Valuation of Public Sector Assets. Modifications. — BCRA — AR

“2004 - Year of the Argentine Antarctic”

BANCO CENTRAL DE LA REPÚBLICA ARGENTINA
COMMUNICATION “A” 4163 02/07/2004

TO FINANCIAL ENTITIES:
Ref.: Circular
CONAU 1 - 660
OPRAC 1 - 573
Valuation of public sector assets. Modifications.

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

“1. Replace the third paragraph of point 1. of the Annex to Communication “A” 4155, with the following:

“Assets delivered as collateral for advances granted by the Central Bank of the Republic of Argentina for the subscription of the 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 preceding treatment, at the definitive option of the entities -for part or all of the advances- given the provisions of article 17 of the aforementioned decree, in which case they will be recorded at the admitted value for the purposes of the constitution of the guarantees updated, if applicable to the instrument, by the “Reference Stabilization Coefficient”.”

Incorporate into section v) of point 1. of the Annex to Communication “A” 4155 the following paragraph:

“In the case of titles originally issued in foreign currency that have been converted to pesos, for such purposes the reexpressed nominal value in national currency will be considered, updating both amounts -accounting and nominal- by the “Reference Stabilization Coefficient” if its application has been provided for.”

Replace point 2. of Communication “A” 3911 -text according to point 2. of the annex to Communication “A” 4155- with the following:

“Establish that for the purposes of determining the present value of the portfolio included in point 1., from the March 2003 balances onwards, 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	Annual Nominal 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 %
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 quotations in the market of national public titles of similar average life term (“modified duration”), grouped in segments (zones) according to that term.

For the purposes of calculating 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 preceding 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 their case in each of the months of the corresponding periods, regardless of the dates on which the maturities of the pertinent services and/or payments operate.

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 adjustable by CER and CVS 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.”

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 (annex to Communication “A” 4155).

We salute you very attentively.

BANCO CENTRAL DE LA REPUBLICA ARGENTINA
Alfredo A. Besio
Manager of Issuance of Standards

José Rutman
Principal Manager of Standards

ANNEX

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 and “B” 7782 and 8131)
Annex to
Com. “A”
4163

Establish that the following assets that entities maintain in their portfolio or incorporate 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 under Decree 1387/01.

b) Public titles that have not been subject to minimum capital requirement for market risk for not meeting the established requirements, usual quotation in markets for relevant transactions, etc. -except the instruments detailed in section v)-. Also included are holdings of new issuances of national public titles, as long as their volatility is not reported.

c) Promissory notes issued by the Fiduciary Fund for Provincial Development under 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 under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms. The use of this valuation method will be optional -in replacement of market value- and cannot be used for incorporations not linked to the provisions cited above. This aforementioned choice may be modified subsequently by the “market value” criterion, which, once used, must encompass the entire portfolio and will have the character of a definitive option.

The 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”, the application of the present value being optional according to what was established above. The exercise of that option will have definitive character.

Assets delivered as collateral for advances granted by the Central Bank of the Republic of Argentina for the subscription of the 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 preceding treatment, at the definitive option of the entities -for part or all of the advances- given the provisions of article 17 of the aforementioned decree, in which case they will be recorded at the admitted value for the purposes of the constitution of the guarantees updated, if applicable to the instrument, by the “Reference Stabilization Coefficient”.

Consequently, that 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 according to what is established in articles 28 and 29 of Decree 905/02 and in Chapter II of Law 25.796 (Annex II to Decree 117/04) that can be maintained at technical value (point 3.6. of Section 3. of the norms 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 under Decree 979/01, and other non-financial public sector instruments 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 nominal value corresponding to that date, in its case net of write-offs or of the proportional part of transformation into tax options that could be exercised subsequently, of the lowest percentage resulting from the net present value method with respect to the assets covered by that 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 such purposes the reexpressed nominal value in national currency will be considered, updating both amounts -accounting and nominal- by the “Reference Stabilization Coefficient” if its application has been provided for.

Establish that for the purposes of determining the present value of the portfolio included in point 1., from the March 2003 balances onwards, 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	Annual Nominal 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	Annual Nominal 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

For the purposes of calculating 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.

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 regularizing 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 imputed to results.

Monthly, the balance yielded by that account will be adjusted based on the amount determined by performing the calculation of the sum of the differences between said concepts until exhausted. If there is an unapplied remainder, it will be imputed to results.

Once said balance is exhausted, the differences -positive or negative- that are subsequently registered by the valuation according to the “present value” criterion will be imputed directly to results.

When amortizations of the instruments occur, if there is a balance in the regularizing account, this will be adjusted with a counterpart in results for up to the amount obtained by applying the proportion that the amortization represents, calculated on the nominal value, to the difference between the accounting value (present value or technical value, the lower) and the theoretical value of the instrument.

The 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 imputed to results.

In the cases of incorporations of included assets subsequent to 28.2.03, without prejudice to the observance of the regulations resulting applicable for them, the registration of the differences originating from the application of the procedure referred to in this point will be made in a specific regularizing account, distinct from the one 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 under Decree 1387/01:
The balance registered as of 28.2.03 in the accounting -capitals- for each instrument net of the asset regularizing 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 regularizing account (code 131193) must be reversed.

ii) Promissory Notes or Bonds (according to option) issued by the Fiduciary Fund for Provincial Development under Decree 1579/02, Resolution 539/02 of the Ministry of Economy and complementary norms.

Initially, the amount at which the respective instruments that were 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 the 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) Incorporations subsequent to 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.

Dispose that the debt instruments that financial entities receive under the Mortgage Refinancing System -Law 25.798-, shall be recorded at their present value according to the guidelines established in point 2., not exceeding the technical value.

Initially, the difference between the present value and the corresponding nominal value will be imputed against the regularizing account enabled for these instruments. Subsequently, the valuation differences arising each month by the application of the present value method will also be imputed against the regularizing account or, in its defect, once the balance is exhausted, directly to results.

From the moment that the bonds received for the matured and unpaid installments have normal and usual 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 regularizing account must be reversed with a counterpart in results, in the proportion that they represent with respect to the total nominal value received for that concept -60%, 40% or 100%, depending on whether it is the bond with a maturity of 2.5 years, 10 years or both, respectively.-