Circular LISOL 1-73: Minimum Capital of Financial Entities. Consolidated Text

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
__________________________________________________________________ COMUNICACION " A " 2136 19/08/93 __________________________________________________________________ TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 72.
Minimum Capital of Financial
Entities. Consolidated Text

We address you to provide you with the consolidated text regarding regulations on the requirement and integration of minimum capital that financial entities must observe, taking into account the provisions disseminated through Communications "A" 2118 and 2135:

"1. Establish that, effective July 1993, the minimum capital requirement that financial entities must have integrated by the last day of each month shall be equivalent to the highest value resulting from the comparison between the amounts derived from points 1.1. and 1.2. below:

1.1. Minimum capital based on risk:
Cer = k (a Ais + 0,125 Aif + R (Vrf + Vrani)) where Cer : minimum capital required based on risk. k : factor linked to the rating assigned to the entity according to the evaluation carried out by the Superintendence of Financial and Exchange Entities, taking into account the following scale:
Rating Assigned Value of "k"
1 0,970
2 1,000
3 1,030
4 1,070
5 1,125
To this effect, the last rating communicated to the entity shall be considered. Until communicated, the value of "k" shall be equal to 1. a : Coefficient established by the Central Bank. For the period July/December 1993 it shall be equal to 0.30, decreasing to 0.25 for the period January/June 1994, to 0.20 for the period July/December 1994, and to 0.15 effective January 1995.

Ais : Immobilized assets incorporated into equity as of 30.6.93.
Aif : Immobilized assets incorporated into equity from 1.7.93.
R : Coefficient established by the Central Bank.
For the period July/December 1993 it shall be 0.085. This coefficient shall increase by one hundredth point semi-annually until reaching 0.115 effective January 1995.
Vrf : Risk value of loans, other credits by financial intermediation, and other financings, except for operations between financial entities, in pesos and foreign currency, regardless of their instrumentation, determined by the sum of the values obtained after applying the following expression:
p . Ir . f where p : Weighting factor according to the table contained in Annex I to this communication, as a decimal fraction.
Ir : Risk indicator established in the table of Annex II to this communication.
The highest risk indicator applicable to operations with the same client shall also apply to guarantees, sureties, and other contingent liabilities granted to them. f : Loans, other credits by financial intermediation, and other financings granted, -including, if applicable, guarantees, sureties, and other contingent liabilities- except for operations between financial entities. Vrani : Risk value of non-immobilized assets, not included in "Vrf", determined by the sum of the values obtained after applying the weighting percentages to the concepts included, as indicated in the table contained in Annex I. When the market value of the guarantees and counter-guarantees received does not cover the amount of the assistance granted, the coverage defect shall be weighted at 100% or, if lower, at the value applicable to the operation as provided in the table contained in Annex I, such as the loans included in point 3.6. Financings that, originally, were weighted with values lower than 100%, shall be subject to that weighter from the moment the debtor is rated in the "Debtor Status Report" with insolvency risk or in any of the following lower quality categories. To this effect, the assets -whether immobilized or not- shall be computed based on the monthly averages of daily balances of the month prior to that corresponding to the determination of the requirement (capital, interest, premiums, and quotation differences, as applicable, net of provisions for uncollectibility risk and devaluation, and of accumulated amortizations attributable to them, without deducting provisions for uncollectibility risk on the normal portfolio, overdue, or in accordance with point 1.1. of Communication "A" 2016).

1.2. The minimum capitals made known through Communication "B" 4489, without prejudice to the observance of what is provided in points 1.3. and 4.2. of Chapter VI of Circular LISOL - 1.
For the purposes of that comparison, savings and loan societies for housing or other real estate shall observe the minimum capitals corresponding to financial companies.
For the same purposes, credit unions shall consider, effective 31.7.93 and 31.12.93, the minimum capitals established for financial companies in accordance with Communications "B" 4336 and 4489, respectively. Savings and loan societies for housing or other real estate and credit unions that carry out operations in foreign currency shall consider, given what is provided in Communication "A" 1823, the requirements established for financial companies in the terms of section 1.2.

2. Establish, effective July 1993, that for the purposes of determining compliance with the minimum capital requirement, the computable integration shall arise from the following expression:
   Ic = PNb + PNc - Cd - D where
   Ic : Computable Integration
   PNb : Basic Net Equity

PNc: Supplementary Net Equity, not exceeding 100% of PNb Cd : Deductible accounts in accordance with point 3.2. of Chapter VI of Circular LISOL - 1 D : 50% of the positive amount of the restatement of non-monetary assets, except when they are concepts included in Cd, -net of the amortizations attributable to them-, generated from the balances as of July 1993, to the extent that the assets are maintained in equity. "Basic Net Equity" comprises the following items from the "Net Equity" Chapter of the Minimum Chart of Accounts (Code 400000):

• share capital
• non-capitalized contributions
• equity adjustments
• profit reserves
• unassigned results. The positive result of the last closed fiscal year shall be computed once the auditor's report is available.
  "Supplementary Net Equity" comprises the positive or negative result of the algebraic sum of the following concepts:
• provisions for uncollectibility risk corresponding to the normal, overdue, or in accordance portfolio, as established in point 1.1. of Communication "A" 2016 (positive).
• 100% of the results recorded up to the last quarterly balance that has an auditor's report, corresponding to the last closed fiscal year and for which the auditor has not yet issued their opinion (positive or negative).
• 100% of the results of the current fiscal year recorded at the close of the last quarterly balance, once it has an auditor's report (positive or negative).
• 50% of the positive results and the entirety of the losses, recorded each month, calculated cumulatively, from the last quarterly or annual balance that has an auditor's report or opinion (positive or negative).
• 100% of the shortfalls not considered in the financial statements, corresponding to the quantification of facts and circumstances reported by the auditor, in accordance with what is provided in point 2. of Annex IV to the minimum standards on external audits (negative).
  For the purpose of computing 100% of the results recorded up to the last quarterly or annual balance, the respective financial statement with the auditor's report must be presented prior to the date by which the presentation of the monthly balance is mandatory.

3. Establish, effective July 1993, that non-compliance with the required minimum capital shall give rise to the following consequences:
   3.1. Creation of new entities.
   Revocation of the authorization to operate if the required minimum capital is not integrated within 60 days of its granting.
   3.2. Entities in operation.
   A regularization and/or restructuring plan must be presented, adjusted to the terms provided in article 34 of Law 21.526 (text according to Law 24.144), within a period of 20 calendar days following the close of the month in which any of these circumstances are registered:

• non-compliance exceeding 3%, measured with respect to the minimum capital requirement.
• four consecutive non-compliances of up to 3% of that requirement.
  Without prejudice to the foregoing, the Central Bank may appoint a supervisor with the powers established by Law.
  Furthermore, the obligation to present the aforementioned plan shall give rise to the following consequences:
  3.2.1. At all times and from the first day of the month following the month of the non-compliance that determines said obligation, the amount of deposits and other obligations by financial intermediation -in national and foreign currency-, according to the concepts contained in point 1. of Chapter I of Circular LISOL - 1, shall not exceed the level that, in average monthly daily balances, it reached during the month in which said non-compliance is verified.
  3.2.2. Limitation on access to overdrafts and rediscounts for temporary illiquidity in accordance with the provisions of point 1.3.4. of Chapter IV of Circular REMON - 1 (text according to Communication "A" 126).

3.2.3. Exclusion from the list of entities authorized to participate in exchange and open market operations directly with the Central Bank in accordance with the provisions of Communication "A" 1979.
3.2.4. The impediments provided for in point 3.1. of Chapter V of Circular LISOL - 1 (text according to Communication "A" 414).
3.2.5. The non-compliances with the required minimum capital, measured by integration deficiencies, and the excesses over the limit resulting from point 3.2.1. shall be subject to a charge equivalent to 24% nominal annual, with the other provisions provided for these situations in point 3.2. of Chapter V of Circular LISOL - 1 (text according to Communication "A" 2019) being applicable.
The lifting of restrictions shall be subject to the resolution adopted regarding the plan presented.

4. Repeal, effective July 1993, point 8. of Chapter VI of Circular LISOL - 1 (text according to Communication "A" 1858) and points 1., 2. and 3. of the resolution disseminated through Communication "A" 1858 and its complementary resolutions.

5. Substitute, effective July 1993, point 3.1. of Chapter VI of Circular LISOL-1, with the following:
   "3.1. Determination. Computable Concepts
   The computable patrimonial responsibility of financial entities, for the purposes of the regulatory norms of the prescriptions of article 30 of Law 21.526, is determined by deducting from the balance corresponding to the "Net Equity" Chapter (Code 400000) of the Minimum Chart of Accounts, the amounts indicated in point 3.2.. The concept "Net Equity", according to the definition contained in the respective chapter of the Chart of Accounts Manual, comprises the difference between the asset and the liability of the financial entity, which is why it includes the positive or negative effect of the results of the current fiscal year, as of the date of each report."

6. Establish that, for July, August, and September 1993, entities may opt to determine the requirement and compliance of minimum capital integration taking into account the provisions disseminated through Communication "A" 1858 and its complementary resolutions. Therefore, in the event that this option is fully exercised, they must observe the norms of this resolution effective October 1993, calculating the requirement based on the monthly averages of computable assets registered in September. The chosen option and the subsequent months it comprises -since alternating periods are not admitted- must be reported by note addressed to Supervision of Financial Entities."

By indicating that the note reporting the chosen option must be presented no later than the 31st of the current month, we salute you very respectfully.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Juan Carlos Isi Alfredo A. Besio
Submanager of Standards for Submanager of Standards for Financial Entities Financial Entities

ANNEXES

ANNEX I to
Com. "A" 2136
RISK VALUE WEIGHTING TABLE
FOR NON-IMMOBILIZED ASSETS
Concept Weighting

• in % -

1. Liquidity
   1.1. B.C.R.A - current common and special accounts and demand deposits in US dollars; B.N.A.- Clearing houses in the interior; B.N.A. (New York branch) for demand placements under the regime of Communication "A" 1820 (first paragraph of Communication "A" 2120); other accounts computable for the integration of minimum cash in foreign currency; other special deposits at the Central Bank and payment orders at its charge; current, correspondent, or demand accounts at the head office of the local financial entity or at its branches in other countries 0
   1.2. gold and cash in vault (in pesos and/or other currencies) 0
   1.3. other current accounts, correspondent accounts, and other demand accounts in banks in the country, and in banks abroad included in the highest quality categories for investment ("investment grade") according to rating granted by an international rating agency (Moody's, Standard and Poors or equivalents) 15
   1.4. others 100
2. Public securities
   2.1. national, according to the weighted average remaining life of each security
   2.1.1. up to one year 0
   2.1.2. more than one year up to 5 years 15
   2.1.3. more than 5 years 30
   2.2. provincial and municipal 50

2.3. issued by companies of the governments mentioned in sections 2.1 and 2.2. 50
2.4. from abroad
2.4.1. included in the highest quality categories for investment ("investment grade") according to rating granted by an international rating agency (Moody's, Standard and Poors or equivalents) 20
2.4.2. others 100
3. Loans
3.1. with preferred guarantees
3.1.1. cash (pesos and US dollars) and gold 0
3.1.2. sureties of fixed-term money deposit certificates (in national or foreign currency) issued by the creditor entity itself 0
3.1.3. guarantee of the National Government (only with respect to operations valid as of 30.6.93) 0
3.1.4. automatic repayments of export letters corresponding to multilateral and bilateral reciprocal credit agreements and foreign trade 0
3.1.5. national public securities, according to the weighted average remaining life of each security
3.1.5.1. up to one year 0
3.1.5.2. more than one year up to 5 years 15
3.1.5.3. more than 5 years 30
3.1.5.4. appraised for that purpose at their nominal value, when the maturity of the operation coincides with the final cancellation date of said values or is subsequent to it (only with respect to operations valid as of 30.6.93) 0
3.1.6. first-degree mortgage
3.1.6.1. on real estate for owner-occupied housing that are subject to the encumbrance, when it concerns loans for their acquisition and improvement 50
3.1.6.2. on real estate, except for financings included in point 3.1.6.1. 75
3.1.7. fixed pledge with first-degree registration or with displacement to the entity
3.1.7.1. on motor vehicles (for private or commercial use) 50
3.1.7.2. on other goods 75
3.1.8. warrant 30
3.2. to the non-financial public sector
3.2.1. National Government (except companies) 0
3.2.2. others 50
3.3. to the financial sector
3.3.1. up to 45 days term 15
3.3.2. more than 45 days term 30
3.4. with guarantee of banks abroad included in the highest quality categories for investment ("investment grade") according to rating granted by an international rating agency (Moody's, Standard and Poors or equivalents) 30
3.5. documentary credits used, except deferred payment ones, whose shipping documentation has not yet been delivered to the client 50
3.6. up to the equivalent of $ 10,000 per holder, considering the set of operations in the entity (only in pesos and US dollars) provided that a lower weighting value does not apply, as provided in the preceding points 80
3.7. to the head office of the local financial entity or to its branches in other countries 0
3.8. others 100
4. Other credits by financial intermediation
4.1. with the Central Bank 0
4.2. with preferred guarantees
4.2.1. cash (pesos and US dollars) and gold 0
4.2.2. sureties of fixed-term money deposit certificates (in national or foreign currency) issued by the creditor entity itself 0
4.2.3. guarantee of the National Government (only with respect to operations valid as of 30.6.93) 0
4.2.4. national public securities, according to the weighted average life of each security
4.2.4.1. up to one year 0
4.2.4.2. more than one year up to 5 years 15
4.2.4.3. more than 5 years 30
4.2.4.4. appraised for that purpose at their nominal value, when the maturity of the operation coincides with the final cancellation date of said values or is subsequent to it (only with respect to operations valid as of 30.6.93) 0
4.2.5. first-degree mortgage 75
4.2.6. fixed pledge with first-degree registration or with displacement to the entity 75

4.3. negotiable obligations purchased and other debt securities -own issuances- 0
4.4. B.N.A. - overdrafts in Clearing houses in the interior 0
4.5. with the financial sector
4.5.1. up to 45 days term 15
4.5.2. more than 45 days term 30
4 6. with guarantee of banks abroad included in the highest quality categories for investment ("investment grade") according to rating granted by an international rating agency (Moody's, Standard and Poors or equivalents) 30
4.7. accrued financial lease rentals to be collected
4.7.1. linked to goods included in points 5.1. and 5.2. 50
4.7.2. linked to other goods 75
4.8. forward purchases of national public securities and foreign currency securities, linked or not with reverse repos, and their corresponding premiums to accrue
4.8.1. with a coverage margin of 20% or more in the traded asset or in fixed-term deposit certificates at the intervening entity itself 0
4.8.2. others 20
4.9. debtors from forward sales of national public securities and foreign currency securities, linked or not with reverse repos
4.9.1. with a coverage margin of 20% or more in the traded asset or in fixed-term deposit certificates at the intervening entity itself 0
4.9.2. others 20
4.10. spot purchases for settlement of national public securities, private securities, and others and foreign currency, and their corresponding premiums to accrue 0

4.11. debtors from spot sales for settlement of national public securities, private securities, and others and foreign currency 0
4.12. forward purchases of private securities and others, except national public securities, linked or not with reverse repos, and their corresponding premiums to accrue 50
4.13. debtors from forward sales of private securities and others, except national public securities, linked or not with reverse repos 50
4.14. to the head office of the local financial entity or its branches in other countries 0
4.15. matured spot purchases for settlement and forward purchases of national public securities, private securities, and others and foreign currency, linked or not with repos, in which the financial entity has already effected its performance and is pending receipt of the agreed counter-performance, regardless of the accounting registration modality used 100
4.16. other forward purchases, their corresponding premiums to accrue, and debtors from other forward sales 50
4.17. sureties and stock market repos
4.17.1. of national public securities 20
4.17.2. of other securities 50
4.18. others 100
5. Goods in financial lease
5.1. real estate for tenant's housing 50
5.2. motor vehicles (for private or commercial use) 50
5.3. other goods 75
6. Other non-immobilized assets, except those deducted to determine the integration of the required minimum capital 100

7. Guarantees, sureties, and other contingent liabilities ()
   7.1. deferred payment documentary credits whose shipping documentation has not yet been delivered to the client 50
   7.2. for fulfillment of contractual obligations and/or maintenance of offers 50
   7.3. others 100
   In the event that these operations have counter-guarantees, in replacement of the weighting values established in points 7.1., 7.2. and 7.3., those mentioned in point 4. shall be used when, according to the guarantee offered, they are lower than those. () These concepts (codes 711033, 715003, 715003 -insofar as they correspond to operations accounted for in accounts 721033, 725003 and 725033-, 711045 and 715045) shall be computed in accordance with what is established in the last paragraph of point 1.1. of the resolution.

ANNEX II to
Com. "A" 2136
RISK INDICATOR TABLE
FOREIGN CURRENCY OPERATIONS PESO OPERATIONS RISK INDICATOR Annual nominal Annual nominal Interest rate Interest rate In % In % Up to 18 up to 24 1,00 more than 18 to 21 more than 24 to 27 1,20 more than 21 to 24 more than 27 to 30 1,40 more than 24 to 27 more than 30 to 33 1,60 more than 27 to 30 more than 33 to 36 1,80 more than 30 to 33 more than 36 to 39 2,00 more than 33 to 36 more than 39 to 42 2,20 more than 36 to 39 more than 42 to 45 2,40 more than 39 to 42 more than 45 to 48 2,60 more than 42 to 45 more than 48 to 51 2,80 more than 45 to 48 more than 51 to 54 3,00 more than 48 to 51 more than 54 to 57 3,20 more than 51 to 54 more than 57 to 60 3,40 more than 54 to 57 more than 60 to 63 3,60 more than 57 to 60 more than 63 to 66 3,80 more than 60 to 63 more than 66 to 69 4,00 more than 63 to 66 more than 69 to 72 4,30

OPERATIONS IN FOREIGN CURRENCY OPERATIONS RISK INDICATOR IN PESOS Annual Nominal Interest Rate In % In % more than 66 to 69 more than 72 to 75 4.60 more than 69 to 72 more than 75 to 78 4.90 more than 72 to 75 more than 78 to 81 5.20 more than 75 to 78 more than 81 to 84 5.50 more than 78 more than 84 6.00 The charging or accrual of concepts that do not constitute a service effectively provided or genuine reimbursement of expenses, or the subscription and integration of shares in the case of entities of a cooperative nature, when they are associated -directly or indirectly- with the financing granted, is considered a component of the financial cost of the operation and, as such, added to the rate in order to determine the bracket of this table to which it is attributable.