Flexibilization of guarantee regime for the granting of bank credits

On November 22, 2004, by issuing Communication “A” 4242, the Central Bank of the ArgentineRepublic (“BCRA”) introduced changes which make certain aspects of the regime of guarantees for the granting of bank credits more flexible, with effect for new credit transactions.

According to the BCRA, the purpose of these changes would be to facilitate the access to credit for Argentine companies -specially small and medium sized companies- making the transactions simpler and reducing the cost of financing.

In the first place, the 15% excess in the appraisal of certain documents for their discount with recourse against the assignor has been eliminated, that means, they can be taken as security at 100% of their value instead of at 85% as determined in the previous regime.This appraisal standard was introduced regarding checks with deferred payment (“cheques de pago diferido”) promissory notes (“pagarés”), bank drafts (“letras de cambio”) and credit bills (“facturas de crédito”) admissible as “A” preferred guarantees pursuant to the creditworthiness of any of the obligors under the documents.

The same change was introduced regarding securities offered by companies granting reciprocal guarantees (“sociedades de garantía recíproca”) registered with the BCRA, or provincial funds set up with the same purpose as the referred companies, which were previously appraised at 80% of their value and are now appraised at 100%.The appraisal of Argentine public securities was raised from 75% to 85% of their quotation.

In the second place, the maximum term of loans secured with certain “A” preferred guarantees that according to their nature involve a minimum risk of unequal evolution with the valuation of the loans that they secure, was extended from 6 months to 1 year. The referred extension of the maximum term was introduced, among others, regarding loans with the following guarantees: (i) cash in the same currency of the loan, (ii) fixed deposits with the financial entity that grants the loan, made in the same currency of the loan, (iii) guarantees and letters of credits of foreign banks with an international risk rating equal to or greater than “AA”, and (iv) assignment of the collection of tolls.

Finally, in relation to securities consisting of a portfolio of credit documents atomized according to the requirements of the BCRA, the internal limitations for the creditor entities were eliminated when the aggregate of the transactions made with different clients does not exceed 15% of the entity’s net worth accepted by the BCRA as a basis for the granting loans (“responsabilidad patrimonial computable”) for the previous month.