount that would have corresponded to apply these norms.

B.C.R.A. DISTRIBUTION OF RESULTS
Section 7. Transitional provisions.
Version: 14th COMMUNICATION “A” 7928 Validity:
31/12/2023 Page 1

ORDERED TEXT ORIGIN OF THE NORM OBSERVATIONS Sec. Point Par. Com. Annex Cap. Sec. Point Par.

1. “A” 4589 1. According to Com. “A” 5827 and

1° and 2° “A” 4589 2. According to Com. “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.
1° “A” 4589 3. According to Com. “A” 4591 (point 8.), 5072, 5273, 5827, 5985, 6464 and “B” 9104.
3.1. “A” 4589 3.1. According to Com. “A” 4591 (point
8.) and 6428.
3.2. “A” 4589 3.3. iv) According to Com. “A” 4591 (point
8.) and “B” 9104.
3.3. “A” 4589 3.3. According to Com. “A” 4591 (point
8.), 6428 and 6464.
3.4. “A” 5737 4.
last “A” 4589 1.1. a
1.4.
According to “A” 4591, 5072 and
6464.
4. “A” 5827
5.
“A” 4591 1. According to Com. “A” 5282 and
5827.
5.1. “A” 4591 1. Incorporates the interpretative 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” 6768
7.
7.1. “A” 5938
7.2. “A” 6946 3. According to Com. “A” 7007, 7108,
7143, 7181, 7427, 7659 and
7928.
7.3. “A” 6939 According to Com. “A” 7007, 7035,
7181, 7312, 7659 and 7719.
7.4. “A” 7421 1. According to Com. “A” 7719.

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