Cooperative savings and loans institutions

On August 6, 2004, the Argentine Central Bank issued Communication “A” 4183 regulating cooperative savings and loans institutions. This regulation was issued as a consequence of the amendment to the Financial Entities Law passed by the National Congress in October last year by means of Law No 25,782 (the “Law”), which provided that the Central Bank would issue specific regulations applicable to these entities in order to encourage them to reappear in the market and thus extend access to credit to groups which currently have no access to bank credit (please see “New provisions concerning cooperative saving and loans institutions”, published in Marval News # 23 of November 28, 2003).

The basics provided by the Law are that (a) the savings and loans institutions are to be incorporated as cooperative societies with no branches, (b) they can operate only with associates that have made capital contributions for a minimum of AR$ 200 and are located in the same jurisdiction as the savings and loans institution, and (c) they can grant short and medium term financing in favor of small and intermediate corporations, individuals and community service institutions.

The main aspects of the Central Bank regulations, which follow the guidelines of the Law, are:

(i) Authorization: The regulations have simplified the proceeding to obtain a license to act as savings and loan institution and have lowered the minimum capital requirements from AR$ 15 million (current minimum capital requirement for a new bank to start its activities) to a range between AR$ 100,000 and AR$ 1,000,000 depending on the size of the population of the jurisdiction where the institution is to be placed. Capital must be paid in in cash and no associate may hold more than 5% of the capital, with exceptions where the maximum is raised to 10%.

(ii) Credits: The requirements for the granting of loans have been significantly reduced. The maximum amount per borrower has been set at AR$ 50,000 and the maximum term of the loans has been set at four years for financing repayable in monthly installments and at one year for financing repayable in full at maturity or in non-periodical installments.

(iii) Credits to non associated individuals: Even though deposits with savings and loan institutions may only be made by its associates, regulations allow these institutions to grant loans to non associated individuals up to an aggregate of AR$ 25,000 per borrower.

(iv) Letters of credit: The Law authorizes savings and loans institutions to receive demand deposits. The regulations provide that they can offer the servicing of letters of credit issued against demand deposits. To such effect, the regulations have created a registry of bad letters of credit.

(v) Funding: The regulations rise from AR$ 10,000 to AR$ 12,000 the maximum amount of term deposits with savings and loans institutions. Cooperative savings and loans institutions are now allowed to sell their credit portfolio, celebrate repo transactions and obtain financing from other financial entities. Deposits with cooperative savings and loans institutions are covered by the guarantee of deposits, in the same terms as bank deposits.

(vi) Technical ratios and information regimes: The calculation of technical ratios and the accounting and information regimes have been simplified significantly in comparison to the regimes applicable to other financial entities.