Guaranteed Loans Issued by the National Government, Non-Market Public Securities, Provincial Development Trust Fund Promissory Notes, and Other Loans to the Non-Financial Public Sector: Valuation, Credit Risk Segmentation, and Limits

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION "A" 3911 28/03/2003
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 393
OPRAC 1 - 552
CONAU 1 - 564
Guaranteed Loans issued by the National Government under Decree 1387/01, non-market public securities, promissory notes issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, and other loans to the non-financial public sector.
Valuation. Segmentation of credit risk. Limits.

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We address you to inform you that this Institution issues the following resolution:

"1. Establish that "Guaranteed Loans" issued by the National Government within the framework of Decree 1387/01, public securities that had not been subject to a minimum capital requirement for market risk, promissory notes issued by the Fiduciary Fund for Provincial Development within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms, and other loans to the non-financial public sector, which entities hold in their portfolio or incorporate in the future, must be recorded at their present value according to the guidelines established in point 2 of this resolution or at their "technical value" - amount, updated if applicable, by the "Reference Stabilization Coefficient" plus accrued interest according to contractual conditions - whichever is lower.

Promissory notes that financial entities have received or will receive in exchange for compensation bonds in accordance with the option contained in Article 28 of Decree 905/02, may be maintained at their "technical value", with the application of present value according to the aforementioned provisions being optional. The exercise of this option will be definitive.

2. Establish that for the purpose of determining the present value of the portfolio included in point 1, starting from the March 2003 balances, the cash flows (amortization and interest) of the aforementioned instruments, according to the contractual conditions fixed in each case - including, if applicable, the accumulated accrual at the end of each month due to the application of the "Reference Stabilization Coefficient" -, will be discounted at the interest rates established in the following schedule:

Period
Nominal Annual Rate
March - December/03 3.00%
January - June/04 3.25%
July - December/04 3.50%
January - June/05 4.00%
July - December/05 4.50%
January - December/06 5.00%
January - December/07 5% + 0.5 (TM - 5%)
From January 2008 TM

where:
TM: average market rate - expressed as a percentage - to be reported by this Institution, determined based on internal rates of return arising from quotations in the market for national public securities of similar average life ("modified duration"), grouped in tranches (zones) according to that term.

For the purpose of calculating the present value, the number of calendar days from each month-end to the maturity of each amortization and/or interest payment service will be considered.

3. Establish that the sum of the differences between the present value determined for March 2003 for each instrument included, according to the preceding points or the technical value - whichever is lower - and the respective "theoretical values" as defined in point 4 of this resolution, will be reflected in an asset regularization account to be enabled for this purpose, to the extent that the final result is positive. If the result is negative, it will be charged to results.

Monthly, the balance yielded by this account will be adjusted based on the amount determined by performing the calculation of the sum of differences between said concepts until exhausted. If there is an unapplied remainder, it will be charged to results.

Once said balance is exhausted, differences - positive or negative - subsequently recorded due to valuation according to the "present value" criterion will be charged directly to results.

4. Establish that the "theoretical value" of the instruments to be considered for these purposes will be the balance registered in accounting on 28.2.03, taking into account the specific application guidelines for certain instruments detailed below:

i) Guaranteed Loans issued within the framework of Decree 1387/01:
The theoretical value will result from considering the balance registered in accounting - principal for each instrument net of the asset regularization account according to point 4 of Communication "A" 3366 (accounts 131140 and 131193, respectively).

At the end of each month, if applicable, the amount of the theoretical value - net of the proportion of amortizations that would have corresponded - will be updated by the "Reference Stabilization Coefficient".

As a consequence of the new valuation procedure, in March 2003, the balance registered in that regularization account (code 131193) must be reversed.

ii) Promissory notes issued by the Fiduciary Fund for Provincial Development within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms.
The theoretical value to be considered will be the amount at which the respective instruments delivered in exchange were registered, updated, if applicable, by the "Reference Stabilization Coefficient" at the end of each month, considering the proportion of amortizations that would have corresponded.

iii) Others.
If applicable, it will be updated by the application of the "Reference Stabilization Coefficient", considering any amortizations.

5. Substitute, with effect from 1.4.03, point 3.4.1 of Section 3 of the norms on "Minimum Capital of Financial Entities" with the following:

"3.4.1. Individual and consolidated monthly bases.
The concepts included will be computed based on the monthly averages of daily balances of the month preceding that corresponding to the determination of the requirement (principal, interest, premiums, and quotation differences, as applicable, net of provisions for uncollectible risk and devaluation and of accumulated depreciation and amortization attributable to them and other regularization accounts, without deducting 50% of the minimum required amount of the provision for uncollectible risk on the portfolio corresponding to debtors classified as "in normal situation" or "normal compliance" and financings covered with preferred guarantees "A")."

6. Substitute, with effect from 1.04.03, in Annex II to Communication "A" 2140 what was established by point 1 of Communication "A" 2150, with the following:

"1... public securities, except for the Letters of the Central Bank of the Argentine Republic "LEBAC"."

7. Incorporate, with effect from April 2003, in Annex II to Communication "A" 2140 immediately after point 3, the following:

"... Limits of operations with the non-financial public sector.
Financings to the non-financial public sector - National, provincial, municipal, and Autonomous City of Buenos Aires governments, including the central administration, ministries, secretariats, and their decentralized and autonomous departments and other entities - regardless of their form of instrumentation, may not exceed, at any time, the percentages indicated below, which must be applied to the entity's computable net worth (RPC) of the last day of the month preceding that corresponding:

i) Total operations with the national public sector: 50% of RPC.
Within this limit are included financings granted to governments of other jurisdictions that have a guarantee of federal tax sharing.

ii) Total operations with each provincial jurisdiction and with the Autonomous City of Buenos Aires that must have a guarantee of local revenue or pledge or be instrumented in the form of financial leasing ("leasing"): 10% of RPC.

Within this limit are included financings granted to municipal governments of the respective jurisdiction that have a guarantee of provincial tax sharing, and those included in item i) are excluded.

iii) Total operations with each municipal jurisdiction that must have a guarantee of local revenue or pledge or be instrumented in the form of financial leasing ("leasing"): 3% of RPC.
The total of financings granted to the aforementioned jurisdictions may not exceed 15% of RPC. For the purpose of computation, financings included in item ii) will be excluded.

iv) The total of operations included (items i) to iii)): 75% of RPC."

8. Establish that excesses to the ratios referred to in point 7 of this resolution and 2.2.1. of Annex II to Communication "A" 2140 originating exclusively from the application of the new limits and conditions for computing financings, will not constitute non-compliance to the extent that the excesses arise from operations pre-existing to 31.3.03 or are determined or increased by the receipt of compensation bonds or promissory notes in accordance with Articles 28 and 29 of Decree 905/02 or by those that may be received subsequently due to the application of other specific provisions, after that date, derived from Law 25.561 on Public Emergency and Exchange Regime Reform.

Excesses registered in the case of new operations will also not be considered non-compliance, provided they originate - solely and exclusively - in the granting of financings to the non-financial public sector with funds from amortization services or partial or total payments of owed capital, considering the effect of the application of the "Reference Stabilization Coefficient" ("CER"), if applicable, or of the modification of the peso equivalent in the case of foreign currency operations, without prejudice to the observance of the collection referred to in subsection c) of point 9 of this resolution and, potentially - according to the analysis performed - of what is provided in subsections a) and b).

However, financings may not be agreed upon in cases where the ratio of included operations with respect to the RPC determined on 31.3.03 is exceeded, due to decreases in the latter parameter, until such time as that ratio is re-established, computing for this purpose the effect of the "CER" and the variation in the exchange rate.

Holdings of Provincial Obligation Cancellation Letters (LECOP) and Treasury Letters for Cancellation of Obligations of the Province of Buenos Aires called "Patacón" will not be computed for the purpose of determining the limits established in point 7 of this resolution, with the first paragraph of point 2 of Communication "A" 3354 - text according to Communication "A" 3504 - being applicable, nor in point 2.2.1. of Annex II of Communication "A" 2140.

Taking into account the entry into force date of the new limits for assistance to the non-financial public sector, entities must consider - for the purpose of determining ratios on 31.3.03 - the operations included according to the established definitions, computing the amounts - with respect to nominal values or effectively disbursed - arising from the application of the "Reference Stabilization Coefficient" and by variations in the exchange rate, in the case of foreign currency operations.

9. Provide that, from 1.4.03, financial entities may grant new financial assistance to the non-financial public sector provided that all of the following conditions are met, except in situations where the provision of the second paragraph of the preceding point 8 applies:

a) Observance of credit limits (risk concentration and ratios according to point 7 of this resolution). b) The allocation for any concept of tax revenue (federal and local) and/or royalty collection by the lending provincial and municipal jurisdictions does not exceed, on the date of evaluation of the operation - considering the new financing - 40% of the total of those revenues. This requirement will not be demanded in operations with pledge guarantee or financial leasing operations ("leasing", agreed according to the terms of Law 25.248) on utility vehicles and machinery susceptible to registration in the national motor vehicle property registries. c) Compliance with the procedure previously provided for in Section 4 of the norms on "Financing to the non-financial public sector", for which the validity of the cited Section (Communication "A" 3144) is re-established.

10. Substitute, with effect from 1.4.03, the title of point 3 of Annex II to Communication "A" 2140 with the following:

"3. Limits of operations with the clientele (except non-financial public sector)."

11. Repeal, with effect from 1.4.03, the following:

• the last paragraph of point 5 of Annex II to Communication "A" 2140 - text according to Communication "A" 2932-.
• the third paragraph of point 2.1. of Annex II to Communication "A" 2140 - text according to Communication "A" 2150-.
• the second paragraph of point 2. of Communication "A" 3354 - text according to Communication "A" 3504-.
• point 3.9. of Annex II to Communication "A" 2140 - text according to Communication "A" 2150-.
• points 2. and 4. of Communication "A" 3366.
• points 2. and 3. of Communication "A" 3280.

12. Establish, with effect from 1.1.06, that monthly assistance to the national, provincial, and municipal non-financial public sector for any concept, computed on average, with the exception of operations with the Central Bank, may not exceed 40% of the total assets of the last day of the previous month.

In cases where the aforementioned limit is exceeded, 100% of the excess will determine an equivalent increase in the minimum capital requirement."

We will subsequently send you the sheets that should be incorporated into the ordered texts of the norms on "Minimum Capital of Financial Entities" and "Financing to the non-financial public sector".

We salute you very respectfully.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio José Rutman
Manager of Issuance Principal Manager of Norms of Norms