New foreign exchange regulations: Communications BCRA “A” 7104, 7105 and 7106.
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Banking and Financial Institutions Department report | New foreign exchange regulations: Communications BCRA “A” 7104, 7105 and 7106
Dear Sir or Madam,
The Central Bank of Argentina (“BCRA” for its acronym in Spanish) issued new regulations applicable to certain foreign exchange transactions and certain lending transactions. We shall explain the most salient aspects of these regulations below:
Pursuant Communication “A” 7106 (see attached), the BCRA adopted several measures that impact on the access to the foreign exchange market (the “FX Market”), which we will explain briefly below:
I. OFFSHORE FINANCIAL INDEBTEDNESS
Through this regulation, the BCRA has established restrictions for the cancellation of certain financial debts with unrelated foreign entities. Note that the payments of principal due to foreign-related companies are restricted until October 31, 2020, in accordance with the provisions of Communication “A” 7094 (see our report).
In this sense, it is established that principal services scheduled from October 15th, 2020 to March 31st, 2021, related to offshore financial indebtedness or debt securities registered in Argentina whose obligations are denominated in foreign currency (it is not clear if debts that are denominated in foreign currency but payable in local currency are also comprehended), are subject to a refinancing plan (the “Refinancing Plan”) to be filed to the BCRA. The Refinancing Plan shall include the following provisions:
(i) That only 40% of the amount of the principal owed and payable within the term shall be paid through the local foreign exchange market; and
(ii) That the remaining 60% must have been refinanced in order for the average life of the debt be increased, to a minimum of 2 years.
The language included in the BCRA’s Communication is in the past tense. We emphasize this because this seems to indicate that the Refinancing Plan should be agreed upon and executed. We assume that this is a mistake since it is would practically be impossible to agree a Refinancing Plan on the short terms established by this regulation.
The regulations enable that new foreign financial indebtedness is obtained by the residents subject to the filing of the Refinancing Plan, which should be used to cancel the debt which would have been subject to the refinance, provided that certain requirements are met.
Additionally, regarding debt securities issued in foreign currency registered in an Argentine registry, it is stated that it will be admitted to issuing new debt securities for this, provided that the conditions set forth in Section 3.6.4. of the Reinstated Text of the Foreign Exchange Regulations.
It is important to point out that these measures will not be applicable regarding (a) foreign financial indebtedness granted by international organizations, associated agencies or guaranteed by them; (b) foreign financial indebtedness granted by official credit agencies or guaranteed by them, or (c) if the amount of the principal that shall be canceled through the FX Market does not exceed the equivalent of US$ 1,000,000 per calendar month.
This obligation, which would be a kind of informative regime (regardless of the Survey of Foreign Assets and Liabilities, set forth by Communication “A” 6401), shall be fulfilled according to the following schedule:
– Debts due before December 31st, 2020: The Refinancing Plan must be submitted until September 30th, 2020; and
– Debts due between January 1st and March 31st, 2021: The Refinancing Plan must be submitted at least 30 calendar days before to the maturity of the capital to be refinanced.
Finally, it is important to point out that there are no penalties or sanctions established in case of not complying with the filing of the Refinancing Plan. The Communication does not establish if, for example, for not filing the Refinancing Plan, the debtor would not be able to access the FX Market. It is likely will be later clarified the BCRA.
II. TRANSACTIONS WITH SECURITIES
Regarding this point, please see our Report of the Department of Banks and Financial Institutions and the Department of Capital Markets.
III. TRANSACTIONS PERFORMED BY PHYSICAL PERSONS
Finally, certain restrictions were placed on operations carried out by an individual, which we will explain below:
A. Credit and debit card transactions
It is established that:
(i) Consumption abroad with a debit card (paid by debit linked to an account in pesos); and
(ii) The amounts in foreign currency acquired as of September 1, 2020, for (a) the cancellation of obligations between residents (as provided in point 3.6 of the reinstated text of Foreign Exchange Regulations); and (b) payments for consumption in foreign currency made by credit cards;
Shall be deducted, as of the following calendar month, from the maximum established for the acquisition of foreign currency for the formation of foreign assets (today that amount is US$200 monthly).
If the amount acquired in foreign currency is greater than the maximum available for the following month or the same has already been absorbed by other purchases as described above, the amounts to be deducted shall be deducted from the computable maximums in the following months until the excess is absorbed.
In conclusion, although there is no limit established for the consumption that can be made with credit cards or payments of debts with residents if the purchase exceeds the monthly limit of US $ 200, such excess will be deducted from the applicable capacity towards the future.
B. Soft loans and UVA mortgage loans
It was established that the individuals who have benefited from the provisions stated in section 4 of Communication “A” 6949 (see our report), or in section 2 of Decree No. 319/20 (see our report), will not be able to access the FX Market for the creation of foreign assets; nor to arrange in Argentine the sale of securities to be settled in foreign currency; or to transfer them to depositary entities abroad. These restrictions will be in effect until these benefits are paid or expired, depending on the case.
Pursuant to Communication “A” 7105 (see attached), as of September 15th, the BCRA established new requirements that financial institutions must control for the opening of bank accounts in foreign currency for physical persons, as well as for those already open.
I. Opening of new savings banks denominated in foreign currency: Prior to the opening of bank accounts in foreign currency, financial institutions must control that the client has income and assets which are consistent with the savings in a foreign currency he intends to make, and they are not beneficiaries of any social assistance program.
II. Banks accounts already opened: In this sense, prior to crediting new funds (except those coming from offshore transfers), financial institutions must follow the same procedure regarding the consistency of the client’s income and/or assets with the foreign currency savings they intend to make, as well as the reviewing if the client is a beneficiary of any social assistance program.
III. Joint accounts: In case there are several bank account holders (e.g. joint accounts), said account shall only have foreign currency credits belonging to one of the account holders. This means that only one of the co-holders may acquire foreign currency through the use of such an account. Nevertheless, the co-holder who did not operate due to the application of this restriction may acquire foreign currency in other accounts held by him or her, provided compliance with the applicable requirements.
Pursuant this regulation the BCRA established new limits to granting of loans that financial institutions to be disbursed to entities deemed as “large export companies”.
In this sense, effective as of September 15th, it was established that:
I. For the purpose of calculating the value of the financing in the local market, a concept related to the definition of “large exporting company” (today of $1,500 Million as per Section 7 of the reinstated text of “Credit Policy”), it will be considered the financing said entity has obtained in foreign currency, whereas it only previously comprehended the financings obtain in local currency.
II. Financial institutions must request prior approval of the BCRA before disbursing any “new” financing in foreign currency to clients covered by the definition of “large export companies”;
III. Finally, it is established that no new disbursements may be made with respect to existing financing to clients categorized as “large export companies” if the limits set forth in point 7.1. of the “Credit Policy” regulations are exceeded.
Please, do not hesitate to contact us should you require any further information on this matter.
Sincerely,
Pablo J. Torretta