2006 – Year of Tribute to Dr. Ramón CARRILLO

CENTRAL BANK OF THE ARGENTINE REPUBLIC

COMMUNICATION “A” 4591 08/11/2006

TO FINANCIAL INSTITUTIONS:

Reference: Circular

LISOL 1 – 463

CONAU 1 – 791

Payment of financial services of debt instruments susceptible to integrate computable patrimonial responsibility. Calculation of cleaned unassigned results. Complementary rules.

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

1. Adopt that for the purpose of paying the financial services corresponding to issuances of debt instruments referred to in point 2 of the resolution disseminated by Communication “A” 4576 – susceptible to integrate computable patrimonial responsibility – that financial institutions shall, from 01.11.06, use the specific procedure set out below:
   a) The issuance of such debt instruments must have prior approval of the shareholders’ meeting or equivalent corporate body, which must be issued concerning the issuance and its conditions. In those issuance conditions and in the offers made, the requirements that condition, according to this regime, the payment of financial services must be explicit, referring to the applicable Central Bank provisions in this matter. b) To determine the existence of sufficient balance to proceed with the payment, the general‑character procedure provided in Communication “A” 4589 relating to the determination of the capacity to distribute results shall be used, with the following exceptions:
   i) Amounts corresponding to the concepts foreseen in points 2.1 and 2.2 of the cited communication shall not be deducted from the unassigned results, nor shall they be considered for the recalculation of minimum capital positions – point 3.3., sub‑paragraph iii) – ii) The values of the coefficients “alfa1” and “alfa2” shall be used for the recalculation of the minimum capital positions established in the current transitional provisions on the matter (points 9.5 and 9.6 of Section 9 of the rules on “Minimum Capitals of Financial Entities”).

The Superintendency of Financial and Currency Entities, without prejudice to the prior authorization granted to the issuance, shall annually verify, based on the corresponding distribution proposal submitted, the correct application of the procedure for calculating the cleaned unassigned results as established herein and of the required solvency and liquidity levels for this case, as well as the constitution of the corresponding reserve for the coverage of the financial services.

Consequently, issuances of debt instruments that do not satisfy the applicable requirements or, at the entity’s option, shall be subject to the general‑character procedure provided in Communication “A” 4589.

2. Replace sub‑paragraphs iii), iv), xi) and xii) of the concept “Issuance conditions that must be included in the issuance brochures that are made publicly known”, of point 2 of the resolution disseminated through Communication “A” 4576, with the following:

   iii) The payment of remuneration, under no circumstances, may exceed the positive cleaned unassigned results based on the accounting statements corresponding to the last annual exercise with external auditor’s report and immediate closing prior to the expiry of each financial service, calculated in accordance with the procedure applicable to this class of debt instruments, which must be allocated – according to that methodology – to the constitution of a reserve destined for that purpose in pesos, regardless of the currency in which the instrument was issued.

   The reserve intended for the payment of the financial services whose expiry occurs in the period from the date of issuance of the debt instrument up to the day before the date of the second subsequent shareholders’ meeting or equivalent corporate body, shall be constituted with cleaned unassigned results based on the accounting statements whose consideration corresponds to the first shareholders’ meeting or equivalent corporate body that takes place after the issuance of the instrument.

   If the remuneration is subject to a fixed rate, the reserve shall include the yields to be paid.

   If it is subject to a variable rate or to exchange‑rate variations, the reserve shall be constituted applying the rate or exchange rate in force at the moment of its constitution, which may be higher for the purpose of considering a possible increase of the projected services.

   The financial services shall accrue monthly. The total accrued amount may not exceed the aforementioned reserve, except in the following cases:

   • when dealing with instruments that contemplate the accumulation of unpaid services.
   • if the remuneration is subject to a variable rate or exchange‑rate variations and the reserve proves insufficient due to the observed increase over the projections, the insufficiency of the constituted reserve may be remedied by charging the results of the fiscal year to which the services pertain, provided that there are remaining positive cleaned unassigned results from the immediately preceding annual exercise and with prior approval of the Superintendency of Financial and Currency Entities, which will evaluate the correct application of the procedure referred to in point 1 of this communication.
   • if there is a sufficient reserve fund under the terms of sub‑paragraph xiii) (text according to this communication).

   iv) They must have a term not less than 30 years, with full amortization at maturity.

   xi) For the payment of each of the financial services, prior authorization from the Superintendency of Financial and Currency Entities will not be required. However, payment may only be made if the corresponding reserve has been constituted and it has prior authorization from that Superintendency for that purpose according to the applicable procedure – except for the case relating to remuneration subject to a variable rate or exchange‑rate variations provided in sub‑paragraph iii) (text according to this communication) – or, failing that, with the reserve fund referred to in sub‑paragraph xiii) (text according to this communication).

   In no case will the payment of financial services be admitted while the entity:
   i) presents average minimum cash deficiencies – in pesos or foreign currency –; ii) registers financial assistance due to illiquidity of the Central Bank of the Argentine Republic, except for assistance received under article 17 of the Organic Charter, adjusted to the regime of Decree 739/03 and its regulations (Communication “A” 3941 and complementary) and the operation foreseen by Communication “A” 4268 and complementary; and iii) is complying with a regularisation and recovery plan under article 34 of the Financial Entities Law.

   In the case of instruments that contemplate the accumulation of unpaid services, financial services cannot be paid to the extent that there is no balance in the respective reserve.

   xii) Unpaid services will not be cumulative, therefore they cannot be deferred and accumulated to be paid after their maturity, except as provided in sub‑paragraph iv), clause c), of the concept “Computable amounts”.

3. Replace sub‑paragraph iii) of the concept “Computable amounts”, of point 2 of the resolution disseminated through Communication “A” 4576, with the following:

   iii) Of the reserve fund:
   a) The amounts of these funds that are effectively applied to the payment of financial services, when there are insufficient distributable results, according to the determination made in accordance with the calculation procedure established by this Institution, before 31.12.12. From that date, amounts that have not been used may also be counted as basic net equity, provided the limits set out in point 7.2.1.6 are not exceeded, while any excess may, where applicable, be counted as complementary net equity. b) Before 31.12.12, the amounts of the remaining reserve fund may not be counted for the purpose of determining computable patrimonial responsibility. c) If applicable, as provided in clause a), this fund will be accounted for at the peso value of the services cancelled with attribution to its use.

4. Replace sub‑paragraph xiii) of the concept “Representative debt instruments” of point 2 of the resolution announced through Communication “A” 4576, with the following:

   xiii) If the constitution of a reserve fund is foreseen, it must be integrated at the time of subscription and may not exceed 10% of the respective issuance. These amounts may be used for the payment of financial services that mature up to 31.12.12, when there are no cleaned unassigned results according to the procedure to be established.

   In case of bankruptcy, this fund will be subject to the order of payment provided in sub‑paragraph ix).

5. Add as the last point of the concept “Representative debt instruments” of point 2 of the resolution announced through Communication “A” 4576 the following:

   Cancellation of the reserve. The reserve shall be written off with a counterpart in cleaned unassigned results at the time of each accrual and/or the payment of the financial services, whichever occurs first. If a remaining balance exists in the said reserve, it must be reversed before the next shareholders’ meeting.

6. Replace paragraph 1.2 of point 1 and the first paragraph of point 2 of the resolution disseminated by Communication “A” 4589 with the following:

   1.2. register financial assistance due to illiquidity of the Central Bank of the Argentine Republic, except for assistance received with adjustment to the regime of Decree 739/03 and its regulations (Communication “A” 3941 and complementary), within the framework of article 17 of the Organic Charter of this Institution, and the operation foreseen by Communication “A” 4268 and complementary.

   2. Entities not covered by any of the situations foreseen in the preceding point may distribute results up to the positive amount that arises from deducting, off‑balance‑sheet, from the balances at the close of the annual exercise to which they correspond, recorded in account “Unassigned Results” (code 450000), the amounts of the legal and statutory reserves – whose constitution is mandatory – and then the amounts corresponding to the concepts – recorded on the same date – detailed below:

7. Replace the second paragraph of paragraph 2.2 of the resolution disseminated by Communication “A” 4589 with the following:

   For public debt instruments that do not have a quotation value, the lower amount resulting from comparing the technical value and the present value discounting the cash flows of the mentioned instruments at the interest rates of the closing month of the annual exercise to which the holdings correspond, taking into account the “TM one‑year” rate that, for these purposes, will be published monthly by this Institution, shall be used.

8. Replace point 3 of the resolution disseminated by Communication “A” 4589 with the following:

   3. The amount to be distributed according to the proposal presented to the Superintendency of Financial and Currency Entities, which may not exceed the amount determined in the preceding point, shall not compromise the entity’s liquidity and solvency. This requirement shall be considered met when the absence of integration defects in the minimum capital position – both individual and consolidated – at the close of the exercise to which the considered unassigned results correspond or in the last closed position, according to information available at the date of such presentation, of the one that shows the lesser excess of integration relative to the requirement, is verified, recalculating them and computing – for that sole purpose – the following effects:

   3.1. the results of the deduction of the assets of the concepts mentioned in points 2.1 to 2.4.

   3.2. the application of the coefficients “alfa1” and “alfa2” with a value equal to one on the assets, cleaned according to the previous sub‑paragraph, to recalculate the corresponding requirements.

   3.3. the non‑consideration of the franchises granted by the Superintendency of Financial and Currency Entities that affect the requirement, integration and/or the minimum capital position.

   3.4. the deduction from the unassigned results of the amounts corresponding to the following concepts:

   i) the amount to be distributed and, where applicable, the amount destined to constitute the reserve for the purpose of remunerating representative debt instruments, susceptible to integrate computable patrimonial responsibility, according to the proposal presented to the Superintendency of Financial and Currency Entities,

   ii) balances in favour resulting from the application of the presumed minimum profit tax – net of depreciation risk provisions – that have not been deducted from basic net equity, as established in the rules on “Minimum Capitals of Financial Entities”, and

   iii) adjustments made according to points 2.1 to 2.4.

   Without prejudice to the foregoing, under no circumstances will the distribution of results be admitted while the entity presents average minimum cash deficiencies – in pesos or foreign currency – corresponding to the last closed position, and/or registers financial assistance due to illiquidity of the Central Bank of the Argentine Republic, except for assistance received with adjustment to the regime of Decree 739/03 and its regulations (Communication “A” 3941 and complementary), within the framework of article 17 of the Organic Charter of this Institution and the operation foreseen by Communication “A” 4268 and complementary.

We will promptly send you the pages that correspond to the replacements in the ordered text of the rules on “Minimum Capitals of Financial Entities”.

Sincerely,

CENTRAL BANK OF THE ARGENTINE REPUBLIC

Juan C. Isi

José I. Rutman

Chief Manager of Research and Normative Issuance

Deputy General Manager of Standards