New provisions concerning cooperative saving and loans institutions

On October 31, 2003, the Argentine Congress passed Law No 25,782, which modifies Law No 21,526, as amended (the "Financial Institutions Law"). The reform is mainly focused on provisions concerning cooperative saving and loans institutions ( "cooperativas de crédito" ).

The Financial Institutions Law regulates activity concerning credit intermediation. Moreover, the Financial Institutions Law expressly regulates the activity of the following market intermediation institutions: (i) commercial banks; (ii) investment banks; (iii) mortgage banks; (iv) financial corporations; (v) saving and loan societies for housing; and (vi) cooperative saving and loans institutions ( "cooperativas de crédito" ).

Cooperative saving and loans institutions originally functioned as very small regional financial institutions that were organized as cooperative societies. They received demand and time deposits solely from their associates and also granted credits solely to them as there was no minimum capital contribution established to become an associate. As cooperative saving and loans institutions are non-profit organizations, they were exempt from paying income tax and, thus, the interest rates applied to their loans were considerably lower than the ones applied by other financial institutions. By 1966, Argentina had 974 cooperative saving and loans institutions functioning which represented 10% of the deposits of the financial system.

In 1977, the Financial Institutions Law limited the cooperative saving and loans institutions' powers to receive demand deposits. This practically caused them to disappear. Pursuant to Communication "B" 7931 of the Central Bank of Argentina (the "BCRA"), which lists the different types of institutions authorized to function, as of June 30, 2003, only two cooperative saving and loans institutions exist, namely: Caja de Crédito Cooperativa La Capital del Plata Limitada and Caja de Crédito "Cuenca" Cooperativa Limitada .

Cooperative saving and loans institutions had a great disadvantage. The same BCRA regulations concerning minimum capital, liquidity and solvency ratios, to name a few, were applicable to cooperative saving and loans institutions in the exact same manner as they were applied to commercial banks. This represented a huge obstacle for the creation of new cooperative saving and loans institutions. Law No 25,782 modifies Article 4 of the Financial Institutions Law. The new wording mandates BCRA to provide particular provisions for different institutions considering the nature of each institutions and its social and economic targets. Furthermore, BCRA must issue specific regulations for cooperative saving and loans institutions.

Article 26 of the Financial Institutions Law describes the activities that may be performed by cooperative saving and loans institutions. Prior to the statutory amendment they could: (i) receive time deposits (there was no limit on the amount); (ii) grant short and medium term loans to small and intermediate corporations ( PyMES ), individuals and community service institutions; (iii) grant endorsements and guarantees; (iv) invest the funds received on short-term liquid assets; and (v) perform mandates and commissions related to their transactions.

Pursuant to Law No 25,782, cooperative saving and loans institutions can also: (i) receive demand deposits; and (ii) receive commercial letters of credit issued against the deposits they hold (to compensate the fact that they cannot provide checkbooks). Notwithstanding, cooperative saving and loans institutions can now (i) receive time deposits only up to AR$ 10,000; and (ii) be formed by individuals located within the same jurisdiction. The reform also established the minimum amount of capital contribution to become an associate at AR$ 200.

Finally, the reform expressly establishes that cooperative saving and loans institutions must be organized as cooperative societies and that they can distribute their income pro rata the services effectively used.