Minimum Capital of Financial Entities. Valuation of Public Sector Assets. Elimination of Update by 'CVS' — BCRA — AR

"2004 - Year of the Argentine Antarctic"
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION “A” 4180 30/07/2004
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 428
CONAU 1 - 665
OPRAC 1 - 575
Minimum Capital of Financial Entities. Valuation of Public Sector Assets. Elimination of Update by “CVS”.

We address you in order to adapt the regulations on "Minimum Capital of Financial Entities", as well as the last paragraph of point 2. of the regime for Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector, in accordance with Article 4° of Law 25.713 (modified by Law 25.796). Likewise, we take this opportunity to correct an error in the page numbering of Section 6. of the regulations on "Minimum Capital of Financial Entities" (from page 6.). We send you attached the update of the regime for Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector (attachment to Communication “A” 4163) and the sheets that, in replacement of those previously provided, must be incorporated into the ordered text of the regulations on "Minimum Capital of Financial Entities". We salute you very attentively. BANCO CENTRAL DE LA REPUBLICA ARGENTINA Alfredo A. Besio José Rutman Manager of Issuance Manager of Standards Principal Manager of Standards

ANEXO

B.C.R.A.
Valuation of Guaranteed Loans issued by the National Government and other debt instruments of the non-financial public sector.
(Text updated according to Communications “A” 3911, 4084, 4114, 4155, 4163, 4180 and “B” 7782 and 8131) Attachment to Com. “A” 4180

Establish that the following assets held by entities in their portfolio or incorporated in the future shall 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:
a) “Guaranteed Loans” issued by the National Government within the framework of Decree 1387/01. b) Public titles that have not been subject to minimum capital requirements for market risk due to not meeting the established requirements, habitual quotation in markets for relevant transactions, etc. -except for the instruments detailed in subsection v)-. Holdings of new issuances of national public titles are also included, as long as their volatility is not reported. c) 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. d) “Guaranteed Bonds” issued by the Fiduciary Fund for Provincial Development received within the framework of Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms. The use of this valuation method is optional -in place of market value- and cannot be used for incorporations not linked to the provisions cited above. This choice may be subsequently modified by the “market value” criterion, which, once used, must encompass the entire portfolio and has the character of a definitive option. Promissory notes that financial entities have received or receive in exchange for compensation bonds according to the option contained in Article 28 of Decree 905/02, may be maintained at their “technical value”, with the application of present value being optional according to the provisions above. The exercise of this option has definitive character. Assets delivered as collateral for advances granted by the Central Bank of the Republic of Argentina for the subscription of bonds provided for in Articles 10, 11 and 12 of Decree 905/02, ratified by Article 71 of Law 25.827, may be excluded from the previous treatment, at the definitive option of the entities -in part or for the total of the advances - given the provisions of Article 17 of the aforementioned decree, in which case they will be recorded by the value admitted for the purposes of the constitution of the guarantees updated, if applicable, by the “Reference Stabilization Coefficient”. Consequently, this valuation criterion is not applicable in the following cases:
i) Titles that entities have accounted for in investment accounts and maintained the corresponding capital requirement. ii) Compensation bonds received in accordance with Articles 28 and 29 of Decree 905/02 and Chapter II of Law 25.796 (Annex II to Decree 117/04) which may be maintained at technical value (point 3.6. of Section 3. of the regulations on “Holdings of securities in investment accounts”).

iii) Titles that must be valued according to their market quotation. iv) Bills and other titles issued by the Central Bank of the Republic of Argentina. v) External Bills of the Argentine Republic in US dollars “Encuesta + 4.95% 2001-2004” and “Badlar + 2.98% 2001-2004”, “Tax Credit Option Certificates”, “Fiscal Credit Certificates”, including coupons issued within the framework of Decree 979/01, and other instruments of the non-financial public sector that are matured and unpaid. All these instruments, from January 2004, will be recorded at the accounting value as of 31.12.03 or by the amount obtained -if this is lower- by applying to the corresponding nominal value for that date, in case net of write-downs or of the proportional part of transformation into tax options that might be exercised subsequently, of the lowest percentage resulting from the net present value method regarding the assets covered by this criterion -currently, subsections c) and d) of this point.- For the purposes of determining the accounting value as of 31.12.03 and the nominal value -corresponding to capital- on that date, accrued interest since December 2001 will not be included. In the case of titles originally issued in foreign currency that have been converted to pesos, for these purposes the nominal value re-expressed in national currency will be considered, updating both amounts -accounting and nominal- by the “Reference Stabilization Coefficient” if its application was foreseen.

Establish that for the purposes 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 -contemplating, if applicable, the accumulated accrual at the end of each month by 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/04 3.29 %
August/04 3.33 %
September/04 3.37 %
October/04 3.41 %
November/04 3.46 %
December/04 3.50 %
January/05 3.54 %
February/05 3.58 %

Period Nominal annual rate
March/05 3.62 %
April/05 3.66 %
May/05 3.71 %
June/05 3.75 %
July/05 3.79 %
August/05 3.83 %
September/05 3.87 %
October/05 3.91 %
November/05 3.96 %
December/05 4.00 %
January/06 4.08 %
February/06 4.15 %
March/06 4.23 %
April/06 4.31 %
May/06 4.39 %
June/06 4.47 %
July/06 4.56 %
August/06 4.64 %
September/06 4.73 %
October/06 4.82 %
November/06 4.91 %
December/06 5.00 %
January/07 5% + 0.04*(TM-5%)
February/07 5% + 0.08*(TM-5%)
March/07 5% + 0.13*(TM-5%)
April/07 5% + 0.17*(TM-5%)
May/07 5% + 0.21*(TM-5%)
June/07 5% + 0.25*(TM-5%)
July/07 5% + 0.29*(TM-5%)
August/07 5% + 0.33*(TM-5%)
September/07 5% + 0.38*(TM-5%)
October/07 5% + 0.42*(TM-5%)
November/07 5% + 0.46*(TM-5%)
December/07 5% + 0.50*(TM-5%)
January/08 5% + 0.58*(TM-5%)
February/08 5% + 0.66*(TM-5%)
March/08 5% + 0.75*(TM-5%)
April/08 5% + 0.83*(TM-5%)
May/08 5% + 0.92*(TM-5%)
From June/08 TM

where:
TM: average market rate -expressed in percentage- that this Institution will report determined based on the internal rates of return arising from the quotations in the market of national public titles of similar average life (“modified duration”), grouped in tranches (zones) according to that term. For the calculation of the present value, the number of calendar days from each month-end to the maturity of each amortization and/or interest service will be considered. The interest rate assigned for each period of the previous schedule will be the only one that must be used to calculate the present value of the entire cash flow of the assets included, in case in each of the months of the corresponding periods, regardless of the dates on which the pertinent services and/or payments mature. In the case of instruments denominated in pesos that do not contemplate update clauses, for the purposes of calculating the present value, the implicit inflation rate used to adjust the flows of assets and liabilities updateable by CER in the determination of the minimum capital requirement for interest rate risk will be added -as a multiplicative factor- to the nominal rates provided for each period.

Establish that the sum of the differences between the present value determined for March 2003 -or subsequent periods- for each instrument included, according to the preceding points or the technical value -the lower- and the respective “theoretical values” as defined in point 4. of this resolution, will be reflected in an asset regularization account that will 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 resulting from that account will be adjusted based on the amount determined by performing the calculation of the sum of the differences between these concepts until exhausted. If there is an unapplied remainder, it will be charged to results. Once this balance is exhausted, the differences -positive or negative- subsequently recorded by the valuation according to the “present value” criterion will be charged directly to results. When amortizations of the instruments occur, if there is a balance in the regularization account, it will be adjusted with a counterpart in results by up to the amount obtained by applying the proportion represented by the amortization, calculated on the nominal value, to the difference between the accounting value (present or technical value, the lower) and the theoretical value of the instrument. Updates by the Reference Stabilization Coefficient “CER” that, if applicable, are applied to the theoretical values and the accrued interest according to the issuance or contractual conditions of the instruments will be charged to results. In the cases of incorporations of included assets subsequent to 28.2.03, without prejudice to the observance of the applicable regulations, the registration of the differences resulting from the application of the procedure referred to in this point will be made in a specific regularization account, distinct from that used to reflect the effects of the calculations regarding holdings as of 28.2.03.
Establish that the “theoretical value” of the instruments that will be considered for these purposes will be the result of applying the guidelines detailed below:

a) Holding as of 28.2.03:
i) Guaranteed Loans issued within the framework of Decree 1387/01:
The balance registered as of 28.2.03 in the accounting -capital- for each instrument net of the asset regularization account according to point 4. of Communication “A” 3366 (accounts 131140 and 131193, respectively) will be considered. 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” adding the corresponding accrued interest according to contractual conditions, to establish the respective theoretical value. 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 or Bonds (according to option) 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. Initially, the amount at which the respective instruments delivered in exchange were registered as of 28.2.03 will be considered, updated, if applicable, by the “Reference Stabilization Coefficient” at the end of each month, considering the proportion of amortizations that would have corresponded and adding the corresponding accrued interest according to issuance conditions. iii) Others. If applicable, it will be updated by the application of the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to issuance or contractual conditions. b) Subsequent incorporations after 28.2.03:
The incorporation value in the asset will be considered, which, if applicable, will be updated by the “Reference Stabilization Coefficient”, considering eventual amortizations and adding the corresponding accrued interest according to issuance or contractual conditions.

Provide that the debt instruments that financial entities receive within the framework of the Mortgage Refinancing System -Law 25.798-, shall be recorded at their present value according to the guidelines established in point 2., without exceeding the technical value.
Initially, the difference between the present value and the corresponding nominal value will be charged against the regularization account enabled for these instruments. Subsequently, the valuation differences arising each month by the application of the present value method will also be charged against the regularization account or, in its absence, once the balance is exhausted, directly to results.

From the moment that the bonds received for matured and unpaid installments have normal and habitual quotation -that is, when the Central Bank communicates their volatility for the purposes of determining the minimum capital requirement for market risk-, they will be valued according to their market value, and the balance of the regularization account must be removed with a counterpart in results, in the proportion they represent with respect to the total nominal value received for this concept -60%, 40% or 100%, depending on whether it is the bond with maturity of 2.5 years, 10 years or both, respectively-.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 3. Minimum capital for credit risk.
Version: 8th Communication “A“ 4180
Validity:
30/07/2004
3.3.3.4. In the case of guarantees granted locally, counter-guarantees extended by the head office or its branches in other countries or by the controlling entity from abroad must exist, whose effectiveness operates in an unrestricted manner upon simple request of the local branch or subsidiary and in no immediate manner upon its eventual execution by the beneficiary.
3.4. Computation of assets.
3.4.1. Individual and consolidated monthly basis.
The concepts included will be computed on the basis of monthly averages of daily balances of the month prior to that corresponding to the determination of the requirement (capital, interest, premiums, updates -by the Reference Stabilization Coefficient “CER”- 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 “in normal situation” or “normal compliance” and financings that are covered with preferred guarantees “A”).
3.4.2. Consolidated quarterly basis.
The balances at the end of the quarter will be considered, applying the corresponding provisions established in other aspects.
3.5. Risk weights.
3.5.1. Values.
The established in the corresponding table will be applied.
3.5.2. Criteria for application.
3.5.2.1. In the case that the same operation presents attributes subject to different risk weights, the asset will be weighted by the lowest of them.
3.5.2.2. In the case that the included contingent liabilities have counter-guarantees, in place of the weighting values established for them, those fixed for loans with preferred guarantees will be used when these, according to the received guarantee, are lower.
3.5.2.3. When the market value of the received guarantees and counter-guarantees does not cover the amount of the assistance granted, the coverage defect will be weighted at 100%.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 5. Minimum capital for interest rate risk.
Version: 6th Communication “A” 4180
Validity:
30/07/2004
5.1. Requirement.
It will be equivalent to the result of the following expression:
VaRR = {Máx {(VAN p rp - VAN p rp’) * σ p

(VAN
me r me - VAN me r me’) * σ me
; 0} * 100 + |VAN aj rp|* σ aj
}
C
*
VAN p rp + VAN me r me + Σ (A - P) where
VaRR: requirement based on risk due to interest rate variations.
VAN p rp: present value of net assets of liabilities for financial intermediation in pesos, discounted at the discount rate rp.
VAN p rp’
: present value of net assets of liabilities for financial intermediation in pesos, discounted at the discount rate rp’.
σ p
: interest rate risk in pesos as a percentage, to be fixed by the Central Bank of the Republic of Argentina. Initially it will be equal to 0.10. VAN me r me: present value of net assets of liabilities for financial intermediation in foreign currency, discounted at the discount rate r me. VAN me r me’ : present value of net assets of liabilities for financial intermediation in foreign currency, discounted at the discount rate r me’. σ me : interest rate risk in US dollars as a percentage, to be fixed by the Central Bank of the Republic of Argentina. Initially it will be equal to 0.03. | VAN aj rp |: present value of assets updateable by the Reference Stabilization Coefficient “CER”, net of liabilities updateable by “CER” for financial intermediation in pesos, discounted at the discount rate rp, in absolute value. σ aj : risk of mismatch between the discount rate rp and the “CER”, as a percentage, to be fixed by the Central Bank of the Republic of Argentina. Initially it will be equal to 0.03. C: net equity at the end of the month to which the assets and liabilities covered by the requirement correspond.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 5. Minimum capital for interest rate risk.
Version: 6th Communication “A” 4180
Validity:
30/07/2004
A : assets at the end of said month not included in the calculation of the requirement.
P : liabilities at the end of said month not included in the calculation of the requirement.
The result of the last factor of the expression that allows converting the calculated requirement in terms of present values to accounting values comparable with the integration cannot be negative. In the case of yielding a negative result, it will be replaced by a value equal to 2. The maximum value will be 2 when the result of this ratio is positive. For the purposes of determining the “VAN aj rp”, the Central Bank of the Republic of Argentina will announce the rate by which future cash flows of assets and liabilities updateable by “CER” will be adjusted, which will take into consideration the implicit yields of the auctions of the Bills of the Central Bank of the Republic of Argentina in pesos and in pesos adjustable by “CER” or other parameters that are representative. These cash flows must be assigned to the time bands based on contractual maturities.
5.2. Present values.
The present values of net assets of liabilities for financial intermediation will be obtained with the following formulas:
VAN p rp = Σi
[FFAN p i
/ (1 + rp/12) mi
]
VAN p rp’ = Σi
[FFAN p i
/ (1 + rp’/12) mi
]
VAN me r me = Σi
[FFAN me i
/ (1 + r me/12) mi
]
VAN me r me’= Σi
[FFAN me i
/ (1 + r me’/12) mi
] where i : subscript indicating the corresponding time band established for the grouping of cash flows.
FFAN p i
: cash flow of net assets of liabilities for financial intermediation in pesos corresponding to time band i.
FFAN me i
: cash flow of net assets of liabilities for financial intermediation in foreign currency corresponding to time band i. mi : midpoint of the time band, expressed in months. rp : average deposit rate in pesos of 30 to 59 days of the month to which the assets and liabilities covered by the requirement correspond, according to the daily survey of the Central Bank of the Republic of Argentina, as a percentage. rp’ : rp plus 0.01.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 5. Minimum capital for interest rate risk.
Version: 5th. Communication "A" 4180
Effective Date:
30/07/2004

5.5. Computation of included concepts.
The assets and liabilities included from the same month as those considered to determine the minimum capital requirement for credit risk shall be taken into account. Foreign currency assets and liabilities shall be converted to United States dollars according to the exchange rate on the last business day of the month to which they correspond. Cash flows shall comprise principal, interest, updates -by the "CER" (Reference Stabilization Coefficient)- and other accessories. In the case of loans, the principal and interest flow to maturity shall be taken -considering, with respect to the latter, the suspension of their accrual regarding loans where this option has been chosen- net of the application of the percentages for provision for uncollectible risk. In the case of borrowers classified as "in normal situation" or "normal compliance" and financings that are covered with preferred guarantees "A", only 50% of the required amount shall be deducted. To this end, the cash flows for financings to be allocated in each time band shall be considered net of the provisions for uncollectible risk that are computable, taking into account the resulting proportion according to the borrower's classification for the month to which the requirement calculation corresponds. Positions in each computable asset, not subject to minimum capital requirement for market risk, shall be determined according to the methodology referred to in point 6.5.3. of Section 6.

5.6. Allocation to time bands.
5.6.1. Fixed rate operations.
5.6.1.1. General criterion.
The cash flows of these operations shall be allocated to time bands according to their contractual status.
5.6.1.2. Special criteria.
A treatment different from the contractual status shall be given to the following concepts:
i) 50% of the average of the balances of current account deposits and savings accounts for the month to which the "VaRR" calculation corresponds, excluding from this latter concept the accounts "Unemployment Fund for Workers in the Construction Industry" and "Payment of Remuneration".

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 5. Minimum capital for interest rate risk.
Version: 5th. Communication "A" 4180
Effective Date:
30/07/2004

iii) The remaining variable rate assets referenced to a local indicator and the assets updateable by "CER", at the option of each entity, shall be subject to the following treatment:
a) Individual computation.
When their residual term is up to one year (except for assets updateable by "CER"), the same treatment as that provided for variable rate liabilities based on a local indicator (paragraph i) of point 5.6.3.1.) shall be applied to them. In the case of assets with a residual term greater than one year, 60% of the balance shall be allocated to the period corresponding to the first rate review and the remainder, according to the term and type of amortization, in accordance with the table inserted in paragraph c). If they are assets updateable by "CER" with a residual term of up to one year, what is provided in the second paragraph of paragraph ii) of point 5.6.3.1. shall be applied. When the residual term of the aforementioned assets is greater than one year, 60% of the balance shall be allocated to the time band corresponding to the first month and the remainder in accordance with the table inserted in paragraph c). b) Global computation by line. Financings corresponding to the same credit line (mortgage loans, pledge loans, personal loans, etc.), may be considered globally for each of them and their respective cash flows allocated according to the following criterion:

60%: to the time band corresponding to the third month, regardless of the period in which the first rate review is due.
The remainder: in accordance with the table inserted in paragraph c), considering the average residual term of the respective portfolio.
When the average residual term of each portfolio is equal to or less than one year, all of its cash flows shall be allocated to the time band corresponding to the sixth month.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 6th. Communication "A" 4172
Effective Date:
15/07/2004

6.4. Value at risk of foreign currency positions.
6.4.1. Included positions.
Net positions for each foreign currency shall be determined considering all assets and liabilities in said currencies, in accordance with the methodology established in point 6.5.3. The gold position shall also be included. Foreign currency positions that, considered individually at the close of operations each day, are less than the equivalent to $ 300,000 may be excluded. This exclusion shall not be appropriate when the set of computable foreign currencies exceeds, at the close of operations each day, the equivalent to $ 1,500,000.

6.4.2. Calculation of value at risk.
i) Value at risk of the position in currency i, VaRi VaRi = Vi * k * σi * Ti ½ (17) Where Vi : position in currency i, expressed in pesos using the reference exchange rate published by the BCRA for the United States dollar, prior to the application of the corresponding swap rate for other currencies. K : factor that expresses the considered risk level. σi : value of the standard deviation of the change in the daily quotation of the currency against the peso. Ti : time necessary to unwind the position. ii) The values at risk of the positions shall be summed, obtaining:
VaRME-F = Σ VaRi
(18) iii) Additional value at risk of options. For bought and sold options on each considered currency, the gamma risk and vega risk shall be additionally calculated, according to the following expression:
VaRoi = Rgoi + Rvoi (19)
Rgoi = | mín ( 0 ; Σ gammaj * (dPi
2
) / 2 ) | (20)

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 6th. Communication "A" 4172
Effective Date:
15/07/2004

Rvoi = | Σ vegaj * 25 σi * (252
0.5
) | (21)
Where
VaRoi
: value at risk of the options portfolio on currency i.
Rgoi
: gamma risk of the options portfolio on currency i.
Rvoi
: vega risk of the options portfolio on currency i. gammaj : value of the gamma coefficient of option j, expressed as the change in the delta coefficient of the option before a change of 1 peso in the price of the underlying asset. vegaj : value of the vega coefficient of option j, expressed as the change in the value of the option before a 1% change in the annual volatility of the underlying asset. dPi = k * σi * Pi * Ti 1/2 , where Pi is the quotation of currency i. Both the gamma coefficient and the vega coefficient of the options shall take into account the number of units of the underlying asset to which each option refers. The additional value at risk for the options portfolio shall result from the sum of the values at risk for each currency:
VaRo = Σ VaRoi
(22) iv) The total foreign currency value at risk shall be equal to:
VaRME = VaRME-F + VaRo (23)

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 5th. Communication "A" 4172
Effective Date:
15/07/2004

6.5. Definitions and values.
6.5.1. Usual quotation.
The included assets must have a usual quotation in the markets, which arises daily from relevant transactions in whose amount the eventual liquidation of the assets in question cannot significantly distort their market value.

6.5.2. Excluded operations.
"Swaps" and other derivatives on assets not covered by this regulation shall be excluded from portfolios subject to the calculation of their value at risk, provided that such operations aim to cover risks of financial intermediation operations, without prejudice to the fact that the contracting of such contracts must be reported to the Superintendency of Financial and Currency Entities in the form and opportunity established. Assets that must be deducted for the purposes of calculating the computable net worth shall also not be computed.

6.5.3. Position in each asset (Vi).
Opposite positions in the same instrument may be netted.
The resulting net position must show the exposure that the entity has in each considered asset, therefore it shall be constituted by (signs are shown in parentheses):
Cash holdings (+)
Spot purchases to be settled and forwards (+)
Spot sales to be settled and forwards (-)
Forwards purchases linked to passive swaps (+) Forwards sales linked to active swaps (-) Purchase of call options (notional value multiplied by the delta of the option) (+) Sale of call options (notional value multiplied by the absolute value of the delta of the option) (-) Purchase of put options (notional value multiplied by the absolute value of the delta of the option) (-) Sale of put options (notional value multiplied by the delta of the option) (+)

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 5th. Communication "A" 4172
Effective Date:
15/07/2004

Securities lending, net of the provision for uncollectible risk, with the exception of 50% of the minimum amount required constituted on the portfolio corresponding to borrowers classified as "in normal situation" or "normal compliance" and that which is covered with preferred guarantees "A" (+) Securities deposits (-) Loans and other financings for financial intermediation in foreign currencies, net of the provision for uncollectible risk, with the exception of 50% of the minimum amount required constituted on the portfolio corresponding to borrowers classified as "in normal situation" or "normal compliance" and that which is covered with preferred guarantees "A" (+) Deposits and other obligations for financial intermediation in foreign currencies (-) Various credits in foreign currencies (+) Participations in other societies in foreign currency, not deductible from the computable net worth (+) Various obligations in foreign currencies (-) Subordinated obligations in foreign currencies (-) Pending items for allocation in foreign currencies (+ or -) If the result of the position is negative, it shall be considered a sold position; if positive, it shall be considered a bought position. For the determination of Vi , the nominal values of the bonds or shares included in each of the preceding operations shall be multiplied by the spot price of the asset.

6.5.4. Prices and calculation.
The calculation of the minimum capital requirement for market risk shall be carried out based on the positions that the entities hold at the close of operations of the day in the local market, using the prices in force at that moment. In case of not having a quotation for any instrument, the last available one shall be used. On days when no operations are recorded in the markets, the values of the requirement from the immediate previous business day shall be repeated.

6.5.5. Coefficient "k".
Its value shall be equal to 2.32.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 6th. Communication "A" 4172
Effective Date:
15/07/2004

6.5.6. Measure of daily volatility of the return of asset i (σi).
6.5.6.1. National assets.
The Central Bank of the Argentine Republic shall inform monthly the values of σi that will be used for the calculation of the value at risk of national assets -with the exception of common investment funds-, specifying additionally, and if applicable, to which zone each one belongs according to its average life. The information shall be supplied on the last business day of the month and shall be used for the calculations corresponding to the daily positions of the following month. Holdings of national assets whose volatilities are not published by the Central Bank of the Argentine Republic -with the exception of common investment funds integrated by the included assets- shall not generate capital requirements for market risk and shall receive the treatment of "non-quoting" for the purposes of applying the pertinent maximum global limit in matters of fragmentation of credit risk.

6.5.6.2. Foreign assets.
For foreign assets, the entity shall calculate the volatilities as the standard deviation of the daily return of the assets, following the methodology exposed below:
σi = [(1 - λ) Σ j=1
74
λ j

(Ri,t-j - MRi)
2
] 0,5
Ri,t-j = (Pi,t-j
/ Pi,t-j-1) – 1
MRi = (1 - λ) * Σ j=1
74
λ j
Ri,t-j
where
λ = 0.94; j = 1 to 74
Pi,t-j = price of asset i at the close of day t-j.
The volatility (standard deviation) obtained shall be annualized, if necessary for the calculation of the value of the options, by multiplying σi by the square root of 252.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 6th. Communication "A" 4172
Effective Date:
15/07/2004

6.5.6.3. Common investment funds.
The calculation of the volatilities of common investment funds integrated by the included assets shall be carried out by financial entities based on the value of their shares, applying the methodology exposed previously.

6.5.6.4. Volatility.
The Central Bank of the Argentine Republic shall inform monthly the volatility that will be used for the calculation of the value at risk of the position in United States dollars. For other currencies, the entity shall calculate the volatilities as the standard deviation of the daily return of the assets, following the methodology developed in point 6.5.6.2.

6.5.6.5. Frequency of calculation and use of volatilities.
For the purposes of calculation and use of the values resulting from the volatilities of foreign assets and common investment funds -from the country or abroad- the frequency followed by the Central Bank of the Argentine Republic regarding national assets shall be observed, that is, the obtained value shall be considered for the determination of the values at risk of the portfolios that are registered daily during the following month.

6.5.7. Time necessary to unwind an operation.
The minimum value for this factor is 5.
To the extent that the positions maintained by the entity are of great value or constitute less liquid assets, with lower volume of daily transactions, the value of Ti shall increase. The financial entity shall determine the value of Ti that it considers adequate, given the size of its holding and the liquidity of the market for that asset. Therefore, this factor will not be the same for all assets nor equal among financial entities. The value of Ti used for a derivative contract may differ from the value of Ti for the position in the relevant underlying asset. In case there is no fluid quotation of options and the entity must neutralize their impact through the futures market, the amount to be bought or sold to neutralize the position shall be determined based on the delta of the total position in the asset. The delta of the total position shall be calculated as a weighted average by amount (notional value in the case of options) of the individual positions in the asset.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 3rd. Communication "A" 4172
Effective Date:
15/07/2004

6.5.8. Interest rate (r).
For the calculation of the value at risk of derivatives on national assets, the interest rate for loans to first-line companies for a 30-day term (or in its absence, the implicit interest rate arising from the auctions of Letters of the Central Bank of the Argentine Republic for that term or similar) in pesos or in United States dollars, depending on whether they are derivatives on assets in pesos or in United States dollars, corresponding to the fifth business day prior to that of the calculation or of the last auction, in accordance with the information provided by the Central Bank of the Argentine Republic, shall be used. In the case of derivatives on foreign assets, the interest rate for the one-year bond of the national government of the country in whose currency the asset is expressed shall be used.

6.5.9. Valuation of options.
For the calculation of the coefficients linked to options (delta, gamma, vega), the Black-Scholes option valuation model shall be accepted. In it, the volatility published by the Central Bank of the Argentine Republic shall be used as data, when pertinent. In the cases of exotic options, or when the entity possesses an alternative valuation method, its use must be approved by the Superintendency of Financial and Currency Entities.

6.5.10. Derivatives not contemplated.
In the cases of derivative contracts not expressly contemplated, the treatment to be used to determine the value at risk shall be consulted with the Superintendency of Financial and Currency Entities.

6.6. Computation.
6.6.1. Capital requirement.
Each month, it shall be determined daily considering:
6.6.1.1. the minimum capital requirement (point 1.1. of Section 1.) established at the end of the previous month, which shall remain constant throughout the month,
and
6.6.1.2. the VaRp requirement for the daily positions of the included assets.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 3rd. Communication "A" 4172
Effective Date:
15/07/2004

6.6.2. Capital integration.
Each month, it shall be determined daily considering:
6.6.2.1. the computable net worth of the last day of the previous month,
and
6.6.2.2. off-balance sheet, the daily change in value that occurs in the portfolio of assets included in the calculations of the requirement for market risk as a consequence of changes in their market prices, since the last quotation registered at the close of the immediate previous month.
In case of incorporations (purchases) of assets during the month, only the variation in the value of those assets since their incorporation shall be taken. In case of sales of these assets (closing of positions), the resulting loss or gain between the selling price and the last price at which the position was valued shall be taken into account.

6.6.3. Daily capital deficiency.
6.6.3.1. Immediate framing.
In case a daily integration defect occurs with respect to the capital requirement for market risk, originating in the computation of the requirement by the sum of the values at risk of the included assets ("VaRp"), the financial entity shall replenish the capital and/or reduce its financial asset positions until it manages to comply with the established requirement, for which it shall have a term of ten business days, counted from the first deficiency.

6.6.3.2. Persistent deficiency.
i) If the defect is maintained for a term greater than 10 business days, the entities shall present a regularization and sanitation plan within the 5 business days following, with the effects indicated in point 1.4.2.1. of Section 1. ii) When it concerns deficiencies determined by the Superintendency of Financial and Currency Entities and to the extent that the deficiency is subsistent according to the last available information, the terms referred to in point 1.4.2.2. paragraph i) of Section 1. for the presentation of the defense and that the Superintendency rules on it shall be 5 and 10 business days, respectively, while for the regularization of the non-compliance, in the form provided in point 6.6.3.1., the entity shall observe the term of 10 business days, counted from the date the integration defect becomes final. Upon expiration of that term without the non-compliance having been regularized, what is established in paragraph i) shall be observed.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
B.C.R.A.
Section 6. Minimum capital for market risk.
Version: 3rd. Communication "A" 4172
Effective Date:
15/07/2004

6.7. Responsibilities.
Financial entities that operate buying and/or selling, regardless of their amount, options contracts and those that on any day of a month register assets (sum of bought and sold positions of the included assets) that together exceed 25% of the computable net worth registered on the last day of the second previous month shall define the responsibilities in the management of the risk administration policy that is assumed by the positions subject to the minimum capital requirement for market risk. This will imply designating the persons who will be in charge of the correct application of the established calculation methodology and the primary responsibility for adopting the necessary precautions to maintain the positions covered with the required capital, especially the actions leading to regularize daily integration defects that exceed 3% of the requirement. They shall also be responsible for supplying the information in time and form to the Superintendency of Financial and Currency Entities in accordance with the information regime established in the matter. Modifications to the list of designated responsible persons, the General Manager, and the member of the Board of Directors, Administrative Council, or equivalent authority to whom the function is reported, duly supplied, shall be communicated to said Superintendency within ten calendar days following their occurrence.

6.8. Sanctions.
The actions in which the responsible officials incur as provided in point 6.7. and that imply the concealment or non-computation of operations that must be considered for the purposes of determining the value at risk of financial assets shall determine the application to them and to the financial entity of the provisions of article 41 of the Financial Entities Law, for which effect the following guidelines shall be taken into account:
6.8.1. Fine of between 1.5 and 3 times the amount of the largest daily deficiency originating in the computation of the values at risk registered in the period of non-compliance.
The financial entity and the aforementioned persons shall be jointly responsible for the fines imposed.
6.8.2. Disqualification of two to five years for the performance of functions in the financial activity by the responsible persons.

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE
CONSOLIDATED TEXT OF THE RULES ON
MINIMUM CAPITAL OF FINANCIAL ENTITIES

CONSOLIDATED TEXT ORIGIN RULE
Section Point Paragraph Comm.
Chap./
Annex
Point Paragraph
Observations

1.1. “A” 2136 1. 1º Modified by Comm. “A” 2859
and “A” 3558.
1.2.1. “A” 2237 b) Modified by Comm. “A” 2923
(point 3.1.2.3. of Section 3.).
1.2.2. “A” 2923 3. 3.2.2.
1.2.3. “A” 2923 3. 3.3.
1.3. “A” 2136 2. 1º According to Comm. “A” 2223.
1.4.1. “A” 2136 3.1.
“A” 3171 According to Comm. “A” 3959 i) “A” 2136 3.2. 2º According to Comm. “A” 3959 ii) “A” 2136 3.2.4. Modified by Comm. “A” 2241.
1.4.2.1. iii) “A” 414
LISOL-1
VI 6.1.
1.
1.4.2.2. “A” 3171 According to Comm. “A” 3959
2.1. “A” 2241
CREFI-2
I 1.3.1.
2.2. “A” 2650 2. According to Comm. “A” 3128.
2.3.1. “A” 2237 a) Modified by Comm. “A” 2923
(point 3.1.1.2. of Section 3.).
2.3.2. “A” 2923 3. 3.2.1.
2.
2.3.3. “A” 2923 3. 3.3.
3.1. “A” 2136 1. Modified by the Comms. “A”
2541, 2736, 2938, 3039, 3307 and
3959. Incorporates interpretative clarifications.
3.2. “A” 2136 I According to Comm. “A” 2541, annex,
criteria, d), 2nd paragraph and according to Comm. “A” 3040.
3.3.1. “A” 2136 I According to Comm. “A” 2541, annex,
criteria, d), 2nd paragraph.
3.3.2. “A” 2287 5.
3.3.3. “A” 2412 In the second paragraph of point
3.3.3.3. incorporates a criterion not previously disclosed
generally.
According to Comm. “A” 3959.
3.4.1. “A” 2768 2. Modified by Comm. “A” 2948,
“A” 3911, “A” 3925 , “A” 3959 and
“A” 4180.
3.4.2. “A” 2227 unique 5.2.2. 3º
3.
3.5.1. “A” 2136 1.1.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
CONSOLIDATED TEXT ORIGIN RULE
Section Point Paragraph Comm.
Chap./
Annex
Point Paragraph
Observations

3.2. “A” 2136 I According to Comm. “A” 2541, annex, "A"
3133 and “A” 3959.
3.3. "A" 2136 I According to Comm. “A” 2541, annex, "A"
3133, “A” 3238 and “A” 3959. Includes interpretative clarification.
3.4. and
3.5.
"A" 2136 I According to Comm. “A” 2541, annex and “A” 4141.
4.1. and
4.2.
"A" 2136 I According to Comm. “A” 3133.
4.3. to
4.13.
"A" 2136 I According to Comm. “A” 2541, annex, “A” 3133, “A” 3274, “A” 3959 and “A” 4141.
4.14. "A" 2136 According to Comm. “A” 2541, “A” 3133,
“A” 3238 and “A” 3959. Includes interpretative clarification.
4.15. "A" 2136 According to Comm. “A” 2541, “A” 3133 and
“A” 4141.
4.16. “A” 3064 3.
5.1. “A” 2136 I According to Comm. “A” 2632, “A” 3314 and
“A” 3959.
5.2. and
5.3.
“A” 2136 I According to Comm. “A” 2541, annex and “A” 3314.
6. “A” 2136 I According to Comm. “A” 2541, annex, “A”
2793, “A” 2872, “A” 3959, “A” 4141 and “A” 4168.
7.1. to
7.3.
“A” 2136 I According to Comm. “A” 2541, annex and “A” 3133.
7.4. “A” 2136 According to Comm. “A” 2541, annex, “A”
3133, “A” 3238, “A” 3959 and “A”
4141.
7.5. “A” 2136 According to Comm. “A” 2541, annex and “A”
3133.
4. last “A” 2136 I According to Comm. “A” 2541, annex and “A” 3307.
5.1. “A” 2922 I According to Comm. “A” 3959, “A” 4172 and
“A” 4180.
5.2. “A” 2922 I According to Comm. “A” 3959, “A” 4032 and
“A” 4172.
5.3. “A” 2922 I According to Comm. “A” 4172.
5.4.1.1. to
5.4.1.8.
“A” 2922 I
Modified by the Comms. “B” 6523 and “A” 4172. Includes interpretative clarifications.
5.4.1.9. “A” 2922 I Modified by the Comms. “B” 6523,
"A" 3064 and “A” 4172.
5.4.2. “A” 2922 According to Comm. “A” 3959 and “A” 4172.
5.
5.5. “A” 2922 I Modified by the Comms. “B” 6523,
“A” 2948, “A” 3959, “A” 4172 and “A”
4180.

MINIMUM CAPITAL OF FINANCIAL ENTITIES
CONSOLIDATED TEXT ORIGIN RULE
Section Point Paragraph Comm.
Chap./
Annex
Point Paragraph
Observations

5.
5.6. “A” 2922 I Modified by Comm. “B” 6523 and
“A” 4172. Point 5.6.4.5. modif. by Comm. “A” 3274, “A” 3959 and “A” 4180.
6.1. and
6.2.
“A” 2461 unique I. and II. According to Comm. “A” 4172.
6.3. and
6.4.
“A” 2461 unique I. and II. According to Comm. “A” 3959 and “A” 4172.
6.5. “A” 2461 unique I. and II. Modified by the Comms. “A”
2736, 2768, 2948, 3959 and 4172.
Point 6.5.2. includes interpretative clarification.
6.6. “A” 2461 unique III. According to Comm. “A” 3161 and “A” 4172.
6.7. “A” 2461 unique VI. According to Comm. “A” 4172.
6.
6.8. “A” 2461 unique VII. According to Comm. “A” 4172.
7.1. “A” 414
LISOL-1
VI 3.1. 1º According to Comm. “A” 2279, (mod. by the Comms. “A” 2453, 2793, 2914, 3039 and 4172).
7.2.2. “A” 414
LISOL-1
VI 3.1.2. According to Comm. “A” 2223. Modified by the Comms. “A” 2768, 2948 and 4172.
7.2.3. 1º “A” 414
LISOL-1
VI 3.1.2.2. According to Comm. “A” 2264 and 4172.
Incorporates interpretative clarification.
7.2.3.1. to
7.2.3.4.
“A” 414
LISOL-1
VI 3.1.2.2. According to Comm. “A” 2264 and 4172. In the second paragraph of point
7.2.3.3. incorporates interpretative clarification.
7.2.3.5. “A” 2264 2. According to Comm. “A” 4172.
7.2.3.6. “A” 414
LISOL-1
VI 3.1.2.2. According to Comm. “A” 2264 and 4172.
7.2.4.1. “A” 2287 3.1. and
3.3.
According to Comm. “A” 2890 and 4172.
“A” 2287 3. last According to Comm. “A” 4172.
7.2.4.2. 1º “A” 2497 1. According to Comm. “A” 3621 and 4172.
last “A” 2263 2. According to Comm. “A” 4172.
1º and last
7.2.4.3. “A” 2287 3.2. According to Comm. “A” 4172.
2º “A” 2474 Procedural rules on requirement and integration of minimum capital (point 3.2.7). Modified by Comm.“A” 4172.
7.
7.2.4.4. “A” 2264 1. According to Comm. “A” 4172.