Resolution 143/97 Approving the Regulation on Capital Adequacy and Risk Weighting for Financial Intermediation Entities

BOARD RESOLUTION NO. 143/97 SUBJECT: ECONOMIC POLICY ADVISORY - APPROVES REGULATION FOR THE CAPITAL ADJUSTMENT OF FINANCIAL INTERMEDIATION ENTITIES AND THE RISK WEIGHTING OF THEIR ASSETS AND CONTINGENCIES.

HAVING SEEN: Central Bank of Bolivia (BCB) Law No. 1670, of October 31, 1995. The Regulation for the Authorization of Banks as "Accredited Financial Entities" (AFE), approved by Board Resolution No. 117/97 of June 10, 1997. The APEC-ARNOR Report No. 013/97 from the Main Economic Policy Advisory, dated July 30, 1997. The ALEG Report No. 109/97 from the Legal Advisory, dated August 1, 1997.

CONSIDERING: That Law 1670 in its Article 33 confers powers on the Central Bank of Bolivia to regulate the norms regarding the capital of financial entities, subject to the provisions of its subsections a), b) and c).

That subsection a) of the aforementioned provision requires the establishment of a deadline and a process of adjustment for financial entities to comply with the minimum capital ratio of 10% of the total of their assets and contingencies, weighted according to their risks.

That, likewise, item 3 of subsection b) of the cited Article establishes the weighting coefficients for assets and contingencies for first-line banks, without specifying the requirements and the procedure that national banks and foreign banks must follow to obtain that classification.

That finally, subsection c) of the aforementioned Article, empowers the BCB Board, by absolute majority of votes, to establish weighting coefficients not foreseen in the Law.

That it is necessary to regulate subsections a), b) and c) of Article 33 of Law 1670 in order to achieve an efficient development and supervision of the financial intermediation system, for the benefit and protection of depositors, creditors, and the other economic agents related to it.

Therefore, THE BOARD OF THE CENTRAL BANK OF BOLIVIA RESOLVES:

Article 1.- Approve the attached Regulation on the Capital Adjustment of Financial Intermediation Entities and the Risk Weighting of their Assets and Contingencies.

Article 2.- The Regulation will enter into force on September 15, 1997.

Article 3.- The Presidency and the General Management are charged with the execution and compliance of this Resolution.

19.VIII.97

---

Juan Antonio Morales A.

---

Armando Pinell S. Jaime Ponce G.

---

Juan Medinacelli V. Fernando Campero P.

REGULATION FOR THE CAPITAL ADJUSTMENT OF FINANCIAL INTERMEDIATION ENTITIES AND THE RISK WEIGHTING OF THEIR ASSETS AND CONTINGENCIES

CHAPTER I GENERALITIES

Article 1 (Objective).- This instrument aims to regulate Article 33 of Law No. 1670 of October 31, 1995, in its subsections a), b) and c).

Article 2 (Scope of Application).- The provisions of this Regulation are subject to financial entities that hold an operating license from the Superintendence of Banks and Financial Entities (SBEF).

CHAPTER II COMPLIANCE AND ADJUSTMENT TO THE CAPITAL RATIO

Article 3 (Compliance).- In accordance with Law 1670 and the provisions of this Regulation, financial entities in operation must observe, starting from December 31, 1998, the minimum capital ratio of 10% (ten percent) of the total of their assets and contingencies weighted according to their risks, using the new weightings established in subsection b) of Article 33 of Law No. 1670 and those defined in Chapter IV of this Regulation.

Article 4 (Intermediate Capital Adjustment Targets).- Until June 30, 1998, the minimum coefficient of 8% capital ratio remains in force, using the current weightings. To achieve a gradual adjustment to the capital ratio established in the preceding Article, financial institutions must obligatorily reach the following intermediate capital adjustment targets:

i. A capital adjustment coefficient of 8% (eight percent) by July 1, 1998, using the new weightings indicated in Article 3 of this Regulation.

ii. A capital adjustment coefficient of 9% (nine percent) by September 30, 1998, using the new weightings.

Article 5 (Gradual Adjustment Program).- Until December 31, 1997, financial entities must submit to the SBEF a gradual adjustment program that includes the following information:

i. A comparison of net equity as of December 31 1997 with that required to reach the capital adjustment coefficient of 8% (eight percent), using the new weightings.

ii. A projection as of December 31, 1998 of the net equity required to reach the capital adjustment coefficient of 10% (ten percent), using the new weightings.

iii. An indicative schedule, with quarterly intervals, of the projected adjustments during the year 1998 to reach the capital ratios mentioned in articles 3 and 4 of this Regulation.

Article 6 (New Entities).- Financial entities that obtain their operating license after the issuance of this Regulation, must comply with these provisions from the time they begin operations.

CHAPTER III QUALIFICATION

Article 7 (Bank Qualification).- With the purpose of complying with what is stipulated in item 3 of subsection b) of Article 33 of Law 1670, the following will be considered First Line Banks:

i. National banks authorized by the BCB as Accredited Financial Entities (AFE). This criterion will remain in force until December 31, 1999 or until there are risk ratings, by companies of recognized prestige, accepted by the Board of the BCB.

From January 1, 2000, national banks to be considered First Line must reach at least the IC-C rating of "Intra-Country Issuer Rating" according to Thomson BankWatch or an equivalent rating by a risk rating company of recognized international prestige.

ii. Foreign banks rated at least at the rating B of the "Global Issuer Rating" or the rating IC- B of "Intra-Country Issuer Rating" according to Thomson BankWatch, or an equivalent rating by a company of recognized international prestige.

Article 8 (Register of Qualified Banks).- The SBEF will maintain a register of qualified national and foreign banks of the first line. Banks may request the SBEF to incorporate new banks into the register, provided they comply with the provisions of the previous article.

CHAPTER IV RISK WEIGHTING COEFFICIENTS OF ASSETS AND CONTINGENCIES

Article 9 (Weighting Coefficients).- In application of what is provided in subsection c) of Article 33 of Law 1670, operations not foreseen in subsection b) of said article are determined, assigning them the following weighting coefficients according to their risks:

I. Zero percent (0%) for: i. Investments in negotiable securities of the Treasury and of Agencies of the Federal Government of the United States of North America. Negotiable securities of the Treasury of countries with a country risk rating of Aaa. None of these investments can have a term greater than 2 (two) years. The list of authorized securities is included in the Annex to this Regulation, which may be modified if the country ratings change.

ii. Repo operations with securities issued by the BCB or the National Treasury, provided they are registered and deposited in custody at the BCB.

iii. Accrued products receivable from BCB or National Treasury securities, or from authorized foreign securities, included in the Annex to this Regulation.

iv. Currency swap operations, originated at the BCB.

v. Repo operations with Treasury Bonds of the United States or of countries with a country risk rating of Aaa or of entities with a rating of at least Aa.

vi. Participations, net of provisions, in non-consolidated financial and related entities, deducted from their net equity.

vii. Contingent operations guaranteed with cash deposits constituted in the bank itself or by Central Banks of other countries, such as letters of credit, granted guarantees, counter-guaranteed guarantee bonds, discounted documents, committed credit lines and other contingent operations that, meeting the guarantee requirements mentioned above, are not oriented to guarantee financial operations.

II. Twenty percent (20%) for: i. Funds in banks and correspondents in the country and abroad, qualified as first line.

ii. Immediate collection documents through the clearing house, direct collection in the country and abroad, from entities qualified as first line.

iii. Temporary and permanent investments in fixed income securities and deposits in financial entities in the country and abroad, qualified as first line, net of provisions, excluding subordinated credit.

iv. Accrued products receivable on funds, temporary investments, active portfolio and permanent investments in

v. Assets received in administration.

vi. Assets received in trust.

vii. Currency swap operations, originated at banks that have first-line qualification.

viii. Sales of currencies to the future, net of provisions, to first-line entities.

ix. Self-liquidating contingent operations, guaranteed by national or foreign first-line banks, or guaranteed by the same shipments, with a validity of less than one year, such as confirmed letters of credit, standby letters of credit, granted guarantees, counter-guaranteed guarantee bonds, discounted documents, committed credit lines.

III. Fifty percent (50%): In accordance with item 4 of subsection b) of Article 33 of the Law 1670, this weighting will be applied to credits or contingent operations greater than one year, guaranteed with a first mortgage on a house, room, urban or rural, occupied or rented by the debtor, up to the amount of the value of the mortgage. This weighting will not apply to credits given to natural or legal persons, whose commercial activity is the construction and sale of housing.

IV. One hundred percent (100%) for:

i. Operations not contemplated in the previous items.

ii. Operations not contemplated in Article 33, subsection b) items 1 to 4, of Law 1670.

ANNEX LIST OF AUTHORIZED SECURITIES, CORRESPONDING TO COUNTRIES WITH A RATING OF Aaa

UNITED STATES OF NORTH AMERICA TREASURIES -T- Bills (Discount) -T- Notes (With coupon) -Zero Coupon Bonds AGENCIES -Federal National Mortgage Association (Fannie Mae) securities. -Federal Home Loan Bank System (FHLB) securities. -Federal Loan Bank Mortgage Corporation (Freddie Mac) securities. -Student Loan Marketing Association (Sallie Mae) securities. JAPAN -Government Bonds (JGB'S) UNITED KINGDOM -Government Bonds (GILTS) GERMANY -Government Bonds (BUNDS) AUSTRIA -Government Bonds (Austrian Bunds) SWITZERLAND -Government Bonds (Swiss Bonds) FRANCE -Government Bonds (OAT'S) NETHERLANDS -Government Bonds (Dutch Loans) -- o --