Public Sector Assets. Credit Risk Fractionation. Trading Position. Modifications

“2006- Year of Tribute to Dr. Ramón CARRILLO”
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION “A” 4546 09/07/2006
TO FINANCIAL ENTITIES:
Ref.: Circular
LISOL 1 - 458
Public Sector Assets. Credit Risk Fractionation. "Trading" Position. Modifications ______ We address you to inform you that this Institution has adopted the following resolution:

1. Replace the third-to-last paragraph of point 1. of Communication “A” 4455 with the following:
   “The non-observance of the margin will be treated as provided for the non-compliance of credit risk fractionation relationships in the provisions made known by Communication “A” 3161 and complementary ones, without prejudice to the application of the provisions of article 41 of the Financial Entities Law, considering for these purposes the excess over the limit of 15% of the computable equity liability or the lower limit in case that option had been exercised.”

2. Replace point 8. of Communication “A” 3911 (text according to point 2. of Communication “A” 4455) with the following:
   “8. Establish that excesses to the relationships referred to in point 7. of this resolution and 2.2.1. of Annex II to Communication “A” 2140, originated exclusively in the application of the new limits and conditions for computing financings, will not constitute non-compliance insofar as the excesses:
   a) come from operations pre-existing to 31.3.03 b) are determined or increase what was configured according to paragraph a), by the receipt of:
   i) compensation bonds or promissory notes according to articles 28 and 29 of Decree 905/02 or, eventually, by the application of other specific provisions, after that date, derived from Law 25.561 of Public Emergency and Reform of the Exchange Regime. ii) bonds issued within the framework of the Mortgage Refinancing System established by Law 25.798. iii) bonds issued under the conditions established by Decree 1735/04 for the restructuring of Argentine debt, in exchange for eligible pre-existing titles prior to 31.3.03. c) arise from new operations, provided that excesses are previously registered according to paragraphs a) or b), and originate -solely and exclusively- in the granting of financings to the non-financial public sector with funds coming from capital amortization services, 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 requirement referred to in paragraph c) of point 9. of this resolution and, eventually -according to the analysis carried out- of what is provided in its paragraphs a) and b). To this effect, amounts applied to the primary subscription of debt titles of the National Government with an advance of up to 180 calendar days with respect to the maturity date of the capital amortization services of public sector obligations are included, provided they correspond to the sums to be received. For this purpose, in the case of obligations with “CER” (Reference Stabilization Coefficient) clause, the last index of the “CER” made known will be taken into account, without exceeding that of the day to be used according to the conditions fixed for those obligations, for the purpose of determining the value of the amortization to mature. In the case of amortizations to mature of obligations in foreign currency and for the purposes of their eventual application to the subscription of titles in pesos, those will be converted according to the reference exchange rate for US dollars reported by the Central Bank corresponding to the day prior to the date of formulation of the subscription offer. The subsequent application of funds coming from capital amortization services may be carried out within the 180 calendar days following the maturity date, for the purpose of considering it included in the provisions of the first paragraph of this section, including primary subscription and acquisitions in the secondary market of titles and other financings. If services paid in foreign currency are applied to operations in pesos, they will be converted at the exchange rate mentioned in the preceding paragraph on the day prior to the date of the operation. Regarding the amortization services of the compensation bonds referred to in articles 28 and 29 of Decree No. 905/02, whose crediting is pending or has been carried out after the maturity, due to the process
   of verification of the amount to be compensated within the framework of that legal device, the term referred to in the preceding paragraph may be computed from the date of effective collection. d) correspond to the purchase and sale or intermediation operations of national public titles susceptible to being imputed to the margin admitted for this purpose of up to 15% of the computable equity liability of the immediate previous month and provided that excesses are previously registered according to the previous paragraphs. However, financings may not be agreed upon in cases where the relationship of the operations included with respect to the RPC determined at 31.3.03 is exceeded, due to decreases in this last parameter, until that relationship is re-established, computing for this purpose the effect of the “CER” and of the variation of the exchange rate. Taking into account the date of entry into force of the new limits for assistance to the non-financial public sector, entities must consider -in order to determine the relationships at 31.3.03- the operations included according to the established definitions, computing the amounts -with respect to nominal values or effectively disbursed- that arise from the application of the “Reference Stabilization Coefficient” and by the variations in the exchange rate, in the case of foreign currency operations.”

3. Substitute point 12. of the resolution disseminated through Communication “A” 3911 (text according to point 3. of Communication “A” 4455), with the following:
   “12. Establish that the 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% or 35% of the total assets of the last day of the previous month, with effect from 1.1.06 and 1.7.07, respectively. In order to determine the amount of financings included, with respect to national public titles susceptible to observing minimum capital requirement for market risk -that is with volatility reported by the Central Bank- the guidelines contemplated in the second paragraph -after item iv)- of the point incorporated immediately after point 3. of Annex II to Communication “A” 2140 - “Limits of operations with the non-financial public sector”- (text according to point 2. of Communication “A” 4230) will be observed. In cases where the cited limit is exceeded, 100% of the excess will determine an equivalent increase in the minimum capital requirement for credit risk (“INC”), without prejudice to the application of the provisions of article 41 of the Financial Entities Law.”

4. Substitute the title of Section 2. of the norms on “Minimum Capital Non-Compliance and Technical Ratios. Applicable Criteria.” with the following:
   “Excesses in the ratio of immobilized assets and other concepts and to the limits of credit risk fractionation, financings to related clients, credit grading and over financial assistance to the non-financial public sector (point 12. of Communication “A” 3911 and complementary ones).”

We send you attached the sheets that, in replacement of those previously provided, correspond to replace in the ordered text of the norms on “Minimum Capital Non-Compliance and Technical Ratios. Applicable Criteria.”

Likewise, it is recalled that on the website of this Institution www.bcra.gov.ar, accessing “regulations” (“ordered texts”), the modifications made with texts highlighted in special characters (strikethrough and bold) will be found.

We greet you very attentively.
BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Darío C. Stefanelli José I. Rutman
Manager of
Issuance of Norms on behalf
General Manager of Norms

ANEXO

• Index -
  Section 1. Minimum capital deficiencies.
  1.1. Non-compliance reported by entities.
  1.2. Non-compliance detected by the Superintendence of Financial and Exchange Entities.
  1.3. Daily capital deficiency.
  1.4. Application of article 41 of the Financial Entities Law.
  Section 2. Excesses in the ratio of immobilized assets and other concepts and to the limits of credit risk fractionation, financings to related clients, credit grading and over financial assistance to the non-financial public sector (point 12. of Communication “A” 3911 and complementary ones).
  2.1. Non-compliance reported by entities.
  2.2. Non-compliance detected by the Superintendence of Financial and Exchange Entities.
  2.3. Limitations on deposit growth.
  2.4. Accounting exposure.
  2.5. Application of article 41 of the Financial Entities Law.
  Section 3. Special cases of inapplicability of the higher minimum capital requirement.
  3.1. Suspension.
  3.2. Elimination.

B.C.R.A.
UPDATED ORDERED TEXT OF THE NORMS ON
MINIMUM CAPITAL NON-COMPLIANCE AND TECHNICAL RATIOS.
APPLICABLE CRITERIA
Version: 3rd Communication "A" 4546
Validity:
09/07/2006

MINIMUM CAPITAL NON-COMPLIANCE AND TECHNICAL RATIOS.
APPLICABLE CRITERIA
B.C.R.A.
Section 2. Excesses in the ratio of immobilized assets and other concepts and to the limits of credit risk fractionation, financings to related clients, credit grading and over financial assistance to the non-financial public sector (point 12. of Communication “A” 3911 and complementary ones).

2.1. Non-compliance reported by entities.
2.1.1. Information entered on time.
They will originate the increase of the minimum capital requirement for credit risk by an amount equivalent to 100% of the excess to the relationship, from the month in which the non-compliance is registered and while it remains. In the case of credit relationships, the computation of the deviation will be carried out based on the monthly average of daily excesses.

2.1.2. Information entered late.
They will originate the increase of the minimum capital requirement for credit risk by an amount equivalent to 100% of the excess to the relationship, from the month in which the information is entered, while the non-compliance subsists and, additionally once regularized, for a number of months equal to the number of periods during which the excess not reported on time by the entity was verified. The computation of the deviation will be carried out considering the highest excess amount registered in the periods covered by the late information and in the following ones, as long as the non-compliance is maintained and even if the information of the following periods is entered on time and in form. In the case of credit relationships, said computation will be carried out considering the highest daily excess amount, with respect to the clients that originated it, registered in such periods.

2.1.3. Repeated non-compliance.
2.1.3.1. Definition.
It is the non-observance of the relationships -considering each of them separately- in successive periods or with an interval of less than 3 months, derived from voluntary acts (for example: granting financings to a client whose assistance already exceeds the limits, distribution of profits that decrease the computable equity liability, excesses of assistance to different clients in different periods).

2.1.3.2. Consequences.
It will determine that the increase of the minimum capital requirement for credit risk is equivalent to 130% of the excess registered in the respective relationship.

Version: 3rd Communication "A" 4546
Validity:
09/07/2006

MINIMUM CAPITAL NON-COMPLIANCE AND TECHNICAL RATIOS.
APPLICABLE CRITERIA
B.C.R.A.
Section 2. Excesses in the ratio of immobilized assets and other concepts and to the limits of credit risk fractionation, financings to related clients, credit grading and over financial assistance to the non-financial public sector (point 12. of Communication “A” 3911 and complementary ones).

2.2. Non-compliance detected by the Superintendence of Financial and Exchange Entities.
2.2.1. Defense.
The entity will have 30 calendar days counted from the notification of the determination made by the Superintendence of Financial and Exchange Entities in order to formulate its defense, on which it must rule within the 30 calendar days following the presentation.

2.2.2. Final determination.
2.2.2.1. When the entity does not present its defense within the term indicated in point 2.2.1., the determination will be considered final on the day of expiration of the term to formulate the defense.
2.2.2.2. If the defense formulated is dismissed -totally or partially- by the Superintendence of Financial and Exchange Entities, the non-compliance will be considered final on the date of notification of the adopted decision.

2.2.3. Treatment of the determined non-compliance.
It will originate the increase of the minimum capital requirement for credit risk by an amount equivalent to 150% of the excess to the relationship from the month in which it becomes final, while the non-compliance subsists and, additionally once regularized, for a number of months equal to the number of periods during which the non-compliance detected by the Superintendence was verified. The computation of the deviation will be carried out considering the highest excess amount registered in said periods and in the following ones, as long as the non-compliance is maintained and even if the information of the following periods is entered on time and in form. In the case of credit relationships, said computation will be carried out considering the highest daily excess amount, with respect to the clients that originated it, registered in such.

Version: 3rd Communication "A" 4546
Validity:
09/07/2006

MINIMUM CAPITAL NON-COMPLIANCE AND TECHNICAL RATIOS.
APPLICABLE CRITERIA
B.C.R.A.
Section 2. Excesses in the ratio of immobilized assets and other concepts and to the limits of credit risk fractionation, financings to related clients, credit grading and over financial assistance to the non-financial public sector (point 12. of Communication “A” 3911 and complementary ones).

2.3. Limitations on deposit growth.
When the sum of the increases of minimum capital requirement for credit risk resulting from the non-compliance of the technical relationships included in this section exceeds the equivalent to 5% of said requirement -without considering the increases- and while this situation subsists, the total amount of deposits -in national and foreign currencies- may not exceed the level that it had reached during the month in which that fact is registered. This limit and its observance will be computed based on the balances registered on the last day of each of the months included.

2.4. Accounting exposure.
Non-compliances must be reported in notes to the financial statements according to the criteria established by the Superintendence of Financial and Exchange Entities.

2.5. Application of article 41 of the Financial Entities Law.
Summary proceedings will be initiated according to the guidelines defined by the Superintendence of Financial and Exchange Entities.

Version: 3rd Communication "A" 4546
Validity:
09/07/2006

B.C.R.A.
ORIGIN OF THE PROVISIONS INCLUDED IN THE ORDERED TEXT OF THE NORMS ON MINIMUM CAPITAL NON-COMPLIANCE AND TECHNICAL RATIOS.
APPLICABLE CRITERIA

ORDERED TEXT ORIGIN NORM
Section Point Paragraph Com. Cap. Point Paragraph
Observations
1° “A” 3161 1.1.
2° “A” 3161 1.1. According to Com. “A” 3171 (point 1.).
1.1.
3° “A” 3171 1.
1.2. “A” 3161 1.2.
1.2.1. “A” 3161 1.2.1.
1.2.2. “A” 3161 1.2.2.
1.2.2.1. “A” 3161 1.2.2.1.
1.2.2.2. “A” 3161 1.2.2.2.
1.3. “A” 3161 1.3.
1.3.1. “A” 3161 1.3.1.
1.3.2. “A” 3161 1.3.2.
1.3.2.1. “A” 3161 1.3.2.1.
1.3.2.2. “A” 3161 1.3.2.2.
1.
1.4. “A” 3161 1.4.
2. “A” 3161 According to Com. “A” 4546.
2.1.1. “A” 3161 2.1.1.
2.1.2. “A” 3161 2.1.2. According to Com. “A” 3171 (point 2.).
2.2. “A” 3161 2.2.
2.2.1. “A” 3161 2.2.1.
2.2.2. “A” 3161 2.2.2.
2.2.2.1. “A” 3161 2.2.2.1.
2.2.2.2. “A” 3161 2.2.2.2.
2.2.3. “A” 3161 2.2.3. According to Com. “A” 3171 (point 3.).
2.3. “A” 3161 2.3. According to Com. “A” 3171 (point 4.).
2.4. “A” 3161 2.4.
2.
2.5. “A” 3161 2.5.
3.1. “A” 3161 3.1.
3.
3.2. “A” 3161 3.2.