New form for fixed term deposits

On, June 27, 2006 the Central Bank of the Republic of Argentina (the “BCRA”) issued Communication “A” 4543 (the “Communication”) which amends the regulations governing fixed term deposits and investments, incorporating a new form to make fixed term deposits different from the ones that already existed.

Before the issuance of the Communication those who wanted to make a fixed term deposit had to choose between a fixed interest rate with a minimum term of 30 days or a variable interest rate with a minimum term of 120 days. Also, the variable rate consisted of a minimum interest equivalent to the interest rate of one of the following surveys published by the BCRA: (i) fixed term deposits with terms of 30 days or more (average); (ii) loans given to holders that are and are not part of the financial sector (from the average interest rate of this option, the depositary entities will be able to apply the discount percentage agreed with the depositor, which should remain with no variation throughout the fixed term agreed); (iii) obligations with foreign banks, connected or not (average); (iv) offered between banks - Buenos Aires; or LIBOR for terms of 30 days or more.

However, the issuance of the Communication provides for the possibility to make a fixed term deposit with a variable interest rate together with a fixed minimum interest rate that can be freely agreed upon.  Furthermore, the Communication establishes a minimum fixed term of 180 days for this kind of deposit. In this way, the depositor will receive as a return on the deposit the higher of the variable interest rate agreed or the fixed interest rate agreed.

The Communication also provides for two additional variable interest rates to be admitted, the BLADAR rate average for fixed term deposits with terms of 30 to 35 days which have more than one million Argentine Pesos or United States Dollars and the BLADAR rate of financial entities for fixed deposits with terms of 30 to 35 days which have more than one million Argentine Pesos or United States Dollars.

By means of this amendment, the BCRA intends to continue with the policy of encouraging the extension of the funding term of the financial entities, making possible a reduction in the liquidity risk that they have to face and at the same time increase the terms for the credits to the private sector and provide better administration of their risks.