2020 – YEAR OF GENERAL MANUEL BELGRANO

COMMUNICATION “A” 6938 19/03/2020

TO:

• Financial entities
• Reciprocal guarantee societies
• Non‑financial companies issuing credit cards
• Credit portfolio administrators of former financial entities
• Trustees of financial trusts covered by the Financial Entities Law
• Public‑character guarantee funds
• Other non‑financial credit providers
• Non‑financial companies issuing purchase cards

Reference: Circular

• LISOL 1‑868
• OPRAC 1‑1010
• CONAU 1‑1394

Classification of debtors. Credit management. Credit grading. Minimum provisions for uncollectibility risk. Adjustments

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

1. With effect until 30 September 2020, for the purpose of the debtor classification provided in the regulations on “Classification of Debtors”, financial entities and other obligated parties must increase by 60 days the admitted delinquency periods for levels 1, 2 and 3, both for the commercial portfolio and for the consumer or housing portfolio. The Central Bank will subsequently publish a schedule so that financial entities gradually classify their debtors according to the delinquency criteria that existed before this communication.

2. Set a 10 % cancellation of the amount involved in payment agreements resulting from judicial or extrajudicial concordats that are due, or private arrangements jointly concluded with creditor financial entities, as provided in sub‑paragraph vi) of point 6.5.2.1, the first paragraph of point 6.5.3.6, the second paragraphs of points 7.2.2.1 (text according to the present resolution) and 7.2.3 of the regulations on “Classification of Debtors”.

3. Replace point 3.3.3 of the regulations on “Classification of Debtors” with the following:

   3.3.3. The exercise of the option to group commercial‑nature financings up to the equivalent of twice the reference amount established in point 3.7, whether or not they have preferred guarantees, together with consumer or housing credits.

4. Substitute point 5.1.1.1 and the first paragraph of point 5.1.1.2 of the regulations on “Classification of Debtors” with the following:

   5.1.1.1. Consumer or housing credits. Credits of this class that exceed the equivalent of twice the reference amount established in point 3.7 and whose repayment is not linked to fixed or periodic client income but to the evolution of the client’s productive or commercial activity shall be included within the commercial portfolio.

   5.1.1.2. At the entity’s option, commercial‑nature financings up to twice the reference amount established in point 3.7, whether or not they have preferred guarantees, may be grouped together with consumer or housing credits, in which case they will receive the treatment provided for the latter.

5. Replace point 5.1.2.4 of the regulations on “Classification of Debtors” with the following:

   5.1.2.4. Commercial‑nature financings up to twice the reference amount established in point 3.7, whether or not they have preferred guarantees, when the entity has opted for it.

6. Replace point 6.3.2 of the regulations on “Classification of Debtors” with the following:

   6.3.2. In each calendar semester, for individually considered clients whose financings sum at any moment to between 1 % and twice the reference amount established in point 3.7 (the lower end) – and less than 5 % of the computable equity responsibility or of the financial trust’s assets of the month preceding the end of that period, as applicable to entities or financial trusts respectively – the connected counterpart group shall be treated as a single client.

   At the close of the first calendar semester, the examination must have covered at least 50 % of the total amount of the commercial portfolio considered, counting the clients referred to in point 6.3.1. If necessary to reach that value, the review will be completed with clients whose financings are below 1 % of the cited computable equity responsibility or of the financial trust’s assets, or below twice the reference amount established in point 3.7, following a decreasing order based on magnitude.

7. Incorporate as points 6.5.2.3 and 7.2.2.2 in the regulations on “Classification of Debtors” the following:

   Special treatment. For refinancings granted for the first time within the calendar year and once the first installment of such refinancing has been paid, the client may be re‑classified once only in this situation. After the cited refinancing and for classification purposes, only the delinquency in the delay of its obligations shall be taken into account.

   For subsequent refinancings, the general treatment provided in these provisions shall apply.

8. Suspend, until 30 September 2020, the application of points 6.6 and 7.3 of the regulations on “Classification of Debtors”.

9. Replace the last paragraph of subsection ii) of sub‑paragraph b) of point 1.1.3.3 of the regulations on “Credit Management” with the following:

   – For SMEs and legal persons not linked to the entity, the capital owed may never, at any time, exceed the equivalent of the reference amount established in point 1.10 in total.

10. Replace point 2.2.10 of the regulations on “Credit Grading” with the following:

    2.2.10. Loans (net of amortizations) to natural or legal persons or groups of connected counterparties not linked, which, in total per client, do not exceed twice the reference amount established in point 2.3.

11. Replace point 2.1.1 of the regulations on “Minimum Provisions for Uncollectibility Risk” with the following:

    2.1.1. General criterion. On the total debts of clients, according to the classification that must be assigned, the following minimum provisioning guidelines shall apply:

    Category	With preferred guarantees	Without preferred guarantees
    1. Normal situation (points 6.5.1 and 7.2.1 of the “Classification of Debtors” rules)	1 %	1 %
    2a. Under observation and low risk	3 %	5 %
    2b. In negotiation or with refinancing agreements	6 %	12 %
    2c. Special treatment (points 6.5.2.3 and 7.2.2.2)	8 %	16 %
    3. With problems and medium risk	12 %	25 %
    4. With high insolvency risk and high risk	25 %	50 %
    5. Irrecoverable	50 %	100 %

12. Establish for financial entities of Group “A”, for the determination of computable equity responsibility (CER), that the positive difference generated between the new accounting provision computed according to point 5.5 of IFRS 9 and the “regulatory” provision calculated according to the “Minimum Provisions for Uncollectibility Risk” rules, or the accounting provision corresponding to the balance of accounts as of 30 November 2019 – whichever is greater – may be counted as Tier 1 ordinary capital (COn1).

13. Postpone until 1 January 2021 for financial entities of Group “B” the application of point 5.5 of IFRS 9 – established by Communication “A” 6430 – and consequently the prorating methodology that results from the application of that point – established by Communication “A” 6847.

We also inform you that we will subsequently send the sheets that, replacing those previously provided, must be incorporated into the referenced regulations.

Respectfully,

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA

Enrique C. Martín – Matías A. Gutiérrez Girault

Sub‑Manager of Norms Issuance

Manager of Norms Issuance