Treatment of National Government Public Debt Instruments Subscribed by Financial Entities via Swap, Payment in Kind, or Exchange

"2009 - Year of Homage to Raúl SCALABRINI ORTIZ" COMMUNICATION "A" 4976 31/08/2009 TO FINANCIAL ENTITIES:
Ref.: Circular
CONAU 1 - 895
LISOL 1 - 506
OPRAC 1 - 631
Treatment of National Government Public Debt Instruments subscribed by financial entities via swap, payment in kind, or exchange.

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

“1. Establish that the National Government public debt instruments subscribed by financial entities via swap, payment in kind, or exchange for other National Government public debt instruments expressly admitted for these purposes by the competent authority, including those delivered as collateral for advances granted by the Central Bank of the Argentine Republic 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, shall be recorded at the book value (net of the proportional part of the regularizing account, if applicable) applied to that operation on the day prior to the effective date of subscription.

Subsequent to that date, financial entities may definitively opt to account for the acquired instruments according to the provisions in the previous paragraph - totally or partially - under one of the following valuation criteria, before submitting the “Monthly Accounting Information Regime, Balance Sheet” of the month in which the swap is carried out to the Superintendency of Financial and Currency Entities:

1.1. The highest value resulting from the comparison between the present value that this Institution will disseminate monthly and the net book value of its regularizing account will be used.
The entity must charge to a regularizing account 50% of the accrual of its internal rate of return. When this book value results equal to or lower than the present value disseminated by the Central Bank, the entity will remove the respective regularizing account up to the amount corresponding to the result of the difference between the present value and the net book value of the regularizing account. In the case where the instrument is expressly contemplated in the volatility list published monthly by this Institution, the quotation value will replace the present value. In the event of sale of these instruments, the balance of the regularizing account must be cancelled proportionally with a counterpart in results. The collection of income and amortization services will not imply the removal of the respective regularizing account.

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It will be admitted that these holdings be applied to repo operations without affecting their book value provided that the counterparty is any of the following:

• other financial entities in the country.
• foreign bank that has an international rating of “A” or higher granted by one of the international rating agencies admitted according to the rules on “Evaluation of financial entities”.
• Central Bank of the Argentine Republic.

1.2. These instruments will be charged to the “Investment Accounts” regime, applying the valuation criterion provided for monetary regulation instruments of the Central Bank contemplated in point 3.1.2. of those rules.
These valuation criteria will extend to the aforementioned debt instruments that are fiduciary assets of financial trusts.

2. Establish that the National Government public debt instruments subscribed by financial entities via swap, payment in kind, or exchange, referred to in point 1., will have the following regulatory treatment:

2.1. They are included in the provisions of section b) of point 8. of Communication “A” 3911 (text according to point 2. of the resolution disseminated by Communication “A” 4676), regarding excesses admitted to the limits of financing to the non-financial public sector, and

2.2. they will not require the prior authorization of the Central Bank provided for in Section 4. of the rules on “Financing to the non-financial public sector”.

3. Replace point 5. of Communication “A” 4861 with the following:

“Establish that the total value of national public titles, accounted for in “Investment Accounts” and “Special Investment Account” cannot exceed 7.5% of the total assets of the last day of the previous month.
This limit is increased by an additional 7.5%, for national public securities, that are charged in “Investment Accounts” only in the case of having been received by financial entities via swap, payment in kind, or exchange and always that the decision adopted by the financial entities in this matter implies incorporating the instruments received on the same date of effective execution of said transactions within the framework of operations arranged from 1.1.09, within the framework of the specific provisions of the competent authority in this matter. 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. The provisions provided for in this point will be observed individually. Controlling financial entities subject to consolidated supervision will also observe them on a monthly consolidated basis and, additionally and independently, quarterly.”

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4. Substitute point 2.1.2. of Section 2. of the rules on “Distribution of Results” with the following:

“2.1.2. the positive difference resulting between the book value and the market quotation value, in the case that the financial entity records public debt instruments and/or monetary regulation instruments of the Central Bank not valued at market prices, which have volatility published by the Central Bank.
When the public debt instrument appears in the list of present values published by the Central Bank, for the purposes of the aforementioned comparison, the respective present value will be used.
For the case of public debt instruments and monetary regulation instruments of the Central Bank, which do not have published volatility nor published present value by the Central Bank for that month: said value must be calculated by the financial entities based on the corresponding discounted cash flow at the internal rate of return of instruments of similar characteristics and “duration” that have volatility published by this Institution or, in default, using a yield rate that results consistent with the methodology disseminated through the website of this Institution (www.bcra.gov.ar). Likewise, the criteria indicated above will apply for the determination of valuation differences in participation certificates and debt titles of financial trusts, in the proportion that corresponds, when their underlying consists of the aforementioned instruments not valued at market price.”

5. Admit, within the framework of what is provided in Decree N°905/02, article 15, and complementary rules, that financial entities replace the National Government public debt instruments, duly affected as collateral for advances granted by the Central Bank of the Argentine Republic for the acquisition of “Boden depositantes” (Decree 905/02, art. 14), with the instruments referred to in point 1. of this communication.
   In the same way, the substitution cited in the preceding paragraph will be admitted for the following lines: i) Global Program of Credit to Micro, Small and Medium Enterprises (Communication “A” 4620 and complements) and ii) Credit Program for the Development of Production and Employment in the Province of San Juan (Communication “A” 4769 and complements), subject to the approval of the respective Executive Bodies. The instrument to be received in replacement of those delivered in swap, as collateral for the mentioned credit lines, must maintain at the date of swap an equivalent value to the cited original instruments, without prejudice to the value of the titles granted as collateral timely, with the purpose of complying with the corresponding regulatory coverage in relation to the existing debt. As long as all procedures inherent to the issuance and affectation in guarantee of the resulting instrument are fulfilled, financial entities must assume -for the cited credit lines- the irrevocable commitment to affect said asset under identical conditions as the public debt instruments subject to the swap.

6. Replace the paragraph incorporated by point 5. of Communication “A” 4898 in subsection c) of point 8. of Communication “A” 3911 (text according to point 2. of the resolution disseminated by Communication “A” 4676), with the following:

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“This period will be extended by 180 days, reaching 360 days subsequent to the date of subscription of the debt instruments received via swap, payment in kind, or exchange, for operations arranged from 1.1.09, within the framework of the specific provisions of the competent authority in this matter.
In such case, the new operations of financing to the non-financial public sector due to the effect of the cited provisions that can be granted, within the 180 days following the date of subscription of said instruments, cannot exceed the amount of the capital amortization services whose maturity would have operated during the 360 days subsequent to that same date had the pre-existing debt instruments delivered for the swap, payment in kind, or exchange been maintained, or the amount of the amortizations collected and not reinvested corresponding to all instruments of the public debt comprised during the 180 additional days that result from the application of said extension, whichever is lesser.”

Likewise, we inform you that subsequently we will send you the sheets that, in replacement of those timely provided, correspond to replace in the ordered text of the rules on “Distribution of results”, as well as the updated text of point 8. of Communication “A” 3911.
Additionally, we clarify that those instruments received via swap, payment in kind, or exchange, from 1.1.09, within the framework of the specific provisions of the competent authority in this matter, and regarding which the entity has opted, at that time, to register at the higher value between the net book value and the present value -and therefore not charge to the “Investment Account” regime-, are not covered by the limit of point 3. of this communication. Finally, we remind you that public titles can always be accounted for at quotation value provided they appear in the volatility list disseminated by the Central Bank and are not charged to any specific valuation regime.

We salute you very attentively.
CENTRAL BANK OF THE ARGENTINE REPUBLIC
Darío C. Stefanelli José I. Rutman
Manager of Issuance of Norms
Deputy General Manager of Norms