SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 20-F
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o
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REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
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OR
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x
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period
from to
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OR
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o
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SHELL COMPANY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Date
of event requiring this shell company report
For
the transition period
from to
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Commission file number:
001-12568
BBVA BANCO FRANCÉS
S.A.
(Exact name of Registrant as
specified in its charter)
BBVA FRENCH BANK
(Translation of Registrant’s name
into English)
Republic of
Argentina
(Jurisdiction of incorporation or
organization)
Reconquista 199
(C1003ABB) Buenos Aires. Republic of
Argentina
(Address of principal executive
offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
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Title of each
class
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Name of each
exchange on which registered
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American
Depositary Shares, each representing the right to receive three ordinary
shares, par value Ps.1.00 per share
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New
York Stock Exchange
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Ordinary
shares, par value Ps.1.00 per share
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New
York Stock Exchange*
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* The
ordinary shares are not listed for trading, but are listed only in connection
with the registration of the American Depositary Shares, pursuant
to requirements of the New York Stock Exchange.
Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
The number
of outstanding shares of each of the classes of capital or common stock of the
registrant
as of the
close of the period covered by the annual report:
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Title of
class
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Number of
shares outstanding
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Ordinary
Shares, par value Ps.1.00 per share
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471,361,306
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Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities
Act. o Yes x No
If this report is an annual or
transition report, indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. o
Yes x No
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has
been subject to such filing requirements for
the past 90 days: x
Yes o No
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer o
Indicate
by check mark which financial statement item the registrant has elected to
follow: o Item
17 x Item
18
If this is an annual report, indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange
Act). o Yes x No
TABLE
OF CONTENTS
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Page
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FORWARD-LOOKING
STATEMENTS
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1
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PRESENTATION
OF FINANCIAL INFORMATION
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1
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CERTAIN
TERMS AND CONVENTIONS
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2
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PART
I
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ITEM
1.
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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3
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ITEM
2.
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OFFER
STATISTICS AND EXPECTED TIMETABLE
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3
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ITEM
3.
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KEY
INFORMATION
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3
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ITEM
4.
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INFORMATION
ON THE COMPANY
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14
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ITEM
5.
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OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
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88
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ITEM
6.
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DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
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114
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ITEM
7.
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MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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132
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ITEM
8.
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FINANCIAL
INFORMATION
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135
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ITEM
9.
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THE
OFFER AND LISTING
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135
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ITEM
10.
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ADDITIONAL
INFORMATION
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138
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ITEM
11.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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149
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ITEM
12.
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DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
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152
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PART
II
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ITEM
13.
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DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
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153
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ITEM
14.
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MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
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153
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ITEM
15.
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CONTROLS
AND PROCEDURES
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153
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ITEM
16 A.
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AUDIT
COMMITTEE FINANCIAL EXPERT
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155
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ITEM
16 B.
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CODE
OF ETHICS
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155
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ITEM
16 C.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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156
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ITEM
16 D.
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EXEMPTIONS
FROM LISTING REQUIREMENTS FOR AUDIT COMMITTEES
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156
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ITEM
16 E.
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PURCHASES
OF EQUITY SECURITIES BY ONE ISSUER AND AFFILIATED PERSONS
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156
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PART
III
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ITEM
17.
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FINANCIAL
STATEMENTS
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157
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ITEM
18.
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FINANCIAL
STATEMENTS
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157
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ITEM
19.
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EXHIBITS
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157
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§
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Changes
in general economic, business or political or other conditions in the
Republic of Argentina (“Argentina”) or changes in general economic or
business conditions in Latin
America;
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§
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Changes
in capital markets in general that may affect policies or attitudes toward
lending to Argentina or Argentine
companies;
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§
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Increased
costs and decreased income related to macroeconomic variables such us
exchange rates and the Consumer Price Index
(“CPI”);
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§
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Unanticipated
increases in financing and other costs or the inability to obtain
additional debt or equity financing on attractive terms;
and
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§
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The
factors discussed under “Risk
Factors”.
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Accordingly, readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. BBVA
Banco Francés undertakes no
obligation to update or revise these forward-looking statements or to publicly
release the results of any revisions to these forward-looking statements. The
accompanying information in this annual report, including, without limitation,
the information under “Information on the
Company”, “Operating and
Financial Review and Prospects” and “Quantitative and
Qualitative Disclosures About Market Risk” identifies important factors that could
cause material differences between any forward-looking statements and actual
results.
PRESENTATION
OF FINANCIAL INFORMATION
General
BBVA Banco Francés S.A. (“BBVA Banco Francés”) is an Argentine bank and maintains its
financial books and records in Argentine pesos and prepares its financial
statements in conformity with the accounting rules of the Banco Central de
la República
Argentina (the “Central
Bank” or “BCRA”) related thereto (“Argentine Banking
GAAP”), which differ in some respects from generally accepted accounting
principles in Argentina (see Note 4. to our Consolidated Financial Statements)
and the accounting principles in the United States (“U.S. GAAP”). See
Note 20. to our Consolidated Financial
Statements for a description of the principal differences between Argentine
Banking GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S.
GAAP of net income and total stockholders’ equity. In this annual report,
references to “$”, “U.S.$” and “dollars” are to United States dollars, references to “Ps.” or “pesos”
are to Argentine pesos. Percentages and certain dollar and peso amounts have
been rounded for ease of presentation. Unless otherwise stated, all market share
and other industry information has been derived from information published by
the Central Bank.
The Consolidated Financial Statements
are presented in accordance with the guidelines of Technical Resolution No. 4 of
the Argentine Federation of Economic Sciences Professional Association
(Federación Argentina de Consejos Profesionales de Ciencias
Económicas—“FACPCE”), modified by Technical Resolution No. 19, and the
disclosure standards set by the Central Bank.
The Bank presents its financial
statements in equivalents purchasing power. These financial statements recognize
the effects of the changes in the purchasing power of the currency through
February 28, 2003, following the restatement method established by FACPCE
Technical Resolution No. 6 (modified by Technical Resolution No. 19), using an
adjustment rate derived from the Argentine internal Wholesale Price Index
published by the National Institute of Statistics and Census (“INDEC”) of
Argentine.
According to the above mentioned method,
the accounting measurements were restated by the purchasing power changes
through August 31, 1995. As of that date, based in the prevailing economic
stability conditions and according with the National Securities Commission
(“CNV”) General Resolution No. 272 and Central Bank Communication “A” 2365, the
accounting measures were not restated through December 31, 2001. In view of CNV General Resolution No. 415
and Central Bank Communication “A” 3702, the method was reinstated effective as
of January 1, 2002, considering the previous accounting measures restated as of
December 31, 2001.
1
By Communication “A” 3921 of the Central
Bank and General Resolution No. 441/03 of the CNV, in compliance with Decree No.
664/03 of the Federal Executive, application of the restatement method to
financial statements in equivalent purchasing power has been suspended as of
March 1, 2003. Accordingly, BBVA Banco Francés S.A. applied the mentioned
restatement method until February 28, 2003.
Unless otherwise indicated, financial
information contained in this annual report reflects the consolidation of the
following subsidiaries at and for the fiscal years indicated
below:
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December
31,
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Entity
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2007
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2006
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2005
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PSA
Finance Argentina Compañía Financiera S.A.
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X
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X
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X
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Consolidar
AFJP S.A.
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X
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X
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X
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Consolidar
Compañía de Seguros de Vida S.A. and subsidiary (1)
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X
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X
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X
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Consolidar
Compañía de Seguros de Retiro S.A. and subsidiary (1)
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X
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X
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X
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Francés
Valores Sociedad de Bolsa S.A.
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X
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X
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X
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Credilogros
Compañía Financiera S.A. and subsidiary (2)
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X
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Atuel
Fideicomisos S.A. and subsidiary
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X
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X
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X
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(1)
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In
December 2005, both Consolidar Compañía de Seguros de Vida S.A. and
Consolidar Compañía de Seguros de Retiro S.A., sold theirs entire equity
interest in Consolidar Comercializadora
S.A.
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(2)
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The
Bank sold its entire equity interest in Credilogros Compañía Financiera
S.A. to Banco de Servicios y Transacciones S.A and Grupo de Servicios y
Transacciones in March 2005 (see Note 1.4. to the Consolidated Financial
Statements).
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On January 7, 2002, Argentina abandoned the peso-dollar parity
introduced in April 1991
under Law No. 23,928 (the “Convertibility Law”). Following the initial
devaluation and the setting of an official rate exchange at Ps.1.4 per
U.S.$1.0, the peso was allowed to float, and
as of March 26, 2008 traded at approximately
Ps.3.1688 per U.S.$1.0. See “Key
Information—Exchange Rates”
for information regarding the evolution of rates of exchange since fiscal year
2002.
As used in this Form 20-F, “BBVA Banco Francés”, the “Bank”, the
“Company” and terms such as “we,” “us” and “our” mean BBVA Banco Francés S.A.
and its consolidated subsidiaries unless the context otherwise
requires.
2
-
PART I -
Not
applicable.
Not
applicable.
Recent
Events in Argentina
Substantially
all of our operations, property and customers are located in Argentina.
Therefore, the performance of our loan portfolio, our financial condition and
the results of our operations depend primarily on the macroeconomic and
political conditions prevailing in Argentina. In response to the Argentine
political and economic crisis that began in the last quarter of 2001, the
Government has undertaken numerous far-reaching initiatives that, especially in
2002, have radically changed the macroeconomic and regulatory environment in
Argentina generally, and for the financial industry in particular.
Selected
Financial Data
The
information in this section has been selected from the Consolidated Financial
Statements as of the dates and for the fiscal years indicated and gives effect
to the measures adopted by the Government since December 31, 2001. This
information should be read in conjunction with, and is qualified in its entirety
by reference to, “Risk
Factors” and “Recent
Events in Argentina”, Consolidated Financial Statements, and related
notes. The selected financial data for the fiscal years ended December 31, 2007,
2006, 2005, 2004 and 2003 are derived from the financial statements. For
information concerning the preparation and presentation of the financial
statements, see “Presentation
of Financial Information”.
See “Key Information—Recent Events in
Argentina”, “Risk
Factors—Factors Related to Argentina”, and “Risk Factors—Factor Related to BBVA
Banco Francés”.
3
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For
the Fiscal Year Ended December 31,
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2007
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2006
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2005
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2004
(9)
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2003
(9)
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||||||||||||||||
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(in
thousands of pesos) (1)
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CONSOLIDATED
INCOME STATEMENT
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Amounts
in accordance with Argentine Banking GAAP
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Financial
income
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1,904,212 | 1,936,404 | 1,654,152 | 1,154,825 | 1,883,236 | |||||||||||||||
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Financial
expenses
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(680,131 | ) | (568,345 | ) | (608,949 | ) | (458,360 | ) | (1,711,293 | ) | ||||||||||
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Gross
intermediation margin
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1,224,081 | 1,368,059 | 1,045,203 | 696,465 | 171,943 | |||||||||||||||
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Provision
for loan losses
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(62,262 | ) | (70,125 | ) | (114,628 | ) | (52,002 | ) | (77,506 | ) | ||||||||||
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Service
charge income
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1,182,789 | 915,875 | 721,167 | 584,913 | 457,778 | |||||||||||||||
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Service
charge expenses
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(158,927 | ) | (110,199 | ) | (77,764 | ) | (54,829 | ) | (49,594 | ) | ||||||||||
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Operating
expenses
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(1,124,161 | ) | (927,404 | ) | (775,835 | ) | (679,829 | ) | (711,407 | ) | ||||||||||
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(Net
other expenses) / Net other income
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(756,536 | ) | (885,473 | ) | (645,076 | ) | (458,764 | ) | 43,937 | |||||||||||
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Income
/ (Loss) before income tax
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304,984 | 290,733 | 153,067 | 35,954 | (164,849 | ) | ||||||||||||||
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Income
tax
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(50,394 | ) | (71,680 | ) | (18,712 | ) | (77,099 | ) | (189,232 | ) | ||||||||||
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Monetary
loss
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— | — | — | — | (1,091 | ) | ||||||||||||||
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Net
income / (loss)
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254,590 | 219,053 | 134,355 | (41,145 | ) | (355,172 | ) | |||||||||||||
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Net
(loss) / income on minority interests in subsidiaries
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(19,541 | ) | (39,016 | ) | (17,151 | ) | (12,901 | ) | 4,844 | |||||||||||
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Final
consolidated income / (loss)
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235,049 | 180,037 | 117,204 | (54,046 | ) | (350,328 | ) | |||||||||||||
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Net
operating revenue (3)
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2,247,943 | 2,173,735 | 1,688,606 | 1,226,549 | 580,127 | |||||||||||||||
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Operating
income (4)
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1,061,520 | 1,176,206 | 798,143 | 494,718 | (208,786 | ) | ||||||||||||||
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Net
income / (loss) per ordinary shares (2)
(10)
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0.50 | 0.38 | 0.25 | (0.14 | ) | (0.95 | ) | |||||||||||||
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Net
income / (loss) per ADS (2)
(10)
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1.50 | 1.14 | 0.75 | (0.42 | ) | (2.85 | ) | |||||||||||||
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Cash
dividends per ordinary share (10)
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0.34793 | 0.19093 | 0.05728 | — | — | |||||||||||||||
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Cash
dividends per ADS (10)
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1.04379 | 0.57279 | 0.17184 | — | — | |||||||||||||||
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Net
operating income per ordinary shares (2)
(10)
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2.25 | 2.50 | 1.69 | 1.28 | (0.57 | ) | ||||||||||||||
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Net
operating income per ADS (2)
(10)
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6.75 | 7.50 | 5.07 | 3.84 | (1.71 | ) | ||||||||||||||
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Average
ordinary shares outstanding (000s) primary (10)
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471,361 | 471,361 | 471,361 | 385,334 | 368,128 | |||||||||||||||
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Net
income / (loss) per ordinary shares (2)
(11)
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0.50 | 0.38 | 0.25 | (0.13 | ) | (0.95 | ) | |||||||||||||
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Net
income / (loss) per ADS (2)
(11)
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1.50 | 1.14 | 0.75 | (0.39 | ) | (2.85 | ) | |||||||||||||
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Cash
dividends per ordinary share (11)
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0.34793 | 0.19093 | 0.05728 | — | — | |||||||||||||||
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Cash
dividends per ADS (11)
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1.04379 | 0.57279 | 0.17184 | — | — | |||||||||||||||
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Net
operating income per ordinary shares (2)
(11)
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2.25 | 2.50 | 1.69 | 1.18 | (0.57 | ) | ||||||||||||||
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Net
operating income per ADS (2)
(11)
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6.75 | 7.50 | 5.07 | 3.54 | (1.71 | ) | ||||||||||||||
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Average
ordinary shares outstanding (000s) primary (11)
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471,361 | 471,361 | 471,361 | 419,745 | 368,128 | |||||||||||||||
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Amounts
in accordance with U.S. GAAP:
|
||||||||||||||||||||
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Net
income / (loss)
|
909,080 | 977,543 | 1,634,612 | 1,407,519 | (26,356 | ) | ||||||||||||||
|
Net
income / (loss) per ordinary share (2)
(10)
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1.93 | 2.07 | 3.47 | 3.65 | (0.07 | ) | ||||||||||||||
|
Net
income / (loss) per ADS (2)
(10)
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5.79 | 6.21 | 10.41 | 10.95 | (0.21 | ) | ||||||||||||||
|
Average
ordinary shares outstanding (000s) primary (10)
|
471,361 | 471,361 | 471,361 | 385,334 | 368,128 | |||||||||||||||
|
Net
income / (loss) per ordinary share (2)
(11)
|
1.93 | 2.07 | 3.47 | 3.35 | (0.07 | ) | ||||||||||||||
|
Net
income / (loss) per ADS (2)
(11)
|
5.79 | 6.21 | 10.41 | 10.05 | (0.21 | ) | ||||||||||||||
|
Average
ordinary shares outstanding (000s) primary (11)
|
471,361 | 471,361 | 471,361 | 419,745 | 368,128 | |||||||||||||||
4
| For the Fiscal Year Ended December 31, | ||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
(9)
|
2003
(9)
|
||||||||||||||||
| (in thousands of pesos) (1) | ||||||||||||||||||||
|
CONSOLIDATED
BALANCE SHEET
|
||||||||||||||||||||
|
Amounts
in accordance with Argentine Banking GAAP
|
||||||||||||||||||||
|
Cash
and due from banks
|
3,169,314 | 2,558,484 | 1,611,506 | 1,666,617 | 1,639,154 | |||||||||||||||
|
Government
and private securities
|
5,181,253 | 4,372,032 | 3,504,311 | 2,476,948 | 3,042,451 | |||||||||||||||
|
Loans,
net of allowances
|
11,390,121 | 9,534,183 | 8,481,476 | 9,268,723 | 8,336,352 | |||||||||||||||
|
Other
assets
|
2,282,311 | 2,369,930 | 2,386,455 | 2,629,384 | 3,339,882 | |||||||||||||||
|
Total
assets
|
22,022,999 | 18,834,629 | 15,983,748 | 16,041,672 | 16,357,839 | |||||||||||||||
|
Deposits
|
15,009,758 | 12,505,756 | 10,613,086 | 8,993,780 | 8,078,216 | |||||||||||||||
|
Other
liabilities and minority interest in subsidiaries
|
4,956,404 | 4,374,289 | 3,569,115 | 5,363,549 | 6,705,646 | |||||||||||||||
|
Total
liabilities and minority interest in subsidiaries
|
19,966,162 | 16,880,045 | 14,182,201 | 14,357,329 | 14,783,862 | |||||||||||||||
|
Capital
stock
|
471,361 | 471,361 | 471,361 | 471,361 | 368,128 | |||||||||||||||
|
Issuance
premiums
|
175,132 | 175,132 | 175,132 | 1,195,390 | 934,211 | |||||||||||||||
|
Adjustments
to stockholders’ equity
|
312,979 | 312,979 | 312,979 | 769,904 | 769,904 | |||||||||||||||
|
Retained
earnings
|
547,381 | 465,317 | 428,698 | 430,500 | 430,500 | |||||||||||||||
|
Unrealized
valuation difference
|
(42,796 | ) | — | 230,282 | 230,282 | 430,282 | ||||||||||||||
|
Unappropriated
earnings
|
592,780 | 529,795 | 183,095 | (1,413,094 | ) | (1,359,048 | ) | |||||||||||||
|
Total
stockholders’ equity
|
2,056,837 | 1,954,584 | 1,801,547 | 1,684,343 | 1,573,977 | |||||||||||||||
|
Amounts
in accordance with U.S. GAAP
|
||||||||||||||||||||
|
Total
assets
|
23,266,358 | 19,230,659 | 15,421,682 | 14,069,122 | 12,440,507 | |||||||||||||||
|
Total
stockholders’ equity
|
1,944,331 | 1,219,846 | 246,268 | (1,325,801 | ) | (3,010,278 | ) | |||||||||||||
|
SELECTED
RATIOS IN ACCORDANCE WITH
ARGENTINE
BANKING GAAP
|
||||||||||||||||||||
|
Profitability
and Performance
|
||||||||||||||||||||
|
Return
on average total assets (5)
|
1.15 | % | 1.03 | % | 0.73 | % | (0.33 | )% | (2.15 | )% | ||||||||||
|
Return
on average stockholders’ equity (6)
|
11.72 | % | 9.59 | % | 6.72 | % | (3.32 | )% | (20.03 | )% | ||||||||||
|
Services
charge income as a percentage of operating expenses
|
105.22 | % | 98.76 | % | 92.95 | % | 86.04 | % | 64.35 | % | ||||||||||
|
Operating
expenses as a percentage of average total assets (7)
|
5.50 | % | 5.33 | % | 4.85 | % | 4.20 | % | 4.38 | % | ||||||||||
|
Capital
|
||||||||||||||||||||
|
Stockholders’
equity as a percentage of total assets
|
9.34 | % | 10.38 | % | 11.27 | % | 10.50 | % | 9.62 | % | ||||||||||
|
Total
liabilities as a multiple of stockholders’ equity
|
9.71 | x | 8.64 | x | 7.87 | x | 8.52 | x | 9.39 | x | ||||||||||
|
Credit
Quality
|
||||||||||||||||||||
|
Allowances
for loan losses as a percentage of total loans
|
1.71 | % | 1.72 | % | 2.13 | % | 2.14 | % | 5.22 | % | ||||||||||
|
Non-performing
loans as a percentage of gross loans (8)
|
0.54 | % | 0.82 | % | 1.08 | % | 1.11 | % | 6.66 | % | ||||||||||
|
Allowances
for loan losses as a percentage of non-performing loans (8)
|
315.55 | % | 209.20 | % | 197.80 | % | 192.79 | % | 78.39 | % | ||||||||||
|
(1)
|
Except
per-share and per-ADS data and financial ratios.
|
|
(2)
|
Assumes
average ordinary shares outstanding in each period. The cash dividend
amounts do not reflect any deduction for certain charges that are taken
with regard to the “American Depositary Receipts”.
|
|
(3)
|
Includes:
financial income, financial expenses, service charge income and service
charge expenses.
|
|
(4)
|
Includes:
financial income, financial expenses, provision for loan losses, services
charge income, service charge expenses and operating
expenses.
|
|
(5)
|
Net
income as a percentage of average total assets, computed as the average of
fiscal-year-beginning and fiscal-year-ending balances.
|
|
(6)
|
Net
income as a percentage of average stockholders’ equity, computed as the
average of fiscal-year-beginning and fiscal-year-ending
balances.
|
|
(7)
|
Operating
expenses as a percentage of average total assets, computed as the average
of fiscal-year-beginning and fiscal-year-ending
balances.
|
|
(8)
|
Non-performing
loans include all loans to borrowers classified as “Problem”, “Medium
Risk”, “High Risk of Insolvency”, “High Risk”, “Irrecoverable” and
“Irrecoverable for Technical Decision” according to the Central Bank’s
loan classification system as well as all loans contractually past due 90
days or more. See “Information on the
Company—Selected Statistical Information—Allowance for Loan Losses and
Loan Loss Experience”.
|
|
(9)
|
Restated
from its original version to apply the adjustments to prior years income
to these Consolidated Financial Statements related with Argentine Central
Bank regulations.
|
|
(10)
|
The
average ordinary shares outstanding was computed as the average of the
previous twelve months.
|
|
(11)
|
The
average ordinary shares outstanding was computed as the average of
fiscal-year-beginning and
fiscal-year-ended.
|
5
Cash
Dividends
The table
below shows the cash dividends paid on each ordinary share and the equivalent of
those dividends expressed in terms of dividends per American Depositary Share,
each representing three ordinary shares (the “ADSs”), in each case adjusted for
all stock dividends during the relevant periods. The Central Bank requires that
we maintain 20% of our net income in legal reserves.
|
Cash
Dividends
Per
Ordinary Share
|
Cash
Dividends Per
ADS
|
|||||||||||||||
|
Ps.(1)
|
U.S.$
|
Ps.(1)
|
U.S.$
|
|||||||||||||
|
December
31, 2007 (3)
(4)
|
0.34793 | 1.10252 | 1.04379 | 3.30756 | ||||||||||||
|
December
31, 2006 (2)
(3)
|
0.19093 | 0.58816 | 0.57279 | 1.76448 | ||||||||||||
|
December
31, 2005 (2)
(3)
|
0.05728 | 0.17619 | 0.17184 | 0.52858 | ||||||||||||
|
December
31, 2004 (3)
|
— | — | — | — | ||||||||||||
|
December
31, 2003 (3)
|
— | — | — | — | ||||||||||||
|
|
(1)
|
Historical
values.
|
|
|
(2)
|
Based
upon the reference exchange rate quoted by Central Bank on the date of
payment.
|
|
|
(3)
|
On
April 2002, the Central Bank suspended the payment of dividends by
Argentine financial institutions. As of June 2, 2004 the Central Bank will
make some exceptions to the suspension of profits distributions and may
pre-authorize dividend payments under certain conditions. See “Financial Information –
Dividends”.
|
|
|
(4)
|
Based
upon the reference exchange rate quoted by Central Bank at March
26,2008.
|
Exchange
Rates
The
following table shows the annual high, low, average and year-end free exchange
rate for dollars for the periods indicated. The Federal Reserve Bank of New York
does not report a noon buying rate for pesos.
|
Year
/Period
|
High
|
Low
|
Average
(1)
|
||||||
|
February
2008 (2)
|
Ps.
|
3.1695
|
Ps.
|
3.1505
|
Ps.
|
3.1583
|
|||
|
January
2008 (2)
|
Ps.
|
3.1575
|
Ps.
|
3.1282
|
Ps.
|
3.1444
|
|||
|
2007
(2)
|
Ps.
|
3.1797
|
Ps.
|
3.0553
|
Ps.
|
3.1156
|
|||
|
December
2007 (2)
|
Ps.
|
3.1510
|
Ps.
|
3.1318
|
Ps.
|
3.1397
|
|||
|
November
2007 (2)
|
Ps.
|
3.1492
|
Ps.
|
3.1242
|
Ps.
|
3.1359
|
|||
|
October
2007 (2)
|
Ps.
|
3.1797
|
Ps.
|
3.1470
|
Ps.
|
3.1604
|
|||
|
September
2007 (2)
|
Ps.
|
3.1652
|
Ps.
|
3.1318
|
Ps.
|
3.1475
|
|||
|
2006
(2)
|
Ps.
|
3.1072
|
Ps.
|
3.0305
|
Ps.
|
3.0741
|
|||
|
2005
(2)
|
Ps.
|
3.0523
|
Ps.
|
2.8592
|
Ps.
|
2.9232
|
|||
|
2004
(2)
|
Ps.
|
3.0718
|
Ps.
|
2.8037
|
Ps.
|
2.9415
|
|||
|
2003
(2)
|
Ps.
|
3.3625
|
Ps.
|
2.7485
|
Ps.
|
2.9493
|
|||
|
|
(1)
|
The
average of monthly average rates during the
period.
|
|
|
(2)
|
Source:
Central Bank.
|
The
exchange rate on March 26,
2008 was Ps.3.1688 =
U.S.$1.00.
Fluctuations
in the exchange rate between pesos and dollars affect the dollar equivalent of
the peso price of the ordinary shares on the Buenos Aires Stock Exchange (Bolsa
de Comercio de Buenos Aires — the “BCBA”) and as a result, would most likely
affect the market price of the ADSs. Fluctuations in exchange rates also affect
dividend income measured in dollars. The Bank of New York, as depositary for the
ADSs is required, subject to the terms of the deposit agreement, to convert
pesos to dollars at the prevailing exchange rate at the time of making any
dividend payments or other distributions. The following table shows the rate of
devaluation of the peso vis-à-vis the dollar, the rate of exchange (number of
pesos per dollar prevailing in the Argentine foreign exchange market) and the
rate of inflation for wholesale prices for fiscal year ended December 31, 2007
and for the four most recent fiscal years. Since the repeal of the
Convertibility Law in January 2002, the peso has devalued approximately 216.88%
vis-à-vis the dollar.
|
For
the Fiscal Year Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Devaluation
Rate
|
2.66 | % | 1.25 | % | 1.94 | % | 1.39 | % | (12.71 | )% | ||||||||||
|
Exchange
Rate
|
3.1510 | 3.0695 | 3.0315 | 2.9738 | 2.9330 | |||||||||||||||
|
Inflation
Rate (1)
|
14.56 | % | 7.17 | % | 10.59 | % | 7.92 | % | 1.84 | % | ||||||||||
6
Risk
Factors
Factors
Related to Argentina
Overview
In this
context, on May 25, 2003, Néstor Kirchner became the new President of Argentina,
for a term that expired on December 10, 2007, assuming in his place Cristina
Fernández de Kirchner. Since 2003, there has been a favorable evolution in the
Argentine economy, ending the economic recession that lasted over five years.
The following economic indicators are worth mentioning:
|
i)
|
GDP
increased by 8.8%, 9.0%, 9.2%, 8.5% and 8.7% during 2003, 2004, 2005, 2006
and 2007, respectively;
|
|
|
ii)
|
Unemployment
rate declined from 20.8% to 7.5% between the 4th quarters of 2002 and
2007;
|
|
|
iii)
|
Total
deposits in the financial system grew approximately 173% between December
2002 and December 2007;
|
|
|
iv)
|
The
foreign exchange rate after the initial depreciation has remained
relatively stable at around 3 pesos per dollar, ending 2007 at 3.15 pesos
per dollar (BCRA reference);
|
|
|
v)
|
A
marked increase in the market value of Government securities, despite the
decrease registered during 2007;
|
|
|
vi)
|
The
restructuring of the Argentine Sovereign Debt completed in June 2005 with
a rate of participation by bondholders of approximately 76.15% and an
aggregate tendered amount of U.S.$62.3 billion; and
|
|
|
vii)
|
A
considerable increase of the primary balance by 2.5%, 3.9%, 3.7%, 3.5% and
3.2% of the GDP during 2003, 2004, 2005, 2006 and 2007,
respectively.
|
Although
the economic policies implemented by the Kirchner administration have succeeded
in the short and mid-terms, there still remain major issues to be resolved, such
as contracts with privatized public utilities and continuing default with
respect to the pre-existing sovereign debt of the Argentine government that did
not participate in the government’s exchange offer consummated in June 2005 (for
more information regarding the restructuring of Argentina’s sovereign debt
please see risk factor “The
incomplete restructuring of Argentina’s sovereign debt may affect the future of
economic performance”).
The
devaluation of the peso and other economic measures adopted by previous
governments, and sustained by the current Government, have stimulated economic
growth. After a period of high recession and contraction of the economy, the
ceasing of payments of Argentina’s debts, the devaluation of the “peso”, and the
increase of poverty, Argentina was able to reverse the negative trends and
resume growth.
In the
event the Argentine government is unable to implement suitable political
measures necessary to transform the actual growth of the Argentine economy into
a long term sustained increase, there is a risk of the possible reappearance of
political and economic turmoil. This could have a material and adverse effect of
the argentine economy, including the financial system.
7
A
considerable increase of the inflation rate could negatively affect the
argentine economy in general, including the access to the long term financing
market.
The
gradual reduction of the commercial deficit, together with specific price
adjustments of certain regulated and semi-regulated goods and services,
contributed to registering 6.1% retail inflation in 2004. Inflation later
accelerated, increasing to 12.3% in 2005, 9.8% in 2006 and 8.5% in 2007. In the
event of a scenario of high inflation rates, the Argentine exports could lose
competitiveness in relation to international markets, by eroding the effects of
the devaluation, which could in turn have a negative effect in the economy
activity levels and employment. Moreover, a high inflation rate could undermine
confidence in the Argentine financial system in general, and this would
negatively affect the business volume of banks, including BBVA Banco Francés,
and could potentially hinder loan activities, especially those at long term and
fixed interest rate.
According
to statistical data published by the INDEC (a national publication source),
there exists discrepancy among the CPI (consumer price indexes) corresponding to
the different Argentine regions/provinces. This generates certain uncertainty in
respect of inflation in the country as a whole. Consequently, it is to be noted
that assets indexed by CER are adjusted according to Greater Buenos Aires
CPI.
A
considerable decrease of the primary balance could negatively affect the
Argentine Economy in general, and the access to international long term
financing markets in particular.
Commencing
in 2005, primary expenditure started to increase more abruptly than public
income. Thus, the primary balance of the public non financial sector has reduced
from a 3.9% of the GDP in 2004, to a 3.2% of the GDP in 2007 . Moreover, the
primary balance could be negatively affected in the future in the event the
level of public expenditure is increased due to provisional debts, financial
assistance to the provinces with economic problems, and the granting of
subsidies to several economic activities.
Consequently,
the decrease in the primary balance due to the increase of primary expenditure
could negatively affect the future capacity of the government to access the long
term financing markets.
The
incomplete restructuring of Argentina’s sovereign debt may affect the future of
economic performance.
The
Argentine debt exchange offer closed on February 25, 2005. On March 18 2005, the
Argentine government announced the final results of the debt restructuring
process, with a rate of participation by bondholders of approximately 76.15% and
an aggregate tendered amount of U.S.$62.3 billion. Despite the high levels of
acceptance of the offer, the amounts not tendered for exchange totaled
approximately U.S.$20 billion, which creates uncertainty as to the final
resolution of the sovereign debt problem and its impact on the future
performance of the Argentine economy. The settlement of the debt exchange was
completed on June 2005 due to a delay resulting from legal action by certain
bondholders who did not participate in the exchange offer and attempted to
attach the tendered bonds. Some of these bondholders have legal actions against
the Argentine government, therefore the Treasury Department of the United States
and the IMF have insisted that the Argentine government provide a clear strategy
directed to those bondholders who did not participate in the exchange
offer.
This
circumstance, might lead to a prolonged period where no new alternatives are
offered to “hold-outs” and a significant proportion of Argentine public debt
remains in default. Therefore, sovereign credit ratings will not improve
significantly, while the risk of an attachment being made on an Argentine
international payment subsists and might adversely affect access to
international financing for the banking system.
The
stability of the foreign exchange market has led the Government to relax
currency exchange controls. However, no assurance can be given that currency
exchange controls will not again be tightened and that such circumstance will
not have a material adverse effect on the results and the solvency of the
financial system.
During the
last five years the Government established a series of currency restrictions and
foreign exchange controls. These measures included a prohibition of fund
transfers abroad as a general matter, except in connection with foreign trade
transactions, payment of purchases or withdrawals made through credit or debit
cards and settlement of financial transactions, as well as the requirement of
Central Bank’s approval to transfer funds outside of Argentina for purposes of
paying principal and interest on financial loans. Since then, the currency
restrictions and foreign exchange controls have been gradually relaxed in light
of the increasing stability in the foreign exchange market. See “Additional Information – Exchange
Controls”. While the foreign exchange system has become more flexible
under current regulations, there can be no assurance that the Government will
not again tighten these restrictions or otherwise change the current foreign
exchange system or that one or more of the types of transactions described in
this annual report will not be severely restricted. Such restrictions could have
a material adverse effect on the Argentine financial system, and on our results
of operations and financial condition.
8
Financial
institutions have made payments related to currency exchange rate differences in
the refunding of deposits as ordered by the courts, for which financial
institutions have still not been compensated. Such payments have had a material
and may continue to have an adverse effect on the liquidity and the solvency of
the financial system and on its financial condition.
The
measures adopted by the Federal Executive with respect to the political,
economic, financial and foreign exchange emergency triggered a number of legal
actions filed by individuals and companies, in the form of constitutional
protection actions (judicial injunctions resulting in the immediate release of
frozen deposits), against the Federal Government, the BCRA and Financial
Institutions as the petitioners mainly arguing that the Law on Public Emergency
and its supplementary provisions are unconstitutional. Based, mainly in the
“Kiper vs. Federal Government and Others” case, dictated by the Argentine
Supreme Court of Justice (“Supreme Court”), the courts massively started to
order through constitutional protection actions, the partial reimbursement of
bank deposits in U.S. dollars or Argentine pesos at the “floating” exchange
rate.
On March
11, 2002, the Argentine Association of Government-owned and Private Banks and
the Argentine Bank Association filed a “per saltum” appeal with the Supreme
Court under section 195 “bis” and following of the Argentine Code of Civil and
Commercial Procedure (according to the modification introduced by Law No.
25,561). The appeal was filed for the benefit of government-owned and private
banks members of such associations and was based on the Argentine institutional
and systemic crisis, and on the need to comply with effective regulations to
achieve an ordered and gradual solution for the restrictions affecting the
financial system and guaranteeing a plurality of interest.
The
Supreme Court has handed down the following decisions in relation to the claims
filed as a result of the emergency situation described above:
|
|
§
|
On March 5, 2003, the action for
the protection of constitutional rights brought against the Federal
Government by the Province of San Luis, the Banco de la Nación Argentina and the BCRA was declared to be
unconstitutional, ordering the return of the amounts deposited
in either U.S. dollars or the equivalent in
pesos at the free market rate of
exchange.
|
|
|
§
|
On July 13, 2004, in the case “Cabrera, Geronimo Rafael vs. Argentine Executive Branch on action for the protection of constitutional rights
(amparo)”, it rejected the claim of a
depositor on the grounds that the depositor had exercised his rights
within the framework of the emergency laws and collected a portion of his
deposit in pesos without reserving the right to claim the
difference in U.S.
dollars at the exchange rate prevailing in the open
market.
|
|
|
§
|
On September 14, 2004, in the case entitled “Campbell, Maria Enriqueta vda. de
Tufiño y otro vs.
Poder Ejecutivo Nacional. - Banco de Salta S.A. Grupo Macro s/ Amparo- Medida
Cautelar”, the CSJN rejected the claim of a
depositor which was filed before the Court of original Jurisdiction and
the Court of appeal, declaring the unconstitutionality of the emergency
rule questioned regarding the pesification of the deposit funds in foreign
currency.
|
|
|
§
|
On October 26, 2004, in the case entitled “Bustos Alberto Roque y otros vs. Poder Ejecutivo
Nacional y otros s/ Amparo”, the Supreme Court revoked a
decision on the protection of constitutional rights (amparo), declaring
that such action is not adequate for such claim and upheld the
constitutionality of the rule by which the Argentine economy was
pesificated due to the economic, financial and exchange emergency
situation which the country is going through, also confirmed by Congress
Law. The revoked decision of the Original
Jurisdiction does not state how the Judge of this jurisdiction will
resolve the fulfilment of the Court and for such reason proceed to the
refund of the amount already paid due to the legal claims ordered by a
Grade Judge.
|
|
|
§
|
On December 27, 2006 in the case “Massa, Juan Agustin vs. Poder Ejecutivo
Nacional s/
Amparo” the Supreme Court confirmed the
constitutionality of the emergency legislation during 2001, 2002 regarding
the pesification of the argentine economy and stated the
calculation method
applicable for the restitution of the deposits in the financial system
subject to the mentioned emergency legislation. This calculation method is
substantially different from the method that was originally enforced by
the Executive Branch because it entitles each deposit holder
to receive from the corresponding financial institution the reimbursement
of his deposit at an exchange rate of Ps.1.4 = U.S.$1, adjusted by the benchmark
stabilization coefficient known as and herein referred to as “CER” until payment date, plus a 4%
annual compensatory interest for every concept which cannot be
capitalized. CER is a stabilization coefficient applicable to debt
obligations that have been pesificated as form February 4, 2002. This
coefficient is calculated according to the variation of the
Consumer Price Index published by a government dependent organism known as
INDEC. Both in this court order as well as in a more recent one,
“Kujarchuk
vs/ National
Executive Power”, the
National Supreme Court establishes that the amounts withdrawn from
the bank by judicial or non-judicial court measures, will be considered as
advance payments, thus being obliged to deduce from the original tax in
foreign currency, the percentage that, once converted into such currency,
represents those payments converted
into U.S. dollars at the free market
quotation corresponding to each date. The payments thus effected
are
|
9
|
|
|
consolidated and deducted in this
way in the liquidation made in accordance with the Massa case. Legal costs are
applied in this
instance pursuant to the order thereof and according to
Appeals’Court resolutions in prior cases.
Also, the Supreme Court restricts the remaining amount to be refunded to
the limit fixed by this Court, that is to say, the value in U.S. dollars of the original
deposit.
|
Moreover,
in connection with the above commented cases, on February 3, 2004, the
Association of Argentine Bank (“ABA”), which groups all national banks of
foreign-capital, filed with the Ministry of Economy a request for compensation
of the exchange gain/loss resulting from compliance with judicial injunctions
related to constitutional protection actions commenced by holders of deposits
denominated in U.S. Dollars
prior to the alteration of the convertibility regime. The Bank has consented to
such filing.
As of the
date hereof, most Argentine banks continue to be subject to precautionary
measures and execution of judgments rendered by first or second instance courts
as well as to decisions that adhered to the Supreme Court rulings in respect to
the constitutionality of pesification and adhering to the own acts’ theory (as
described in the mentioned above-cases).
Enforcement
of the precautionary measures ordered by different courts in constitutional
protection actions imply for the financial system substantial losses of capital.
The Bank has informed of these losses to the Ministry Economy and the BCRA and
has sought to reserve all of its legal rights. The Dispositions of Communication
“A” 3916 dated April 3, 2003, which states the method to account the
capitalizations arising from compliance with court orders in cases challenging
regulations in force in accordance with Law No. 25,561, Decree No. 214/02 and
complementary regulations in relation to deposits within the financial system is
still in force.
To date
the authorities have not ruled on possible compensation for the financial system
in relation to these matters.
Class
actions against financial entities for an indeterminate amount, may affect the
profitability of the financial system.
At the
moment certain public and private organizations have attempted collective
actions against financial institutions in Argentina. Class actions are
established in Argentina in the National Constitution but have not been
regulated for their use. Nevertheless courts have admitted class actions in the
absence of specific regulation, covering the legal void. These courts have
admitted diverse lawsuits against financial entities initiated in defense of
collective interests, based on arguments of objection of overcharging on
products, applied interest rates, advice in the sale of public securities,
etc.
Economic
conditions in Argentina could potentially restrict the access to the capital
markets and third-party funding.
In view of
the combination of macroeconomic and regulatory developments in Argentina during
the last years and the adverse effect of those events on the financial
condition, Argentine entities encountered significant difficulties in accessing
the capital markets and alternative long term financing. No assurance can be
given that Argentine entities will be able to access the securities markets or
that they may reply on third-party funding, either locally or internationally,
in amounts sufficient to meet future projects obligations. In addition, no
assurance can be given to investors that the current macroeconomic environment
in Argentina will be maintained in the long term, thereby adversely affecting
Argentine entities’ ability to generate funds sufficiently to meet their current
and future debt obligations.
Government
measures designed to exercise greater control over funds entering the country
may disrupt the enterprises ability to access the international capital
markets.
Argentina’s
executive branch enacted Decree No. 616/05 to regulate funds coming into and
flowing out of Argentina in order to maintain stability, by public announcement,
and support the economic recovery of the country. These measures require that
30% of the funds remitted to Argentina must be deposited in an account with a
local financial institution as a U.S. dollar deposit for one year,
without accruing interest. Financial sector and non-financial private sector
inflows originated from foreign financial borrowings that are invested in
non-financial assets and must be fully repaid (principal and interest) within 24
months from the date of the borrowing, are not subject to the foregoing deposit
requirement. These measures may adversely affect the Argentine entities ability
to access the international capital markets and to effectively invest the funds
raised in any such financing which could materially adversely affect Argentine
entities’ financial condition and results of operations.
10
Factors
Related to BBVA Banco Francés
BBVA
Banco Francés has a significant portfolio of public bonds and loans to the
Argentine Government, including recently restructured debts. Because of our high
level of exposure, a failure by the federal or provincial governments to meet
their obligations in accordance with their terms would have a material adverse
effect on our financial condition.
As of
December 31, 2006 BBVA Banco Francés and its subsidiaries’ holdings of
public sector debt totaled approximately Ps.7,368.2 billion, consisting mainly
of: (i) External and Internal Restructured debt: Ps.2,367.9 million in secured
loans; Ps.994.4 million in guaranteed bonds; Ps.380.0 million in Argentine Pesos
denominated bonds and Ps.3.3 million U.S. dollars denominated bonds;
and (ii) Post default public debt: Ps.238.4 million in bonds
denominated in pesos; Ps.61,3 million in bonds denominated in U.S. dollars; Ps.3.9 million in
other bonds; and Ps.3.319,0 million in Central Bank bills and
notes. During 2007, BBVA Banco Francés sold a part of its guaranteed loan
portfolio, thus reducing its exposure to long term National Treasury public
risk, while it increased its holdings in BCRA’s short-term securities, bills and
notes.
Although
BBVA Banco Francés and its subsidiaries have reduced significantly their public
sector exposure during 2005, 2006 and 2007, BBVA Banco Francés continues to have
a significant portfolio of bonds and loans of the Argentine Government. Due to
its high level of exposure, any Government proposal that changes the terms and
conditions of repayment of the sovereign debt could have a material adverse
effect on our financial condition. A new default by the Government in respect of
a substantial amount of its debt would have a material adverse effect on our
financial condition.
The
asymmetric conversion of foreign currency assets and liabilities into pesos has
created a structural mismatch of terms and rates of assets and liabilities that
materially and adversely affected the Bank’s results of operations during the
past severe economic crisis. BBVA Banco Francés has a high level of exposure to
the risks associated with this mismatch, which may have an adverse effect on the
Bank’s future profitability in the event real interest rates significantly
increase from the current levels.
BBVA Banco
Francés finds itself among the private banks in Argentina with the highest
volumes of assets and liabilities with mismatched terms and interest rates
derived from the asymmetric conversion of foreign currency assets and
liabilities into pesos. During fiscal year 2005 the Bank has fully paid the
rediscounts received from the Central Bank with the proceeds of the sale of
public sector bonds and loans with longer duration than such liability, thus
reducing the term mismatch. Furthermore, since the beginning of the crisis, the
following actions have reduced our exposure: (i) the increases in CER adjusted
deposits; (ii) the sale of bonds adjusted by CER of, and loans to the Argentine
Government and the Argentine provinces from our portfolio; and (iii) the
subscription of the necessary bonds to be delivered to depositors who had
accepted the Government’s swap option plans, with CER adjusted assets accounted
for in the books of the Bank. Despite these reductions in exposure, the Bank
maintains a Ps.2.5 billion long CER position as of December 31, 2007. During
fiscal years 2005, 2006 and 2007 the remaining imbalance positively affected the
Bank’s results of operations, within an environment of negative real interest
rates. Nevertheless, no assurance can be given in connection with the future
relative behavior of interest rates vis-à-vis the consumer price index. If the
real interest rates significantly increase, such increase could have an adverse
effect on our profitability in the future.
BBVA
Banco Francés, has made payments related to currency exchange rate differences
in the refunding of deposits as ordered by the courts, for which the Bank had
not been compensated. Such payments have had a material and may continue to have
an adverse effect on the liquidity and the solvency of the Bank.
BBVA Banco
Francés continued to be made part of Lawsuits (“amparos”). The Bank expects to
present its defenses in line with the normative dictated by the
Government.
The
judgments of the Supreme Court mentioned previously have not reduced the number
of court orders issued by the inferior courts in the different jurisdictions of
the country where the trials are taking place.
BBVA Banco
Francés paid Ps.37,1 million of negative exchange rate difference during 2007 in
compliance with court orders in lawsuits brought by the Bank’s customers,
regarding deposit refunds.
BBVA Banco
Francés has been served with notice of provisional remedies, issued mainly in
proceedings against the pesification, that require deposits to be refunded in
cash in amounts larger than those established by current law and regulations, or
require the release of rescheduled deposits, or that declare the inapplicability
of regulations issued by the Congress, the Federal Executive or the Central
Bank. As of the date of this report, and after the Supreme Court’s resolution in
case “Massa, Juan Agustin vs. Poder Ejecutivo Nacional – Decreto No. 1750 s/
Amparo”, the consequences of the resolutions issued on such case are still not
clear. Not withstanding that, the Bank has estimated this contingency and has
raised allowances for the total amounts (see Note 3.4.13. to the
11
Consolidated
Financial Statements). Consequently, the final outcome of these legal actions is
still unknown. These legal actions have had a material and may continue to have
an adverse effect on the results and the financial condition of BBVA Banco
Francés.
Argentine
corporate disclosure, governance, and accounting standards may provide different
information than would be provided under U.S. standards.
The
securities laws of Argentina that govern publicly listed companies such as ours
impose disclosure requirements that are more limited than those in the United
States in important respects. The Argentine securities markets are not as highly
regulated and supervised as the U.S. securities markets. There are also
important differences between accounting and financial reporting standards
applicable to financial institutions in Argentina and to those in the U.S. As a
result, financial statements and reported earnings of Argentine financial
institutions generally differ from those reported based on U.S. accounting and
reporting standards. See “Operating and Financial Review and
Prospects—U.S. and Argentine Banking GAAP Reconciliation” for a
description of the principal differences between Argentine banking GAAP and U.S.
GAAP and how they affect our financial statements and the reconciliation to U.S.
GAAP of net income and total stockholders’ equity for the periods ended and as
of the dates therein indicated.
Lawsuits
brought against us outside Argentina, the enforcement of foreign judgments and
complaints based on foreign legal concepts may be unsuccessful.
We are a
commercial bank organized under the laws of Argentina. Most of our shareholders,
directors, members of the supervisory committee, and officers and certain
experts named herein reside outside the United States (principally in
Argentina). Substantially all of our assets are located outside the United
States. If any shareholder were to bring a lawsuit against our directors,
officers or experts in the United States, it may be difficult for them to effect
service of legal process within the United States upon these persons or to
enforce against them, in the United States courts, judgments obtained in the
United States based upon the civil liability provisions of the federal
securities laws of the United States.
Under
Argentine law, enforcement of foreign judgments is recognized provided that the
requirements of Articles 517 through 519 of the Federal Code of Civil and
Commercial Procedure are complied with. Among other requirements, the foreign
judgment must not violate the principles of public policy of Argentine law, as
determined by an Argentine court. In addition, there is doubt as to whether an
action could be brought successfully in Argentina on the basis of liability
based solely upon the civil liability provisions of the United States federal
securities laws.
Because
we are a financial institution, any insolvency proceeding against us would be
subject to the powers and intervention by the Central Bank, which may limit
remedies otherwise available and extend the duration of the
proceedings.
Under
Argentine law, the liquidation and commencement of bankruptcy proceedings
against financial institutions, until their banking license has been revoked by
the Central Bank, may only be commenced by the Central Bank. If BBVA Banco
Francés were unable to pay its debts as they come due, the Central Bank would
intervene and revoke its banking license, and file a bankruptcy petition before
a commercial court. If the Central Bank intervenes, the reorganization
proceeding could take longer and it is likely that the shareholders’ remedies
would be restricted. During any such process, the Central Bank would have to
consider its interests as a regulator, and could well prioritize the claims of
other creditors and third parties against the Bank. As a result of any such
intervention, the shareholders’ may realize substantially less on the claims
than they would in a bankruptcy proceeding in Argentina, the United States or
any other country.
The
special rules that govern the priority of different stakeholders of financial
institutions in Argentina, which give priority to depositors with respect to
most other creditors, may negatively affect other stakeholders in case of
judicial liquidation or bankruptcy of the Bank.
Argentine
Law No. 24,485 in force since April 18, 1995, as amended by Law No. 25,089,
provides that in case of judicial liquidation or bankruptcy of the Bank, all
depositors, irrespective of the type, amount or currency of their deposits, will
have general and absolute preferential rights with respect to all other
creditors, except for certain labor credits and credits secured with pledge or
mortgage, to be paid with 100% of the funds deriving from the liquidation of the
Bank’s assets. In addition, depositors of any kind of deposits have special
preferential rights over the remaining creditors of the Bank, except for certain
labor credits, to be paid with (i) any of the Bank’s funds which may be held by
the Central Bank as total reserves, (ii) any remaining funds of the Bank in
existence as of the date on which the Bank’s license is revoked, or (iii) any
funds derived from the compulsory transfer of certain assets of the Bank
according to instructions of the Central Bank, in the following order of
priority: (a) deposits made by legal entities up to Ps.5,000 per entity, or its
equivalent in foreign currency, (b) deposits for terms exceeding 90 days, and
(c) all other deposits on a pro rata basis.
12
Factors Related to BBVA Banco Francés’ Subsidiaries
|
§
|
Consolidar Compañía de Seguros de Vida S.A. provides
coverage for disability and death risks of workers who are affiliated with
privately owned pension funds managing companies by providing to such
managing companies with the complementary capital required to obtain the
principal amount required to fix the agreed pension for those pursuing a
disability pension or for the beneficiaries of the worker's death pension.
In addition, the company performs other activities related to life
insurance.
|
As
a consequence of the last Social Security Law Reform, termination of Disability
and Death Insurance business shall have a material change in the core business
of the company volume of operations and economics results.
The
Pension Reform set forth by Law No. 26,222 provides that commencing on year
2008, disability and death insurance may not be issued by Life Insurance Pension
Companies, but can only be issued by mutual funds to be established with
financing from a percentage of the pensions and retirements funds managed by
each privately owned pension managing company. Commencing on January 1, 2008,
Consolidar Compañía de Seguros de Vida S.A. has stopped issuing any new
social-security related life insurance policies. Management activities related
to social-security life insurance policies issued prior to the fiscal year
commenced on July 1, 2001 as well as the management activities related to
policies corresponding to group life insurance and mandatory life insurance
policies can continue. The above notwithstanding, the Company’s Board of
Directors is presently analyzing the current situation and assessing the
alternatives most adequate for the continuity of the operations of Consolidar
Compañía de Seguros de Vida S.A. and it estimates that the implementation of the
above described changes would not have a material negative impact on the BBVA
Banco Francés’ financial situation.
|
§
|
Consolidar Compañía de Seguros de Retiro
S.A. writes individual pension
agreements, group pension agreements and life
annuities.
|
A
resolution by the Supreme Court of Justice modifying the exchange rate of peso
into dollar for extra financial agreements (Ps.1=US$1, adjusted by the CER until
payment date), could give rise to multiple judicial claims that may have a
negative adverse effect on our subsidiary Consolidar Compañía de Seguros de
Retiro S.A.
The
accumulated capital amounts of policy holders were affected by the devaluation
of the peso and the conversion into pesos. The regulations for such conversion
only recognized the insured party’s right to claim the value in pesos at a rate
of one peso per U.S. dollar plus the adjustment of such amount according to the
CER. To minimize the damaging effects of the asymmetric conversion into pesos,
Decree No. 558/02 enabled the insurers to offer to the insured parties
redemption schemes contemplating a number of options. Following the new
regulation, Cosolidar Compañía de Seguros de Retiro S.A. submitted for the
approval of the Argentine Insurance Superintendency, different option plans for
the redemption or maintenance of policies issued in dollars, which have been
approved. The proposed options were based following the principles handed down
in a judgment of the National Supreme Court applicable to all obligations of the
financial sector, although such decision did not expressly include obligations
which are not related to the financial system, such as those related with
insurance agreements and policies.
While the
National Supreme Court of Justice recognized that the rules and regulations
whereby pesification of negotiable instruments were established are valid., the
National Supreme Court of Justice rendered a new judgment concerning matters
outside of merely financial or banking matters. The fact that rules concerning
pesification of banking debts are considered valid is an important background
that makes us believe that said consideration shall be applicable to the
obligations of insurance companies. However, there is a risk that the National
Supreme Court would not confirm these pesification principles as applicable to
insurance policies and independently quantity such obligations in Argentine
currency (pesos) in a different manner.
It is
important to note that the existing judgment for the validity of pesification
rules of the financial sector obligations prescribes an equivalence very closed
to the actual dollar value. Since such opinion was handed down, the doctrine of
“shared-efforts” has been applied to non-financial obligations resulting in a
lower dollar conversion value which would be more favorable to the insurance
companies. The National Supreme Court of Justice is expected to render its
judgment on life annuities and individual pension insurance agreements asserting
the validity of the passed rules and regulations and setting an equivalent value
based on the so-called shared-effort doctrine, but no assurance can be given
that such a judicial decision will occur or whether the impact of such a
decision will be favorable to, or adopt principles adverse to Consolidar
Compañía de Seguros de Retiro S.A.
13
ITEM
4. INFORMATION ON THE COMPANY
RECENT
POLITICAL AND ECONOMIC DEVELOPMENTS IN ARGENTINA
Macroeconomic
Environment
For the
fifth consecutive year, the Argentine economy grew at a pace close to 8.7%,
without registering any significant slowdowns, in spite of the turbulence which
affected international credit markets from July 2007 onwards. On average, growth
was not significantly affected by the energy supply restrictions imposed last
winter on industrial and business users. The resulting drop in the manufacturing
industry during June and July was more than compensated during the following
months. Thus, industrial production grew 7.5% in 2007 (compared to 8.4% in
2006).
The
slowdown in the construction sector resulted in a lower increase of Gross Fixed
Investment as compared to the previous year, despite the dynamics resulting from
investments in durable equipment, both national and imported. On the other hand,
private consumption had an expansive performance, driven by improvements in
employment, real wages, retirement benefits and Income Tax reductions. For the
first time since the devaluation, the services sectors, along with financial
intermediation, grew at higher rates than the goods production sectors in the
first three quarters of 2007.
In this
positive environment, employment market indicators continued to show
improvements. Unemployment dropped 1.7 percentage points year over year on
average in 2007, as a result of an employment growth rate of around 3.9% and
labor force participation remaining at 46.1%, slightly below the previous year.
The unemployment rate reached 7.5% during the fourth quarter of 2007, according
to the survey carried out by the National Institute of Statistics and Census
(INDEC), which did not include Bahía Blanca city.
In line
with productivity increases and the fall in unemployment, formal private sector
wages continued to recover at a rate similar to previous years', but there was
also a significant increase in civil servants and informal sector wages in 2007.
Therefore, the economy's average wage index rose by 22.7% between December 2007
and the same month of the previous year. However, in real terms, formal private
sector wages were 31% higher in December 2007 than at the end of 2001, while
informal and public sector wages are still estimated to be 5-10% below this
level.
Fiscal
accounts tended to deteriorate during 2007. Tax collection grew by 33%, driven
by VAT (IVA), tax on debits and credits on bank accounts, export taxes and
Social Security contributions in particular. However, primary public spending
accelerated at a faster pace than revenues growing by 44% when compared to the
previous year. The factors with the strongest impact on the increase in primary
public spending were social security services and transfers to the private
sector. In the first case, the increase was due both to raises in retirement
benefits and pensions and to a significant increase in the number of
beneficiaries after the pension moratorium. In terms of transfers to the private
sector, subsidies granted to the energy and transport sectors had a strong
incidence. Additionally, public accounts were favorably impacted by the
Retirement and Pensions Reform, which contributed an additional Ps.7,800 million
in revenues due to the transfer of the funds accumulated in the Private Pension
Fund System (AFJPs) to the public social security system as a consequence of the
transfer of approximately 2.5 million affiliates from one system to the other.
Consequently, the primary fiscal surplus reached Ps.25,764 million, representing
a 3.2% of GDP, a slightly lower level than the previous year.
The
interest burden rose by 42% due to the increase of the nominal exchange rate,
price adjustment (CER index) and the placement of government securities at rates
higher than the maturing debt. In particular, payments on the GDP coupon
increased by more than 100%.
Argentina´s
terms of trade improved around 3.6% during 2007, benefiting from the increase in
international commodity prices, with agricultural product prices increases
exceeding 21% during the year. Despite a strong increase in imports of 31%, the
trade balance only suffered a deterioration of U.S.$1,152 million compared to
2006, due to the excellent performance of exports, also driven by higher volumes
of grains, soy seeds, oils and derivatives, based on record crops of corn and
soybean, and the continued dynamism of exports of industrial products,
particularly automobiles. With exports totaling U.S.$55,934 million, the 2007
trade surplus closed at U.S.$11,154 million.
The
Consumer Price Index (CPI) for Greater Buenos Aires (GBA) increased 8.5% year
over year as of December 2007. Prices for seasonal products dropped by 7.5% year
over year compared to December 2006, driven by price drops in tourism and
vegetables, while prices of regulated products (including health, education and
public transport) grew by 9.5%, and the rest of the CPI (proxy of the underlying
inflation) increased by 10.7%. Due to the fact that methodological changes
introduced in the GBA CPI index were not applied in all the provinces, the
national inflation rate, excluding the Greater Buenos Aires area, rose to 12.3%
year over year in 2007.
14
The Financial System
During
2007, the improvement in the quality of bank balance of assets and liabilities
continued, especially in the private sector. Rediscounts from the Central Bank
remaining from the 2001/2002 crisis were practically cancelled in full, and
exposure to the public sector continued to decrease gradually. Delinquency
levels remained low, despite strong growth in credit. At the same time, the
system's profitability continued to improve, with an aggregate Return on Equity
of 11.1% for the year.
Deposits and Loans
Total
private sector deposits (in pesos and U.S. dollars) increased by 24.9% during
the year. The increase in peso deposits was less dynamic (i.e. 22.8%), due to an
increase of foreign currency deposits demand as a result of market turbulence.
The share of the latter in total private sector deposits increased from 12.5% to
13.9% on average between December 2007 and December 2006. Public sector deposits
grew at the much lower rate of 9.7%, compared to an almost 30% increase in
2006.
During
2007, the increase in loans to the private sector continued, as growth in demand
was not affected by market turbulence as were other monetary and financial
variables. Total private sector loans increased by 40.8% year over year to
December 2007. The recovery of consumer (personal loans and credit card
financing) and mortgage lending was particularly prominent, with an increase of
47.4%.
Monetary Policy
The year
2007 had two fairly different stages. The first stage, covering the first half
of the year, was characterized by a strong excess supply of foreign currency.
During this period, the international reserves stock increased by U.S.$14,140 million (i.e. 44%),
and the Central Bank purchased U.S.$10,474 million from the
private sector in the exchange market. The exchange rate showed a slight
downward trend despite the Central Bank's efforts to maintain its nominal level.
In June 2007, the “Referencia BCRA” exchange rate reached an average of Ps3.08
for each U.S.dollar. A
strong sterilization policy was applied as in 2006, through the placement of
Lebac and Nobac bonds, and Ps.17,071 million were absorbed through these
instruments. Abundant liquidity resulted in strong drops in market interest
rates, and the Badlar rate for private banks reached a floor of 7.5% during the
first quarter, after ending the previous year at an average of almost
10%.
In July,
the domestic market began to suffer the impact of the international crisis
triggered by the U.S. sub-prime mortgage sector, and there was a reversal in the
above-mentioned situation. During several months, the Central Bank was forced to
sell hard currency in order to avoid further depreciation of the FX rate, thus
halting the process of accumulation of international reserves. Interest rates
rapidly increased, showing great volatility, particularly the Badlar rate for
private banks, which reached a level of 14%.
The
Central Bank compensated the financial system's lack of liquidity through
several instruments, such as the buy back of Lebac and Nobac, whether through
purchases in the secondary market or repo´s for financial institutions
undergoing liquidity problems, as well as allowing for the bimonthly integration
of reserve requirements. The exchange rate experienced an increase of
approximately 8 cents on average between June and October.
The
situation started to improve between November and December when, despite
continuing international volatility, the Central Bank began to accumulate
reserves once again, although at a much lower rate than in the first half of the
year. International reserves increased by U.S.$3,019 million in the second
half of 2007. Although in response to the improving scenario, the exchange rate
began to fall, ending the year at 3.14 pesos to the dollar (a 2.6% depreciation
compared to December 2006), interest rates did not return to previous
levels.
In terms
of the Central Bank's Monetary Program, the M2 monetary aggregate stayed close
to the program's higher band during all the quarters, growing an average of
17.9% throughout the year.
15
HISTORY
AND DEVELOPMENT OF THE COMPANY
BBVA Banco
Francés, an Argentine corporation (a “sociedad anónima” or “S.A.”), was duly
incorporated under the name Banco Francés del Río de la Plata S.A. on October
14, 1886. We have our registered office in the Argentina, Reconquista 199,
C1003ABB Buenos Aires, telephone number 54-11-4346-4000. Our agent in the United
States for U.S. federal securities law purposes is CT Corporation System,
currently with offices at 111 Eighth Avenue, New York, New York
10011.
Our
original by-laws (“Estatutos”) were approved on November 20, 1886, by a decree
recorded in the Public Registry of Commerce of Buenos Aires City on December 6,
1886, under Number 1065 on Folio 359, Book 5, Volume “A” of National By-laws.
Our by-laws, including all amendments introduced to this date, were recorded in
the Public Registry of Commerce (the Governmental regulatory agency of
corporations). The last amendment was recorded on December 19, 2005, under N°
16.335 Book 30 of Corporations (sociedades anónimas). Pursuant to current
corporate by-laws, the Bank will terminate its activities on December 31, 2080,
unless this term is extended by the shareholders. At the ordinary and
extraordinary shareholders’ meeting held on April 27, 2000, a resolution was
passed to change our name to BBVA Banco Francés S.A. On October 4, 2000, the
Public Registry of Commerce registered the change from “Banco Francés S.A.” to
our new name, and the amendment to our by-laws that reflected the name
change.
The Bank
is supervised by the Central Bank of Argentina, an entity that establishes
valuation and accounting criteria, the rules on liquidity and capital
requirements as well as the informative systems of Argentine financial
institutions. The Bank is also subject to inspections by the Central Bank, on
which basis a “rating” is assigned to the Bank. See “Information on the Company—The
Argentine Banking System and its Regulatory Framework”.
On August
11, 1997, we acquired 71.75% of the capital stock of Banco de Crédito Argentino
S.A. (“Banco de Crédito”) for the purchase price of Ps.401.8 million. The
difference between the amount paid and the net equity value acquired of
approximately Ps.203 million was booked as goodwill, the majority of which was
subsequently reversed against shares issuance premium. We completed this merger
of the two banks by final registration with the Public Registry of Commerce, on
March 5, 1998. To effect the merger, BBVA Banco Francés issued 14,174,432
ordinary shares to the existing shareholders of Banco de Crédito through a
capital increase. Each Banco de Crédito shareholder received one ordinary share
for each 3.926 Banco de Crédito shares held.
As a
result of the acquisition of Banco de Crédito, we gained control of Consolidar
Compañía de Seguros de Retiro S.A., Consolidar Compañía de Seguros de Vida S.A.
and Consolidar Administradora de Fondos de Jubilaciones y Pensiones S.A.
(“Consolidar AFJP”) (the “Consolidar entities” or the “Consolidar Group”), and
also acquired control of Crédito Argentino Sociedad de Bolsa S.A. which was
liquidated in 2000.
On
November 5, 1999, BBVA Banco Francés S.A. and Banco Bilbao Vizcaya (today Banco
Bilbao Vizcaya Argentaria S.A. or “BBVA”), executed a share purchase agreement,
pursuant to which BBVA Banco Francés acquired 99.99% of the shares of Corp Banca
S.A., an Argentine bank, for the amount of Ps.51.9 million, and 99.99% of Atuel
Fideicomisos S.A., a trust company, for the amount of Ps.79,000. The difference
between the purchase price of the transactions and the incorporation value of
both companies was charged to goodwill under the “Intangible Assets” account for
an amount of Ps.24.5 million. In addition, after the transfer of assets and
liabilities, we added to the goodwill value additional charges amounting to
Ps.5.7 million related to a decrease in the assets incorporated, as resulted
from the more precise assessment made after the acquisition, employee
termination payments to Corp Banca S.A. personnel within the organizational
restructuring process initiated before the acquisition and other expenses
incurred in the acquisition process. On November 22, 1999, as part of a
corporate reorganization, all assets and liabilities of Corp Banca S.A. were
transferred to BBVA Banco Francés, with full integration of operations and
systems.
On May 20,
1999, the Central Bank approved the creation of Credilogros Compañía Financiera
S.A. (“Credilogros”), which was registered with the Public Registry of Commerce
on June 24, 1999. On November 10, 1999, BBVA Banco Francés and Credilogros
executed a contract for the sale of certain assets and liabilities of BBVA Banco
Francés. Such assets and liabilities were transferred to Credilogros pursuant to
the agreement on August 2, 1999. On December 28, 1999, BBVA Banco Francés and
Finanzia Banco de Crédito S.A. (“Finanzia”) executed a purchase agreement,
pursuant to which BBVA Banco Francés transferred to Finanzia the rights and
exclusive property rights to the brands used by Credilogros for the development
of its business for a purchase price of Ps.9.6 million. In October 2000,
Finanzia sold exclusive property rights to the brands used by Credilogros to
Credilogros at a total price of Ps.9.6 million.
In June 1,
2002 Finanzia Banco de Crédito S.A. sold 29.95% of its interest in Credilogros
to BBVA for 23,782,680 Euros. Such transaction was approved by the Central Bank
on April 3, 2003, under Resolution No. 37.
16
On March
29, 2000 our affiliate Rombo Compañía Financiera S.A. (“Rombo Compañía
Financiera”) was registered with the Public Registry of Commerce. On April 24,
2000 the Central Bank authorized Rombo Compañía Financiera to conduct business
as a finance company by Communication “B” 6684.
On October
17, 2000, as part of BBVA group’s business reorganization plan started after the
merger of BBVA, Banco Exterior de América S.A. (Uruguay) (wholly owned by BBVA)
merged with and into Banco Francés Uruguay S.A. (wholly owned by us). As a
result of such merger, Banco Francés Uruguay has changed its corporate name to
Banco Bilbao Vizcaya Argentaria Uruguay S.A., or BBVA Banco Uruguay (“BBVA
Uruguay”).
In May
2002 BBVA Banco Francés sold its 60.88% interest in BBVA Uruguay to BBVA for the
amount of U.S.$55 million.
This transaction was approved by the Central Bank of Uruguay.
Credilogros
and Banque PSA Finance formed PSA Finance Argentina Cía. Financiera S.A. (“PSA
Finance”), in which Credilogros held a 50% interest, in November 2001. On
February 21, 2002, the Central Bank authorized PSA Finance to begin its
activities as a finance company through Communication “B” 7134. PSA Finance,
which has a single office located in Buenos Aires, is in the business of
granting loans in the retail market for the acquisition of new and used cars
offered by the Peugeot Argentina S.A. dealership network. Rather than funding
itself with deposits, term investments or corporate bonds, PSA Finance obtains
financing through loans granted by the Bank and other domestic financial
institutions. On October 31, 2003, subject to the approval of the Central Bank,
BBVA Banco Francés acquired 50% of the shares of PSA Finance from Credilogros
for Ps.11.9 million and Credilogros applied the proceeds to repay a loan from
BBVA Banco Francés for a total of Ps.11.7 million plus interest. On December 16,
2004, the Central Bank issued Resolution No. 371, approving the transfer of 50%
of PSA Finance capital stock to BBVA Banco Francés.
Banco
Francés (Cayman) Ltd., was as of December 31, 2003 a wholly owned subsidiary
formed in 1998. As of December 31, 2003, this subsidiary, with total assets of
U.S.$950.8 million
registered a gain of U.S.$121.6 million. Within the
framework of the regularization and reorganization plan filed by the Bank with
the BCRA, and Resolution No. 52/04 of the Superintendence of Financial and
Exchange Institutions, dated March 17, 2004, on March 18, 2004, the Bank sold to
BBVA S.A. its 100% interest in Banco Francés (Cayman) Limited. The sale price
amounted to U.S.$238.5
million, and it was collected through Federal Government secured loans
previously purchased by BBVA S.A. from Banco Francés (Cayman) Limited. BBVA
Banco Francés has recorded such secured loans in conformity with Communication
“A” 3911 and supplementary regulations. The negative result of the transaction
was recorded as follows: Ps.200 million of the negative result from the
transaction was absorbed and charged to the account “Unrealized valuation
difference” under stockholders’ equity, as authorized by Resolution No. 52/04 of
the Superintendence of Financial and Exchange Institutions, and Ps.11 million
was charged to income (loss) for the year ended December 31, 2004.
On
February 3, 2004, the Bank made an irrevocable contribution of capital in its
subsidiary Atuel Fideicomisos S.A. for Ps.13.0 million. Also, on February 4,
2004, the Bank acquired 5% of the capital stock of Francés Administradora de
Inversiones S.A. from Banco Francés (Cayman) Limited for Ps.580,000 while the
remaining 95% was acquired by Atuel Fideicomisos S.A.
On March
9, 2005, BBVA Banco Francés agreed to sell all of its 69.52% shareholding in
Credilogros Compañía Financiera S.A. to Banco de Servicios y Transacciones and
Grupo de Servicios y Transacciones S.A. On June 28, 2006, by Resolution No. 146
the BCRA approved the transaction. The transfer of Credilogros Cía. Financiera
S.A.’s capital stock took effect on July 11, 2006.
BUSINESS
OVERVIEW
BBVA Banco
Francés ended its fiscal year 2007 with Ps 22.0 billion in total assets, a total
of Ps.15.0 billion in deposits, on a consolidated basis, and a market
capitalization of Ps.4.0 billion. It is the third largest bank in terms of loans
and in terms of deposits in the Argentine financial system according to
statistics published by the Central Bank (Information of Financial Institutions,
as of December 2007).
We were
one of the first companies listed on the Buenos Aires Stock Exchange. Our shares
have been listed in the New York Stock Exchange since 1993, and in the LATIBEX
(“Mercado de Valores Latinoamericanos”), based in Madrid since December
1999.
Substantially,
all of our operations, property and customers are located in Argentina.
Accordingly, following the 2002 crisis and the package of government measures,
our financial condition and results of operations were deeply affected. Since
December 2001, our business activity contracted compared to historical levels
and our lack of liquidity led to a suspension of most new originations of all
types of loans. Our structural strengths, our reaction capacity, and our
adjustment to the new economic environment were the pillars of our performance
in 2002. We responded to the deepening of the crisis by prioritizing liquidity,
substituting foreign currency funds by domestic currency funds and satisfying
the growing demand for transactional business, while adjusting the operating
structure to the new business profile.
17
Commencing
on 2003, the economy recovered and deposits flowed back into the system.
Economic growth showed no slowdown during the following years, while primary
fiscal and trade surplus remained in place and a conservative monetary policy
was implemented with measures tending to keep prices and exchange rates stable.
These conditions led to a further GDP expansion, during 2007, while the
financial system continued to show a positive evolution, which was reflected on
private deposit growth, an improvement of bank’s financial condition and the
strengthening of lending activity within an environment of negative real
interest rates that helped to improve the financial margin.
During
fiscal year 2007, BBVA Banco Francés encouraged business growth by motivating
financial activity mainly in the retail and middle-market sectors, maintaining its
participation in the large corporations sector, which allowed it to expand its
private loans portfolio by 36%, reaching a market share of 7.6%. Within this
framework, the Bank managed to improve the quality of its portfolio, achieving
one of the lowest irregular portfolio ratios in the system. In terms of
liabilities-related activity, BBVA Banco Francés focused on keeping its leading
position, mainly by capturing retail funds in order to have a more stable and
lower cost funding structure. It is important to highlight that keeping low
funding costs is one of the pillars of the liabilities strategy, therefore,
fixed-term deposits have a slightly higher share of the deposits structure than
transactional deposits.
BBVA Banco
Francés has worked to strengthen its market presence, by establishing
relationships with its customers through the development of alternative
channels, which complement the branch network throughout the
country.
As part of
our business, we conduct capital markets and securities operations directly in
the over-the-counter market and indirectly in the Buenos Aires Stock Exchange.
The emerging recovery of the securities trading activities supported the
successful closing of securities transactions. According to statistics published
by the Argentine Mutual Funds Association, as of December 31, 2007, we had a
4.6% market share in the mutual fund portfolio management industry in Argentina
through “Francés Administradora de Inversiones S.A.”. We also participate in the
pension fund industry through our 53.89% equity interest in Consolidar AFJP, a
pension fund manager which, as of December 31, 2007, managed Ps.17.3 billion in
pension fund holdings, with an 18.4% market share in the aggregate contributions
to all AFJPs, according to statistics published by the Pension Funds
Association.
Furthermore,
we have traditionally accepted deposits and made loans in pesos and in certain
other currencies, primarily in U.S. dollars. Following the 2002
crisis, U.S. dollar
deposits were limited to granting U.S. dollar-denominated loans in
relation to foreign trade transactions, which continued to be subject to Central
Bank restrictions in 2007. As of December 31, 2007 approximately 19.71% of our
loans and 16.39% of our deposits were denominated in U.S. dollars.
The
following table presents financial information of our principal business
segments for the year ended December 31, 2007.
|
As
of December 31, 2007
(in
thousands of pesos)
|
||||||||||||||||||||
|
Banking
and
Financial
|
Pension
Fund
Management
|
Insurance
|
Eliminations (1)
|
Total
|
||||||||||||||||
|
Total
assets
|
19,168,191 | 377,785 | 2,562,922 | (85,899 | ) | 22,022,999 | ||||||||||||||
|
Total
income (2)
|
2,866,051 | 501,122 | 828,021 | (279,909 | ) | 3,915,285 | ||||||||||||||
|
Total
expenses (3)
|
(2,662,796 | ) | (490,487 | ) | (787,321 | ) | 279,909 | (3,660,695 | ) | |||||||||||
|
Loss
on minority interest in subsidiaries
|
(627 | ) | (4,903 | ) | (14,011 | ) | — | (19,541 | ) | |||||||||||
|
Total
net income
|
202,628 | 5,732 | 26,689 | — | 235,049 | |||||||||||||||
|
(1)
|
Includes
intercompany operations.
|
|
(2)
|
Includes:
financial income, service charge income and other
income.
|
|
(3)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income tax and tax on minimum
presumed income.
|
Our branch
system operates as a distribution network for all the products and services that
we offer to our customers. Our 232 branches are complemented by other
distribution channels, such as 591 automatic teller machines or ATMs, as of
December 2007, a telephone banking service, which answered on average over
624,000 calls per month in 2007, and an Internet banking service called Francés
Net, which serves over 240,900 active clients. We are a member of Banelco S.A.,
a corporation owned by seven partner banks, and that includes 18 participating
banks, and our ATMs are part of the Banelco Network (Red Banelco – “Banelco”).
The customers of all the participating banks have access to the Banelco Network,
which comprises over 3,924 ATMs throughout Argentina, approximately 15% of which
belong to BBVA Banco Francés.
Our
universal commercial strategy aims to achieve a leading position in all of
different market segments.
18
BBVA
Banco Francés – Background
Since
1886, BBVA Banco Francés, previously known as Banco Francés del Río de la Plata
S.A., has been recognized as a leading provider of financial services to large
corporations. It was only in the early 1980’s that we broadened our customer
base to include medium and small companies as well as individual customers. In
response to demands from the corporate market and following the structural
changes brought about by the stabilization process in Argentina since 1991, we
added to our traditional commercial banking products a full range of services,
such as investment banking, capital market transactions and international
banking.
In the
1980’s and 1990’s in order to achieve a wider market penetration, we expanded
our branch network by opening branches throughout Argentina.
In
December 1996, when BBVA became our principal shareholder, we reaffirmed our
universal banking strategy, with the goal of increasing the most profitable
business segments: medium and low-income individuals and small and medium-size
businesses in the middle market. To this end, in August 1997, we acquired
71.752% of Banco de Crédito Argentino (the “Crédito acquisition”), a retail bank
focused on the middle market and consumer banking sectors. This merger allowed
us to maximize the strengths of each bank and to implement an ambitious
leadership plan that included an expansion plan - starting with a
strong initial positioning in each market.
The
liquidity crisis that started in December 2001 and the ensuing economic and
political instability led to a deep contraction in the intermediation volume. In
response, we changed our short-term commercial strategy towards the
transactional business, adjusted our operating structure and implemented a
strict cost control plan. Actions were also focused on recovering asset quality
levels, which had been strongly impacted by the crisis. By mid-2003 the economy
began to recover and we returned to offering the full range of financial
services, including credit facilities, albeit restricted to short-term
financing. Commencing on 2004, we gradually strengthened our credit activity in
the midst of economic solvency, and consolidated our transactional business.
During fiscal year 2007, we kept our focus on the core business growing in
private sector loans, while increasing our market share in retail funds and
reinforcing our positioning in the transactional business. Despite a strong
expansion in risk assets’, BBVA Banco Francés continued to improve its asset
quality standards, with a non performing ratio of 0.54% over total financings
and a coverage ratio of 315.55% as of December 31, 2007. As a result of the
recent international turmoil in financial markets and with the purpose of
minimizing income volatility, our public assets portfolio, mainly bills and
notes issued by the Central Bank, was classified in the “Available for Sale”
category. By the end of 2007, the difference in the unrealized valuation of such
assets totaled Ps.42.8 million.
Banking
and Financial Services
Our
financial condition and results of operations for the fiscal year 2007 were
still impacted by the effects of the 2002 crisis. Following the strong
contraction in financial activity and the redefinition of our commercial
strategy toward the transactional business, as an alternative source of income
since the second semester of 2003, we resumed our lending activity. During 2007
we reinforced our efforts on expanding our intermediation volume while we
continued rendering banking services, which included cash management of means of
payment (with emphasis on electronic means), the bank account services for
transactional purposes and operation of credit cards and transactional deposit
taking, not only through our branch network but also through our different
alternative channels.
With a
commercial strategy focused on the core business, we were able to expand by
35.7% our private loan portfolio increasing at the same time by 20.0% our
deposit base, to reach a 9.6% market share according to figures published by the
Central Bank. Credit facilities included short and medium-term financing, such
as overdrafts on demand accounts, personal and car loans and credit card
financing in the retail segment and notes discounted, working capital financing,
foreign trade operations, and investment-banking products, such as trustees, in
the corporate segment.
In
addition, the structural term and rate mismatch in assets and liabilities,
caused by measures taken by the Government during 2002 and 2003, made our
profitability strongly dependent on the relative behavior of the CPI vis-à-vis
interest rates, because we have a long CER adjusted position. Although such long
CER adjusted position has been reduced through the sale of Public sector assets,
a significant part of the Bank’s risk assets are still variable rate assets,
adjusted by CER plus an interest rate, while most liabilities accrue interest at
a fixed rate except for a Ps.178 million remaining portfolio of rescheduled
deposits, known as CEDROS and new CPI adjusted time deposits, totaling Ps.254
million as of December 31, 2007.
19
The
following table sets forth our estimates of the relative proportions of loans
and deposits attributable to our principal markets.
|
Loans
|
||||||||||||||||||||||||
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Public
Sector
|
2,367,869 | 20.79 | % | 2,887,276 | 30.29 | % | 4,623,626 | 54.52 | % | |||||||||||||||
|
Corporate
|
3,539,981 | 31.08 | % | 3,309,501 | 34.71 | % | 1,786,387 | 21.06 | % | |||||||||||||||
|
Middle
market
|
2,200,014 | 19.31 | % | 1,488,459 | 15.61 | % | 880,266 | 10.38 | % | |||||||||||||||
|
Retail
|
3,282,257 | 28.82 | % | 1,848,947 | 19.39 | % | 1,191,197 | 14.04 | % | |||||||||||||||
|
Total
|
11,390,121 | 100.00 | % | 9,534,183 | 100.00 | % | 8,481,476 | 100.00 | % | |||||||||||||||
|
Deposits
|
||||||||||||||||||||||||
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Corporate
|
2,590,735 | 17.26 | % | 2,216,764 | 17.73 | % | 2,788,669 | 26.28 | % | |||||||||||||||
|
Middle
market
|
1,562,718 | 10.41 | % | 1,502,736 | 12.01 | % | 1,106,171 | 10.42 | % | |||||||||||||||
|
Retail
|
10,856,305 | 72.33 | % | 8,786,256 | 70.26 | % | 6,718,246 | 63.30 | % | |||||||||||||||
|
Total
|
15,009,758 | 100.00 | % | 12,505,756 | 100.00 | % | 10,613,086 | 100.00 | % | |||||||||||||||
Corporate Banking. The
Corporate Banking Division specializes in business with large international and
domestic companies with annual sales over Ps.75 million or companies that belong
to an international group. This division has three branches dedicated to
providing services to groups of companies from Europe, the United States and the
rest of the world, and companies based in Argentina.
The
thriving economic context, based on a firm demand for export products from
Argentina, high international price of such products and a sustained high level
of local expenditure, allowed our Corporate Banking Division to handle
increasing business needs, continue with its financing policy in order to
support customers' expansion, and satisfy their needs for working capital and
fixed assets investments. Anticipating this economic reality, our Corporate
Banking Division based its strategy on two pillars: consolidation of leadership
and customer loyalty. To this end, we have carried out an intensive publicity
campaign for a series of non-credit products in order to meet customers'
requirements, such as the BBVA-CASH Tool, which allowed us to improve the
payments system and integrate the relationship with our Global Markets and
Distribution Divisions, thus strengthening our offer of spot and related
products and producing a synergy in other business areas, especially Retail
Banking.
The growth
of our investment portfolio represented a 7.0% increase compared with last year,
and rose to Ps.3.5 billion at closing of the fiscal year 2007, once again
placing us first in this segment.
Capital Markets. The
Argentine Capital Markets continued performing with great reliance on the
international market during 2007, presenting good activity levels during the
first semester but reduced volumes from June onwards. Placement of Corporate
Notes, especially with foreign investors, exceeded 3.0 billion U.S. dollars (including the
exchange of the existing debt). Shares in Argentine companies targeting foreign
investors were placed for over 1.6 billion U.S. dollars. This does not
include Mercado Libre, a company which made placements exclusively abroad.
Trusts markets kept their activity levels with placements of around 2.5 billion
U.S. dollars, mostly in
short term instruments generated by expenditure financing.
Syndicated
loans of Argentine groups totaled 7,150 million U.S. dollars, the majority of
which were transactions related to purchases made abroad by the Techint Group.
On a smaller scale, syndicated loans were granted on the local market, which we
estimate to be around Ps.0.6 billion.
During the
fiscal year 2007, our Investment Banking Division continued working on several
financial consultancy projects, evaluating financing for terms longer than one
year for first-level companies, as well as merger and acquisition business
projects. In terms of local syndicated loans, the department had an active role,
reaching a quota of approximately 50% in terms of contributed amounts. Towards
the end of the year, public bids for shares in Alpargatas were announced by Sao
Paulo Alpargatas, a company of the Camargo Correa Group, Brazil, and of Acindar
by the Arcelor Mittal group. In both transactions, BBVA Banco Francés was
appointed agent and co-agent, respectively, for the bids.
20
Trading and Brokerage. As of
December 31, 2007, we routinely traded (on behalf of our customers and for our
own account) corporate and Government bonds, money market instruments and
foreign currency. In the fiscal year 2007, we were one of the most important
brokers in the bond market through the MAE (Mercado Abierto Electrónico, an
over-the-counter market) and a medium broker in securities market through
Francés Valores, an affiliate company registered in Mercado de Valores de Buenos
Aires S.A. (MERVAL).
We
typically earn both brokerage commissions and a spread on over-the-counter
transactions, depending on the type of transaction involved. Our proprietary
trading, as well as third party brokerage trading, is supported by research and
analysis provided by our research department.
Middle Market Banking. The
Middle Market Division handles our relations with small and medium-sized
companies, i.e., those with annual sales of up to Ps.75 million. The Bank has
the first network in Argentina specialized in serving the small and medium-sized
company segment.
During
2007, Middle Market Banking Division was established throughout the country,
consolidating as leaders in a highly competitive market segment. Built on a
structure of 27 branches dedicated exclusively to Middle Market Banking,
customized service expanded into all segments where the Bank has its presence,
reaching customers efficiently and in accordance with the business scale. To
bring specialized service closer to corporate customers' needs, we have set up
four Regional Middle Market Banking Centers, located in Córdoba, Mendoza, Mar
del Plata and Rosario. Each center has a specialist in Agribusiness, Foreign
Trade and Special Financing.
Activity
in 2007 continued at an increasing pace in every area. Middle-market financing
reached Ps.2.2 billion, a 47.8% growth compared with the previous year.
Liabilities grew by 4.0%, reaching Ps.1.6 billion. Such volumes were achieved
due to a more efficient management of brokerage margin, which has a direct
impact on results. Continuing from a prior trend, activity levels in areas
related to foreign trade and agriculture stand out.
Financing
of medium-term investment also played an important role in 2007, adding to our
traditional loans and leasing activities, and an active participation in
official initiatives such as the Global Credit Program and Fontar, among
others.
Commissions
from this sector reached Ps.100 million, encouraged by increasing transactional
activity and a 15% rise in the customer base.
In terms
of service quality levels, the results of IRAM’s (Instituto Argentino de
Normalización y Certificación) compliance were satisfactory, and the Foreign
Trade and Assignment of Receivables Process certification was
ratified.
Retail Banking. The
Commercial Banking Division is in charge of commercial relations with
individuals and small companies. This division serves its customers through an
extensive and well diversified distribution network, which offers 232 contact
points including branches and different electronic media.
During
2007, the commercial strategy was based mainly on expanding customer base and
commercial relationships, developing an efficient approach model through
products which involve not only financing but also a transactional solution.
This business vision was the basis of action for each segment where the Bank has
is present, such as our VIP customers, micro businesses, low income and the new
young segment, called “Blue”.
Towards
the end of fiscal year 2007 the Bank was handling a trade volume of more than
Ps.14.1 billion, including investment funds. During the 2007 fiscal year, credit
investment increased by 77.6%, reaching almost Ps.3.3 billion, while customer
resources grew by 23.6%, reaching a turnover of Ps.10.9 billion.
Retail
Banking developed a business model with a clear vision, based on customer needs
and the transfer of these needs into the products and services offered. A
business strategy based on an action process which works on two complementary
levels:
|
|
§
|
Innovation
and Development: To lead the financial services market in all segments and
products through innovative offers.
|
|
|
§
|
Bank
service accessibility: Reaching as many customers as possible, with an
offer which includes not only access to financing but also an efficient
transactional solution.
|
21
The main
action areas during 2007 are described below:
Personal and mortgage
loans:
A strong
activity in consumer financing was supported by incorporating “Global
Qualification”, a tool which allows us to serve our customers comprehensively in
terms of financing. More than 400 thousand customers were approved for personal
loans, credit cards and overdrafts, for the financing of these products to be
available immediately. This allowed us to boost the relationship with our
customers, increase cross selling, serve each segment carefully, and increase
the Bank's market share of personal loans for the year by 99 basis
points.
In terms
of Mortgage Loans, the product offer has been consolidating and increasing. Due
to their variety, the products cover all likely financing possibilities and
purposes. This significant range of opportunities was deployed under the name
“Flexible Mortgage”, including the tenants line, which resulted in 334
operations during 2007 (i.e. 13% more mortgage loans this year). Generating a
growth of 165% in sales compared with 2006, the portfolio exceeded Ps.690
million, and increased the Bank's annual market share of Mortgage Loans by 52
basis points.
Deposits:
During
2007, the Bank managed to increase resources by Ps.1.9 billion, some 22% more
than the previous year, thus reaching Ps.10.1 billion, growing more in demand
deposits vs. fixed-term deposits, thus achieving a funding structure more
convenient to the Bank. Several commercial steps were taken to this end, among
which the Collection Campaign during the first quarter of the year stands out,
as it resulted in an increase of Ps.855 million during that period.
Due to the
expiration of several repayment coupons of the new Argentine public debt,
different specific steps were taken in order to retain the balances credited in
demand accounts, whether by establishing fixed-term deposits or offering other
investment alternatives, prioritizing retail deposits (i.e. those of less than
Ps.1 million). In terms of Mutual Funds, managed customer resources rose by
Ps.60 million (21%) totalling Ps.353 million. The performance of FBA Bonos
Brasil in this area is worth mentioning.
Finally, a
training program in investments for Personal Managers of the VIP Sector began in
the last months of the year. The program aims at bringing managers closer to
some capital markets products, and familiarizes them with the products, in order
to increase related businesses at a later stage and offer our customers a more
specialized service.
Insurance:
This year,
the insurance area has expanded its array of products offered for individual
customers and businesses; this represents a 14% increase in total commissions,
which reinforces its already strong position.
Insurance
marketing involved seven insurance companies and one broker, offering more than
50 different products. Commercial actions were based on a promotion where the
beneficiary receives a gift card when taking up a home or car insurance policy.
This campaign was well received, which improved the quality of the current
portfolio.
Payrolls:
One of the
main transactional products managed by the Bank was the payroll plans, which
continued to grow, attracting more businesses to sign up for the
service.
The
Payroll Plan Campaign is a cross-selling product which works through different
areas: Corporate, Business and Retail. Individual Payroll plans rose by 26%. The
goal is to lead the payroll market, and to this end we will continue on-site
management at privately owned businesses, as well as public bids, such as
Conicet, which the Bank was recently awarded, which resents 13,000 more
individuals.
VIP
BBVA:
VIP
Banking continues to grow, with development of relationships and dedicated
consultancy as the pillars of its management model. We have added innovative
products and offered loyalty opportunities which are exclusive to our
portfolio.
22
We
launched the Premium Account, a group of products which offers the best
alternatives especially created to offer VIP customers a truly tailor-made
service. The Premium Account includes Visa Platinum and Mastercard Black,
exclusive products for the most valuable segment. Therefore, BBVA Banco Francés
has become the first bank in Argentina to offer Mastercard Black, a distinctive
product for customers who wish to access a “Total Service” program.
We
stayed close to our customers in different ways:
|
|
§
|
Welcome
gifts for customers taking up a Premier or Premium
account
|
|
|
§
|
Birthday
gifts
|
|
|
§
|
Avant
Premiere tickets for the play
Victor-Victoria
|
|
|
§
|
Discount
catalogues including the most prestigious product
brands
|
The number
of customers increased by 16% during 2007, totalling 31,500
customers.
Electronic
Banking:
Electronic
Banking is becoming more consolidating every year and stands out as preferred
banking method for customers, through different means: ATM’s, self-service
terminals, call centers, home banking and mobile phones.
Due to the
requirement of being available 24 hours, in most cases the processes are
certified on the basis of ISO 9001 regulations, which allow the Bank to
guarantee an efficient service.
The
success of each individual product is detailed below:
Automatic Teller
Machines:
|
|
§
|
A
total network of 591 working ATM’s
|
|
|
§
|
91
new in-branch ATMs, which expand or replace old
terminals
|
|
|
§
|
15
ATMs installed at companies' facilities, which encourage new business
undertakings
|
Self-service
Terminals:
|
|
§
|
673
terminals to complement cashiers’
operations
|
Internet – Francés
Net:
|
|
§
|
70,000
new customers
|
|
|
§
|
Ps.6.0
billion transacted
|
|
|
§
|
20%
increase in trading volume
|
Internet – Institutional Web
Page:
|
|
§
|
2.5
million visitors per month
|
|
|
§
|
30
million visitors in 2007
|
23
Call center – Línea
Francés:
|
|
§
|
89%
use of interactive voice recognition
(IVR)
|
|
|
§
|
118,000
customers served at Renault and Peugeot during the
year
|
|
|
§
|
12,000
queries on foreign trade
|
|
|
§
|
9,000
service surveys
|
Cellular phone
banking: Francés Móvil and Banca
Móvil:
|
|
§
|
Mobile
Phone Banking continues to grow, offering operations through mobile phones
with the addition of transactions such as payment for utilities, transfers
and balance queries through SMS.
|
|
|
§
|
500,000
messages with banking information sent through Francés
Móvil
|
|
|
§
|
More
than 280,000 web browsing
transactions
|
Means of
payment:
The
traffic level on the net was increased, which in turn expanded the sales
participation in Channels, with product improvements, more advertising and new
management tools. Promotion in the more active areas (fuel, home and
supermarkets) was maintained and increased. All of these actions added value to
our card.
November
saw the launch of BLUE, a card targeted at young people who are currently
studying or have medium to high income and cultural level. Through this
alternative, the Bank achieves a better positioning in a segment that is not
contemplated by the current market.
In order
to increase credit card sales volumes, the services of two marketing outsourcers
were retained. Approval levels have been very significant, and they turn this
channel into an important sales outlet for 2008.
Personalized
actions aimed at increasing portfolio activity, average expenditure and
automatic direct debit for utilities for VIP and individual customers have
improved the average capitalization of the general portfolio. Regional activity
was also carried out in businesses throughout the country with significant
promotions and discounts catalogues for each area.
Credit Cards and Debit
Cards:
Credit and
debit cards generate income for the Bank in the form of renewal fees,
maintenance fees, retailer transaction fees, merchant processing fees, and, in
the case of credit cards, financing and penalty charges. Since 2005 this product
has increased rapidly, along with economic recovery, with big players investing
strongly in advertising and promotion. Debit cards were promoted along with
credit cards, as a way of increasing not only sales but consumption
volume.
We issue
mainly “Visa” and “MasterCard” credit cards. This last brand was re-launched in
2005 in order to have two strong options for our clients and increasing the use
of our credit cards, and debit-only cards (under the name Visa Electron).
According to Visa, for Argentina we had a total credit card base of 1,059,637 as
of December 31, 2007 and we are in the third place of Visa credit card market
share, with 10.26% of the consumption volume market and 8.9% in current credit
cards. Our Visa Electron client base as of December 31, 2007 consisted of
approximately 1,438,485 debit-only cards, representing 13.61% of the market
share that generates the 17.55% of the consumption volume market making us the
third biggest player in Argentina.
As
previously described above, in 2007, we launched the Visa Platinum and
Mastercard Black, exclusive products for the most valuable segment, becoming the
first bank in Argentina to offer Mastercard Black.
24
Trust
Banking:
Following
a trend from 2006, the market continued to favour the developing of new
Financial Trusts, in compliance with already established issue programs. Prices
offered by investors were rising, and peaked towards the end of the year. The
industry set its goals in increasing commission income, and a raise in average
commissions per contract, with a strictly selective analysis of businesses in
which we were invited to participate. As a result, total income from commissions
relating to Trust Banking rose, and average commissions per contract registered
an increase of 11%, compared with 2006.
Asset and Pension Fund
Management
Throughout fiscal year 2007, Francés Administradora de Inversiones
S.A., as managing company, continued
managing FBA (“Fondos Bien Administrados” or Well Managed Funds) products, achieving a good performance for investments from individual and corporate customers.
Mutual Funds
During this fiscal year, FBAs yielded significant returns,
out of which, the performance of the following funds stand out: FBA Bonos
Argentina (from the Fixed Income - Argentine Pesos / Short-term category), FBA
Latin American Shares and FBA Brazil (from the Variable Income - Pesos
Latinoamérica / Long-term),
leading their respective segments. B Shares of FBA Latin American Shares yielded
61.58%, exceeding the Morgan Stanley Composite Index (MSCI Latam) by
8.75%. D Shares (currently
marketable) of FBA Brasil,
on the other hand, yielded 78.48% in U.S. dollars between January 2, and
December 28, 2007, exceeding the Bovespa Index (IBX) by 5.09%. It is also worth
mentioning that during the period, B Shares of Qualified FBA (from the Variable
Income Fund - Argentine Pesos / Long-term
category) yielded 10.26%, exceeding the Merval Index by 7.33%, while B Shares of
Global Shares FBA (from the Flexible Variable Income - U.S. Dollars / Global category) yielded
53.45% in U.S. dollars, exceeding the MSCI
Latam by
4.35%.
In terms of equities, the FBA family
went from an equity management of Ps.1.2 billion in December 2006 to Ps.0.9 billion in December 2007, decreasing by
almost 20%, and reaching a total Mutual Funds market share of 4.6%. In terms of
the December 2006 -
December 2007 comparison, the Mutual Funds equity from retail banking customers
grew by almost 20%, while those from institutional banking decreased by
33%.
Within the FBA family and the Fixed-Term
Deposits category, FBA Income - Pesos was the only fund which admitted subscriptions
and redemptions during the fiscal year, ending with Ps.299 million of equity, an increase of almost 14%
compared with the level reached by the end of the previous
year.
In terms of Market Funds, the FBA
Family's equity fell by
30.31%, ending the period with a managed equity of Ps.617 million, reaching a market share in its
category of 4.18%. In that category, the falls in equity of the following Funds
stand out: Qualified FBA, Savings FBA - Pesos and FBA Horizonte. It is worth mentioning that although the
Market Funds' equity fell during the period, the ratio of commissions generated
by them over the total was maintained at 92.22%. Likewise, the annual total of
commissions from Market Funds increased by more than 7% compared with the previous period.
On the other hand,
the performance of Global
Shares FBA and Latin American Shares FBA stand out with equity
increases.
Furthermore, this category stands out
due to an expansion of the product offered. We should keep in mind that the FBA Brazil Fund began
operations on December 29, 2006, aimed at generating a high level of capital
valuation through investments in a portfolio mostly made up by shares in
Brazilian companies. FBA Mexico was also operative as of April 17, 2007,
with a similar goal as FBA Brazil, but
through investments made up mostly by shares in Mexican companies. On December
15, the Argentine Shares FBA Fund began its operations, and FBA Commodities and
FBA Global Fund followed on December, 29. The aims of these funds are to: (i) invest in Argentine
companies; (ii) generate a high level of capital valuation through a minimum
investment of 75% of its net equity in assets related to any stage (research,
manufacture, exploitation or marketing) of raw materials and/or natural resources and/or its
derivatives; and (iii) generate a high level of capital valuation through a
minimum investment of 75% of its net equity in fixed income negotiable
securities with a non-speculative investment grade.
25
As of
December 31, 2007, our mutual funds had the following Net Asset
Values:
|
Name of Mutual
Fund
|
Thousands
of
Pesos
|
|
|
FBA
Acciones Globales
|
136,139
|
|
|
FBA
Total
|
10,863
|
|
|
FBA
Renta
|
12,645
|
|
|
FBA
Renta Pesos
|
298,951
|
|
|
FBA
Renta Dólares
|
4,233
|
|
|
FBA
Bonos
|
8,832
|
|
|
FBA
Calificado
|
213,601
|
|
|
FBA
International
|
497
|
|
|
FBA
Ahorro Dólares
|
11,730
|
|
|
FBA
Renta Fija
|
16,214
|
|
|
FBA
Ahorro Pesos
|
128,507
|
|
|
FBA
Renta Premium
|
6,755
|
|
|
FBA
Europa
|
4,770
|
|
|
FBA
Horizonte
|
27,847
|
|
|
FBA
EE.UU.
|
1,323
|
|
|
FBA
Renta Corto Plazo
|
495
|
|
|
FBA
Acciones Latinoamericanas
|
44,268
|
|
|
FBA
Bonos Argentina
|
8,069
|
|
|
FBA
Brasil
|
2,992
|
|
|
FBA
México
|
979
|
|
|
FBA
Commodities
|
50
|
|
|
FBA
Acciones Argentinas
|
485
|
|
|
FBA
Bonos Globales
|
50
|
|
|
Total
|
940,295
|
Source:
“Cámara Argentina de Fondos Comunes de Inversión”
Portfolio Management
During the 2007 fiscal year, BBVA Banco Francés continued its commitment to customize portfolio
management, an exclusive service for companies and high-income
individuals, by providing professional and efficient investment
management, tailored to each customer’s particular needs and investor profile.
Financial
institutions and insurance companies are permitted to invest in pension and
retirement fund management companies in Argentina. Such funds, which are modeled
after those currently in existence in Chile, are funded strictly by pension and
retirement contributions made by Argentine employees. As of December 31, 2007,
we owned 53.89% of Consolidar AFJP, a pension fund manager that is operated
jointly with BBVA. As of December 31, 2007, Consolidar AFJP managed Ps.17.3
billion in pension fund holdings (with an 18.4% market share in
collections).
The Bank’s Assets Management division
(“Gestión de Activos Argentina”) became a market leader in terms of
growth in dollar-denominated market funds. In recognition to our performance, we
obtained the S&P
“Top Manager” award to the best Variable Income
manager.
In spite of an availability of highly
profitable products, the market’s competitive conditions were adverse.
Foreign exchange law imposed restrictions on the funds market and some companies
adopted a “Cash Settlement” policy in order to address such
conditions. In the case of BBVA Banco Francés, the decision was to adopt a
conservative strategy in this connection.
Insurance
We provide advisory services to our
customers in the selection of the adequate coverage of risks related to life,
personal accidents and home insurance and ATM’s robbery insurance, within a range of
products offered by certain insurance companies.
Additionally,
as part of the overall business, we have equity interests in some of these
companies, including 12.22% of the capital stock of BBVA Seguros S.A., 65.96% of
Consolidar Compañía de Seguros de Vida S.A. (a company that offers life
insurance to the persons with retirement accounts at Consolidar AFJP), 66.67% of
Consolidar Compañía de Seguros de Retiro S.A. (a company that offers retirement
plans) and 12.5% of Consolidar ART S.A. (a workers compensation insurance
company that offers labor risk
26
insurance
to corporations pursuant to a statutory framework established by the Labor Risks
Law). BBVA holds the remaining shares in these four companies.
At
December 31, 2007, Consolidar Retiro reached a 21.1% market share in the number
of beneficiaries. As for the labor risk insurance company, Consolidar ART
increased the number of companies and employees insured from 46,676 companies
and 924,862 employees in December 2006 to 45,746 companies and 955,321 employees
by 2007 year-end (equivalent to a 2.0% decrease and 3.3% growth,
respectively).
International
Operations
Since the economic and financial crisis started at the end of 2001, the access to international markets for
Argentine companies has
been very limited. Notwithstanding this constraint we have been able to assist
our clients with traditional foreign trade services, including letters of credit, collections, bank drafts,
fund transfers and foreign currency transactions.
Furthermore, most recently, in March
2007 we paid the outstanding Class 15 Floating Rate Notes due 2008, for an
amount of 121.5 million dollars. With this last payment BBVA Banco Francés concluded the restructuring process of
its foreign debt derived from the 2001 crisis.
Cost Controls and Efficiency
Improvements
The increase in administrative expenses
above inflation is mainly related to a higher activity level together with higher payroll and
advertising expenses in connection to a more aggressive advertising
campaign.
The following table shows the revenue
derived from the business areas described above for the fiscal years ended
December 31, 2007, 2006 and 2005:
|
As
of December 31, 2007
|
||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
||||||||||||||||||||||
|
Total
assets
|
18,903,940 | 264,251 | 19,168,191 | 377,785 | 2,562,922 | (85,899 | ) | 22,022,999 | ||||||||||||||||||||
|
Financial
income
|
1,610,891 | 14,594 | 1,625,485 | 37,162 | 247,412 | (5,847 | ) | 1,904,212 | ||||||||||||||||||||
|
Service
charge income and other income
|
1,220,097 | 20,469 | 1,240,566 | 463,960 | 580,609 | (274,062 | ) | 2,011,073 | ||||||||||||||||||||
|
Total
income (1)
|
2,830,988 | 35,063 | 2,866,051 | 501,122 | 828,021 | (279,909 | ) | 3,915,285 | ||||||||||||||||||||
|
Financial
expenses
|
(682,913 | ) | (2,642 | ) | (685,555 | ) | (415 | ) | (8 | ) | 5,847 | (680,131 | ) | |||||||||||||||
|
Allowances
for doubtful loans
|
(60,370 | ) | (1,892 | ) | (62,262 | ) | — | — | — | (62,262 | ) | |||||||||||||||||
|
Operating
expenses
|
(872,913 | ) | (4,887 | ) | (877,800 | ) | (211,084 | ) | (38,741 | ) | 3,464 | (1,124,161 | ) | |||||||||||||||
|
Other
expenses
|
(1,027,268 | ) | (9,911 | ) | (1,037,179 | ) | (278,988 | ) | (748,572 | ) | 270,598 | (1,794,141 | ) | |||||||||||||||
|
Total
expenses (2)
|
(2,643,464 | ) | (19,332 | ) | (2,662,796 | ) | (490,487 | ) | (787,321 | ) | 279,909 | (3,660,695 | ) | |||||||||||||||
|
Income
/ (Loss) on minority interest in subsidiaries
|
(169 | ) | (458 | ) | (627 | ) | (4,903 | ) | (14,011 | ) | — | (19,541 | ) | |||||||||||||||
|
Total
net income
|
187,355 | 15,273 | 202,628 | 5,732 | 26,689 | — | 235,049 | |||||||||||||||||||||
|
(1)
|
Includes:
financial income, service charge income and other
income.
|
|
(2)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income tax and tax on minimum
presumed income.
|
27
|
As
of December 31, 2006
|
||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
||||||||||||||||||||||
|
Total
assets
|
16,294,763 | 109,151 | 16,403,914 | 373,844 | 2,204,731 | (147,860 | ) | 18,834,629 | ||||||||||||||||||||
|
Financial
income
|
1,514,699 | 7,030 | 1,521,729 | 44,237 | 384,026 | (13,588 | ) | 1,936,404 | ||||||||||||||||||||
|
Service
charge income and other income
|
653,149 | 11,249 | 664,398 | 377,019 | 410,135 | (221,237 | ) | 1,230,315 | ||||||||||||||||||||
|
Total
income (1)
|
2,167,848 | 18,279 | 2,186,127 | 421,256 | 794,161 | (234,825 | ) | 3,166,719 | ||||||||||||||||||||
|
Financial
expenses
|
(581,603 | ) | (95 | ) | (581,698 | ) | (234 | ) | (1 | ) | 13,588 | (568,345 | ) | |||||||||||||||
|
Allowances
for doubtful loans
|
(69,411 | ) | (714 | ) | (70,125 | ) | — | — | — | (70,125 | ) | |||||||||||||||||
|
Operating
expenses
|
(711,655 | ) | (3,320 | ) | (714,975 | ) | (171,273 | ) | (43,750 | ) | 2,594 | (927,404 | ) | |||||||||||||||
|
Other
expenses
|
(707,660 | ) | (4,219 | ) | (711,879 | ) | (249,662 | ) | (638,894 | ) | 218,643 | (1,381,792 | ) | |||||||||||||||
|
Total
expenses (2)
|
(2,070,329 | ) | (8,348 | ) | (2,078,677 | ) | (421,169 | ) | (682,645 | ) | 234,825 | (2,947,666 | ) | |||||||||||||||
|
Income
/ (Loss) on minority interest in subsidiaries
|
52 | (1,505 | ) | (1,453 | ) | (40 | ) | (37,523 | ) | — | (39,016 | ) | ||||||||||||||||
|
Total
net income
|
97,571 | 8,426 | 105,997 | 47 | 73,993 | — | 180,037 | |||||||||||||||||||||
|
(1)
|
Includes:
financial income, service charge income and other
income.
|
|
(2)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income tax and tax on minimum
presumed income.
|
|
As
of December 31, 2005
|
||||||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.
|
Credilogros
Cía. Financiera S.A.
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
|||||||||||||||||||||||||
|
Total
assets
|
13,839,847 | 86,734 | 64,107 | 13,990,688 | 346,858 | 1,787,736 | (141,534 | ) | 15,983,748 | |||||||||||||||||||||||
|
Financial
income
|
1,412,036 | 27,469 | 3,093 | 1,442,598 | 40,067 | 183,627 | (12,140 | ) | 1,654,152 | |||||||||||||||||||||||
|
Service
charge income and other income
|
757,620 | 16,267 | 5,965 | 779,852 | 294,071 | 299,133 | (168,038 | ) | 1,205,018 | |||||||||||||||||||||||
|
Total
income (1)
|
2,169,656 | 43,736 | 9,058 | 2,222,450 | 334,138 | 482,760 | (180,178 | ) | 2,859,170 | |||||||||||||||||||||||
|
Financial
expenses
|
(617,332 | ) | (3,551 | ) | (79 | ) | (620,962 | ) | (124 | ) | (3 | ) | 12,140 | (608,949 | ) | |||||||||||||||||
|
Allowances
for doubtful loans
|
(109,265 | ) | (4,970 | ) | (393 | ) | (114,628 | ) | — | — | — | (114,628 | ) | |||||||||||||||||||
|
Operating
expenses
|
(564,742 | ) | (24,751 | ) | (2,550 | ) | (592,043 | ) | (141,146 | ) | (44,302 | ) | 1,656 | (775,835 | ) | |||||||||||||||||
|
Other
expenses
|
(791,684 | ) | (3,703 | ) | (1,314 | ) | (796,701 | ) | (175,995 | ) | (419,089 | ) | 166,382 | (1,225,403 | ) | |||||||||||||||||
|
Total
expenses (2)
|
(2,083,023 | ) | (36,975 | ) | (4,336 | ) | (2,124,334 | ) | (317,265 | ) | (463,394 | ) | 180,178 | (2,724,815 | ) | |||||||||||||||||
|
Loss
on minority interest in subsidiaries
|
(1 | ) | (1,850 | ) | (999 | ) | (2,850 | ) | (7,843 | ) | (6,458 | ) | — | (17,151 | ) | |||||||||||||||||
|
Total
net income
|
86,632 | 4,911 | 3,723 | 95,266 | 9,030 | 12,908 | — | 117,204 | ||||||||||||||||||||||||
|
(1)
|
Includes:
financial income, service charge income and other
income.
|
|
(2)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income tax and tax on minimum
presumed income.
|
Information
technology
The Systems and Operations
Committee, seeks to give continuity to strategic plans established in previous years,
subject to the necessary
reviews and updates according to evolving business needs. This committee
has focused its activities
on the following three areas:
|
|
§
|
Growth
of the technological infrastructure and guidelines, in order to support
the Bank's sustained commercial expansion, and give the Bank’s business
the necessary tools for new sales
methods.
|
28
|
|
§
|
Significant
focus on total risk management, in line with new regulatory requirements,
both local and international, turning it into a competitive
advantage.
|
|
|
§
|
Development
of the internal customers’ relations, project management model aimed at
increasing efficiency in our operations and the satisfaction of our
clients, which is at the core of the Bank’s
growth.
|
The development of a new branch model is
among the most important projects pursued. It is carried out by a cross-area team, aimed
at developing the architectural, functional and technical design of the branch
as that it is in line with market requirements
and the strategic objectives of BBVA Banco Francés and the Group.
In
addition to commercial issues, the
first products targeted at the low-income sector were launched, and mass sales
practices were
implemented.
Commercial Management Centers, which
constitute support and
service structures for the offices network, targeted at sales outside the
branch, were also established. A significant quality program for customer
contact details has been implemented, in order to increase sales productivity,
cross-selling and customer satisfaction, while reducing
costs. The “Project Data” -as this initiative was called-
included implementation of new tools, adaptation of guidelines, data stock
clean-up, and awareness and incentive plans for employees. In terms of
commercial intelligence,
new instruments were developed in order to increase the efficiency. In terms of
Treasury, a new front-end system was designed for the sale and purchase of
securities and bonds, which we expect but no assurances can be
given, will be
implemented in the next
fiscal year, which would
have additional
qualification of risk, position and earnings analysis
modules.
Another strongly developed key point is
alternative channels, where updating and expansion of the ATM network continues,
after completing the first
stage of replacing old self-service terminals.
As a significant milestone, a process of
renovation into the latest available technology of the practical and phone
structure upon which phone banking, telesales, after-sales service, and phone
payments work, was
initiated. Old switchboard in central areas were
replaced by equipment with Voice Over IP technology, offering a platform of voice handling plus a
number of new functional possibilities, which in future will help to develop
better work methods. Furthermore, a model of sales through
advisors was developed, and the sale of pledged loans was launched, and the
acceptance of pre-approved loans in alternative channels also became
operative. Development and implementation of new
scoring modules, aimed at
setting out the required acceptance tools to support commercial plans (scoring
for low-income sectors, global customer qualification, decision matrix, scoring
bureau and others) continued.
In terms of IT Infrastructure,
CPU’s capacity was increased in the mainframe environment, the tape
handling “robot” was changed, storage capacity was
increased, and the Operating System was updated. On the other hand, the Business Recovery
System (BRS) annual test was strengthened, including contingency
management during the hours
immediately following its declaration, prior to the set off of the alternative
site located in Madrid, increasing the number of branches
taking part in the test and adjusting procedures of the Business Continuity
Plan. The BRS of the Money Desk was also implemented. The branch data network was also
reinforced, increasing capacity and installing faster back-up links for a number
of branches considered critical. The bidding process to migrate the whole
network to MPLS technology was also initiated. This migration considers the
increase in capacity for the rest of the offices, and the adaptation of
contingency links' functionality to the new applicative
requirements. Group Wise from Novell electronic mail
was replaced in branches, in order to adjust to corporate plans and
uninterrupted Power Supply
(UPS) systems were replaced in branches, as they were
obsolete.
In terms of regulations, methodology and
safety, the main actions were:
|
|
§
|
Two
projects were initiated to improve safety of the customer authentication
process in alternative channels, providing them with a second
authentication factor, of the type One Time Password, using Coordinates
Cards for the Retail segment and Tokens for the Business
segment.
|
|
|
§
|
Development
of new methodology for management of the Applications Life Cycle
continued, as well as consolidation of the Business Partner scheme, both
introduced in the previous fiscal
year.
|
|
|
§
|
The
process of compliance certification with the Sarbanes-Oxley Act was
carried out once again, after continuous adjustment of internal control
processes.
|
|
|
§
|
Development
of application modules to comply with Basel II and Risk Associated Return
continued.
|
29
Aimed at searching for opportunities to
improve efficiency, critical analysis of the operations structure and area processes were carried out generating
a working plan. Finally, infrastructure works were carried out to coincide with
commercial plans (branch opening and remodeling) and the adjustments required by changes in the
organization.
ORGANIZATIONAL
STRUCTURE
Banco
Bilbao Vizcaya Argentaria S.A. (BBVA)
As of December 31, 2007 and 2006, BBVA
owned approximately 75.97% and 76.09%, respectively, of
BBVA Banco
Francés’ capital stock.
BBVA is the result of a merger by
absorption of Argentaria, Caja Postal y Banco Hipotecario, S.A., formerly a Spanish
retail banking, asset management and insurance provider, into Banco Bilbao
Vizcaya, S.A. The merger was approved by the shareholders of both institutions
on December 18, 1999. As of December 31, 2006, BBVA, through its subsidiaries, has a presence in 14
American countries and several countries throughout Europe, with 3,578 branch
offices in Spain and 3,832 branch offices outside Spain, and 30,582 employees in
Spain and 67,971 employees outside of Spain.
BBVA is a global financial group, organized in five
major business areas: Retail Banking in Spain and Portugal, Wholesale and Investment Banking,
México and the United States (including Puerto Rico) and,
South América.
The tangible benefits provided by the
entities that are part of
the BBVA Group to the Bank are the following:
|
|
§
|
Sharing of
technology;
|
|
|
§
|
Development of new banking
products that have been customized for the Argentine
market;
|
|
|
§
|
Leveraging BBVA’s global client relationships to
serve those clients operating in Argentina;
and
|
|
|
§
|
BBVA’s participation in BBVA Banco Francés as a shareholder is both long
term and strategic.
|
Subsidiaries
of BBVA Banco Francés
We conduct
our securities trading operations on the BCBA through our brokerage affiliate,
Francés Valores Sociedad de Bolsa S.A., or Francés Valores. Among other
subsidiaries engaged in a range of financial businesses, it is important to
mention Consolidar AFJP, a pension fund administrator, which as of December 31,
2007 managed Ps.17.3 billion in pension fund holdings, and had an 18.4% market
share in collections in Argentina according to information published by the
Superintendence of AFJPs. BBVA Banco Francés currently has a 53.89% equity
interest in Consolidar AFJP, with the remaining interest held by
BBVA.
Until
recently we provided certain financial services to customers in the lower-income
segment through our subsidiary Credilogros. On March 9, 2005 we entered into a
sale-purchase agreement with Banco de Servicios y Transacciones and Grupo de
Servicios y Transacciones S.A. for the sale of our entire interest in
Credilogros. As of June 28, 2006 Banco Central approved this operation with
Resolution No. 146. This transaction was performed on July 11, 2006 and the
shares of Credilogros Cía. Financiera S.A. were transferred. Prior to that
transaction, the capital stock structure of Credilogros, as of December 31,
2005, was as follows:
|
BBVA
Banco Francés
|
69.5271%
|
|
Banco
Bilbao Vizcaya Argentaria S.A.
|
29.9475%
|
|
Inversora
Otar S.A.
|
0.5254%
|
Rombo
Compañía Financiera S.A., with a single branch located in Buenos Aires, grants
loans on the retail market to finance the purchase of new and second hand cars
offered by the Renault dealership network. During 2007, the Company continued to
consolidate its growth by exceeding forecasts and increasing completed
agreements by 41% compared with 2006. The total number of loans granted was
17,951, out of which 14,698 were Renault, 597 were Nissan and 2,656 were
second-hand vehicles. The favorable evolution of the business was reflected in
an increase of financing volumes, which surpassed Ps.370 million by the end of
fiscal year 2007, including the leasing transactions (mainly fleet). In terms of
AFIMA's (Controlled Lenders Association) activities, we have achieved a leading
position in market penetration (direct brand sales vs. sales financed by the
controlled lender), with a 22.3% (license plates registrations vs. financed
sales).
PSA
Finance is located in Buenos Aires. This financial entity was organized in 2001
and its original shareholders were Credilogros Compañia Financiera S.A. (50%)
and Banque PSA Finance (50%), a company owned by the PSA French group. The
30
company’s
business is to finance brand new Peugeot and Citroën vehicles, as well as
second-hand vehicles of all brands, through motor-vehicle secured loans or
leasing transactions. On October 31, 2003, with the approval of the Central
Bank, BBVA Banco Francés acquired 50% of the shares of PSA Finance from
Credilogros for Ps.11.9 million and the latter settled the call received from
BBVA Banco Francés for a total of Ps.11.7 million plus interest. During 2007,
PSA finalized 9,979 operations, 86% more than 2006. Peugeot holds 72% of such
manufacture, while Citroen was responsible for 28% of operations. Such whole
sales represent a volume of Ps.228 million, an increase of 133%compared with
2006. In addition, PSA Finance also managed to increase its customer’s portfolio
by 79% (from 8,254 customers by the end of 2006 to 14,750 customers in December
2007).
Until
March 2004, we offered financial services in the Cayman Island through Banco
Francés (Cayman) Ltd. On March 18, 2004 we sold our interest in Banco Francés
(Cayman) Ltd. to BBVA.
The following chart reflects
BBVA Banco
Francés’s subsidiaries as of December 31,
2007:
The
following information is related to subsidiaries and affiliates as of December
31, 2007:
Stockholders’
Equity
(in
millions of pesos) (4)
|
Subsidiary
or Associated Company
|
Country
of
Incorporation/
Residence
|
BBVA
Banco Francés
Ownership
and
Voting Power
|
Principal
Activity
|
Stockholders’
Equity
(in
millions of pesos) (4)
|
|||||
|
Atuel
Fideicomisos S.A. and subsidiary (1)(3)
|
Argentina
|
99.99%
|
Trust
services
|
27.7
|
|||||
|
Francés
Valores Sociedad de Bolsa S.A. (1)(3)
|
Argentina
|
94.97%
|
Stock
exchange brokerage
|
9.3
|
|||||
|
Consolidar
Cía. de Seguros de Retiro S.A. (1)(3)
|
Argentina
|
66.67%
|
Insurance
|
88.5
|
|||||
|
Consolidar
Seguros de Vida S.A. (1)(3)
|
Argentina
|
65.96%
|
Insurance
|
193.1
|
|||||
|
Consolidar
AFJP S.A. (1)(3)
|
Argentina
|
53.89%
|
Pension
and Retirement Fund Administrators
|
273.9
|
|||||
|
PSA
Compañía Financiera S.A. (1)(3)
|
Argentina
|
50.00%
|
Financial
Institution
|
28.0
|
|||||
|
Rombo
Compañía Financiera S.A. (3)
|
Argentina
|
40.00%
|
Financial
Institution
|
76.9
|
|||||
|
Consolidar
ART S.A. (3)
|
Argentina
|
12.50%
|
Workers
Compensation Insurance
|
191.4
|
|||||
|
BBVA
Consolidar Seguros S.A. (3)
|
Argentina
|
12.22%
|
Insurance
Company
|
56.1
|
|||||
|
Assurex
S.A. (2)
|
Argentina
|
12.50%
|
Insurance
Broker
|
0.3
|
|
(1)
|
For
information regarding the number of shares we hold in such entities, see
Note 2. to the Consolidated Financial Statements.
|
|
(2)
|
Total
stockholders’ equity as of June 30, 2006.
|
|
(3)
|
Total
stockholders’ equity as of December 31, 2007.
|
|
(4)
|
Statutory
Stockholders’ Equity, adjusted for purposes of consolidation so as to
apply an accounting criterion being uniform with that of BBVA Banco
Francés, if applicable.
|
31
Equity
Investments
The
following are all positions that we hold in non-financial institutions wherever
such a position represented an ownership in excess of 2% of the invested
companies’ equity as of December 31, 2007.
|
Investment
|
Country
|
%
of Shares
Owned
|
Principal
Activity
|
Total
Stockholders’
Equity
(in
millions
of pesos)
|
||||||
|
Coelsa
S.A.(1)
|
Argentina
|
11.39%
|
Clearing
house
|
1.7
|
||||||
|
Interbanking
S.A. (1)
|
Argentina
|
9.09%
|
|
Information
services for financial markets
|
13.4
|
|||||
|
Argencontrol
S.A.
(1)
|
Argentina
|
7.77%
|
Agent
Mandatary
|
0.9
|
||||||
|
Sedesa
S.A. (1)
|
Argentina
|
13.31%
|
Deposit
Guarantee Fund
|
12.4
|
||||||
|
Banelco
S.A. (2)
|
Argentina
|
10.91%
|
Nationwide
ATM network & credit card Administration
|
56.2
|
||||||
|
Visa
Argentina S.A. (3)
|
Argentina
|
5.00%
|
Credit
card issuer
|
34.2
|
||||||
|
AIG
Latin American Fund (4)
|
Virgin
Islands
|
19.50%
|
Investment
Funds
|
27.6
|
||||||
|
(1)
|
Total
Stockholders’ Equity as of December 31, 2006.
|
|
(2)
|
Total
Stockholders’ Equity as of November 30, 2007.
|
|
(3)
|
Total
Stockholders’ Equity as of May 31, 2007.
|
|
(4)
|
Total
Stockholders’ Equity as of December 31, 2000. The Bank maintains an
allowance for the 100% of the
amounts.
|
PROPERTY,
PLANTS AND EQUIPMENT
BBVA Banco
Francés is domiciled in Argentina and has its principal executive offices at
Reconquista 199, C1003ABB Buenos Aires, Argentina. The principal executive
offices, which we own, are approximately 17,189 square meters in
area.
At
December 31, 2007, our branch network consisted of 232 branches, of which 113
were located in properties that we own and 119 were located in properties leased
to us. The branches are located throughout all of the 23 Argentine provinces as
well as the City of Buenos Aires.
SELECTED
STATISTICAL INFORMATION
The
following information is included for analytical purposes and should be read in
conjunction with the Consolidated Financial Statements as well as “Operating and Financial Review and
Prospects”. This information has been prepared from our financial
records, which are maintained in accordance with the regulations established by
the Central Bank and do not reflect adjustments necessary to state the
information in accordance with U.S. GAAP. See Note 20. to the Consolidated
Financial Statements for a summary of the significant differences between
Argentine Banking GAAP and U.S. GAAP.
Average
Balance Sheets and Income From Interest-Earning Assets and Interest-Bearing
Liabilities
The
average balances of interest-earning assets and interest-bearing liabilities,
including the related interest earned or paid, were calculated on a monthly
basis in the case of the financial information of BBVA Banco Francés and its
subsidiaries. Average balances have been separated between those denominated in
pesos and in dollars.
The
nominal interest rate is the amount of interest earned or paid during the period
divided by the related average balance.
The
nominal average rates for each fiscal year were converted to average real rates
as follows:
32
Where:
Rp: real
average rate for Argentine peso-denominated (in the case of BBVA Banco Francés),
assets and liabilities of BBVA Banco Francés;
Rd: real
average rates for dollar-denominated assets and liabilities of BBVA Banco
Francés;
Np:
nominal peso average rate in peso-denominated (in the case of BBVA Banco
Francés), assets and liabilities for the period;
Nd:
nominal dollar average rate in dollar-denominated assets and liabilities for the
period;
D:
devaluation rate of the Argentine peso (in the case of BBVA Banco Francés), to
the dollar for the period; and
I:
Argentine inflation rate (“WPI”) (in the case of BBVA Banco
Francés).
The
formula for the average real rates for dollar-denominated assets and liabilities
(Rd), when compared with the corresponding nominal rates, reflects the loss, or
gain, in purchasing power of the dollar caused by the difference between peso,
devaluation and inflation in Argentina, for each period.
Included
in interest earned are the net gains on our portfolio of Government securities
and related differences in market quotations. We manage our trading activities
in Government Securities as an integral part of our business. We do not, as a
matter of practice, distinguish between interest income and gain or loss on our
Government Securities portfolio. Non-accrual loans have been included in the
related average loan calculation.
Negative
interest rates in real terms occur in periods when the inflation rate in each
country exceeds the nominal interest rate in pesos or exceeds the combination of
the nominal interest rate on dollar-denominated assets or liabilities and the
devaluation rate.
The
following illustrates the calculation of the real interest rate in pesos for a
dollar-denominated asset yielding a nominal annual interest rate of 20.0%
(Nd=0.20) using different combinations of devaluation and inflation rates. If
devaluation is 15.0% per annum (D=0.15) and inflation runs at a rate of 25.0%
per annum (I=0.25), the result is as follows:
which in
this case means that, because inflation exceeds devaluation, the real interest
rate in pesos is less than the nominal interest rate in dollars. In this
example, if the devaluation rate had been 30.0% per annum, and the other
assumptions had remained the same, then the real interest rate in pesos would
have been 24.8% per annum, which is more than the nominal interest rate in
dollars. If the inflation rate were to exceed 38.0% per annum, then the real
interest rate in pesos on this dollar denominated asset would become
negative.
33
Average
Balance Sheets, Interest Earned on Interest-Earning Assets and Interest Paid on
Interest-Bearing Liabilities
The
following tables show average balances, interest amounts and real rates for our
interest-earning assets and interest-bearing liabilities for the fiscal years
ended December 31, 2007, 2006 and 2005. These adjustments do not have an impact
on Interest-earning assets or Interest-bearing liabilities.
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Interest-earning
assets
|
||||||||||||||||||||||||||||||||||||
|
Government
securities (3)
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
4,162,457 | 375,861 | (4.83 | )% | 3,349,751 | 551,972 | 8.68 | % | 2,103,943 | 207,703 | (0.65 | )% | ||||||||||||||||||||||||
|
Dollars
|
55,665 | 3,029 | (5.52 | )% | 248,714 | 38,763 | 9.20 | % | 542,603 | 6,242 | (6.76 | )% | ||||||||||||||||||||||||
|
Total
|
4,218,122 | 378,890 | (4.84 | )% | 3,598,465 | 590,735 | 8.72 | % | 2,646,546 | 213,945 | (1.90 | )% | ||||||||||||||||||||||||
|
Loans
(4)
|
||||||||||||||||||||||||||||||||||||
|
Private
Sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
5,747,676 | 829,367 | (0.11 | )% | 4,098,288 | 514,875 | 5.03 | % | 2,640,539 | 304,134 | 0.84 | % | ||||||||||||||||||||||||
|
Dollars
|
1,783,801 | 105,504 | (5.09 | )% | 1,190,840 | 62,930 | (0.53 | )% | 695,066 | 37,074 | (2.90 | )% | ||||||||||||||||||||||||
|
Total
|
7,531,477 | 934,871 | (1.29 | )% | 5,289,128 | 577,805 | 3.78 | % | 3,335,605 | 341,208 | 0.06 | % | ||||||||||||||||||||||||
|
Public
Sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,544,360 | 333,535 | (1.27 | )% | 3,444,212 | 548,763 | 8.18 | % | 6,150,407 | 899,429 | 3.65 | % | ||||||||||||||||||||||||
|
Dollars
|
— | — | — | — | — | — | 49,099 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,544,360 | 333,535 | (1.27 | )% | 3,444,212 | 548,763 | 8.18 | % | 6,199,506 | 899,429 | 3.62 | % | ||||||||||||||||||||||||
|
Deposits
with the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
103,736 | 12,602 | (2.10 | )% | 102,384 | 10,714 | 3.07 | % | 729,166 | 17,434 | (7.41 | )% | ||||||||||||||||||||||||
|
Dollars
|
611,802 | 6,479 | (9.44 | )% | 570,220 | 6,577 | (4.43 | )% | 431,764 | 7,927 | (6.13 | )% | ||||||||||||||||||||||||
|
Total
|
715,538 | 19,081 | (8.38 | )% | 672,604 | 17,291 | (3.29 | )% | 1,160,930 | 25,361 | (6.94 | )% | ||||||||||||||||||||||||
|
Other
assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
1,919,830 | 114,739 | (7.49 | )% | 1,064,259 | 116,124 | 3.49 | % | 1,164,771 | 85,821 | (2.91 | )% | ||||||||||||||||||||||||
|
Dollars
|
110,222 | 5,072 | (6.27 | )% | 116,023 | 7,179 | 0.32 | % | 101,121 | 15,422 | 6.24 | % | ||||||||||||||||||||||||
|
Total
|
2,030,052 | 119,811 | (7.42 | )% | 1,180,282 | 123,303 | 3.18 | % | 1,265,892 | 101,243 | (2.18 | )% | ||||||||||||||||||||||||
|
Total
interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
14,478,059 | 1,666,104 | (2.66 | )% | 12,058,894 | 1,742,448 | 6.79 | % | 12,788,826 | 1,514,521 | 1.13 | % | ||||||||||||||||||||||||
|
Dollars
|
2,561,490 | 120,084 | (6.19 | )% | 2,125,797 | 115,449 | (0.39 | )% | 1,819,653 | 66,665 | (4.44 | )% | ||||||||||||||||||||||||
|
Total
|
17,039,549 | 1,786,188 | (3.19 | )% | 14,184,691 | 1,857,897 | 5.72 | % | 14,608,479 | 1,581,186 | 0.44 | % | ||||||||||||||||||||||||
34
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
Non
interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Cash
and due from banks
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
1,670,804 | — | — | 1,140,970 | — | — | 323,807 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
425,941 | — | — | 385,450 | — | — | 315,285 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,096,745 | — | — | 1,526,420 | — | — | 639,092 | — | — | |||||||||||||||||||||||||||
|
Investments
in other companies
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
64,113 | — | — | 51,153 | — | — | 62,218 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
824 | — | — | 820 | — | — | 783 | — | — | |||||||||||||||||||||||||||
|
Total
|
64,937 | — | — | 51,973 | — | — | 63,001 | — | — | |||||||||||||||||||||||||||
|
Property
and equipment and miscellaneous and intangible assets and items pending of
allocation
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
689,587 | — | — | 964,129 | — | — | 1,201,801 | — | — | |||||||||||||||||||||||||||
|
Total
|
689,587 | — | — | 964,129 | — | — | 1,201,801 | — | — | |||||||||||||||||||||||||||
|
Allowance
for loan losses
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
(250,629 | ) | — | — | (105,136 | ) | — | — | (172,559 | ) | — | — | ||||||||||||||||||||||||
|
Dollars
|
(31,777 | ) | — | — | (28,288 | ) | — | — | (69,057 | ) | — | — | ||||||||||||||||||||||||
|
Total
|
(282,406 | ) | — | — | (133,424 | ) | — | — | (241,616 | ) | — | — | ||||||||||||||||||||||||
|
Other
assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
593,650 | — | — | 841,928 | — | — | 541,249 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
68,865 | — | — | 52,643 | — | — | 63,143 | — | — | |||||||||||||||||||||||||||
|
Total
|
662,515 | — | — | 894,571 | — | — | 604,392 | — | — | |||||||||||||||||||||||||||
|
Total
non interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,767,525 | — | — | 2,893,044 | — | — | 1,956,516 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
463,853 | — | — | 410,625 | — | — | 310,154 | — | — | |||||||||||||||||||||||||||
|
Total
|
3,231,378 | — | — | 3,303,669 | — | — | 2,266,670 | — | — | |||||||||||||||||||||||||||
|
TOTAL
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
17,245,584 | — | — | 14,951,938 | — | — | 14,745,342 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
3,025,343 | — | — | 2,536,422 | — | — | 2,129,807 | — | — | |||||||||||||||||||||||||||
|
Total
|
20,270,927 | — | — | 17,488,360 | — | — | 16,875,149 | — | — | |||||||||||||||||||||||||||
|
(1)
|
Average
Balances are derived from month-end balances.
|
|
(2)
|
Annualized
on a 360-day basis.
|
|
(3)
|
Includes
trading gains and losses in all fiscal years. Unrealized gains and losses
arising from changes in the market value of our trading portfolio of
Government Securities and yield on our investment portfolio of Government
Securities are included.
|
|
(4)
|
Loan
amounts are stated before deduction of the allowance for loan losses.
Non-accrual loans are included in loans as interest-earning
assets.
|
35
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
real
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
real
rate(2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
LIABILITIES
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Savings
accounts
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,790,939 | 5,885 | (12.52 | )% | 2,342,303 | 4,224 | (6.52 | )% | 2,189,515 | 5,536 | (9.35 | )% | ||||||||||||||||||||||||
|
Dollars
|
917,098 | 713 | (10.32 | )% | 772,591 | 587 | (5.45 | )% | 583,270 | 379 | (7.76 | )% | ||||||||||||||||||||||||
|
Total
|
3,708,037 | 6,598 | (11.98 | )% | 3,114,894 | 4,811 | (6.26 | )% | 2,772,785 | 5,915 | (9.01 | )% | ||||||||||||||||||||||||
|
Time
deposits
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
5,897,520 | 526,155 | (4.92 | )% | 5,112,665 | 425,598 | 1.08 | % | 4,852,674 | 332,452 | (3.38 | )% | ||||||||||||||||||||||||
|
Dollars
|
1,062,937 | 23,236 | (8.43 | )% | 737,069 | 12,119 | (3.97 | )% | 379,025 | 4,244 | (6.79 | )% | ||||||||||||||||||||||||
|
Total
|
6,960,457 | 549,391 | (5.46 | )% | 5,849,734 | 437,717 | 0.44 | % | 5,231,699 | 336,696 | (3.63 | )% | ||||||||||||||||||||||||
|
Borrowing
from the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
13,162 | — | — | 72,538 | 7,663 | 3.17 | % | 1,247,803 | 171,537 | 2.86 | % | |||||||||||||||||||||||||
|
Dollars
|
1,471 | 4 | (10.12 | )% | 1,325 | 2 | (5.38 | )% | 1,503 | 3 | (7.63 | )% | ||||||||||||||||||||||||
|
Total
|
14,633 | 4 | (1.02 | )% | 73,863 | 7,665 | 3.01 | % | 1,249,306 | 171,540 | 2.84 | % | ||||||||||||||||||||||||
|
Borrowings
from other financial institutions
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
120,516 | 17,864 | 0.23 | % | 98,702 | 9,046 | 1.86 | % | 38,267 | 1,483 | (6.07 | )% | ||||||||||||||||||||||||
|
Dollars
|
393,963 | 23,219 | (5.11 | )% | 306,806 | 19,243 | 0.40 | % | 257,832 | 13,373 | (3.04 | )% | ||||||||||||||||||||||||
|
Total
|
514,479 | 41,083 | (3.86 | )% | 405,508 | 28,289 | 0.76 | % | 296,099 | 14,856 | (3.43 | )% | ||||||||||||||||||||||||
|
Corporate
bonds
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Dollars
|
41,901 | 3,694 | (2.49 | )% | 271,742 | 18,732 | 0.99 | % | 317,516 | 15,612 | (3.29 | )% | ||||||||||||||||||||||||
|
Total
|
41,901 | 3,694 | (2.49 | )% | 271,742 | 18,732 | 0.99 | % | 317,516 | 15,612 | (3.29 | )% | ||||||||||||||||||||||||
|
Other
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
489,417 | 16,165 | (9.83 | )% | 428,426 | 26,932 | (0.83 | )% | 391,081 | 31,522 | (2.29 | )% | ||||||||||||||||||||||||
|
Dollars
|
55,755 | 9 | (10.38 | )% | 37,512 | 10 | (5.50 | )% | 37,018 | 43 | (7.71 | )% | ||||||||||||||||||||||||
|
Total
|
545,172 | 16,174 | (9.88 | )% | 465,938 | 26,942 | (1.20 | )% | 428,099 | 31,565 | (2.76 | )% | ||||||||||||||||||||||||
|
Total
interest-bearing liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
9,311,554 | 566,069 | (7.40 | )% | 8,054,634 | 473,463 | (1.21 | )% | 8,719,340 | 542,530 | (3.95 | )% | ||||||||||||||||||||||||
|
Dollars
|
2,473,125 | 50,875 | (8.55 | )% | 2,127,045 | 50,693 | (3.27 | )% | 1,576,164 | 33,654 | (5.85 | )% | ||||||||||||||||||||||||
|
Total
|
11,784,679 | 616,944 | (7.64 | )% | 10,181,679 | 524,156 | (1.64 | )% | 10,295,504 | 576,184 | (4.24 | )% | ||||||||||||||||||||||||
36
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
real
rate (2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
Non-interest
bearing liabilities and stockholders’ equity
|
||||||||||||||||||||||||||||||||||||
|
Demand
accounts
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,547,283 | — | — | 2,094,140 | — | — | 1,636,017 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
43,736 | — | — | 24,537 | — | — | 13,007 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,591,019 | — | — | 2,118,677 | — | — | 1,649,024 | — | — | |||||||||||||||||||||||||||
|
Other
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
3,272,083 | — | — | 2,917,529 | — | — | 2,789,191 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
354,934 | — | — | 290,635 | — | — | 210,525 | — | — | |||||||||||||||||||||||||||
|
Total
|
3,627,017 | — | — | 3,208,164 | — | — | 2,999,716 | — | — | |||||||||||||||||||||||||||
|
Minority
interest
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
228,665 | — | — | 197,278 | — | — | 182,288 | — | — | |||||||||||||||||||||||||||
|
Total
|
228,665 | — | — | 197,278 | — | — | 182,288 | — | — | |||||||||||||||||||||||||||
|
Stockholders’
equity
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,039,547 | — | — | 1,782,562 | — | — | 1,748,617 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,039,547 | — | — | 1,782,562 | — | — | 1,748,617 | — | — | |||||||||||||||||||||||||||
|
Total
non–interest bearing liabilities and stockholders equity
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
8,087,578 | — | — | 6,991,509 | — | — | 6,356,113 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
398,670 | — | — | 315,172 | — | — | 223,532 | — | — | |||||||||||||||||||||||||||
|
Total
|
8,486,248 | — | — | 7,306,681 | — | — | 6,579,645 | — | — | |||||||||||||||||||||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
17,399,132 | — | — | 15,046,143 | — | — | 15,075,453 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
2,871,795 | — | — | 2,442,217 | — | — | 1,799,696 | — | — | |||||||||||||||||||||||||||
|
Total
|
20,270,927 | — | — | 17,488,360 | — | — | 16,875,149 | — | — | |||||||||||||||||||||||||||
|
(1)
|
Average
balances are derived from month-end balances.
|
|
(2)
|
Annualized
on a 360-day basis.
|
37
The
following tables show average balances, interest amounts and nominal rates for
our interest-earning assets and interest-bearing liabilities for the fiscal
years ended December 31, 2007, 2006 and 2005.
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
nominal
rate
(2)
|
Average
balance (1)
|
Interest
earned/
paid
|
Average
Nominal
rate
(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Interest-earning
assets
|
||||||||||||||||||||||||||||||||||||
|
Government
securities (3)
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
4,162,457 | 375,861 | 9.03 | % | 3,349,751 | 551,972 | 16.48 | % | 2,103,943 | 207,703 | 9.87 | % | ||||||||||||||||||||||||
|
Dollars
|
55,665 | 3,029 | 5.44 | % | 248,714 | 38,763 | 15.59 | % | 542,603 | 6,242 | 1.15 | % | ||||||||||||||||||||||||
|
Total
|
4,218,122 | 378,890 | 8.98 | % | 3,598,465 | 590,735 | 16.42 | % | 2,646,546 | 213,945 | 8.08 | % | ||||||||||||||||||||||||
|
Loans
(4)
|
||||||||||||||||||||||||||||||||||||
|
Private
Sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
5,747,676 | 829,367 | 14.43 | % | 4,098,288 | 514,875 | 12.56 | % | 2,640,539 | 304,134 | 11.52 | % | ||||||||||||||||||||||||
|
Dollars
|
1,783,801 | 105,504 | 5.91 | % | 1,190,840 | 62,930 | 5.28 | % | 695,066 | 37,074 | 5.33 | % | ||||||||||||||||||||||||
|
Total
|
7,531,477 | 934,871 | 12.41 | % | 5,289,128 | 577,805 | 10.92 | % | 3,335,605 | 341,208 | 10.23 | % | ||||||||||||||||||||||||
|
Public
Sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,544,360 | 333,535 | 13.11 | % | 3,444,212 | 548,763 | 15.93 | % | 6,150,407 | 899,429 | 14.62 | % | ||||||||||||||||||||||||
|
Dollars
|
— | — | — | — | — | — | 49,099 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,544,360 | 333,535 | 13.11 | % | 3,444,212 | 548,763 | 15.93 | % | 6,199,506 | 899,429 | 14.51 | % | ||||||||||||||||||||||||
|
Deposits
with the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
103,736 | 12,602 | 12.15 | % | 102,384 | 10,714 | 10.46 | % | 729,166 | 17,434 | 2.39 | % | ||||||||||||||||||||||||
|
Dollars
|
611,802 | 6,479 | 1.06 | % | 570,220 | 6,577 | 1.15 | % | 431,764 | 7,927 | 1.84 | % | ||||||||||||||||||||||||
|
Total
|
715,538 | 19,081 | 2.67 | % | 672,604 | 17,291 | 2.57 | % | 1,160,930 | 25,361 | 2.18 | % | ||||||||||||||||||||||||
|
Other
assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
1,919,830 | 114,739 | 5.98 | % | 1,064,259 | 116,124 | 10.91 | % | 1,164,771 | 85,821 | 7.37 | % | ||||||||||||||||||||||||
|
Dollars
|
110,222 | 5,072 | 4.60 | % | 116,023 | 7,179 | 6.19 | % | 101,121 | 15,422 | 15.25 | % | ||||||||||||||||||||||||
|
Total
|
2,030,052 | 119,811 | 5.90 | % | 1,180,282 | 123,303 | 10.45 | % | 1,265,892 | 101,243 | 8.00 | % | ||||||||||||||||||||||||
|
Total
interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
14,478,059 | 1,666,104 | 11.51 | % | 12,058,894 | 1,742,448 | 14.45 | % | 12,788,826 | 1,514,521 | 11.84 | % | ||||||||||||||||||||||||
|
Dollars
|
2,561,490 | 120,084 | 4.69 | % | 2,125,797 | 115,449 | 5.43 | % | 1,819,653 | 66,665 | 3.66 | % | ||||||||||||||||||||||||
|
Total
|
17,039,549 | 1,786,188 | 10.48 | % | 14,184,691 | 1,857,897 | 13.10 | % | 14,608,479 | 1,581,186 | 10.82 | % | ||||||||||||||||||||||||
38
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
Nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
Non
interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Cash
and due from banks
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
1,670,804 | — | — | 1,140,970 | — | — | 323,807 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
425,941 | — | — | 385,450 | — | — | 315,285 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,096,745 | — | — | 1,526,420 | — | — | 639,092 | — | — | |||||||||||||||||||||||||||
|
Investments
in other companies
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
64,113 | — | — | 51,153 | — | — | 62,218 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
824 | — | — | 820 | — | — | 783 | — | — | |||||||||||||||||||||||||||
|
Total
|
64,937 | — | — | 51,973 | — | — | 63,001 | — | — | |||||||||||||||||||||||||||
|
Property
and equipment and miscellaneous and intangible assets and items
pending of allocation
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
689,587 | — | — | 964,129 | — | — | 1,201,801 | — | — | |||||||||||||||||||||||||||
|
Total
|
689,587 | — | — | 964,129 | — | — | 1,201,801 | — | — | |||||||||||||||||||||||||||
|
Allowance
for loan losses
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
(250,629 | ) | — | — | (105,136 | ) | — | — | (172,559 | ) | — | — | ||||||||||||||||||||||||
|
Dollars
|
(31,777 | ) | — | — | (28,288 | ) | — | — | (69,057 | ) | — | — | ||||||||||||||||||||||||
|
Total
|
(282,406 | ) | — | — | (133,424 | ) | — | — | (241,616 | ) | — | — | ||||||||||||||||||||||||
|
Other
assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
593,650 | — | — | 841,928 | — | — | 541,249 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
68,865 | — | — | 52,643 | — | — | 63,143 | — | — | |||||||||||||||||||||||||||
|
Total
|
662,515 | — | — | 894,571 | — | — | 604,392 | — | — | |||||||||||||||||||||||||||
|
Total
non interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,767,525 | — | — | 2,893,044 | — | — | 1,956,516 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
463,853 | — | — | 410,625 | — | — | 310,154 | — | — | |||||||||||||||||||||||||||
|
Total
|
3,231,378 | — | — | 3,303,669 | — | — | 2,266,670 | — | — | |||||||||||||||||||||||||||
|
TOTAL
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
17,245,584 | — | — | 14,951,938 | — | — | 14,745,342 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
3,025,343 | — | — | 2,536,422 | — | — | 2,129,807 | — | — | |||||||||||||||||||||||||||
|
Total
|
20,270,927 | — | — | 17,488,360 | — | — | 16,875,149 | — | — | |||||||||||||||||||||||||||
|
(1)
|
Average
Balances are derived from month-end balances.
|
|
(2)
|
Annualized
on a 360-day basis.
|
|
(3)
|
Includes
trading gains and losses in all fiscal years. Unrealized gains and losses
arising from changes in the market value of our trading portfolio of
Government Securities and yield on our investment portfolio of Government
Securities are included.
|
|
(4)
|
Loan
amounts are stated before deduction of the allowance for loan losses.
Non-accrual loans are included in loans as interest-earning
assets.
|
39
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
Nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
LIABILITIES
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Savings
accounts
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,790,939 | 5,885 | 0.21 | % | 2,342,303 | 4,224 | 0.18 | % | 2,189,515 | 5,536 | 0.25 | % | ||||||||||||||||||||||||
|
Dollars
|
917,098 | 713 | 0.08 | % | 772,591 | 587 | 0.08 | % | 583,270 | 379 | 0.07 | % | ||||||||||||||||||||||||
|
Total
|
3,708,037 | 6,598 | 0.18 | % | 3,114,894 | 4,811 | 0.15 | % | 2,772,785 | 5,915 | 0.21 | % | ||||||||||||||||||||||||
|
Time
deposits
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
5,897,520 | 526,155 | 8.92 | % | 5,112,665 | 425,598 | 8.32 | % | 4,852,674 | 332,452 | 6.85 | % | ||||||||||||||||||||||||
|
Dollars
|
1,062,937 | 23,236 | 2.19 | % | 737,069 | 12,119 | 1.64 | % | 379,025 | 4,244 | 1.12 | % | ||||||||||||||||||||||||
|
Total
|
6,960,457 | 549,391 | 7.89 | % | 5,849,734 | 437,717 | 7.48 | % | 5,231,699 | 336,696 | 6.44 | % | ||||||||||||||||||||||||
|
Borrowing
from the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
13,162 | — | — | 72,538 | 7,663 | 10.56 | % | 1,247,803 | 171,537 | 13.75 | % | |||||||||||||||||||||||||
|
Dollars
|
1,471 | 4 | 0.30 | % | 1,325 | 2 | 0.15 | % | 1,503 | 3 | 0.21 | % | ||||||||||||||||||||||||
|
Total
|
14,633 | 4 | 0.03 | % | 73,863 | 7,665 | 10.38 | % | 1,249,306 | 171,540 | 13.73 | % | ||||||||||||||||||||||||
|
Borrowings
from other financial institutions
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
120,516 | 17,864 | 14.82 | % | 98,702 | 9,046 | 9.16 | % | 38,267 | 1,483 | 3.87 | % | ||||||||||||||||||||||||
|
Dollars
|
393,963 | 23,219 | 5.89 | % | 306,806 | 19,243 | 6.27 | % | 257,832 | 13,373 | 5.19 | % | ||||||||||||||||||||||||
|
Total
|
514,479 | 41,083 | 7.99 | % | 405,508 | 28,289 | 6.98 | % | 296,099 | 14,856 | 5.02 | % | ||||||||||||||||||||||||
|
Corporate
bonds
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
|
Dollars
|
41,901 | 3,694 | 8.82 | % | 271,742 | 18,732 | 6.89 | % | 317,516 | 15,612 | 4.92 | % | ||||||||||||||||||||||||
|
Total
|
41,901 | 3,694 | 8.82 | % | 271,742 | 18,732 | 6.89 | % | 317,516 | 15,612 | 4.92 | % | ||||||||||||||||||||||||
|
Other
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
489,417 | 16,165 | 3.30 | % | 428,426 | 26,932 | 6.29 | % | 391,081 | 31,522 | 8.06 | % | ||||||||||||||||||||||||
|
Dollars
|
55,755 | 9 | 0.02 | % | 37,512 | 10 | 0.03 | % | 37,018 | 43 | 0.12 | % | ||||||||||||||||||||||||
|
Total
|
545,172 | 16,174 | 2.97 | % | 465,938 | 26,942 | 5.78 | % | 428,099 | 31,565 | 7.37 | % | ||||||||||||||||||||||||
|
Total
interest-bearing liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
9,311,554 | 566,069 | 6.08 | % | 8,054,634 | 473,463 | 5.88 | % | 8,719,340 | 542,530 | 6.22 | % | ||||||||||||||||||||||||
|
Dollars
|
2,473,125 | 50,875 | 2.06 | % | 2,127,045 | 50,693 | 2.38 | % | 1,576,164 | 33,654 | 2.14 | % | ||||||||||||||||||||||||
|
Total
|
11,784,679 | 616,944 | 5.24 | % | 10,181,679 | 524,156 | 5.15 | % | 10,295,504 | 576,184 | 5.60 | % | ||||||||||||||||||||||||
40
|
Fiscal
Years ended December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
Nominal
rate(2)
|
Average
balance(1)
|
Interest
earned/
paid
|
Average
nominal
rate (2)
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||
|
Non
interest-bearing liabilities and stockholders’ equity
|
||||||||||||||||||||||||||||||||||||
|
Demand
deposits
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,547,283 | — | — | 2,094,140 | — | — | 1,636,017 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
43,736 | — | — | 24,537 | — | — | 13,007 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,591,019 | — | — | 2,118,677 | — | — | 1,649,024 | — | — | |||||||||||||||||||||||||||
|
Other
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
3,272,083 | — | — | 2,917,529 | — | — | 2,789,191 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
354,934 | — | — | 290,635 | — | — | 210,525 | — | — | |||||||||||||||||||||||||||
|
Total
|
3,627,017 | — | — | 3,208,164 | — | — | 2,999,716 | — | — | |||||||||||||||||||||||||||
|
Minority
interest
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
228,665 | — | — | 197,278 | — | — | 182,288 | — | — | |||||||||||||||||||||||||||
|
Total
|
228,665 | — | — | 197,278 | — | — | 182,288 | — | — | |||||||||||||||||||||||||||
|
Stockholders’
equity
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,039,547 | — | — | 1,782,562 | — | — | 1,748,617 | — | — | |||||||||||||||||||||||||||
|
Total
|
2,039,547 | — | — | 1,782,562 | — | — | 1,748,617 | — | — | |||||||||||||||||||||||||||
|
Total
non-interest-bearing liabilities and stockholders equity
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
8,087,578 | — | — | 6,991,509 | — | — | 6,356,113 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
398,670 | — | — | 315,172 | — | — | 223,532 | — | — | |||||||||||||||||||||||||||
|
Total
|
8,486,248 | — | — | 7,306,681 | — | — | 6,579,645 | — | — | |||||||||||||||||||||||||||
|
TOTAL
LIABILITIES AND
STOCKHOLDERS’
EQUITY
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
17,399,132 | — | — | 15,046,143 | — | — | 15,075,453 | — | — | |||||||||||||||||||||||||||
|
Dollars
|
2,871,795 | — | — | 2,442,217 | — | — | 1,799,696 | — | — | |||||||||||||||||||||||||||
|
Total
|
20,270,927 | — | — | 17,488,360 | — | — | 16,875,149 | — | — | |||||||||||||||||||||||||||
|
(1)
|
Average
balances are derived from month-end balances.
|
|
(2)
|
Annualized
on a 360-day basis.
|
41
Changes
in Interest Income and Interest Expense; Volume and Rate Analysis
The
following tables allocate, by currency of denomination, changes in our interest
income and interest expense between changes in the average volume of
interest-earning assets and interest-bearing liabilities and changes in their
respective nominal interest rates for the fiscal year ended December 31, 2007
compared to the fiscal year ended December 31, 2006, for the fiscal year ended
December 31, 2006 compared to the fiscal year ended December 31, 2005 and for
the fiscal year ended December 31, 2005 compared to the fiscal year ended
December 31, 2004. Volume and rate variances have been calculated based on
movements in average balances over the period and changes in nominal interest
rates on average interest-earning assets and average interest-bearing
liabilities. The net change attributable to changes in both volume and rate has
been allocated to volume. Trading and yield on government trading and investment
accounts results are included in the computation of interest income in all
fiscal years.
|
December
2007/December 2006
Increase
(Decrease) Due to
Changes
in
|
December
2006/December 2005
Increase
(Decrease) Due to
Changes
in
|
December
2005/December 2004
Increase
(Decrease) Due to
Changes
in
|
||||||||||||||||||||||||||||||||||
|
Volume
|
Rate
|
Net
Change
|
Volume
|
Rate
|
Net
Change
|
Volume
|
Rate
|
Net
Change
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos)
|
||||||||||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||||||||
|
Interest-earning
assets
|
||||||||||||||||||||||||||||||||||||
|
Government
securities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
73,386 | (249,497 | ) | (176,111 | ) | 205,284 | 138,985 | 344,269 | 102,995 | (65,428 | ) | 37,567 | ||||||||||||||||||||||||
|
Dollars
|
(10,503 | ) | (25,231 | ) | (35,734 | ) | (45,805 | ) | 78,326 | 32,521 | (3,776 | ) | (23,264 | ) | (27,040 | ) | ||||||||||||||||||||
|
Total
|
62,883 | (274,728 | ) | (211,845 | ) | 159,479 | 217,311 | 376,790 | 99,219 | (88,692 | ) | 10,527 | ||||||||||||||||||||||||
|
Loans
|
||||||||||||||||||||||||||||||||||||
|
Private
sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
238,000 | 76,492 | 314,492 | 183,139 | 27,602 | 210,741 | 110,544 | (36,310 | ) | 74,234 | ||||||||||||||||||||||||||
|
Dollars
|
35,071 | 7,503 | 42,574 | 26,199 | (343 | ) | 25,856 | 10,599 | 4 | 10,603 | ||||||||||||||||||||||||||
|
Total
|
273,071 | 83,995 | 357,066 | 209,338 | 27,259 | 236,597 | 121,143 | (36,306 | ) | 84,837 | ||||||||||||||||||||||||||
|
Public
sector
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
(117,960 | ) | (97,268 | ) | (215,228 | ) | (431,175 | ) | 80,509 | (350,666 | ) | (60,163 | ) | 403,920 | 343,757 | |||||||||||||||||||||
|
Total
|
(117,960 | ) | (97,268 | ) | (215,228 | ) | (431,175 | ) | 80,509 | (350,666 | ) | (60,163 | ) | 403,920 | 343,757 | |||||||||||||||||||||
|
Deposits
with the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
164 | 1,724 | 1,888 | (65,591 | ) | 58,871 | (6,720 | ) | 14,829 | 1,962 | 16,791 | |||||||||||||||||||||||||
|
Dollars
|
440 | (538 | ) | (98 | ) | 1,597 | (2,947 | ) | (1,350 | ) | 7,927 | — | 7,927 | |||||||||||||||||||||||
|
Total
|
604 | 1,186 | 1,790 | (63,994 | ) | 55,924 | (8,070 | ) | 22,756 | 1,962 | 24,718 | |||||||||||||||||||||||||
|
Other
assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
51,133 | (52,518 | ) | (1,385 | ) | (10,967 | ) | 41,270 | 30,303 | 27,786 | 13,448 | 41,234 | ||||||||||||||||||||||||
|
Dollars
|
(267 | ) | (1,840 | ) | (2,107 | ) | 922 | (9,165 | ) | (8,243 | ) | (24,670 | ) | 23,426 | (1,244 | ) | ||||||||||||||||||||
|
Total
|
50,866 | (54,358 | ) | (3,492 | ) | (10,045 | ) | 32,105 | 22,060 | 3,116 | 36,874 | 39,990 | ||||||||||||||||||||||||
|
Total
interest-earning assets
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
244,723 | (321,067 | ) | (76,344 | ) | (119,310 | ) | 347,237 | 227,927 | 195,991 | 317,592 | 513,583 | ||||||||||||||||||||||||
|
Dollars
|
24,741 | (20,106 | ) | 4,635 | (17,087 | ) | 65,871 | 48,784 | (9,920 | ) | 166 | (9,754 | ) | |||||||||||||||||||||||
|
Total
|
269,464 | (341,173 | ) | (71,709 | ) | (136,397 | ) | 413,108 | 276,711 | 186,071 | 317,758 | 503,829 | ||||||||||||||||||||||||
42
|
December
2007/December 2006
Increase
(Decrease) Due to
Changes
in
|
December
2006/December 2005
Increase
(Decrease) Due to
Changes
in
|
December
2005/December 2004
Increase
(Decrease) Due to
Changes
in
|
||||||||||||||||||||||||||||||||||
|
Volume
|
Rate
|
Net
Change
|
Volume
|
Rate
|
Net
Change
|
Volume
|
Rate
|
Net
Change
|
||||||||||||||||||||||||||||
|
(in
thousands of pesos)
|
||||||||||||||||||||||||||||||||||||
|
LIABILITIES
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Savings
accounts
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
946 | 715 | 1,661 | 275 | (1,587 | ) | (1,312 | ) | 324 | (5,440 | ) | (5,116 | ) | |||||||||||||||||||||||
|
Dollars
|
112 | 14 | 126 | 144 | 64 | 208 | 142 | (69 | ) | 73 | ||||||||||||||||||||||||||
|
Total
|
1,058 | 729 | 1,787 | 419 | (1,523 | ) | (1,104 | ) | 466 | (5,509 | ) | (5,043 | ) | |||||||||||||||||||||||
|
Time
deposits
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
70,022 | 30,535 | 100,557 | 21,643 | 71,503 | 93,146 | 60,297 | 95,764 | 156,061 | |||||||||||||||||||||||||||
|
Dollars
|
7,124 | 3,993 | 11,117 | 5,887 | 1,988 | 7,875 | 2,059 | 260 | 2,319 | |||||||||||||||||||||||||||
|
Total
|
77,146 | 34,528 | 111,674 | 27,530 | 73,491 | 101,021 | 62,356 | 96,024 | 158,380 | |||||||||||||||||||||||||||
|
Borrowings
from the Central Bank
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
— | (7,663 | ) | (7,663 | ) | (124,148 | ) | (39,726 | ) | (163,874 | ) | (96,169 | ) | 97,454 | 1,285 | |||||||||||||||||||||
|
Dollars
|
— | 2 | 2 | — | (1 | ) | (1 | ) | (2 | ) | (16 | ) | (18 | ) | ||||||||||||||||||||||
|
Total
|
— | (7,661 | ) | (7,661 | ) | (124,148 | ) | (39,727 | ) | (163,875 | ) | (96,171 | ) | 97,438 | 1,267 | |||||||||||||||||||||
|
Borrowings
from other financial institutions
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
3,234 | 5,584 | 8,818 | 5,539 | 2,024 | 7,563 | (1,113 | ) | 869 | (244 | ) | |||||||||||||||||||||||||
|
Dollars
|
5,137 | (1,161 | ) | 3,976 | 3,072 | 2,798 | 5,870 | (10,953 | ) | 10,636 | (317 | ) | ||||||||||||||||||||||||
|
Total
|
8,371 | 4,423 | 12,794 | 8,611 | 4,822 | 13,433 | (12,066 | ) | 11,505 | (561 | ) | |||||||||||||||||||||||||
|
Corporate
bonds
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
— | — | — | — | (1,232 | ) | (1,232 | ) | ||||||||||||||||||||||||||||
|
Dollars
|
(20,261 | ) | 5,223 | (15,038 | ) | (3,155 | ) | 6,275 | 3,120 | (4,382 | ) | 9,065 | 4,683 | |||||||||||||||||||||||
|
Total
|
(20,261 | ) | 5,223 | (15,038 | ) | (3,155 | ) | 6,275 | 3,120 | (4,382 | ) | 7,833 | 3,451 | |||||||||||||||||||||||
|
Other
liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
2,015 | (12,782 | ) | (10,767 | ) | 2,348 | (6,938 | ) | (4,590 | ) | (11,081 | ) | 17,177 | 6,096 | ||||||||||||||||||||||
|
Dollars
|
3 | (4 | ) | (1 | ) | 1 | (34 | ) | (33 | ) | (125 | ) | (2,150 | ) | (2,275 | ) | ||||||||||||||||||||
|
Total
|
2,018 | (12,786 | ) | (10,768 | ) | 2,349 | (6,972 | ) | (4,623 | ) | (11,206 | ) | 15,027 | 3,821 | ||||||||||||||||||||||
|
Total
interest-bearing liabilities
|
||||||||||||||||||||||||||||||||||||
|
Pesos
|
76,217 | 16,389 | 92,606 | (94,343 | ) | 25,276 | (69,067 | ) | (47,742 | ) | 204,592 | 156,850 | ||||||||||||||||||||||||
|
Dollars
|
(7,885 | ) | 8,067 | 182 | 5,949 | 11,090 | 17,039 | (13,261 | ) | 17,726 | 4,465 | |||||||||||||||||||||||||
|
Total
|
68,332 | 24,456 | 92,788 | (88,394 | ) | 36,366 | (52,028 | ) | (61,003 | ) | 222,318 | 161,315 | ||||||||||||||||||||||||
43
Interest-Earning
Assets: Net Interest Margin and Spread
The
following table analyzes, by currency of denomination, our levels of average
interest-earning assets and net interest income, and illustrates the comparative
margins and spreads for each of the fiscal years indicated.
|
Fiscal
Years ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||
|
Average
interest-earning assets
|
||||||||||||
|
Pesos
|
14,478,059 | 12,058,894 | 12,788,826 | |||||||||
|
Dollars
|
2,561,490 | 2,125,797 | 1,819,653 | |||||||||
|
Total
|
17,039,549 | 14,184,691 | 14,608,479 | |||||||||
|
Net
interest income (1)
|
||||||||||||
|
Pesos
|
1,100,035 | 1,268,986 | 971,991 | |||||||||
|
Dollars
|
69,209 | 64,758 | 33,011 | |||||||||
|
Total
|
1,169,244 | 1,333,744 | 1,005,002 | |||||||||
|
Net
interest margin (2)
|
||||||||||||
|
Pesos
|
7.60% | 10.52% | 7.60% | |||||||||
|
Dollars
|
2.70% | 3.05% | 1.81% | |||||||||
|
Weighted
average rate
|
6.86% | 9.40% | 6.88% | |||||||||
|
Yield
spread nominal basis (3)
|
||||||||||||
|
Pesos
|
5.43% | 8.57% | 5.62% | |||||||||
|
Dollars
|
2.63% | 3.05% | 1.52% | |||||||||
|
Weighted
average rate
|
5.24% | 7.95% | 5.22% | |||||||||
|
(1)
|
Net
interest income is defined as interest earned less interest paid. Trading
results from our portfolio of Government Securities are included in
interest.
|
|
(2)
|
Net
interest margin is net interest income stated as a percentage of average
interest-earning assets.
|
|
(3)
|
Yield
spread nominal basis is defined as the difference between the average
nominal rate on interest-earning assets and the average nominal rate on
interest-bearing liabilities.
|
Return
on Equity and Assets
The
following table presents certain selected financial information and ratios of
BBVA Banco Francés for the fiscal years indicated.
|
Fiscal
Years ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||
|
Net
income
|
235,049 | 180,037 | 117,204 | |||||||||
|
Average
total assets(1)
|
20,428,814 | 17,409,189 | 16,012,710 | |||||||||
|
Average
stockholders’ equity(1)
|
2,005,711 | 1,878,066 | 1,742,945 | |||||||||
|
Stockholders’
equity at the end of the fiscal year
|
2,056,837 | 1,954,584 | 1,801,547 | |||||||||
|
Net
income as a percentage of:
|
||||||||||||
|
Average
total assets
|
1.15% | 1.03% | 0.73% | |||||||||
|
Average
stockholders’ equity
|
11.72% | 9.59% | 6.72% | |||||||||
|
Declared
cash dividends
|
164,000 | 90,000 | 27,000 | |||||||||
|
Dividend
payout ratio(2)
|
69.77% | 49.99% | 23.04% | |||||||||
|
Average
stockholders’ equity as a percentage of average total
assets
|
9.82% | 10.79% | 10.88% | |||||||||
|
(1)
|
Computed
as the average of fiscal year-beginning and fiscal year-ending
balances.
|
|
(2)
|
Declared
cash dividends stated as percentage of net income. Since April 2002, the
Central Bank has suspended the payment of dividends. As of June 2, 2004
financial institutions are allowed to make distributions will have no
effect with the prior authorization of the Central Bank and provided that
certain conditions are met. See “Financial Information –
Dividends”.
|
44
Investment
Portfolio: Government and Private Securities
We own,
manage and trade a portfolio of securities issued by the Argentine and other
governments and private issuers. The following table sets out our investments in
Argentine and other governments and private securities as of December 31, 2007,
2006 and 2005 by type and currency of denomination.
|
Fiscal
Years ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Government
securities
|
||||||||||||
|
In
pesos:
|
||||||||||||
|
Investment
accounts
|
||||||||||||
|
Argentine
bonds
|
370,832 | 406,674 | 360,516 | |||||||||
|
Argentine
Central Bank notes (NOBAC)
|
176,882 | — | — | |||||||||
|
Holding
for trading or financial transactions
|
||||||||||||
|
Debt
consolidation bonds—Social security (BOCON)
|
21,376 | 16,465 | 45,238 | |||||||||
|
Argentine
bonds
|
90,741 | 238,981 | 456,637 | |||||||||
|
Argentine
Central Bank notes (NOBAC)
|
3,266 | — | — | |||||||||
|
Other
debt bonds
|
582 | 7,695 | 1,077 | |||||||||
|
Holding
available for sale
|
||||||||||||
|
Debt
consolidation bonds—Social security (BOCON)
|
166,229 | — | — | |||||||||
|
Argentine
bonds
|
73,284 | — | — | |||||||||
|
Argentine
Central Bank notes (NOBAC)
|
1,133,071 | — | — | |||||||||
|
Instruments
issued by the Argentine Central Bank
|
||||||||||||
|
Argentine
Central Bank bills (LEBAC)
|
140,068 | 75,139 | 1,160,312 | |||||||||
|
Argentine
Central Bank notes (NOBAC)
|
1,865,723 | 2,445,767 | 1,088,526 | |||||||||
|
Unlisted
government securities
|
||||||||||||
|
Argentine
bonds (BOGAR 2020)
|
903,897 | 843,792 | — | |||||||||
|
Tax
credit certificates
|
6 | 5 | 6 | |||||||||
|
Total
government securities in pesos
|
4,945,957 | 4,034,518 | 3,112,312 | |||||||||
|
In
foreign currency:
|
||||||||||||
|
Investment
accounts
|
||||||||||||
|
Argentine
bonds
|
— | 108,622 | 74,588 | |||||||||
|
Holding
for trading or financial transactions
|
||||||||||||
|
Argentine
bonds
|
51,109 | 40,406 | 151,682 | |||||||||
|
Other
debt bonds
|
3,246 | 276 | 10,203 | |||||||||
|
Total
government securities in foreign currency
|
54,355 | 149,304 | 236,473 | |||||||||
|
Total
government securities
|
5,000,312 | 4,183,822 | 3,348,785 | |||||||||
|
Investments
in listed private securities
|
||||||||||||
|
Shares
|
36,313 | 40,975 | 28,284 | |||||||||
|
Corporate
bonds—Listed
|
49,011 | 75,813 | 87,541 | |||||||||
|
Mutual
funds
|
40,286 | 35,650 | 18,925 | |||||||||
|
Certificates
of participation in financial trusts
|
116,333 | 50,958 | 21,099 | |||||||||
|
Total
private securities
|
241,943 | 203,396 | 155,849 | |||||||||
|
Subtotal
government and private securities
|
5,242,255 | 4,387,218 | 3,504,634 | |||||||||
|
Allowances
|
(61,002 | ) | (15,186 | ) | (323 | ) | ||||||
|
Total
government and private securities
|
5,181,253 | 4,372,032 | 3,504,311 | |||||||||
|
Corporate
bonds—Unlisted
|
81,976 | 58,684 | 78,228 | |||||||||
45
The
following table analyzes the remaining maturities of our investment portfolio as
of December 31, 2007 in accordance with issuance terms.
|
Maturing
|
||||||||||||||||||||
|
Within
1 year
|
After
1 year but within 5 years
|
After
5 years but within 10 years
|
After
10 years
|
Total
|
||||||||||||||||
|
Book
value
|
||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||
|
Government
securities
|
||||||||||||||||||||
|
In
Pesos:
|
||||||||||||||||||||
|
Investment
accounts
|
||||||||||||||||||||
|
Argentine
bonds (*)
|
— | 51,144 | 8,732 | 310,956 | 370,832 | |||||||||||||||
|
Argentine
Central Bank notes (NOBAC) (*)
|
53,078 | 123,804 | — | — | 176,882 | |||||||||||||||
|
Holding
for trading on financial transactions
|
||||||||||||||||||||
|
Debt
consolidation bonds-Social security (BOCON) (*)
|
5,644 | 8,818 | 6,914 | — | 21,376 | |||||||||||||||
|
Argentine
bonds (*)
|
2,431 | 9,735 | 8,419 | 70,156 | 90,741 | |||||||||||||||
|
Argentine
Central Bank notes (NOBAC) (*)
|
3,266 | — | — | — | 3,266 | |||||||||||||||
|
Other
debt bonds
|
582 | — | — | — | 582 | |||||||||||||||
|
Holding
available for sale
|
||||||||||||||||||||
|
Debt
consolidation bonds—Social security (BOCON) (*)
|
20,564 | 82,258 | 63,407 | — | 166,229 | |||||||||||||||
|
Argentine
bonds (*)
|
7,208 | 28,833 | 36,041 | 1,202 | 73,284 | |||||||||||||||
|
Argentine
Central Bank notes (NOBAC) (*)
|
1,053,439 | 79,632 | — | — | 1,133,071 | |||||||||||||||
|
Instruments
issued by the Argentine Central Banks
|
||||||||||||||||||||
|
Argentine
Central Bank bills (LEBAC) (*)
|
128,629 | 11,439 | — | — | 140,068 | |||||||||||||||
|
Argentine
Central Bank notes (NOBAC) (*)
|
675,533 | 1,190,190 | — | — | 1,865,723 | |||||||||||||||
|
Unlisted
Government Securities
|
||||||||||||||||||||
|
Argentine
bonds (BOGAR 2020) (*)
|
70,433 | 281,734 | 352,168 | 199,562 | 903,897 | |||||||||||||||
|
Tax
credit certificates
|
6 | — | — | — | 6 | |||||||||||||||
|
Total
government securities in pesos
|
2,020,813 | 1,867,587 | 475,681 | 581,876 | 4,945,957 | |||||||||||||||
|
In
foreign currency:
|
||||||||||||||||||||
|
Holding
for trading on financial transactions
|
||||||||||||||||||||
|
Argentine
bonds (*)
|
5,406 | 36,348 | 6,076 | 3,279 | 51,109 | |||||||||||||||
|
Other
debt bonds
|
65 | 3,155 | — | 26 | 3,246 | |||||||||||||||
|
Total
government securities in foreign currency
|
5,471 | 39,503 | 6,076 | 3,305 | 54,355 | |||||||||||||||
|
Total
government securities
|
2,026,284 | 1,907,090 | 481,757 | 585,181 | 5,000,312 | |||||||||||||||
|
Certificates
of participation on financial trust
|
32,132 | 77,552 | 6,649 | — | 116,333 | |||||||||||||||
|
Corporate
bonds—Listed
|
13,490 | 27,053 | 5,930 | 2,538 | 49,011 | |||||||||||||||
|
Corporate
bonds —Unlisted
|
12,776 | 69,200 | — | — | 81,976 | |||||||||||||||
|
Weighted
average yield (for the securities indicated with *)
|
11.37% | 10.15% | 7.44% | 7.59% | ||||||||||||||||
46
Loan
Portfolio
The
following table analyzes our loan portfolio by types of loan at December 31,
2007, 2006 and 2005. Loans are stated before deduction of the allowance for loan
losses.
|
Fiscal
Years ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Principal
|
||||||||||||
|
Advances(1)
|
1,326,472 | 1,469,368 | 733,514 | |||||||||
|
Notes
discounted and purchased(2)
|
1,430,787 | 793,195 | 560,863 | |||||||||
|
Secured
with mortgages
|
772,036 | 460,559 | 394,678 | |||||||||
|
Consumer
loans(3)
|
2,392,956 | 1,313,816 | 962,281 | |||||||||
|
Financial
loans(4)
|
541,911 | 436,126 | 142,307 | |||||||||
|
Loans
to governmental sector(5)
|
2,367,869 | 2,887,276 | 4,623,626 | |||||||||
|
Other
loans
|
2,666,843 | 2,282,243 | 1,364,291 | |||||||||
|
Less:
Unaccrued interest and unused collections (6)
|
(13,756 | ) | (5,543 | ) | (154,763 | ) | ||||||
|
Less:
Difference arising from purchase of portfolio
|
(93 | ) | (90 | ) | (89 | ) | ||||||
|
Plus:
Interest and exchange differences receivable
|
103,824 | 64,330 | 39,653 | |||||||||
|
Less:
Allowance for loan losses
|
(198,728 | ) | (167,097 | ) | (184,885 | ) | ||||||
|
Total
|
11,390,121 | 9,534,183 | 8,481,476 | |||||||||
|
(1)
|
Advances
include short and long-term loans to companies and overdraft lines of
credit.
|
|
(2)
|
Notes
discounted and purchased are endorsed promissory notes.
|
|
(3)
|
Consumer
loans include credit card loans and other consumer loans. Overdrafts to
individuals are included under “Advances”.
|
|
(4)
|
Financial
loans are defined as loans to financial institutions.
|
|
(5)
|
Loans
to governmental sector are secured by tax rights.
|
|
(6)
|
Unaccrued
interest is defined as the discount on notes and
bills.
|
Secured
Loans
|
Fiscal
Years ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Liquid
guarantees
|
97,764 | 60,813 | 4,722,686 | |||||||||
|
Preferred
guarantees
|
832,607 | 517,028 | 483,234 | |||||||||
|
Total
|
930,371 | 577,841 | 5,205,920 | |||||||||
Credit Policy
Overview
The credit
policy of the Bank aims to maintain adequate controls on and consistent
monitoring of credit risk.
Risk is
conceived in a global sense. Our Risk Department is responsible for credit risk,
market risk and operational risk.
Risk
Management reports to an Assistant Executive Director, the Accounting and Risk
Management Director, and is composed of five main areas: Admission and
Follow-up, Credit Recoveries, Operational Risk, Market Risk and Global and
Strategic Risk Management.
Risk
Management represents us as a member of the Risk Commission in the A.B.A., the
Argentine Banking Association.
47
Risk
Management in 2007
During
2007, financial entities in Argentina benefited from the favourable
macroeconomic climate and an increasing demand, concentrated on increasing their
loan portfolios, not only for short, but also for medium and long-term loans.
Political stability and a sustained growth of the country’s economic activity
for the fifth year running, increased activity levels in customers’ businesses.
Within this favourable framework, BBVA Banco Francés succeeded in achieving a
sustained growth for its loan portfolios, while keeping default levels within
business standards. Therefore, placements of Personal Loans, Mortgage Loans and
Credit Cards increased, as well as the range of loans for SMEs and Large
Corporations, through lines targeted at financing working capital increases in
order to satisfy both external and internal demand (Check Allowances and
Comex).
BBVA Banco
Francés constantly adapted its Credit Policies to the changing market
conditions, thus allowing a fluent growth of its Private Portfolio, combined
with a lower number of loans targeted at the Public Sector. As a direct result
of these actions, loans to the Private Sector increased by 31% (i.e. Ps.2.3
billion) and Public Risk, in turn, fell by 33% (i.e. Ps.0.7 billion) in 2007. In
this scenario, Retail Banking stands out as one of the areas on which the Bank
focuses its growth strategy the most, with an increase during 2007 of Ps.1.2
billion (i.e. 63%). The significant fall in the Bank's non-performing loan
portfolio (NPL) ratio also stands out, going from 0.86% in December 2006 to
0.54% in December 2007. Following this trend, the same ratio, but calculated
only for the private portfolio, was 1.11% in December 2006, and 0.5% at close of
the 2007 fiscal year. Both figures are established as absolute minimums within
Argentina's Financial System. Despite this strong growth, it is very important
to point out that BBVA Banco Francés maintained its conservative allowances
policy, reaching a coverage ratio of 315.55% (49% more than at closing of the
previous tax year).
During
2007, the Credit Recovery and Global Risk Management areas had a significant
role in both design and implementation of new policies and technological tools,
which provided for the growth and health of our Bank's different loan
portfolios. During this year, reactive scorings for different consumer products
and cars were also estimated. Likewise, the development and implementation of
predictive scorings was expanded, in turn widening the profitable investment
expansion possibilities of Retail Banking with an even higher level of risk
diversification. In addition, the thorough review and optimization of risk areas
decisively complemented the actions described above.
Credit
Recovery activity kept its central position through efficient management of
non-performing and write-off portfolios, which resulted in a high number of
collections from the already problematic portfolio. So much so, that in 2007,
said figure amounted to 43 million pesos, placing BBVA Banco Francés among
first-level entities with better results in this area, where default charges
were higher than uncollectibility levels for the tax year. On the other hand,
the Operational Risk Department continued implementing guidelines, according to
their medium-term plan, closing the year having fully achieved its goals. To
this end, mitigation actions over 127 operational risk factors considered as
high priority were defined, analyzed and finalized. Likewise, operational risk
assessment processes left out in previous years were reviewed and updated during
this year.
The year
2007 also helped to consolidate the Market Risk Department, which continued its
reinforcement of monitoring and tracking of market risks through the corporate
tools AC VaR. Furthermore, limits were set for structural risks, both regarding
sensitivity to financial margins and to economic value, while liquidity, market
and credit risks of funds managed by related companies were monitored and
tracked.
Finally,
the Risk Management Committee cooperated extensively with the consolidation of
the multidisciplinary working team created to develop methodologies targeted at
the migration to a model focused on Risk Associated Return (RAR), with the
double goal of applying it to Banking, Products and Customers in 2008/2009.
Along that medium-term strategic line, internal processes that allow our Bank to
reach the standards of the New Basel Capital Agreement (BIS II) were developed
further, thus exceeding the requirement imposed by the Central Bank of
Argentina, whose directives aim at the implementation of the Basel Capital
Agreement II based on the Simplified Method towards the year 2010.
48
Loans
by Economic Activity
The table
below analyzes our loan portfolio according to the borrowers’ main economic
activity as of December 31, 2007, 2006 and 2005. Where appropriate, personal
loans are allocated to the economic activity of the borrower. Loans are stated
before deduction of the allowance for loan losses.
|
Fiscal
year ended December 31,
|
||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Loan
Portfolio
|
%
of Loan
Portfolio
|
Loan
Portfolio
|
%
of Loan
Portfolio
|
Loan
Portfolio
|
%
of Loan
Portfolio
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Agricultural
and livestock
|
348,966 | 3.01 | % | 185,041 | 1.91 | % | 238,549 | 2.75 | % | |||||||||||||||
|
Beverage
|
207,597 | 1.79 | % | 189,651 | 1.95 | % | 136,097 | 1.57 | % | |||||||||||||||
|
Construction
|
143,305 | 1.24 | % | 82,077 | 0.85 | % | 79,900 | 0.92 | % | |||||||||||||||
|
Consumer
|
2,945,120 | 25.41 | % | 1,721,651 | 17.75 | % | 1,336,441 | 15.42 | % | |||||||||||||||
|
Electrical
machinery
|
289,858 | 2.50 | % | 64,021 | 0.66 | % | 29,667 | 0.34 | % | |||||||||||||||
|
Financial
sector
|
541,911 | 4.68 | % | 436,126 | 4.50 | % | 142,307 | 1.64 | % | |||||||||||||||
|
Foodstuff
|
764,487 | 6.60 | % | 625,045 | 6.44 | % | 175,622 | 2.03 | % | |||||||||||||||
|
Government
services
|
2,367,869 | 20.43 | % | 2,887,276 | 29.76 | % | 4,623,626 | 53.35 | % | |||||||||||||||
|
Industrial
metals
|
219,039 | 1.89 | % | 129,272 | 1.33 | % | 70,012 | 0.81 | % | |||||||||||||||
|
Leather
and fur product
|
70,121 | 0.61 | % | 73,993 | 0.76 | % | 52,580 | 0.61 | % | |||||||||||||||
|
Mining
products
|
463,545 | 4.00 | % | 422,255 | 4.35 | % | 402,258 | 4.64 | % | |||||||||||||||
|
Oil
and carbon
|
473,427 | 4.09 | % | 448,322 | 4.62 | % | 351,029 | 4.05 | % | |||||||||||||||
|
Others
|
1,615,437 | 13.92 | % | 1,601,192 | 16.50 | % | 509,333 | 5.88 | % | |||||||||||||||
|
Other
manufacturing
|
100,678 | 0.87 | % | 99,885 | 1.03 | % | 76,672 | 0.88 | % | |||||||||||||||
|
Printers,
publishers and related industries
|
10,034 | 0.09 | % | 15,255 | 0.16 | % | 3,527 | 0.04 | % | |||||||||||||||
|
Rubber
products
|
85,810 | 0.74 | % | 69,291 | 0.71 | % | 42,366 | 0.49 | % | |||||||||||||||
|
Retail
trade
|
312,412 | 2.70 | % | 259,731 | 2.68 | % | 198,933 | 2.30 | % | |||||||||||||||
|
Services
|
82,978 | 0.72 | % | 10,591 | 0.11 | % | 256 | — | ||||||||||||||||
|
Shoes,
apparel and other textile products
|
19,276 | 0.17 | % | 11,670 | 0.12 | % | 7,660 | 0.09 | % | |||||||||||||||
|
Textile
|
57,117 | 0.49 | % | 26,751 | 0.28 | % | 13,336 | 0.15 | % | |||||||||||||||
|
Tobacco
|
9,466 | 0.08 | % | 8,214 | 0.08 | % | 11,927 | 0.14 | % | |||||||||||||||
|
Transportation
material
|
134,852 | 1.16 | % | 135,341 | 1.40 | % | 77,613 | 0.90 | % | |||||||||||||||
|
Wholesale
trade
|
305,727 | 2.64 | % | 171,592 | 1.77 | % | 78,267 | 0.90 | % | |||||||||||||||
|
Wood
products and cork
|
19,910 | 0.17 | % | 27,127 | 0.28 | % | 8,472 | 0.10 | % | |||||||||||||||
|
Total
|
11,588,942 | 100.00 | % | 9,701,370 | 100.00 | % | 8,666,450 | 100.00 | % | |||||||||||||||
Maturity
Composition of the Loan Portfolio
The
following table analyzes our loan portfolio as of December 31, 2007 by type and
by the time remaining to maturity. Loans are stated before deduction of the
allowance for loan losses. We expect most loans to be repaid at maturity in cash
or through refinancing at market terms.
|
Maturing
|
||||||||||||||||||||
|
Amount
at December 31, 2007
|
Within
3
months
|
After
3
months
but
within
1 year
|
After
1 year
but
within
5
years
|
After
5 years
|
||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||
|
To
the non-financial public sector
|
2,367,869 | 97,322 | 5,546 | 1,520,273 | 744,728 | |||||||||||||||
|
To
the financial sector
|
541,911 | 179,357 | 260,236 | 102,318 | — | |||||||||||||||
|
To
the non-financial private sector and residents abroad
|
8,679,162 | 4,440,720 | 1,978,572 | 1,769,561 | 490,309 | |||||||||||||||
|
Overdraft
|
1,344,842 | 1,054,035 | 284,489 | 6,318 | — | |||||||||||||||
|
With
privileged guarantees
|
1,032,609 | 56,620 | 119,368 | 377,839 | 478,782 | |||||||||||||||
|
Credit
cards
|
803,951 | 803,951 | — | — | — | |||||||||||||||
|
Other
|
5,497,760 | 2,526,114 | 1,574,715 | 1,385,404 | 11,527 | |||||||||||||||
|
Total
|
11,588,942 | 4,717,399 | 2,244,354 | 3,392,152 | 1,235,037 | |||||||||||||||
|
Percentage
of total loan portfolio
|
100.00% | 40.70% | 19.37% | 29.27% | 10.66% | |||||||||||||||
49
Foreign
Country Outstanding Positions
The
following table sets forth, as of December 31, 2007, 2006 and 2005, the
aggregate amount of our cross-border outstanding exceeding 1% of total assets at
each date. Cross-border outstanding are defined as loans, interest-bearing
deposits in other banks, and other monetary assets held by borrowers outside of
Argentina. Cross-border outstanding of BBVA Banco Francés are denominated
exclusively in dollars, converted into pesos in the chart below.
|
Fiscal Year Ended December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Outstanding
of BBVA Banco Francés to American borrowers
|
129,661 | — | — | |||||||||
|
Total
|
129,661 | — | — | |||||||||
Interest
Rate Sensitivity of Outstanding Loans as of December 31, 2007
The
following table analyzes, by currency of denomination, the interest rate
sensitivity of our loan portfolio as of December 31, 2007. Loans are stated
before deduction of the allowance for loan losses.
|
Fiscal
Year Ended
December 31, 2007
|
||||
|
(in
thousands of pesos)
|
||||
|
Variable
Rate
|
||||
|
Pesos
— including adjustable loans
|
2,745,952 | |||
|
Foreign
currency
|
107,313 | |||
| 2,853,265 | ||||
|
Fixed
Rate
|
||||
|
Pesos
|
6,497,866 | |||
|
Foreign
currency
|
2,174,833 | |||
| 8,672,699 | ||||
|
Non-performing(1)
|
||||
|
Pesos
|
60,999 | |||
|
Foreign
currency
|
1,979 | |||
| 62,978 | ||||
|
Total
|
11,588,942 | |||
(1)
For
additional information on non-performing loans see “Information on the Company—Selected
Statistical Information—Non-performing and Restructured Loans”, below in
this section.
The
following table sets forth a breakdown of our fixed and variable rate loans
which have a maturity of one year or more at December 31, 2007.
|
Interest
Sensitivity in
Outstanding
Loans Maturing
In
More Than One Year
|
||||||||
|
Fixed
Rate
|
Variable
Rate
|
|||||||
|
(in
thousands of pesos)
|
||||||||
|
To
the non-financial public sector
|
— | 2,265,001 | ||||||
|
To
the financial sector
|
102,318 | — | ||||||
|
To
the non-financial private sector and residents abroad
|
1,900,841 | 359,029 | ||||||
|
Total
|
2,003,159 | 2,624,030 | ||||||
Allowance
for Loan Losses and Loan Loss Experience
BBVA Banco
Francés classifies its borrowers in accordance with the regulations of the
Central Bank, its primary bank regulator, and not in the manner established by
the Securities and Exchange Commission. As a result, BBVA Banco Francés does not
keep records classifying loans as “non-accrual”, “past due”, “restructured” and
“potential problem loans”, as those terms are defined by the SEC.
50
Classification
System According to Central Bank Regulations
The
Central Bank established requirements, with respect to the classification of
borrowers and the provisions for loan losses. The following is a summary of the
Central Bank’s loan classification requirements up to the date of this annual
report.
The loan
classification system is a bifurcated system, which requires the application of
one set of criteria to classify loans in a bank’s “consumer” portfolio, and
another set of criteria to classify loans in a bank’s “commercial”
portfolio.
The
principal criterion applied to loans in the consumer portfolio is delinquency
aging, legal situation and refinancing compliance, irrespective of the fact
that, prior to the granting of financing, debtors payment capacity should be
analyzed, evaluating:
|
|
§
|
The
allocation of their periodic income in relation to the totality of credit
commitments assumed; or
|
|
|
§
|
Through
the use of the credit scoring and screening
methods.
|
The
principal criterion applied to loans in the commercial portfolio is the
borrower’s ability to pay, as measured by such borrower’s future cash flow. We
can opt to apply the consumer loan classification criteria to commercial loans
of up to Ps.500,000 (Ps.200,000 until April, 2005).
Under the
regulations, consumer borrowers are classified as follows:
|
1.
|
“Normal”
if all payments on its loans are current or less than 31 days overdue and,
in checking account overdrafts, less than 61 days
overdue;
|
|
|
2.
|
“Low
Risk” if payments with respect to principal, interest or otherwise, on any
of its loans, are overdue for more than 31 and up to 90
days;
|
|
|
3.
|
“Medium
Risk” if payments on any of its loans are overdue for more than 90 and up
to 180 days;
|
|
|
4.
|
“High
Risk” if payments on any of its loans are overdue for more than 180 days
and up to one year or if it is subject to judicial proceedings for default
on any of those loans;
|
|
|
5.
|
“Irrecoverable”
if payments on any of its loans are overdue for more than one year, if the
borrower is in bankruptcy or liquidation proceedings or if it is
insolvent; and
|
|
|
6.
|
“Irrecoverable
for Technical Decision” if such borrower
is:
|
|
(a)
|
In arrears for more than 180 days according to a list provided by the Central Bank, which includes: | ||
|
§
|
Financial
institutions liquidated by the Central Bank,
|
||
|
§
|
Entities
created as a result of the privatization of public financial institutions
and in the process of dissolution,
|
||
|
§
|
Financial
institutions whose licenses have been revoked by the Central Bank and are
under judicial liquidation or bankruptcy,
|
||
|
§
|
Any
trust in which SEDESA is the beneficiary.
|
||
|
(b)
|
A foreign borrower (including banks or other financial institutions) which is not classified as “investment grade” by any of the rating agencies admitted by the Central Bank pursuant to the Evaluation of Financial Entities’s standards, except for the following: | ||
|
§
|
Foreign
banks or other financial institutions controlling or controlled by the
financial entity under the consolidated or other supervision systems
approved by the Central Bank,
|
||
|
§
|
Financing
that is:
|
||
|
o
|
Secured
by foreign banks and classified as “Investment Grade” by any of the
international rating agencies admitted by the Central
Bank;
|
|||
|
o
|
Related
to the buying or selling of securities through custodian banks admitted by
the Central Bank (Caja de Valores, Cedel, Euroclear or the Depositary
Trust Company), arising from the usual business practices in the market in
which they are made;
|
51
|
o
|
Related
to foreign trade transactions;
|
|||
|
o
|
Entailing
swaps of dollars and domestic government bonds at market price, with
sufficient margins, involving custodians admitted by the Central
Bank;
|
|||
|
o
|
Foreign
banks or financial institutions subject to the consolidated supervision
system which controls local financial institutions organized as
corporations (sociedades anónimas);
|
|||
|
o
|
Other
foreign banks authorized to take part in reciprocal payment and credit
regimes to which the Central Bank is a party, to the extent the
controlling financial entity is subject to a consolidated supervision
system; and
|
|||
|
o
|
Non-financial
private sector clients whose debt together with the amount of the
financing requested at the time of granting it, exceeds the lower of 2.5%
of the bank’s computable equity responsibility as at the last day of the
preceding month or the equivalent to Ps.1,000,000, and who have not
submitted a sworn statement as to whether they are related or not to the
respective financial agent, or whether their relationship with the latter
implies the existence of controlling influence, or who have not updated
their previous statement.
|
|||
|
§
|
Assistance provided through foreign subsidiaries or branches of local financial institutions under the consolidated supervision system, to the extent the financial assistance is not funded directly or indirectly by local financial institutions. | |||
Irrespective
of the fact that the analyses that preceded the granting of financing should
also take into account debtors’ payment capacity by evaluating the allocation of
their periodical income in relation to the totality of credit commitments
assumed, the classification of these clients shall be made (at the end of each
month) exclusively considering objective patterns related to the degree of
compliance of their obligations as they become due or their legal situation, as
well as the information deriving from the “Financial System Debtors Department”
provided they reflect quality levels lower than those assigned by the
entity.
Payment
capacity evaluation based on the borrower’s income will not be mandatory, as
long as specific evaluation methods are used or the borrowers’ loans are for
minimal amounts in terms of point 1.1.3.3, Section 1 of the “Credit Management”
rules.
The
specific evaluation methods mentioned above are those known as “Credit Scoring
and Screening”.
The limits
to take into account for applying these methods are as follows:
|
i)
|
Eligible
borrowers:
|
||
| Natural persons non related to the financial entity. | |||
|
ii)
|
Individual
limit:
|
||
| The capital owed may at any time exceed the following limits, per class of credit and per client: | |||
|
§
|
Dwelling
mortgage loans: Ps.200,000
|
||
|
§
|
Chattel
mortgage car loans: Ps.50,000
|
||
|
§
|
Personal
loans and financing by credit card: Ps.15,000
|
||
|
iii)
|
Verification
of the method used.
|
||
The
financial entities may submit for verification the methods used (Screening,
Credit Scoring) in accordance with the procedure to be set forth by the
Financial and Exchange Entities Superintendence, irrespective of maintaining
their applicability as long as no objections arise thereon. However, the
verification of the methodology according to the said procedure will be
mandatory if on the last day of the month prior to the preceding month, the
aggragate amount due under the loans referred to under point ii) above exceeds
the greater of the equivalent of 15% of the computable equity liability of the
bank for the month prior to the preceding month and Ps.30,000,000, without
exceeding (in case the amount in absolute value is greater) the equivalent of
50% of such computable equity liability.
On
November 29, 2006, by Communication “A” 4738, two significant points were
incorporated to, or modified in the Borrower Rating Standard and Minimum Bad
Debt Risk Provisions:
1)
The
treatment for refinancing in the Consumption Portfolio, depending on the
refinanced borrower’s compliance record.
52
Criterion for improving
situation
In normal
situation, up to two refinancings are admitted within the past twelve months
with arrears of less than 31 days. Counting starts as of the date of the last
refinancing. For all other situations, the basic criterion is that the greatest
penalty must be applied to the borrower who delays the refinancing, for which
reason:
§ Once the
Refinancing Agreement has been signed, the previous situation applies, unless
borrower makes payments in advance which can be computed.
§
Borrower
must accumulate a greater number of installments or percentage of cancellation
in order to improve his situation.
(i)
Situation
improved by payment of installments. The following table applies (*)
|
Percentage
of cancellation
|
||||||||||||||||
|
Change
of category
|
from
Irrecoverable
|
from
High
Risk
|
from
Medium
Risk
|
from
Low
Risk
|
||||||||||||
|
Change
to High Risk
|
3%
|
—
|
—
|
—
|
||||||||||||
|
Change
to Medium Risk
|
6%
|
3%
|
—
|
—
|
||||||||||||
|
Change
to Low Risk
|
8%
|
5%
|
2%
|
—
|
||||||||||||
|
Change
to Normal
|
9%
|
6%
|
3%
|
1%
|
||||||||||||
(*)
The refinancing requires a punctual payment or with delays of not more
than 31 days according to the German or French Amortization System. Regularity
may be monthly or bimonthly.
(ii)
Situation
improved by Percentage of Capital Cancellation (also applicable to Commercial
Portfolio) (**)
|
Percentage
of cancellation
|
||||||||||||||||
|
Change
of category
|
from
Irrecoverable
|
from
High
Risk
|
from
Medium
Risk
|
from
Low
Risk
|
||||||||||||
|
Change
to High Risk
|
20%
|
—
|
—
|
—
|
||||||||||||
|
Change
to Medium Risk
|
35%
|
15%
|
—
|
—
|
||||||||||||
|
Change
to Low Risk
|
45%
|
25%
|
10%
|
—
|
||||||||||||
|
Change
to Normal
|
55%
|
35%
|
20%
|
10%
|
||||||||||||
(**)
For amortization systems with periods greater than bimonthly or
irregular.
Collections
not applied and rebates may not be counted in order to improve the situation
(they belong to the debt preceding the signing of the Refinancing
Agreement).
Up-front
payments may be computed as per their equivalent in installments or amortization
percentage in order to improve borrower’s situation.
The choice
must be for a single parameter depending on the refinancing mode:
|
|
§
|
Refinanciacings
with regular monthly or bimonthly payments: by the timely payment of
installments. This is the criterion adopted by BBVA Banco
Francés.
|
|
|
§
|
All
other forms: by capital
amortization.
|
Criterion for deteriorating
the situation by noncompliance with the refinancing and for improving it once
again at a later stage.
Arrears
are considered to exist in refinancing if a delay exceeding 31 days
occurs.
53
The
criterion as to how to determine the situation of a refinanced client is as
follows:
1.
Tranches
of arrears are allocated in any applicable situation according to the table
below:
|
Situation
|
Minimum
delay time
(in
days)
|
|
|
Normal
|
0
|
|
|
Low
Risk
|
32
|
|
|
Medium
Risk
|
91
|
|
|
High
Risk
|
181
|
|
|
Irrecoverable
|
More
than 1 year
|
2.
To
the above must be added the refinancing arrears, and according to this the
situation in which the refinanced client must be placed is determined:
Example:
Assumption
a)
|
Days
of delay at the time of refinancing
|
Situation
at the time of refinancing
|
Number
of cancelled installments of the refinanced debt
|
Situation
considering installment cancellations
|
|||
|
400
|
Irrecoverable
|
6
|
Medium
Risk
|
Assumption
b) –new delay -
|
Situation
at the time of incurring arrears
|
Minimum
time of delay (days)
|
New
delay (refinanced debt) (days)
|
Delay
at end of month (days)
|
New
situation
|
||||
|
Medium
Risk
|
91
|
95
|
186
(91+95)
|
High
Risk
|
If the
client is in arrears for which his category was degraded, the client must catch
up on its payments (or show a delay of less than 31 days), and in such event he
may be improved in respect of all payments made while he remained in arrears,
his situation then being once again improved. In the previous example, if the
client descends to High Risk and then catches up on its payments by cancelling 6
installments in arrears, the client may be moved to Normal.
|
2)
|
Procedure
for constituting provisions above the minimum ones established by the
regulations for a portfolio in normal
situation.
|
The main
criterion is based on the provisions of point 7.1, third paragraph of the
Borrower Rating Standard and Minimum Bad Debt Provisions. More stringent
criteria may be adopted on the basis of the objective guidelines mentioned in
the first paragraph of the same point, provided this constitutes a generally
applied policy which must be duly detailed in the “Rating and Provision
Procedures Manual”, without this affecting the rating that must be allocated to
eligible borrowers as provided hereunder, and provided this is duly grounded on
objective criteria based on behavioral studies that give support to the higher
provisions (be it for the active portfolio as a whole or by type of
financing).
According
to the regulations in force, BBVA Banco Francés applies provision percentages
above the minimum set forth for the portfolio under normal situation, and does
so as a global practice. The main destination of these provisions is the
generation of a coverage according to expected arrears and an estimate of
expected losses by portfolio and by type of financing in our entity. BBVA Banco
Francés regularly monitors the behavior of the different portfolios and
financing types.
Based on
the established coverages and their revision, we decide if the provision
policies must be maintained or modified.
The
percentages currently applied per active portfolio or financing type are as
follows:
|
(i)
|
Credit
card and agreed overdraft: 2.5%.
|
|
|
(ii)
|
Personal
loan: 2%.
|
|
|
(iii)
|
Other
financings in normal situation:
1.25%.
|
54
This
procedure also requires authorization by the same member officers who are
responsible for approving the “Significant Financings” (those exceeding 2.5% of
the Entity’s Equity Liability), for which reason it was discussed and confirmed
by our Technical Committee of Operations and validated by our Board
of Directors.
Commercial
borrowers are classified as follows:
1.
“Normal”
if there is no doubt that the borrower can meet all of its financial
obligations.
2.(a)
“Special Tracking-Under Observation” if the borrower is able to meet all of its
financial obligations but is sensitive to changes that could compromise such
ability absent timely corrective measures.
2.(b)
“Special Tracking-Under Negotiation or with Refinancing Agreements” if the
borrower is unable to comply with its obligations as agreed and formally state,
at least 60 days before the date on which the payment of their obligations is
due, its intention to refinance such debts.
The
borrower must enter into an agreement with the lender within 90 days (if up to
two lenders are involved) or 180 days (if more than two lenders are involved)
after the date on which the obligations became overdue. If no agreement has been
reached within the established deadline, the borrower must be reclassified to
the next category below according to the indicators established for each
level.
3.
“Problem” if the borrower has problems in meeting its ordinary financial
obligations.
4.
“High Risk of Insolvency” if the borrower is highly unlikely to meet its
financial obligations.
5.
“Irrecoverable” if it is clear, at the time of the classification, that the
borrower will not meet its financial obligations to the classifying bank.
6.
“Irrecoverable for Technical Decision” if such borrower meets the same criteria
as described above for consumer borrowers.
In
classifying a commercial borrower, banks must take into account other factors
depending upon the classification category, such as the quality of the
borrower’s management, the borrower’s operating history, its present and
projected financial situation, the adequacy of its financial reporting, the
general risks associated with the market in which the borrower operates, the
borrower’s relative position within such market, its payment history and ability
to service debt.
In the
case of legal proceedings, whether these proceedings are initiated by us or at
the instance of the borrower, commercial borrowers must be classified according
to pre-determined circumstances, independently from the classification under
which they would fall.
Under this
classification system, all loans to a given borrower are grouped under the
highest classification assigned to that borrower by the classifying bank. The
classification of a given borrower must not differ by more than one higher
category from a lower classification given to that borrower by at least two
other banks whose aggregate loans outstanding to that borrower represent 40% or
more of the total loans outstanding to that borrower in the Argentine financial
system at the time of the classification.
Under the
Central Bank regulation, banks must establish the following loan loss provisions
based on the amount owed on the loan (including accrued but unpaid interest). As
the table suggests, the presence of preferred guarantees reduces the level of
required provisions.
55
|
Loan
Loss Provision Required
|
|||||||
|
With
Preferred
“A”
Guarantees
|
With
Preferred
“B”
Guarantees
|
Without
Preferred
“A”
or
Preferred
“B”
Guarantees
|
|||||
|
Normal
|
1%
|
1
|
% |
1
|
% | ||
|
Inadequate
servicing / Special tracking - under observation (2)
|
1%
|
3
|
% |
|
5
|
% | |
|
Special
tracking - under negotiation or with refinancing agreements (2)
|
1%
|
6
|
% |
|
12
|
% | |
|
Deficient
servicing / Problem
|
1%
|
12
|
% |
25
|
% | ||
|
Difficult
recovery / High risk of insolvency
|
1%
|
25
|
% |
50
|
% | ||
|
Irrecoverable
|
1%
|
50
|
% |
100
|
% | ||
|
Irrecoverable
for technical decision
|
1%
|
100
|
%(1) |
100
|
%(1) | ||
|
Additional
loans (3)
|
1%
|
1
|
% |
1
|
% | ||
|
(1)
|
The
classification of a debtor under this category will require a loan loss
provision of 100% of any financings, such as rollovers, extensions and
express or implied waits, that may be granted after 90 days have elapsed
since the day following the announcement by the Central Bank of the data
base that includes the debtor. The presence of preferred guarantees does
not affect this obligation.
|
|
(2)
|
The
entity has not yet classified its debtors in the “Special tracking -under
negotiation or with refinancing agreements” category.
|
|
(3)
|
Extensions
of credit that do not surpass the result of applying the percentages
indicated below over the balance of the existing debt on the day prior to
the extension of the additional
credit:
|
|
Irrecoverable
|
10%
|
|
Difficult
recovery/High risk of insolvency
|
20%
|
|
Deficient
servicing/Problem
|
30%
|
|
Inadequate
servicing/Potential risk
|
40%
|
Non-compliance
with the payments for the services corresponding to this additional assistance
will determine the obligation to provision the assistance consistent with the
objective standards for overdue payments or legal requirements pursuant to the
classification of debtors included in the consumer portfolio for consumption or
housing. This also applies to borrowers in the commercial portfolio, in which
case the additional financing will be considered independently of the rest of
the client’s debt.
Furthermore,
banks are required to establish provisions equal to 100% of any interest accrued
on loans to borrowers classified as “Problem” or lower or “Medium Risk” or
lower. The Bank chooses to interrupt interest accrual accounting as permitted by
the regulation.
The
Central Bank regulations set requirements for the review by banks of their
classification of borrowers. The classification given to borrowers whose
outstanding loans represent at any given time more than 5% of the lending bank’s
risk weighted capital must be reviewed at least on a quarterly basis. The
classification given to borrowers whose outstanding loans represent at any time
between 1.00% and 5.00% of the lending bank’s risk weighted capital, or are for
an amount greater than Ps.1.0 million, must be reviewed at least every six
months. The classification of all other types of borrowers must be reviewed at
least once a year. In addition, banks must review the classification given to a
borrower in any of the following situations:
|
|
§
|
Any
time the Central Bank modifies the definition of its borrower
classifications;
|
|
|
§
|
Any
time another bank downgrades a borrower whose loan standings are greater
than 10% of the total loans outstanding in the Argentine financial
system;
|
|
|
§
|
Any
time a credit rating agency downgrades by more than one category the
rating assigned to bonds issued by such
borrower;
|
|
|
§
|
If
the Central Bank requires it as a result of an inspection;
and
|
|
|
§
|
In
case of discrepancy by more than one level between the rating given by the
financial entity and those granted by at least another two financial
entities or trusts in categories below that assigned by it, and whose
credits as a whole represent at least 20% and are below 40% of the total
amount informed by all creditors, as per the latest information available
at the Debtors Department of the financial
system”.
|
56
We are
therefore fully compliant with the Central Bank requirements relating to
borrower declassifications. We also fully complied with the provisioning
requirements regarding all our normal loans; that is, we had established the
full 1.0% provision for normal loans, as well as the 100% provision required for
loans with preferred guarantees being twenty-five months in arrears and
classified as “High Risk”, “High Risk of Insolvency” and “Irrecoverable”. In
addition, we believe that we have adequate provisions to cover any known losses
and any losses inherent in the loan portfolio. See Note 3.4.5. to the
Consolidated Financial Statements.
The
Bank stops accruing interest on a loan as soon as any scheduled payment is 90
days overdue, or earlier if the customer is classified as “Problem”, “Medium
Risk”, “High Risk of Insolvency”, “High Risk”, “Irrecoverable” or “Irrecoverable
for Technical Decision”. In the case of installment loans, which include
mortgage loans, 15 days after the second consecutive installment is overdue, the
loan is assigned to the “Problem Loans Department” and we cease to accrue
interest. The “Past Due Collections Department” commences follow-up collection
actions 5 days after the loan is overdue. In the case of an overdraft, the
account is assigned to the Problem Loans Department after 60 days past due, and
in the case of a credit card loan, after the second minimum payment is
missed.
The
following table presents our loan portfolio, before the deduction for the
allowance for loan losses, using the classification system of the Central Bank
in effect at the end of each fiscal year:
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||||||
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Loan
Portfolio
|
||||||||||||||||||||||||
|
Categories
|
||||||||||||||||||||||||
|
Normal
|
11,482,063 | 99.08 | % | 9,573,812 | 98.68 | % | 8,489,941 | 97.96 | % | |||||||||||||||
|
Inadequate
servicing and potential risk
|
43,901 | 0.38 | % | 47,684 | 0.49 | % | 83,037 | 0.96 | % | |||||||||||||||
|
Deficient
servicing and with problem
|
16,817 | 0.15 | % | 13,273 | 0.14 | % | 11,829 | 0.14 | % | |||||||||||||||
|
Difficult
recovery and high risk of insolvency
|
26,694 | 0.24 | % | 29,733 | 0.31 | % | 68,160 | 0.79 | % | |||||||||||||||
|
Irrecoverable
|
18,207 | 0.16 | % | 36,041 | 0.37 | % | 13,362 | 0.15 | % | |||||||||||||||
|
Irrecoverable
for technical decision
|
1,260 | 0.01 | % | 827 | 0.01 | % | 121 | — | ||||||||||||||||
|
Total
|
11,588,942 | 100.00 | % | 9,701,370 | 100.00 | % | 8,666,450 | 100.00 | % | |||||||||||||||
By
Communications “A” 4060 and “A” 4242, the Permanent Text of the Debtor Rating
Regulations was amended as summarized below:
|
|
§
|
5%
reduction in the percentage of cancellation determined for the different
categories (1 to 5), in order to reclassify a debtor to a higher
rating.
|
|
|
§
|
Private
or Judicial Arrangements: 20% cancellation is required (previously 30%)
for a debtor to be moved to Special tracking – under observation
situation.
|
|
|
§
|
Modification
in the conditions for preferred “A” guarantees – Credit Securities (checks
/ promissory notes/invoices).
|
|
|
§
|
Extension
to 18 months of the term for considering mortgage guarantees (in force
until June 30, 2004).
|
|
|
§
|
Flexibility
of percentages for the granting of “additional
credit”.
|
|
|
§
|
Incorporated
point 2.2.7 of the Allocations Annex, according to which the situation of
a borrower who has made a refinancing with capital reduction is determined
as per the difference between net debt allocations and the amount of the
said reduction.
|
|
|
§
|
Communication
“A” 4683 incorporated the possibility for borrowers of the Consumption and
Consumption Assimilable Portfolio to be allocated a provision percentage
higher than the minimum established for each situation without having to
be automatically reclassified to the next category. BBVA Banco Francés has
not yet made use of this possibility admitted by the regulations in
force.
|
57
Classification
of Loan Portfolio
The
following table presents our consumer and commercial loan portfolio as of
December 31, 2007, 2006, 2005, 2004 and 2003 under the classification system of
the Central Bank, before the deduction of the allowance for loan
losses:
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||||||||||||
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
|||||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages) (1)
|
||||||||||||||||||||||||||||||||||||||||
|
Normal
(Consumer)
|
3,332,574 | 98.29 | % | 2,086,773 | 98.06 | % | 1,442,324 | 98.09 | % | 936,401 | 96.61 | % | 747,257 | 92.05 | % | |||||||||||||||||||||||||
|
Normal
(Commercial)
|
8,149,489 | 99.40 | % | 7,487,039 | 98.85 | % | 7,047,617 | 97.94 | % | 8,254,276 | 97.08 | % | 7,195,596 | 90.12 | % | |||||||||||||||||||||||||
| 11,482,063 | 99.08 | % | 9,573,812 | 98.69 | % | 8,489,941 | 97.96 | % | 9,190,677 | 97.04 | % | 7,942,853 | 90.30 | % | ||||||||||||||||||||||||||
|
Inadequate
servicing (Consumer)
|
26,168 | 0.77 | % | 20,138 | 0.95 | % | 8,518 | 0.58 | % | 7,576 | 0.78 | % | 8,892 | 1.10 | % | |||||||||||||||||||||||||
|
Special
tracking (Commercial)
|
17,733 | 0.22 | % | 27,546 | 0.36 | % | 74,519 | 1.04 | % | 168,115 | 1.98 | % | 257,948 | 3.23 | % | |||||||||||||||||||||||||
| 43,901 | 0.38 | % | 47,684 | 0.49 | % | 83,037 | 0.96 | % | 175,691 | 1.85 | % | 266,840 | 3.03 | % | ||||||||||||||||||||||||||
|
Deficient
servicing (Consumer)
|
12,027 | 0.35 | % | 8,061 | 0.38 | % | 5,040 | 0.34 | % | 11,115 | 1.15 | % | 10,660 | 1.31 | % | |||||||||||||||||||||||||
|
Problem
(Commercial)
|
4,790 | 0.06 | % | 5,212 | 0.07 | % | 6,789 | 0.09 | % | 41,003 | 0.48 | % | 241,717 | 3.03 | % | |||||||||||||||||||||||||
| 16,817 | 0.15 | % | 13,273 | 0.14 | % | 11,829 | 0.14 | % | 52,118 | 0.55 | % | 252,377 | 2.87 | % | ||||||||||||||||||||||||||
|
Difficult
recovery (Consumer)
|
837 | 0.02 | % | 6,357 | 0.30 | % | 6,395 | 0.43 | % | 4,351 | 0.45 | % | 6,587 | 0.81 | % | |||||||||||||||||||||||||
|
High
risk of insolvency (Commercial)
|
25,857 | 0.31 | % | 23,376 | 0.31 | % | 61,765 | 0.86 | % | 17,614 | 0.21 | % | 281,154 | 3.52 | % | |||||||||||||||||||||||||
| 26,694 | 0.24 | % | 29,733 | 0.31 | % | 68,160 | 0.79 | % | 21,965 | 0.23 | % | 287,741 | 3.27 | % | ||||||||||||||||||||||||||
|
Irrecoverable
(Consumer)
|
17,689 | 0.52 | % | 6,158 | 0.29 | % | 8,007 | 0.55 | % | 9,696 | 1.00 | % | 37,812 | 4.66 | % | |||||||||||||||||||||||||
|
Irrecoverable
(Commercial)
|
518 | 0.01 | % | 29,883 | 0.39 | % | 5,355 | 0.07 | % | 21,225 | 0.25 | % | 7,733 | 0.10 | % | |||||||||||||||||||||||||
| 18,207 | 0.16 | % | 36,041 | 0.37 | % | 13,362 | 0.15 | % | 30,921 | 0.33 | % | 45,545 | 0.52 | % | ||||||||||||||||||||||||||
|
Irrecoverable
for technical decision (Consumer)
|
1,260 | 0.05 | % | 827 | 0.04 | % | 121 | 0.01 | % | 132 | 0.01 | % | 569 | 0.07 | % | |||||||||||||||||||||||||
|
Irrecoverable
for technical decision (Commercial)
|
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| 1,260 | 0.01 | % | 827 | 0.01 | % | 121 | — | 132 | — | 569 | 0.01 | % | ||||||||||||||||||||||||||||
|
Total
consumer loans
|
3,390,555 | 100.00 | % | 2,128,314 | 100.00 | % | 1,470,405 | 100.00 | % | 969,271 | 100.00 | % | 811,777 | 100.00 | % | |||||||||||||||||||||||||
|
Total
commercial loans
|
8,198,387 | 100.00 | % | 7,573,056 | 100.00 | % | 7,196,045 | 100.00 | % | 8,502,233 | 100.00 | % | 7,984,148 | 100.00 | % | |||||||||||||||||||||||||
|
Total
|
11,588,942 | 100.00 | % | 9,701,370 | 100.00 | % | 8,666,450 | 100.00 | % | 9,471,504 | 100.00 | % | 8,795,925 | 100.00 | % | |||||||||||||||||||||||||
(1) Percentages
for each category are of total consumer, commercial or total loans, as the
context requires.
58
Non-performing
and Restructured Loans
Applying
the Central Bank’s loan classification criteria described above, the following
table analyzes at each of the dates indicated below our gross non-performing and
restructured loan portfolio, and further breaks down the total into loans with
preferred guarantees and those which are unsecured:
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(in
thousands of pesos)
|
||||||||||||||||||||
|
Non-performing
loans (1)
|
62,978 | 79,874 | 93,472 | 105,136 | 586,232 | |||||||||||||||
|
Total
|
62,978 | 79,874 | 93,472 | 105,136 | 586,232 | |||||||||||||||
|
With
preferred guarantees
|
3,900 | 3,777 | 7,008 | 16,179 | 34,596 | |||||||||||||||
|
Unsecured
|
59,078 | 76,097 | 86,464 | 88,957 | 551,636 | |||||||||||||||
|
Total
|
62,978 | 79,874 | 93,472 | 105,136 | 586,232 | |||||||||||||||
(1)
Non-performing
loans includes all loans to borrowers classified as “Medim Risk”, “Problem”,
“High Risk”, “High Risk of Insolvency”, “Irrecoverable” and “Irrecoverable for
Technical Decision” under the Central Bank loan classification system.
Non-performing loans also include all loans contractually past due 90 days loans
or more. At December 31, 2007, 2006, 2005, 2004 and 2003 non-performing loans
include Ps.57,439 thousand, Ps.74,848 thousand, Ps.81,965 thousand, Ps.91,819
thousand and Ps.157,085 thousand respectively, of non-accrual
loans.
59
The table
below sets forth non-performing loans by economic activity as of each of the
dates indicated:
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||||||||||||
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
|||||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages) (1)
|
||||||||||||||||||||||||||||||||||||||||
|
Agricultural
and livestock
|
20 | 0.03 | % | 412 | 0.52 | % | 20 | 0.02 | % | 15 | 0.01 | % | 17,357 | 2.96 | % | |||||||||||||||||||||||||
|
Beverage
|
— | — | 5 | 0.01 | % | 1 | — | — | — | 4,105 | 0.70 | % | ||||||||||||||||||||||||||||
|
Chemicals
|
— | — | — | — | — | — | — | — | 5,881 | 1.00 | % | |||||||||||||||||||||||||||||
|
Construction
|
774 | 1.23 | % | 436 | 0.55 | % | 1,778 | 1.90 | % | 2,506 | 2.38 | % | 98,146 | 16.75 | % | |||||||||||||||||||||||||
|
Consumer
|
12,264 | 19.47 | % | 6,339 | 7.94 | % | 14,423 | 15.43 | % | 6,957 | 6.62 | % | 38,256 | 6.53 | % | |||||||||||||||||||||||||
|
Electrical
machinery
|
1 | — | 2 | — | — | — | 5 | — | 343 | 0.06 | % | |||||||||||||||||||||||||||||
|
Electricity,
oil, water and sanitary services
|
— | — | — | — | — | — | — | — | 171,948 | 29.34 | % | |||||||||||||||||||||||||||||
|
Financial
sector
|
— | — | — | — | — | — | — | — | 1,077 | 0.18 | % | |||||||||||||||||||||||||||||
|
Foodstuff
|
26 | 0.04 | % | 6 | 0.01 | % | 1 | — | 1 | — | 7,396 | 1.26 | % | |||||||||||||||||||||||||||
|
Furniture
and accessories
|
— | — | — | — | — | — | — | — | 241 | 0.04 | % | |||||||||||||||||||||||||||||
|
Government
services
|
— | — | — | — | — | — | — | — | 4 | — | ||||||||||||||||||||||||||||||
|
Industrial
metals
|
5 | 0.01 | % | — | — | — | — | — | — | 258 | 0.04 | % | ||||||||||||||||||||||||||||
|
Leather
and fur products
|
— | — | — | — | — | — | 1 | — | 11 | — | ||||||||||||||||||||||||||||||
|
Machinery
and tools
|
— | — | — | — | — | — | — | — | 4 | — | ||||||||||||||||||||||||||||||
|
Mining
products
|
1 | — | — | — | — | — | 6 | 0.01 | % | 28,999 | 4.95 | % | ||||||||||||||||||||||||||||
|
Oil
and carbon
|
— | — | — | — | 221 | 0.24 | % | — | — | 5,297 | 0.90 | % | ||||||||||||||||||||||||||||
|
Others
|
39,637 | 62.94 | % | 67,205 | 84.12 | % | 61,268 | 65.54 | % | 87,930 | 83.63 | % | 190 | 0.03 | % | |||||||||||||||||||||||||
|
Other
manufacturing
|
— | — | — | — | — | — | 7,671 | 7.30 | % | 312 | 0.05 | % | ||||||||||||||||||||||||||||
|
Paper
products
|
— | — | — | — | — | — | — | — | 11 | — | ||||||||||||||||||||||||||||||
|
Printer,
publishers and related industries
|
— | — | 1 | — | — | — | 1 | — | 22,272 | 3.80 | % | |||||||||||||||||||||||||||||
|
Rubber
products
|
4 | 0.01 | % | — | — | — | — | 1 | — | 14 | — | |||||||||||||||||||||||||||||
|
Retail
trade
|
7,526 | 11.95 | % | 3,711 | 4.65 | % | 13,142 | 14.06 | % | 6 | 0.01 | % | 1,042 | 0.18 | % | |||||||||||||||||||||||||
|
Services
|
23 | 0.04 | % | 19 | 0.02 | % | — | — | 14 | 0.01 | % | 109,087 | 18.62 | % | ||||||||||||||||||||||||||
|
Shoes,
apparel and other textile products
|
— | — | — | — | — | — | — | — | 789 | 0.13 | % | |||||||||||||||||||||||||||||
|
Textile
|
1 | — | 1 | — | — | — | — | — | 6 | — | ||||||||||||||||||||||||||||||
|
Transportation
material
|
— | — | — | — | 1 | — | — | — | 1,719 | 0.29 | % | |||||||||||||||||||||||||||||
|
Wholesale
trade
|
2,696 | 4.29 | % | 1,737 | 2.18 | % | 2,614 | 2.81 | % | 22 | 0.03 | % | 70,241 | 11.98 | % | |||||||||||||||||||||||||
|
Wood
products and cork
|
— | — | — | — | 3 | — | — | — | 1,226 | 0.21 | % | |||||||||||||||||||||||||||||
|
Total
|
62,978 | 100.00 | % | 79,874 | 100.00 | % | 93,472 | 100.00 | % | 105,136 | 100.00 | % | 586,232 | 100.00 | % | |||||||||||||||||||||||||
As of
December 31, 2007, the majority of our loan portfolio, and non-performing and
restructured loan portfolio, consisted of loans to Argentine borrowers. At that
date, approximately Ps.164.0 million or 1.44% of our total loan portfolio,
consisted of loans to foreign borrowers.
Gross
interest income that would have been recorded on non-performing loans during the
fiscal years ended December 31, 2007, 2006, 2005, 2004 and 2003 amounted to
Ps.54.2 million, Ps.56.1 million, Ps.57.8 million, Ps.59.4 million and Ps.75.2
million, respectively.
60
Analysis
of the Allowance for Loan Losses
The table
below sets forth the activity in the allowance for loan losses for the fiscal
years ended December 31, 2007, 2006, 2005, 2004 and 2003. See Note 19.6. to the
Consolidated Financial Statements. In conformity with Central Bank requirements,
we charge-off non-performing loans when we believe that recovery is unlikely and
in any event no later than seven months after a loan has been classified as
“irrecoverable” without preferred guarantees. We continue to try to collect all
amounts past due, even if they have been charged-off, if we believe that the
likelihood of collecting such amounts justifies the commitment of resources to
do so.
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||
|
Balance
at the beginning of the year
|
167,097 | 184,885 | 202,693 | 459,573 | 1,062,512 | |||||||||||||||
|
Provisions
for loan losses
|
61,985 | 69,799 | 114,220 | 62,509 | 317,993 | |||||||||||||||
|
Charge-offs
(1)
|
(30,354 | ) | (87,587 | ) | (132,028 | ) | (319,389 | ) | (920,932 | ) | ||||||||||
|
Advances
|
(10,311 | ) | (3,513 | ) | (18,136 | ) | (10,545 | ) | (11,433 | ) | ||||||||||
|
Consumer
|
— | (4,543 | ) | (39,081 | ) | (30,182 | ) | (38,146 | ) | |||||||||||
|
Notes
discounted and purchased
|
(8,239 | ) | (8,711 | ) | (17,418 | ) | (159 | ) | (30 | ) | ||||||||||
|
Other
|
(11,804 | ) | (70,820 | ) | (57,393 | ) | (278,503 | ) | (871,323 | ) | ||||||||||
|
Balance
at the end of year
|
198,728 | 167,097 | 184,885 | 202,693 | 459,573 | |||||||||||||||
|
Net
charge-off / average loans
|
0.29% | 0.97% | 1.49% | 3.63% | 7.72% | |||||||||||||||
(1)
Charge-offs
are not concentrated in any particular economic activity. Our management
estimates that of the Ps.30.6 million charged-off in the fiscal year ended
December 31, 2007, Ps.21.0 million, or 69.04% were related to corporate
borrowers and Ps.9.4 million, or 30.96% were related to individual consumers.Of
the Ps.87.6 million charged-off in the fiscal year ended December 31, 2006,
Ps.69.1 million, or 78.90% were related to corporate borrowers and Ps.18.5
million, or 21.10% were related to individual consumers. Of the Ps.132.0 million
charged-off in the fiscal year ended December 31, 2005, Ps.111.7 million, or
84.64% were related to corporate borrowers and Ps.20.3 million, or 15.36% were
related to individual consumers. Of the Ps.319.4 million charged-off in the
fiscal year ended December 31, 2004, Ps.281.4 million, or 88.09% were related to
corporate borrowers and Ps.38.0 million, or 11.91% were related to individual
consumers. Of the Ps.920.9 million charged-off in the fiscal year ended December
31, 2003, Ps.861.6 million, or 93.56% were related to corporate borrowers and
Ps.59.3 million, or 6.44% were related to individual consumers. Charge-offs
include reversal and applications.
Allocation
of the Allowance for Loan Losses
The
following table allocates the allowance for loan losses and sets forth the
percentage distribution by each category of loans in the total loan portfolio
(principals only) for each of the fiscal years ended December 31, 2007, 2006,
2005, 2004 and 2003.
|
Fiscal
Years Ended December 31,
|
||||||||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||||||||||||||||||||||
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
Total
|
%
|
|||||||||||||||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||||||||||||||||||
|
Advances
|
20,158 | 13.06 | % | 19,947 | 19.02 | % | 11,550 | 11.24 | % | 14,707 | 2.90 | % | 7,903 | 1.77 | % | |||||||||||||||||||||||||
|
Notes
discounted and purchased
|
22,295 | 14.09 | % | 12,359 | 10.27 | % | 7,393 | 8.60 | % | 3,478 | 2.67 | % | 7,697 | 2.29 | % | |||||||||||||||||||||||||
|
Secured
with mortgages
|
12,877 | 7.60 | % | 8,081 | 5.96 | % | 7,082 | 6.05 | % | 13,310 | 4.27 | % | 17,857 | 4.97 | % | |||||||||||||||||||||||||
|
Chattel
mortgage
|
3,648 | 2.49 | % | 1,403 | 0.13 | % | 760 | 0.93 | % | 474 | 0.28 | % | 871 | 0.06 | % | |||||||||||||||||||||||||
|
Consumers
loans
|
51,387 | 21.07 | % | 23,296 | 15.73 | % | 14,664 | 11.49 | % | 10,343 | 4.64 | % | 16,623 | 3.42 | % | |||||||||||||||||||||||||
|
Financial
Loans
|
9,819 | 4.98 | % | 5,188 | 5.33 | % | 1,691 | 2.10 | % | 5 | 1.79 | % | 122 | 1.47 | % | |||||||||||||||||||||||||
|
Other
loans to governmental sector
|
— | 10.45 | % | — | 14.18 | % | 49,324 | 38.67 | % | 80,729 | 73.14 | % | 103,417 | 76.10 | % | |||||||||||||||||||||||||
|
Other
|
78,544 | 26.26 | % | 96,823 | 29.38 | % | 92,421 | 20.92 | % | 79,647 | 10.31 | % | 305,083 | 9.92 | % | |||||||||||||||||||||||||
|
Total
|
198,728 | 100.00 | % | 167,097 | 100.00 | % | 184,885 | 100.00 | % | 202,693 | 100.00 | % | 459,573 | 100.00 | % | |||||||||||||||||||||||||
61
Composition
of Deposits
The
following table sets out the composition of each category of deposits that
exceeded 10% of average total deposits in each of the fiscal years ended
December 31, 2007, 2006 and 2005.
|
Fiscal
Year ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Deposits
in domestic Bank’s offices
|
||||||||||||
|
Non-interest-bearing
demand deposits
|
||||||||||||
|
Average
|
||||||||||||
|
Pesos
|
2,547,283 | 2,094,140 | 1,636,017 | |||||||||
|
Dollars
|
43,736 | 24,537 | 13,007 | |||||||||
|
Total
|
2,591,019 | 2,118,677 | 1,649,024 | |||||||||
|
Saving
accounts
|
||||||||||||
|
Average
|
||||||||||||
|
Pesos
|
2,790,939 | 2,342,303 | 2,189,515 | |||||||||
|
Dollars
|
917,098 | 772,591 | 583,270 | |||||||||
|
Total
|
3,708,037 | 3,114,894 | 2,772,785 | |||||||||
|
Average
real rate
|
||||||||||||
|
Pesos
|
(12.52)% | (6.52)% | (9.35)% | |||||||||
|
Dollars
|
(10.32)% | (5.45)% | (7.76)% | |||||||||
|
Total
|
(11.98)% | (6.26)% | (9.01)% | |||||||||
|
Time
deposits
|
||||||||||||
|
Average
|
||||||||||||
|
Pesos
|
5,897,520 | 5,112,665 | 4,852,674 | |||||||||
|
Dollars
|
1,062,937 | 737,069 | 379,025 | |||||||||
|
Total
|
6,960,457 | 5,849,734 | 5,231,699 | |||||||||
|
Average
real rate
|
||||||||||||
|
Pesos
|
(4.92)% | 1.08% | (3.38)% | |||||||||
|
Dollars
|
(8.43)% | (3.97)% | (6.79)% | |||||||||
|
Total
|
(5.46)% | 0.44% | (3.63)% | |||||||||
Maturity
of Deposits at December 31, 2007
The
following table sets forth information regarding the maturity of our deposits at
December 31, 2007.
|
Maturing,
|
||||||||||||||||||||
|
Total
|
Within
3
months
|
After
3 but
within
6 months
|
After
6 but
within
12
months
|
After
12 months
|
||||||||||||||||
|
(in
thousands of pesos)
|
||||||||||||||||||||
|
Checking
|
2,979,556 | 2,979,556 | — | — | — | |||||||||||||||
|
Savings
|
4,237,766 | 4,237,766 | — | — | — | |||||||||||||||
|
Time
deposits
|
7,332,036 | 6,632,602 | 595,713 | 99,192 | 4,529 | |||||||||||||||
|
Investment
accounts
|
13,152 | 6,512 | 6,640 | — | — | |||||||||||||||
|
Other
|
447,248 | 420,856 | 4,537 | 21,855 | — | |||||||||||||||
|
Total
|
15,009,758 | 14,277,292 | 606,890 | 121,047 | 4,529 | |||||||||||||||
62
The
following table sets forth information regarding the maturity of our time
deposits and investment accounts in denominations of Ps.100,000 or more at
December 31, 2007.
|
Maturing,
|
||||||||||||||||||||
|
Total
|
Within
3
months
|
After
3 but
within
6 months
|
After
6 but
within
12
months
|
After
12 months
|
||||||||||||||||
|
(in
thousands of pesos)
|
||||||||||||||||||||
|
Domestic
offices
|
4,521,250 | 4,101,279 | 359,095 | 57,877 | 2,999 | |||||||||||||||
|
Total
|
4,521,250 | 4,101,279 | 359,095 | 57,877 | 2,999 | |||||||||||||||
Short-Term
Borrowings
Our
short-term borrowings totaled approximately Ps.1.7 billion, Ps.1.3 billion and
Ps.0.9 billion for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively. The table below shows those amounts at the end of each fiscal
year.
|
At
December 31,
|
||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
Amount
|
Average
Annualized
Rate
|
Amount
|
Average
Annualized
Rate
|
Amount
|
Average
Annualized
Rate
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Total
amount outstanding at the end of the reported period
|
1,656,030 | — | 1,318,273 | — | 867,039 | — | ||||||||||||||||||
|
Average
during year
|
1,429,466 | 5.5% | 1,142,756 | 6.7% | 1,224,225 | 10.2% | ||||||||||||||||||
|
Maximum
month-end balance
|
1,656,030 | — | 1,318,273 | — | 2,049,672 | — | ||||||||||||||||||
THE
ARGENTINE BANKING SYSTEM AND ITS REGULATORY FRAMEWORK
Argentine
Banking System
On
December 31, 2007, Argentina’s banking system consisted of 67 commercial banks,
of which 12 were government-owned or government-related banks and 55 were
privately owned banks. The principal regulators of financial institutions in
Argentina are the Central Bank, the Superintendencia de Entidades
Financieras y Cambiarias (the Superintendency of Financial Institutions
and Exchanges, referred to as the “Superintendency”) and, in the case of
financial institutions that publicly offer their own securities in Argentina or
otherwise engage in the offering or trading of third parties’ securities in
Argentina, the CNV.
Private
Sector Banks
According
to information published by the Central Bank, on December 31, 2007, the largest
privately owned locally based commercial banks, in terms of total assets, were
the following: Banco de Galicia y Buenos Aires S.A., Banco Santander Río, BBVA
Banco Francés, Banco Macro Bansud S.A. and HSBC Bank Argentina. Some of these
banks, including BBVA Banco Francés, have one or more significant foreign
investors. Similarly, private financial institutions accounted for approximately
56.78% of deposits and approximately 67.56% of gross loans in the Argentine
financial system. In addition, the ten largest private financial institutions
accounted for 43.80% of all deposits and 52.46% of all loans in the Argentine
financial system. The largest foreign banks at such date was Citibank. Foreign
banks compete under the same regulatory conditions as Argentine
banks.
Public
Sector Banks
The
principal state owned banks are: Banco Nación, Banco de la Provincia de Buenos
Aires and Banco Ciudad de Buenos Aires. As of December 31, 2007, based on the
available data of the Central Bank, such entities accounted for approximately
37.87% of deposits and approximately 24.81% of gross loans in the Argentine
banking system.
Under the
provisions of the Argentine financial institutions Law No. 21,526 (the
“Financial Institutions Law”), government owned or government-related banks and
private banks have comparable rights and obligations except that the former have
the sole right and obligation to handle public revenues and promote regional
development. Government-owned banks are required to meet the credit needs of
public sector entities. Moreover, the by-laws of some government-owned banks,
which include federal, provincial and locally owned banks, require that the
principalities which own them guarantee their commitments.
63
Central
Bank
The
Financial Institutions Law regulates banking activities in Argentina and places
the supervision and control of the Argentine banking system in the hands of the
Central Bank, an autonomous institution. The Financial Institutions Law provides
the Central Bank with broad access to the accounting systems, books,
correspondence, documents and other papers of banking institutions. The Central
Bank regulates the provision of credit and supervises the liquidity and the
general operation of the Argentine financial markets. The Central Bank enforces
the Financial Institutions Law and authorizes banks to operate in Argentina.
This law distinguishes between public and private financial institutions. It was
amended in February 1994 to eliminate the previous distinctions between locally
owned and foreign owned private financial institutions. The Central Bank does
not have the authority to supervise the liquidation of financial
institutions.
The
Central Bank establishes “technical ratios” to limit the levels of indebtedness,
liquidity, maximum credit that may be granted per customer and foreign exchange
assets and liabilities positions, among others. The Central Bank carries out
formal inspections from time to time of all banking institutions to monitor
their compliance with legal and regulatory requirements. Since September 1994,
the Central Bank has supervised banks on a consolidated basis. During 1997, the
Central Bank organized a supervision department of internal and external
auditors of financial institutions that evaluate performance comprehensively in
internal audit areas as well as firms and professionals working as external
audit of financial institutions. See “Information on the Company—The
Argentine Banking System and its Regulatory Framework—BASIC System”
below. If a bank does not comply with the technical ratios, it must explain such
noncompliance to the Central Bank. There are specific regulations governing
reinstatement plans and other measures arising from the failure of these plans.
Furthermore, the Central Bank has the power to impose sanctions for
noncompliance, which vary from a strong reprimand to revocation of banking
licenses.
The
Central Bank requires banks to submit information to it on a daily, monthly,
quarterly, semiannual and annual basis. These reports contain, among other
important information, balance sheets and income statements, information
relating to reserve funds, use of deposits and indicators on portfolio quality,
including details on principal debtors and any loan-loss provisions established.
The reports are designed to allow the Central Bank to monitor the banks’
business practices. If the Central Bank’s rules are breached, various sanctions
may be imposed depending on the gravity of the violation, ranging from calling
attention to the infraction to the imposition of fines or even the revocation of
a bank’s operating license. Moreover, noncompliance with certain rules may
result in the obligatory presentation to the Central Bank of specific capital
adequacy or regularization plans. These plans must be approved by the Central
Bank for a bank to maintain its license.
On January
23, 2002 the Congress amended the charter of the Central Bank, eliminating
certain restrictions on the Central Bank’s ability to provide financial
assistance to financial institutions with liquidity constraints. On February 4,
2002, by virtue of Decree No. 214/02 the Central Bank was also allowed until
December 2003 to grant financial assistance to financial institutions whose
solvency had been affected. Before these measures, the Central Bank had
limitations on its ability to make loans or otherwise extend financial
assistance to banks with financial difficulties. Primarily, such assistance
could not be granted, other than in exceptional circumstances, for more than 30
days or if it would affect the Central Bank’s foreign currency
reserves.
On
September 5, 2003, Law No. 25,780 was enacted, which introduced amendments to
the Financial Institutions Law Corporate and the Central Bank charter. Among the
most significant of such modifications we may mention the
following:
|
|
§
|
Except
by express provision to the contrary established by-law, the Central Bank
will not be affected by any regulations of a general character which may
have been or shall have been enacted with reference to Public
Administration bodies and which may introduce limitations to the authority
or powers of the Central Bank as set forth in its own
Charter.
|
|
|
§
|
The
Central Bank is empowered to make temporary advances to the Government up
to an amount equivalent to 12% of the monetary base, which for this
purpose includes amounts constituted by the monetary circulation plus the
sight deposits of the financial institutions with the Central Bank, in
current account or in special accounts. It may also grant advances up to
an amount not exceeding 10% of the cash resources obtained by the
Government in the past twelve months. At no time may the amount granted as
temporary advances, excluding those exclusively allocated to the payment
of obligations with the multilateral credit institutions, exceed 12% of
the monetary base. All advances so granted must be reimbursed within the
next twelve months; should any of these advances remain unpaid after its
due date, it will not be possible to use these powers again until all owed
amounts shall have been reimbursed.
|
|
|
§
|
The
provisions of Decree No. 1131/01 are abrogated, and the validity of
Articles 44, 46 paragraph (c), 47 and 48 of the Central Bank Charter,
regarding the powers and authority of the Superintendency of Financial and
Foreign Exchange Entities, is reestablished in terms of the text approved
as Article 1 of Law No. 24,144.
|
64
|
|
§
|
A
temporary regulation was introduced, applicable until December 2005,
authorizing the Central Bank to: (i) provide assistance to financial
institutions with liquidity and/or solvency problems, including those
undergoing restructuring by resolution of the Central Bank in terms of
Article 35 bis of the Financial Institutions Law; and (ii) authorize the
integration of the reserve requirements for financial institutions with
financial assets other than cash, in the form of sight deposits with the
Central Bank or in foreign currency accounts as per Art. 28 of the Central
Bank Charter.
|
|
|
§
|
Decree
No. 1599/05, modified the Law No. 23,928: by allowing reserves exceeding
100% of the monetary base may be allocated to the payment of obligations
assumed with international financial
entities.
|
Supervision
on a Consolidated Basis
According
to Communication “A” 2227 dated July 15, 1994 and its amendments and correlative
provisions, since 1994 the Argentine financial entities are subject to
supervision in consolidated form by the Central Bank (irrespective of the
observance on an individual basis of the regulations applicable thereto). In
other words, the financial statements and other information regarding them must
reflect the transactions of their head office as well as those of their branches
in the country and abroad, and those of any local and foreign “significant
subsidiaries”. Consequently, the requirements as to liquidity, solvency, minimum
capital, risk concentration, and provisions for loan losses, among others, must
be calculated on a consolidated basis.
From the
above-mentioned communication it is clear that the financial institutions must
submit certain information to the Central Bank, including the
following:
|
|
§
|
Financial
statements and other quarterly and annual reports reflecting in
consolidated form the transactions of the financial entity, its local and
foreign branches, and its local and foreign “significant subsidiaries” (as
defined below); and
|
|
|
§
|
Financial
statements and other quarterly and annual reports reflecting in
consolidated form the transactions of the financial entity, its local and
foreign branches, its local and foreign “significant subsidiaries” (as
defined below), or entities or companies in the country and abroad where
the financial entity has possession or control over more than 12.5% of the
shares entitled to vote, in those cases determined by the Superintendency
of Financial and Foreign Exchange Institutions, and those companies not
subject to consolidated supervision which the financial entity may have
chosen to include with the prior approval of the Superintendency of
Financial and Foreign Exchange
Institutions.
|
For the
purposes of these regulations:
|
|
§
|
A
“subsidiary” of a local financial entity is any local or foreign financial
entity or company in any of the following
positions:
|
|
|
(1)
|
The
local financial entity has direct or indirect control of more than 50% of
the total votes of any instrument with voting rights in such entity or
company,
|
|
|
(2)
|
The
local financial entity has direct or indirect control as to determining by
itself the composition of most of the management bodies of such entity or
company,
|
|
|
(3)
|
A
majority of the directors of the local financial entity is also a majority
of the directors of such entity or
company.
|
The
possession or control by the financial entity is considered indirect if
exercised through another legal person, its controlling shareholders or
directors appointed by such controlling shareholders or persons linked to them,
in control of more than 50% –measured as a whole– of the total votes of any
instrument with voting rights in another entity or company. Also considered
indirect is any other form of control or interest where, in the opinion of the
Superintendency of Financial and Foreign Exchange Institutions, and even if the
shareholders’ interest does not exceed 50%, a situation of control, and
therefore the subsidiary character of an entity or company is configured or can
be inferred from the evidence collected.
|
|
§
|
A
“significant subsidiary” is any
subsidiary:
|
|
|
(1)
|
Whose
assets, possible commitments and other transactions recorded in memorandum
accounts represent 10% or more of the Computable Net Worth of the local
financial entity and its subsidiaries abroad;
or
|
|
|
(2)
|
Whose
results of operations corresponding to the current fiscal year represent
10% or more of the results of operations for the current fiscal year of
the local financial entity and its subsidiaries
abroad.
|
65
Legal
Reserve
The
Central Bank requires that on an annual basis banks allocate a certain
percentage of their net income, set by the Central Bank, to a legal reserve,
which is currently set at 20%. This reserve can only be used during periods in
which a bank has incurred losses and has exhausted all unappropriated retained
earnings and other reserves on profit. Banks may not pay dividends if the legal
reserve has been impaired. However, as from April 24, 2006 the Central Bank has
established by Communication “A” 4526 that whenever the Legal Reserve is used to
absorb losses, profits could be distributed if the balance prior to absorption
were greater than 20% of the corporate capital plus capital adjustment, once
this last amount is achieved.
Reserve
Requirements and Liquidity Requirements
The
minimum cash system determines what portion of their deposits or obligations the
entities must keep available, that is to say, not as part of their lending
capacity. The minimum cash requirement is calculated on the monthly average of
daily balances for comprised obligations as recorded at the close of each
calendar month, and must be observed separately for each currency of
denomination of the comprised obligations. The minimum cash must be made
effective in any of the instruments indicated below:
|
(i)
|
Cash
in the country;
|
|
(ii)
|
Current
accounts in Pesos, special guarantee accounts and accounts in connection
with the attention of pension benefits, of the financial entities with the
Central Bank; and
|
|
(iii)
|
Minimum
cash accounts of the financial entities with the Central Bank, denominated
in U.S. dollars or other foreign
currencies.
|
|
(iv)
|
Minimum
cash account of public securities and instruments issued by the Central
Bank, at market value.
|
Minimum
daily cash: on no day of the month, as of the close of each day, may the sum of
the balances admitted for integration as mentioned in (ii) and (iii) above be
less than 50% of the total minimum cash required deposits consisting of public
securities and debt instruments issued by the BCRA will not be taken into
account for purposes of the calculation of the minimum daily cash requirement,
as determined for the immediately preceding month, or less than 70% if the
immediately preceding calculation period showed a monthly average deficiency
exceeding the admitted margin to be transported.
The
balances maintained on accounts opened with the Central Bank as eligible for
minimum cash integration are remunerated up to those amounts corresponding to
legal requirements, that is to say, no remuneration applies for any excess
reserves. Commencing on April 2006 and according to Communication “A” 4509 of
the Central Bank, the accounts mentioned above will only be remunerated up to
the amounts set forth for term transactions. Therefore, no interest will be
acknowledged for the payment of the pertinent sight deposits and
obligations.
Pursuant
to Communication “A” 4147 of May 28, 2004 and in effect as of June 1, 2004, the
Central Bank set forth the application of different requirements for deposits in
pesos as opposed to foreign currencies. In addition, the requirements applicable
to deposits in pesos were reduced and as of August 2004 an increase in
requirements for deposits in foreign currency took effect.
The
following table discloses the minimum cash requirements with respect to each
type of account in force since January 1, 2007:
66
|
Type of
Account
|
From
Jan-2007
|
From
Sep-2007
|
From
Oct-2007
|
From
Jan-2008
|
||||||||||||
|
Current
accounts (except deposits and other demand obligations in pesos, whose
return exceeds 15% BADLAR rate of private financial institutions’
average) and
sight accounts open in Credit Unions (1)
|
19%
|
19%
|
19%
|
19%
|
||||||||||||
|
Other
demand deposits
|
|
|||||||||||||||
|
In
pesos
|
19%
|
19%
|
19%
|
19%
|
||||||||||||
|
In
foreign currency
|
30%
|
30%
|
30%
|
30%
|
||||||||||||
|
Savings
accounts
|
|
|||||||||||||||
|
In
pesos
|
19%
|
19%
|
19%
|
19%
|
||||||||||||
|
In
foreign currency
|
30%
|
30%
|
30%
|
30%
|
||||||||||||
|
Unused
balances from current account advances effected
|
19%
|
19%
|
19%
|
19%
|
||||||||||||
|
Current
accounts of financial institutions (2)
|
100%
|
100%
|
100%
|
100%
|
||||||||||||
|
Fixed-term
deposits, bonds for acceptances (including liabilities for the sale or
assignment of credits to subjects other than financial institutions),
reverse repurchases, bonds and stock-exchange reverse swaps, investments
at constant term, with advanced cancellation or renewal option (3):
|
||||||||||||||||
|
In
pesos
|
||||||||||||||||
|
Up
to 29 days
|
14%
|
14%
|
14%
|
14%
|
||||||||||||
|
From
30 to 59 days
|
11%
|
|
11%
|
11%
|
11%
|
|||||||||||
|
From
60 to 89 days
|
7%
|
7%
|
7%
|
7%
|
||||||||||||
|
From
90 to 179 days
|
2%
|
2%
|
2%
|
2%
|
||||||||||||
|
From
180 to 365 days
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
In
foreign currency
|
||||||||||||||||
|
Up
to 29 days
|
35%
|
35%
|
35%
|
35%
|
||||||||||||
|
From
30 to 59 days
|
28%
|
28%
|
28%
|
28%
|
||||||||||||
|
From
60 to 89 days
|
20%
|
20%
|
20%
|
20%
|
||||||||||||
|
From
90 to 179 days
|
10%
|
10%
|
10%
|
10%
|
||||||||||||
|
From
180 to 365 days
|
6%
|
6%
|
6%
|
6%
|
||||||||||||
|
More
than 365 days
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
Bonds
for foreign financial lines
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
Debt
securities (including corporate bonds)
|
||||||||||||||||
|
a)
Debt issued as of January 1, 2002, including those from restructured
bonds, as per their residual term:
|
||||||||||||||||
|
In
pesos
|
||||||||||||||||
|
Up
to 29 days
|
14%
|
14%
|
14%
|
14%
|
||||||||||||
|
From
30 to 59
|
11%
|
11%
|
11%
|
11%
|
||||||||||||
|
From
60 to 89 days
|
7%
|
7%
|
7%
|
7%
|
||||||||||||
|
From
90 to 179 days
|
2%
|
2%
|
2%
|
2%
|
||||||||||||
|
From
180 to 365 days
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
In
foreign currency
|
|
|
||||||||||||||
|
Up
to 29 days
|
35%
|
35%
|
35%
|
35%
|
||||||||||||
|
From
30 to 59
|
28%
|
28%
|
28%
|
28%
|
||||||||||||
|
From
60 to 89 days
|
20%
|
20%
|
20%
|
20%
|
||||||||||||
|
From
90 to 179 days
|
10%
|
10%
|
10%
|
10%
|
||||||||||||
|
From
180 to 365 days
|
6%
|
6%
|
6%
|
6%
|
||||||||||||
|
More
than 365 days
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
b)
Others
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
Bonds
with the Trust Fund for Assistance to Financial and Insurance
Institutions
|
0%
|
0%
|
0%
|
0%
|
||||||||||||
|
Sight
and term deposits made by judicial order with funds originated in legal
actions currently under course and their immobilized
balances
|
|
|
||||||||||||||
|
In
pesos
|
10%
|
10%
|
10%
|
10%
|
||||||||||||
|
In
foreign currency
|
15%
|
15%
|
15%
|
15%
|
||||||||||||
|
Mutual
Funds deposits (except mutual funds sight deposits made accordingly CNV
rules)
|
|
|
||||||||||||||
|
In
pesos
|
18%
|
19%
|
19%
|
19%
|
||||||||||||
|
In
foreign currency
|
40%
|
40%
|
40%
|
40%
|
||||||||||||
|
Special
deposits related to funds revenues from abroad – Decree No.
616/05
|
100%
|
100%
|
100%
|
100%
|
||||||||||||
|
Deposits
and other demand obligations in pesos, whose return exceeds 15% BADLAR
rate of private financial institutions’ average (4)
|
100%
|
100%
|
100%
|
100%
|
||||||||||||
|
Term
investments instrumented by nominative non-transferable certificates in
pesos corresponding to public sector security holders, entitled to
exercise the prepayment option within a term not greater than 30 days
after constitution thereof. (5)
|
-
|
- |
-
|
16%
|
||||||||||||
|
(1)
|
In
accordance with the Communication “A”
4712.
|
|
(2)
|
Computable
for payment of their Minimum Required
Reserves.
|
|
(3)
|
Except,
term deposits made by judicial order with funds originated in legal
actions currently under course and their immobilized balances, mutual
funds term deposits, special deposits related to funds revenues from
abroad (Decree No. 616/05) and term investments instrumented by nominative
non-transferable certificates in
pesos.
|
|
(4)
|
In
accordance with the Communication “A”
4670.
|
|
(5)
|
In
accordance with the Communication “A”
4754.
|
67
In
addition to the above mentioned requirements, the following requirements must be
observed:
|
|
§
|
100%
reserve for any defect in the application of resources in foreign currency
for the month in respect to which the calculation of the minimum cash
requirement is made. See “Information on
the Company—The Argentine Banking System and its Regulatory
Framework—Lending
Capacity Provided by Deposits in Foreign
Currency”.
|
Lending
Capacity Provided by Deposits in Foreign Currency
According
to Communication “A” 3528 and complementary communications of the Central Bank,
the lending capacity provided by deposits denominated in foreign currency must
be applied in the denomination of the currency of the deposits. This includes
those deposits denominated in dollars and payable in pesos and applies to the
following purposes:
|
(1)
|
Prefinancing
or financing of exports, carried out directly or through agents,
consignees or other proxies acting for the account and order of the owner
of the goods. This comprises those operations for the purpose of financing
working capital and/or the acquisition of objects related to the
production of goods to be exported, provided the flow of income in foreign
currency deriving from such exports is sufficient to settle such
transactions.
|
|
(2)
|
Financing
transactions granted to goods, producers or processors, provided they have
firm sale contracts for the goods to be produced for an exporter, with
prices fixed in a foreign currency and involving fungible goods with a
regular and customary quotation in foreign currency which is widely known
and easily accessed by the public in local or international
markets.
|
|
(3)
|
Financing
transactions for producers of goods to be exported, either in the same
condition or as part of other goods, by third-party purchasers, provided
they have total pledges or guarantees in foreign currency from such third
parties.
|
|
(4)
|
Financing
of investment projects, working capital and/or the acquisition of any kind
of goods, including temporary importation of commodities, which may
increase or be related to the production of goods for exportation. Even
though income from exporter companies does not totally derive from sales
abroad, financing may only be allocated if the income flow deriving from
exportation is sufficient. It comprises those transactions where financing
is granted via the Bank’s participation in “syndicated loans”, be they
with local or foreign entities (in force as from September 23, 2005 as per
Central Bank Communication “A”
4423).
|
|
(5)
|
Financing
to clients from the commercial portfolio and of a commercial nature who
receive treatment for their consumption or housing credits –under the
provisions of the “Debtors’ Classification” regulations–destined for the
importation of capital goods (“BK” according to the Common Nomenclator for
the MERCOSUR attached as Annex I to Decree No. 690/02 and other
complementary provisions) which will result in an increase in the
production of goods destined for domestic consumption. In order to grant
such financing, the financial entities must verify that their clients have
sufficient paying capacity considering at least two scenarios which
contemplate significant exchange rate variations within a term of up to
one year and which, in either case, exceed the latest estimate available
resulting from the “Market Expectations Survey” published by this
institution (in force since 9 December 2005 under Central Bank
Communication “A” 4453).
|
|
(6)
|
Debt
securities or certificates of participation in financial trusts -including
other collection rights specifically acknowledged in the trust agreement
to be constituted within the framework “IDB Loan Nº 1192/OC-AR“- whose
assets under management are loans originated by financial entities under
the terms described in points (1) through (3)
above.
|
|
(7)
|
Debt
securities or certificates of participation in financial trusts, issued in
foreign currency and with public offer authorized by the CNV, whose assets
under management are documents guaranteed by mutual guarantee companies or
by provincial funds created for the same purpose, and admitted by the
Central Bank, acquired by the trustee for the purpose of financing
transactions under the terms and conditions described in points (1)
through (3) above.
|
|
(8)
|
Financing
transactions for purposes other than those mentioned in point 6 above,
included in the credit program to which the IDB loan makes reference as
mentioned in the fourth point above, without exceeding 10% of the lending
capacity.
|
|
(9)
|
Interfinancing
loans (any interfinancing loans granted with such resources must be
identified).
|
|
(10)
|
Central
Bank bills in U.S. dollars acquired by bidding or secondary negotiation
(such application must be as a minimum equivalent to the amount of
deposits in U.S. dollars payable in pesos) ceased to be effective on July
29, 2005 according to Communication “A” 4395 of the Banco
Central.
|
68
The
lending capacity will result from the sum of all deposits in foreign currency
plus all inter-financial loans received originated in the lending capacity for
this type of deposit, after deduction of the minimum reserve requirements
applicable to deposits.
Any
deficiencies in the application of foreign currency lending capacity, net
of a portion of: (i) cash balances, (ii) cash under custody in other
financial entities, (iii) cash in transit and (iv) cash with armored
car transport companies (not computed as integration of the minimum cash
exigency for application of the exist limit), requires an equivalent increase in
the minimum cash requirement.
Effective
as of May 15, 2004 and in terms of Communication “A” 4140, the Central Bank
canceled the possibility of taking fixed-term deposits in U.S. dollars payable
in pesos as mentioned in the first paragraph, the provisions contemplated for
this type of deposits will remain valid until expiration of those in existence.
As of December 31, 2004, the Bank does not maintain any deposits of this
type.
Reporting
Requirements
On
September 26, 1995, the Central Bank issued Communication “A” 2374, later
restated by the Communication “A” 2879 and amendments. It complements the
regulations designed to limit the liquidity risk that financial institutions in
Argentina assume. Under this regulation, beginning in April 1996, banks have to
draw up monthly reports on cash flow, detailing the following:
|
|
§
|
Contractual
cash flow of assets and
liabilities,
|
|
|
§
|
Current
cash flow to renew assets and
liabilities,
|
|
|
§
|
Cash
flow designed to prevent illiquidity of the bank,
and
|
|
|
§
|
Cash
flow designed to anticipate illiquidity in the financial system, both with
and without compliance with minimum
requirements.
|
Financial
institutions also have to adopt management and control policies to assure
reasonable levels of liquidity to effectively manage the different potential
scenarios which may affect deposits and other financial obligations. These
policies must establish procedures to evaluate and sufficiently anticipate the
liquidity of the institutions in the context of the market so as to revise
projections, adopt measures to eliminate liquidity problems and obtain funds on
market terms sufficient to maintain a prudent level of assets over the long
term. These policies must also address:
|
|
§
|
The
concentration of assets and liabilities in particular
clients;
|
|
|
§
|
The
general economic situation, probable trends and the impact on available
credit; and
|
|
|
§
|
The
ability to obtain funds through the sale of public debt instruments and/or
liquid assets.
|
Furthermore,
Communication “A” 2374 requires financial institutions to establish a “daily
tracking” of its liquidity and of the market, calling for the participation of
and coordination with the highest level management of the institution.
Additionally, financial institutions must appoint one member of the board of
directors to be informed at least weekly of the changes in the liquidity
condition of the institutions and the market which may require new strategies to
protect the liquidity of the institution. Communication “A” 3465 of the Central
Bank dated February 7, 2002 suspended the implementation of this scheme from
December 2001 and in 2006, the Central Bank, by Communication “A” 4482, decided
to leave without effect the application of said informative regime.
Limitations
on Types of Business
Argentine
commercial banks may conduct all activities and operations that are not
specifically prohibited by law or by regulations of the Central Bank, banks are
permitted, among other things, to:
|
|
§
|
Make
loans in pesos and foreign
currency,
|
|
|
§
|
Receive
deposits in pesos and foreign
currency,
|
|
|
§
|
Issue
guarantees,
|
69
|
|
§
|
Underwrite,
place and broker equity and debt securities in the over-the-counter
market, subject to the prior approval of the
CNV,
|
|
|
§
|
Conduct
transactions in foreign currency,
|
|
|
§
|
Act
as fiduciary, and
|
|
|
§
|
Issue
credit cards.
|
According
to the Financial Institutions Law, banks in Argentina are prohibited from
investing in commercial, industrial or agricultural entities, or other entities
without the express authorization of the Central Bank. The Central Bank may then
impose conditions and limits to guarantee the safety and soundness of the
financial institutions.
These
limitations include:
|
|
§
|
The
prohibition of a bank from pledging its
shares,
|
|
|
§
|
Restriction
on incurring any liens upon its properties without prior approval from the
Central Bank, and
|
|
|
§
|
Limitations
on transactions with directors or officers, including any company or
person related to such directors or officers, on terms more favorable than
those normally provided to clients. See “Information on the
Company—The Argentine
Banking System and its Regulatory Framework—Lending and Investment
Limits—Related Persons” below in this
section.
|
Notwithstanding
the foregoing, banks may own shares in other financial institutions with prior
approval of the Central Bank and in public service companies if necessary to
obtain those services.
Capital
Adequacy Requirements
Basle
Accord
In July
1988, the Basle Committee on Banking Regulations and Supervisory Practices (the
“Basle Committee”), which includes the supervisory authorities of twelve major
industrial countries, adopted an international framework (the “Basle Accord”)
for capital measurement and capital standards of banking institutions. The Basle
Accord established a risk asset ratio as the principal measure of capital
adequacy. The framework provides:
|
|
§
|
Definitions
for Tier I (core) capital (“Tier I Capital”) and Tier II (supplemental)
capital (“Tier II Capital”),
|
|
|
§
|
A
system for weighing assets and off-balance sheet items according to credit
risk (this weighted total referred to as the “Basle Risk Weighted
Assets”), and
|
|
|
§
|
As
of the end of 1992, a requirement that banks engaged in international
operations maintain
|
|
|
(1)
|
Tier
I Capital at least equal to 4.0% of Basle Risk Weighted Assets;
and
|
|
|
(2)
|
“Total
Capital”, equal to Tier I Capital plus up to an equal amount of Tier II
Capital, at least equal to 8.0% of Basle Risk Weighted
Assets.
|
These
requirements, subject to certain transition rules which effectively reduce the
amount of capital required in the first two years, went into effect at the end
of 1990. If the Basle Accord had been applied to us at December 31, 2007, our
Total Capital would have been approximately 2.48 times the minimum
required.
In June
2004 the Basle Banking Supervision Committee published the “International
convergence of capital measures and rules. Revised framework” document (“Basle
II” or the “New Framework”), which establishes new criteria for determining the
regulatory capital of financial entities. The new Framework has an integral
vision for the treatment of risks assumed by the entities and at the same time
offers greater flexibility with a variety of approaches for measuring regulatory
capital. Basle II is structured into three Tiers, the first referred to minimum
capital requirements and the second to the supervisor’s revision process and the
third deals with market discipline.
With
respect to the minimum capital requirements of Tier I, the Central Bank has
adopted the Simplified Standardized Approach for credit risk, which will become
effective as of January 2010. As mentioned in its publication “Route sheet for
70
implementing
Basle II”, the Central Bank considers that such approach will not imply major
modifications or variations in the calculation, or in the global capital
requirement for financial entities. As far as the capital requirement for
Operational Risk is concerned, the Central Bank deems it convenient to continue
analyzing the available measuring alternatives in order to identify the one that
can be best applied –in its own view- to the local financial system; in spite of
which it will encourage the adoption of good practices regarding the
administration of this risk. In addition, the Central Bank will maintain the
scheme for calculating the capital requirement for market risk, which is in line
with the provisions set forth by the Basle Committee in 1996, in respect of
which no amendments were introduced by Basle II, as well as the capital
requirement for interest rate risk, which is incorporated by Basle II within the
risks to be quantified in Tier II. The Central Bank also foresees the adoption
of measures to fully implement Tiers II and III of the New Framework, on a
gradual basis and prior to the full enforcement of the capital requirements
contained in Tier I, as established by the good practices suggested by the Basle
Committee for a healthy implementation of the New Framework.
Central
Bank Rules
Under the
Financial Institutions Law, Argentine financial institutions must comply at all
times with the minimum capital requirements described by the Central Bank. In
July 1991, the Central Bank amended its minimum capital adequacy rules to follow
those recommended by the Basle Committee more closely. However, the Central
Bank’s capital adequacy rules remain stricter than the Basle Committee’s
recommendations. Under rules issued by the Central Bank in July 1993 and its
amendments, a commercial bank must maintain its “Minimum Capital” above a
certain level.
“Minimum
Capital” is equal to the sum of:
|
|
§
|
“Basic
Net Worth”, which includes:
|
|
|
(1)
|
Capital
stock,
|
|
|
(2)
|
Capital
adjustments,
|
|
|
(3)
|
Reserves
and irrevocable capital
contributions,
|
|
|
(4)
|
Unappropriated
earnings,
|
|
|
(5)
|
Representative
instruments of debt, and
|
|
|
(6)
|
Third
parties’ participations for those corporations subject to a supervision
system on a consolidated basis;
|
Minus:
Balances
favorable to the entity as registered in the assets, corresponding to the
minimum presumed income tax for such portion as exceeds 10% of the Basic net
equity without computing this item, or 10% of the Bank’s Computable Net Worth
for the preceding period, whichever is smaller (Communication “A” 4576 dated
October 1, 2006);
Plus:
“Complementary
Net Worth”, which includes 50% of loan loss provisions for loans to borrowers
classified as “Normal” under Central Bank rules, certain subordinated debt and
certain unaudited net income, minus unaudited losses and certain items such as
permanent investments in other financial institutions and intangible
assets.
Minimum
Capital must be, at least, the greater of:
|
|
§
|
Minimum
basic capital, and
|
|
|
§
|
Minimum
capital required for credit risk, which includes the minimum capital
requirement for market risk, plus the minimum capital requirement for
interest rate risk.
|
The
entities in operation as of October 31, 1995 must maintain as of January 1, 1999
a basic minimum capital of Ps.5 million if at December 31, 1998 they were
subject to basic requirements lower than Ps.5 million, or about Ps.8.9 million
for the rest of the entities. As of January 1, 2003 the basic minimum capital is
fixed at Ps.15 million for all commercial banks (excepting wholesale banks
subject to a basic minimum capital of Ps.10 million). Effective as of July 1,
2005, changes were made to the minimum capital requirements applicable to
financial entities. Differential requirements were established for banks and
other financial entities, mainly
71
based on
the area where their head offices are located, in order to benefit those areas
with smaller banking coverage according to Central Bank criteria, which now
enjoy less stringent requirements as regards minimum basic capital. However,
those banks in operation as at June 30, 2005 will maintain their differentiated
minimum capital if it does not exceed Ps.15 million. On the other hand, the
above-mentioned differences in force with respect to wholesale banks have
disappeared, all banking institutions now being subject to the same minimum
capital requirements. Those banks which act as custodians and/or registration
agents of securities representing the investments of the retirement and pension
funds and/or as registration agents for registered mortgage letters must certify
a minimum capital equal to or above the greater of Ps.50 million or the
equivalent of 5% of the securities under custody (in the case of mortgage
letters, considering the net value of any amortizations effected).
By
Communication “A” 3959 dated May 30, 2003 and other complementary
communications, the Central Bank modified the regulations for calculating
minimum capital requirements for credit, interest rate and market risk. These
modifications became fully effective as of January 2004. There follows a
description of such regulations as are applicable as of the date of this
report.
The
minimum capital requirement for credit risk is the sum of:
|
(a)
|
10%
of the value of our fixed or illiquid
assets;
|
|
(b)
|
8%
of the value of certain categories of financial or liquid assets, net of
certain allowances and reserves, multiplied by a coefficient based on the
perceived risk of such assets; and
|
|
(c)
|
8%
of certain assets of the non-financial public sector as accounted for in
investment accounts or under special valuation criteria determined by the
Central Bank.
|
The sum of
(a), (b) and (c) shall then be multiplied by a second coefficient ranging from
0.970 to 1.15 based on the rating that the Superintendency grants to the bank
based on the its net worth, asset quality, management, profitability and
liquidity. To determine a bank’s risk-weighted assets, the Central Bank has
assigned to each category of liquid asset a risk value based on the type of
asset, borrower, collateral or guarantee, if any. For example, consider the risk
values assigned to the following assets:
|
|
§
|
Cash,
gold, public securities subject to minimum capital requirements for market
risk, and debt instruments issued by the Central Bank were assigned a 0%
risk value;
|
|
|
§
|
Correspondents’
accounts and other accounts at sight with banks of the country and abroad
rated as “investment grade” and bonds issued by governments of member
countries of the Organization of Economic Cooperation and Development
(“OECD”), which are internationally rated “AA” or higher, were assigned a
20% risk value;
|
|
|
§
|
Debt
instruments issued by Argentine provinces, municipalities or other public
sector agencies, which are not expressly guaranteed by the national
government were assigned a 100% risk
value;
|
|
|
§
|
Loans
to the non-financial private sector with preferred guarantees in cash,
gold or bonds on fixed-term deposit certificates issued by the creditor
entity itself and with automatic reimbursements for export transactions
corresponding to multilateral and bilateral foreign trade agreements were
assigned a 0% risk value;
|
|
|
§
|
Loans
to the non-financial private sector with preferred guarantees granted by
mutual guarantee companies registered with the Central Bank, export credit
insurance policies and documentary credits in use were assigned a 50% risk
value;
|
|
|
§
|
Purchase
money, home mortgage loans and automobile-backed loans were assigned a 50%
risk value, provided they do not exceed 75% of their appraisal
value;
|
|
|
§
|
The
amount of a loan exceeding 75% of their appraisal value and most unsecured
loans and debt instruments as well as holdings of listed stock were
assigned a 100% risk value; and
|
|
|
§
|
Loans
to the non-financial public sector not guaranteed by the national
government were assigned a 100% risk
value.
|
On July
25, 2003, the Central Bank introduced Communication “A” 3986, effective as of
January 2004, which provided for the application of a correction coefficient
(ALFA 1), for the purpose of temporarily reducing the minimum capital
requirement for credit risk with respect to assets in investment accounts and
financing transactions granted to the non-financial public sector up to May 31,
2003, for instruments received by the financial entities on account of the
compensation implemented under articles 28 and 29 of Decree No. 905/02, for
instruments issued by the Trust Fund for Provincial Development under Decree No.
1579/02, even if their
72
reception
or incorporation takes place alter the established date, and for “Discount
Bonds” and the corresponding “GDP-related negotiable securities issued under the
conditions of Annexes IV and V, respectively, of Decree No. 1735/04, received in
exchange for assets on record as May 31, 2003 as a consequence of the sovereign
debt restructurings. Therefore, the application of this coefficient excludes
those financing and refinancing transactions -including express or tacit
renewals or time extensions- to the national non-financial public sector granted
as of June 1, 2003. Such coefficient was fixed in the following
values:
|
Period
|
ALFA1
|
|
January
/ December 2004
|
0.05
|
|
January
/ December 2005
|
0.15
|
|
January
/ December 2006
|
0.30
|
|
January
/ December 2007
|
0.50
|
|
January
/ December 2008
|
0.75
|
|
From
January 2009
|
1.00
|
Any
excesses incurred for noncompliance with other technical regulations must be
added to the credit risk requirement calculated as indicated in the preceding
paragraphs. Finally, commencing on February 1, 2007, the increase for extension
of the global negative net position in foreign exchange must be added to the
credit risk requirement. See “Information on the
Company—The Argentine
Banking System and its Regulatory Framework— Foreign Currency
Position”.
Minimum Capital Requirement for
Market Risk: under Communication “A” 2435, dated May 16, 1996, as amended
by Communication “A” 2461, dated August 30, 1996, the Central Bank implemented,
effective from September 1, 1996, additional minimum capital requirements in
relation to market risk associated with positions held by financial institutions
in “local assets”, “foreign assets”, “foreign currency” and “gold”, including
derivatives bought or sold on such positions.
“Local
Assets” include:
|
|
§
|
Debt
securities issued by the National Government and instruments of monetary
regulation of the BCRA (including the holding available for sale), except
for those held in investment accounts, public securities acquired since
June 1, 2007 by primary subscription denominated in pesos, and quotas in
common investment funds that invest in those securities; provided that,
such securities and/or holdings are usually listed on a national
securities exchange; and
|
|
|
§
|
Shares
of capital stock of Argentine companies included in the Argentine stock
market index (or “Merval Index”) and quotas in common investment funds
that invest in those shares.
|
“Foreign
Assets” are defined to include:
|
|
§
|
Debt
securities (i.e., positions held in debt securities issued by foreign
companies, sovereign securities issued by foreign governments and quotas
in common investment funds; provided that, such securities and/or holdings
are usually listed on a national securities exchange);
and
|
|
|
§
|
Shares
(i.e., positions held in shares of capital stock of foreign companies,
quotas in common investment funds; provided that, such securities,
holdings and/or indexes are usually listed on a national securities
exchange). If any of the assets mentioned in this clause are listed in
different stock markets in diverse foreign currencies, the listing price
and foreign currency of the most representative stock market (in terms of
the volume of transactions in the relevant asset) will be taken into
consideration for purposes of these new capital
requirements.
|
The
positions under consideration must be separated according to the currency of
issue of each instrument, regardless of the issuer’s residence. In the cases of
assets expressed in foreign currency, the entity must consider the risk for two
positions: that which corresponds to the assets and the position in foreign
currency, the relevant capital requirement being determined on the basis of the
latter. The value of all positions will be expressed in pesos by using the
reference exchange rate published by the Central Bank for the U.S. dollar, after
application of the swap rate corresponding to the other currencies.
“Foreign
currency” includes the net positions for each foreign currency, considering the
totality of assets and liabilities in such currencies, and the gold position.
Those positions in foreign currency which, individually considered at the close
of each day of transactions, are below the equivalent of Ps.300,000 may be
excluded. This exclusion will not apply if the computable foreign currencies
considered as a whole at the close of each day exceeds Ps.1,500,000. Purchase or
sale of contracts that give the right to buy or sell local assets and foreign
assets, are taken into consideration in calculating minimum capital
requirements. The swaps and other
73
derivatives
on assets not affected by these regulations will be excluded from the portfolios
that are subject to risk value calculation, provided such transactions are for
the purpose of covering financial intermediation risks.
The market
risk-related capital requirements are determined by using specific risk
methodologies and based on the financial institution’s daily net positions in
any of the above-mentioned assets. These requirements follow, in general,
standards established by the Basle Committee and the European
Union.
Minimum Capital Requirement for Rate
Risk: under Communication “A” 2793, dated October 27, 1998, the Central
Bank has implemented certain modifications, to be made effective by March 1999,
to the methodology financial institutions use to calculate minimum capital
requirements. This regulation requires that additional items be considered for
purposes of determining minimum capital requirements, including risks associated
with fluctuations in interest rates, credit quality and certain types of market
risk. Communication “A” 3959 dated May 30, 2003 and effective as of January 2004
included the calculation of risk for those transactions adjustable by CER and
CVS. However, the following items are excluded from this
Regulation:
|
|
§
|
Securities
and derivative instruments that are already subject to minimum capital
requirements for market risk;
|
|
|
§
|
Holdings
in foreign currency not subject to minimum capital for market risk as they
are below the minimum applicable
limits;
|
|
|
§
|
Banker’s
acceptances;
|
|
|
§
|
Assets
affected, covered by derivatives agreements made with foreign banks with
international risk rate “A” or above, granted by international rating
agencies accepted by the Central
Bank;
|
|
|
§
|
Subordinated
debt that is included in the calculation of Complementary Net Worth, and
other assets deductible from minimum capital integration;
and
|
|
|
§
|
Operations
for spot of securities and foreign
currency.
|
Effective
as of January 2004 according to the terms of Communication “A” 3986 dated July
25, 2003, the Central Bank determines the application of an “ALFA2” coefficient
in order to temporarily reduce the requirement for interest rate risk. For these
purposes, the following values are fixed:
|
Period
|
ALFA2
|
|
January
/ December 2004
|
0.20
|
|
January
/ December 2005
|
0.40
|
|
January
/ December 2006
|
0.70
|
|
From
January 2007
|
1.00
|
According
to the Central Bank regulations on Minimum Capitals, the financial entities must
adjust to such regulations on an individual and consolidated basis.
The Bank
fully complied on an individual and consolidated basis with the ratios for
minimum capital.
If a
financial institution does not comply with all these minimum capital
requirements, it must submit a regulatory and redress plan to the Central Bank,
which may impose various penalties, including:
|
|
§
|
Temporary
limitation on the amount of deposits a bank may
accept;
|
|
|
§
|
Institutional
restrictions as per expansion capacity and dividends distribution in
cash;
|
|
|
§
|
Revocation
of the license of a bank to conduct foreign exchange transactions, and in
some extreme cases; and
|
|
|
§
|
Revocation
of the license of a bank to
operate.
|
74
The
following table presents, at December 31, 2007, both the calculation of our
ratio of capital to risk-weighted assets computed under the Basle Accord and our
capital under the minimum capital rules of the Central Bank. In addition, see
Note 19.13 to the Consolidated Financial Statements.
|
At December 31,
2007
|
||||
|
(in
millions of Pesos, except percentages)
|
||||
|
Basle
Accord
|
||||
|
Total
capital
|
1,965.1 | |||
|
Risk-weighted
asset
|
9,893.7 | |||
|
Ratio
of total capital to risk-weighted assets (1)
|
19.9% | |||
|
Required
capital
|
791.5 | |||
|
Excess
capital
|
1,173.6 | |||
|
Central Bank’s
Rules (2)
|
||||
|
Total
capital
|
2,233.0 | |||
|
Risk
and Fixed weighted assets
|
14,095.8 | |||
|
Ratio
of total capital to risk-weighted assets (3)
|
15.8% | |||
|
Required
capital (4)
|
1,283.6 | |||
|
Excess
capital
|
949.5 | |||
|
|
(1)
|
Under
the risk-based capital requirements of the Basle Accord, the Bank would be
required to maintain a minimum ratio of total capital to risk-weighted
assets of 8%.
|
|
|
(2)
|
Calculated
on a consolidated basis in accordance with Central Bank
requirements.
|
|
|
(3)
|
Under
the risk-based capital requirements of the Central Bank, we are required
to maintain a minimum ratio of total capital to risk and fixed weighted
assets of 10% and 8% (depending upon the nature of the asset) by
application of an alpha correction factor equal to 0.05 over financing to
the national public sector granted up to May 31,
2003.
|
|
|
(4)
|
The Bank must maintain a surplus
of minimum paid-in capital amounting to at least Ps.53.4 million, equivalent to 0.25% of
the amount of values under custody for securities representing
investments from pension funds, as well as in connection with its function
as registrar of mortgage-backed bonds, invested in national public
securities and other destinations authorized by the BCRA and guaranteed in
favor of the said
Entity.
|
System
Governing the Holding of Securities in Investment Accounts and Available for
sale
By
Communication “A” 2793, dated March 1, 1999, the Central Bank abolished the
previous system of holdings in investment accounts and available for
sale.
As a
result of this change, the Central Bank established in paragraph 7 of
Communication “A” 2859 the canceling of the balance of the account entitled
“Unrealized Valuation Differences in Government Bonds Available for Sale” as of
February 28, 1999, which was charged against unappropriated earnings. This
reclassification did not result in any change in our net worth as of that
date.
The new
system included in the “Attachment” to Communication “A” 2793 permits placing in
investment accounts government and private debt instruments which must comply
with minimum capital requirements due to market risk (published on a monthly
basis by the Central Bank).
Holdings
were recorded at their cost value and increased in accordance with their
internal rate of return and the time elapsed since the beginning of the holding
period.
The
positive differences between accounting value and market value increased by 20%
at the end of each month constitute an item deductible from the minimum paid-in
capital.
As of
March 1, 2000 and according to Communication “A” 3039 of the Central Bank, the
holdings in investment accounts are recorded at cost value increased by the
interest resulting from the current coupon. The book value of the holdings on
the last day of each month will be reduced by an amount resulting from the
positive difference between the book value for the position of each security as
of that date and its market value increased by 20% (this treatment was suspended
as of April 2001 until December 2001 as set forth by Communications “A” 3269 and
“A” 3303 of the Central Bank). As a compensation, the obligation to deduct from
the computable net worth the difference between the book value of the securities
and their market value increased by 20% was eliminated.
As of June
1, 2001, according to Communication “A” 3083 of the Central Bank, the criteria
for the accounting registration of the holdings in investment account was
modified. Such holdings are registered at cost value exponentially increased up
to each service due date according to its internal return rate and the time
elapsed since their incorporation to such accounts.
75
In the
case of holdings incorporated to investment accounts prior to June 1, 2001, the
basis to be considered will be the value registered at May 31, 2001, resulting
from the use of the valuation procedures admitted so far and the internal return
rate resulting as of May 31, 2001 for such securities. With respect to the
treatment of valuation differences, the criteria set forth by Communication “A”
3039 of the Central Bank is maintained.
By
Communication “A” 3857 the Central Bank restricts the application of these
provisions to those securities incorporated up to December 31, 2002, except for
those received by the financial institutions as part of the compensation
implemented by articles 28 and 29 of Decree No. 905/02.
By
Communication “A” 3785 the Central Bank added a new chapter to the regulations,
applicable only to those bonds received under the compensation mechanism
implemented by the National Government in order to reimburse the entities for
certain negative equity effects generated by the conversion into pesos at
different exchange rates of those credits and obligations denominated in foreign
currency, as well as by the negative net position deriving from such conversion
(Articles 28 and 29, Decree No. 905/02). Such bonds may be registered by the
entities at their technical value.
By
Communication “A” 4114 dated March 12, 2004, the Central Bank included in the
above-mentioned chapter those bonds to be received by the financial institutions
as compensation for the transformation of loans adjustable by CER into loans
adjustable by CVS (Chapter II of Law No. 25,796 and Annex II to Decree No.
117/04).
For so
long as this procedure is in force the entities may only distribute cash
dividends for such amount as the profits exceed the difference between the
above-mentioned accounting value for registration purposes and the quotation of
the bonds after all legal and statutory appropriations have been
made.
According
to Communication “A” 4084 dated January 30, 2004, those securities in respect of
which the Central Bank ceases to publish daily volatility reports as they do not
comply with the liquidity requirements for such purpose, must be excluded from
this regulatory framework and considered as “Without Quotation”. Those
securities excluded for this reason may not be reincorporated to the system in
the future.
In August
2007, the accounting valuation scheme for investment accounts was incorporated
for debt securities issued by the BCRA (Lebac and Nobac), provided these are
included in the monthly list of volatilities published by the BCRA. The
maintenance term for these holdings will be up to their expiration. All holdings
incorporated in investment accounts will be registered at their cost value, with
monthly increases according to TIR. For a pre-existing holding, the market
quotation will be considered as cost value. In addition, it is admitted that
holdings of national public securities and debt instruments issued by the BCRA
be classified as “available for sale”, provided they are contemplated in the
monthly list of volatilities published by the BCRA for calculating the minimum
capital requirement for market risk. They will be registered at their quotation
value, and the difference (if any) between the incorporation cost and the
quotation value will be shown in the Shareholders’ Equity (Unrealized valuation
difference).
The
holdings registered under “available for sale” may be reversed only in the
following cases:
|
|
§
|
Sale;
|
|
|
§
|
Collection
of the corresponding amortization services and/or capital revenue;
or
|
|
|
§
|
Whenever
the volatility published by this Institution ceases to be available, in
which case they must be registered as holdings without
quotation.
|
CAMEL
Quality Rating System
Under Law
No. 24,144 the Central Bank established the “CAMEL” quality rating system which
is based on weighting consistent and comparable criteria, creditworthiness,
compliance with the Financial Institutions Law, its administrative order and the
general operating solvency of the entity. Each letter of the CAMEL system
corresponds to the following areas of the operations of each bank that is being
rated: “C” represents capital, “A” represents assets, “M” represents management,
“E” represents earnings and “L” represents liquidity. Each factor is evaluated
and rated on a scale from 1 to 5, 1 being the highest rating an institution can
receive. By combining the individual factors that are under evaluation, a
combined index can be obtained which represents the final rating for the entity.
The rating a bank receives from the CAMEL system can be used by the Central Bank
in making decisions such as determining the levels of minimum capital or the
amount of contributions a bank is required to contribute to the insurance
guarantee system.
76
BASIC
System
The
Central Bank established a control system known as “BASIC” which requires that
all financial institutions comply with a set of procedures affecting their
transactions. The system allows public access to a higher level of information
and security as regards its placements in the Argentine banking system. Each
letter in the name of the BASIC system identifies one of the following
procedures:
B
(“Bonds”). By decision of the Central Bank’s board, banks were expected to issue
bonds and other securities or obtain placements from international top-rated
banks for an equivalent of 2% of their deposits in pesos and foreign currency.
The placement of such bonds would make it possible for depositors to know the
perception of the market on the equity situation of each financial entity. The
Central Bank required that all financial institutions in Argentina should once a
year perform at least one of the following actions:
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§
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A
debt issue in a country which must be a member of the OECD and at the same
time have an “AAA” rating in respect of its sovereign
debt;
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§
|
An
issue of capital stock approved by the relevant local authorities and
according to which the shares could be freely traded either in such local
market or in the market of a member nation of the OECD with an “AAA”
rating in respect of its sovereign
debt;
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§
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A
debt issue to an Argentine financial entity which complies with the
alternative procedure described in (a) above;
or
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§
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A
transaction with a foreign bank with a minimum credit rating of “A”, by
which the Argentine entity would receive deposits or take loans from such
foreign bank. The purpose of such requirement was to have the Argentine
financial institutions exposed to scrutiny and analysis by third parties
considered by the Central Bank to be rating demanding in matters that have
to do with credit analysis and quality control. The need to respond to the
expectations of such third parties at the same time created for the
Central Bank an additional source of quality control over the Argentine
banking system. While this requirement remained in force the Bank complied
with it at all times.
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The
requirement was abrogated by Communication “A” 3498 of the Central Bank, dated
March 1, 2002.
A
(“Audit”). The Central Bank requires a number of auditing procedures which
include:
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§
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The
creation of a registry of auditors;
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§
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The
implementation of strict accounting procedures to be observed by
auditors;
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§
|
The
payment of a guarantee of compliance by such auditors so as to induce them
to fully comply with the procedures;
and
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§
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The
creation of a Central Bank division in charge of verifying the observance
of the established regulations by the external
auditors.
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The
purpose of this requirement is to ensure accurate representations by the
financial institutions to both the Superintendency and to the public. It
involves verifying the figures presented by the entity as well as an in-depth
investigation into whether such figures appropriately reflect the activities of
the bank in question.
S
(“Supervision”). The supervision by the monetary authorities is not replaced but
is naturally complemented and reinforced by the information from market sources
and continues to be a basic element for controlling the financial system. In
Argentina, as in most of the world, what is in use is a combination of remote
analysis and inspections in the bank itself. The Argentine supervision system
specifically applies an internationally recommended classification system, known
as the above-mentioned CAMEL system. In summary, this requirement implies that
the Central Bank reserves the right to regularly inspect all financial
institutions.
I
(“Information”). This is a fundamental element in banking supervision and also
as regards the control exercised by the market. It is clear that no effective
supervision is possible without relevant, reliable and timely information. No
discipline can be imposed by the market on the banks and no control will be
effective on the supervision if there is no access to such information. This is
why the Central Bank requires that the financial institutions disclose certain
statistical information on a daily, weekly, monthly and quarterly
basis.
77
C
(“Calificación” (Spanish for Rating)). The rating agencies play a quite
significant role in banking supervision. The rating work pays attention to the
available guarantees and informs the less-specialized investors about the risk
involved in the different securities. The investor’s information universe is
thus expanded and this increases the efficiency of the information process. It
would be economically inefficient for the smaller investors to conduct their own
collection and analysis of information for each alternative present in the
marketplace. This is the reason that justifies the existence of the rating
agencies which naturally appear in the marketplace to fulfill such role. The
Central Bank established a system that requires that a credit evaluation be
regularly performed by internationally recognized rating agencies.
Foreign
Currency Position
As at the
date of this report, the maximum limit for the general foreign exchange position
that must be maintained on a daily basis by the financial institutions is the
greater of :
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§
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15%
of the equivalent in dollars of their Bank’s Computable Net Worth
(Responsabilidad Patrimonial Computable or “RPC”), as registered at the
close of the month that is two months prior to the relevant month plus the
amount that results from multiplying 5% of the total amount transacted
with clients in the purchase and sale of foreign currencies in the month
that is two months prior to the relevant month, and 2% of the total
deposits at sight and at term locally constituted and payable in foreign
bank notes (excluding deposits under custody), as registered at the close
of the calendar month that is two months prior to the relevant
month.
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§
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And
a minimum equivalent to U.S.$5,000,000 (for the banks), these minimum
limits may be increased according to the number of establishments devoted
to foreign exchange transactions and by operations with holdings in
foreign currencies other than the dollar or the Euro and other permitted
transactions. BBVA Banco Francés maintains the limit indicated in the
point above mentioned.
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The
maximum limit is reduced by 50% if the financial entity has a debt on record for
rediscounts and/or advances with the Central Bank for an amount exceeding 50% of
the latest RPC recorded by the entity, excluding from the calculation of the
indebtedness those transactions which the entity chose to refinance in terms of
Communication “A” 3941 of the Central Bank.
To this
effect, the Central Bank defined the general foreign-exchange position as the
sum of the following items:
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§
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Gold
and foreign currency resources available in the
country;
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§
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Gold
and foreign currency resources available
abroad;
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§
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Foreign
public and private securities;
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§
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Cash
or future foreign-exchange purchases pending
settlement;
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§
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Cash
or future public and private security purchases pending
settlement;
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§
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Cash
or future foreign-exchange sales pending
settlement;
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§
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Cash
or future public and private security sales pending settlement;
and
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§
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Foreign-exchange
holdings in the form of deposits and investments at any term in banks from
abroad and all kinds of liquid investments
abroad.
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The
general foreign exchange position does not include foreign assets of third
parties under custody, balances with correspondents of third parties pending
settlement, purchases and sales of foreign currencies or securities at a term
and direct investments abroad.
In
addition to the limit described above, all funds from foreign currency deposits
and received financial loans granted with funds from foreign currency deposits
must be applied mainly to the financing of foreign trade transactions, any
deficiencies in the application of foreign currency lending capacity, net
of a portion of: i) cash balances, ii) cash under custody in other
financial entities, iii) cash in transit and iv) cash with armored car
transport companies, requires an equivalent increase in the minimum cash
requirement. See “Information
on the Company—The Argentine
Banking System and its Regulatory Framework—Lending Capacity Provided by
Deposits in Foreign Currency”.
78
Effective
May 1, 2003 in terms of Communication “A” 3889 of the Central Bank, the global
net position in foreign currency may not exceed the following
limits:
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§
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Negative
global net position (liabilities exceeding assets), 30% of the Computable
Net Worth until December 31, 2006. As from January 1, 2007 and according
to the provisions of Communications “A” 4577 and 4598, 15% of the
Computable Net Worth liability, with the possibility of an additional 15%
to the extent that the entity at the same time has recorded: a) medium and
long term financings in pesos to non-financial private sector under
certain conditions for an amount equivalent to the increase of said limit;
and b) an increase in the minimum capital requirement equivalent to the
increase of the general limit of the global negative net position in
foreign currency.
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§
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Positive
global net position (assets exceeding liabilities), the least of the
following:
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(1)
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30%
of the Computable Net Worth.
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(2)
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Own
liquid resources.
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Own liquid
resources means the excess of RPC with respect to immobilized assets and other
concepts computed according to the rules on “Relationship of Immobilized Assets
and Other Concepts”. See “Information on the Company – The
Argentine Banking System and its Regulatory Framework – Fixed Assets and other
items”.
The global
net position in foreign currency will include all assets and liabilities from
financial intermediation in foreign currency and securities in foreign currency
(deriving from cash and term transactions) including those contracts for
derivatives linked to these concepts, those items which must be included in the
General Foreign Exchange Position, all deposits in such currency in accounts
opened with the Central Bank, as well as the gold position, the fixed-term
deposits in U.S. dollars payable in pesos and any Central Bank bills in U.S.
dollars as well as foreign currency debt securities. Term transactions made
within a framework agreement in the area of self-regulatory markets of the
country based on liquidation by difference will be also computed, without
delivery of the negotiated underlying asset. Furthermore, the pass-through
certificates or debt securities issued by financial trusts as well as the credit
rights regarding ordinary trusts, in the pertinent proportion, when their
underlying asset is constituted by assets in foreign currency, will also be
considered.
In
addition to the above and irrespective of the observance of the limit set forth
above, the net global position, considering the balances of accounts at sight
and other related assets and liabilities –whichever the nature or character of
the transaction- (be they assets negotiated on a customary basis or by
significant volumes in institutionalized markets) realized or expiring within
the following 180 days, may not exceed the percentage applied over the
computable equity responsibility of the month prior to that duly indicated by
the Central Bank. In order to determine the above position, only the securities
registered on the accounts at market value will be considered, irrespective of
the calculation in the position of the services whose expiration falls within
180 days (Communication “A” 4135 of May 5, 2004).
By
Communication “A” 4350 dated May 12, 2005, the Central Bank suspended as of May
1, 2005 the limits for the global positive net position and the additional
short-term limit (transactions due within 180 days), as mentioned above. The additional short-term limit
was abrogated by Communication “A” 4577 dated September 28, 2006.
Any excess
above the limits will be subject to a charge amounting to the greatest of twice
the annual rate at due date for Central Bank drafts in dollars or twice the
LIBOR rate at thirty days for transactions in such currency.
For
financial information regarding our net foreign currency exposure, see Note
19.12. to the Consolidated Financial Statements.
Fixed
assets and other items
The
Central Bank determines that the fixed assets and other items maintained by the
financial entities must not exceed 100% of the entity’s RPC.
Such fixed
assets and other items include the following:
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§
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Shares
of local companies.
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§
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Various
credits (including the net balance favorable to Entity corresponding to
the Minimum Presumed Income Tax. Undeductible of Basic Net
Worth).
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79
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§
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Property
for own use.
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§
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Various
property items.
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§
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Organization
and development expenses.
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§
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Goodwill.
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§
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Financing
transactions for related clients.
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Excluded
from the above concepts are those assets deductible for calculating the entity’s
RPC and assets affected as guarantee for certain operations mainly related to
swaps and derivatives, as well as the financing transactions with certain
related companies provided the participation in the company exceeds 50% of the
corporate capital and 50% of the votes.
The
calculation of such assets will be effected according to the balances at the
close of each month, net of depreciations, accumulated amortizations and bad
debt risk allowances (except for 50% of the allowance on the portfolio in normal
situation). It will also be possible to deduct certain liabilities related to
the assets being calculated. In the case of financing transactions with related
clients, the calculation will be based on the balance at the close of each month
or the largest assistance provided to each client during the period in
question.
Any
excesses in this relationship generate an equivalent increase of the minimum
capitals. Furthermore, any entity incurring noncompliance violations in three
consecutive or four non-consecutive months within a period of twelve consecutive
months must submit a regularization and normalization program.
Lending
and Investment Limits
Lending
and Investment Limits (except for the public sector)
Central
Bank rules limit the amount of credit, including guarantees, that a commercial
bank may extend to, and the amount of equity that it may invest in, any entity
at any time. These limits are based on the Bank’s Computable Net Worth on the
last day of the immediately preceding month.
According
to Central Bank rules, a commercial bank may not extend credit to a single
non-related client and its affiliates, or invest in that client’s equity, in an
amount in excess of 15% of the bank’s Computable Net Worth. However, we may
extend additional credit to that client up to 25% of the Bank’s Computable Net
Worth if that additional credit is secured with certain senior preferred liquid
assets, including public or private debt securities. Total loans or other
extensions of credit that a commercial bank may grant to any particular borrower
and its affiliates are also limited based on the borrower’s net worth. Total
loans or other extensions of credit to any particular borrower and its
affiliates may not exceed, in general, 100% of such borrower’s net worth, but
such limit may be increased to 300% of the borrower’s net worth if such amount
does not exceed 2.5% of the Bank’s Computable Net Worth.
Effective
October 1, 1995, the Central Bank requires that extensions of credit in any form
in excess of 2.5% of a Bank’s Computable Net Worth must be approved by the
relevant branch manager, regional manager, relevant first line administrative
officer of the credit area, general manager and credit committee, if any, of the
bank, as well as by its board of directors, administration council or similar
corporate body.
In
addition, an equity investment of a commercial bank in another company that does
not provide services that are complementary to the services provided by a
commercial bank may not exceed 12.5% of the stockholders’ equity of such
company.
Related
Persons
The
Central Bank limits the amount a bank can lend to, and the amount of equity it
may invest in, a “Related Person”. A Related Person is defined to
include:
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§
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Any
individual or entity controlling a bank, controlled by a bank or
affiliated with a bank, as defined by the Central
Bank;
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§
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Any
entity that both controls the bank and has common directors to the extent
such directors, voting together, will constitute a simple majority of the
boards of directors of the bank and such entity;
or
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80
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§
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In
certain exceptional cases, any individual or entity whom the Central Bank
has determined to be in a position to adversely affect the financial
condition of the bank.
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“Control”
is defined as:
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§
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Holding
or controlling, directly or indirectly, 25% of the voting stock of the
controlled person;
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§
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Having
held 50% or more of the voting stock of the controlled person at the time
of the last election of that entity’s board of
directors;
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§
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Any
type of equity holding which creates the ability to vote or direct the
vote so as to prevail on any issue considered at the controlled person’s
general shareholders’ meeting or meeting of the board of directors;
or
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§
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When
a person is determined by the Board of Directors of the Central Bank to be
exercising any influence, directly or indirectly, on the management or
policies of the bank.
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Under
Communication “A” 3129 dated June 30, 2000, applied from July 1, 2000, the
Central Bank established that the total amount of the operations of a company or
related person may not exceed the following percentages of their computable
equity as of the last day of the month prior to that to which they
apply:
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§
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Local
financial institutions whose transactions are subject to consolidation by
lender or borrower in terms of regulations on consolidated supervision and
which are rated CAMEL 1 or 2:
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(1)
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100%
when the entity receiving the loan is rated
1.
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(2)
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If
the receiving entity is rated 2, 10% without limitations and an additional
90% to be used if the term for the loans and other credit facilities not
exceed 180 days.
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§
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Local
financial institution not included in the above definition:
10%.
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§
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Local
companies consolidated by the financial entity in terms of the
consolidated supervision regulations issued by the Central Bank and whose
only object is one of the activities defined as “complementary services of
the financial activity” that are mentioned
below:
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(1)
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Stock-exchange
or over-the-counter agent in stock exchanges or
markets.
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(2)
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Issuance
of credit or debit or similar
cards.
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(3)
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Financial
assistance through lease transactions in capital goods, durable goods or
real property acquired for such purpose or in connection with credits from
sales.
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(4)
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Temporary
acquisition of shareholdings in companies to facilitate their development
in order to sell such holdings afterwards. The granting of financing or
management and planning advice to such
companies.
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(a)
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If
the controlling financial entity is rated 1:
100%.
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(b)
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If
the rating is 2, 10% without limitations, plus an additional 90% to be
used if the term of the loans and other credit facilities does not exceed
180 days.
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§
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All
other domestic companies not complying with the provisions mentioned in
the preceding point: 10%.
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§
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Foreign
financial institutions rated as “Investment Grade”: 10%; all others, 5%
for non-guaranteed operations and up to 10% for guaranteed operations,
without exceeding 10% as a whole.
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§
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All
other transactions: 5% without guarantee and up to 10% with guarantees,
without exceeding 10% as a whole.
|
General
Limit: the total amount of the operations of all companies or persons related to
the financial institutions referred under the second, fourth, fifth and sixth
points above, may not in any case exceed 20% of the company’s Computable Net
Worth as of the last day of the preceding month.
81
As of
November 13, 1998, pursuant to Communication “A” 2800 of the Central Bank, as
supplemented, all lending to or investing in Related Persons is prohibited for
any financial institution having a CAMEL rating of 4 or 5 (Communication “A”
2829 of the Central Bank) except in the following situations and under the
following limitations:
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§
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Foreign
financial institutions which are subsidiaries of the domestic institution
subject to oversight on a consolidated basis (Communication “A” 2829 of
the Central Bank);
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§
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Foreign
banks controlling domestic financial institutions or their branches or
subsidiaries abroad (Communication “A” 2829 of the Central
Bank);
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§
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When
the Related Person is a company that has been fully consolidated by the
bank and is exclusively involved in certain activities that are
complementary to financial intermediation, the foregoing traditional
restrictions with regard to investments and loans apply;
and
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§
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When
the Related Person is a company expressly referred to as an exempted
entity under Article 28 of Law No. 21,726 and only in respect of equity
investments, the bank is limited to lending to such Related Person and
only in accordance with the previous traditional
restrictions.
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In
addition, with respect to Related Persons who are natural persons, the total
amount of loans to those Related Persons cannot exceed Ps.50,000, which must be
used exclusively for personal or family purposes. Failure to properly observe
these requirements can result in an increase of the minimum capital requirements
for credit risk in an amount equal to 100% of the daily excess amounts over the
requirements beginning on the month when the excess amounts are not corrected
and continuing while the excess amounts remain. In the case of information
registered out of term, this increase will be applied beginning on the month
when the information is registered and for as long as the default exists.
Moreover, once the default has been corrected, the increase will be applied for
a number of months equal to the period during which the Central Bank was not
informed. For repeated defaults the increase can reach up to 130% of the excess
amount.
At
December 31, 2007 the aggregate of computable loans, other extensions of credit
and equity investments by BBVA Banco Francés on a consolidated basis to Related
Persons amounted to Ps.81.1 million, or 3.64% of BBVA Banco Francés’ Computable
Net Worth.
Non-financial
Public Sector:
By
Communication “A” 3911 dated March 28, 2003 and effective as of April 2003, the
Central Bank set forth new limits for those transactions carried out with the
non-financial public sector.
The
non-financial public sector includes inter alia:
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§
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National
Government;
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§
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Provincial
Governments;
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§
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City
of Buenos Aires;
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§
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Municipal
Governments; and
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§
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Central
administration, ministries, departments and their decentralized and
autonomous entities and other official
bodies.
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Communication
“A” 4527 dated April 25, 2006 determines that the Central Bank may apply to
public sector companies governed by Law 20,705 the general treatment foreseen
for the non-financial private sector in connection with all effects of the rules
applicable on the subject, provided they comply with the following
requirements:
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§
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In
order to develop their activities, they should not require resources from
the state budget –be it the national, municipal, provincial or belonging
to the Autonomous City of Buenos Aires– for such concepts as transfers,
capital contributions –excepting those corresponding to their
incorporation – or reimbursable financial assistance- destined for
covering expenses and/or investments made in the course of their normal
and customary businesses, with the only exception of those which may have
been contemplated in the 2001 and 2003
budgets;
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82
|
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§
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Technical
and professional independence of their managerial bodies for implementing
corporate policies;
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§
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To
trade their goods and/or services at market
prices;
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§
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To
possess fixed assets; the use of which in the activity is not subject to
any condition from their shareholders;
and
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§
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No
distribution of dividends among their
shareholders.
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Compliance
with all the above conditions must have been verified uninterruptedly during at
least the ten years immediately preceding the date of the granting of financial
assistance.
By
Communication “A” 4581 dated September 29, 2006, the Central Bank of the
Argentine Republic may agree on the general treatment for persons of the
non-financial private sector, to all effects of the rules applicable on the
subject to public sector companies which are not incorporated under Law No.
20,705 and which also comply with the following requirements:
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|
§
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Their
creation must have been ordered by a national
law;
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|
§
|
They
must create a stock corporation according to the rules of Chapter II,
Sections V and VI of the Law of Corporations Number 19,550 (stock
corporations and corporations with majority state
participation);
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§
|
They
must have majority National State participation, be it direct or indirect,
according to the provisions of the said
Law;
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|
§
|
They
must be for the specific purpose of developing activities in the power
supply sector; and
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|
§
|
They
must be subject to internal and external control by the National Public
Sector in terms of the Financial Administration Law and the National
Public Sector’s Control System –Law No.
24,156.
|
Consequently
and to all effects, those corporations receiving the treatment set forth in this
resolution will be exempted from the application of the provisions regarding
financial assistance to the owners of the non-financial public
sector.
All
financing granted to the above entities may not exceed the following limits with
respect to the entity’s equity liability as at the last day of the preceding
month:
|
|
§
|
Transactions
of the national public sector: 50%, this limit include loans granted to
governments from other jurisdictions guaranteed by their participation in
the federal tax collection system;
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|
|
§
|
Total
of transactions granted to each provincial jurisdiction and the city of
Buenos Aires (excluding those comprised in the previous paragraph which
must be guaranteed by the collection of local taxes or by pledge or
implemented under leasing agreements: 10%. This limit includes financing
operations granted to municipal governments in the respective jurisdiction
and guaranteed by their participation in the collection of provincial
taxes;
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|
§
|
Total
of transactions with each municipal jurisdiction, which must be guaranteed
by the collection of local taxes or by pledge, or implemented under
leasing agreements: 3%. Total financing granted to the above-mentioned
jurisdictions (excluding those mentioned in the previous paragraph) : 15%;
and
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|
§
|
Total
of transactions comprised in the first three points above:
75%.
|
On the
other hand, the Central Bank determined that any excesses to the above relations
and to the limit mentioned in the last paragraph of this point, exclusively
originated in the application of the new limits and conditions for computing
financing transactions, will not be considered as non-compliances, provided that
such excesses result from transactions existing prior to March 31, 2003, or are
determined or increased by the receipt of compensation bonds or promissory notes
as per Articles 28 and 29 of Decree No. 905/02, or of those eventually received
by application of other specific provisions after that date, and deriving from
Law No. 25,561 of Public Emergency and Foreign Exchange Reform (including bonds
issued in terms of Decree No. 1735/04 which may be received within the framework
of the Argentine debt restructuring, in exchange for eligible securities
pre-existing as at March 31, 2003), as well as those received within the
framework of the Mortgage Refinancing System established by Law No. 25,798.
Those excesses registered in the case of new transactions will also not be
considered as non-compliances, provided that they originate exclusively in the
granting of financing to the non-financial public sector with funds originated
in amortization services or partial or total payments of the aforementioned
debt. These funds must be applicable within 180 calendar days following the due
date. In the case of a primary
83
subscription
of National Government debt securities, point 2 of Communication “A” 4343
authorizes the reinvestment of the funds to be collected for amortizations or
partial or total payments, with an anticipation of up to 180 calendar days to
their due date.
In
addition, by point 1 of Communication “A” 4455 and effective as of December 1,
2005, a margin has been admitted for those entities exceeding the observance of
the limits (due to the above-mentioned preexisting operations) to carry out
purchase and sale of, or financial transactions with, national public securities
responsible for applying minimum capital requirements for market risk, that is
to say, with such volatility as informed by the Central Bank, provided it does
not exceed the equivalent to 15% of the RPC. Such limit will be constituted with
the allocation, as from the date referred to above, of any of the following: i)
the realization of non-financial public sector assets in the portfolio which are
computable for determining such limits, ii) the allocation at market value of
national public securities holdings, and iii) funds received for amortization
services corresponding to the public sector assets involved.
However,
no financing will be granted in those cases where the ratio of transactions
comprised with respect to the Bank’s Computable Net Worth determined as of March
31, 2003 is exceeded owing to reductions in this last parameter and until such
relationship is reestablished.
Apart from
the above-mentioned limits, the guarantee provided to all effects by the
collection of taxes (either federal or local) and/or by the collection of
royalties by provincial or municipal jurisdictions may not exceed 40% of the
total of such income at the time of evaluating the granting of new financing,
and considering the new financing about to be granted. This requirement does not
apply for transactions guaranteed by pledge or leasing agreements.
Effective
July 1, 1993, the amount of non-exempted credit to and equity stakes in a single
client, whether related to us or not, of a given bank which individually exceeds
10% of that bank’s Computable Net Worth may not exceed, in the aggregate, three
or five times the bank’s Computable Net Worth, excluding loans in domestic
financial institutions and including equity stakes in domestic financial
institutions. This last limit does not consider those guaranteed loans received
in exchange for national public debt securities implemented through guaranteed
loans (Communication “A” 3366). Also excluded until December 31, 2008 will be
the compensation bonds or promissory notes received according to the provisions
of Articles 28 and 29 of Decree No. 905/02 as amended (point 3 of Communication
“A” 4093, as amended by point 7 of Communication “A” 4467).
Loan
Loss Allowance
The
Central Bank has established specific loan loss allowance requirements for loans
to borrowers in “Problem”, “Deficient Servicing”, “High Risk of Insolvency”,
“Difficult Recovery”, “Irrecoverable” and “Irrecoverable for Technical Decision”
(in effect prior to October 2007), and loans to borrower classified as
“Problem”, “Medium Risk”, “High Risk of Insolvency”, “High Risk”,
“Irrecoverable” and “Irrecoverable for Technical Decision” under the new Central
Bank loan classification system effective on November 2007. In addition,
effective in 1993, the Central Bank established a mandatory general allowance
requirement for all performing loans. See “Information on the Company—Selected
Statistical Information—Allowance for Loan Losses and Loan Loss
Experience”.
Priority
of Deposits
Law No.
24,485 in force since April 18, 1995, as amended by Laws No. 24,627 and 25,780,
sets forth that in case of judicial liquidation or bankruptcy of a bank, all
depositors, irrespective of the type, amount or currency of their deposits,
would be senior to the other remaining creditors (such as the shareholders of
the bank), exception made for certain labor creditors (art. 53 paragraphs “a”
and “b”) and for those creditors backed by a pledge or mortgage, in the
following order of priority: (a) deposits of up to 50,000 pesos per person
(including any amount of said person deposited with a financial entity), or
their equivalent in foreign currency; (b) any and all deposits higher than
Ps.50,000, or their equivalent in foreign currency, and (c) the liabilities
originated in commercial lines granted to the Bank and which directly affect
international commerce.
Furthermore,
pursuant to article 53 of Law No. 21,526, as amended by Laws No. 24,627, 25,562
and 25,780, Central Bank credits will have an absolute priority over the other
credits, except for pledged or mortgaged credits, certain labor credits, the
depositors' credits as per art. 49, paragraph e), points i) and ii), credits
granted under Article 17, paragraphs (b), (c) and (f) of the Central Bank’s
Charter (including discount granted by financial entities due to temporary lack
of liquidity, advances in favor of financial entities with security interest,
assignment of rights, pledge or special assignment of certain assets) and
credits granted by the Banking Liquidity Fund backed by pledge or
mortgage.
The
amendment introduced to art. 35 bis of Law No. 21,526 of Financial Entities by
Law No. 25,780, sets forth that if a bank is in a situation where the Central
Bank may revoke its authorization to operate and become subject to dissolution
or liquidation by judicial resolution, among the options that the Central Bank’s
Board may decide by absolute majority, in case of excluding assets and
84
liabilities
for their transfer in favor of financial trusts or other financial entities, the
Central Bank may totally or partially exclude the liabilities mentioned in
article 49, paragraph e), as well as its credits defined in art. 53, observing
the order of priority among its creditors. Regarding the partial exclusion, the
order of priority of point e) art. 49 must be followed, without assigning, in
any case, a differentiated treatment to liabilities of the same
grade.
Capital
Markets
Under the
Financial Institutions Law, banks may underwrite and place both equity and debt
securities. There are currently no statutory limitations on the size of a bank’s
underwriting commitments. However, a bank’s underwriting commitment would be
treated as an extension of credit subject to the limitations discussed under
“Lending and Investment Limits”.
Commercial
banks are authorized to trade public and private debt securities in the
Argentine over-the-counter market if they are members of the MAE and authorized
to act as over-the-counter brokers (“agentes de mercado abierto”). The MAE is a
self-regulatory institution that has been authorized by the CNV. In our capacity
as an over-the-counter broker, we are subject to the supervision of the MAE as a
self-regulatory institution, and of the CNV as primary regulator, and
accordingly, must comply with certain reporting requirements.
Since
1990, the Buenos Aires Stock Market (Mercado de Valores de Buenos
Aires—“MERVAL”) has authorized brokerage firms or houses organized as sole
purpose corporations to operate as securities brokers on the Buenos Aires Stock
Exchange. Commercial banks may freely own a Securities Brokerage Company, there
are no current restrictions on ownership, and most of the principal commercial
banks operating in Argentina have already established their own Securities
Brokerage Company. All brokers, individuals or firms, are required to own at
least one share of stock in the MERVAL to be admitted as a securities broker on
the Buenos Aires Stock Exchange.
An
agreement between the Buenos Aires Stock Exchange and representatives of the MAE
dealers provides that trading in shares and other equity securities will be
conducted exclusively on the Buenos Aires Stock Exchange and that all debt
securities listed on the Buenos Aires Stock Exchange may also be traded on the
MAE. Trading in Argentine government securities, which are not covered by the
agreement, is conducted mainly on the MAE. The agreement does not extend to
other Argentine exchanges.
Commercial
banks may operate as both managers and custodians of Argentine mutual funds;
provided, however, that a bank may not act simultaneously as manager and
custodian for the same fund.
We have
been registered as an over-the-counter broker since 1989. In 1991, we
established Francés Valores Sociedad de Bolsa S.A.
Financial
Institutions with Economic Difficulties
Under the
Financial Institutions Law, if a financial institution:
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Evidences
a cash reserve deficiency,
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Has
not satisfied certain technical
standards,
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Has
not maintained minimum net worth standards,
or
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Is
deemed by the Central Bank to have impaired solvency or
liquidity.
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Such
financial entity must submit a regularization and normalization plan under such
terms and conditions as may be established by the Central Bank within a term
that may not exceed thirty days. This notwithstanding, the Central Bank may
appoint overseers with veto powers and/or demand the creation of guarantees and
restrict or prohibit the distribution of remittances or profits. The lack of
submission, the rejection or any noncompliance with the regularization or
normalization plans entitle the Central Bank to revoke the authorization to
operate as a financial entity and to apply sanctions. Stet if the plan is
accepted, the Central Bank may grant a temporary exemption with respect to the
observance of the technical regulations and excuse or postpone the payment of
fines (if any).
Likewise,
and prior to the revocation of the authorization to operate as a financial
entity, the Central Bank may authorize the restructuring of the entity for the
protection of its depositors, by applying any of the following decisions or a
combination thereof in a sequential, gradual or direct manner: reduction,
increase and assignment of the corporate capital, exclusion of assets and
liabilities and their transfer to other financial institutions, judicial
intervention, responsibility and transfer of excluded assets or
liabilities.
85
Dissolution
and liquidation of financial institutions
As
provided in the Argentine Financial Institutions Law, the Central Bank must be
notified of any decision adopted by a financial institution’s legal or corporate
authorities concerning its dissolution. The Central Bank, in turn, must then
notify such decision to a competent court, which should determine who will
liquidate the entity between the corporate authorities or an independent
liquidator appointed for the purpose. The court’s decision will be based on
whether or not there is sufficient assurance that the corporate authorities are
capable of carrying out such liquidation properly.
Pursuant
to the Argentine Financial Institutions Law, the Central Bank no longer acts as
liquidator of financial institutions. However, if a restructuring plan has
failed or is not deemed feasible, or violations of local laws and regulations
have been incurred, or significant changes have occurred in the institution’s
condition since the original authorization was granted, then the Central Bank
may revoke a bank’s license to operate as a financial institution. In this
event, the law allows for judicial or extra judicial liquidation. During the
liquidation process and once the license to operate as a financial institution
has been revoked, a court of competent jurisdiction may adjudge the former
financial institution in bankruptcy or a petition in bankruptcy may be filed by
any creditor of the bank after a period of 60 calendar days has elapsed since
the license was revoked.
Money
laundering
The
concept of money laundering is generally used to denote transactions intended to
introduce criminal proceeds into the institutional system and thus to transform
profits from illegal activities into assets of a seemingly legitimate
origin.
On April
13, 2000, the Argentine Congress enacted Law No. 25,246 (as amended by Laws No.
26,087, 26,119 and 26,268) which defines money laundering as a type of crime.
Also, the Law creates the so-called Financial Information Unit (FIU), which
establishes an administrative criminal system and replaces several articles of
the Argentine Criminal Code.
Law No.
26,087 grants the FIU the power to release secret or confidential information at
its sole request without this requiring Judicial Power intervention and
eliminates any absolutory excuses for asset-laundering crimes. Law No. 26,119
modifies the integration of the FIU and Law No. 26,268 incorporates
to the Criminal Code illegal terrorist association as a type of crime and the
crime of financing terrorism.
Money
laundering is typified as a crime in the Criminal Code, providing for criminal
sanctions whenever a person converts, transfers, manages, sells, encumbers or in
any other manner uses money or any other asset deriving from illegal activities,
in which such person has not participated, with the possible result that the
original or substitute assets may appear as deriving from a legitimate origin,
provided however that the value of the assets exceeds the amounts indicated in
the regulation, irrespective of whether such amounts are the result of one or
more transactions.
The main
purpose of Law No. 25,246 is to prevent money laundering. In line with
internationally accepted practice, it does not attribute responsibility for
controlling these criminal transactions only to government agencies, but also
assigns certain duties to diverse private sector entities such as banks,
stockbrokers, brokerage houses and insurance companies. These duties consist
basically in information capturing functions. The Central Bank regulation
requires banks to take certain minimum precautions to prevent money
laundering.
Each
institution must appoint a senior management officer as the person responsible
for money laundering prevention in charge of centralizing any information the
Central Bank may require on its own initiative or at the request of any
competent authority. In addition, this officer or other person reporting to the
general manager, the board of directors, or equivalent authority, will be
responsible for the implementation, tracking, and control of internal procedures
to ensure compliance with the regulations.
Financial
entities must also inform to the Superintendence about any transaction that may
result suspicious or unusual, or devoid of any economic or legal justification,
or which is unnecessarily complex, be it made on isolated occasions or
repeatedly. Since July 2001, the Central Bank publishes a list of
“non-cooperating” jurisdictions so that financial entities may pay special
attention to transactions to or from such areas. The last update contemplates
Myanmar and Nigeria.
The Bank
strives and believes to be in compliance with each and every applicable
regulation on money laundering according to the regulations of the Central Bank
and the Financial Information Unit, especially Resolution No. 2 of the Financial
Information Unit dated October 25, 2002 (as amended by Resolution No. 228/07),
which regulates by article 21 paragraphs a) and b) of Law No. 25,246 which
contemplates the collection of information regarding suspicious transactions and
their notification to the Authorities.
86
Deposit
Guarantee Insurance System
Law No.
24,485, published on April 18, 1995 and Decree No. 540/95 of the same date
provided for the organization of a Bank Deposit Guarantee Insurance System. This
system is limited, mandatory, and for valuable consideration, designed to
provide coverage for risks inherent in bank deposits, as a subsidiary and
supplementary protection to that offered by the system of bank deposit
privileges and protection created by the Financial Institutions
Law.
That Law
provided for the organization of the company “Seguros de Depósitos Sociedad
Anónima” to manage the Deposit Guarantee Fund, whose shareholders, as amended by
Decree No. 1292/96, will be the Central Bank, with one share, as a minimum, and
the trust made up of the financial institutions in such proportion as may be
determined by the Central Bank for each one, based on their contributions to the
Deposit Guarantee Fund.
This
guarantee system does not include:
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Deposits
made by other financial institutions, including certificates of deposit
acquired by secondary trading;
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Deposits
made by persons directly or indirectly related to the financial
institution;
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Deposits
acquired by means of offering incentives, including deposits under the El
Libretón program;
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Certificates
of deposit of securities, acceptances or
guarantees;
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Those
deposits made after July 1, 1995 and to September 17, 1998, at a rate
exceeding by two percentage points per annum or more than paid by the
Banco Nación for similar terms and, after such date, at a rate exceeding
by two percentage points per annum the rolling average for the last five
banking days of the deposit rates found by the survey performed by the
Central Bank; and
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Certificates
of deposit transferable whose ownership has been acquired by way of
endorsement.
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In August
1995, Seguros de Depósitos Sociedad Anónima was organized. We hold a 13.3117%
equity interest in the company.
By
Communication “A” 2337 of May 19, 1995, the Central Bank notified the financial
institutions of the approval of the regulations on the application of the
guarantee system as of April 18, 1995.
Decree No.
1127/98 dated September 24, 1998, increased the amount covered by the deposit
guarantee system to Ps.30,000, irrespective of the term. In the case of
transactions in the name of two or more persons, the guarantee will be prorated
among the respective holders. The total guarantee amount by persons may not
exceed Ps.30,000, regardless of the number of accounts and/or
deposits.
The
deposits for amounts over Ps.30,000 are also included in the guarantee system up
to the Ps.30,000 limit. The Central Bank may decide at any time to amend the
guarantee system cover amount based on continued consolidation of the Argentine
financial system or any other indicators.
The
Argentine insurance system was financed with monthly contributions by all
financial institutions operating in Argentina, ranging from 0.03% to 0.06% of
average peso and foreign currency deposits held by such financial
institutions.
According
to Communication “A” 3064 of the Central Bank, applicable to contributions from
January 2000, financial institutions may choose to make a contribution to the
Deposit Guarantee Fund equivalent to 50% of the amount mentioned in the
preceding paragraph, and arrange a loan with Seguros de Depósitos Sociedad
Anónima to provide for the remaining 50%.
Such loans
are for a maximum term of 36 months, for each monthly loan, due on the twelfth
day of the month in question. The balances owed for Deposit Guarantee Fund
accrue an interest equivalent to the yield obtained from the placement to the
Deposit Guarantee Fund resources in instruments that are similar to those chosen
for the investment of foreign currency reserves of the Central
Bank.
Under
Communication “A” 3153 dated August 24, 2000, the Central Bank decided to
cancel, effective September 2000, the obligation to lend to SEDESA 50% of the
monthly contributions, and reduced these contributions to a rate ranging from
0.015% to 0.03% of the monthly average of deposits in pesos and foreign currency
held at each entity.
87
As of
December 2006 the contribution to the deposit guarantee fund made by the
financial entities has had the following evolution:
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“A”
3358 of November 9, 2001 of the Central Bank, contributions percentage
increased to 0.03% effective as of the contribution due December
2001.
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“A”
4206 of September 14, 2004 of the Central Bank, contributions percentage
decreased to 0.02% effective as of the contribution due September
2004.
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“A”
4271 of December 30, 2004 of the Central Bank, contributions percentage
decreased to 0.015% effective as of the contribution due January
2005.
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During
2002, Decree No. 214/02 of the Executive, in its Article 16, made changes to the
provisions of Decree No. 540/95 as amended, which allowed SEDESA to issue
nominative non-endorsable securities to be offered to depositors as payment of
the deposit guarantee whenever it did not have sufficient funds to that effect.
Such securities, whose conditions would be established for general purposes by
the Central Bank, must be accepted by the financial entities in order to
constitute deposits.
Credit
Cards Law No. 25,065
ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Considerations
on Politics and Economy in Argentina
The year
2003 started with strong political uncertainties, which decreased with the newly
elected administration. President Kirchner, who won the elections with only 22%
of the votes, thereafter consolidated his political power through provincial
elections and reinforced his positive image. Moreover, the exchange and price
stability allowed for a significant recovery of consumer confidence that
translated into higher consumption levels in the second semester. The growing
economic activity, GDP increased by 8.8% in 2003, was also driven by fixed gross
investment, mainly in the construction industry, which rose by 38%. Local demand
recovery, however, did not result in stronger pressure on prices as on average
the economy was still operating below full use of resources. Showing strong
differences between goods and services, consumer prices increased only 3.7% in
2003.
The
Argentine economy had a positive performance in 2004. In this respect, the
following indicators are worth mentioning: i) an increase in the Treasury
primary surplus which exceeded the targets agreed on in the short-term agreement
with the International Monetary Fund; ii) a decrease and stabilization in the
foreign exchange parity as a result of substantial trade surplus; iii) an
increase of 9% in the Gross Domestic Product during the year; iv) stabilization
of wholesale and retail inflation rates; v) greater stability in financial
markets with an increase in bank deposits; and vi) a marked increase in the
prices of publicly traded Government securities. Moreover, unemployment levels
also showed considerable improvements reaching 12.1% during the fourth quarter
of 2004, over 2 percentage points below the same rate of the same period of the
previous year.
Exports
from Argentina also benefited from high prices of commodities, especially the
soy sector during the first semester of 2004. While export prices rose 9.3%
during the year, the amounts exported only grew 6.6% mainly due to the fall in
volumes of primary products as a result of the weather conditions that impacted
on the soy harvest. Exports of industrial products rose by almost 24% during the
year, led by automobile, chemical and plastic products. However, the trade
surplus (of 12,105 million dollars) fell in comparison to the previous year due
to the strong increase in imports that expanded 62% once again led by capital
goods purchases.
The key
economic event during 2005 was the restructuring of the public debt in default
since 2001 launched by the Government in February pursuant to which the
Argentine government offered its creditors three types of bonds (Par, Discount
and Quasi-par) in exchange for the Argentine sovereign debt they held, as well
as bonds in lieu of past due interest on such sovereign debt. The exchange offer
encompassed 81,836 million dollars in securities held by residents and non
residents, and achieved an acceptance rate of 76.15%. The new bonds issued after
the exchange amounted to 35,261 million dollars, 44% of which were denominated
in pesos.
88
For the
third consecutive year, in 2005 the economy grew by 9.2%. With an economy
growing at high rates, inflationary pressures started to appear during the first
quarter of the year. Regulated prices (mainly public utilities’ tariffs) had a
moderating impact on inflation in spite of which, the year ended with a 12.3%
increase in consumer prices.
Greater
optimism following the successful debt restructuring resulted in the return of
positive capital flows to Argentina which added to the dollar surplus stemming
from the trade balance. Increased export dynamics, mainly in manufactured
industrial goods, was reflected in a 14.2% accrued growth of volumes exported in
2005. Thus, the trade surplus for the year closed at 11,663 million dollars,
only 3.6% below 2004’s, despite the 28% growth of imports.
In this
environment of abundant foreign exchange supply and with the public sector as
the main buyer of dollars with the purpose of honouring debt commitments with
multilateral organizations, the exchange rate closed 2005 at Ps.3.03 per dollar,
slightly above December 2004 levels.
The
Government was able to sustain fiscal solvency and the primary result of the non
financial public sector reached 19,661 million pesos, more than 13% above
previous year’s surplus. In general, improvements in tax collection were the
result of an increased inflation, economic activity growth and reduction of tax
evasion. In the second half of the year, primary expenses started to grow at a
faster pace than revenues and this performance continued during the first
quarter of 2006.
The year
2005 was characterized by the higher interest payments and debt amortizations,
of approximately 12,000 million dollars, that the government had to face due to
different reasons, including the completion of the debt restructuring process
and the lack of agreement with the IMF during the year. By mid-December, the
government decided to pay off, completely and in advance, its 9,500 million
dollar debt with the IMF making use of accrued international reserves at the
Central Bank. This transaction was carried out at the beginning of January 2006,
replacing those reserves at the Central Bank by a dollar-denominated government
security with similar yield. In consequence, this operation brought relief to
the principal payments due during the year. Furthermore, a favourable domestic
and foreign economic environment made it possible for Argentina to issue debt
for a nominal value of U.S.$5,365 million to partially roll-over maturities, and
allowed the public sector to accumulate deposits in the banking
system.
However, a
substantial trade surplus together with greater capital inflows received in the
last quarter of the year led to a quick build up of reserves, which by the end
of the year amounted to U.S.$32.04 billion, more than U.S.$3.9 billion above
their level at the end of 2005.
Economic
activity continued to grow at a vigorous pace in 2006, despite a somewhat slower
rate in the first quarter, so the year ended with an average increase of 8.5%,
led by investment. Private consumption has grown at a strong rate but has not
yet recovered its share in the GDP prior to the crisis. Reflecting steady
economic growth, the unemployment rate continued to decrease and reached a 8.7%
low in the fourth quarter of 2006, compared to 10.1% in the same period of the
previous year.
During
2006, the Government managed to maintain fiscal solvency. The primary surplus of
the non-financial public sector was Ps.23.2 billion, an increase of 17.8%
compared to the result of the previous year. Tax collection increased at a
strong pace, mainly driven by the social security contributions which increased
at rates of around 50% per annum due to improvements in employment in formal
labour markets and in nominal wages. With respect to primary expenses, the
increase in capital expenditures all year round was essentially due to higher
public investment.
In the
first quarter of 2006, the inflation rate, greatly influenced by hikes in the
prices of meat and other foodstuffs, averaged 1% monthly. The Government, which
had been negotiating price agreements with supermarkets and producers in order
to moderate inflationary expectations, took more drastic measures in April and
limited the exports of beef and increased export duties on dairy products. This
change in the regulations led to an increase in the domestic supply of meat
which impacted on prices and resulted in slightly lower inflation rates (0.6%
monthly average) in the second quarter of 2006. However, in the last months of
the year inflation seemed to regain momentum under the influence of certain
seasonal items and a weakening of the price agreements, as a result of which the
year closed with an overall increase of 9.8% in retail prices.
For the
fifth consecutive year, the Argentine economy grew at a pace close to 8.7% in
2007, according to EMAE (Monthly Economic Activity Estimator) published by
INDEC. For the first time since the devaluation, the services sectors, along
with financial intermediation, grew at higher rates than the goods production
sectors in the first three quarters of 2007. In this positive environment,
employment market indicators continued to show improvements. Unemployment
dropped 1.7 percentage points year over year on average in 2007.
Fiscal
accounts tended to deteriorate during 2007. Tax collection grew by 33%, driven
by VAT (IVA), tax on debits and credits on bank accounts, export taxes and
Social Security contributions in particular. However, primary public spending
accelerated at a
89
faster
pace than total fiscal revenues growing by 44% when compared to the previous
year. The factors with the strongest impact on the increase in spending were
social security services and transfers to the private sector. Additionally,
public accounts were favorably impacted by the Retirement and Pensions Reform,
which contributed an additional Ps.7,800 in revenues due to the transfer of the
funds accumulated in the Private Pension Fund System (AFJPs) to the public
social security system as affiliates switched for one system to
another.
The
Consumer Price Index (CPI) for Greater Buenos Aires (GBA) increased 8.5% year
over year as of December 2007. Due to the fact that methodological changes
introduced in the GBA CPI index were not applied in all the provinces, the
National inflation rate, excluding the Greater Buenos Aires area, rose to 12.3%
year over year to December 2007.
Effects
of Recent Events on BBVA Banco Francés
Substantially
all of our operations, property and customers are located in Argentina.
Consequently, following the 2002 crisis and the package of government measures
described elsewhere in this annual report, our financial condition and results
of operations were deeply affected. During 2002 our business activities
contracted compared to historical levels since December 2001, and liquidity
needs led to a suspension of most of new loans. Our structural strengths, our
reaction capacity and our adjustment to the new economic environment were the
pillars of our performance in 2002. We responded to the deepening of the crisis
by prioritizing liquidity, substituting foreign currency funds with domestic
currency funds and satisfying the growing demand for transactional business,
while adjusting the operating structure to the new business
profile.
Following
a four year recession period, the economy began to recover in 2003 and deposits
flowed back into the system. This positive trend continued during the following
years both in terms of economic activity and fiscal solvency, with stable prices
and exchange rates, while in the financial system peso and dollar deposits
continued to grow and loans to the private sector accelerated their recovery.
Similarly, the economy continued showing a solid performance in 2007, with an
8.2% GDP growth. Complementing economic growth, the government ended the year
with a 3.4% primary surplus in terms of GDP, despite being a year with
presidential elections, and the U.S.$11 billion trade surplus boosted
international reserves held at the Central Bank to over U.S.$46 billion.
Interest rates remained stable, as well as the exchange rate that ended the year
at U.S.$3.14 per peso. Responding to the economy’s growth, unemployment was
reduced to 8.3%, and official inflation eased to 8.4%. In the financial system,
private sector deposits in pesos increased by 23.8% in 2007, while private
sector loans continued to be the most dynamic monetary variable, reaching an
increase of 33.6% by year end.
In 2007,
we concentrated our efforts on implementing the following measures:
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Increase
private sector loans focusing in the middle-market and retail
segments;
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Increase
retail deposits, expanding current and savings accounts participation over
CDs;
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Further
develop the transactional business as a source of fee
income;
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Emphasize
service quality and increase cross-selling, through an effective promotion
and advertising campaign; and
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Improve
our assets and liabilities structure (including the sale of public sector
assets, given the increase in public sector assets’ market value and
continuing the amortization of legal
injunctions).
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Critical
Accounting Policies
Our
Consolidated Financial Statements are prepared in accordance with the rules
prescribed by the Central Bank, which differ in certain respects from generally
accepted accounting principles in Argentina, as described in Notes 3. and 4. to
the Consolidated Financial Statements. These rules require BBVA Banco Francés
and its subsidiaries to make some estimates and assumptions. Some of these
estimates require difficult, subjective or complex judgments about matters that
are inherently uncertain, and as a result, actual results could differ from
those estimates. Due to the estimation process involved, the following
summarized accounting policies and their applications are considered to be
critical to understanding the business operations, financial condition and
results of operations of BBVA Banco Francés and its subsidiaries.
90
Allowance
for Commercial Loan Losses
BBVA Banco
Francés provides for estimated possible losses on loans and the related accrued
interest generally through the establishment of an allowance for loan losses.
The allowance for commercial loan losses charged to expense is determined by
management based on a periodic analysis of updated financial information
provided by the debtor at the request of BBVA Banco Francés. The basic
assessment criterion is the future debt payment capacity or the collateral
granted to BBVA Banco Francés on the basis of the estimated cash flow. BBVA
Banco Francés also takes into account other circumstances such as timely
compliance with obligations, qualified and honest management, whether the
company is engaged in economic activities with acceptable prospects and the
competitiveness of the debtor within its industry.
On the
basis of these conditions, the customer is placed in any of the six categories
established by the Central Bank that have been assigned minimum fixed allowance
requirements. Based on its analysis, BBVA Banco Francés books additional
allowances for certain debtors, which does not require recategorizing the debtor
under the rules of the Central Bank. The use of different estimates or
assumptions could result in different allowances for commercial loan
losses.
Contingent
Liabilities
We are
subject to proceedings, lawsuits and other claims related to labor, commercial,
civil and other matters. We make determinations of the amount of reserves
required, if any, for these contingencies after a careful analysis of each
individual issue. The required reserves may change in the future due to new
developments in each matter or changes in the settlement strategy.
The Bank
is a defendant in several actions in which the petitioner claims the government
measures taken with respect to their deposits during the economic crisis was a
violation of constitutional law. Several judges in these actions have issued
injunctions against BBVA Banco Francés ordering: 1) the reimbursement of
deposits in amounts larger than those provided for under current legislation or
2) the release of rescheduled deposits or 3) inapplicability of the “emergency
framework” legislation passed by the National Congress and the measures issued
by the Federal Executive or the Central Bank. In its decision in re “Massa, Juan
Agustín versus National Executive Branch - Decree 1570/01 and others following
petitions for protection of civil rights under Law No. 16,986” dated December
27, 2006, the Argentine Supreme Court of Justice confirmed by the majority vote
of its members the validity of the Emergency legislation enacted during 2001,
2002 and subsequent years; i.e., the Supreme Court accepted the re-denomination
into Pesos of deposits as well as the calculation methodology for the
reimbursement of the bank deposits subject to the emergency regime imposed by
the Argentine Government, the constitutionality of which had been challenged in
the case mentioned. This decision by the Supreme Court of Justice establishes a
calculation modality different from the modality decreed by the Executive
Branch. In addition, it has been established that the amounts withdrawn from the
bank in the framework of court rulings or out-of-court arrangements shall be
considered to be advanced payments with no specifications about adjustment
modalities in that respect. As regards court costs, they are to be borne as
incurred by each party in that stage of the proceedings. After such decision was
rendered, courts have been applying this legal precedent and they hold that
court costs are to be borne as incurred by each party at all stages of the
proceedings. As of December 31, 2007, Banco Frances has estimated this
contingency and it has raised allowances for the total amount.
At
December 31, 2007, as described in Note 3.4.13. to the Consolidated Financial
Statements, the Bank records as an intangible asset the difference in nominal
terms between the deposit at the free market exchange rate at the moment of each
payment compared to the book value of 1.40 pesos per dollar plus CER to that
date. This asset is being amortized in 60 monthly installments from April 2003.
As of December 31, 2007, BBVA Banco Francés keeps registered under this concept
Ps.1,196.7 million less accumulated amortization of Ps.1,139.2 million under
Intangible Assets. Moreover, BBVA Banco Francés has stated in a note to the
Financial Statements that the amortization described above is charged solely to
comply with the regulations of the Central Bank and that it should not be
interpreted as an implicit waiver of possible compensation or recovery of the
exchange rate differences resulting from the compliance with court orders
granted in actions seeking the protection of civil rights or other legal actions
derived from the mandatory conversion of bank deposits into pesos.
Fair
Value
We prepare
our financial statements in accordance with the rules of the Central Bank
related thereto, which differ from U.S. GAAP in valuing financial instruments.
U.S. GAAP require financial instruments to be valued at fair value. We estimated
the fair value as the amount at which a financial instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or
liquidation, and such value was best evidenced by a quoted market price, if one
existed. In cases where quoted market prices were not available, fair value
estimation was based on the quoted market price of a financial instrument with
similar characteristics, the present value of expected future cash flows, or
other valuation techniques, all of which were significantly affected by the
assumptions used (see Note 20.14. to Consolidated Financial
Statements).
91
Although
we used our best judgment in estimating the fair value of these financial
instruments, there are inherent weaknesses in any estimation technique. As a
result, the fair value may not be indicative of the net realizable or
liquidation value. Moreover, minor changes in the assumptions used could have a
significant impact on the resulting estimated fair values.
For a
detailed description of the applicable accounting principles, please see Note 3
to the Consolidated Financial Statements.
Differences
Between Central Bank Rules and Generally Accepted Accounting Principles
Effective in the City of Buenos Aires
The most
significant valuation differences between the rules prescribed by the Central
Bank and the professional accounting standards effective in Buenos Aires City
are detailed below (see Note 4 . to the Consolidated Financial
Statements).
|
|
§
|
Valuation
Criteria
|
|
|
(1)
|
National Government
Secured loans
|
As
detailed in Note 4.1.a) to the Consolidated Financial Statements, and as a
consequence of the provisions of Decree No. 1387/01, on November 6, 2001, the
Bank exchanged national government securities, bonds, treasury bills and/or
unsecured loans with the National Government for a face value of U.S.$3,291,795
thousands for Secured loans. At December 31, 2007 and 2006, those loans are
recorded under “Loans – to the Public Sector” amounting to 2,367,869 and
2,886,767, respectively, in accordance with the criterion described in Note
3.4.3. to the Consolidated Financial Statements.
In
accordance with Resolution CD No. 290/01 of the CPCECABA, at December 31, 2007
and 2006, these assets should have been valued considering the respective
quotation values of the swapped bonds at November 6, 2001, delivered in exchange
and the increase sustained as a result of the interest accrued according to the
internal rate of return. However, as of December 31, 2007 and 2006
the book value of these assets is not significantly different from their
reasonable realization value.
|
|
(2)
|
Effects caused by
court measures related to deposits (constitutional protection
actions)
|
As
mentioned in Note 3.4.13., as of December 31, 2007 and 2006, the Bank has
recorded assets amounting to Ps.57,489 thousand and Ps.343,450 thousand (whose
original values had been Ps.1,196,676 thousand and Ps.1,159,553 thousand)
respectively, under “Intangible Assets – Organization and Development Non
Deductible Expenses” account corresponding to differences resulting from
compliance with the court measures generated by the payment of deposits in the
financial system within the framework of Law No. 25,561, Decree No. 214/02 and
complementary regulations, as established by Communication “A” 3916 of the BCRA.
In accordance with professional accounting standards currently in force in
Buenos Aires City, the amounts detailed above should have been covered by an
allowance up to the concurrence of the balance that represents the best possible
estimate of the amounts to be recovered, an amount that may not be objectively
determined as of the date of issuance of the Consolidated Financial
Statements.
|
|
(3)
|
Tax
Effects
|
As it is
indicated in Note 5.1 to the Consolidated Financial Statements, the Bank has
received various communications from the BCRA pursuant to which that BCRA
indicates that the capitalization of items arising from the application of the
deferred tax method is not allowed. In accordance with professional accounting
standards currently in force in Buenos Aires City, a deferred tax asset should
be recognized to the extent the reversal of temporary differences generates a
future decrease in the tax effectively determined. As a result, the allowances
set up by the Bank in this respect, for Ps.55,500 thousand and Ps.337,000
thousand as of December 31, 2007 and 2006, respectively, should be
recovered.
In
addition, the Bank has tax loss carryforwards estimated to be applied against
taxable income for the current fiscal year.
|
|
(4)
|
Derivative financial
instruments
|
As
explained in the first bullet of Note 3.4.14. and Note 12 to the Consolidated
Financial Statements, as of December 31, 2007 the Bank recorded the effects of
interest rate swap agreements as established by the BCRA. Should BBVA Banco
Francés have applied the professional accounting standards currently applicable,
it would have booked additional liabilities for Ps.7,433 thousand.
92
In all
other material respects, Central Bank rules are consistent with generally
accepted accounting principles in Buenos Aires City.
|
|
§
|
Aspects
related to disclosure of
information
|
Holdings available for
sale
As
disclosed in Note 3.4.2. the Bank charged to the account “Unrealized valuation
difference” in stockholders' equity a loss of Ps.42,796 thousand, which reflects
the difference between the cost of addition of these holdings and increased by
the accrual of the internal rate of return and the value as quoted of Government
securities and instruments issued by the BCRA, classified as Holdings available
for sale. The professional accounting standards in force in the City of Buenos
Aires do not endorse this accounting treatment. Therefore, as of December 31,
2007, this amount should have been charged to the income/loss for such fiscal
year.
Differences
Between Other Regulatory Bodies and Accepted Accounting Principles Effective in
the City of Buenos Aires
|
|
(1)
|
Consolidar
A.F.J.P. S.A.: the intangible assets of this subsidiary were amortized in
accordance with the standards of the A.F.J.P.'s
Superintendence.
|
|
|
(2)
|
Consolidar
A.F.J.P. S.A., Consolidar Cía. de Seguros de Retiro S.A. and Consolidar
Cía. de Seguros de Vida S.A.: loans secured by the National Government -
Decree No. 1387/01 held by these subsidiaries amounting to Ps.952,106
thousand and Ps.768,514 thousand as of December 31, 2007 and 2006, were
valued in accordance with the regulations of the Superintendence of
Pension Fund Administrators (A.F.J.P) and the National Superintendence of
Insurance.
|
|
|
(3)
|
Consolidar
Cía. de Seguros de Retiro S.A.: the portfolio of Government securities in
investment accounts has been booked in accordance with the standards of
the National Superintendence of
Insurance.
|
|
|
(4)
|
Consolidar
Cía. de Seguros de Retiro S.A. and Consolidar Cía de Seguros de Vida S.A.:
a part of its portfolio of instruments issued by the BCRA has been
recorded in investment accounts, and they have been valued as per
Communication “A” 4698 of the BCRA. The net difference with the market
values as of December 31, 2007 amounted to Ps.117
(income).
|
|
|
(5)
|
The
items included under the captions Subsidiaries’ other assets and
Subsidiaries’ other liabilities were valued in accordance with the
regulations of the National Superintendence of
Insurance.
|
|
|
(6)
|
Consolidar
Cía de Seguros de Retiro S.A.: the Company included the balance from the
technical commitments incurred with the insured in the Other Liabilities
caption. The abovementioned caption includes Ps.22,099 thousand and
Ps.25,947 thousand at December 31, 2007 and 2006 corresponding to the
regularizing account called “Unaccrued secured loans valuation difference”
which, as established by the National Superintendence of Insurance, will
be settled through subsequent accrual of the regularizing accounts of
secured loans. In accordance with professional accounting standards
currently in force in the City of Buenos Aires, such amount should have
been recorded as a loss for the year ended December 31,
2003.
|
Operating
Results
The Bank
presents its financial statements in equivalent purchasing power, following the
restatement method established by FACPCE Technical Resolution No. 6 (modified by
Technical Resolution No. 19), using an adjustment rate derived from the internal
WPI published by the INDEC.
According
to the above mentioned method, the accounting measurements were restated
according to the purchasing power changes of August 31, 1995. As of that date,
based on the prevailing economic stability conditions and according with CNV
General Resolution No. 272 and Central Bank Communication “A” 2365, the
accounting measures were not restated through December 31, 2001. In light of CNV
General Resolution No. 415 and Central Bank Communication “A” 3702, the method
was reinstated effective as of January 1, 2002, considering the previous
accounting measures restated as of December 31, 2001.
By means
of Communication “A” 3921 of the Central Bank and CNV General Resolution No.
441/03 in compliance with Decree No. 664/03 of the Executive Branch, the
application of the restatement method on financial statements in equivalent
93
purchasing
power has been suspended as of March 1, 2003. Accordingly, BBVA Banco Francés
applied the mentioned restatement only until February 28, 2003.
The
following discussion is based upon information contained in the Consolidated
Financial Statements and should be read in conjunction with them. The
Consolidated Financial Statements have been prepared in accordance with the
rules of the Central Bank related thereto (Argentine Banking GAAP), which differ
in certain respects from Argentine GAAP and U.S. GAAP. The principal differences
between Argentine Banking GAAP and U.S. GAAP are discussed in Note 20. to the
Consolidated Financial Statements as they relate to us, together with a
reconciliation to U.S. GAAP of our net income and total stockholders’ equity.
For a more detailed description of the accounting principles and considerations
used in preparing the following discussion, see “Presentation of Financial
Information”. Additionally the information set forth below for the fiscal year
ended December 2004 has been modified from its original version to apply the
adjustments to prior years’ income (loss).
On June
28, 2006 the Bank sold its entire interest in Credilogros Compañía Financiera
S.A. Accordingly, the Financial Statements for the fiscal years ended on
December 31, 2005 include the consolidation of Credilogros Compañía Financiera
S.A. For more information see Note 1.4. to the Consolidated Financial
Statements.
Results
of Operations for the Fiscal Years Ended December 31, 2007, 2006 and
2005.
Overview
Our net
income for the fiscal year ended December 31, 2007 was Ps.235.0 million. This
income was mainly due to a 163,42% increase in Other Income, a 29,14% increase
in Service Charge Income, a 29,70% decrease in Income Tax, a 49,92% decrease in
loss on Minority Interest in Subsidiaries and a 11,21% decrease in Allowances
for Loan Losses. This income was partially offset by a 10,62% decrease in Gross
Intermediation Margin, a 32,08% increase in Other Expenses, a 21,22% increase in
Operating Expenses, and a 44,22% increase in Service Charge
Expenses.
Our net
income for fiscal year ended December 31, 2006 was Ps.180.0 million. This income
was mainly due to a 30.89% increase in Gross Intermediation Margin, a 27.00%
increase in Service Charge Income, and a 38.82% decrease in Allowances for Loan
Losses. This income was partially offset by a 19.54% increase in Operating
Expenses, a 41.71% increase in Service Charge Expense, a 6.29% increase in Other
expenses, a 35.01% decrease in Other Income, a 283.07% increase in Income Taxs,
and a 127.49% increase in loss on Minority Interest in
Subsidiaries.
Financial
Income
Our
Financial Income decreased 1,66% to Ps.1,904.2 million for the fiscal year ended
December 31, 2007 from Ps.1,936.4 million for the fiscal year ended December 31,
2006, which in turn increased 17,06% from Ps.1,654.2 million for the fiscal year
ended December 31, 2005. The components of our Financial Income are reflected in
the following table.
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Interest
on cash and due from banks
|
20,202 | 17,353 | 25,364 | |||||||||
|
Interest
on loans to the financial sector
|
146,833 | 91,875 | 21,245 | |||||||||
|
Interest
on overdraft
|
164,659 | 102,072 | 41,346 | |||||||||
|
Interest
on loans with privileged guarantees
|
79,353 | 52,260 | 45,109 | |||||||||
|
Interest
on credit card loans
|
55,026 | 30,485 | 24,095 | |||||||||
|
Interest
on other loans
|
640,477 | 543,662 | 498,423 | |||||||||
|
Net
income from government and private securities
|
319,666 | 559,877 | 209,438 | |||||||||
|
Interest
from other receivables from financial transactions
|
23,757 | 35,314 | 10,374 | |||||||||
|
Indexation
by benchmark stabilization coefficient (CER)
|
210,342 | 354,566 | 663,743 | |||||||||
|
Other
|
243,897 | 148,940 | 115,015 | |||||||||
|
Total
|
1,904,212 | 1,936,404 | 1,654,152 | |||||||||
The
decrease in Financial Income during fiscal year ended December 31, 2007 was
mainly due to a decrease in Net income on government and private securities,
because of the sales of National Government Secured Loans and Securities
performed during the first quarter of the fiscal year, Indexation by benchmark
stabilization coefficient (CER), and Interest from other receivables from
financial transaccions. These decreases were partially offset by increases in
Interest on Other loans, Interests on overdraft, Interest on loans to the
Financial sector, Interests on loans with privileged guarantees and Interest on
credit card loans, Interest on cash and due
94
from Banks
and Other income mainly due to foreign exchange transactions. This variation
reflected the decrease in average nominal Interest rate partially offset by
increases in average volume of interest earning assets.
The
increase in Financial Income during the fiscal year ended December 31, 2006 was
mainly due to an increase in Net income from government and private securities,
Interest on loans to the Financial sector, Interest on overdraft, Interest on
Other loans, Interest from other receivables from financial transactions,
Interest on Credit Card loans and Other income. These increases were partially
offset by decreases in Interest on cash and due from Banks and Indexation by
benchmark stabilization coefficient (CER) mainly due to the sale of National
Government Secured loans during the fiscal year. This variation reflected the
increase in average volume and average nominal interest rate on interest earning
assets.
The
following table sets forth the changes in financial income due to increases
(decreases) in volume and increases (decreases) in nominal rates of average
interest-earning assets. Such financial income excludes exchange differences and
premiums or forward sales of foreign exchange.
|
December
31 2007
vs.
December
31 2006
Increase
(Decrease)
|
December
31 2006
vs.
December
31 2005
Increase
(Decrease)
|
|||||||
|
(in
thousands of pesos)
|
(in
thousands of pesos)
|
|||||||
|
Financial
Income due to changes in the volume of interest-earning
assets
|
373,986 | (45,870 | ) | |||||
|
Financial
Income due to changes in average nominal rates of interest-earning
assets
|
(371,639 | ) | 332,526 | |||||
|
Financial
Income due to changes in the volume and average nominal rates of
interest-earning assets
|
(74,056 | ) | (9,945 | ) | ||||
|
Net
Change
|
(71,709 | ) | 276,711 | |||||
Financial
Expenses
Financial
Expenses increased 19,67% to Ps.680.1 million in this fiscal year ended December
31, 2007 from Ps.568,3% million in the fiscal year ended December 31, 2006,
which in turn decreased 6,67% to Ps.608.9 million in the fiscal year ended
Decembre 31, 2005. The components of our Financial Expenses are reflected in the
following table.
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Interest
on checking accounts
|
23,180 | 29,913 | 23,782 | |||||||||
|
Interest
on savings deposits
|
6,598 | 4,811 | 3,675 | |||||||||
|
Interest
on time deposit (1)
|
492,716 | 307,084 | 152,660 | |||||||||
|
Interest
from other liabilities from financial transactions
|
26,627 | 37,650 | 28,001 | |||||||||
|
Indexation
by benchmark stabilization coefficient (CER)
|
49,230 | 121,321 | 306,815 | |||||||||
|
Listed-price
differences
|
— | — | 525 | |||||||||
|
Other
|
81,780 | 67,566 | 93,491 | |||||||||
|
Total
|
680,131 | 568,345 | 608,949 | |||||||||
|
(1)
|
Includes
interest on “CEDROS”.
|
Taxes on
Financial Income and Contributions to the Bank Deposit Guarantee Insurance
System, included in Financial Expense—Other, amounted to Ps.62.6 million as of
December 31, 2007, Ps.44.3 million as of December 31, 2006 and Ps.32.2million as
of December 31, 2005.
Contributions
to the Bank Deposit Guarantee Insurance System increased during fiscal year 2007
and 2006 due to increases in volume of time, savings and demand
deposits.
The
following table sets forth the changes in Financial Expenses due to the
(decreases) increases in volume and (decreases) increases of nominal rates of
average interest-bearing liabilities. Such Financial Expense excludes exchange
rate variations and premiums on forward purchases of foreign exchange,
contributions to Bank Deposit Guarantee Insurance System, mandatory
contributions and taxes on interest income.
95
|
December
31, 2007
vs.
December
31, 2006
Increase
(Decrease)
|
December
31, 2006
vs.
December
31, 2005
Increase
(Decrease)
|
|||||||
|
(in
thousands of pesos)
|
(in
thousands of pesos)
|
|||||||
|
Financial
Expense due to changes in the volume of interest-bearing
liabilities
|
82,555 | (6,370 | ) | |||||
|
Financial
Expense due to changes in average nominal rates of interest-bearing
liabilities
|
9,164 | (45,967 | ) | |||||
|
Financial
Expense due to changes in the volume and average nominal rates
of interest-bearing liabilities
|
1,070 | 309 | ||||||
|
Net
Change
|
92,789 | (52,028 | ) | |||||
Our
average interest-bearing liabilities increased 15.69% from Ps.10.2 billion in
fiscal year 2006 to Ps.11.8 billion in the fiscal year ended December 31, 2007.
This increase was mainly attributable to increases in saving deposits,
certificates of deposits, borrowings from other financial entities and other
liabilities, partially offset by decreases in corporate bonds issued and
borrowings from the Central Bank. Average dollar-denominated time deposits
increased 44.21% from Ps.737.1 million in the fiscal year ended December 31,
2006 to Ps.1062.9 million in the fiscal year ended December 31, 2007. Average
peso-denominated time deposits increased 15.35% to Ps.5,897.5 million in the
fiscal year ended December 31, 2007, from Ps.5,112.7 million in the fiscal year
ended December 31, 2006. Average dollar-denominated and peso-denominated saving
deposits increased 17.70% and 19.15% from Ps.772.6 million and Ps.2,342.3
million in the fiscal year ended December 31, 2006, to Ps.917.1 million and
Ps.2,790.9 million in the fiscal year ended December 31, 2006, respectively.
Average corporate bonds issued decreased 84.58% from Ps.271.7 million in the
fiscal year ended December 31, 2006 to Ps.41.9 million in the fiscal year ended
December 31, 2007. See “Information on the Company—Selected
Statistical Information—Changes in Interest Income and Interest Expense; Volume
and Rate Analysis”.
Gross
Intermediation Margin
Our Gross
Intermediation Margin (defined as Financial Income less Financial Expenses) of
Ps.1,224.0 million in the fiscal year ended December 31, 2007, represented a
10,52% decrease over our Gross Intermediation Margin of Ps.1,368.1 million in
the fiscal year ended December 31, 2006, which in turn represented a 30,89%
increase over our Gross Intermediation Margin of Ps.1,045.2 million in the
fiscal year ended December 31, 2005.
The
following table sets forth the changes in Gross Intermediation
Margin:
|
December
31, 2007
vs.
December
31, 2006
Increase
(Decrease)
|
December
31, 2006
vs.
December
31, 2005
Increase
(Decrease)
|
|||||||
|
(in thousands of
pesos)
|
(in thousands of
pesos)
|
|||||||
|
Gross
Intermediation Margin due to changes in the volume of interest-earning
assets and interest-bearing liabilities
|
291,432 | (39,500 | ) | |||||
|
Gross
Intermediation Margin due to changes in average nominal rates of
interest-earning assets and interest-bearing liabilities
|
(380,802 | ) | 378,493 | |||||
|
Gross
Intermediation Margin due to changes in the volume and average nominal
rates of interest-earning assets and interest-bearing
liabilities
|
(75,126 | ) | (10,254 | ) | ||||
|
Net
Change
|
(164,496 | ) | 328,739 | |||||
The
decrease in the Gross Intermediation Margin in the fiscal year ended December
31, 2007 was principally due to a decrease in the yield spread (nominal basis)
from 7.95% in the fiscal year ended December 2006 to 5.24% in the fiscal year
ended December 31, 2007, and to decreases in average nominal rates of
interest-earning assets combined with the increase of interest and volume of
interest-bearing liabilities partially offset by increases in the volume of
interest-earning assets.
The
increase in Gross Intermediation Margin in the fiscal year ended December 31,
2006 was principally due to an increase in the yield spread (nominal basis) from
5.22% in the fiscal year ended December 31, 2005 to 7.95% in the fiscal year
ended December 31, 2006 and to increases in average nominal rates of
interest-earning assets and decreases in average nominal rates of
interest-bearing liabilities.
See “Information on the Company—Selected
Statistical Information—Average Balance Sheets, Interest Earned on
Interest-Earning Assets and Interest Paid on Interest-Bearing Liabilities”, “
Interest-Earning Assets: Net Interest Margin and Spread”.
96
Allowance
for Loan Losses
Loan loss
provisions totaled Ps.62.3 million in the fiscal year ended December 31, 2007, a
11,21% decrease over Ps.70.1 million in the fiscal year ended December 31, 2006,
which in turn represents a 38,82% decrease over Ps.114.6 million in the fiscal
year ended December 31, 2005. The decreases in fiscal years ended December 31,
2007 and December 31, 2006 were mainly due to decreases in our non performing
loan portfolio due to the improvement in the economic situation in some economic
sectors.
Our
non-performing loan portfolio amounted to Ps.63.0 million at December 31, 2007,
a 21,16% decrease over Ps.79.9 million at December 31, 2006, which in turn
represented a 14,55% decrease over Ps.93.5 million at December 31,
2005.
The
non-performing loan portfolio ratio decreased from 1.08% at December 31, 2005 to
0.82 as of December 31, 2006 and decrease to 0.54 as of December 31,
2007.
Our
management believes that our allowance for loan losses is adequate to cover any
known losses and any losses inherent in its loan portfolio. For a discussion of
our policy with respect to the establishment of our allowance for loan losses
see “Information on the
Company—Selected Statistical Information—Allowance for Loan Losses and Loan Loss
Experience”.
Service
Charge Income
Service
Charge Income was Ps.1,182.8 million for fiscal year ended December 31, 2007,
Ps.915.9 million for fiscal year ended December 31, 2006 and Ps.721.2 million
for fiscal year ended December 31, 2005. The fiscal year 2007 amount represented
a 29,14% increase from the amount earned in fiscal year 2006. The fiscal year
2006 amount represented a 27.0% increase from the amount earned in
2005.
The
following table provides a breakdown of our Service Charge Income by
category.
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Service
charges on deposit accounts
|
231,149 | 175,121 | 141,885 | |||||||||
|
Credit
card operations
|
150,947 | 97,250 | 75,913 | |||||||||
|
Other
fees related to foreign trade
|
47,687 | 39,192 | 33,051 | |||||||||
|
Credit-related
fees
|
37,823 | 18,114 | 14,391 | |||||||||
|
Fund
management fees
|
486,066 | 401,107 | 317,633 | |||||||||
|
Capital
markets and securities activities
|
10,608 | 11,332 | 9,496 | |||||||||
|
Rental
of safety deposit boxes
|
17,400 | 14,038 | 11,419 | |||||||||
|
Fees
related to guarantees
|
797 | 1,093 | 1,791 | |||||||||
|
Insurance
agency
|
65,835 | 44,707 | 20,409 | |||||||||
|
Other
|
134,477 | 113,921 | 95,179 | |||||||||
|
Total
|
1,182,789 | 915,875 | 721,167 | |||||||||
Service
charges on deposit accounts are comprised principally of maintenance fees and on
checking and savings accounts and transaction fees on checking accounts. These
fees increased 23,42% from Ps.141.9 million in the fiscal year ended December
31, 2005 to Ps.175.1 million in the fiscal year ended December 31, 2006 which in
turn increased 31,99% to Ps.231.1 million in the fiscal year ended December 31,
2007. The increases in the fiscal years 2006 and 2007 were mainly due to
increases in the volume and number of transactions of such accounts. At December
31, 2007, we had 1,654,387 of such accounts compared to 1,443,965 such accounts
at December 2006 and compared to the 1,285,428 such accounts at December 31,
2005.
Income
from credit cards operations, which consists of customer fees, retailer
transaction fees, merchant processing fees and penalty charges, increased 28,11%
from Ps.75.9 million in the fiscal year ended December 31, 2005 to Ps.97.3
million in the fiscal year ended December 31, 2006, and in turn increased 55.22%
to Ps.151.0 million in fiscal year ended December 31, 2007. The increases in the
fiscal years 2006 and 2007 were mainly due to increases in activity, in the use
of credit cards and in the volume of credit cards issued. At December 31, 2007,
the total number of credit cards we issued amounted to 1,111,049 compared to
1,017,974 at December 31, 2006 and to 672,558 at December 31, 2005.
97
Fees
related to foreign trade increased 18.58% from Ps.33.1 million in the fiscal
year ended December 31, 2005 to Ps.39.2 million un the year ended December 31,
2006, and in turn increased 21.7% to Ps.47.7 millions in the year ended December
31, 2007. The increases in the fiscal years 2006 and 2007 were mainly due to
increases in volume of foreign trade.
Credit
related fees increased 25.87% from Ps.14.4 millions in the fiscal year ended
December 31, 2005 to Ps.18.1 million in the fiscal year ended December 31, 2006,
which in turn increased 108.8% to Ps.37.8 million in the fiscal year ended
December 31, 2007. These increases were mainly due to the increase in granting
of new loans due to the improvement in the economic situation of
Argentina.
Fees
related to fund management increased 26.28% from Ps.317.6 millions in the fiscal
year ended December 31, 2005 to Ps.401.1 million in the fiscal year ended
December 31, 2006, which in turn increased 21.18% to Ps.486.1 in the fiscal year
ended December 31, 2007, as a result of an increase in fund management and
pension fund management activities. Funds under management grew 3.59% to Ps17.3
billion in the fiscal year 2007 from Ps.16.7 billion in the fiscal year 2006,
which in turn increased 30.5% from Ps.12.8 billion in the fiscal year
2005.
We placed
special emphasis on creating funds under the concept of managing an investment
portfolio diversified among the various kinds of financial assets, both local
and foreign (shares, bonds and certificates of deposit). These fees increased
during fiscal years 2007 and 2006 mainly due to the recovery of the economic
environment in Argentina.
Income
from capital markets and securities activities principally represents fees from
underwriting and placement of corporate bonds, commercial paper and equity
securities. It also reflects fees for our corporate advisory business, but
excludes gains from trading Government Securities. Trading gains are included in
“Financial Income” under “Income from Government and Private Securities”.
Finally, income from capital markets and securities activities also includes
brokerage commissions earned by Francés Valores, BBVA Banco Francés’ securities
brokerage subsidiary, but does not include similar income earned by BBVA Banco
Francés itself, which is recorded as “Financial Income” under “Income from
Government and Private Securities”.
Income
from capital markets and securities activities increased 19.33% from Ps.9.5
million in the fiscal year ended December 31, 2005 to Ps.11.3 million in the
fiscal year ended December 31, 2006 mainly due to the increase in activity in
placement of bonds and securities of private sector enterprises, and decreased
6.4% to Ps.10.6 million in the fiscal year ended December 31, 2007.
Rental of
safety deposit boxes increased 22.94% from Ps.11.4 million in the fiscal year
ended December 31, 2005 to Ps 14.0 million in the fiscal year December 31, 2006,
and further increased 24.0% to Ps.17.4 million in the fiscal year ended December
31, 2007. These increases were mainly due to the increase in activity due to the
improvement of the economic situation in Argentina and to increases in
prices.
Fees
related to insurance agency increased 119.1% from Ps.20.4 million in the fiscal
year ended December 31, 2005 to Ps.44.7 million in the fiscal year ended
December 31, 2006 and in turn increased 47.3% to Ps.65.8 million in the fiscal
year ended December 31, 2007. These increases were due to the increase in
consumer economic activity.
Fees
related to guarantees decreased 38.97% from Ps.1.8 million in the fiscal year
ended December 31, 2005 to Ps.1.1 million in the fiscal year ended December 31,
2006 and in turn decreased 27.1% to Ps.0.8 million in the fiscal year ended
December 31, 2007. The decreases in fiscal years 2007, 2006 and 2005 were mainly
due to a decrease in activity in this line of products.
Other
service charge income increased 18.04% to Ps 134.5 million in the fiscal year
ended December 31, 2007 from Ps.113.9 million in the fiscal year ended December
2006 and in turn increased 19.69% from Ps.95.2 million in fiscal year ended
December 31, 2005 mainly due to an increase in fees for use and transactions in
ATMs.
Service
Charge Expenses
Service
charge expenses, which consist of fees that we paid principally to other
financial institutions and taxes on service charge income, increased 41.71% from
Ps.77.8 million in the year ended December 31, 2005 to Ps.110.2 million in the
year ended December 31, 2006, and in turn increased 44.22% to Ps.158.9 million
in the fiscal year ended December 31, 2007 mainly as result of the increase in
commissions paid by us and in service charge income.
Operating
Expenses
Our
operating expenses increased 21.22% to Ps.1,124.2 million in the fiscal year
ended December 31, 2007 from Ps.927.4 million in the fiscal year ended December
31, 2006, which in turn increased 19.54% from Ps.775.8 million in the fiscal
year ended December 31, 2005.
98
Operating
expenses increased in the fiscal year 2007 mainly because of: (i) a 20.42%
increase in personnel expenses, (ii) a 55.71% increase in advertising and
promotion, (iii) a 112.35% increase in fees and external administrative service,
(iv) a 43.31% increase in credit card advertising and issuance expenses, (v) a
34.22% increase in staff welfare, (vi) a 6.8% increase in other operating
expenses, (vii) a 25.53% increase in maintenance and repairs, (viii) a 17.06%
increase in depreciation of Bank premises and equipment, (ix) a 11.04% increase
in taxes, (x) a 46.54% increase in courier transportation, (xi) a 17.73%
increase in utilities, (xii) a 4.87% increase in rent, and (xiii) a 10.16%
increase in business travel and development. Such increases were partially
offset by a 4.38% decrease in amortization of organization and development
expenses.
Operating
expenses increased in the fiscal year 2006 mainly because of: (i) a 21.71%
increase in personnel expenses, (ii) a 61.19% increase in fees and external
administrative services, (iii) a 24.11% increase in taxes, (iv) a 1.08% increase
in utilities, (v) a 8.66% increase in depreciation of Bank premises and
equipment, (vi) a 85.36% increase in credit card advertising and issuance
expenses, (vii) a 47.39% increase in courier transportation, (viii) a 13.98%
increase in advertising and promotion, (ix) a 17.41% increase in maintenance and
repairs, (x) a 28.29% increase in business travel and development, (xi) a 25.54%
increase in staff welfare, (xii) a 15.17% increase in rent, and (xiii) a 12.66%
increase in other operating expenses. Such increases were partially offset by a
18.21% decrease in amortization of organization and development
expenses.
The
components of our Operating Expenses are reflected in the following
table:
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos)
|
||||||||||||
|
Personnel
expenses
|
545,408 | 452,919 | 372,128 | |||||||||
|
Fees
and external administrative services
|
37,145 | 17,492 | 10,852 | |||||||||
|
Taxes
|
52,119 | 46,937 | 37,818 | |||||||||
|
Utilities
|
24,977 | 21,216 | 20,989 | |||||||||
|
Depreciation
of Bank property and equipment
|
37,203 | 31,781 | 29,248 | |||||||||
|
Credit
card advertising and issuance expense
|
43,303 | 30,217 | 16,302 | |||||||||
|
Courier
transportation
|
15,579 | 10,631 | 7,213 | |||||||||
|
Advertising
and promotion (excluding credit card advertising)
|
60,600 | 38,918 | 34,146 | |||||||||
|
Maintenance
and repairs
|
38,553 | 30,712 | 26,157 | |||||||||
|
Business
travel and development
|
18,317 | 16,628 | 12,961 | |||||||||
|
Staff
welfare
|
43,075 | 32,094 | 25,565 | |||||||||
|
Amortization
of organization and development expenses
|
21,961 | 22,967 | 28,082 | |||||||||
|
Rentals
|
47,064 | 44,879 | 38,968 | |||||||||
|
Other
|
138,857 | 130,013 | 115,406 | |||||||||
|
Total
|
1,124,161 | 927,404 | 775,835 | |||||||||
The
largest component of Operating Expenses in each of these years was personnel
expenses, which increased 20.42% during fiscal year 2007, 21.71% during fiscal
year 2006 and 20.66% during fiscal year 2005, principally as result of increases
in salaries (which include payroll, termination payments and bonuses) and in the
number of employees.
The number
of our full-time employees increased from 3,618 in the fiscal year ended
December 31, 2005 to 3,679 in the fiscal year ended December 31, 2006 and to
4,094 in the fiscal year ended December 31, 2007 (not including 1,865, 2,053 and
1,907 employees from non-banking subsidiaries, at December 31, 2007, 2006 and
2005, respectively). The increases in fiscal years 2007, 2006 and 2005 were
mainly due to the recovery and increases of our business activity.
Advertising
and promotion fees increased 55.71% to Ps.60.6 million in the fiscal year ended
December 31, 2007 from Ps.38.9 million in the fiscal year ended December 31,
2006, which in turn increased 13.98% from Ps.34.1 million in the fiscal year
ended December 31, 2005. The increases in fiscal years 2007, 2006 and 2005 were
mainly due to an increase of advertising expenses to credit products launched
during those fiscal years.
Fees and
external administrative services increased 112.35% to Ps.37.2 million in the
fiscal year ended December 31, 2007 from Ps.17.5 million in the fiscal year
ended December 31, 2006, which in turn increased 61.19% from Ps.10.9 million in
the fiscal year ended December 31, 2005. The increases in fiscal years 2007,
2006 and 2005 were mainly due to increases in the cost of services and in hiring
external resources.
99
Credit
card advertising and issuance expenses increased 55.71% to Ps.60.6 million in
the fiscal year ended December 31, 2007 from Ps.30.2 million in the fiscal year
ended December 31, 2006, which in turn increased 85.36% from Ps.16.3 million in
the fiscal year ended December 31, 2005. The increases in fiscal years 2007 and
2006 were mainly due to the launching of the credit card products.
Other
operating expenses increased 6.8% to Ps.138.9 million in the fiscal year ended
December 31, 2007 from Ps.130.0 in the fiscal year ended December 31, 2006,
which in turn increased 12.66% from Ps.115.4 million in the fiscal year ended
December 31, 2005. The increases in fiscal years 2007 and 2006 were mainly due
to the increases in costs and the increase in activity.
Staff
welfare expenses increased 34.22% to Ps.43.8 million in the fiscal year ended
December 31, 2007 from Ps.32.1 million in the fiscal year ended December 31,
2006, which in turn increased 25.54% from Ps.25.6 million in the fiscal year
ended December 31, 2005. The increases were principally as result of increases
in other personnel benefits and in the number of employees.
Maintenance
and repairs expenses increased 25.53% to Ps.38.6 million in the fiscal year
ended December 31, 2007 from Ps.30.7 million in the fiscal year ended December
31, 2006, which in turn increased 17.41% from Ps.26.2 million in the fiscal year
ended December 31, 2005. The increases in fiscal years 2007 and 2006 were mainly
due to the higher maintenance and repairs costs.
Depreciation
of property and equipment increased 17,06% to Ps.37.2 million in the fiscal year
ended December 31, 2007 from Ps.31.8 million in the fiscal year ended December
31, 2006, which in turn increased 8.66% from Ps.29.2 million in the fiscal year
ended December 31, 2005. The increases in fiscal years 2006 and 2007 were mainly
due to increases in additions to the Bank´s properties and
equipment.
Taxes,
other than income tax, increased 11.04% to Ps.52.1 million in the fiscal year
ended December 31, 2007 from Ps.46.9 million in the fiscal year ended December
31, 2006, which in turn increased 24.11% from Ps.37.8 million in fiscal year
ended December 31, 2005. The increases in fiscal years 2007, 2006 and 2005 were
mainly due to increase in activity.
Utility
costs increased 17.73% to Ps.25.0 million in the fiscal year ended December 31,
2007 from Ps.21.2 million in the fiscal year ended December 31, 2006, which in
turn increased 1.1% from Ps.21.0 million in fiscal year ended December 31, 2005.
The increases in fiscal years 2007 and 2006 were mainly due to the higher
activity level.
Rent
expenses increased 4,87% to Ps.47.1 million in the fiscal year ended December
31, 2007 from Ps.44.9 million in the fiscal year ended December 31, 2006, which
in turn increased 15.2% from Ps.39.0 million in fiscal year ended December 31,
2005. The increases in fiscal years 2007 and 2006 were mainly due to the higher
rental costs. At December 31, 2007 our branch network consisted of 232 branches,
of which 114 were located in properties we own and 118 were located in
properties we lease.
Amortization
of organization and development expenses decreased 4.38% to Ps.22.0 million in
the fiscal year ended December 31, 2007 from Ps.23.0 million in the fiscal year
ended December 31, 2006, which in turn decreased 18.21% from Ps.28.1 million in
fiscal year ended December 31, 2005. The decreases in fiscal years 2007 and 2006
were mainly due to reductions in additions during those fiscal
years.
Other
Income
Other
Income increased 163.42% to Ps.828.3 million in the fiscal year ended December
31, 2007 from Ps.314.4 million in the fiscal year ended December 31, 2006, which
in turn decreased 35.01% from Ps.483.9 million in the fiscal year ended December
31, 2005. The increase in fiscal year 2007 was mainly due to a 401.83% increase
in recoveries of charged off loans and reversal of allowances, a 85.37% increase
in other income, a 84.75% increase in interest on other assets, a 118.67%
increase in rentals, and a 78.96% increase in punitive interest. These increases
were partially offset by a 53.05% decrease in income from long-term investments,
and a 8.31% decrease in income from disposal of assets. The decrease in fiscal
year 2006 was mainly due to a 47.47% decrease in Other income related mainly
with a lower deferred income tax provision, a 81.28% decrease in punitive
interest, a 1.5% decrease in recoveries of charged off loans and reversal of
allowances and a 7.66% decrease in interest on other assets. These decreases
were partially offset by a 594.81% increase in income from long-term
investments, mainly due to the income on the sale of Credilogros Compañía
Financiera (see Note 1.4. to the Consolidated Financial Statements), a 88.05%
increase in income from disposal of assets and a 28.37% increase in
rentals.
100
Other
Expenses
Other
Expenses increased 38.05% to Ps.1,584.8 million in fiscal year ended December
31, 2007 from Ps.1,199.9 million in the fiscal year ended December 31, 2006,
which in turn increased 6.29% from Ps.1,128.9 in the fiscal year ended December
31, 2005.
The
increase in the fiscal year ended in December 31, 2007 was mainly due to a
80.10% increase in Other expenses (from Ps.605.0 million in fiscal year ended
December 31, 2006 to Ps.1,090.0 million in fiscal year ended December 31, 2007),
a 23.19% increase in depreciation on differences paid on constitutional
protection action (from Ps.262.3 million in fiscal year ended December 31, 2006
to Ps.323.1 million in fiscal year ended December 31, 2007), a 362.73% increase
in depreciation of Other assets (from Ps.872.0 million in fiscal year ended
December 31, 2006 to Ps.4,075.0 million in fiscal year ended December 31, 2007)
partially offset by a 49.56% decrease in provisions for other receivables and
other allowances (from Ps.312.5 million in fiscal year ended December 31, 2006
to Ps.157.6 million in fiscal year ended December 31, 2007), a 99.63% decrease
in loss from disposal of assets (from Ps.8.5 million in fiscal year ended
December 31, 2006 to Ps.0.03 million in fiscal year ended December 31,
2007).
The
increase in the fiscal year ended December 31, 2006 was mainly due to a 19.25%
increase in depreciation on differences paid on constitutional protection
actions (from Ps.220.0 million in fiscal year ended December 31, 2005 to
Ps.262.3 million in the fiscal year ended December 31, 2006) and a 35.27%
increase in Other expenses (from Ps.447.2 million in fiscal year ended December
31, 2005 to Ps.605.0 million in fiscal year ended December 31, 2006) partially
offset by a 68.62% decrease in loss from disposal of assets (from Ps.27.0
million in fiscal year ended December 31, 2005 to Ps.8.5 million in fiscal year
ended December 31, 2006), a 26.11% decrease in provisions for other receivables
and other allowances (from Ps.422.9 million in fiscal year ended December 31,
2005 to Ps.312.5 million in fiscal year ended December 31, 2006) and a 35.12%
decrease in depreciation of Other assets (from Ps.447.2 million in fiscal year
ended December 31, 2005 to Ps.605.0 million in fiscal year ended December 31,
2006).
Income
Tax
Income Tax
expenses was Ps.50.4 million in the fiscal year ended December 31, 2007, a 29.7%
decrease from Ps.71.7 million in fiscal year ended December 31, 2006, which in
turn represents a 283.07% increase over the Ps.18.7 million in the fiscal year
ended December 31, 2005. The decrease in fiscal year 2007 and the increase in
fiscal 2006 were mainly to the temporary differences originated in each fiscal
year due to the deferred tax method of accounting.
The
following table illustrates, for each of the last three fiscal years, our income
before income tax, the income tax expense that would have been payable at the
statutory rate, various adjustments, and our actual income tax
expense.
|
Fiscal
Year Ended
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||
|
Net
Income before income tax and minority interest
|
304,984 | 290,733 | 153,067 | |||||||||
|
Statutory
tax rate
|
35 | % | 35 | % | 35 | % | ||||||
|
Income
tax (at statutory rate)
|
106,744 | 101,757 | 53,573 | |||||||||
|
Deferred
tax
|
(98,525 | ) | (8,050 | ) | (84,700 | ) | ||||||
|
Tax-exempt
income
|
(26,875 | ) | (27,763 | ) | (54,363 | ) | ||||||
|
Allowances
on deferred tax assets
|
98,525 | 8,050 | 84,700 | |||||||||
|
Other
|
(154,205 | ) | (145,674 | ) | (12,815 | ) | ||||||
|
Income
tax (gain) / loss
|
(74,336 | ) | (71,680 | ) | (13,605 | ) | ||||||
|
(Allowances)
|
— | — | — | |||||||||
|
Income
tax (gain) / loss, net
|
(74,336 | ) | (71,680 | ) | (13,605 | ) | ||||||
|
Actual
income tax
|
74,336 | 71,680 | 13,605 | |||||||||
|
Deferred
income tax (1)
|
— | — | — | |||||||||
|
(1)
|
Included
in Other Income and Income Tax.
|
Our
effective income tax rates differ significantly from the statutory income tax
rate applicable to us. The difference between the statutory rate and the
effective rate is principally due to the following factors. First, the income
from local subsidiaries is tax exempt, and depreciation of goodwill is not tax
deductible. Second, effective tax rate is affected by the different treatment of
loan loss provisions for financial and tax reporting purposes. Additionally, the
allowance made on public loans is not tax deductible. Finally, Government
Securities are generally marked-to-market for tax reporting purposes, with
unrealized gains and losses included in taxable income, even if such securities
are carried on a cost-plus-yield basis for financial reporting purposes. See
Note 20.1. to the Consolidated Financial Statements.
101
Minority
interest in subsidiaries
Loss on
minority interest was Ps.19.5 million in the fiscal year ended December 31,
2007; Ps.39.0 million in the fiscal year ended December 31, 2006 and Ps.17.1
million in the fiscal year ended December 31, 2005. These changes were mainly
due to the changes in net income of Consolidar Group (through which we hold a
53.89% interest in Consolidar AFJP S.A., a 65.96% in Consolidar Compañía de
Seguros de Vida S.A. and a 66.67% interest in Consolidar Seguros de Retiro S.A.)
and the changes in net income of PSA Compañía Financiera S.A. (in which we hold
a 50% interest).
Financial
Condition
Total
Assets
At
December 31, 2007 we had total assets of Ps.22,023.0 million, which represented
a 16.93% increase from the Ps.18,834.6 million as of December 31,
2006.
The
increase was mainly due to the following: a 19.47% increase in Loans net of
allowances (from Ps.9,534.2 million at December 31, 2006 to Ps.11,390.1 million
at December 31, 2007) mainly due to the increase in loans to the private sector
and a decrease in loans to the public sector; a 18.51% increase in Government
and private securities (from Ps.4,372.0 million at December 31, 2006 to
Ps.5,181.3 at December 31, 2007); a 23.87% increase in Cash and due from banks
(from Ps.2,558.5 million at December 31, 2006 to Ps.3,169.3 million at December
31, 2007); a 37.56% increase in Items under financial lease (from Ps.235.2
million at December 31, 2006 to Ps.323.5 million at December 31, 2007); a 26.48%
increase in Other receivables (from Ps.283.0 million at December 31, 2006 to
Ps.358.0 million at December 31, 2007) mainly due to the increase in tax credit
on minimum presumed income and prepayments; a 4.21% increase in Other
receivables from financial transactions (from Ps.917.5 million at December 31,
2006 to Ps.956.2 million at December 31, 2007); a 46.26% increase in Investments
in Other companies (from Ps.54.4 million at December 31, 2006 to Ps.78.0 million
at December 31, 2007); a 10.62% increase in Other assets (from Ps.35.2 million
at December 31, 2006 to Ps.39.0 million at December 31, 2007); and a 0.43%
increase in Bank premises and equipment (from Ps.397.9 million at December 2006
to Ps.400.0 million at December 31, 2007).
These
increases were partially offset by: a 71.44% decrease in Intangible assets (from
Ps.407.5 million at December 31, 2006 to Ps.116.4 million at December 31, 2007)
mainly due to depreciation of constitutional protection actions during the
fiscal year; a 98.28% decrease in Other assets (from Ps.35.2 million at December
31, 2006 to Ps.0.5 million at December 31, 2007) and a 13.24% decrease in
suspense items (from Ps.13.0 million at December 31, 2006 to Ps.11.3 million at
December 31, 2007).
Total
Liabilities and Stockholders’ Equity
At
December 31, 2007, we had total liabilities and minority interests in
subsidiaries of Ps.19,966.2 million, representing a 16.93% increase from the
Ps.16,880.0 million at December 31, 2006.
The
increase was mainly due to the following: a 20.02% increase in deposits (from
Ps.12,505.8 million at December 31, 2006 to Ps.15,009.8 million at December 31,
2007) mainly due to increase in time deposits, saving and checking accounts, a
16.93% increase in Other subsidiaries liabilities (from Ps.1,835.9 million at
December 31, 2006 to Ps.2,146.7 million at December 31, 2007), a 17.93% increase
in Other Liabilities from financial transactions (from Ps.1,484.0 million at
December 31, 2006 to Ps.1,750.0 million at December 31, 2007) mainly due to the
increase in credit lines from foreign banks partially offset by the repayment in
advance of the outstanding amount of the Corporate Bonds issued (see
Note 10 to the Consolidated Financial Statements), a 10.25% increase in Other
liabilities (from Ps.340.1 million at December 31, 2006 to Ps.375.0 million at
December 31, 2007), a 9.03% increase in Minority interest in subsidiaries (from
Ps.216.5 million at December 31, 2006 to Ps.236.0 million at December 31, 2007),
a 68.59 increase in suspens items (from Ps.4.0 million at December 31, 2006 to
Ps.6.7 million at December 31, 2007) partially offset by a 10.51% decrease in
allowances (from Ps.493.8 million at December 31, 2006 to Ps.442.0 million at
December 31, 2007).
Stockholders´
Equity increased from Ps.1,954.6 million at December 31, 2006 to Ps.2,056.8
million at December 31, 2007. The 5.23% increase reflected Net income of the
year (Ps.235.0 million) partially offset by the (Ps.90 million) dividend paid in
May 2007 and the Unrealized valuation difference
(Ps.42,796).
According
to the Central Bank´s Communication “A” 4702 dated August 30, 2007, the
Government Securities and Instruments issued by BCRA, included in the list of
volatilities published by the BCRA on a monthly basis, were classified in the
category “Available for sale”. These were valued in accordance with the
quotations prevailing for each security as of the close of the fiscal year.
Differences, if any, between the cost of addition of these holdings and any
increase due to the accrual of the internal rate of return and the value of the
quotation were charged to Unrealized valuation difference in the stockholders'
equity. As of December 31, 2007, the amount recorded was 42,796
(loss).
102
Liquidity
and Capital Resources
Asset
and Liability Management
The
purpose of asset and liability management is to structure our consolidated
balance sheet in light of interest rate, liquidity and foreign exchange risks,
as well as market risk, public sector risk and capital structure. Our Asset and
Liability Committee establishes specific limits with respect to risk exposure,
sets policy with respect to pricing and approves commercial policies which may
have a financial impact on our balance sheet. It is also responsible for the
follow-up of monetary aggregates and financial variables, our liquidity
position, regulations from the Central Bank and the competitive environment in
assets, liabilities and interest rates. For a detailed description of our Assets
and Liabilities Committee see “Directors and Senior Management -
Special Committees - Assets and Liabilities Committee”.
Liquidity
Our asset
and liability management policy attempts to ensure that sufficient liquidity is
available to meet our funding requirements. As a measure of our liquidity, we
had a ratio of liquidity assets to total deposits of 46.37%, 44.67% and 44.11%
at December 31, 2007, 2006 and 2005, respectively. Liquid assets include cash,
amounts due from banks and government and corporate securities (excluding
holdings in investment accounts and unlisted government
securities).
Our
primary source of funds is our deposit base, which primarily consists of peso
and dollar denominated deposits in checking accounts, savings accounts and time
deposits from individuals and corporations, which deposits at December 31, 2007
totaled Ps.15,009.8 million.
Under a
medium-term note program, that expired in December 2005, we issued the first
series of subordinated corporate bonds, on March 31, 1998, in the amount of
U.S.$150 million, at an annual floating interest rate of LIBOR plus 3.3 points,
maturing on March 31, 2005. As of December 31, 2002 we had capitalized U.S.$130
million of the above mentioned subordinated debt. As of December 31, 2004 the
outstanding capital of this debt amounted to U.S.$20 million, which was paid on
March 31, 2005 upon maturity.
On April
27, 2000, the general ordinary and extraordinary shareholders meeting approved
the increase of the aggregate outstanding maximum amount of the corporate bonds
to be issued under the Medium-Term Note Program to U.S.$1,000 million. The
shareholders meeting also approved the creation of a short-term program to be
issued in various series and classes for a total outstanding amount of up to
U.S.$300 million (or its equivalent in other currency) for five years. Under
this program we can issue corporate bonds (not convertible into shares) maturing
in one year or less with or without third party guarantees according to the
dispositions of the Board of Directors.
On October
31, 2000, we issued corporate bonds in the amount of U.S.$150 million face
value, at a price equal to 100% of the face value, with an annual interest rate
of LIBOR plus 145 basis points, payable on a semi-annual basis maturing on
October 31, 2002, to be amortized upon maturity. On October 2002 we agreed to
refinance these corporate bonds through the issue of a new series of bonds. Such
refinancing included the interest payment and a 5% payment of the capital as of
October 31, 2002, the payment of a 5.26% of the capital of the new bond at 180
days of the issuance and the balance in one year. In November 2003 we agreed
upon the refinancing of these bonds through the issue of a new series of bonds.
Such refinancing included the interest payment and a 10% payment of the capital
as of November 26, 2003, and the remaining in semi-annual instalments with final
maturity on October 31, 2008. As of December 31, 2006 the principal outstanding
of this debt amounts to U.S.$81.0 million. Section 36 of Law No. 23,576, states
that in order for the issuance of notes to be subject to fiscal benefits, said
notes must be sold by public offering procedures, and their proceeds must be
invested: (i) in physical assets situated in Argentina; (ii) in working capital
in Argentina; (iii) for the refinancing of debt; or (iv) for the payment of
irrevocable contributions in affiliate companies of the issuer, if their
proceeds are exclusively invested as described in (i) and (ii). On February 9,
2007, the Bank’s Board of Directors adopted a resolution to repay in advance the
total amount of Series 15 Corporate Bonds and delegated on the Bank´s officials
the powers to determine the manner, terms and conditions for said repayment. On
March 14, 2007 we paid the outstanding amount of this debt.
The
shareholders meeting held on July 15, 2003, approved the creation of a new
medium-term note program, for five years, for the issuance and re-issuance of
simple notes (Obligaciones Negociables), non-convertible into shares with common
guarantee or such guarantees determined by the Board of Directors and
subordinated notes without guarantee, convertible or non-convertible into
shares, for a total outstanding amount of up to U.S.$300 million according to
the provisions of the Central Bank’s Communications “A” 2970 and “A” 3558 as
amended under Law No. 23,576 as amended by Law No. 23,962.
103
On
December 22, 2003 we paid a Ps.60 million seven-year loan plus CER (originally
U.S.$60 million) granted by the Fiduciary Fund for Assistance to Financial and
Insurance Institutions to Banco de Crédito Argentino, on December 20, 1996, for
the financing of the acquisition of certain assets and liabilities.
On January
10, 2003, the Federal Executive published Decree No. 53/03 which amended Decree
No. 410/02. Decree No. 410/02 had the effect of not converting certain foreign
currency obligations of public and private sector companies into pesos. The
Decree governed obligations to the National Government as a result of i)
subsidiary or other loans and guarantees originally financed by multilateral
credit entities or ii) arising from liabilities owed by the National Treasury
and refinanced with external creditors. The decision taken by the Managing
Committee of the Trust Fund for Reconstruction of Companies at the meeting held
on May 28, 2003 stated that 50% of the aforementioned financing was to be
converted into pesos while the difference would be remain in its original
currency.
On
December 29, 2004, we paid the last instalment of subordinated corporate bonds
issued by Corpbanca, which we thereby acquired. This debt was originally stated
in dollars for an amount of U.S.$30 million and was converted into pesos at the
exchange rate Ps.1 per U.S. dollar, and indexed by applying CER in accordance
with the regulations established by the Government in February,
2002.
The Bank
has filed a subsidiary appeal for reversal before a higher administrative
authority applying for a change in the aforementioned criterion and has
reiterated its position at the time of each interest and principal payment. Upon
the appeal’s dismissal, the claims were filed with the hierarchical superior
officer on March 16, 2004. On May 17, 2004 the grounds for the appeal before the
higher administrative authority were expanded. On February 7, 2005, the Bank was
notified of Resolution No. 25 dated January 17, 2005, executed by the Argentine
Minister of Economy and Production, which dismissed the Hierarchical Remedy
sought. On May 16, 2005, an administrative action under section 100 (Decree No.
1759/72, 1991 revision) was filed against Resolution No. 25 issued by the
Ministry of Economy and Production, which dismissed the Hierarchical Appeal
filed by the Bank. At present, the case is pending determination by the Federal
Executive. This notwithstanding, in May 2005 a liability of U.S.$25,604 thousand
was recorded under Other Liabilities from Financial Transactions, this being the
dollar amount owed estimated by the Bank in the filing mentioned above. This
effect was compensated during October 2006, with Boden 2012 having been
subscribed for a nominal value of dollars 50,288. On November 2006, the Bank
submitted to the Trust Fund for Reconstruction of Companies (FFRE) a proposal
consisting in a settlement and total payment for the purpose of fully and
totally repaying the amounts owed by the Bank to the Trust Fund (see Note 11. to
the Consolidated Financial Statements), offering to pay for all purposes the
total amount of Ps.84,337. Since January 22, 2007 the Trust Fund has requested
several extensions, the last until April 15, 2007 to serve notice as to whether
the proposal submitted has been accepted or rejected. On April 13, 2007 the FFRE
accepted the proposal of cancellation above mentioned for an amount of
Ps.88,462, for which the Bank proceeded to transfer the funds corresponding to
cancel fully and totally the debt on April 20, 2007. The difference of Ps.4,125
was absorbed with allowances recorded to such purpose at the end of the prior
year.
Dividends
and other payments from our Argentine non-banking subsidiaries also provide an
additional potential source of liquidity, even though relatively insignificant
in amount. Each Argentine non-banking subsidiary is required to allocate 5% of
its annual net income to a legal reserve until such reserve equals 20% of the
subsidiary’s capital stock. This reserve cannot be used to pay us
dividends.
The
measures taken by the Government at the beginning of 2002, including the repeal
of the Convertibility Law, the “pesification” of all assets and liabilities in
the formal economy and the default by the Government on its debt, led to a
massive withdrawal of deposits and a breakdown in the chain of payments. We had
to face a persistent drain of deposits, lawsuits brought by depositors to get
back their deposits in cash and in their original currency, and the maturing of
our foreign currency liabilities. At December 31, 2006, we have repaid a total
of approximately U.S.$105.3 million and Ps.2,220.3 million in connection with
lawsuits brought by depositors.
Capital
Resources
At the
regular and special stockholders meeting held on August 7, 2002, the
stockholders approved the Bank’s capital increase in the amount of up to
1,250,000 nominal value for the subscription of common, book-entry shares,
entitled to one vote per share. Those shares might be paid up in cash and/or
with subordinated corporate bonds in foreign currency issued by the Bank,
maturing on March 31, 2005, and/or with loans granted by BBVA to the Bank. The
Bank management, at its meeting of December 5, 2002, decided to: approve the
assets to be contributed, as follows: (i) cash, (ii) subordinated corporate
bonds issued by the Bank, maturing March 31, 2005, and (iii) the loan granted by
BBVA on April 19, 2002, in the amount of U.S.$79.3 million; establish the value
of subordinated corporate bonds to capitalize in U.S.$58.10 per U.S.$100 nominal
value, based on valuation reports made by independent third parties; and
establish the amount of shares to be listed as 209,631,892.
104
On
December 31, 2002, in accordance with the issuance conditions of the new shares,
158,361,439 new shares in the exercise of preemptive rights and 135,101 new
shares in the exercise of the option to buy additional shares that were not
purchased by other shareholders in exercise of their preemptive rights, were
subscribed and integrated. The Bank’s capital stock amounts to Ps.368,128,432 as
of December 31, 2002 and 2003.
At the
regular and special meetings held on April 22, 2004, the stockholders approved
the Bank’s capital increase in the amount of up to 385,000 nominal value for the
subscription of common, book-entry shares, entitled to one vote per share. The
stockholders delegated to the Board of Directors the power to establish the
remaining conditions.
On June
11, 2004, the Bank filed an application for public offering of shares to be sold
through subscription (Chapter VI Rules of the National Securities Commission,
General Resolution No. 368/01) with the Buenos Aires Stock Exchange and the
National Securities Commission.
The public
offering of 103,232,874 ordinary shares of Ps.1.00 par value each, entitled to
one vote per share and with equal rights than the remaining shares of the Bank,
according to what was established by the Board of Directors Meeting held on June
10, 2004, and the Meeting of Sub-Delegates appointed by the Board of Directors
Meeting of October 5, 2004, was authorized by Resolution No. 14,917 of the
National Securities Commission on October 4, 2004. The stock-market listing of
the referred shares was authorized by the Buenos Aires Stock Exchange on October
7, 2004. It was stated that the preferential subscription period began on
October 18, 2004 and ended on November 17, 2004.
On
November 2, 2004, BBVA subscribed to 65,326,744 new shares. The integration of
the amount of Ps.230,603,406.32 corresponding to the new shares is carried out
by the capitalization of BBVA by means of a loan amounting to U.S.$77,701,464.68
plus interest up to November 2, 2004 inclusive, of U.S.$21,288.07.
On
November 19, 2004 the subscription procedure came to an end. An aggregate of
103,232,874 new shares was issued for a paid-in amount of Ps.364,412,045.22,
which resulted in an additional paid-in capital of
Ps.261,179,171.12.
Interest
Rate Sensitivity
A key
component of our asset and liability policy is the management of interest rate
sensitivity. Interest rate sensitivity is the exposure and the measure of
sensitivity to interest rate variations. The interest rate sensitivity measures
the impact on the gross intermediation margin in response to a change in market
interest rates. For any given period, the pricing structure is matched when an
equal amount of assets and liabilities reprice. Any mismatch of interest-earning
assets and interest-bearing liabilities is known as a gap position and is shown
in the following tables. A negative gap denotes liability sensitivity and
normally means that a decline in interest rates would have a positive effect on
net interest income while an increase in interest rates would have a negative
effect on interest income.
Our
interest rate sensitivity strategy takes into account not only the rates of
return and their underlying degree of risk, but also liquidity requirements,
including minimum regulatory cash reserves, mandatory liquidity ratios,
withdrawal and maturity of deposits and additional demands for funds. Our gap
limits are established and subsequently monitored by the Asset and Liability
Management Committee.
The
following table shows the interest rate sensitivity of our interest-earning
assets and interest-bearing liabilities. Variations in interest rate sensitivity
may also arise within the repricing periods presented.
It is
important to highlight that given the devaluation of the peso and the following
conversion into pesos of assets and liabilities in foreign currency, the
Government measures introduced an important interest rate gap in our Net
Financial Income. While a significant part of the Bank’s risk assets, mainly
Public sector loans and bonds, accrue CER adjustment plus an annual interest
rate, most liabilities accrue interest at a fixed rate. Fixed rate assets and
liabilities with a maturity of no more than three months and total adjusted
assets and liabilities, are included in the following chart, in the 0-3 months
interval, given that CER adjustment changes on a monthly basis. The chart shows
our exposure to a positive interest rate gap, but it is important to bear in
mind that CER behaviour may differ from that of the interest rate. In this
sense, the aforementioned adjusted CER deposits help to reduce the long CER
adjusted position.
105
|
Remaining
Maturity or Earliest Repricing Intervals at December 31,
2007
|
||||||||||||||||||||||||
|
0-3
months
|
3
Months-
One
Year
|
1-5
Years
|
5-10
Years
|
Over
10 Years
|
Total
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Interest-earning
assets
|
||||||||||||||||||||||||
|
Interest
earning deposits in banks
|
2,243,864 | — | — | — | — | 2,243,864 | ||||||||||||||||||
|
Government
securities
|
4,804,327 | 129,681 | 55,524 | 3,643 | 4,267 | 4,997,442 | ||||||||||||||||||
|
Corporate
bonds
|
113,848 | 8,782 | 5,431 | 2,926 | — | 130,987 | ||||||||||||||||||
|
Loans
(1)
|
7,405,833 | 2,179,951 | 1,788,900 | 161,181 | 53,077 | 11,588,942 | ||||||||||||||||||
|
Total
|
14,567,872 | 2,318,414 | 1,849,855 | 167,750 | 57,344 | 18,961,235 | ||||||||||||||||||
|
Interest-bearing
liabilities
|
||||||||||||||||||||||||
|
Deposits
|
11,567,288 | 603,016 | 3,168 | — | — | 12,173,472 | ||||||||||||||||||
|
Due
to other banks
|
1,296,227 | 74,737 | 65,391 | 1,975 | — | 1,438,330 | ||||||||||||||||||
|
Total
|
12,863,515 | 677,753 | 68,559 | 1,975 | — | 13,611,802 | ||||||||||||||||||
|
Asset/liability
gap
|
1,704,357 | 1,640,661 | 1,781,296 | 165,775 | 57,344 | 5,349,433 | ||||||||||||||||||
|
Cumulative
sensitivity gap
|
1,704,357 | 3,345,018 | 5,126,314 | 5,292,089 | 5,349,433 | |||||||||||||||||||
|
Cumulative
sensitivity gap as a percentage of total interest-earning
assets
|
8.99% | 17.64% | 27.04% | 27.91% | 28.21% | |||||||||||||||||||
|
(1)
|
Loan
amounts are stated before deducting the allowance for loan losses.
Non-accrual loans are included with loans as interest-earning
assets.
|
The
following table shows the interest rate sensitivity of our peso-denominated
interest-earning assets and interest-bearing liabilities.
|
Remaining
Maturity or Earliest Repricing Intervals at December 31,
2007
|
||||||||||||||||||||||||
|
0-3
months
|
3
Months-
One
Year
|
1-5
Years
|
5-10
Years
|
Over
10 Years
|
Total
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||
|
Interest
earning deposits in banks
|
1,487,323 | — | — | — | — | 1,487,323 | ||||||||||||||||||
|
Government
securities
|
4,772,208 | 129,388 | 17,970 | 308 | 1,351 | 4,921,225 | ||||||||||||||||||
|
Corporate
bonds
|
49,912 | — | — | — | — | 49,912 | ||||||||||||||||||
|
Loans
(1)
|
5,844,084 | 1,464,096 | 1,782,380 | 161,181 | 53,077 | 9,304,818 | ||||||||||||||||||
|
Total
|
12,153,527 | 1,593,484 | 1,800,350 | 161,489 | 54,428 | 15,763,278 | ||||||||||||||||||
|
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
|
Deposits
|
9,427,035 | 362,009 | 2,290 | — | — | 9,791,334 | ||||||||||||||||||
|
Due
to other banks
|
336,960 | 46,114 | 65,391 | 1,975 | — | 450,440 | ||||||||||||||||||
|
Total
|
9,763,995 | 408,123 | 67,681 | 1,975 | — | 10,241,774 | ||||||||||||||||||
|
Asset/liability
gap
|
2,389,532 | 1,185,361 | 1,732,669 | 159,514 | 54,428 | 5,521,504 | ||||||||||||||||||
|
Cumulative
sensitivity gap
|
2,389,532 | 3,574,893 | 5,307,562 | 5,467,076 | 5,521,504 | |||||||||||||||||||
|
Cumulative
sensitivity gap as a percentage of total interest-earning
assets
|
15.16% | 22.68% | 33.67% | 34.68% | 35.03% | |||||||||||||||||||
|
(1)
|
Loan
amounts are stated before deducting the allowance for loan losses.
Non-accrual loans are included with loans as interest-earning
assets.
|
106
The
following table shows the interest rate sensitivity of our foreign currency
denominated interest-earning assets and interest-bearing liabilities. Variations
in interest rate sensitivity may also arise within the repricing periods
presented.
|
Remaining
Maturity or Earliest Reprising Intervals at December 31,
2007
|
||||||||||||||||||||||||
|
0-3
months
|
3
Months-
One
Year
|
1-5
Years
|
5-10
Years
|
Over
10 Years
|
Total
|
|||||||||||||||||||
|
(in
thousands of pesos, except percentages)
|
||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||
|
Interest
earning deposits in banks
|
756,541 | — | — | — | — | 756,541 | ||||||||||||||||||
|
Government
securities
|
32,119 | 293 | 37,554 | 3,335 | 2,916 | 76,217 | ||||||||||||||||||
|
Corporate
bonds
|
63,936 | 8,782 | 5,431 | 2,926 | — | 81,075 | ||||||||||||||||||
|
Loans
(1)
|
1,561,749 | 715,855 | 6,520 | — | — | 2,284,124 | ||||||||||||||||||
|
Total
|
2,414,345 | 724,930 | 49,505 | 6,261 | 2,916 | 3,197,957 | ||||||||||||||||||
|
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
|
Deposits
|
2,140,253 | 241,007 | 878 | — | — | 2,382,138 | ||||||||||||||||||
|
Due
to other banks
|
959,267 | 28,623 | — | — | — | 987,890 | ||||||||||||||||||
|
Total
|
3,099,520 | 269,630 | 878 | — | — | 3,370,028 | ||||||||||||||||||
|
Asset/liability
gap
|
(685,175 | ) | 455,300 | 48,627 | 6,261 | 2,916 | (172,071 | ) | ||||||||||||||||
|
Cumulative
sensitivity gap
|
(685,175 | ) | (229,875 | ) | (181,248 | ) | (174,987 | ) | (172,071 | ) | ||||||||||||||
|
Cumulative
sensitivity gap as a percentage of total interest-earning
assets
|
(21.43)% | (7.19)% | (5.67)% | (5.47)% | (5.38)% | |||||||||||||||||||
|
(1)
|
Loan
amounts are stated before deducting the allowance for loan losses. Non
accrual loans are included with loans as interest-earning
assets.
|
Exchange
Rate Sensitivity
At
December 31, 2007, our total foreign exchange-denominated asset position was
Ps.3,728.9 million and our total foreign exchange-denominated liability position
was Ps.3,502.7 million, resulting in a net asset currency position of Ps.226.2
million, which is 11.00% of stockholders’ equity.
For a
description of the changes in the exchange rates since December 2007, see “Information on the Company—Recent
Political and Economic Developments in Argentina” and Note 19.12. to the
Consolidated Financial Statements. For a description of foreign exchange risk,
see “Quantitative and
Qualitative Disclosures About Market Risk—Foreign Exchange
Risk”.
Capital
Requirements
As of
December 31, 2007 we had a consolidated excess capital of Ps.949.5 million
pursuant to the Central Bank’s rules. At such date, “Basic Net Worth” and
“Complementary Net Worth”, subject to applicable deductions, amounted to
Ps.2,233.0 million under the Argentine risk-based capital guidelines (which are
based on the Basle Committee). As of December 31, 2006 our excess capital
amounted to Ps.1,085.1 million, with a “Basic Net Worth” and “Complementary Net
Worth”, subject to applicable deductions to Ps.2,089.7 million. As of December
31, 2005, our excess capital amounted to Ps.1,021.4 million, with a “Basic Net
Worth” and “Complementary Net Worth”, subject to applicable deductions, of
Ps.1,889.9 million.
As of
December 31, 2007, we complied with the Central Bank’s capital requirements on a
consolidated basis and our capital resources were sufficient for our capital
requirements. See a description of the minimum capital requirements currently in
effect in “Information on the
Company—The Argentine Banking System and its Regulatory
Framework”.
As of
December 31, 2007, 2006 and 2005, our stockholders’ equity was Ps.2,056.8
million, Ps.1,954.6 million and Ps.1,801.6 million, respectively. At such dates,
our ratio of average stockholders’ equity/average total assets was 9.82%, 10.79%
and 10.88%, respectively. See “Information on the Company—Select
Statistical Information—Return on Equity and Assets”.
In our
opinion, our capital resources are sufficient for the Bank’s present
requirements also on an individual and a consolidated basis.
We are not
aware of any legal or economic restrictions on the ability of our subsidiaries
to transfer funds to BBVA Banco Francés in the form of cash dividends, loans,
advances - subject to the regulations of each industry- or by other means.
However, there can be no assurance that in the future such restrictions will not
be adopted or that, if adopted, they will not negatively affect our
liquidity.
As of
December 31, 2007, the Bank had no material commitments for capital
expenditures.
107
The
following table sets forth, for the dates indicated, the calculation of our
excess capital under the Central Bank’s rules and certain capital and liquidity
ratios.
|
At
December 31,
|
||||||||||||
|
2007
(4)
|
2006
(4)
|
2005
(4)
|
||||||||||
|
(in
thousands of pesos, except ratios and percentages)
|
||||||||||||
|
Calculation
of excess capital (1)
|
||||||||||||
|
Allocated
to assets at risk
|
760,014 | 540,415 | 331,836 | |||||||||
|
Allocated
to Bank premises and equipment, intangible assets and equity investment
assets
|
94,852 | 116,944 | 132,125 | |||||||||
|
Interest
rate risk
|
174,544 | 98,833 | 97,950 | |||||||||
|
Incremental
minimum capital requirements originated in excesses in other
regulations
|
— | — | 197,645 | |||||||||
|
Public
sector and securities in investment account
|
145,882 | 99,227 | 70,877 | |||||||||
|
A-
Minimal exigency by adds up risks
|
1,175,292 | 855,419 | 830,433 | |||||||||
|
B-
Basic exigency for custody of titles of the AFJP and / or agent of record
of hypothecary letters
|
1,068,636 | 931,187 | 768,793 | |||||||||
|
Maximum
between A and B
|
1,175,292 | 931,187 | 830,433 | |||||||||
|
Market
risk
|
108,280 | 73,367 | 38,079 | |||||||||
|
Required
minimum capital under Central Bank rules
|
1,283,572 | 1,004,554 | 868,512 | |||||||||
|
Basic
net worth
|
1,864,585 | 1,774,548 | 1,684,343 | |||||||||
|
Complementary
net worth
|
235,272 | 190,866 | 122,207 | |||||||||
|
Deductions
|
(102,835 | ) | (92,186 | ) | (105,617 | ) | ||||||
|
Minority
interest
|
236,018 | 216,480 | 188,960 | |||||||||
|
Total
capital under Central Bank rules
|
2,233,040 | 2,089,708 | 1,889,893 | |||||||||
|
Excess
capital
|
949,468 | 1,085,154 | 1,021,381 | |||||||||
|
Selected
capital and liquidity ratios
|
||||||||||||
|
Average
stockholders’ equity as a percentage of average total assets (1)(2)
|
9.82% | 10.79% | 10.88% | |||||||||
|
Total
liabilities as a multiple of total stockholders’ equity
|
9.71x | 8.64x | 7.77x | |||||||||
|
Cash
and due from banks as a percentage of total deposits
|
21.12% | 20.46% | 15.18% | |||||||||
|
Liquid
assets as a percentage of total deposits (1)(3)
|
55.63% | 55.42% | 48.20% | |||||||||
|
Loans
as a percentage of total assets
|
51.72% | 50.62% | 53.06% | |||||||||
|
(1)
|
See
“Information on the
Company—The
Argentine Banking System and its Regulatory Framework —Capital Adequacy
Requirements” for a discussion of the Central Bank’s capital
requirements.
|
|
(2)
|
Average
stockholder’s equity and average total assets computed as the average of
period-beginning and period-ending
balances.
|
|
(3)
|
At
December 31, 2007, 2006 and 2005, “Liquid Assets” includes cash and due
from banks and government and private
securities.
|
|
(4)
|
The Bank must maintain a surplus of minimum
paid-in capital amounting to at least
Ps.53,432, Ps.46,559 and Ps.38,440 as at December 31,
2007, 2006 and 2005, respectively, equivalent to
0.25% of the amount of values under custody for securities representing
investments from pension funds, as well as in
connection with its function as registrar of mortgage-backed bonds,
invested in national public securities and other destinations authorized
by the BCRA and guaranteed in favor of the said
Entity.
|
108
Contractual
Obligations and Commercial Commitments
The
following table represents our contractual obligations and commercial
commitments as of December 31, 2007:
|
Payments
due by Period
(in
thousands of Pesos)
|
||||||||||||||||||||
|
Total
|
Less
than
1
year
|
1-3
years
|
4-5
years
|
After
5
years
|
||||||||||||||||
|
Contractual
obligations
|
||||||||||||||||||||
|
Long-term
debt
|
1,584,590 | 1,490,599 | 86,421 | 7,191 | 379 | |||||||||||||||
|
Operating
leases
|
98,218 | 17,611 | 27,872 | 20,309 | 32,426 | |||||||||||||||
|
Total
|
1,682,808 | 1,508,210 | 114,293 | 27,500 | 32,805 | |||||||||||||||
|
Commercial
commitments
|
||||||||||||||||||||
|
Lines
of credit
|
26,185 | 26,185 | — | — | — | |||||||||||||||
|
Foreign
trade acceptances
|
196,522 | 195,575 | 947 | — | — | |||||||||||||||
|
Guarantees
|
270,396 | 134,358 | 241 | 8,147 | 127,650 | |||||||||||||||
|
Standby
repurchase obligations
|
165,431 | 165,431 | — | — | — | |||||||||||||||
|
Total
|
658,534 | 521,549 | 1,188 | 8,147 | 127,650 | |||||||||||||||
Off-Balance
Sheet Arrangements
We enter
into various transactions involving off-balance sheet financial instruments (see
Note 19.18 to the Consolidated Financial Statements). We use these instruments
to meet the risk management, trading and financing needs of clients or for our
proprietary trading and asset and liability management purposes. These
instruments are subject to varying degrees of credit and market risk. We monitor
credit risk and market risk associated with on- and off-balance sheet financial
instruments on an aggregate basis.
We use the
same credit policies in determining whether to enter or extend call and put
option contracts, commitments, conditional obligations and guarantees as we do
for granting loans. Our management believes that the outstanding off-balance
sheet items do not represent an unusual credit risk.
Derivatives
The market
risk of derivatives arises from the potential for changes in value due to
fluctuations in market prices. We reduce our exposure to market risk, if
necessary, by entering into offsetting transactions in accordance with the
hedging global policy defined by BBVA for its subsidiaries. The credit risk of
derivatives arises from the potential of a counterparty to default on its
contractual obligations. The effect of such a default varies as the market value
of derivative contracts changes. Credit exposure exists at a particular point in
time when a derivative has a positive market value. We attempt to limit our
credit risk by dealing with creditworthy counterparties and obtaining collateral
where appropriate. Our activities related to hedging and derivatives
transactions in 2007 are explained in Note 19.18. to the Consolidated Financial
Statements.
Credit
Commitments
Commitments
to extend credit are agreements to lend to a customer at a future date, subject
to compliance with contractual terms. Commitments generally have fixed
expiration dates or other termination clauses and may require the payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent actual future
cash requirements for the Bank. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis. Foreign trade acceptances represent
Bank customers’ liabilities on outstanding drafts or bills of exchange that have
been accepted by the Bank and the Bank’s liability to remit payment upon the
presentation of the accepted drafts or bills of exchange. The credit risk
involved in foreign trade acceptances and guarantees granted is essentially the
same as that involved in extending loan facilities to customers.
Financial
Trusts
We act as
trustee in several financial trusts established for various purposes. We are in
no case personally liable for the liabilities assumed in the performance of the
trust obligations. Any liabilities resulting from the trust are satisfied with
and up to the full amount of the trust assets or their proceeds. See Note 9. to
the Consolidated Financial Statements.
109
Non
Financial Trusts
In
addition, we act as trustee in 44 non financial trusts. We are in no case
personally liable for the liabilities assumed in the performance of the contract
obligations. Any liabilities are satisfied with and up to the full amount of the
trust assets and their proceeds. The non-financial trusts at issue were set up
to secure the receivables of several creditors (beneficiaries) and the trustee
was entrusted with the management, care, preservation and custody of the trust
assets. The trust assets represent about Ps.588.4 million and consist mainly of
cash, creditors’ rights, real estate and shares. See Note 9. to the Consolidated
Financial Statements.
U.S.
and Argentine Banking GAAP Reconciliation
We prepare
our financial statements in accordance with the rules of the Central Bank
related thereto, which differ from U.S. GAAP in certain respects, as discussed
in Note 20. to the Consolidated Financial Statements. The differences and the
most significant effects on our net income and Stockholders’ Equity over the
fiscal years ended December 31, 2007, 2006 and 2005 are described
below.
Under U.S.
SFAS No. 109, deferred tax assets or liabilities are recorded for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities at statutory tax rates expected to be in effect when such
amounts will be realized. Deferred tax assets are recognized if it is more
likely than not that such assets will be realized. As explained in Note 5.1. to
the Consolidated Financial Statements, we applied this method to determine the
charge for income tax. The adjustments required in order to reconcile assets and
liabilities with U.S. GAAP, as detailed in the following paragraph, are shown
without considering their effect on income tax. This effect would have caused
our net income to decrease by Ps.166.5 million and Ps.34.5 million as of
December 31, 2007 and 2006, respectively, and increase by Ps.19.3 million for
the fiscal year ended December 31, 2005. In addition, stockholders’ equity would
have increased by Ps.374.2 million, Ps.489.7 million and Ps.536.6 million as of
December 31, 2007, 2006 and 2005, respectively.
In
addition, as mentioned in Note 5.2. to the Consolidated Financial Statements,
the Bank, as requested by the Central Bank, record an asset for the credit for
tax on minimum presumed income. Had U.S. GAAP been applied, the Bank’s net
income would be decreased by Ps.1.0 million as of December 31,
2005.
Under
Argentine Banking GAAP, loan origination and issuance credit card’s fees are
recognized when collected. Under U.S. SFAS No. 91, these fees are recognized
over the life of the related loan as an adjustment to yield. The effect of
applying SFAS No. 91 would have been to decrease our net income by Ps.9.8
million, Ps.15.6 million and Ps.2.3 million for the fiscal years ended December
31, 2007, 2006 and 2005, respectively. Since the effect of U.S. GAAP treatment
would have been to decrease the principal balance of outstanding loans,
application of SFAS No. 91 to our financial statements would have reduced
Stockholders’ Equity by Ps.48.5 million, Ps.38.6 million and Ps.23.1 million for
the fiscal years ended December 31, 2007, 2006 and 2005,
respectively.
Under
Argentine Banking GAAP, certain software development expenses are amortized over
the estimated useful life of the software, for up to a maximum of 60 months.
Under Argentine Banking GAAP, the Consolidar Group capitalized expenses incurred
in connection with the launching of certain activities. The Pension Fund Manager
Superintendency (the agency overseeing Consolidar AFJP) authorized the
capitalization of disbursements made through September 25, 1994, for “salaries,
advertising, software, agent’s commissions, fees, brochures, forms, printing and
leases and rentals”. Under U.S. SFAS No. 2, these expenses are to be charged-off
to income when incurred. If U.S. GAAP had been applied, our assets would have
decreased by Ps.6.8 million, Ps.11.4 million and Ps.16.9 million for the fiscal
years ended December 31, 2007, 2006 and 2005, respectively. Our net income would
have increased by Ps.4.5 million and Ps.5.5 million for the fiscal years ended
December 31, 2007 and 2006, respectively, and would be decreased by Ps.0.5
million for the fiscal year ended December 31, 2005.
Under
Argentine Banking GAAP, Government securities that we decided to classify as
investment accounts (including those used for forward purchases under repurchase
agreements) were carried at a cost adjusted for the accrual at fiscal year-end
of interest based on the internal rate of return from the time elapsed from
acquisition date. According to U.S. GAAP, these securities should be considered
as available for sale and carried at fair value (market value if available) with
unrealized gains and losses reported as a net amount, net of income tax within
the stockholder’s equity accounts. However, SFAS No. 115 requires that if the
decline in fair value is judged to be other than temporary, the cost of the
security shall be written down to fair value, and the amount of the write down
shall be included in earnings. Had U.S. GAAP been applied, our assets would have
decreased by Ps.31.5 million, Ps.76.3 million and Ps.173.0 million for the
fiscal years ended December 31, 2007, 2006 and 2005, respectively. Our net
income would have increased by Ps.147.6 million, Ps.61.2 million and Ps.383.3
million for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively.
110
Under
Argentine Banking GAAP, we carry our unlisted Government and private securities
denominated in pesos at cost and our unlisted Government and private securities
denominated in foreign currencies at par plus accrued income translated at the
closing exchange rate on the day of valuation. Under U.S. GAAP for trading
securities, a fair valuation methodology should be used to value securities for
accounting purposes. Had U.S. GAAP been applied, our assets would be decreased
by Ps.1.0 million for the fiscal year ended December 31, 2006 and would be
increased by Ps.4.5 million for the fiscal year ended December 31, 2005. On the
other hand, the income for the fiscal years ended December 31, 2007, 2006 and
2005 would have increased by Ps.1.0 million, Ps.5.5 million and Ps.12.4 million,
respectively.
Under
Argentine Banking GAAP, the allowance for loans has been calculated based on the
Bank’s estimated loan loss risk in light of debtor compliance and the
collaterals supporting the respective transactions, as provided by Communication
“A” 2950 and supplemented by the Central Bank. SFAS No. 114, as amended by SFAS
No. 118, requires a creditor to measure impairment of a loan based on the
present value of expected future cash flows discounted at the loan’s effective
interest rate, or at the loan’s observable market price or the fair value of the
collateral if the loan is collateral dependent. This statement is applicable to
all loans (including those restructured in a troubled debt restructuring
involving a modification of terms), except large groups of smaller-balance
homogenous loans that are collectively evaluated for impairment. Had U.S. GAAP
been applied, the Bank’s assets would be increased by Ps.107.2 million, Ps.70.2
million and Ps.49.6 million at December 31, 2007, 2006 and 2005, respectively.
On the other hand, the income for the years ended December 31, 2007, 2006 and
2005 would be increased by Ps.37.0 million, Ps.20.7 million and Ps.12.0 million,
respectively.
Under
Argentine Banking GAAP, BBVA Banco Francés and its subsidiaries swapped Federal
State Securities, bonds, treasury bills and unsecured loans at face value for
secured loans. The initial value of the certificates matched that of the prior
book value as of the date of the swap. According to U.S. GAAP, a non-temporary
impairment affects the swapped obligations and therefore requires that, in the
event that such obligations have been classified as “held to maturity”, a loss
be recorded for the difference between the book value of the obligation swapped
and its quotation at the date of the swap, as such quotation is considered the
best measure for recognizing the above mentioned impairment. The effects of
adjustments required to state the amounts swapped in accordance with U.S. GAAP
would be to decrease assets by Ps.342.4 million, Ps.559.2 million and Ps.909.5
million at December 31, 2007, 2006 and 2005, respectively. On the other hand,
income would be increased by Ps.216.8 million, Ps.350.3 million and Ps.912.3
million for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively.
As a
result of Public Emergency and Exchange System Reform Law and the public debt
default, an impairment affects the credit facilities given to non-financial
provincial governmental sector and other government agencies. Therefore
according to U.S. GAAP, a loss must be recorded for the difference between their
accounting value and the expected value of their future cash flows. The effects
of adjustments required to state these amounts in accordance with U.S. GAAP
would decrease assets by Ps.149.0 million at December 31, 2005. On the other
hand, income for the years ended December 31, 2006 and 2005 would be increased
by Ps.149.0 million and Ps.26.3 million, respectively.
Pursuant
to Argentine Banking GAAP, at December 31, 2003 the Bank recorded as assets
the difference between the paid amounts for constitutional protection actions
and the deposit amounts registered in accordance with the existing regulations.
The Government has not indicated that it will compensate the Bank for the
difference between the amounts paid for constitutional protection actions and
the deposit amounts registered in accordance with the existing
regulations. SFAS No. 5 “Accounting for Contingencies” requires that
contingencies that might result in gains should not be reflected in the accounts
since to do so might be to recognize revenue prior to its realization. Had U.S.
GAAP been applied, our assets would have decreased by Ps.78.2 million, Ps.363.9
million and Ps.586.5 million at December 31, 2007, 2006 and 2005,
respectively. On the other hand, net income would have increased by Ps.285.7
million, Ps.222.6 million and Ps.152.8 million at December 31, 2007, 2006
and 2005, respectively.
Under
Argentine Banking GAAP the Bank accounted for its investment in the Buenos Aires
Stock Exchange at market value. Under U.S. GAAP, such investments would have
been valued at cost or at a lesser amount where there is a non-temporary
impairment in value. Additionally, the companies that are under 20% were valued
by the equity method in accordance with Central Bank rules. Under U.S. GAAP,
those investments, that are non-marketable securities, would have been valued at
cost. Had U.S. GAAP been applied, the Bank’s assets would be decreased by
Ps.27.8 million, Ps.21.8 million and Ps.18.8 million at December 31, 2007,
2006 and 2005, respectively. On the other hand, the income for the years
ended December 31, 2007, 2006 and 2005 would be decreased by Ps.6.0
million, Ps.3.1 million and Ps.5.9 million, respectively.
Pursuant
to Argentine Banking GAAP, we generally record the cost of vacation payments
earned by employees when paid, U.S. GAAP requires that this expense be recorded
on an accrual basis as the vacations are earned. If U.S. GAAP had been applied,
our liabilities would have increased by Ps.60.0 million, Ps.48.4 million and
Ps.44.8 million for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively. Net income would have decreased by Ps.11.6 million, Ps.3.6 million
and Ps.8.8 million for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively.
111
Pursuant
to Argentine Banking GAAP, we do not give accounting recognition to checks drawn
against the Bank or other banks or other items to be collected, until such time
as the related item clears or is accepted. Such items are recorded by the Bank
in memorandum accounts. U.S. banks, however, account for such items through
balance sheet clearing accounts at the time the items are presented. Had U.S.
GAAP been applied, the Bank’s assets and liabilities would be increased by
approximately Ps.1,191.4 million and Ps.898.4 million at December 31, 2007 and
2006, respectively.
Under
Argentine Banking GAAP, the Bank recognizes for forward and unsettled spot
transactions as a receivable and a payable at the time of the agreement, which
reflect the amount of cash, currency or securities to be exchanged at the
closing date. The receivable or payable representing the receipt or delivery of
securities or currency is stated at the quoted market value of such securities
or currency. Under U.S. GAAP, in general entities would not recognize a
receivable or payable but would recognize the differences arising from changes
in the market price of securities or currency to be received or delivered if the
transaction did not qualify as a hedge. Had U.S. GAAP been applied, the Bank’s
assets and liabilities would be decreased by approximately Ps.83.5 million and
Ps.71.9 million at December 31, 2007 and 2006, respectively.
Under
Argentine Banking GAAP, foreign trade acceptances are not recorded on the
balance sheet by the Bank. In accordance with Regulation S-X, acceptances and
related customer liabilities should be recorded on the balance sheet. The effect
of the adjustment required to state balance sheets in accordance with Regulation
S-X would be to increase assets (due from customers on acceptances) and increase
liabilities (bank acceptances outstanding) by Ps.196.5 million and Ps.100.6
million at December 31, 2007 and 2006, respectively.
At
December 31, 2007 and 2006, the subsidiary Consolidar AFJP, manages a retirement
and pension plan for an amount of Ps.17.3 billion and Ps.16.7 billion,
respectively. Consolidar AFJP S.A. maintains provisions related to insurance
activities valued in accordance with the accounting standards established by the
Superintendence of Pension Fund Administrators. The effects of adjustments
required to state such amounts in accordance with U.S. GAAP would have decreased
stockholders’ equity by Ps.230.2 million and Ps.209.0 million at December 31,
2006 and 2005, respectively. On the other hand, income for the fiscal year ended
December 31, 2007 would be increased by Ps.230.2 million and for the fiscal
years ended December 31, 2006 and 2005 would have decreased by Ps.21.2 million
and Ps.36.1 million, respectively.
Consolidar
Cía. de Seguros de Retiro S.A. and Consolidar Cía. de Seguros de Vida S.A.
maintain reserves accounted in Other Liabilities from Subsidiaries valued in
accordance with de accounting standards established by the Superintendence of
Pension Fund Administrators and the National Superintendence of Insurance (see
Notes 4.3.e). and 6.). Had U.S. GAAP been applied, liabilities would be
decreased by Ps.16.9 million, Ps.30.2 million and Ps.10.1 million for the years
ended December 31, 2007, 2006 and 2005, respectively. On the other hand, income
for the year ended December 31, 2007 would be decreased by Ps.13.3 million and
for the fiscal years ended December 31, 2006 and 2005 would be increased by
Ps.20.0 million and Ps.46.9 million, respectively.
On May 4,
1998, our shareholders approved the reversal of the shares issuance premium
related to the capital increase paid on December 19, 1997 and relating to the
business goodwill from the acquisition of 71.754% of the capital stock of Banco
de Crédito Argentino. Under Argentine Banking GAAP, we recognize the issuance
premium under “Issuance premiums” and capitalize the related amount under
Intangible assets. The effect of adjustments required to state such amounts in
accordance with U.S. GAAP would be to increase assets by Ps.254.9 million for
fiscal years ended December 31, 2007, 2006 and 2005.
On May 13,
1999, BBVA acquired Corp Banca S.A. and Atuel Fideicomisos S.A. and on
September, 13, 1999, BBVA sold its interests in both companies to BF. For the
difference between the definitive price of the transaction and the incorporation
value of both companies, the Bank recognized a goodwill and amortized it in
proportion to the months of estimated useful life (120-month period). Under U.S.
GAAP, we would be required to account for the acquisition of the mentioned
companies at BBVA’s book balance. Had U.S. GAAP been applied, the Bank’s assets
would be increased by Ps.42.5 million, Ps.35.9 million and Ps.29.2 million at
December 31, 2007, 2006 and 2005, respectively. Additionally, the income would
be increased by Ps.6.6 million for the fiscal years ended December 31, 2007,
2006 and 2005.
SFAS No.
142 requires, effective January 1, 2002, that goodwill no longer be amortized,
but is subject to an impairment test annually or more frequently if events or
changes in circumstances indicate that the asset may be impaired. Accordingly,
we have recognized an impairment loss. Had U.S. GAAP been applied, our assets
would be decreased by Ps.309.6 million for the fiscal years ended December 31,
2007, 2006 and 2005.
SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. Had U.S.
GAAP been applied, our assets and liabilities would have increased by Ps.4.9
million and Ps.8.3 million, respectively, at December 31, 2007. On the other
hand, income for the fiscal year ended December 31, 2007 would had decreased by
Ps.3.4 million.
112
The bank
maintains reserves accounted in Allowance for other contingencies valued in
accordance with the accounting standards established by BCRA (see Note 3.4.17.).
Had U.S. GAAP been applied Allowances for other contingencies would have
decreased by Ps.44.8 million at December 31, 2006. On the other hand, income for
the fiscal year ended December 31, 2007 would have decreased by Ps.44.8 million
and would have increased by Ps.44.8 for the fiscal year ended December 31,
2006.
Calculated
in accordance with U.S. GAAP, our net income for the fiscal years ended December
31, 2007, 2006 and 2005 would have been Ps.909.1 million, Ps.977.5 million and
Ps.1,634.6 million, respectively. Under Argentine Banking GAAP, our net income
was Ps.235.0 million, Ps.180.0 million and Ps.117.2 million, for the same
respective periods.
Credit
Ratings
The
international rating agencies downgraded our ratings in 2001 and 2002, following
the crisis and the downgrade of the sovereign ceiling. Standard & Poor’s
rated our counterparty credit risk rating “SD” (selective default) and our
senior debt rating “CC” and Moody’s Investors Service rated our financial
strength credit rating “E” and our senior debt rating “Ca”.
As of June
15, 2002, we asked the international rating agencies to temporarily suspend the
ratings of BBVA Banco Francés. We made this decision within cost reduction
measures and because we believed that our ratings would not improve in the
medium term in light of the deep crisis in Argentina and in the financial
system.
As of June
1, 2005, with the completion of the sovereign debt restructuring, Standard &
Poor upgraded the new sovereign debt to B- and currently maintains a rating of
B+, with stable outlook. As of September 2007, Standard & Poor’s confirmed
its rating for the Argentine sovereign debt. Accordingly, Standard & Poor’s
rated “AA” BBVA Banco Francés’ local counterparty credit risk rating and “AA”
its senior debt rating.
As of the
filing of this annual report, credit ratings in the banking system are still
very affected by the remaining effects of the crisis. We intend to request for
international ratings once the financial and economic situation of Argentina, of
the financial system and of the Bank gives value added to investors and
justifies the cost.
Research
and Development, Patents and Licenses
We incur
research and development expenses in connection with technology information
systems. See “Information on
the Company-Information Technology”. We hold no material patents and do
not license to others any of our intellectual property. We plan infrastructure
development (processing, telecommunications, Internet, information security)
based upon present and projected future demand of such services. We acquire the
necessary technology, including equipment, from third parties.
Trend
Information
113
ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors
and Senior Management
Directors
The
corporate by-laws of BBVA Banco Francés S.A. state that the Bank’s management
corresponds to a board of directors consisting of a minimum of three and a
maximum of nine directors, who are elected by the shareholders to hold such
office for a period of three years and may be re-elected (the “Board”). The
by-laws also foresee the appointment of alternate directors. According to the
by-laws, the Board meets at least once per month.
The table
below indicates the names of the members of our Board, their present position in
the company, their business background and the date of expiration of the period
for which they were elected.
The
Regular and Special Shareholders Meeting held on April 26, 2007 (i) re-elected
two regular directors, Messrs. Marcelo Canestri and Javier D’Ornellas, for a
period of three years; and (ii) elected José Manuel Tamayo Pérez as new director
to replace José Carlos Plá Royo, also for a period of three years. After the
relevant appointments to executives officers, the Board was constituted as
follows: Mr. Jorge Carlos Bledel as President, Mr. José Manuel Tamayo Pérez, as
Vice Chairman and Messrs. Marcelo Gustavo Canestri, Javier D’Ornellas and Oscar
Miguel Castro as Regular Directors. Also Messrs. Martín Ezequiel Zarich and
Carlos Horacio Peguet were elected as alternate members of the Board. The
Regular and Special Shareholders Meeting held on March 28, 2008, elected Jesús
Gonzalvo Lozano and Luis Bernardo Juango Fitero as new directors for a period of
three years.
114
|
Name
|
Current
Term
Ends
|
Position
as of
December
31, 2004
|
Date
of Birth
|
Present
principal occupations outside BBVA Banco Francés
and
business experience
|
||||
|
Jorge
Carlos Bledel
(*)
|
December
2008
|
Chairman
|
04/19/1954
|
Present
principal occupations:
Director,
Rombo Compañía Financiera S.A. (“Rombo Compañía Financiera”); Vice
Chairman, Francés Valores Sociedad de Bolsa S.A. (“Francés Valores”);
Chairman, Inversora Otar S.A. (“Inversora Otar”);
Business
experience: Director, Credilogros Compañía Financiera S.A.
(“Credilogros”); Chairman, Consolidar AFJP S.A. (“Consolidar AFJP”);
Chairman, Consolidar ART S.A. (“Consolidar ART”); Chairman, Consolidar
Compañía de Seguros de Vida S.A. (“Consolidar Seguros de Vida”); Chairman,
Consolidar Compañía de Seguros de Retiro S.A. (“Consolidar Seguros de
Retiro”); Chairman, BBVA Consolidar Seguros S.A. (“BBVA Seguros”) and
Chairman, Consolidar Salud S.A. (“Consolidar Salud”). Credit Manager,
Banco del Interior y Buenos Aires; Business Manager, Corporación
Metropolitana de Finanzas; Financial Manager, BBVA Banco Francés;
Wholesale Banking Director, BBVA Banco Francés and Retail Banking
Director, BBVA Banco Francés.
Mr.
Bledel joined the staff of BBVA Banco Francés in 1986 and was first
elected to the Board in March 2003.
|
||||
|
José
Manuel Tamayo Pérez
(**)
|
December
2009
|
Vice-chairman
|
05/22/1950
|
Present
principal occupations:
Director,
Consolidar AFJP; Director, Consolidar Seguros de Retiro.
Business
experience: Retail Banking Director, BBVA S.A.; Retail
Banking Director, BBVA Banco Francés S.A.; Marketing Director España and
Portugal, BBVA S.A.
Mr.
Tamayo Pérez was elected as Director in April 2007.
|
||||
|
Marcelo
Gustavo Canestri
(***)
|
December
2009
|
Director
|
04/23/1953
|
Present
principal occupations:
Director,
Francés Valores; Director, Inversora Otar.
Business
experience: Corporate Assistant Manager, BBVA Banco Francés;
Wholesale Banking Assistant Manager, BBVA Banco Francés; Asset Management
Director, BBVA Banco Francés and Financial Director, BBVA Banco
Francés.
Mr.
Canestri joined the Bank in 1973 and was first elected to the Board in
September 2001.
|
||||
|
Javier
José D’Ornellas
(****)
|
December
2009
|
Director
|
06/07/1940
|
Present principal
occupations
Director,
Asociación Argentina Cultural Inglesa (AACI); Chairman, Rentar
S.A.
Business
experience: Director Inversiones Robert S.A.;
Chairman,
Rentar S.A.; Chairman, VASA S.A.; Chairman, MASISA Argentina S.A.;
Chairman, Vidrios Lirquén S.A.; Chairman, Santa Lucía Cristal SACIF;
Director, Concord S.A. Colombia and Director, Santa Lucia Cristais
Brasil.
Mr.
D’Ornellas was elected as Director in 1998.
|
115
|
Name
|
Current
Term
Ends
|
Position
as of
December
31, 2004
|
Date
of Birth
|
Present
principal occupations outside BBVA Banco Francés
and
business experience
|
||||
|
Oscar
Miguel Castro
(****)
|
December
2008
|
Director
|
12/04/1945
|
Present
principal occupations:
(Alternate)
Statutory auditor, Transportadora Gas del Sur.
Business
experience: Statutory auditor, Orígenes AFJP, Orígenes
Retiro, Internacional Vida, Santander Sociedad de Bolsa, Banco
Supervielle, Banco Rio, Banco Société Générale S.A., Axa Inversora, BBVA
Banco Francés. Alternate statutory auditor: Banco Comafi, BNP Asset
Management. Executive Committee of Financial Services member: Arthur
Andersen Worldwide. Partner in charge of Financial Services Division:
Arthur Andersen Latinamerica and Argentina. International Partner: Arthur
Andersen.
Mr.
Castro was elected as director in 2003.
|
||||
|
Jesús Gonzalvo Lozano
(**)
|
December 2010
|
Director
|
04/19/1952
|
Present
principal occupations: Director,
BBVA Banco Francés S.A.
Business
experience: Regional
Director, Cataluña, Banco Bilbao Vizcaya Argentaria
S.A.
|
||||
|
Luis
Bernardo Juango Fitero
(**)
|
December
2010
|
Director
|
08/24/1949
|
Present
principal occupations: Director, BBVA Banco Francés
S.A.
Business
experience: President,
Banco Bilbao Vizcaya Argentaria S.A.
Colombia
|
_____________________
|
(*)
|
According
to the provisions of General Resolution No. 368 (New Text 2001), as
amended by General Resolution No. 400 of the CNV, Messrs. Jorge Carlos
Bledel does not qualify as independent director, as he is an employee of
the Bank.
|
|
(**)
|
Mr.
José Manuel Tamayo Pérez, Jesús Gonzalvo Lozano and Luis Bernardo Juango
Fitero do not qualify as an independent director according to the
independence criteria set forth by General Resolution No. 368 (New Text
2001), as amended by General Resolution No. 400 of the CNV, as he is a
former employee of BBVA S.A.
|
|
(***)
|
According
to General Resolution No. 368 (New Text 2001), as amended by General
Resolution No. 400 of the CNV, Mr. Marcelo Gustavo Canestri does not
qualify as independent director as he is a former employee of the Bank and
he has not yet complied with the period required by the rule (three years
from his resignation).
|
|
(****)
|
Mr.
D’Ornellas and Mr. Castro qualify as independent directors according to
the independence criteria established by General Resolution No. 368 (New
Text 2001), as amended by General Resolution No. 400 of the
CNV.
|
The
Regular and Special Shareholders Meeting dated April 27, 2006 re-elected Messrs.
Jorge Carlos Bledel and Oscar Miguel Castro as regular directors and Messrs.
Martín Ezequiel Zarich (Background: Director, Aplica Soluciones Argentina S.A.;
Banking Development Director for the Americas of BBVA; Retail Banking Director;
Financial Director; Mergers Director of BBVA Banco Francés; Planning Director of
Banco de Crédito; Manager, Management Control, Banco de Crédito; Economist,
Banco de Crédito; he joined Banco de Crédito in 1987); and Carlos Horacio Peguet
(Background: Chairman and General Manager of Consolidar AFJP; Chairman of
Consolidar ART; Chairman of Consolidar Salud; Chairman of Consolidar Seguros de
Retiro; Chairman of Consolidar Seguros de Vida; Chairman of Consolidar Seguros;
President of Clínica and Maternidad Santa Isabel S.A.; President of Clínica
Bazterrica S.A.; Vicepresident of Assurex S.A.; Chairman, Consolidar
Comercializadora S.A.; he joined Consolidar Group in 1994) as alternate
directors for a period of three years; none of the alternate directors qualifies
as an independent director as per General Resolution No. 400 of the
CNV.
The
Regular and Special Shareholders Meeting held on March 28, 2008, elected Jesús
Gonzalvo Lozano and Luis Bernardo Juango Fitero as new directors for a period of
three years. After the relevant distribution of positions within the
Board was constituted as follows: Mr. Jorge Carlos Bledel as President, Mr. José
Manuel Tamayo Pérez, as Vice Chairman and Messrs, Marcelo Gustavo Canestri,
Javier D’Ornellas, Oscar Miguel Castro, Jesús Gonzalvo Lozano and Luis Bernardo
Juango Fitero as Regular Directors. As of the date of this annual report, the
Central Bank had not issued the relevant authorization for the appointment of
directors Mr. Jesús Gonzalvo Lozano and Luis Bernardo Juango Fitero. Also
Messrs. Martín Ezequiel Zarich and Carlos Horacio Peguet were elected as
alternate members of the Board.
116
Executive
Officers
The table
below shows the names of the members of the management committee who are our
chief executives, their present position and the year of their appointment to
such position, as well as their business background. The chief executives are
appointed for an indefinite period, On December 7, 2007 the Board of BBVA Banco
Francés approved a new organization schedule according to which the Management
Committee was modified as indicated below:
|
Name
|
First
Appointed
|
Current
Position
|
Date
of Birth
|
Background
and Work Experience
|
|
Jorge
Carlos Bledel
(*)
|
2001
|
Executive
Chairman
|
04/19/1954
|
Director,
Rombo Compañía Financiera; Vice Chairman, Francés Valores; Chairman,
Inversora Otar S.A.; Chairman, Consolidar AFJP; Chairman, Consolidar ART;
Chairman, Consolidar Seguros de Vida; Chairman, Consolidar Seguros de
Retiro; Chairman, Consolidar Seguros and Chairman Consolidar
Salud.
Mr.
Bledel joined BBVA Banco Francés in 1986.
|
||||
|
José
Carlos López Álvarez
(*)
|
2003
|
Assistant
Executive Director, Accounting and Risk Management Director
|
03/15/1959
|
General
Subdirector and Financial Director of Banco del Comercio (Spain) and Vice
Chairman, Risk Management Director and Financial Director of BBVA
Brasil.
Mr.
López Alvarez joined the Bank in 2003.
|
||||
|
Tomás
Deane
(**)
|
2003
|
Director,
Global Wholesale Banking
|
03/29/1967
|
Mr.
Deane joined the Bank in 1990, in the Financial Funds Administration
Area.
|
||||
|
Oscar
Hugo Fantacone
(*)
|
2002
|
Director,
Retail Banking
|
03/27/1951
|
Director,
Credilogros Compañía Financiera S.A.; Director, Rombo Compañía Financiera;
Regular Director, Banelco S.A.; Regular Director Visa Argentina
S.A.
Mr.
Fantacone joined BBVA Banco Francés in 1982 as Special Credits Manager. He
also acted as Services-to-client Manager and was promoted as Regional
Director in 1997.
|
||||
|
Marcelo
Gustavo Canestri
(***)
|
2001
|
Financial
Director
|
04/23/1953
|
Director,
Frances Valores; Alternate Director, Consolidar AFJP; Alternate Director,
Consolidar Seguros de Vida; Alternate Director, Consolidar Seguros de
Retiro; Alternate Director, Consolidar ART; Alternate Director, BBVA
Seguros; Regular Director, Inversora Otar and Alternate Director, BBVA
Seguros.
Mr.
Canestri joined the Bank in 1973.
|
||||
|
Martín
Ezequiel Zarich
|
2007
|
Financial
Director
|
09/04/1964
|
Economist,
Banco de Crédito Argentino; Management Control and Budget Manager, Banco
de Crédito Argentino; Planning Director, Banco de Crédito Argentino;
Merger Director, BBVA Banco Francés; Planning Director, BBVA Banco
Francés; Financial Director, BBVA Banco Francés; Retail Banking Director,
BBVA Banco Francés; Director, Credilogros Compañía Financiera; Director,
BBVA Banco Francés Uruguay; Director, BBVA Banco Francés Cayman Ltd.;
Deputy General Director, Business Development BBVA. Group
|
||||
|
Gabriel
Milstein
|
2002
|
Media
Director
|
08/14/1958
|
Organization
Manager, BBVA Banco Francés.
Mr.
Milstein joined the Bank in 1995.
|
117
|
Name
|
First
Appointed
|
Current
Position
|
Date
of Birth
|
Background
and Work Experience
|
|
Carlos
E. Montoto
|
1998
|
Director,
Human Resources
|
08/10/1957
|
Director,
Atuel Fideicomisos S.A.; President, Promoción y Servicios Financieros
S.A.
Mr.
Montoto joined BBVA Banco Francés in 1975.
|
||||
|
Juan
Eugenio Rogero González
(*)
|
2005
|
Director,
Risk Management
|
06/20/1956
|
Mr.
Rogero González joined BBVA in 1973. His background includes: Branch
Director Corporate Banking, Bilbao BBVA; Risks and Corporate Director,
BBVA Puerto Rico; Insurances Development Director, BBVA America and Global
Director of Corporate Risk Control, BBVA.
Mr.
Rogero González joined the Bank in 2005.
|
||||
|
Jorge
Gustavo Allen
|
2007
|
Director,
Massive Distribution
|
12/7/1956
|
Goods
and Services Manager, Banco Francés del Río de la Plata; Logistics
Director, BBVA Banco Francés; President, BBVA Seguros; Territorial
Director, BBVA Banco Francés.
Mr.
Allen joined Banco Francés del Río de la Plata in 1994.
|
||||
|
Néstor
Esteban Gessaga
(*)
|
2007
|
Director,
Corporate Banking and Investment Banking
|
6/16/1955
|
Business
Officer, Banco del Interior y Buenos Aires; Leader of the Commercial Team,
Banco Supervielle Societe Generale; Corporate Banking Officer, Banco
Francés del Río de la Plata; Team Leader Corporate Banking, Banco Francés
del Río de la Plata; General Manager, BBVA Banco Francés Uruguay;
Corporate Banking Manager, BBVA Banco Francés.
Mr.
Gessaga joined Banco Francés del Río de la Plata in 1986.
|
||||
|
Enrique
César Bartolomé
(*)
|
2007
|
Director,
Innovation and Development
|
23/1/1965
|
Human
Resources Analyst, Banco de Crédito Argentino; Team Leader Management
Control, Budget and Audit, Banco de Crédito Argentino; Manager, Management
and Budget Control, BBVA Banco Francés; Director, Transformation and
Development BBVA Banco Francés.
Mr.
Bartolomé joined Banco de Crédito Argentino in 1989.
|
||||
|
Carlos
Horacio Peguet
(*)
|
2007
|
General
Manager,, Consolidar
|
07/04/1954
|
President
and General Manager, Consolidar AFJP; President, Consolidar ART;
President, Consolidar Salud; President, Consolidar Seguros de Retiro;
President, Consolidar Seguros de Vida; President, BBVA Consolidar Seguros;
President, Clínica y Maternidad Santa Isabel; President, Clínica
Bazterrica; Vicepresidente, Assurex; President, Consolidar
Comercializadora.
Mr.
Peguet joined Grupo Consolidar in 1994.
|
_____________________
|
(*)
|
According
to the organization chart in force since December 7, 2007 the changes made
to the Management Committee of BBVA Banco Francés, are as follows: Jorge
Carlos Bledel, apart from being Executive President, is in charge of the
Markets Department; José Carlos López Álvarez conducts the Presidency
Areas Department; Oscar Fantacone, the Network Distribution Department;
Martín Ezequiel Zarich, the Financial Department, in replacement of Mr.
Marcelo Gustavo Canestri; Juan Eugenio Rogero González, the Risks
Department. The following incorporations also took place: Jorge Gustavo
Allen, took over the Mass Distribution Department; Néstor Esteban Gessaga,
the Corporate Banking and Investment Banking Departments; Enrique César
Bartolomé, the Innovation and Development Department; and Carlos Horacio
Peguet, as General Manager of
Consolidar.
|
|
(**)
|
Tomás
Deane, resigned his functions with BBVA Banco Francés S.A. in November
2007.
|
|
(***)
|
Marcelo
Gustavo Canestri resigned as Financial Director in May
2007.
|
The
service contracts of the directors and the executive officers do not provide for
benefits upon termination of employment. Expect for mentioned in “Directors, Senior Management and
Employees-Compensation of Directors and Officers”.
118
Supervisory
Committee
The
following table indicates the composition of the Supervisory Committee of BBVA
Banco Francés until December 31, 2007:
|
Expiration
of term
|
||
|
Regular
|
Mario
Rafael Biscardi
|
December
31, 2007
|
|
Carlos
Roberto Chiesa
|
December
31, 2007
|
|
|
Alejandro
Mosquera
|
December
31, 2007
|
|
|
Alternate
|
Osvaldo
Pablo Alejandro Jofré
|
December
31, 2007
|
|
Julieta
Paula Pariso
|
December
31, 2007
|
|
|
Paola
Lorena Rolotti
|
December
31, 2007
|
As of
December 31, 2007, both the regular and alternate members of the Bank’s
Supervisory Committee, in their capacity as lawyers, have represented to the
Bank that: (a) they perform or are prepared to perform the function of legal
advisors with the professional independence required by Technical Resolution No.
15 of the Argentine Federation of Professional Councils in Economic Sciences,
and (b) they are members of Biscardi & Asociados.
The
General Ordinary and Special Shareholders Meeting of BBVA Banco Francés held on
March 28, 2008, appointed the following members of the Supervisory
Committee:
|
Expiration
of term
|
||
|
Regular
|
Mario
Rafael Biscardi
|
December
31, 2008
|
|
Marcelino
Agustín Cornejo
|
December
31, 2008
|
|
|
Alejandro
Mosquera
|
December
31, 2008
|
|
|
Alternate
|
Juan
Manuel Minghini
|
December
31, 2008
|
|
Julieta
Paula Pariso
|
December
31, 2008
|
|
|
Carolina
Verónica Bouzas
|
December
31, 2008
|
Background
information
Mario
Rafael Biscardi: Attorney, a partner of the firm Biscardi & Asociados, he is
a member of the Supervisory Committee of, inter alia, Supervielle S.A., GMAC
Cia. Financiera S.A., General American Compañía de Seguros de Vida S.A., Renault
Argentina S.A., Sociedad Comercial del Plata S.A., Met AFJP SA, Socotherm
Americas SA and Inta Industria Textil Argentina S.A.
Marcelino
Agustín Cornejo: Attorney-at-law, member of the law firm Biscardi &
Asociados, member of the Supervisory Committee of Tubos Argentinos SA,
Consolidar AFJP SA, Consolidar Compañía de Seguros de Vida SA, Consolidar
Compañía de Seguros de Retiro SA, MET AFJP SA, Metlife Seguros de Vida SA,
MetropolitanLife Seguros de Retiro SA.
Alejandro
Mosquera: Attorney, a partner of the firm Biscardi & Asociados, he is a
member of the Supervisory Committee of, inter alia, Supervielle S.A., GMAC Cia.
Financiera S.A., General American Compañía de Seguros de Vida S.A., Renault
Argentina S.A., Sociedad Comercial del Plata S.A.,Met AFJP SA, Socotherm
Americas SA, Procter & Gamble Argentina S.R.L, and Inta Industria Textil
Argentina S.A.
Juan
Manuel Minghini: Attorney-at-law, member of the law firm Biscardi &
Asociados.
Julieta
Paula Pariso: Attorney, a member of the firm Biscardi & Asociados, he is a
member of the Supervisory Committee of, inter alia, Supervielle S.A., Banco
Banex S.A., General American Compañía de Seguros de Vida S.A., Duke Energy
International Southern Cone S.R.L., Sofital SAFeII, GMAC Cia. Financiera S.A.
and Duke Enregy Cerros Colorados S.A.
Carolina
Verónica Bouzas: Attorney-at-law, member of the law firm Biscardi &
Asociados, member of the Supervisory Committe of Centro Posadas SA, Consolidar
AFJP SA, Consolidar Compañía de Seguros de Vida SA, Consolidar Compañía de
Seguros de Retiro SA, MET AFJP SA, Metlife Seguros de Vida SA, MetropolitanLife
Seguros de Retiro SA
Both the
regular and alternate members of the Bank’s Supervisory Committee, in their
capacity as attorneys, have represented to the Bank that: (i) they are members
of Biscardi & Asociados S.R.L. Law Firm and qualify as “independent”
according to General
119
Resolution
No. 368 (New Text 2001), as amended by General Resolution No. 400 of the CNV;
and (ii) have filed all the information required by the mentioned dispositions
of the CNV, regarding their professional relations with the Bank.
There are
no agreements between the Bank and its directors, members of the Supervisory
Committee or main executives, as a consequence of which the directors, members
of the Supervisory Committee or main executives might have interests in
opposition to those of the Bank, according to the provisions of Article 272 of
LC.
Advisors
All legal
advice is provided to the Bank by its own Legal Services
Department.
The Bank
has no financial advisors.
External
Auditors
As of
October 1, 2002, Deloitte & Co. S.R.L. acts as the Bank’s external auditor.
The Regular and Special Shareholders Meetings held on August 7, 2002, April 30,
2003, April 22, 2004, April 28, 2005, April 27, 2006, April 26, 2007 and March
28, 2008 approved such appointment.
According
to the provisions of General Resolution No. 368 of the CNV (New Text 2001) the
auditor of the financial statements for (i) the fiscal years ended December 31,
2001 was Mr. Mario A. Bittar, National Public Accountant (University of Buenos
Aires), who is registered with the Professional Council of Economic Sciences of
the City of Buenos Aires, Volume 184, Page 238, (ii) the fiscal year ended
December 31, 2002 was Mr. Carlos Alberto Haehnel, National Public Accountant
registered with the Professional Council of Economic Sciences of the City of
Buenos Aires, Volume 60, Page 89; and (iii) the auditor of the financial
statements for the fiscal years ended December 31, 2003, 2004, 2005, 2006 and
2007 was Mr. Carlos Bernardo Srulevich, National Public Accountant (University
of Buenos Aires), who is registered with the Professional Council of Economic
Sciences of the City of Buenos Aires, Volume 139, Page 192, and (iv) the auditor
of the financial statements for fiscal year closing on December 31, 2008 is Mr.
Pablo Francisco Tonina, National Public Accountant (Buenos Aires Catholic
University) and is registered with the Professional Council of Economic Sciences
of the City of Buenos Aires, Volume 160, Page 164.
The firm
Deloitte & Co. S.R.L. has its domicile at Florida 234, 5th floor (C1005AAF),
City of Buenos Aires, Argentina and is registered with the Professional Council
in Economic Sciences of the City of Buenos Aires, under Volume 1, Page
3.
Audit
Committee (I)
BBVA Banco
Francés established the Audit Committee (I) as described in the Minutes of the
Board of Directors No. 4989 to comply with the provisions set out by the Central
Bank in its Communication “A” 2525, as supplemented, dated April
1997.
As of this
date, the Audit Committee (I) is comprised of:
|
|
§
|
Marcelo
Gustavo Canestri
|
|
|
§
|
José
Manuel Tamayo Pérez
|
|
|
§
|
Oscar
Miguel Castro
|
|
|
§
|
Eduardo
Zerega
|
Permanent Assistants to the
Committee: Jorge Carlos Bledel; Oscar Hugo Fantacone; José Carlos López
Álvarez; Evelina Leoní Sarrailh, Martín Zarich and Javier
D’Ornellas.
The Audit
Committee (I) meets once a month. In each of these meetings, the Internal Audit
Director presents the projects undertaken by the Internal Audit Department. The
minutes of the meeting are then drawn up detailing the issues discussed as well
as those items requiring further discussion. The minutes are transcribed into an
internal control book which is sent to the Board of Directors for their
information.
120
The Audit
Committee (I)’s duties are to:
|
|
§
|
Supervise
the appropriate implementation of the internal control systems defined in
the institution through a regular
evaluation;
|
|
|
§
|
Provide
assistance to improve the effectiveness of the internal
controls;
|
|
|
§
|
Inquire
about external audit planning and comment as necessary on the nature,
scope, and time for the performance of the audit
proceedings;
|
|
|
§
|
Revise
and approve the annual work program of the institution’s internal audit
area (“Internal Audit Planning Memorandum” or “Annual Planning”) to be
carried out under these rules, as well as the level of compliance with
such program;
|
|
|
§
|
Revise
the reports issued by the internal auditors pursuant to the provisions set
forth in these rules;
|
|
|
§
|
Consider
the observations made by the external and the internal auditors regarding
the internal control weaknesses found during the performance of their
duties, as well as the corrective measures implemented by the general
management to minimize or cure such
weaknesses;
|
|
|
§
|
Review
the results obtained by the Supervisory Committee of the Bank during the
performance of its duties, as informed in the applicable
reports;
|
|
|
§
|
Maintain
a permanent communication with the officers of the Superintendency of
Financial and Exchange Institutions in charge of the control of the Bank,
so as to learn about their concerns, and the problems identified during
the inspections conducted in the Bank, and control the actions adopted to
solve such problems;
|
|
|
§
|
Keep
informed of the annual financial statements and the financial statements
for the respective three-month periods as well as the external auditors’
report issued with respect to the former, and any other applicable
accounting information; and
|
|
|
§
|
Regularly
control compliance with the independence rules applicable to external
auditors.
|
Audit
Committee (II) (as per Decree No. 677/01 and General Resolution No. 400/02 which
complies with NYSE Listing Standards)
BBVA Banco
Francés has an Audit Committee (II) created by resolution of the Board dated May
21, 2004. The Regular and Special Shareholders Meeting dated April 27, 2006,
appointed José Manuel Tamayo Pérez to replace José Carlos Plá Royo in compliance
with Section 303A.07(b) NYSE, according to which as from July 1, 2005 all
members of the Audit Committee must be “independent”.
With the
appointment of José Manuel Tamayo Pérez, the Audit Committee (II) consists of
three members of the Board, two of which are independent directors in terms of
Decree No. 677/01 and Resolution No. 400/02, are elected for three years and may
be re-elected.
Its
present composition, according to Board’s Resolution dated April 27, 2007, is
the following:
|
Members:
|
José
Manuel Tamayo Pérez
|
|
|
Oscar
Miguel Castro
|
||
|
Javier
D’Ornellas
|
||
The powers
and duties of the Audit Committee (II) are as follows:
|
|
§
|
To
render an opinion on the Board’s proposal to appoint the external auditors
to be retained by the company, and ensure their
independence.
|
|
|
§
|
To
supervise the operation of internal control and administrative accounting
systems, as well as ensure the reliability of the latter and of all
financial information or other significant facts submitted to the CNV and
the self-regulated bodies in compliance with the applicable information
regulations.
|
121
|
|
§
|
To
supervise the application of policies as regards the information about the
company’s risk management.
|
|
|
§
|
To
furnish the market with comprehensive information in respect of operations
which may involve conflicts of interest with members of the corporate
bodies or controlling shareholders.
|
|
|
§
|
To
render an opinion on the reasonableness of proposals concerning fees and
share option plans for the company’s directors and managers as submitted
by the administration body.
|
|
|
§
|
To
render an opinion on the observance of legal requirements and the
reasonableness of the conditions for the issuance of shares or securities
convertible into shares in the event of a capital increase, with exclusion
or limitation of preference rights.
|
|
|
§
|
To
verify the observance of the applicable standards of
behavior.
|
|
|
§
|
To
issue a duly grounded opinion with regard to operations with related
parties in those cases contemplated by the
Decree.
|
|
|
§
|
To
issue a duly grounded opinion and forward it to the self-regulated
entities as determined by the CNV whenever there is a conflict of
interests or the possibility of such a conflict in the
company.
|
|
|
§
|
To
prepare annually an action plan to be submitted to the Board and the
Supervisory Committee.
|
|
|
§
|
To
examine the plans prepared by the external and internal auditors, evaluate
their performance and issue an opinion on the matter on occasion of the
presentation and publication of the annual financial
statements.
|
All
directors, members of the Supervisory Committee, managers and external auditors
must, at the request of the Audit Committee, attend its sessions and cooperate
with it, facilitating its access to such information as may be available to
them. In order to ensure a more appropriate exercise of the powers and duties
contemplated herein, the committee may request the advice of lawyers and other
independent professionals and retain their services for the account of the
company within the budget allocated for such purposes by the shareholders
meeting. The Audit Committee shall have access to such information and
documentation as it may deem necessary in order to comply with its
obligations.
Compensation
of Directors and Officers
We do not
have a compensation committee.
The
aggregate amount of compensation paid by BBVA Banco Francés and its subsidiaries
during the fiscal year ended December 31, 2007, to all directors and officers
for services in all capacities, including salaries and bonuses, was Ps.20.7
million. This amount also includes compensation accrued during 2006 and paid in
2007. Compensation in the amount of Ps.15.6 million accrued during 2007 and was
fully paid in 2008 before the date of this annual report. During the fiscal year
ended December 31, 2007, BBVA Banco Francés was required to set aside Ps.0.9
million to provide defined contribution pension plans (see Note 19.15. to our
Consolidated Financial Statements).
Special
Committees
The Bank
has the following special committees (i) Management, (ii) Media, (iii) Technical
Operations, (iv) Disclosure, (v) Internal Control Evaluation, among
others.
|
|
§
|
Management
Committee
|
As at
December 31, 2007 the Management Committee is formed by: (i) Jorge Carlos
Bledel, (ii) Martín Ezequiel Zarich, (iii) Carlos Eduardo Montoto, (iv) Oscar
Hugo Fantacone, (v) Gabriel Milstein, (vi) Tomás Deane, (vii) José Carlos López
Álvarez and (viii) Juan Eugenio Rogero González.
However,
considering that on December 7, 2007 the Board approved a new organization
chart, the Management Committee for the period starting December 2007 was
constituted as follows: (i) Jorge Carlos Bledel, (ii) Martín Ezequiel Zarich,
(iii) Carlos Eduardo Montoto, (iv) Oscar Hugo Fantacone, (v) Gabriel Milstein,
(vi) José Carlos López Alvarez, (vii) Juan Eugenio Rogero González, (viii) Jorge
Allen, (ix) Néstro Gessaga, (x) Enrique Bartolomé and (xi) Carlos Horacio
Peguet.
122
The
obligations of the Management Committee are to: (i) fix the business and
investment strategies, the general risks policies, the human resources policies
and cooperation with the company’s General Manager; (ii) delegate powers to
other officers; (iii) analyze and approve the general annual budget; (iv)
monitor its evolution and determine corrective measures according to internal
and market variables, and (v) create business synergies with other companies of
the group.
|
|
§
|
Computer Technology
Committee
|
The
Computer Technology Committee is responsible for the institutional treatment of
the policies, goals and planning of the information systems area, and is
constituted by: (i) Gabriel Milstein, (ii) Oscar Fantacone, (iii) Marcelo
Gustavo Canestri, (iv) Eduardo Zerega and (v) Guillermo de la
Plaza.
|
|
§
|
Technical Operations
Committee
|
The
Technical Operations Committee (“CTO”) consists of: (i) the Executive Director;
(ii) the Risk Coordination and Control Manager; (iii) the Wholesale Risks
Manager or the Retail Risks Manager, as may be applicable; (iv) the Legal
Recovery and Bankruptcy Manager, if applicable; (v) the person in charge of
Admission or Recovery in the relevant business area; and (vi) Analysts and Risk
Officers.
The
obligations of the Risks Committee are as follows:
|
(1)
|
To
resolve on proposals which exceed the powers delegated to the Credit Risk
Committee (CRC) or the Central Tracking Committee (CTC), and submit
recommendations in cases where the final decision must be made by the
Bank’s executive levels.
|
|
(2)
|
To
approve qualifications for regularly adjusted amounts and special risks
amounts that have been delegated as such (risks linked to Communications
Media, Political Parties, Trade Unions, or related to BBVA Banco Francés
or its officers). If it is a qualification proposal exceeding the
above-mentioned amounts, it must be first approved by the CTO and then the
“Companies and Wholesale Risks” or the “Retail Risks” sector, as may be
applicable, must send all background information to the Central Credit
Risks Unit for it to be confirmed according to the regulations in force
for such circumstances.The Companies and “Wholesale Risks” or the “Retail
Risks” area, as may be applicable, will conduct the relevant procedures
before the Central Credit Risks Unit (CCRU) until a decision is
made.
|
|
(3)
|
To
decide on rebates and penalties according to the regulations in force and
delegated amounts
|
|
|
§
|
Assetts and
Liabilities Committee
|
The Assets
and Liabilities Committee is formed by : (i) the assistant Executive Director
for Accounting and Risks Management, José Carlos López Álvarez,; (ii) the
Wholesale Banking Director, Tomás Deane; (iii) the Retail Banking Director,
Oscar Hugo Fantacone; (iv) the Chief Financial Officer, Martín Zarich (v) the
Financial Management Director, Carlos Marí; and (vii) the Financial Control
Director, Enrique Savanti.
The Asset
and Liability Committee meets on a weekly basis, and its main duties
are:
|
(i)
|
Establishes
specific limits with respect to risk
exposure;
|
|
(ii)
|
Sets
policy with respect to pricing and approves commercial policies which may
have a financial impact on our balance sheet;
and
|
|
(iii)
|
It
is responsible for the follow-up of monetary aggregates and financial
variables, our liquidity position, regulations from the Central Bank and
the competitive environment in assets, liabilities and interest
rates.
|
|
|
§
|
Disclosure
Committee
|
The
Disclosure Committee consists of: (i) the Assistant Director to the Executive
Director, José Carlos López Álvarez, (ii) the Director of the Financial Area
(President), Martín Ezequiel Zarich (iii) the Legal Services Director, Evelina
Leoní Sarrailh, (iv) the Audit Director, Eduardo Zerega, (v) the Accounting
Manager, Mónica Etcheverry (vi) the Planning and MIS Manager, Enrique Savanti;
(vii) Independent Director, Oscar Miguel Castro; and (viii) the Secretary for
Relations with Investors, Daniel Sandigliano.
123
The
General Functions of the Disclosure Committee are to make sure that all
information supplied to the Bank’s shareholders, the markets where its shares
are listed and the regulatory bodies of such markets is true and complete,
adequately represents its financial situation and the results of its operations,
and is communicated in compliance with the terms and other requirements of the
applicable regulations and with general market operation and good corporate
governance principles. It must therefore ensure the existence and maintenance by
the Bank of procedures and controls regarding the preparation and content of all
information included in the Financial Statements as well as of any accounting or
financial information which must be registered with the CNV and other regulatory
bodies and agents of the stock exchanges where the shares of BBVA Banco Francés
are listed.
|
|
§
|
Asset Laundering and
Terrorism Financing Prevention
Committee
|
During
most of the fiscal year 2007, the Asset Laundering and Terrorism Financing
Prevention Committee was conformed by: the Regulatory Compliance director
(Coordinator); the officer from the Regulatory Compliance director
(Vice-Coordinator) in charge of Asset Laundering, the Director of BBVA Banco
Francés (member), the officer responsible for Anti-Laundering Activities, a
Regular Director (member) of the Board of BBVA Banco Francés; the Chief,
Financial Business (member), the officer from the Regulatory Compliance director
(Vice-Coordinator) responsible for Related Companies, the Director of the Legal
Services Department (Vice-Coordinator), the Director of the Audit Department
(Vice-Coordinator), a Representative (Secretary) from the Legal services
Department, the Director (member) of the Media Department, the Director (member)
of the Human Resources and Quality Department, the Commercial Banking Director,
the Financial Companies Area Manager of the Commercial Banking Department
(member), the Internal Control and Regulatory Compliance Manager of Consolidar
(member), the President of Francés Valores Sociedad de Bolsa S.A. (member), and
the President of Francés Administradora de Inversiones S.A.
(member).
As of
December 2007, by virtue of the changes made in the organization structure as
approved in the Board of Directors meeting of December 7, 2007, the Asset
Laundering and Terrorism Financing Prevention Committee is formed as follows:
the Manager of the Regulatory Compliance and Internal Control Area
(coordinator), the Director of the Presidency Areas in his capacity as
vice-coordinator and Top Level officer in financial intermediation, the officer
responsible for Money Laundering of the Regulatory Compliance and Internal
Control Management (vice-coordinator), the officer responsible for Money
Laundering of the Regulatory Compliance and Internal Control Management (related
companies) (vice-coordinator), a Regular Director of the Board of BBVA Banco
Francés in his capacity as person (member) responsible for Anti-Laundering, a
Regular Director (member) of the Board of BBVA Banco Francés, the Corporate
Banking and Investment Banking Director, the Director of the Legal Services Area
(member), the Director of the Audit Area (member), a Representative from the
Legal Services Area (secretary), the Director of the Media Department (member),
the Director of the Human Resources Area (member), the Director of the Mass
Distribution Area (member), the Director of the Network Distribution Area
(member), the officer responsible for the Financial and Accounting Area of Grupo
Consolidar (member), the President of Francés Valores Sociedad de Bolsa
(member), the President of Francés Administradora de Inversiones
(member).
In order
to comply with its control and prevention purposes, the Terrorism Assets and
Money Laundering Prevention Committee assumes the following
responsibilities:
|
|
-
|
To
deal with all matters related to the prevention of terrorism assets
laundering and financing.
|
|
|
-
|
To
define operational policies and continuously monitor their degree of
advancement.
|
|
|
-
|
To
provide support for the terrorism assets laundering and financing
Sub-Committee in order to make decisions on reporting to the competent
authorities about any transactions which may appear unusual or suspicious,
or dismissing such action as may be
required.
|
|
|
-
|
To
assign duties to the different areas
involved.
|
Each Vocal
member assumes the following functions:
|
|
-
|
To
render his or her area of activity more sensitive as to the importance of
preventing terrorism assets laundering and
financing.
|
|
|
-
|
To
detect any relevant situation which may occur in his or her area in this
connection.
|
|
|
-
|
To
analyze any new product or service and evaluate potential asset laundering
risks.
|
124
|
|
-
|
To
assume the necessary commitments in his or her area in order to implement
prevention systems in coordination with the officer responsible for Asset
Laundering Prevention.
|
The
Terrorism Asset Laundering and Financing Committee has delegated some of its
powers in order to optimize the treatment of reports received. To this effect a
Prevention Subcommittee has been created with powers to receive, analyze and
report any unusual or suspicious operations according to the procedure
determined by the Bank’s internal regulations.
The
committee meets every three months, or extraordinarily whenever the coordinator
should deem it convenient due to the existence of relevant matters to be
discussed.
Not fewer
than five business days in advance of the meeting the Regulatory Compliance
Director will discuss with the secretary those subjects to be treated at the
quarterly meeting, and the Secretary will submit the agenda to the members of
the Committee.
|
|
§
|
Terrorism Assets
Laundering and Financing
Committee
|
Participants
The
Regulatory Compliance Director (Coordinator), the officer from the Regulatory
Compliance Department responsible for Money Laundering (vice-coordinator), the
head of the Legal Services Department (vice-coordinator), the head of the Audit
Department (vice-coordinator).
The
Regulatory Compliance Director in his capacity as Coordinator is empowered to
summon the involved reporting area even if it is not a member of the
Subcommittee in order to clarify or provide such information as may be necessary
for the resolution of the case.
Functions
Its
mission is to analyze the information received about suspicious operations and
transactions, agree upon actions to further examine them as required in each
particular case and decide on such basis as to whether the operation will be
reported to the BCRA or not.
|
|
§
|
Corporate Integrity
Management Committee
|
Participants
The
Committee members acquire such condition as a result of their position and will
cease to be such members as soon as they cease in their functions as heads of
the relevant areas. The Corporate Integrity Management Committee is conformed
by: the Legal Services Director, the Director of Regulatory Compliance, the
Director of Human Resources and the Director of Internal
Auditing. The Committee members may appoint any executive in their
area to replace them in case of absence or impossibility to attend any of its
meetings.
Secretary
The
Committee will appoint a Secretary pertaining to the Legal Services Area to
attend the meetings without a vote and perform the following
functions:
|
|
-
|
Convene
the Committee.
|
|
|
-
|
Prepare
the agenda for the Committee meetings based on the proposals received from
the different members.
|
Functions
|
|
-
|
To
authorize exemptions from compliance with concrete provisions of the Code
of Behavior. In all cases such exemptions will be of an exceptional
character and for a justified reason which will not result in any risks
for the Corporate Integrity of BBVA Banco Francés and companies of the
group in Argentina.
|
125
|
|
-
|
To
promote the adoption of such measures as are required in order to resolve
about any ethically questionable behaviors which may be brought to the
knowledge of any of the members, either as a consequence of their
functions in their areas or due to the reception of communications of the
type mentioned in paragraph 6.28. of the Code of
Behavior.
|
|
|
-
|
To
bring to the attention of the Board of Directors; the Auditing and
Regulatory Compliance Commission, the Management Committee, or the officer
responsible for the preparation of financial statements, as the case may
be, those circumstances which might derive significant risks for BBVA
Banco Francés and companies of the group in Argentina , in order to ensure
that such statements will reflect any relevant
facts.
|
|
|
-
|
To
resolve situations where the interests of BBVA Banco Francés and companies
of the group in Argentina may appear to be in opposition to those of their
clients.
|
|
|
-
|
To
prepare and distribute interpretation notes on such aspects of the Code of
Behavior as may so require in order to ensure their application in
practice.
|
|
|
-
|
To
propose changes to the content of the Code of Behavior in order to adjust
it to the evolution of the activities and businesses of BBVA Banco Francés
and companies of the group in Argentina, to their operational environment
and to the best practices of the financial
industry.
|
Regular
meetings
The
Corporate Integrity Management Committee will meet with such frequency as may be
required for the performance of its functions.
|
|
§
|
Discipline
Committee
|
Participants
The
Discipline Committee is conformed by: the Human Resources Director, the Labor
Relations Manager, the Labor Relations Representative, the Auditing Director
from the relevant Auditing area corporations or individuals), as the case may
be, a member of the Special Audits department, the Retail Banking Director and
the relevant Territorial Manager. If the representation from the area involved
is not available, participation in a committee meeting will correspond to the
highest level officer or to the individual delegated by it.
Functions
It is the
corporate body of BBVA Banco Francés in charge of examining disciplinary files
of employees arising from any of the following irregularities:
|
|
-
|
Fraud,
violation of Bank regulations or negligence in
compliance.
|
|
|
-
|
Disloyalty
in the performance of assigned
duties.
|
|
|
-
|
Confidence
abuse; theft or robbery of property of the Bank, fellow
employee, clients or any person in the Bank’s
premises.
|
|
|
-
|
Abuse
of powers.
|
Regular
meetings
A meeting
is held once a month or if necessary in case a matter to be considered requires
an urgent and immediate decision.
126
|
|
§
|
Computing Security
Committee
|
Participants
The
Computing Security Committee is conformed by: the Media Director, who acts as
its chair, and members from each of the following departments: Computing
Planning and Security, Design and Development, Organization, Computing
Technology and Computing Security.
Functions
The
purpose is to ensure confidentiality, integrity and accuracy of information, and
continuity of financial transactions, in any form or manner it may appear, thus
protecting it against any unauthorized use, disclosure, deliberate or accidental
modification or interruption, focused on the business development in an adequate
security and control encounter.
Regular
meetings
On a
monthly basis.
|
|
§
|
Internal Control
Evaluation Committee
|
Participants
The
Internal Control Evaluation Committee is conformed by: the Regulatory Compliance
and Internal Control Manager (who acts as coordinator), the Internal Control
Supervisor (who acts as vice-coordinator and secretary), the Assistant Executive
Director to the Executive Director, the Risk Management Director, the Human
Resources Director, the Media Director, the Internal Audit Director, the
Accounting Manager, the Legal Services Director and the Financial Information
Internal Control Manager.
Functions
The
Internal Control Evaluation Committee is the last step in the “Pyramidal
Certification” process established in compliance with section 404 of the
Sarbanes Oxley Act.
In order
to fulfill its goals, the Committee assumes the following
responsibilities:
|
|
-
|
To
discuss the issues related to the internal control
model.
|
|
|
-
|
To
evaluate control weaknesses evidenced in the work performed in compliance
with section 404 of the Sarbanes Oxley Act and the group’s internal
control model.
|
|
|
-
|
Decide
on possible discrepancies occurred in the internal certification
procedures.
|
|
|
-
|
Analyze,
if applicable, the internal control report proposal in compliance with the
requirements of section 404 of the Sarbanes Oxley Act and the group’s
internal control model.
|
|
|
-
|
To
approve the internal control report that will serve as support for the
internal control certification tom be included in the 20-F documentation
to be filed with the SEC.
|
Regular
meetings
Once per
year, or at the request of the Committee’s coordinator or vice-coordinator, or
when the person responsible for their coordination deems it appropriate due to
the existence of some relevant issue
Also in
compliance with resolutions of the Central Bank or other controlling bodies, the
Bank has appointed different offices responsible for specific subjects, as
detailed below:
127
|
-
|
Responsible
for Foreign Exchange Positions (Com. “A” 4246 BCRA)
|
|
|
Main
Officer Responsible: Mr. Manuel Mansilla
|
||
|
Alternate
Officer Responsible: Mr. Juan Alberto Estrada
|
||
|
-
|
Responsible
for Foreign Exchange Control (Com. “A” 4246 BCRA)
|
|
|
Main
Officer Responsible: Mr. Julio López
|
||
|
Alternate
Officer Responsible: Mr. José Luis Frete
|
||
|
-
|
Responsible
for relations with entities and their clients (Com. “A” 4378 and 4394
BCRA)
|
|
|
Main
Officer Responsible: Mr. Norberto Loza
|
||
|
Alternate
Officer Responsible: Mr. Roberto Adragna
|
||
|
-
|
Responsible
for the Liquidity Policy (Com. “A” 2879 BCRA)
|
|
|
Mr.:
Carlos Marí
|
||
|
-
|
Responsible
for Information Systems (Com. “A” 2593)
|
|
|
Main
Officer Responsible: Mr. José Carlos López Alvarez
|
||
|
Alternate
Officer Responsible: Mr. Martín Ezequiel Zarich
|
||
|
-
|
Responsible
for Market Relations (Decree No. 677/01)
|
|
|
Main
Officer Responsible : Mr. José Carlos López
Alvarez
|
||
|
Alternate
Officers Responsible: Mr. Martín Ezequiel Zarich, Mrs. Evelina
Sarrailh
|
||
|
-
|
Compliance
Officer on Money Laundering Prevention regulations (Resol. No. 2
UIF)
|
|
|
Mr.
Miguel Angel Russo
|
Significant
Differences between BBVA Banco Francés’ Corporate Governance Practices and U.S.
Companies’ Practices under NYSE Listing Standards
BBVA Banco
Francés’ corporate governance practices are governed by the applicable Argentine
law (particularly, the Business Companies Law, Decree No. 677/01 and the
Standards of the CNV), as well as by its by-laws. BBVA Banco Francés has
securities that are registered with the SEC and are listed on the NYSE, and is
therefore subject to corporate governance requirements applicable to NYSE-listed
non-U.S. companies.
NYSE-listed
non-U.S. companies may, in general, follow their home country corporate
governance practices in lieu of most of the new NYSE corporate governance
requirements codified in Section 303A of the NYSE’s Listed Company Manual.
However, NYSE-listed non-U.S. companies must comply with NYSE Sections 303A.06,
303A.11 and 303A.12(b) and (c).
NYSE
Section 303A.11 requires that non-U.S. companies disclose any significant ways
in which their corporate governance practices differ from U.S. companies under
NYSE listing standards. In accordance with NYSE Section 303A.11, we describe
below the relevant differences between BBVA Banco Francés’ corporate governance
practices and NYSE standards for listed companies.
On the
other hand, the CNV has recently passed GR 516/07 providing for the minimum
contents of a Corporate Government Code (“CGC”) that it recommends to be
adopted, but on a discretional basis, by corporations who publicly offer shares
representing their capital stock in Argentina. This CNV resolution
has become effective for fiscal years commencing on or after January 1,
2008. Given likely overlaps with other similar provisions that
are applicable to BBVA Banco Francés, BBVA Banco Francés will evaluate the need
to adopt such Corporate Governance Code.
Director
Independence
Under NYSE
Section 303A.01, a NYSE-listed company must have a majority of independent
directors on its board of directors.
Under
Argentine law, the board is not required to consist of a majority of independent
directors. Notwithstanding, when directors are appointed, each shareholder that
nominates a director is required to report at the meeting whether or not such
director is independent. As of May 28, 2004, Argentine companies are required to
have at least two independent directors to appoint to the Audit Committee (I y
II). Since October 29, 1998, BBVA Banco Francés has two independent directors
out of its five members of the Board of Directors.
128
Standards
for Evaluating Director Independence
NYSE
Section 303A.02 establishes general standards to evaluate directors’
independence (no director qualifies as “independent” unless the board of
directors affirmatively determines that the director has no material
relationship with the listed company (either directly or as a partner,
shareholder or officer of an organization that has a relationship with the
company)), and emphasizes that the concern is independence from management. The
board is also required, on a case by case basis, to express an opinion with
regard to the independence or lack of independence, of each individual
director.
To qualify
as an “independent” or “non-independent” director, CNV standards (General
Resolution No. 400) are substantially similar to NYSE standards. CNV standards
provide that independence is required with respect to the Bank, and to its
controlling shareholders or to shareholders with material holdings (35% or
more), and that, for any person to be appointed as an independent director, such
person must not perform executive functions within the Bank. Close relatives of
any persons who would not qualify as “independent directors” would also not be
considered “independent”.
Non-management
Directors Meetings
Under NYSE
Section 303A.03, non-management directors must meet at regularly scheduled
executive meetings not attended by management. Neither Argentine law nor BBVA
Banco Francés’ by-laws require that any such meetings be held.
Nominating
Corporate Governance Committee
Under NYSE
Section 303A.04, listed companies shall have a “nominating/corporate governance
committee” comprised entirely of independent directors. Neither Argentine law
nor BBVA Banco Francés’ by-laws require the formation of a “nominating/corporate
governance committee”. The right to nominate directors is vested in the
shareholders and the nomination is made at the shareholders’ meeting. Pursuant
to CNV Standards, the person who nominates a director shall report at the
shareholders’ meeting whether or not the nominee is an “independent person”,
based on criteria established by CNV (which are substantially similar to NYSE
standards).
The CGC
sets forth the creation of an “Appointments and Corporate Government Committee”,
whose functions are, among others, the selection of directors and key
executives, the determination of corporate government rules and their
supervision.
Compensation
Committee
Under NYSE
Section 303A.05(a), listed companies had to have a “Compensation Committee”
comprised entirely of independent directors. Under NYSE Section 303A.05(b), the
“Compensation Committee” shall have a written charter establishing certain
minimum responsibilities as set forth in NYSE Section 303A.05(b)(i). BBVA Banco
Francés does not have a compensation committee because neither Argentine law nor
BBVA Banco Francés’ by-laws require the formation of a “compensation
committee”.
The CGS
sets forth the creation of a Compensation Committee composed of three
non-executive directors (as a minimum), mostly independent members, which will
establish directors’ clear compensation policies with the legal limitations
regarding income and will be responsible for compensation policies and corporate
benefits.
Audit
Committee (II)
Under NYSE
Section 303A.06, listed companies must have an “audit committee” that complies
with SEC requirements. Foreign private issuers shall have this audit committee
in place prior to July 31, 2005. Decree No. 677/01 and CNV’s standards require
BBVA Banco Francés to have its audit committee in place on or prior to May 28,
2004. The Audit Committee (II) of BBVA Banco Francés currently complies with the
standards of Decree No. 677/01 and CNV.
Under NYSE
Section 303A.07(a), the audit committee shall consist of at least three members.
All of its members shall be financially literate or must acquire such financial
knowledge within a reasonable period and at least one of its members shall have
experience in accounting or financial administration. Argentine law also
requires the Audit Committee to be comprised of at least three members. Pursuant
to CNV’s standards, audit committee members are required to be conversant in
business, financial, or accounting issues. CNV’s rules provide for the training
of its members to carry out their duties and BBVA Banco Francés engages in this
training. The CGS establishes that the Board of Directors must resolve on the
convenience that the Audit Committee Presidency will be held by an independent
member.
Under NYSE
Section 303A.07(a), if a member of the audit committee is simultaneously a
member of the audit committee of more than three public companies, and the
listed company does not limit the number of audit committees on which its
members may
129
serve,
then, in each case the board shall determine whether the simultaneous service
would prevent such member from effectively serving on the listed company’s audit
committee, and shall report its decision in the annual proxy statement of the
company or in the company’s annual report filed with the SEC. No such provision
regarding an audit committee member’s simultaneous membership on public
companies exists under Argentine law or BBVA Banco Francés’
by-laws.
Under NYSE
Section 303A.07(b), all members of the audit committee are required to be
“independent”. In accordance with Decree No. 677/01, a majority of the members
of Audit Committee (II) are “independent”.
Under NYSE
Section 303A.07(c), the audit committee shall have a charter establishing the
duties and responsibilities of its members, including, at a minimum, some of the
duties and responsibilities required by Rule 10A-3 of the Securities Exchange
Act of 1934 (the “Exchange Act”) and as set forth in NYSE Section 303A.7(c) of
the NYSE Manual. The functions and responsibilities of the audit committee in
Argentina, established by Decree No. 677/01 and CNV’s standards, are essentially
the same as provided for under Rule 10A-3 of the Exchange Act.
NYSE
Sections 303A.07(c)(iii)(B) and (C) establish audit committee objectives: (i) to
discuss the annual audited financial statements and the quarterly financial
statements of the company with management and the independent auditor, including
the information disclosed under the heading “Management’s Discussion and
Analysis of Financial Conditions and Results of Operations”; (ii) to discuss the
company’s press releases relating to its earnings, as well as the financial
information and guidelines relating to its earnings that are supplied to equity
researchers and rating agencies. No such provision is contained in the Argentine
law or BBVA Banco Francés’ by-laws. However, CNV standards establish similar
functions for the audit committee, namely, “to verify the reliability of the
administrative-accounting system, and of all financial data, or of any
significant data submitted to CNV and to self-regulated exchanges, in compliance
with the applicable reporting regime”.
NYSE
Section 303A.07(c)(iii)(B) provides that the audit committee shall establish
clear policies for hiring external auditors’ employees. No such provision
regarding hiring external auditors’ employees is contained in Argentine law or
BBVA Banco Francés’ by-laws.
NYSE
Section 303A.07(d) provides that each company must have an internal audit
function in order to provide to the management and to the audit committee
permanent assessments on the company’s risk management processes and internal
control system. No such provision regarding an internal audit function is
required by Argentine law or BBVA Banco Francés’ by-laws. However, BBVA Banco
Francés has an Audit Committee according to Central Bank’s rules, which provides
to the management permanent assessments about management and operating
processes, and risks of the company.
Disclosure
of Corporate Governance Guidelines
NYSE
Section 303A.09 provides that companies must adopt and disclose corporate
governance guidelines, including several issues for which such reporting is
mandatory, and include such information on the company’s website, which should
also include the charters of the Audit Committee, the Nominating Committee and
the Compensation Committee.
Decree No.
677/01 required additional information that companies must include in their
annual reports, including information relating to the decision-making
organization (corporate governance), the company’s internal controls system,
norms for director and manager compensation, stock-options, and any other
compensation system applicable to Board members and managers. Decree No. 677/01
does not address the remaining issues included in NYSE Section 303A.09. However,
all relevant information sent by the Bank to the CNV is forwarded to the CNV
through the CNV’s Financial Reporting Highway and may be viewed on the CNV’s
website.
Evaluation
of Board Performance
Under NYSE
Section 303A.09, the board of directors must make a self-assessment of its
performance at least once a year to determine if it or its committees function
effectively and report thereon. Under Argentine law, the board’s performance is
evaluated at the annual shareholders’ meeting.
Code
of Ethics
NYSE
Section 303A.10 provides for the adoption of a Code of Business Conduct and
Ethics and sets out the topics that such code must contain. BBVA Banco Francés’
Board approved in December 18, 2003 a “Code of Conduct of BBVA Banco Francés and
its group of companies in Argentina”, which applies to all management and
employees, with no exceptions, the English translation of which is available to
the public on BBVA Banco Francés’ website. See “Code of Ethics”. BBVA Banco
Francés believes that its Code of Conduct complies with the NYSE
requirements.
130
Certifications
by the CEO
NYSE
Section 303A.12(a) provides that the CEO shall on a yearly basis certify to NYSE
that he/she knows of no violation by the company of NYSE Sections relating to
corporate governance. No such certification is required by Argentine law or by
BBVA Banco Francés’ by-laws.
Notification
of Non-fulfillment
Under NYSE
Section 303A.12(b), the CEO shall notify the NYSE in writing whenever any
executive officer of the company becomes aware of any substantial
non-fulfillment of any applicable provision under NYSE Section
303A.
No such
provision regarding notification of non-fulfillment of NYSE Section 303A is
contained in Argentine law or BBVA Banco Francés’ by-laws, but BBVA Banco
Francés’ CEO will comply with the notice provisions as set forth under NYSE
Section 303A.12(b).
Employees
The
following table shows the breakdown of our full-time payroll employees as of
December 31, 2007, 2006 and 2005:
|
As
of December 31,
|
||||||||||||
|
2007
(1)
|
2006
(1)
|
2005
(1)
|
||||||||||
|
Main
office
|
1,600 | 1,376 | 1,218 | |||||||||
|
Branches
|
2,494 | 2,303 | 2,400 | |||||||||
|
Total
|
4,094 | 3,679 | 3,618 | |||||||||
|
(1)
|
Excludes
1,865, 2,053 and 1,907 employees from non-banking subsidiaries as of
December 31, 2007, 2006 and 2005,
respectively.
|
Our
employees are represented by a national bank union with optional membership. As
of December 31, 2007, 424 employees were unionized. The union negotiates a
collective bargaining agreement to establish minimum salaries for all of its
members. We have not experienced any conflicts with the union for over 20 years
and we consider relations with our employees to be satisfactory.
We have a
personnel Training and Development Department, which is in charge of the
training of all of the Bank’s employees. This includes in-house training courses
and seminars in all the areas: Operations, Technology and Business (Branches,
Corporate Banking). We provide bonuses to individual employees throughout the
bank on a discretionary basis, taking into consideration individual merit and
overall profit levels. We do not have a formal profit-sharing plan.
Share
Ownership
As of
February 29, 2008, Gabriel Milstein (Media Director), Marcelo Canestri
(Director) and Oscar Fantacone (Retail Banking Director), owned shares in BBVA
Banco Francés, which represented less than 1% of the capital stock of the
Bank.
None of
our directors, members of the Supervising Committee or our remaining senior
executives own shares or options on shares of BBVA Banco Francés.
131
ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major
Shareholders
The
following table sets forth certain information regarding the beneficial
ownership of our ordinary shares as of December 31, 2007, by each person who, to
our knowledge, owns beneficially more than 5% of our ordinary shares. These
persons do not have different voting rights.
|
Ordinary
Shares Beneficially Owned At December 31, 2007
|
||||||||
|
Beneficial
Owner
|
Number
|
Percent
of class
|
||||||
|
Banco
Bilbao Vizcaya Argentaria (1)
|
215,195,798 | 45.65 | % | |||||
|
Bilbao
Vizcaya America BV (2)
|
98,596,099 | 20.92 | % | |||||
|
The
Bank of New York (4)
|
47,747,711 | 10.13 | % | |||||
|
Inversora
Otar S.A. (3)
|
44,301,125 | 9.40 | % | |||||
(1) Number of shares and percent of class owned directly and indirectly by BBVA except for shares held through Bilbao Vizcaya América BV.
(2) Banco
Bilbao Vizcaya América BV is controlled by BBVA.
(3) Inversora
Otar S.A. is controlled indirectly by BBVA.
(4) As holder
agent of ADR.
On
December 31, 2002, BBVA Banco Francés carried out a capital increase, in the
domestic market. Accordingly the capital stock of BBVA Banco Francés increased
from 209,631,892 shares to 368,128,432 shares and BBVA increased its equity
interest in the Bank from 68.2% to 79.53%.
BBVA Banco
Francés carried out a new capital increase in 2004. The subscription period for
the exercise of the preemptive and accretion rights regarding the issuance of
103,232,874 ordinary shares of Ps.1 nominal value and one vote per share,
entitled to dividends on the same conditions as the shares of the company
outstanding ended on
November 17, 2004. The offer was carried out by the capitalization of certain
eligible assets and cash, and took place in Argentina. Accordingly the capital
stock of BBVA Banco Francés increased from 368,128,432 shares to 471,361,306
shares. As a result of the capitalization BBVA (the main shareholder of BBVA
Banco Francés) owns, directly and indirectly, 75.97% of BBVA Banco Francés’
capital stock.
BBVA Banco
Francés is a corporation registered under Argentine law whose shareholders
restrict their liability to the shares they have subscribed and paid-in under
the Business Companies Law. Therefore, and in terms of Law No. 25,738, no
shareholder of the Bank, whether foreign or local, is liable beyond such paid-in
shares for obligations deriving from transactions made by the Bank.
Except as
described above, we are unaware of any arrangements the operation of which may,
at a subsequent date, result in a change of control of BBVA Banco
Francés.
As of
December 31, 2007, according to our records and the records of the Depositary,
25 holders of ordinary shares and 25 registered holders of ADSs have an address
in the United States, representing, in the aggregate, 10.46% of our issued and
outstanding ordinary shares.
Related
Parties Transactions
The
following table presents the loans granted, guarantees given and extensions of
credit granted (unused portions) to related parties for the fiscal years ended
December 31, 2007 and 2006. Related parties include controlled companies,
controlling shareholders and entities under common control, key management and
directors and associated entities.
132
|
Fiscal
Year ended December 31, 2007
|
Fiscal
Year ended December 31, 2006
|
|||||||||||||||||||
|
Related
Party
|
Largest
Outstanding
Amount
(1)(2)
|
Interest
Rates
|
Amount
Outstanding (2)
|
Interest
Rates
|
Nature
|
Largest
Outstanding
Amount
(1)(2)
|
Interest
Rates
|
Amount
Outstanding
(2)
|
Interest
Rates
|
Nature
|
||||||||||
|
Controlled,
Controlling and under common control Entities
|
||||||||||||||||||||
|
BBVA
and subsidiaries
|
129,829
|
—
|
65,382
|
—
|
Guarantees
given, other loans, corresponsals
|
167,672
|
—
|
71,401
|
—
|
Guarantees
given, other loans, corresponsals
|
||||||||||
|
Credilogros
Cía. Financiera S.A.
|
—
|
—
|
—
|
—
|
—
|
50,655
|
9.35%
|
—
|
—
|
Advances,
call money, guarantees given and Equity investment
|
||||||||||
|
Francés
Valores Sociedad de Bolsa S.A.
|
18,217
|
—
|
14,079
|
—
|
Other
loans and equity investment
|
19,881
|
—
|
6,654
|
—
|
Other
loans and Equity investment
|
||||||||||
|
Francés
Administradora de Inversión
|
1,474
|
87.50%
|
1,392
|
87.50%
|
Advances,
credit card loans, other loans and equity investment
|
5,719
|
50.00%
|
1,067
|
26.00%
|
Advances,
credit card loans and Equity investment
|
||||||||||
|
Consolidar
AFJP S.A.
|
34,078
|
26.50%
|
33,588
|
45.00%
|
Advances,
credit card loans, other loans, guarantees given and equity
investment
|
34,009
|
26.00%
|
33,952
|
26.00%
|
Credit
card loans, other loans, guarantees given and Equity
investment
|
||||||||||
|
Consolidar
Seguros de Vida S.A.
|
9,359
|
—
|
9,359
|
—
|
Other
loans and equity investment
|
9,353
|
—
|
9,348
|
—
|
Other
loans and Equity investment
|
||||||||||
|
Consolidar
Seguros de Retiro S.A.
|
23,073
|
45.00%
|
22,974
|
31.88%
|
Advances,
credit cards loans, other loans, guarantees given and equity
investment
|
12,962
|
45.00%
|
12,953
|
26.00%
|
Advances,
credit cards loans, other loans and Equity investment
|
||||||||||
|
Consolidar
ART S.A.
|
4,699
|
45.00%
|
4,697
|
32.73%
|
Advances,
credit cards loans, other loans and equity investment
|
4,703
|
26.00%
|
4,652
|
26.00%
|
Credit
cards loans, other loans and Equity investment
|
||||||||||
|
Aplica
S.A.
|
2,157
|
14.75%
|
1,147
|
27.86%
|
Advances
and credit cards loans
|
—
|
—
|
—
|
—
|
—
|
||||||||||
|
PSA
Finance
|
194,000
|
50.00%
|
194,000
|
50.00%
|
Advances,
call money, other loans and equity investment
|
89,206
|
11.39%
|
89,206
|
11.51%
|
Call
money, other loans and Equity investment
|
||||||||||
|
BBVA
Consolidar Seguros S.A.
|
6,887
|
45.00%
|
6,887
|
45.00%
|
Advances,
other loans and equity investment
|
7,386
|
45.00%
|
6,278
|
—
|
Advances,
credit cards loans and Equity investment
|
||||||||||
|
Assurex
S.A.
|
35
|
—
|
35
|
—
|
Equity
investment
|
33
|
—
|
33
|
—
|
Equity
investment
|
||||||||||
|
Inversora
Otar
|
3,239
|
—
|
—
|
—
|
Other
loans
|
3,093
|
—
|
3,093
|
—
|
Other
loans
|
||||||||||
|
Atuel
Fideicomisos S.A.
|
27,720
|
—
|
27,720
|
—
|
Equity
investment
|
20,153
|
—
|
20,153
|
—
|
Equity
investment
|
||||||||||
|
(1)
Largest amount during the period indicated.
|
|
(2)
In thousands of pesos.
|
|
(3) Includes
directors, senior managers, members of the audit committee and managers
with relevant authority.
|
133
|
Fiscal
Year ended December 31, 2007
|
Fiscal
Year ended December 31, 2006
|
|||||||||||||||||||
|
Related
Party
|
Largest
Outstanding
Amount (1)(2)
|
Interest
Rates
|
Amount
Outstanding
(2)
|
Interest
Rates
|
Nature
|
Largest
Outstanding
Amount
(1)(2)
|
Interest
Rates
|
Amount
Outstanding
(2)
|
Interest
Rates
|
Nature
|
||||||||||
|
Associated
Entities
|
||||||||||||||||||||
|
Consolidar
Salud S.A.
|
196
|
45.00%
|
3
|
32.73%
|
Advances
and credit card loans
|
16
|
26.00%
|
16
|
26.00%
|
Credit
card loans
|
||||||||||
|
Clínica
Baxterrica
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
—
|
Advances
|
||||||||||
|
Rombo
Cia Financiera S.A.
|
218,039
|
13.30%
|
197,909
|
13.61%
|
Call
money, advances, other loans, guarantees given and equity
investment
|
161,169
|
12.81%
|
151,784
|
13.42%
|
Call
money, advances, other loans and Equity investment
|
||||||||||
|
Key
Management Personnel (3)
|
1,102
|
21.00%
|
1,102
|
21.00%
|
Advances,
credit card loans, personal loans and real state mortgage
|
978
|
28.96%
|
705
|
28.96%
|
Advances,
credit card loans, personal loans, real state mortgage and guarantees
given
|
||||||||||
|
(1)
Largest amount during the period indicated.
|
||||||||||
|
(2)
In thousands of pesos.
|
||||||||||
134
As of
December 31, 2007, the Bank did not register assistance received from
BBVA.
Financial
Statements
See “Item 18. Financial
Statements”.
Legal
Proceedings
The
collection actions pending and disclosed for the fiscal year ended December 31,
2006, have been excluded from our Financial Statements for the fiscal year 2007
in view of agreements reached with former shareholders of the former Banco de
Crédito Argentino under which said shareholders have agreed to indemnify BBVA
Banco Francés for any loses incurred from such claims. Notwithstanding, these
judicial proceedings continue on file. In case of an adverse judicial outcome,
this will not materially affect the Bank’s equity or its
transactions.
The
measures taken by the Government at the beginning of 2002, including the repeal
of the Convertibility Law, the “pesification” of all assets and liabilities in
the formal economy and the default by the Government on its debt, led to a
massive withdrawal of deposits and a breakdown in the chain of payments. We have
faced many lawsuits brought by depositors to recover their deposits in cash and
in their original currency interest on their foreign currency deposits. As of
December 31, 2007, we had repaid a total of approximately Ps.2.287,7 million and
U.S.$105,7 million in deposits in connection with lawsuits brought by
depositors, and during 2007 BBVA Banco Francés has paid Ps.69,2 million
(comprised by Ps.32,1 million of deposits and Ps.37,1 million of negative
exchange difference) regarding lawsuits brought against the Bank
(“amparos”).
Dividends
We do not
have a defined policy of dividend distributions. However, according
Communication “A” 4664 of the Central Bank from May 11, 2007, such distribution
must have the prior authorization of the Central Bank and any of the following
situations may not have occurred during the month immediately preceding the
request for authorization made to the Central Bank’s Superintendence of
Financial and Foreign Exchange Entities:
|
1.
|
The
Bank falls under the provisions of articles 34 “Regularization and
restructuring” and 35 bis “Restructuring of the entity for the protection
of credit and bank deposits” of the Financial Entities
Law;
|
|
2.
|
The
Bank has received financial assistance from the Central Bank, other than
assistance received for lack of liquidity in terms of Decree No. 739/03
and its regulatory provisions (Communication “A” 3941 and complementary
ones), within the framework of article 17 of this Bank’s Charter, and in
terms of the transactions foreseen by Communication “A”
4268.
|
|
3.
|
The
Bank incurs delays or noncompliance with respect to the information system
set forth by the BCRA; or
|
|
4.
|
The
Bank shows deficiencies as to the payment of its minimum capital, either
individually or on a consolidated basis (without computing for such
purpose the effects of individual franchises granted by the
Superintendence of Financial and Foreign Exchange Entities) or as regards
its average minimum cash requirements in pesos or foreign
currencies.
|
For a
description of the cash dividends that we have paid on our ordinary shares and
ADSs for the years 2000 to 2006, see “Key Information-Cash
Dividends”.
We were
one of the first companies listed on the BCBA. Since 1993 our shares have also
been listed on the New York Stock Exchange and, since December 1999 on the
Madrid Stock Exchange. Before November 1993, there was no public market for our
ordinary shares or ADSs outside of Argentina. The ordinary shares are currently
traded on the Buenos Aires Stock Exchange under the symbol “FRAN” and the ADSs
are currently traded on the New York Stock Exchange under the symbol “BFR”. We
cannot give assurance that a public market in the United States for the ADSs
will continue to exist.
135
The table
below shows the quarterly high and low closing prices of the ordinary shares in
pesos on BCBA for the periods indicated. Prices have not been adjusted to
reflect all stock dividends paid through the date of this annual
report.
|
Pesos
Per
Ordinary Share (1)
|
|||
|
High
|
Low
|
||
|
2008
|
|||
|
February
2008
|
8.55
|
7.87
|
|
|
January
2008
|
8.10
|
7.10
|
|
|
Fiscal
year ended December 31, 2007
|
13.10
|
8.04
|
|
|
Fourth
quarter
|
10.25
|
8.04
|
|
|
December,
2007
|
9.25
|
8.04
|
|
|
November,
2007
|
9.81
|
8.90
|
|
|
October,
2007
|
10.25
|
9.50
|
|
|
Third
quarter
|
11.30
|
8.54
|
|
|
September,
2007
|
9.72
|
8.93
|
|
|
Second
quarter
|
12.80
|
11.00
|
|
|
First
quarter
|
13.10
|
9.75
|
|
|
Fiscal
year ended December 31, 2006
|
9.60
|
6.90
|
|
|
Fourth
quarter
|
9.60
|
7.60
|
|
|
Third
quarter
|
8.00
|
6.97
|
|
|
Second
quarter
|
8.80
|
6.90
|
|
|
First
quarter
|
8.50
|
7.15
|
|
|
Fiscal
year ended December 31, 2005
|
8.13
|
5.60
|
|
|
Fiscal
year ended December 31, 2004
|
9.95
|
4.80
|
|
|
Fiscal
year ended December 31, 2003
|
9.40
|
3.45
|
|
(1) Pesos per
ordinary share data reflect nominal prices at trading date.
Source:
BCBA.
The
ordinary shares trade on the New York Stock Exchange in the form of ADSs issued
by The Bank of New York, as depositary. Each ADS represents three ordinary
shares. The table below shows the quarterly high and low closing prices of the
ADSs in dollars on the New York Stock Exchange for the periods
indicated.
|
U.S.$ Per
ADS
|
|||
|
High
|
Low
|
||
|
2008
|
|||
|
February
2008
|
8
14/25
|
7
3/20
|
|
|
January
2008
|
7
17/20
|
5
3/5
|
|
|
Fiscal
year ended December 31, 2007
|
13
1/10
|
7
12/25
|
|
|
Fourth
quarter
|
10
|
7
12/25
|
|
|
December,
2007
|
8
9/10
|
7
12/25
|
|
|
November,
2007
|
9
3/4
|
8
4/19
|
|
|
October,
2007
|
10
|
8
10/13
|
|
|
Third
quarter
|
11
|
7
3/5
|
|
|
September,
2007
|
9
19/50
|
8
4/19
|
|
|
Second
quarter
|
12
17/20
|
10
11/50
|
|
|
First
quarter
|
13
1/10
|
9
23/39
|
|
|
Fiscal
year ended December 31, 2006
|
9
7/10
|
6
7/10
|
|
|
Fourth
quarter
|
9
7/10
|
7
4/21
|
|
|
Third
quarter
|
7 44/53
|
6
7/10
|
|
|
Second
quarter
|
8
43/50
|
6
7/10
|
|
|
First
quarter
|
8
3/13
|
7
1/20
|
|
|
Fiscal
year ended December 31, 2005
|
8
1/4
|
5
39/50
|
|
|
Fiscal
year ended December 31, 2004
|
10 3/20
|
4
46/63
|
|
|
Fiscal
year ended December 31, 2003
|
9
2/5
|
3
9/20
|
|
136
Trading
on the BCBA
There are
nine exchanges in Argentina, of which five have affiliated stock markets and,
accordingly, are authorized to quote publicly offered securities: Buenos Aires,
Rosario, Córdoba, Mendoza and Santa Fe. The oldest and largest of these
exchanges is the BCBA, which was founded in 1854. Usually, the overwhelming
majority of all Argentine equity trades take place on the BCBA. As of December
31, 2007 the shares of 109 Argentine companies, excluding mutual funds, were
listed on the BCBA. As of December 31, 2007, the 10 most actively traded stocks
represented 78.41% of the total volume of equity traded on the exchange (“SINAC”
plus “Floor”). All publicly offered securities may be traded on authorized
securities exchanges and, except for equity securities, in the Argentine
over-the-counter market or MAE. See “Information on the Company—The
Argentine Banking System and its Regulatory Framework—Capital
Markets”.
The
MERVAL, which is affiliated with the BCBA, is the largest stock market in
Argentina. The MERVAL is a corporation which regulates its members (all of whom
are stockholders of the corporation) and transactions conducted on that market.
Only stockholders of the MERVAL are allowed to effect transactions either as
principal or as agent in that stock market. In 1990, brokerage houses, including
bank subsidiaries, were allowed to enter as full members of the market. Trading
in the MERVAL is conducted through three different trading systems:
|
§
|
the
“Floor”;
|
|
§
|
the
“SINAC”; and
|
|
§
|
the
“Continuous”.
|
The
operations at the traditional auction system (“Floor”) start from 11:00 A.M. and
end at 6:00 P.M. each business day. Also available is an electronic auction
system called “SINAC” where each broker inputs both its buys and sells while the
system matches the operations. Since July 1998, both auction systems (the
“Floor” and “SINAC”) are considered to be a single market. Both systems allow
for the trade of securities, public bonds, private bonds, futures and
derivatives. Additionally, the Buenos Aires Stock Market’s trades are made
through an electronic Continuous Market System (the “Continuous”) that operates
from 11:00 A.M. to 6:00 P.M. each business day. The Continuous is a system that
registers and makes public trades that were privately arranged by registered
brokers and brokerage companies on behalf of their clients. In this system only
public and private bonds may be traded. Such trades are reported on the “Mercado
Abierto”, an electronic reporting system similar to, but different from, the
Continuous Market System. To control price volatility, the BCBA operates a
system which suspends dealing in shares and bonds of a particular issuer for 30
minutes or less when changes in the price of such shares exceed or fall more
than 10% of the preceding day’s closing share price. From then on, the BCBA
suspends trading for a few minutes when prices rise or fall an additional 5% or
more in the same day. In both markets, the operations can be executed in pesos
or dollars from local accounts or foreign accounts.
As of
December 31, 2007, the market capitalization of the 109 companies listed on the
BCBA was approximately U.S.$562.4 billion. At the same time, the market
capitalization of the domestic companies totaled U.S.$57.0 billion.
The
following table summarizes certain historical information about the Buenos Aires
Stock Exchange.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Market
capitalization (U.S.$ billion)
|
562.4 | 400.0 | 254.5 | |||||||||
|
Number
of companies listed
|
109 | 106 | 104 | |||||||||
|
Rate
of return in dollars (1)
|
0.40% | 33.58% | 10.60% | |||||||||
|
Market/book
ratio (2)
|
2.09 | 2.36 | 2.02 | |||||||||
(1) Based on
the Merval Index
(2) Estimated
Source:
BCBA and Instituto Argentino de Mercados de Capitales
(IAMC).
Market
Regulation
Under Law
No. 17,811, public trading of securities on exchanges must be made with stock
markets organized as stock corporations, which must be affiliated with a stock
exchange.
137
Each stock
market has the operating responsibility for all transactions performed by
stockbrokers and has disciplinary power over them. Each stock market guarantees
the proper settlement or clearance of transactions entered into by stockbrokers.
The effect of such a guarantee is to provide brokers assurances that
transactions will be consummated in a timely manner.
The CNV
has passed a set of resolutions establishing a system of self-regulatory
entities, under which each self-regulatory entity (which currently includes each
exchange and the MAE) is responsible for developing and implementing regulations
governing its respective securities market, subject to the approval and
oversight of the CNV. Internal rules of each exchange for its affiliated stock
market establish conditions for listing securities, admitting brokers,
conducting trades and controlling the truthfulness of any information which is
required to be reported.
In recent
years, changes to the legal framework have been introduced permitting the
issuance and trading of new financial products in the Argentine capital markets,
including commercial paper, new types of corporate bonds, trust bonds, other
credit instruments and futures and options over shares, bonds, index and U.S.
dollar. On November 1991, brokerage fees were deregulated and transfer taxes and
stamp taxes on publicly offered securities were eliminated.
In
compliance with the provisions of Law No. 20,643, most debt and equity
securities traded on the exchanges and on the MAE must, unless otherwise
instructed by the stockholders, be deposited by the stockbrokers or
over-the-counter dealers in the Caja de Valores, which is a corporation owned by
the BCBA, the MERVAL and certain provincial exchanges. The Caja de Valores
provides central depository facilities for securities and acts as a transfer and
paying agent. In September 2000, the Caja de Valores started Argenclear S.A.
(“Argenclear”), a clearing house owned by the most important private and public
banks of Argentina, MERVAL and BCBA. Argenclear provides services to the brokers
for the settlement of public bond trades registered in the MAE. It also handles
settlement of securities transactions carried out by the BCBA and operates the
computerized “Exchange Information System”.
On May 17,
2001, by means of General Resolution No. 368 the CNV approved a new restated
text for a number of regulations in force in order to unify, harmonize and
simplify the different requirements established by them. The new text
incorporates the changes implemented by all general resolutions issued after
General Resolution No. 290. On May 28, 2001, the Official Bulletin published the
text of Decree No. 677/01 which created a regulatory framework to ensure Public
Offer Transparency.
In order
to offer securities to the public in Argentina, an issuer must meet certain
requirements of the CNV, regarding assets, operating history, management and
other matters, and only securities for which an application for a public
offering has been approved by the CNV may be listed on the BCBA. This approval
does not imply any kind of certification or assurance related to the merits or
the quality of the securities, or the solvency of the issuer. Issuers of listed
securities are required to file with the CNV and the BCBA quarterly financial
statements and audited annual financial statements, as well as various other
periodic reports.
Although
participation by foreign investors in BCBA has historically been low, it has
increased since 1991 as a consequence of the economic reform programs
implemented by the Government and the liberalization of restrictions to the
access by foreign investors to securities in the Argentine securities market.
Currently, an important amount of floating capital and public bonds is held by
foreign investors, but since 2002 a decrease in the flow of foreign capital has
been evident due to the economic crisis and the BCRA regulations.
In 2002,
trough Decree No. 216/02, the Mercado Unico y Libre de Cambios (“MULC”) was
created and a series of other BCRA regulations that fixed limits to capitals
flows were adopted. In 2005, the BCRA regulated the currency for the
transactions in the regulated markets. Since 2005, all transactions can be
concerted in Pesos or U.S. Dollars in local accounts and foreign
accounts.
ITEM
10. ADDITIONAL INFORMATION
Memorandum
and Articles of Association
The
following summarizes certain material provisions of our by-laws and Argentine
law, the main bodies of regulation governing BBVA Banco Francés. This summary is
qualified in its entirety by reference to the Business Companies Law, the
Financial Institution Law and our by-laws. Copies of our by-laws have been filed
as exhibits to our 2003 annual report on Form 20-F.
At our
Ordinary and Extraordinary Stockholders’ Meeting held on April 28, 2005, our
stockholders voted to amend section 11 of the By-laws in order to comply with
Resolution No. 20/04 of the Companies Supervisory Department (Inspección General
de Justicia), and its amendments. This amendment will require each of our
Directors to (i) pledge an amount of at least Ps.10,000 as a guarantee of the
Director’s performance and (ii) maintain a special domicile within the Argentine
Republic. This amendment has been filed with the Public Registry of Commerce,
which has been approved as of the filing of this annual report, on December 12,
2005, under Number 16,335, Book 30.
138
Registry
and Company’s Objects
BBVA Banco
Francés is registered with the Public Registry of Commerce of the Argentina
(Registro Público de Comercio) under company number 1,065, Page 359, Book 5,
Volume “A” of Local Corporate By-laws. Section 3 of our by-laws provides that
the object of BBVA Banco Francés is to engage in the commercial banking
business, including financial brokerage, whether in Argentina or abroad. To this
end, BBVA Banco Francés is authorized to perform the following
activities:
|
§
|
Accept
term and demand deposits;
|
|
§
|
Grant
short-term bullet and other amortizable
loans;
|
|
§
|
Discount,
purchase and sell bills of exchange, promissory notes, pledges, checks,
drafts and other negotiable
instruments;
|
|
§
|
Grant
guarantees, bonds or other forms of collateral; accept bills of exchange,
drafts and other orders of payment, transfer funds and issue and accept
letters of credit;
|
|
§
|
Grant
advances on credits from property sales, acquire the same and undertake
the risks resulting therefrom, take steps to collect them and offer
technical and administrative
assistance;
|
|
§
|
Invest
in Government securities;
|
|
§
|
Make
temporary investments in liquid
assets;
|
|
§
|
Invest
in new stock or securities issues, in pursuance of such regulations as may
be set forth to that purpose;
|
|
§
|
Accept
securities in custody and provide other services related to the banking
business;
|
|
§
|
Manage,
on account of third parties, the purchase and sale of securities, and act
as paying agents in relation to dividends, redemption and interest; engage
in brokerage activities in the over-the-counter securities
market;
|
|
§
|
Perform
foreign exchange transactions;
|
|
§
|
Comply
with agencies related to its
operations;
|
|
§
|
Receive
deposits of participation in mortgage loans and in special
accounts;
|
|
§
|
Issue
mortgage obligations;
|
|
§
|
Grant
loans for the acquisition, construction, enlargement, repair, improvement
and maintenance of urban or rural real estate, and for the substitution of
mortgages taken out for that same
purpose;
|
|
§
|
Receive
loans from abroad and act as intermediary in local or foreign
currency-denominated loans;
|
|
§
|
Issue
private bonds, and
|
|
§
|
Carry
out such lending, borrowing and service-related operations as are not
forbidden under the Financial Institutions
Law.
|
Directors
Under
Section 18 of our by-laws, the Board of Directors receives an annual fee
established by the shareholders. This fee is subject to the restrictions of
Section 261 of the Business Companies Law, which provides that the aggregate
compensation of the directors may not exceed 25% of the income of the company,
or 5% of the income if no dividends were distributed to the
shareholders.
Under
Section 272 of the Business Companies Law, a director may not vote in respect of
any proposal in which he, or any person connected to him, has an interest
contrary to the interests of BBVA Banco Francés.
139
Directors
need not hold shares in BBVA Banco Francés or any of our subsidiaries to qualify
and be appointed as directors of BBVA Banco Francés.
Rights
Attaching to Shares
As of the
date of the filing of this annual report, our capital is formed by a single
class of shares, all of which are ordinary shares and have the same voting and
economic rights. Shareholders participate in the distribution of dividends pro
rata the paid-in capital. Furthermore, shareholders are entitled to participate
in the distribution resulting from the liquidation of BBVA Banco Francés in
proportion to the paid-in capital.
Shareholders
are entitled to vote cumulatively one-third of the vacancies of the board of
directors. The board may not be reelected in alternative intervals if it impairs
or prevents the exercise by shareholders of their cumulative voting
rights.
Shareholders
may no longer claim the payment of dividends from BBVA Banco Francés once three
years have elapsed from the date on which the relevant dividend was made
available to such shareholder.
Our
by-laws do not contain any provisions related to sinking funds or potential
liability of shareholders of BBVA Banco Francés to make additional
contributions.
Communication
“A” 4664, from May 11, 2007, provides that financial entities can distribute
retained profits, with the corresponding authorization from the Central Bank,
who must verify the following regarding such financial entity:
|
§
|
The
Bank falls under the provisions of articles 34 “Regularization and
restructuring” and 35 bis “Restructuring of the entity for the protection
of credit and bank deposits” of the Financial Entities
Law;
|
|
§
|
The
Bank has received financial assistance from the Central Bank, other than
assistance received for lack of liquidity in terms of Decree No. 739/03
and its regulatory provisions (Communication “A” 3941 and complementary
ones), within the framework of article 17 of this Bank’s Charter, and in
terms of the transactions foreseen by Communication A
4268.
|
|
§
|
The
Bank incurs delays or noncompliance with respect to the information system
set forth by the BCRA; or
|
|
§
|
The
Bank shows deficiencies as to the payment of its minimum capital, either
individually or on a consolidated basis (without computing for such
purpose the effects of individual franchises granted by the
Superintendence of Financial and Foreign Exchange Entities) or as regards
its average minimum cash requirements in pesos or foreign
currencies.
|
Shareholders
Meetings
All
general meetings other than annual general meetings are called regular or
special meetings. Regular and special shareholders’ meetings are to be convened
by the Board of Directors of the Bank or by the Supervisory Committee in such
instances as set forth by law, or whenever they may deem it necessary, or upon
requisition of shareholders representing at least 5% of our stock capital, as
provided by Section 236 of the Business Companies Law.
Shareholders’
meetings are called by publication for five days, at least 20 and not more than
45 days before the date of the meeting, in the Official Gazette and in one of
the most widely circulated newspapers in Argentina. The notice must include the
nature, the date, time and place of the meeting, the agenda, and any special
requirements in our by-laws for the shareholders to attend.
In case of
adjournment of a regular shareholders meeting, the meeting on second call may be
held on the same date, at least one hour after the time set for the meeting on
first call, in compliance with Section 237 of the Business Companies Law. In
case of adjournment of a special shareholders’ meeting, the meeting on second
call must be held within the following thirty days, and the publication must
appear for three days at least eight days before the date set for that
meeting.
In order
to attend and vote at any shareholders’ meeting, shareholders must deposit with
us their shares or a share certificate or a statement of account representing
book-entry shares, as the case may be, issued by us, a securities depository or
any other authorized institution, to be recorded in the record book of
attendance, at least three business days before the date of the
meeting.
Holders of
registered or book-entry shares, the record of which we keep, are only required
to notify us to register their names in the record book of attendance, at least
three business days before the date of the meeting. We must provide such
shareholders with certificates authorizing them to attend the
meeting.
140
Shareholders
may be present at meetings by power-of-attorney or proxy. In the latter case,
the principal’s signature shall be certified by a court, notary public or bank.
Directors, statutory auditors, managers or any other of our employees may not
act as agents for these purposes.
A quorum
must be present at any regular shareholders’ meetings on first call upon the
attendance of shareholders representing the majority of voting stock. On second
call, there is a quorum with the attendance of any number of shares present. A
quorum is present at any special shareholders’ meeting on first call upon the
attendance of shareholders representing 60% of the voting stock. Shareholders
representing 30% of our voting stock shall constitute a quorum at a special
shareholders’ meeting on second call. In any case, resolutions require the
absolute majority of the voting stock present.
Restrictions
on Voting and Shareholding
There are
no restrictions imposed by Argentine law or our by-laws or other organizational
documents regarding the rights of non-residents or foreign persons to hold or
vote our ordinary shares or ADSs of the Bank.
Change
of Control
There are
no provisions in our articles of incorporation or by-laws that would have the
effect of delaying, deferring or preventing a change of control of BBVA Banco
Francés and that would operate only with respect to a merger, acquisition,
corporate restructuring involving BBVA Banco Francés or any of its
subsidiaries.
Ownership
Disclosure
There are
no provisions in our by-laws governing the ownership threshold above which
shareholder ownership must be disclosed.
Change
in the Capital
Our
by-laws do not establish conditions for the changes in the capital of BBVA Banco
Francés more stringent than those conditions imposed by the Business Companies
Law.
Material
Agreements
No
material agreements outside the ordinary course of business have been entered
into during the last two years.
Exchange
Controls
On January
7, 2002, Congress approved the Public Emergency Law that introduced dramatic
changes to the country’s economic model and amended the currency board that
pegged the peso at parity with the dollar which had been in effect since April
1, 1991 pursuant to the Convertibility Law. The new law empowers the Executive
Branch to implement, among other things, additional monetary, financial and
exchange measures to overcome the economic crisis in the medium term, including
the power to establish a system to determine the exchange rate applicable to the
peso. The Central Bank, among other restrictive measures, restricted the
transfer of U.S. dollars abroad without its prior approval. In 2003 and 2004,
the government substantially eased these restrictions. However, on June 26,
2003, the government set restrictions on capital flows into Argentina, which
mainly consisted of a prohibition against the transfer abroad of any funds until
180 days after their entry into the country. Furthermore, on June 10, 2005 the
government issued Decree No. 616/05 establishing further restrictions on capital
flows into Argentina, with the following provisions:
|
(i)
|
All
incoming and outgoing funds from the Argentine Exchange market, and any
debt operation with non-residents which could demand future payments in
foreign currency to non-residents, are subject to registration with the
Central Bank for informative
purposes;
|
|
(ii)
|
Any
debt entered into between non-governmental persons or entities and
non-residents must be agreed for a term of at least 365 days, except for
the financing of import and export operations and the primary placements
of public debt listed in an authorized stock
exchange;
|
|
(iii)
|
All
incoming funds relating to foreign private debt, and all incoming funds of
non-residents, excluding foreign direct investments and certain types of
portfolio investments (purchases in the primary market of debt instruments
and equity, listed in authorized stock exchanges, etc) regardless of the
agreed payment procedure, must be agreed for at least 365 days, and 30% of
incoming funds must be deposited with a bank in Argentina in a
non-interest bearing account, known as
“encaje”;
|
141
|
(iv)
|
Decree
No. 616/05 also states certain exceptions for the “encaje” such as
settlements in foreign currency of resident loans granted by a local
financial entity, certain capital contributions in local corporations,
etc.;
|
Furthermore,
Resolution No. 637/05 dated November 16, 2005 stated that all incoming funds to
the local foreign exchange market for the subscription of primary placements of
bonds, or certificates under the scope of financial trusts will be subject to
Decree No. 616/05 dispositions.
As a
general rule, transfer of funds abroad required prior Central Bank approval.
However, this general principle was eased by numerous exceptions introduced
since December 2002. Currently, in order to purchase and/or transfer foreign
currency abroad, the transaction should be specifically admitted among the list
of “items” (authorizing the purchase and/or transfer of foreign currency) that
is published by the Central Bank. Certain items are, however, still subject to
restrictions.
Cross
Border Transfers of Funds. Foreign Debts
Under the
Central Bank’s exchange regulations, proceeds of new financing must be
transferred into Argentina and converted into pesos in the local exchange market
within 365 days as from the relevant disbursement.
Repayment
of principal of, and interest on, foreign indebtedness, was initially subject to
Central Bank’s prior authorization. Currently, due to the recent changes
introduced by the Central Bank, local companies (with the exception of financial
institutions), following certain requirements, may:
|
§
|
Pay
abroad interest on foreign debt on its due date or up to 15 days in
advance, without prior Central Bank authorization. Access to the local
foreign exchange market in connection with the servicing of foreign
indebtedness is available only if and after the date the original proceeds
from the financing have been transferred into Argentina as explained
before.
|
|
§
|
Repay
principal of foreign debt at maturity (or 365 days in advance, to the
extent that the amounts so prepaid were brought into the local market and
exchanged for pesos, and repayment takes place at least 365 days
therefrom) without prior Central Bank authorization. Communication “A”
4177 (as amended) also allows prepayment of principal with an anticipation
of more than 365 days, but subject to the following
conditions:
|
|
(1)
|
If
prepayment of principal is not made in the context of a debt restructuring
process, then the amount prepaid should not exceed the present value of
such amount, calculated according to the formula provided by the Central
Bank, unless the prepayment is coupled with the transfer and exchange for
pesos of a new loan with a present value equal to the prepaid
amounts.
|
|
(2)
|
If
the prepayment is made within the context of a debt restructuring process,
then the new terms and conditions of the debt after the restructuring,
including the amount prepaid, shall not result in an increase of the
present value of the whole debt (according to the formula of the Central
Bank).
|
Regulations
regarding Imports and Exports
The
Central Bank established under Communication “A” 3473, as amended, an obligation
to transfer from abroad to Argentina the foreign currency obtained from the
collection of exports and to settle the foreign currency in the single free
exchange market. This is a general obligation applicable to all export
transactions, except certain specific cases such as oil exports. In addition,
all collections by exporters must be collected between 60 and 360 calendar days
from the date of the export, depending on the product being exported, for the
exporter to negotiate the foreign currency in the domestic exchange market.
Additionally, exporters have another 120 business days to bring in the foreign
currency.
In respect
to imports, advanced or at sight payments of any goods are allowed, upon
condition that the clearance of the imported goods (nationalization) is credited
within 360 and 90 days, respectively. Deferred import of goods may be paid at
any moment.
142
Purchase
of Foreign Currency
|
A.
|
Local
individuals and companies
|
Local
individuals and companies are now authorized to buy up to certain amounts of
foreign currency for purposes of (i) real estate investments outside of
Argentina; (ii) loans granted to persons not domiciled in Argentina; (iii)
direct investments outside of Argentina of persons domiciled in Argentina; (iv)
portfolio investments outside of Argentina, among others.
To that
extent, the limits currently in force are:
|
§
|
U.S.$2,000,000
per month; or
|
|
§
|
The
aggregate equivalent amount in pesos paid by such individual or company to
the Argentine tax authority (Administración Federal de Ingresos Públicos)
on the immediately preceding month in connection with export duties, plus
three times the amount paid in connection with the tax on bank credits and
debits.
|
According
to Communication A 4764, any legal persons may also, until June 30, 2008,
accumulate funds abroad for specific purposes if they comply with certain
conditions; such amounts remaining beyond the scope of Communication A 3722, and
complementary ones.
|
B.
|
Non-residents
|
Moreover,
pursuant to Communication “A” 3661 (as amended), prior authorization from the
Central Bank is required by non-residents for the purchase of foreign exchange
for any amount above the equivalent of U.S.$5,000 per month.
Notwithstanding
the above, Communication “A” 4129 (as amended) states that no authorization from
the Central Bank will be required with regard to the repatriation of direct and
portfolio investments of non-residents, in the following cases:
|
§
|
Transfers
abroad arising out of:
|
|
(1)
|
Foreign
indebtedness of residents related to Argentine imports of goods and
services;
|
|
(2)
|
Recoveries
under local bankruptcy proceedings to the extent the foreign creditor was
admitted as such by the bankruptcy
court;
|
|
(3)
|
Proceeds
of sales of direct investments in local non-financial
companies;
|
|
(4)
|
Proceeds
of final winding up of direct investment in local non-financial
companies;
|
|
(5)
|
Capital
reduction; and
|
|
(6)
|
Repayment
of irrevocable contributions.
|
|
§
|
Transfers
abroad of an aggregate equivalent of up to U.S.$500,000 per month arising
out of:
|
|
(1)
|
Proceeds
of sales of other portfolio investments and their revenues, such as
investments in shares of local companies, investment funds and local
trusts;
|
|
(2)
|
Purchases
of loans granted to residents by local
banks;
|
|
(3)
|
Acquisition
of invoices and promissory notes for local commercial transactions,
investment in local bonds denominated in pesos;
and
|
|
(4)
|
The
acquisition of other local credits.
|
Transfer
of Corporate Bonds
According
to Communication “A” 3859 (as amended), Argentine companies may freely transfer
corporate profits and dividends corresponding to audited financial statements
(i.e., no prior Central Bank approval is needed). Moreover, transfers abroad in
order to pay reinsurance premiums will be subject only to the issuance of a
statement by the Argentine Superintendency of Insurance (the regulatory
authority on insurance matters) detailing the amount to be
transferred.
143
Direct
Investments
On March
4, 2005 the Argentine Central Bank issued Communication “A” 4305 that regulates
the reporting system of direct investments and real estate investments carried
out by non-residents in Argentina and by Argentine residents abroad, which had
been implemented through Communication “A” 4237 dated November 10,
2004.
|
§
|
Direct
investments in Argentina of non-Argentine
residents
|
Non-Argentine
residents are compelled to comply with the reporting regime if the value of
their investments in Argentina reaches or surpasses the equivalent of
U.S.$500,000 – measured in terms of the net worth of the company in which they
participate or fiscal value of the real estate owned. If the investments do not
reach such amount, the compliance with such regime is optional.
According
to Communication “A” 4237, companies in which non-Argentine residents
participate in and administrators of real estate pertaining to non-Argentine
residents are those obliged to comply with the reporting regime.
|
§
|
Direct
investments made abroad by Argentine
residents
|
Argentine
investors are compelled to comply with the reporting regime if the value of
their investments abroad reaches or surpasses the equivalent of U.S.$1,000,000 –
measured in terms of net worth of the company in which they participate or the
fiscal value of the real estate they own.
If the
value of those investments abroad do not exceed the equivalent of
U.S.$5,000,000, the declaration could be carried out annually instead of
semiannually. If the investments do not reach the equivalent of U.S.$1,000,000,
the compliance with such regime is optional.
Future
and Forward Operations
Communication
“A” 4049, dated November 11, 2003 and Communication “A” 4285 (as amended) dated
January 17, 2005, relaxed restrictions on foreign currency transactions by
abrogating the requirement of prior approval of the Central Bank for the
execution of certain future and forward operations and for the access to the
foreign exchange market for their cancellation. These operations include
agreements for the coverage of foreign currencies and interest rates, commodity
prices, and the execution of external transactions in the form of
Repos.
Communication
“A” 4086 (as amended), dated February 3, 2004 also relaxed restrictions on the
access to the foreign exchange market, by allowing investment funds to carry out
their operations under general regulations.
Taxation
The
following is a summary of certain Argentine and United States federal tax
consequences of the acquisition, ownership and disposition of our ADSs or
ordinary shares by a United States holder. This summary is not a complete
analysis or listing of all possible tax considerations that may be relevant to a
holder of our ADSs or ordinary shares.
Argentine
Taxes
General
The
following is a summary of certain Argentine tax matters that may be relevant
with respect to the acquisition, ownership and disposition of ADSs or ordinary
shares by U.S. holders. Investors in and prospective purchasers of ADSs or
ordinary shares should consult their own tax advisers as to the United States,
Argentine or other tax consequences of the acquisition, ownership and
disposition of ADSs or ordinary shares. Such summary is based upon the tax laws
of Argentina, and regulations thereunder, in effect as of the date of this
annual report and is subject to any subsequent change in Argentine laws and
regulations which may come into effect after such date.
144
Taxation
of Dividends
Pursuant
to Law No. 25,063, as enacted into law on December 30, 1998, dividend payments
on the ordinary shares (and ADSs), whether in the form of cash, stock, or other
types of consideration, are subject to Argentine withholding taxes at the rate
of 35% to the extent the aggregate amount distributed exceeds the sum of: (i)
our accumulated taxable earnings and (ii) certain tax-exempt income (such as
dividend payments from other corporations).
In
accordance with a resolution adopted by the Ordinary and Extraordinary
Shareholders’ Meeting held on April 26, 2007, it was resolved that as of May 7,
2007 the Bank would proceed with the payment of cash dividends. Dividends were
paid on May 7, 2007.
Such
dividend distributions are subject to a 35% income tax withholding on the
portion of the dividends exceeding profits determined on the basis of the
application of the general regulations of the Income Tax Law. The Bank submitted
consultations to the AFIP (Argentine Public Revenue Administration – the
Argentine Tax Authority) for a determination of whether such withholding applies
to dividends paid by the Bank in 2006 and 2007. The AFIP determined that it
could not issue a binding ruling in either case, and in each case the Bank
appealed this determination.
In the
file corresponding to the distribution made in 2006, the National Tax Direction,
which is dependent on the Financial Undersecretariat of the Ministry of Economy,
affirmed the AFIP’s determination that it could not issue a binding
ruling.
As a
consequence, on December 3, 2007 the Bank remitted to the AFIP the amounts it
had previously withheld with respect to dividends paid to shareholders in Fiscal
Years 2006 and 2007; the Bank being in charge of the corresponding payment of
interest.
Taxation
of Capital Gains
To the
extent the ADSs or ordinary shares are listed on a local or foreign stock
exchange market, capital gains derived by non-resident individuals or foreign
companies from the sale, exchange or other disposition of ADSs or ordinary
shares are not currently subject to income tax.
In the
event that capital gains should become subject to income tax in the future, such
taxation would be the responsibility of the beneficial owners of ADSs and not
the responsibility of “Euroclear” or “Cedel”, as the case may be.
Value
Added Tax (“VAT”)
Neither
the sale, exchange or other disposition of ADSs or ordinary shares nor the
payment of dividends thereunder is subject to VAT.
Transfer
Taxes
The sale
or transfer of ADSs or ordinary shares is not subject to transfer
tax.
Personal
Property Tax
According
to Law No. 23,966, as amended, and Decrees No. 127/96 and 812/96, all
individuals and undivided estates are subject in Argentina to a personal
property tax on all assets held at December 31 of each fiscal year (the
“Personal Property Tax”). This tax applies to our ADSs and ordinary shares held
by U.S. holders. In the case of individuals and undivided estates domiciled or
located in Argentina, an exemption is available to taxpayers whose assets
included in the tax base for purposes of the Personal Property Tax do not exceed
Ps.305,000. Corporations and other legal entities domiciled or located in
Argentina are not subject to the Personal Property Tax. Individuals and
undivided estates domiciled or located in a foreign country are subject to the
Personal Property Tax only with respect to assets located in Argentina.
Pursuant
to Law No. 25,585, published in the Official Gazette on May 15, 2002, Banco
Frances is responsible for paying the Personal Property Tax on our ADSs or
ordinary shares held by individuals or undivided estates domiciled in Argentina
or a foreign country, or corporations or any other entities located in a foreign
country. The tax rate to be applied is 0.50% and the taxable base is the value
of the shareholders’ equity arising from the last balance sheet of the company
at December 31. The minimum exempted amount of Ps.305,000 is not applicable. The
tax so paid is considered a definitive payment.
Pursuant
to Law No. 25,585, it is presumed — without the right to rebut such presumption
— that shares of stock corporations, such as ADSs (held in book-entry form or
evidenced by ADRs) and shares of common stock, and equity interests in entities
governed by the Business Companies Law No. 19,550, as amended, whose holders are
corporations or any other entities, companies, permanent
145
establishments
and trusts, domiciled, settled or located in a foreign country, belong
indirectly to individuals or undivided estates domiciled in a foreign
country.
The
companies responsible for the tax payment, such as BBVA Banco Francés, are
entitled to obtain refunds of the amounts paid, and may retain or foreclose on
the property included in the tax base for purposes of the Personal Property Tax
that originated the payment.
In May
2007, BBVA Banco Francés paid Ps.3,545,527, on account of its shareholders in
connection with the Personal Property Tax due with respect to assets held as of
December 31, 2006. As of March 6, 2008, only Ps.3,476,610 has been refunded to
us.
In May
2008, the Bank expects to pay on account of its shareholders in connection with
Personal Property Tax due with respect to assets held as of December 31, 2007
the amount of Ps.3,762,502. The tax will be withheld from dividends paid in
2008.
Other
Taxes
There are
no Argentine inheritance, succession or gift taxes applicable to the ownership,
transfer or disposition of ADSs or ordinary shares. There are no Argentine
stamp, issue, registration or similar taxes or duties payable by holders of ADSs
or ordinary shares. Such holdings are also not affected by the tax applied on
bank-account debits and credits and other transactions.
Deposit
and Withdrawal of ordinary shares in Exchange for ADSs
No
Argentine tax is imposed on the deposit or withdrawal of ordinary shares in
exchange for ADSs.
Income
Tax Treaty
There is
currently no income tax treaty or convention in effect between Argentina and the
United States.
U.S.
Tax Considerations
The
following summary describes the material U.S. federal income tax consequences to
U.S. Holders of owning and disposing of ordinary shares or ADSs, but it does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a particular person’s decision to hold such
securities. The discussion applies only to U.S. Holders (as described
below) that hold ordinary shares or ADSs as capital assets for U.S. federal
income tax purposes and it does not describe all of the tax consequences that
may be relevant to holders subject to special rules, such as:
|
§
|
Certain
financial institutions;
|
|
§
|
Insurance
companies;
|
|
§
|
Dealers
and traders in securities or foreign
currencies;
|
|
§
|
Persons
holding ordinary shares or ADSs as part of a hedge, “straddle,” integrated
transaction or similar transaction;
|
|
§
|
Persons
whose functional currency for U.S. federal income tax purposes is not the
U.S. dollar;
|
|
§
|
Partnerships
or other entities classified as partnerships for U.S. federal income tax
purposes;
|
|
§
|
Persons
liable for the alternative minimum
tax;
|
|
§
|
Tax-exempt
organizations;
|
|
§
|
Persons
holding ordinary shares or ADSs that own or are deemed to own ten percent
or more of our voting stock; or
|
|
§
|
Persons
who acquired our ADSs or shares pursuant to the exercise of any employee
stock option or otherwise as
compensation.
|
If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds ordinary shares or ADSs, the U.S. federal income tax treatment of a
partner will generally depend on the status of the partner and upon the
activities of the partnership. Partnerships holding ordinary shares
or ADSs and partners in such partnerships should consult their tax advisers as
to the particular U.S. federal income tax consequences of holding and disposing
of the ordinary shares or ADSs.
146
This
discussion is based on the Internal Revenue Code of 1986, as amended (the
“Code”), administrative pronouncements, judicial decisions and final, temporary
and proposed Treasury regulations, all as of the date hereof. These
laws are subject to change, possibly on a retroactive basis, which may affect
the tax consequences described herein. It is also based in part on
representations by the Depositary and assumes that each obligation under the
Deposit Agreement and any related agreement will be performed in accordance with
its terms. Prospective purchasers of the ADSs or ordinary shares are
urged to consult their own tax advisors as to the United States, Argentine or
other tax consequences of the purchase, ownership and disposition of ADSs or
ordinary shares in their particular circumstances, including the effect of any
U.S. state or local tax laws.
As used
herein, a “U.S. Holder” is a beneficial owner of ordinary shares or ADSs that
is, for U.S. federal tax purposes:
|
§
|
A
citizen or individual resident of the United
States;
|
|
§
|
A
corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or
|
|
§
|
An
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
In
general, a U.S. Holder of ADSs will be treated as the holder of the underlying
shares represented by those ADSs for U.S. federal income tax
purposes. Accordingly, no gain or loss will be recognized if a U.S.
Holder exchanges ADSs for the underlying shares represented by those
ADSs.
The U.S.
Treasury has expressed concerns that parties to whom ADSs are pre-released or
intermediaries in the chain of ownership between U.S. Holders and the issuer of
the security underlying the ADSs may be taking actions that are inconsistent
with the claiming of foreign tax credits for U.S. Holders of
ADSs. Such actions would also be inconsistent with the claiming of
the reduced rate of tax, described below, applicable to dividends received by
certain non-corporate holders. Accordingly, the analysis of the
creditability of Argentine taxes, and the availability of the reduced tax rate
for dividends received by certain non-corporate holders, each described below,
could be affected by actions taken by such parties or
intermediaries.
U.S.
Holders should consult their tax advisers concerning the U.S. federal, state,
local and foreign tax consequences of purchasing, owning and disposing of
ordinary shares or ADSs in their own particular circumstances.
This
discussion assumes that the Company is not, and will not become, a passive
foreign investment company, as described below.
Taxation
of Distributions
Distributions
paid on ADSs or ordinary shares will generally be treated as dividends to the
extent paid out of current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). Because the Company does
not maintain calculations of its earnings and profits under U.S. federal income
tax principles, it is expected that distributions will be reported to U.S.
Holders as dividends. Subject to applicable limitations and the
discussion above regarding concerns expressed by the U.S. Treasury, dividends
paid by qualified foreign corporations to certain non-corporate U.S. Holders in
taxable years beginning before January 1, 2011, are taxable at a maximum rate of
15%. A foreign corporation is treated as a qualified foreign
corporation with respect to dividends paid on stock that is readily tradable on
a securities market in the United States, such as the New York Stock Exchange
where our ADSs are traded. U.S. Holders should consult their tax
advisers to determine whether the favorable rate will apply to dividends they
receive and whether they are subject to any special rules that limit their
ability to be taxed at this favorable rate. The amount of a dividend
will include any amounts withheld in respect of Argentine taxes. The
amount of the dividend will be treated as foreign-source dividend income to U.S.
Holders and will not be eligible for the dividends-received deduction generally
allowed to U.S. corporations under the Code. Dividends will be
included in a U.S. Holder’s income on the date of such holder’s (or in the case
of ADSs, the Depositary’s) receipt of the dividend. The amount of any
dividend income paid in Argentine Pesos will be a U.S. dollar amount calculated
by reference to the exchange rate in effect on the date of such receipt
regardless of whether the payment is in fact converted into U.S.
dollars. If the dividend is converted into U.S. dollars on the date
of receipt, U.S. Holders generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income. U.S. Holders
may have foreign currency gain or loss if they do not convert the amount of such
dividend into U.S. dollars on the date of its receipt.
Subject to
the discussion above regarding concerns expressed by the U.S. Treasury,
Argentine income taxes withheld from dividends on ordinary shares or ADSs
generally will be creditable against a U.S. Holder’s U.S. federal income tax
liability. Amounts paid on account of the Argentine Personal Property Tax, if
any, will not be eligible for credit against the U.S. Holder’s U.S. federal
income tax liability. U.S. Holders should consult their tax advisers to
determine whether and to what extent amounts paid on account of the Argentine
Personal Property Tax are deductible for U.S. federal income tax purposes. The
rules governing foreign tax credits
147
are
complex and, therefore, U.S. Holders should consult their tax advisers regarding
the availability of foreign tax credits in their particular circumstances.
Instead of claiming a credit, a U.S. Holder may, at its election, deduct such
otherwise creditable Argentine taxes in computing its taxable income, subject to
generally applicable limitations under U.S. law.
Sale
and Other Disposition of Ordinary Shares or ADSs
For U.S.
federal income tax purposes, gain or loss a U.S. Holder realizes on the sale or
other disposition of ordinary shares or ADSs will be capital gain or loss, and
will be long-term capital gain or loss if the U.S. Holder held the ordinary
shares or ADSs for more than one year. The amount of a U.S. Holder’s gain or
loss will equal the difference between its tax basis in the ordinary shares or
ADSs disposed of and the amount realized on the disposition, in each case as
determined in U.S. dollars. Such gain or loss will generally be
U.S.-source gain or loss for foreign tax credit purposes.
Passive
Foreign Investment Company Rules
We believe
that we are not a PFIC for U.S. federal income tax purposes for the taxable year
2007. However, since our PFIC status depends upon the composition of our income
and assets and the market value of our assets (including, among others, less
than 25 percent owned equity investments) from time to time, and based upon
certain proposed Treasury regulations that are not yet in effect but are
generally proposed to become effective for taxable years after December 31,
1994, there can be no assurance that we will not be considered a PFIC for any
taxable year. If we are treated as a PFIC for any taxable year, gain recognized
by a U.S. Holder on a sale or other disposition of ADSs or ordinary shares would
be allocated ratably over the U.S. Holder’s holding period for the ADSs or
ordinary shares. The amounts allocated to the taxable year of the sale or other
exchange and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to tax
at the highest rate in effect for individuals or corporations, as appropriate,
and an interest charge would be imposed on the amount allocated to such taxable
year. Further, any distribution in respect of ADSs or ordinary shares in excess
of 125 percent of the average of the annual distributions on ADSs or ordinary
shares received by the U.S. Holder during the preceding three years or the U.S.
Holder’s holding period, whichever is shorter, would be subject to taxation as
described above. Certain elections (including a mark-to-market election) may be
available to U.S. Holders that may mitigate the adverse consequences resulting
from PFIC status.
In
addition, if we were to be treated as a PFIC in a taxable year in which we pay a
dividend or the prior taxable year, the 15% dividend rate discussed above with
respect to dividends paid to non-corporate holders would not apply.
Information
Reporting and Backup Withholding
Payments
of dividends and sales proceeds that are made within the United States or
through certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless (i) you are a corporation
or other exempt recipient or (ii) in the case of backup withholding, you provide
a correct taxpayer identification number and certify that you are not subject to
backup withholding.
The amount
of any backup withholding from a payment to a U.S. Holder will be allowed as a
credit against the U.S. Holder’s U.S. federal income tax liability and may
entitle the U.S. Holder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service.
Documents
on Display
This
annual report and the exhibits thereto and any periodic reports or other
information filed pursuant to the Exchange Act may be inspected without charge
and copied at prescribed rates at the SEC’s public reference room located at 450
Fifth Street, NW, Washington, D.C. 25049. In addition, the SEC maintains a
website that contains information filed electronically with the SEC, which can
be accessed over the internet at www.sec.gov.
The documents concerning BBVA Banco Francés which are referred to in this annual
report may also be inspected at our office at Reconquista 199, C1003ABB Buenos
Aires, Republic of Argentina.
148
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
Risk
Market
risk is the uncertainty to which future earnings and financial position are
exposed as a result of adverse changes in the financial markets in which we
operate. This risk is a consequence of our lending, trading and investments
businesses and mainly consists of interest rate risk, foreign exchange risk and
equity prices risk.
The
estimation of potential losses that could arise from reasonably likely adverse
changes in market conditions is the key element of managing market risk. The
main tool we use to make this estimation on our trading and investments
activities is a value at risk methodology (“VaR”).
VaR is an
estimate (made with a given confidence interval) of the maximum potential loss
in the fair or market value of a certain instrument or portfolio likely to occur
over a specified time period, or “time horizon,” if that portfolio were held
unchanged for that time period. This methodology is based on statistical methods
that take into account many variables that may cause a change in the value of
BBVA Banco Frances’s portfolios, including interest rates, foreign exchange
rates, securities prices, volatility of all this, and any correlation among the
foregoing.
Additionally,
the Bank has an independent area of market risk management called “Market Risk
Management” that manages the control of all market activities that may be
involved in the calculation of VaR. This area interacts in a daily basis with
all the different areas of the Bank that are related with the trading activities
of BBVA Banco Francés and with. The Permanent Executive Commission at BBVA Group
headquarters in Spain.
We are
also involved in a continuous process of improvement of our systems, in order to
update them to the latest methodological advances in market risk measurement and
control.
Our VaR
estimations provide us with a consistent and uniform measure of market risk in
our trading portfolios.
VaR uses
historical movements in these variables to estimate reasonably likely potential
losses in trading activities assuming normal market conditions and market
liquidity. The historical observation involves building a distribution of
hypothetical daily changes in trading portfolio value. These hypothetical
changes are based on daily-observed percentage changes in key market indexes or
other market factors to which the portfolio may be sensitive.
Our VaR
analysis is updated daily by recalculating the historic volatility and
correlation that serve as the basis for this analysis. In the case of our VaR
analysis, the period for estimating risk factors is about one year and we assume
a one-day holding period and adverse market movement of 2.3264 standard
deviations as the standard for risk measurement and comparison. This range
approximates a 99% one-tailed confidence interval. For a given portfolio, this
implies that changes in market value are statistically likely to deviate
adversely from VaR estimates approximately 1% of the time or one day out of 100
days. The volatility and correlation used in the calculation process are
obtained by two techniques: (a) “exponential smooth”, or “EWMA” (Exponentially
Weighted Moving Average) which confers a higher relative weight to the last
historical data considered within the one-year series, and (b) Linear Standard
Deviation. For the year 2007, the risk department changed the technique from the
EWMA method to the linear Standard Deviation method.
The area
of Market Risk Management uses VaR as a corporate tool to estimate and limit
market risks related to all of our trading activities. Global VaR limits for
trading activities at our dealing room are set by the agreement between the
Market Risk Area, the Trading Area and the Permanent Executive Commission at
BBVA Group headquarters in Spain. Two types of limits are used to seek control
of market risk arising from our trading activities: limits based on VaR amounts
and stop-loss limits for the principal portfolios. Also there are loss triggers
that derivate in certain specified actions according to the manuals. Limits on
particular portfolios and products are established within each
business.
The VaR
model incorporates several variables that could impact the fair value of our
trading portfolio, as well as the correlation between these
variables.
We
estimate VaR for each of our trading portfolios and all trading portfolios
combined. The following table shows the VaR for BBVA Banco Francés combined
trading activities for last year.
149
Daily Trading VaR at BBVA Banco
Francés (in million pesos)
|
2007
|
2006
|
|||
|
Average
|
1.89
|
1.06
|
||
|
Minimum
|
1.43
|
0.52
|
||
|
Maximum
|
2.86
|
1.87
|
||
|
Dec.31
|
1.66
|
1.46
|
Daily Trading VaR – Categories
(in million pesos)
|
Interest Risk
VaR
|
2007
|
2006
|
|||
|
Average
|
1.89
|
0.99
|
|||
|
Minimum
|
1.35
|
0.48
|
|||
|
Maximum
|
5.60
|
1.70
|
|||
|
Dec.31
|
1.65
|
1.40
|
|
Currency Risk
VaR
|
2007
|
2006
|
|||
|
Average
|
0.24
|
0.31
|
|||
|
Minimum
|
0.02
|
0.02
|
|||
|
Maximum
|
0.57
|
0.78
|
|||
|
Dec.31
|
0.54
|
0.48
|
Interest
rate risk is mainly explained by investments in short term floating rate notes
and Central Bank’s bills. Our exposure to sovereign risk is
minimum.
Our
exposure to Foreign Exchange Risk is minimal and is primarily a result of
Foreign Trade Business.
150
The graph
above indicates the evolution of the risk exposure, measured with VaR, during
the year 2007.
The graph
above indicates interest rate risk and currency risk, measured with VaR, during
the years 2006 and 2007.
Non-Trading
Risk
None.
Interest
Rate Risk
The
discussion that follows relates to interest risk in 2007 and bears no relation
to our current or future interest rate risk.
Interest
rate sensitivity is the relationship between market interest rates and net
portfolio value on the one hand and net interest income on the other, due to the
repricing of assets and liabilities. Our interest rate sensitivity analysis
measures the sensitivity of the net portfolio value and net interest income to
parallel changes in interest rates and to changes in the yield
curve.
For the
purpose of calculating net present value, when the rate of interest is fixed,
future cash flows of financial assets and liabilities are calculated on a
contractual basis. When the interest rate is variable, cash flows are included
that have a maturity during the repricing interval. Such amounts are added to
the remaining balance of the asset or the liability at the end of the
interval.
Net
interest income is calculated as the difference between interest income earned
on interest-earning assets and interest expense from interest-bearing
liabilities for each month of the fiscal year immediately following the fiscal
year ended December 31, 2007.
In
general, the usefulness of this calculation is limited to its assumption of a
permanent increase or decrease in interest rates and that all of such rates
change at the same rate. Accordingly, actual results could differ materially
from those projected.
For any
given period, the pricing structure is matched when an equal amount of assets
and liabilities reprice. Any mismatch of interest-earning assets and
interest-bearing liabilities is known as a gap. A positive gap denotes asset
sensitivity and normally means that an increase in interest rates would have a
negative effect on net portfolio value and a positive effect on interest income,
while a decline in interest rates would have a positive effect on net portfolio
value and a negative effect on net interest income.
Changes in
interest rates affect our profitability as a result of timing differences on the
repricing of the assets and liabilities. One measure of the effect of a change
in interest rates is to measure the change in net portfolio value (defined as
the net present value of interest-earning assets and interest-bearing
liabilities) and the effect on net interest income from a given change in
interest rates. In the table below, interest rates are assumed to change
immediately, while the consistency and levels of interest-earning assets and
interest-bearing liabilities, including the effects of derivative financial
instruments, remain constant. The table measures the net portfolio value and net
interest income under various interest rate scenarios and the percentage changes
from amounts generated under a stable interest rate environment.
The
following chart includes adjusted assets and liabilities in the 0-3 months
interval assuming 10.20% annual adjustment. In order to measure the effect of a
change in interest rates in net portfolio value and net interest income we are
assuming the same change in interest rate as in the adjustment rate. However as
this may not be the case we are including another column showing the impact of a
variation in the adjustment rate with no variation in interest
rate.
151
|
At
December 31, 2007
|
||||||||||||||||||||||||||
|
Change in
base interest
rates
(basis
points)
|
Net
portfolio
value
|
Percentage
change
|
Net
interest and
adjust
income
|
Percentage
change
|
Net
income of
adjustable
portfolio
|
Percentage
change
|
||||||||||||||||||||
|
(in
millions of pesos, except percentages)
|
||||||||||||||||||||||||||
| 100 | 2,432.1 |
(2.39)%
|
1,232.8
|
1.83%
|
564.8
|
6.96%
|
||||||||||||||||||||
| 50 | 2,461.6 |
(1.21)%
|
1,221.8
|
|
0.91%
|
546.5
|
3.48%
|
|||||||||||||||||||
| 0 | 2,491.7 |
0.00%
|
1,210.7
|
0.00%
|
528.1
|
0.00%
|
||||||||||||||||||||
| (50 | ) | 2,522.3 |
1.23%
|
1,199.6
|
(0.91)%
|
509.7
|
(3.48)%
|
|||||||||||||||||||
| (100 | ) | 2,553.5 |
2.48%
|
1,188.6
|
(1.83)%
|
491.3
|
(6.96)%
|
|||||||||||||||||||
Based on
our position at December 31, 2007, and assuming a hypothetical, immediate 50
basis points increase in interests rates affecting all interest rate sensitive
assets and liabilities as of January 1, 2008, net portfolio value would be
reduced by Ps.30.6 million and net interest income over 2008 would be increased
by approximately Ps.11.1 million.
Accordingly,
on considering a 50 b.p. increase in the adjustment rate Net interest income
increases Ps.18.4 million.
Foreign
Exchange Risk
As of
December 31, 2007, as part of our asset and liability management, we aimed to
minimize the impact on results of foreign exchange rate fluctuations by
maintaining excess balances of assets over liabilities denominated in
dollars.
|
Peso
against all other currencies
|
Effect
on net income based on our position as of December 31,
2007
|
Effect
on net income based on our position as of December 31,
2006
|
|
(in
millions of pesos, except percentages)
|
||
|
5%
|
(11)
|
(5)
|
|
(5)%
|
11
|
5
|
For a
description of the changes in the exchange rates since December 2007, see “Information on the Company—Recent
Political and Economic Developments in Argentina”.
Equity
and Commodity Price Risk
Equity and
commodity risk are the risks associated with adverse movements in the value of
equity securities and commodities or related indexes. We do not have any
material exposure to either of them.
Not
applicable.
152
-
PART II -
None.
None.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
As of
December 31, 2007, the Bank, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(f) under the Exchange Act). There are, as described below, inherent
limitations to the effectiveness of any control system, including disclosure
controls and procedures. Accordingly, even effective disclosure controls and
procedures can provide only reasonable assurance of achieving their control
objectives.
Based on
such evaluation, the Bank’s Chief Executive Officer and Chief Financial Officer
concluded that the Bank’s disclosure controls and procedures were effective for
gathering, analyzing and disclosing the information the Bank is required to
disclose in the reports it files under the Exchange Act, within the time periods
specified in the SEC’s rules and forms.
Management’s
Annual Report on Internal Control Over Financial Reporting
The
management of the Bank is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15 (f) under
the Exchange Act. The Bank’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
§
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Bank;
|
|
§
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of the Bank’s management and
directors; and
|
|
§
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the
supervision and with the participation of the Bank’s management, including our
Chairman and Chief Executive Officer, and the Assistant Executive Director of
Accounting and Risk Management, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
assessment, our management concluded that, as of December 31, 2007, our internal
control over financial reporting was effective based on those
criteria.
Our
management’s assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2007 has been audited by Deloitte &
Co. S.R.L., an independent registered public accounting firm, as stated in their
report which follows below.
153
Report
of Independent Registered Public Accounting Firm
To the
President and Board of Directors of
BBVA
BANCO FRANCÉS S.A.
Reconquista
199
Buenos Aires,
Argentina
We have
audited the internal control over financial reporting of BBVA BANCO FRANCÉS S.A.
and subsidiaries composing the BBVA BANCO FRANCÉS Group (the “Bank” – Note 2.1.
to the Consolidated Financial Statements) as of December 31, 2007, based on the
criteria established in the Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. The Bank’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management´s
Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Bank’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A
Company’s internal control over financial reporting is a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
Company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of
the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected on
a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the
risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
In our
opinion, the Bank maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on
the criteria established in the Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2007 of the Bank, and our report dated March 28,
2008, expressed an unqualified opinion on those Consolidated Financial
Statements and included two explanatory paragraphs: 1) stating that the Bank has
restated the Consolidated Statement of Cash and Cash Equivalents Flows for the
fiscal years 2006 and 2005 in order to retroactively reflect a change in
accounting principle to the inclusion of certain Government securities and Loans
to Financial Sector as cash equivalents, and 2) stating that the accounting
rules established by the BCRA vary in certain significant respects from
accounting principles generally accepted in the United States of America
(“U.S. GAAP”) and that the information relating to the nature and effect of
such differences is presented in Note 20 to the Consolidated Financial
Statements of the Bank.
DELOITTE
& Co. S.R.L.
Buenos
Aires - Argentina, March 28, 2008
154
Changes
in Internal Control Over Financial Reporting
There has
been no change in the Bank’s internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that occurred during the
period covered by this annual report that has materially affected, or is
reasonably likely to materially affect, internal control over financial
reporting.
ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Bank’s
Board of Directors has appointed Mr. Oscar Miguel Castro to serve on its Audit
Committees (I and II) and Disclosure Committees. The Bank’s Board of Directors
has concluded that Mr. Castro is a financial expert based on his extensive audit
experience, having been a partner of an international accounting firm until
2001. Mr. Castro qualifies as an independent director according to the
independence criteria established by General Resolution No. 368 (New Text 2001),
as amended by General Resolution No. 400 of the CNV.
ITEM
16B. CODE OF ETHICS
The
standards of ethical conduct that BBVA Banco Francés expects from its employees
are found within the “Code of Conduct of BBVA Banco Francés and its group of
companies in Argentina”, or the Code of Conduct, approved by the Board of
Directors on December 18, 2003.
The Code
of Conduct is applicable to all our management and employees, including the
Executive Chairman, the Financial Director and other senior financial officers
of the Bank. All officers and employees are accountable for adhering to the Code
of Conduct. Suspected violations of the Code of Conduct may be reported in
accordance with procedures designed to address the reported situation and to
protect the reporting employee. The failure to comply with criteria and rules of
the Code of Conduct may result in disciplinary action in accordance with
applicable Argentine employment laws.
The Code
of Conduct is accessible via BBVA Banco Francés’ corporate website
at:
http://www.bancofrances.com.ar/html/institucional/informacion_banco/codigo_etica/inst_info_codigoetica.htm
(the
information found at this website is not incorporated by reference into this
report).
A copy of
our Code of Conduct is also available on request, free of charge, by writing or
telephoning us at:
BBVA
Banco Francés S.A.
Attention:
Investor Relations Department
Reconquista
40
C1003ABB
Buenos Aires
Republic
of Argentina
Telephone
number: (54 11) 4341 5036
e-mail address: daniel.sandigliano@bancofrances.com.ar
During
fiscal year 2007, there have been no amendments to any provisions of the Code of
Conduct that apply to our executive officers.
No waivers
from any provisions of the Code of Conduct were expressly or implicitly granted
to the Executive Chairman, the Financial Director and any other senior financial
officer of the Bank in the fiscal year 2007.
155
Following
is a summary of the fees to our independent external auditors for the years
ended December 31, 2007 and 2006:
|
2007
actual fees
|
2006
actual fees
|
|||||||
|
(in
millions of pesos)
|
||||||||
|
Audit
fees
|
3.25 | 2.72 | ||||||
|
Audit-related
fees
|
— | — | ||||||
|
Tax
fees
|
0.20 | 0.13 | ||||||
|
All
other fees
|
— | — | ||||||
|
Total
fees
|
3.45 | 2.85 | ||||||
Audit fees are fees for
professional services performed by Deloitte & Co. S.R.L. for the audit and
limited review of the Bank’s annual and quarterly financial statements and
services that are normally provided in connection with statutory and regulatory
filings.
Audit-related fees consist of
fees for assurance and related services performed by Deloitte & Co. S.R.L.
that are reasonably related to the performance of the audit or review of the
Bank’s financial statements and are not reported as Audit fees.
Tax fees consist of tax
compliance, tax advice and tax planning services and assistance and advice
related to tax audits and appeals.
The Audit
Committee has approved policies and procedures for pre-approving all non-audit
work performed by Deloitte & Co. S.R.L. after January 1, 2007. Specifically,
the policies and procedures prohibit Deloitte & Co. S.R.L. from performing
any services for the Bank or its subsidiaries without the prior approval of the
Audit Committee. All of the services provided by Deloitte & Co. S.R.L. in
2007 were approved by the Audit Committee pursuant to these approval policies.
The Audit Committee meets once a month. In each of these meetings, the Internal
Audit Director presents the projects undertaken by the Internal Audit
Department. The minutes of the meeting are then drawn up detailing the issues
discussed as well as those items requiring further discussion. The minutes are
transcribed into an internal control book which is sent to the board of
directors for their information. See “Directors, senior management and
employees-Audit Committee (I)”.
Not
applicable.
None.
156
-
PART III -
We have
responded to Item 18 in lieu of this item.
Reference
is made to Item 19 for a list of the financial statements filed as a part of
this annual report.
|
§
|
Index
to Consolidated Financial
Statements:
|
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-4
|
|
Consolidated
Statements of Operations for the fiscal years ended December 31, 2007,
2006 and 2005
|
F-8
|
|
Consolidated
Statements of Cash and Cash Equivalents Flows for the fiscal years ended
December 31, 2007, 2006 and 2005
|
F-10
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the fiscal years ended
December 31, 2007, 2006 and 2005
|
F-13
|
|
Notes
to the Consolidated Financial Statements
|
F-14
|
|
§
|
Index
to Exhibits:
|
|
Exhibit
Number
|
Description
|
|
|
1.1
|
Amended
and Restated By-Laws (Estatutos) of BBVA Banco Francés (*)
|
|
|
1.2
|
English
translation of the Amended and Restated By-Laws (Estatutos) of BBVA Banco
Francés (*)
|
|
|
8.1
|
Subsidiaries
of the Company
|
|
|
12.1
|
Section
302 Certification of Chief Executive Officer
|
|
|
12.2
|
Section
302 Certification of Chief Financial Officer
|
|
|
13.1
|
Section
906 Certification
|
|
(*) Incorporated by reference to the BBVA
Banco Francés Annual Report on Form 20-F for the year ended December 31, 2005
filed with the Securities and Exchange Commission on June 29,
2006.
We will
furnish to the Securities and Exchange Commission, upon request, copies of any
unfiled instruments that define the rights of holders of long-term debt of BBVA
Banco Francés.
157
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
|
BBVA
BANCO FRANCÉS S.A.
|
||
|
By:
|
/s/ Martín Ezequiel
Zarich
|
|
|
Name:
Martín Ezequiel Zarich
|
||
|
Title: Chief
Financial Officer
|
||
Date:
March 28, 2008
158
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-4
|
|
Consolidated
Statements of Operations for the fiscal years ended December 31, 2007,
2006 and 2005
|
F-8
|
|
Consolidated
Statements of Cash and Cash Equivalents Flows for the fiscal years ended
December 31, 2007, 2006 and 2005
|
F-10
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the fiscal years ended
December 31, 2007, 2006 and 2005
|
F-13
|
|
Notes
to the Consolidated Financial Statements
|
F-14
|
F-1
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To the
President and Board of Directors of
BBVA
BANCO FRANCÉS S.A.
Reconquista
199
Buenos Aires,
Argentina
We have
audited the accompanying consolidated balance sheets of BBVA BANCO FRANCÉS S.A.
and subsidiaries composing
the BBVA BANCO FRANCÉS Group (the “Bank”— Note 2.1
to the Consolidated Financial Statements) as of December 31, 2007 and
2006, and the related consolidated statements of operations, changes in
stockholders’ equity and cash and cash equivalents flows for each of the three
fiscal years in the period ended December 31, 2007 (all stated in thousands of
Argentine Pesos). These consolidated financial statements are the responsibility
of the Bank’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to in paragraph 1
present fairly, in all material respects, the financial position of BBVA BANCO
FRANCÉS S.A. and subsidiaries as of December 31, 2007 and 2006 and the results
of their operations and their cash and cash equivalents flows for each of the
three years in the period ended December 31, 2007, in conformity with the
accounting rules established by the Argentine Central Bank (BCRA) applicable to
consolidated financial statements.
As
explained in Notes 3.3. and 3.4.20, the BCRA Communication “A” 4667, issued in
May 2007, changed the definition of cash flows which require to include as cash
equivalents certain Government securities and Loans to Financial Sector for the
fiscal year 2007. The Bank has restated the Consolidated Statement of Cash and
Cash Equivalents Flows for the fiscal years 2006 and 2005 in order to
retroactively reflect this change in accounting principle.
Accounting
rules established by the BCRA vary in certain significant respects from
accounting principles generally accepted in the United States of America (U.S.
GAAP). Information relating to the nature and effect of such differences is
presented in Note 20 to the consolidated financial statements.
F-2
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Bank’s internal control over financial
reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 28, 2008 expressed an unqualified opinion on the Bank’s
internal control over financial reporting.
DELOITTE
& Co. S.R.L.
Buenos
Aires - Argentina, March 28, 2008
F-3
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As
of December 31, 2007 and 2006
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
2007
|
2006
(1)
|
|||||||
|
ASSETS
|
||||||||
|
CASH
AND DUE FROM BANKS
|
3,169,314 | 2,558,484 | ||||||
|
Cash
|
750,752 | 559,817 | ||||||
|
Due
from banks and correspondents
|
2,418,562 | 1,998,667 | ||||||
|
Argentine
Central Bank
|
2,102,642 | 1,748,436 | ||||||
|
Other
local
|
7,312 | 24,061 | ||||||
|
Foreign
|
308,608 | 226,170 | ||||||
|
GOVERNMENT AND PRIVATE
SECURITIES (Note 6.a)
|
5,181,253 | 4,372,032 | ||||||
|
Holdings
in investment accounts
|
547,714 | 515,296 | ||||||
|
Holdings
for trading or financial transactions
|
170,320 | 303,823 | ||||||
|
Holdings
available for sale
|
1,372,584 | — | ||||||
|
Unlisted
Government Securities
|
903,903 | 843,797 | ||||||
|
Instruments
issued by the Argentine Central Bank
|
2,005,791 | 2,520,906 | ||||||
|
Investments
in listed private securities
|
241,943 | 203,396 | ||||||
|
Less:
Allowances
|
61,002 | 15,186 | ||||||
|
LOANS
|
11,390,121 | 9,534,183 | ||||||
|
To
government sector
|
2,367,869 | 2,887,276 | ||||||
|
To
financial sector
|
541,911 | 436,126 | ||||||
|
Interfinancial
– (Calls granted)
|
56,430 | 38,029 | ||||||
|
Other
financing to local financial institutions
|
449,709 | 383,037 | ||||||
|
Interest
and listed-price differences accrued and pending
collection
|
35,772 | 15,060 | ||||||
|
To
non-financial private sector and residents abroad:
|
8,679,162 | 6,377,968 | ||||||
|
Overdraft
|
1,326,472 | 1,469,368 | ||||||
|
Discounted
instruments
|
1,430,787 | 793,195 | ||||||
|
Real
estate mortgage
|
772,036 | 460,559 | ||||||
|
Collateral
loans
|
253,130 | 98,381 | ||||||
|
Consumer
|
1,337,179 | 689,019 | ||||||
|
Credit
cards
|
802,647 | 526,416 | ||||||
|
Other
(Note 6.b)
|
2,666,843 | 2,282,243 | ||||||
|
Interest
and listed-price differences accrued and pending
collection
|
103,824 | 64,330 | ||||||
|
Less:
Interest documented together with main obligation
|
13,756 | 5,543 | ||||||
|
Less:
Difference arising from purchase of portfolio
|
93 | 90 | ||||||
|
Less:
Allowances
|
198,728 | 167,097 | ||||||
|
Carried
forward
|
19,740,688 | 16,464,699 | ||||||
(1) See
Note 3.3.ii)
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-4
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS—(Continued)
As
of December 31, 2007 and 2006
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
2007
|
2006
(1)
|
|||||||
|
Brought
forward
|
19,740,688 | 16,464,699 | ||||||
|
OTHER
RECEIVABLES FROM FINANCIAL TRANSACTIONS
|
956,184 | 917,532 | ||||||
|
Argentine
Central Bank
|
463,621 | 423,032 | ||||||
|
Amounts
receivable for spot and forward sales to be settled
|
206,216 | 45,535 | ||||||
|
Instruments
to be received for spot and forward purchases to be
settled
|
110,155 | 334,324 | ||||||
|
Unlisted
corporate bonds
|
81,976 | 58,684 | ||||||
|
Non-deliverable
forward transactions balances to be settled
|
6,292 | 1,052 | ||||||
|
Other
receivables not covered by debtor classification
regulations
|
24,170 | 18,066 | ||||||
|
Other
receivables covered by debtor classification regulations
|
43,816 | 30,894 | ||||||
|
Interest
accrued and pending collection not covered by debtor classification
regulations
|
21,834 | 6,973 | ||||||
|
Interest
accrued and pending collection covered by debtor classification
regulations
|
5 | — | ||||||
|
Less:
Allowances
|
1,901 | 1,028 | ||||||
|
ASSETS
SUBJECT TO FINANCIAL LEASING
|
323,522 | 235,188 | ||||||
|
Assets
subject to financial leasing
|
327,969 | 238,672 | ||||||
|
Less:
Allowances
|
4,447 | 3,484 | ||||||
|
INVESTMENTS
IN OTHER COMPANIES
|
77,986 | 54,438 | ||||||
|
In
financial institutions
|
31,559 | 14,135 | ||||||
|
Other
(Note 6.c)
|
46,430 | 43,356 | ||||||
|
Less:
Allowances
|
3 | 3,053 | ||||||
|
OTHER
RECEIVABLES
|
357,963 | 283,023 | ||||||
|
Receivables
from sale of property assets
|
52 | 129 | ||||||
|
Tax
on minimum presumed income – Tax credit
|
150,506 | 118,746 | ||||||
|
Other
(Note 6.d)
|
285,008 | 525,209 | ||||||
|
Other
accrued interest receivable
|
1 | 1 | ||||||
|
Less:
Allowances
|
77,604 | 361,062 | ||||||
|
PREMISES
AND EQUIPMENT
|
399,615 | 397,896 | ||||||
|
OTHER
ASSETS
|
38,950 | 35,211 | ||||||
|
INTANGIBLE
ASSETS
|
116,380 | 407,463 | ||||||
|
Goodwill
|
12,200 | 18,831 | ||||||
|
Organization
and development expenses
|
104,180 | 388,632 | ||||||
|
SUSPENSE
ITEMS
|
11,261 | 12,980 | ||||||
|
SUBSIDIARIES’ OTHER ASSETS
(Note 6.e)
|
450 | 26,199 | ||||||
|
TOTAL
ASSETS
|
22,022,999 | 18,834,629 | ||||||
(1) See
Note 3.3.ii)
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-5
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS—(Continued)
As
of December 31, 2007 and 2006
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
2007
|
2006
(1)
|
|||||||
|
LIABILITIES
|
||||||||
|
DEPOSITS
|
15,009,758 | 12,505,756 | ||||||
|
Government
sector
|
53,899 | 73,150 | ||||||
|
Financial
sector
|
195,890 | 156,412 | ||||||
|
Non
financial private sector and residents abroad:
|
14,759,969 | 12,276,194 | ||||||
|
Checking
accounts
|
2,771,710 | 2,206,362 | ||||||
|
Savings
deposits
|
4,237,696 | 3,415,210 | ||||||
|
Time
deposits
|
7,219,407 | 5,948,768 | ||||||
|
Investments
accounts
|
13,152 | 144,286 | ||||||
|
Other
|
435,566 | 452,479 | ||||||
|
Interest
and listed—price differences accrued payable
|
82,438 | 109,089 | ||||||
|
OTHER
LIABILITIES FROM FINANCIAL TRANSACTIONS
|
1,750,021 | 1,484,007 | ||||||
|
Argentine
Central Bank—Other
|
1,833 | 1,761 | ||||||
|
Banks
and International Institutions
|
555,842 | 178,943 | ||||||
|
Non—subordinated
corporate bonds
|
— | 248,638 | ||||||
|
Amounts
payable for spot and forward purchases to be settled
|
104,223 | 303,368 | ||||||
|
Instruments
to be delivered for spot and forward sales to be settled
|
206,466 | 34,264 | ||||||
|
Non-deliverable
forward transactions balances to be settled
|
1,002 | 206 | ||||||
|
Financing
received from Argentine financial institutions
|
72,672 | 235,974 | ||||||
|
Interfinancial
- (Calls received)
|
10,019 | 154,740 | ||||||
|
Other
financing from local financial institutions
|
62,646 | 81,128 | ||||||
|
Interest
accrued payable
|
7 | 106 | ||||||
|
Other
(Note 6.f)
|
797,227 | 474,523 | ||||||
|
Interest
and listed—Price differences accrued payable
|
10,756 | 6,330 | ||||||
|
OTHER
LIABILITIES
|
374,999 | 340,129 | ||||||
|
Fees
payable
|
118 | 156 | ||||||
|
Other
(Note 6.g)
|
374,881 | 339,973 | ||||||
|
ALLOWANCES
|
441,964 | 493,848 | ||||||
|
SUSPENSE
ITEMS
|
6,671 | 3,957 | ||||||
|
SUBSIDIARIES’ OTHER LIABILITIES
(Note 6.h)
|
2,146,731 | 1,835,871 | ||||||
|
TOTAL
LIABILITIES
|
19,730,144 | 16,663,568 | ||||||
|
MINORITY
INTEREST IN SUBSIDIARIES
|
236,018 | 216,477 | ||||||
|
STOCKHOLDERS’
EQUITY
|
2,056,837 | 1,954,584 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
22,022,999 | 18,834,629 | ||||||
(1) See
Note 3.3.ii)
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-6
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS—(Continued)
As
of December 31, 2007 and 2006
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
2007
|
2006
(1)
|
|||||||
|
DEBIT
ACCOUNTS
|
||||||||
|
Contingent
|
4,192,205 | 3,895,647 | ||||||
|
Credit
lines obtained (unused balances)
|
199,679 | — | ||||||
|
Guaranties
received
|
3,437,694 | 3,550,553 | ||||||
|
Contra
contingent debit accounts
|
554,832 | 345,094 | ||||||
|
Control
|
34,581,439 | 30,192,581 | ||||||
|
Receivables
classified as non recoverable
|
280,820 | 332,529 | ||||||
|
Other
(Note 6.i)
|
32,078,895 | 29,566,991 | ||||||
|
Contra
control debit accounts
|
2,221,724 | 293,061 | ||||||
|
Derivatives
|
2,795,659 | 701,020 | ||||||
|
“Notional”
amount of non-deliverable forward transactions
|
1,164,392 | 387,777 | ||||||
|
Interest
rate SWAP
|
292,000 | 30,000 | ||||||
|
Other
|
50,000 | — | ||||||
|
Contra
debit derivatives accounts
|
1,289,267 | 283,243 | ||||||
|
For
trustee activities
|
18,502 | 32,716 | ||||||
|
Funds
in trust
|
18,502 | 32,716 | ||||||
|
TOTAL
|
41,587,805 | 34,821,964 | ||||||
|
CREDIT
ACCOUNTS
|
||||||||
|
Contingent
|
4,192,205 | 3,895,647 | ||||||
|
Credit
lines granted (unused portion) covered by debtor classification
regulations
|
26,185 | 13,695 | ||||||
|
Guaranties
provided to the Argentine Central Bank
|
61,729 | 52,743 | ||||||
|
Other
guaranties given covered by debtor classification
regulations
|
135,525 | 169,825 | ||||||
|
Other
guarantees given non covered by debtor classification
regulations
|
134,871 | 8,254 | ||||||
|
Other
covered by debtor classification regulations
|
196,522 | 100,577 | ||||||
|
Contra
contingent credit accounts
|
3,637,373 | 3,550,553 | ||||||
|
Control
|
34,581,439 | 30,192,581 | ||||||
|
Items
to be credited
|
388,952 | 228,192 | ||||||
|
Other
|
1,832,772 | 64,869 | ||||||
|
Contra
control credit accounts
|
32,359,715 | 29,899,520 | ||||||
|
Derivatives
|
2,795,659 | 701,020 | ||||||
|
“Notional”
amount of non-deliverable forward transactions
|
1,289,267 | 283,243 | ||||||
|
Contra
debit derivatives accounts
|
1,506,392 | 417,777 | ||||||
|
For
trustee activities
|
18,502 | 32,716 | ||||||
|
Contra
credit accounts for trustee activities
|
18,502 | 32,716 | ||||||
|
TOTAL
|
41,587,805 | 34,821,964 | ||||||
(1) See
Note 3.3.ii)
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-7
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Fiscal
year ended December 31,
|
||||||||||||
|
2007
|
2006
(1)
|
2005
(1)
|
||||||||||
|
FINANCIAL
INCOME
|
1,904,212 | 1,936,404 | 1,654,152 | |||||||||
|
Interest
cash and due from banks
|
20,202 | 17,353 | 25,364 | |||||||||
|
Interest
on loans to the financial sector
|
146,833 | 91,875 | 21,245 | |||||||||
|
Interest
on overdraft
|
164,659 | 102,072 | 41,346 | |||||||||
|
Interest
on discounted instruments
|
101,775 | 55,699 | 22,989 | |||||||||
|
Interest
on real estate mortgage
|
64,264 | 44,894 | 41,487 | |||||||||
|
Interest
on collateral loans
|
15,089 | 7,366 | 3,622 | |||||||||
|
Interest
on credit card loans
|
55,026 | 30,485 | 24,095 | |||||||||
|
Interest
on other loans
|
301,738 | 190,495 | 151,583 | |||||||||
|
Interest
on other receivables from financial transactions
|
23,757 | 35,314 | 10,374 | |||||||||
|
Income
from secured loans—Decree No. 1387/01
|
236,964 | 297,468 | 323,851 | |||||||||
|
Net
income from government and private securities
|
319,666 | 559,877 | 209,438 | |||||||||
|
Indexation
by benchmark stabilization coefficient (CER)
|
210,342 | 354,566 | 663,743 | |||||||||
|
Gold
and foreign currency exchange difference
|
117,403 | 78,666 | 72,942 | |||||||||
|
Other
|
126,494 | 70,274 | 42,073 | |||||||||
|
FINANCIAL
EXPENSES
|
680,131 | 568,345 | 608,949 | |||||||||
|
Interest
on checking accounts
|
23,180 | 29,913 | 23,782 | |||||||||
|
Interest
on savings deposits
|
6,598 | 4,811 | 3,675 | |||||||||
|
Interest
on time deposit
|
491,577 | 307,084 | 151,034 | |||||||||
|
Interest
on interfinancial financing-(Calls received)
|
1,983 | 1,981 | 1,291 | |||||||||
|
Interest
on other financing from financial institutions
|
3,394 | 9,100 | 10,181 | |||||||||
|
Interest
on other liabilities from financial transactions
|
26,627 | 28,883 | 17,854 | |||||||||
|
Other
interest
|
8,478 | 18,960 | 61,665 | |||||||||
|
Indexation
by CER
|
49,230 | 121,321 | 306,815 | |||||||||
|
Contribution
to the deposit guarantee fund
|
23,714 | 20,098 | 17,404 | |||||||||
|
Other
|
45,350 | 26,194 | 15,248 | |||||||||
|
GROSS
INTERMEDIATION MARGIN—GAIN
|
1,224,081 | 1,368,059 | 1,045,203 | |||||||||
|
ALLOWANCES
FOR DOUBTFUL LOANS
|
62,262 | 70,125 | 114,628 | |||||||||
|
SERVICE
CHARGE INCOME
|
1,182,789 | 915,875 | 721,167 | |||||||||
|
Related
to lending transactions
|
163,281 | 106,893 | 84,055 | |||||||||
|
Related
to liability transactions
|
318,038 | 246,506 | 195,470 | |||||||||
|
Other
commissions
|
530,772 | 430,102 | 334,254 | |||||||||
|
Other
|
170,698 | 132,374 | 107,388 | |||||||||
|
Carried
forward
|
2,344,608 | 2,213,809 | 1,651,742 | |||||||||
(1) See
Note 3.3.ii)
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-8
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Fiscal
year ended December 31,
|
||||||||||||
|
2007
|
2006
(1)
|
2005
(1)
|
||||||||||
|
Brought
forward
|
2,344,608 | 2,213,809 | 1,651,742 | |||||||||
|
SERVICE
CHARGE EXPENSES
|
158,927 | 110,199 | 77,764 | |||||||||
|
Commissions
|
114,371 | 76,538 | 52,821 | |||||||||
|
Other
(Note 6.j)
|
44,556 | 33,661 | 24,943 | |||||||||
|
OPERATING
EXPENSES
|
1,124,161 | 927,404 | 775,835 | |||||||||
|
Payroll
expenses
|
653,644 | 523,904 | 423,013 | |||||||||
|
Fees
to Bank Directors and Statutory Auditors
|
463 | 446 | 329 | |||||||||
|
Other
professional fees
|
29,107 | 28,178 | 27,149 | |||||||||
|
Advertising
and publicity
|
67,212 | 46,050 | 39,757 | |||||||||
|
Taxes
|
52,119 | 46,937 | 37,818 | |||||||||
|
Fixed
assets depreciation
|
37,203 | 31,781 | 29,248 | |||||||||
|
Organizational
expenses amortization
|
21,961 | 22,967 | 28,082 | |||||||||
|
Other
operating expenses
|
149,660 | 128,992 | 115,084 | |||||||||
|
Other
|
112,792 | 98,149 | 75,355 | |||||||||
|
NET
GAIN FROM FINANCIAL TRANSACTIONS
|
1,061,520 | 1,176,206 | 798,143 | |||||||||
|
NET
LOSS ON MINORITY INTEREST IN SUBSIDIARIES
|
(19,541 | ) | (39,016 | ) | (17,151 | ) | ||||||
|
OTHER
INCOME
|
828,284 | 314,440 | 483,851 | |||||||||
|
Income
from long-term investments
|
9,363 | 19,941 | 2,870 | |||||||||
|
Punitive
interests
|
961 | 537 | 2,868 | |||||||||
|
Loans
recovered and reversals of allowances
|
434,295 | 86,543 | 87,857 | |||||||||
|
Other
(Note 6.k)
|
383,665 | 207,419 | 390,256 | |||||||||
|
OTHER
EXPENSES
|
1,584,820 | 1,199,913 | 1,128,927 | |||||||||
|
Punitive
interests and charges paid to Argentine Central Bank
|
34 | 475 | 67 | |||||||||
|
Charge
for uncollectibility of other receivables and other
allowances
|
157,626 | 312,485 | 422,924 | |||||||||
|
Amortization
of difference arising from judicial resolutions
|
323,139 | 262,312 | 219,961 | |||||||||
|
Depreciation
and losses from miscellaneous assets
|
4,035 | 9,356 | 28,378 | |||||||||
|
Goodwill
amortization
|
6,629 | 6,629 | 6,629 | |||||||||
|
Other
(Note 6.l)
|
1,093,357 | 608,656 | 450,968 | |||||||||
|
NET
GAIN BEFORE INCOME TAX AND TAX ON MINIMUM PRESUMED INCOME
|
285,443 | 251,717 | 135,916 | |||||||||
|
INCOME
TAX AND TAX ON MINIMUM PRESUME INCOME
|
50,394 | 71,680 | 18,712 | |||||||||
|
NET
INCOME FOR THE FISCAL YEAR
|
235,049 | 180,037 | 117,204 | |||||||||
|
NET INCOME PER ORDINARY SHARE
(2)
|
0.50 | 0.38 | 0.25 | |||||||||
|
(1)
|
See
Note 3.3.ii)
|
|
(2)
|
See
Note 19.14.
|
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-9
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH AND CASH EQUIVALENTS FLOWS
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Fiscal
year ended December 31,
|
||||||||||||||||
|
2007
|
2006
(1)
|
2005
(1)
|
||||||||||||||
|
CHANGES
IN CASH AND ITS EQUIVALENTS
|
||||||||||||||||
|
Cash
and its equivalents at the beginning of fiscal year
|
2,928,807 | (2) | 2,298,743 | (2) | 1,809,355 | |||||||||||
|
Cash
and its equivalents at the end of the fiscal year
|
3,465,634 | (2) | 2,928,807 | (2) | 2,298,743 | (2) | ||||||||||
|
Net
increase in cash and its equivalents
|
536,827 | 630,064 | 489,388 | |||||||||||||
|
REASONS
FOR CHANGES IN CASH AND ITS EQUIVALENTS
|
||||||||||||||||
|
Operating
activities
|
||||||||||||||||
|
Net
collections/ (payments) from:
|
||||||||||||||||
|
-
Government and private securities
|
(623,058 | ) | (668,858 | ) | 104,752 | |||||||||||
|
-
Loans
|
(332,979 | ) | 362,278 | 1,672,211 | ||||||||||||
|
to
financial sector
|
(25,573 | ) | (239,739 | ) | 37,475 | |||||||||||
|
to
non-financial public sector
|
367,802 | 1,092,879 | 1,698,298 | |||||||||||||
|
to
non-financial private sector and residents abroad
|
(675,208 | ) | (490,862 | ) | (63,562 | ) | ||||||||||
|
-
Other receivables from financial transactions
|
(63,401 | ) | 28,869 | (34,891 | ) | |||||||||||
|
-
Assets subject to financial leasing
|
(88,334 | ) | (105,023 | ) | (71,589 | ) | ||||||||||
|
-
Deposits
|
1,854,830 | 1,307,662 | 936,988 | |||||||||||||
|
to
financial sector
|
39,186 | 128,094 | 9,125 | |||||||||||||
|
to
non-financial public sector
|
(19,579 | ) | (29,664 | ) | (95,141 | ) | ||||||||||
|
to
non-financial private sector and residents abroad
|
1,835,223 | 1,209,232 | 1,023,004 | |||||||||||||
|
-
Other liabilities from financial transactions
|
221,229 | 218,337 | (22,744 | ) | ||||||||||||
|
Financing
from financial or interfinancial sector (calls received)
|
(138,881 | ) | 152,710 | 970 | ||||||||||||
|
Others
(except liabilities included in Financing Activities)
|
360,110 | 65,627 | (23,714 | ) | ||||||||||||
|
Collections
related to service charge income
|
1,182,608 | 913,907 | 720,291 | |||||||||||||
|
Payments
related to service charge expense
|
(158,927 | ) | (110,199 | ) | (77,764 | ) | ||||||||||
|
Administrative
expenses paid
|
(1,020,873 | ) | (823,918 | ) | (676,039 | ) | ||||||||||
|
Organizational
and development expenses paid
|
(3,848 | ) | (3,577 | ) | (6,121 | ) | ||||||||||
|
Net
collections from punitive interest
|
822 | 62 | 2,801 | |||||||||||||
|
Differences
from judicial resolutions paid
|
(37,124 | ) | (40,024 | ) | (44,272 | ) | ||||||||||
|
Collections
of dividends from other companies
|
6,321 | 107 | — | |||||||||||||
|
Other
payments related to other income and expenses
|
(656,249 | ) | (314,644 | ) | (214,852 | ) | ||||||||||
|
Net
cash flows provided by operating activities
|
281,017 | 764,979 | 2,288,771 | |||||||||||||
|
Investment
activities
|
||||||||||||||||
|
Net
payments from premises and equipment
|
(38,922 | ) | (53,880 | ) | (23,656 | ) | ||||||||||
|
Net
payments from other assets
|
(7,805 | ) | 18,679 | 3,929 | ||||||||||||
|
Other
payments from investment activities
|
(146,501 | ) | (26,829 | ) | (257,205 | ) | ||||||||||
|
Net
cash flows used in investment activities
|
(193,228 | ) | (62,030 | ) | (276,932 | ) | ||||||||||
F-10
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH AND CASH EQUIVALENTS FLOWS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Fiscal
year ended December 31,
|
||||||||||||
|
2007
|
2006
(1)
|
2005
(1)
|
||||||||||
|
Financing
activities
|
||||||||||||
|
Net
collections/ (payments) from:
|
||||||||||||
|
-
Non-subordinated corporate bonds
|
(248,638 | ) | (37,848 | ) | (34,695 | ) | ||||||
|
-
Argentine Central Bank
|
67 | (53,413 | ) | (1,704,774 | ) | |||||||
|
Others
|
67 | (53,413 | ) | (1,704,774 | ) | |||||||
|
-
Banks and international agencies
|
376,899 | (45,368 | ) | (26,694 | ) | |||||||
|
-
Subordinated corporate bonds
|
— | — | (59,476 | ) | ||||||||
|
-
Financing received from local financial institutions
|
(24,322 | ) | 8,231 | 70,845 | ||||||||
|
Dividends
paid in cash
|
(90,000 | ) | (27,000 | ) | — | |||||||
|
Other
collections from financing activities
|
414,830 | 65,160 | 206,979 | |||||||||
|
Net
cash flows provided by / (used in) financing activities
|
428,836 | (90,238 | ) | (1,547,815 | ) | |||||||
|
Financial
results and results from holdings of cash and its equivalents (including
interest)
|
20,202 | 17,353 | 25,364 | |||||||||
|
Net
increase in cash
|
536,827 | 630,064 | 489,388 | |||||||||
(1) Restated
from its original version as mentioned in Notes 3.3. and 3.4.20.
(2) See
Note 3.4.20. to the Consolidated Financial Statements.
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-11
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH AND CASH EQUIVALENTS FLOWS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
SUPPLEMENTAL
INFORMATION OF NON-CASH INVESTING AND FINANCING ACTIVITIES
At
December 31, 2007, 2006 and 2005 the Bank entered into forward, unsettled spot
and repurchase contracts to buy or sell foreign currencies, listed Government
and other securities at future dates, exchanging non-cash assets or liabilities
for other non-cash assets or liabilities (see Note 19.7).
At June
28, 2006 the Bank swapped corporate bonds corresponding to Provincial
Development Trust Fund into Secured Bond due in 2020. The face value of the
corporate bonds swapped amounted to 551,230,672.
On January
14, 2005, the restructuring process started for a substantial part of
Argentina’s sovereign debt, in default ever since late 2001. The swap period
came to an end on February 25, 2005. In June 2005, the National Government
consummated the delivery of the exchanged government securities. U.S.
dollar-denominated Discount Bonds (Nominal Value (VN) 26,083,453) and
Peso-denominated Discount Bonds (VN 146,817,752) were received by the
Bank.
SUPPLEMENTAL
INFORMATION OF CERTAIN CASH MOVEMENTS
At
December 31, 2007, 2006 and 2005, taxes paid amounted to 251,944, 162,012 and
118,500, respectively. At such dates, interest-paid amounted to 644,989, 554,698
and 807,152, respectively.
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-12
BBVA
BANCO FRANCÉS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Non-capitalized
contributions
|
Retained
earnings
|
|||||||||||||||||||||||||||||||
|
Capital
Stock(1)
|
Issuance
premiums(1)
|
Adjustments
to
stockholders’
equity(1)
|
Legal
|
Other
|
Unrealized
valuation
difference
|
Unappropriated
earnings
|
Total
|
|||||||||||||||||||||||||
|
Balances
at December 31, 2004
|
471,361 | 1,195,390 | 769,904 | 428,698 | 1,802 | 230,282 | (1,413,094 | ) | 1,684,343 | |||||||||||||||||||||||
|
Cumulative
losses absorption approved by
Stockholders’ Meeting held on April
28, 2005 (Communication “A”
4294 as supplemented of the BCRA)
|
— | (1,020,258 | ) | (456,925 | ) | — | (1,802 | ) | — | 1,478,985 | — | |||||||||||||||||||||
|
Net
income for the fiscal year
|
— | — | — | — | — | — | 117,204 | 117,204 | ||||||||||||||||||||||||
|
Balances
at December 31, 2005
|
471,361 | 175,132 | 312,979 | 428,698 | — | 230,282 | 183,095 | 1,801,547 | ||||||||||||||||||||||||
|
Decisions
of Stockholders’ Meeting of April 27, 2006:
|
||||||||||||||||||||||||||||||||
|
-
Dividends paid in cash
|
— | — | — | — | — | — | (27,000 | ) | (27,000 | ) | ||||||||||||||||||||||
|
Statutory
Reserve
|
— | — | — | 36,619 | — | — | (36,619 | ) | — | |||||||||||||||||||||||
|
Reversal
of “Unrealized valuation difference” due to foreign currency
compensation
|
— | — | — | — | — | (230,282 | ) | 230,282 | — | |||||||||||||||||||||||
|
Net
income for the fiscal year
|
— | — | — | — | — | — | 180,037 | 180,037 | ||||||||||||||||||||||||
|
Balances
at December 31, 2006
|
471,361 | 175,132 | 312,979 | 465,317 | — | — | 529,795 | 1,954,584 | ||||||||||||||||||||||||
|
Decisions
of Stockholders’ Meeting of April 26, 2007:
|
||||||||||||||||||||||||||||||||
|
-
Dividends paid in cash
|
— | — | — | — | — | — | (90,000 | ) | (90,000 | ) | ||||||||||||||||||||||
|
-
Statutory Reserve
|
— | — | — | 82,064 | — | — | (82,064 | ) | — | |||||||||||||||||||||||
|
Unrealized
valuation difference (2)
|
— | — | — | — | — | (42,796 | ) | — | (42,796 | ) | ||||||||||||||||||||||
|
Net
income for the fiscal year
|
— | — | — | — | — | — | 235,049 | 235,049 | ||||||||||||||||||||||||
|
Balances
at December 31, 2007
|
471,361 | 175,132 | 312,979 | 547,381 | — | (42,796 | ) | 592,780 | 2,056,837 | |||||||||||||||||||||||
|
(1)
|
See
Note 1.2.
|
|
(2)
|
Unrealized
loss for Available for Sale investments (see Note
3.4.2.).
|
The
accompanying Notes 1 to 20 are an integral part of these Consolidated Financial
Statements.
F-13
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
1—CORPORATE SITUATION AND BANK’S ACTIVITIES
|
1.1.
|
Corporate
situation
|
BBVA Banco
Francés S.A. (“BBVA Banco Francés”) has its main place of business in Buenos
Aires, Argentina, and operates a 232-branch network.
As from
December, 1996, BBVA Banco Francés is part of Banco Bilbao Vizcaya Argentaria
S.A. (“BBVA”) global strategy, which controls the bank, direct and indirectly,
with 75.97% of the corporate stock as of December 31, 2007.
Part of
BBVA Banco Francés’ corporate stock is publicly traded and has been registered
with the Buenos Aires Stock Exchange, New York Stock Exchange and Madrid Stock
Exchange.
|
1.2.
|
Stockholders´
Equity
|
|
1.2.1.
|
Capital stock
|
Changes in
the Bank’s capital stock during the last 5 fiscal years are as
follows:
|
Date
of
|
|||||||||
|
Stockholders’
Meeting deciding on the issuance
|
Registration
with the Public Registry of Commerce
|
Form
of
placement
|
Amount
(in
thousands)
|
Total
|
|||||
|
Capital
Stock as of December 31, 2002:
|
368,128
|
||||||||
|
04-22-2004
|
01-25-2005
|
(1)
|
103,233
|
471,361
|
(2)
|
||||
(1) Through public subscription of shares.
(2) The amount
of Capital Stock is fully paid in and authorized for public offering by National
Securities Commission (“CNV”).
|
1.2.2.
|
Authorized
and issued shares
|
|
The
capital stock of the Bank consists of 471,361,306 Ordinary Shares, par
value 1.00 each, all of which are issued and available to stockholders. At
July 1, 1992 there were 58,099,410 Ordinary Shares, par value 1.00 each.
Following a stock distribution and a share subscription in September 1993,
the total number of authorized and issued Ordinary Shares, par value 1.00
each, increased by 34,859,700 Ordinary Shares and by 18,539,914 Ordinary
Shares, respectively. Furthermore, following stock distributions in
September 1995 and October 1996, the total number of authorized and issued
Ordinary Shares, par value 1.00 each, increased by 16,724,854 and
19,233,582 Ordinary Shares, respectively. At March 1998, the total number
of authorized and issued Ordinary Shares, par value 1.00 each, increased
by 25,000,000 and 14,174,432, respectively, as a result of the issuance of
common stock originated by share subscription and by the exchange share
rate by merger with Banco de Crédito Argentino (BCA), for a total of
186,631,892 Ordinary Shares, par value 1.00 each. In April 1999, the total
number of authorized and issued Ordinary Shares, par value 1.00 each,
increased by 23,000,000 as a result of the issuance of common stock by a
share subscription. In August 2002, the total number of authorized and
issued Ordinary Shares, par value 1.00 each, increased by 158,496,540 as a
result of the issuance of common stock by a share subscription. Finally,
the total number of authorized and issued ordinary shares, par value 1.00
each, increased by 103,232,874 as a result of the issuance of common stock
above mentioned.
|
F-14
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
1.2.3.
|
Adjustments
to stockholders’ equity
|
|
The
“Adjustments to stockholders’ equity” caption in the Consolidated
Statement of Changes in Stockholders’ Equity
represents:
|
|
a)
|
The
balance of the surplus of the technical valuation on the Bank’s properties
made in year 1,981, which is available to absorb losses on the disposal or
devaluation of such properties restated by inflation as mentioned in Note
3.2.
|
|
b)
|
The
inflation adjustment related to capital stock at the beginning of each
year, restated as mentioned in Note 3.2.; capital stock maintains its
nominal (par) value at each balance sheet
date.
|
|
c)
|
The
inflation adjustment related to the increase in capital stock restated as
mentioned in Note 3.2. This adjustment represents the effect of inflation
from the date on which the capital stock was increased to the end of each
fiscal year.
|
The
composition of “Adjustments to stockholders’ equity” is as follows:
|
December
31,
2007
and 2006
|
||
|
Adjustment
to equity fund appraisal revaluation
|
41,285
|
|
|
Adjustments
to capital stock (including Issuance Premiums)
|
728,619
|
|
|
Cumulative
losses absorption
|
(456,925)
|
|
|
Total
|
312,979
|
|
1.2.4.
|
Issuance
Premiums
|
In August
2002 due to the issuance of 158,496,540 shares subscription in (value 1 per
share), at 3.59 each, the Bank received 590,996 over the nominal value of the
shares that has been recorded under the “Issuance Premiums” account. Finally,
due to the issuance of 103,232,874 shares subscription in April 2004 (value 1
per share) at 3.53 each, the Bank received 261,179 over the nominal value of the
shares that has been recorded under the “Issuance Premiums”
account.
|
1.3.
|
Responsibility
of stockholders
|
BBVA Banco
Francés is a corporation established under the laws of the Argentine Republic,
and the responsibility of its stockholders is limited to the value of the paid -
in shares, in accordance with Law No. 19,550. As a result, in compliance with
Law No. 25,738, it is hereby informed that neither the foreign capital majority
stockholders nor the local or foreign stockholders will respond, in excess of
the mentioned paid-in stockholding, for the liabilities arising out of the
transactions performed by the financial institution.
|
1.4.
|
Sale
of Credilogros Cía. Financiera S.A.
|
On March
9, 2005, BBVA Banco Francés, Inversora Otar S.A. and BBVA sold their aggregate
shareholdings in Credilogros Cía. Financiera S.A. to Banco de Servicios y
Transacciones S.A. and Grupo de Servicios y Transacciones S.A. The amount of the
transaction was US$16,900,000, based on the financial statements as of December
31, 2004 (upon entering into the sale agreement, an advance payment was made for
20% of the price) plus the accrued results during the period between that day
and the closing date of the operation.
As of June
28, 2006 Argentine Central Bank (BCRA) approved this operation by Resolution No.
146. This transaction was performed on July 11, 2006 and the shares of
Credilogros Cía. Financiera S.A. were transferred, originating an income of
12,979.
F-15
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
2—EQUITY INVESTMENTS
|
2.1.
|
In
controlled majority-owned subsidiaries
|
|
The
following summarizes the investment in, and related information of,
controlled majority-owned subsidiaries which are
consolidated.
|
|
Shares
|
Percentage
participation
|
|||||||||||||||
|
Principal
Activity
|
Type
|
Quantity
|
Capital
|
Votes
|
||||||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||||||||
| Companies |
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
||||||||||
|
Francés
Valores Sociedad de Bolsa S.A.
|
Stockbroker
|
Common
|
12,137
|
12,137
|
94.9687
|
94.9687
|
94.9687
|
94.9687
|
||||||||
|
Atuel
Fideicomisos S.A.
|
Trust
manager
|
Common
|
13,099,869
|
13,099,869
|
99.9999
|
99.9999
|
99.9999
|
99.9999
|
||||||||
|
Consolidar
A.F.J.P. S.A.
|
Pensions
fund manager
|
Common
|
75,842,839
|
75,842,839
|
53.8892
|
53.8892
|
53.8892
|
53.8892
|
||||||||
|
Consolidar
Cía. de Seguros de Vida S.A.
|
Insurance
company
|
Common
|
7,383,921
|
7,383,921
|
65.9600
|
65.9600
|
65.9600
|
65.9600
|
||||||||
|
Consolidar
Cía. de Seguros de Retiro S.A.
|
Insurance
company
|
Common
|
25,033,832
|
25,033,832
|
66.6666
|
66.6666
|
66.6666
|
66.6666
|
||||||||
|
PSA
Finance Argentina Cía. Financiera S.A.
|
Financial
institution
|
Common
|
9,000
|
9,000
|
50.0000
|
50.0000
|
50.0000
|
50.0000
|
||||||||
|
2.2.
|
Non-controlling
equity investments
|
|
The
following are all positions that the Bank holds in financial and
non-financial institutions wherever such a position represented an
ownership in excess of 2% of the invested companies’ capital stock as of
December 31, 2007.
|
|
Investment
|
Country
|
%
of Shares
Owned
|
Principal
Activity
|
Investment
in Other Subsidiaries
(in
thousands of pesos)
|
||||
|
Rombo
Compañía Financiera S.A.
|
Argentina
|
40.00%
|
Financial
institution
|
30,766
|
||||
|
Consolidar
ART S.A.
|
Argentina
|
12.50%
|
Workers
compensation
|
23,697
|
||||
|
BBVA
Consolidar Seguros S.A.
|
Argentina
|
12.22%
|
Insurance
|
6,855
|
||||
|
Assurex
S.A.
|
Argentina
|
12.50%
|
Insurance
|
35
|
||||
|
Coelsa
S.A.
|
Argentina
|
11.39%
|
Clearing
house
|
117
|
||||
|
Interbanking
S.A.
|
Argentina
|
9.09%
|
Information
services for financial markets
|
1,216
|
||||
|
Argencontrol
S.A.
|
Argentina
|
7.77%
|
Agent
Mandatary
|
54
|
||||
|
Sedesa
S.A.
|
Argentina
|
13.31%
|
Deposit
Guarantee Fund
|
133
|
||||
|
Banelco
S.A.
|
Argentina
|
10.91%
|
Nationwide
ATM network & credit card administrating
|
6,145
|
||||
|
Visa
Argentina S.A.
|
Argentina
|
5.00%
|
Credit
card issuer
|
1,712
|
NOTE
3—SIGNIFICANT ACCOUNTING POLICIES
|
3.1.
|
Basis
of presentation
|
|
In
accordance with the procedures set forth in BCRA’s regulations and
Technical Pronouncement No. 21 of the Argentine Federation of Professional
Councils in Economic Sciences (“FACPCE”), the Bank has consolidated - line
by line - its balance sheets and statements of operations as of December
31, 2007, 2006 and 2005, as per the following detail:
|
|
|
- As
of December 31, 2007 and
2006:
|
|
a)
|
With
the financial statements of Francés Valores Sociedad de Bolsa S.A., Atuel
Fideicomisos S.A. and its subsidiary and PSA Finance Argentina Cía.
Financiera S.A., for the fiscal years ended December 31, 2007 and
2006.
|
|
b)
|
With
the financial statements of Consolidar Administradora de Fondos de
Jubilaciones y Pensiones S.A., Consolidar Cía. de Seguros de Vida S.A.,
and Consolidar Cía. de Seguros de Retiro S.A., for the six-month periods
ended December 31, 2007 and 2006.
|
F-16
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
-
|
As
of December 31, 2005:
|
|
a)
|
With
the Financial Statements of Credilogros Cía. Financiera S.A., Francés
Valores Sociedad de Bolsa S.A., Atuel Fideicomisos S.A. and its subsidiary
and PSA Finance Argentina Cía. Financiera S.A., for the fiscal year ended
December 31, 2005.
|
|
b)
|
With
the Financial Statements of Consolidar Administradora de Fondos de
Jubilaciones y Pensiones S.A., Consolidar Cía. de Seguros de Vida S.A. and
Consolidar Cía. de Seguros de Retiro S.A., for the six-month period ended
December 31, 2005.
|
|
The
income / (loss) and cash flows and its equivalentes of Consolidar
Administradora de Fondos de Jubilaciones y Pensiones S.A., Consolidar Cía.
de Seguros de Vida S.A. and Consolidar Cía. de Seguros de Retiro S.A.,
have been adjusted in order to homogenize the periods of companies
consolidating on the basis of a twelve-month period ended on December 31,
2007, 2006 and 2005.
|
|
|
3.2.
|
Restatement
of the Financial Statements in equivalent purchasing
power
|
The
financial statements have been taken from the Bank's books of account in
conformity with the standards of the BCRA.
These
financial statements recognize the effects of the changes in the purchasing
power of the currency through February 28, 2003, following the restatement
method established by Argentine Federation of Professional Council in Economic
Sciences (FACPCE) Technical Pronouncement No. 6 (modified by Technical
Pronouncement No.19), using adjustment rates derived from the Internal Wholesale
Price Index published by the National Institute of Statistics and Census
(INDEC).
Accordingly
to the above mentioned method, the accounting figures were restated due to the
purchasing power changes through August 31, 1995. As from that date, based in
the prevailing economic stability conditions and accordingly with CNV’s General
Resolution No. 272 and BCRA’s Communication “A” 2365, the accounting figures
were not restated through December 31, 2001. In view of CNV’s General Resolution
No. 415 and BCRA’s Communication “A” 3702, the method was reinstated effective
as from January 1, 2002, considering the previous accounting figures as restated
as of December 31, 2001.
By
Communication “A” 3921 of the BCRA and General Resolution No. 441/03 of the CNV,
in compliance with Decree No. 664/03 of the Federal Executive Power, application
of the restatement method on financial statements in equivalent purchasing power
has been suspended as from March 1, 2003. Accordingly, BBVA Banco Francés S.A.
applied the mentioned restatement until February 28, 2003.
|
3.3.
|
Comparative
information
|
The
Consolidated Financial Statements as of December 31, 2007 include comparative
information with the Consolidated Financial Statements for the fiscal years
ended December 31, 2006 and December 31, 2005.
According
to Communication “A” 4667 of the BCRA dated May 14, 2007: i) for fiscal 2007 the
Consolidated Statements of Cash Flows shall be replaced with the Consolidated
Statements of Cash and Cash Equivalents Flows. In this respect, and just for
comparison purposes, the Bank presents the Consolidated Statements of Cash and
Cash Equivalents Flows for the fiscal years 2006 and 2005 to substitute for the
Consolidated Statements of Cash Flows and ii) certain accounts in the
Consolidated Balance Sheet and in the Consolidated Statement of Operations must
be broken down in further detail. This requirement has entailed that certain
balances corresponding to the Consolidated Financial Statements as of December
31, 2006 and 2005 have to be modified.
|
3.4.
|
Valuation
methods
|
|
The
main valuation methods used in the preparation of the Financial Statements
have been as follows:
|
F-17
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
3.4.1.
|
Foreign
currency assets and liabilities
|
|
As
of December 31, 2007 and 2006, such amounts were converted at the
benchmark exchange rate of the BCRA as of the closing date of transactions
on the last business day of each fiscal year. The exchange differences
were charged to income (loss) for each fiscal
year.
|
|
3.4.2.
|
Government
and private securities
|
|
Government
securities:
|
|
§
|
Holdings
in investment accounts:
|
|
-
|
Discount
Bonds: as of December 31, 2006 they were recorded at the book value of the
instruments delivered for exchange less payments received during 2004 and
2005, without exceeding the nominal cash flow amount until maturity
applicable under the terms and conditions of the bonds
received.
|
As of
December 31, 2006, the Bank set up allowances to cover the difference between
the amounts recorded as described above and the market value.
Discount
Bonds holdings were sold by BBVA Banco Francés during the fiscal year ended
December 31, 2007. Consolidar Cía. de Seguros de Retiro S.A. has booked its
bonds in accordance with the standards of the National Superintendence of
Insurance.
|
-
|
Federal
Government Bonds in US Dollars LIBOR 2012 –
Compensation:
|
As of
December 31, 2006 they were valued based on the quotation prevailing at the end
of the fiscal year plus outstanding coupons.
On October
13 and 23, 2006, the Bank received the Bonds related to compensation and hedging
as well as the amounts reflecting principal and interest outstanding as of the
date they were received. The Bank subscribed Boden 2012, the Bond related to
“hedging” in cash and with these two occurrences the compensation issue was
considered complete in accordance with applicable regulations.
Federal
Government Bonds holdings were sold by BBVA Banco Francés during the fiscal year
ended December 31, 2007. Consolidar Cía. de Seguros de Retiro S.A. has booked
its bonds in accordance with the standards of the National Superintendence of
Insurance.
|
§
|
Holdings
for trading or financial transactions and instruments issued by the BCRA
(except Holdings available for sale): they were valued based on current
listed prices for each security as of December 31, 2007 and 2006.
Differences in listed prices were credited/charged to income for each
fiscal year then ended.
|
|
§
|
Holdings
available for sale (Government Securities and Instruments issued by the
Argentine Central Bank): according to Communication “A” 4702 dated August
30, 2007, the Government Securities and Instruments issued by BCRA,
included in the list of volatilities published by the BCRA on a monthly
basis, may be classified in the category “Available for
sale”.
|
As of
December 31, 2007, they were valued in accordance with the quotations prevailing
for each security as of the close of the fiscal year. Differences, if any,
between the cost of addition of these holdings and increased by the accrual of
the internal rate of return and the value of the quotation were charged to
Unrealized valuation difference in the stockholders' equity. As of December 31,
2007, the amount recorded was 42,796 (loss).
|
§
|
Unlisted
government securities: this includes the Guaranteed Bonds issued by the
National Government, maturing in 2020 and received in relation to the
restructuring of the Provincial Development Trust Fund’s indebtedness. As
of December 31, 2007 and 2006 these bonds were valued at the lower of
present or technical value (including adjustment and accrued interest), as
established by Communication “A” 3911 as amended of the BCRA, less of the
estimated allowance to impairment
value.
|
F-18
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
§
|
Unlisted
instruments issued by the BCRA: in accordance with the regulations issued
by the BCRA, this portfolio now reflects holdings that do not show the
volatility reported by the BCRA. As of December 31, 2007, the value of the
holdings in accordance with the most recent quotation informed rose on the
basis of the interest accrued as per the internal rate of
return.
|
Investments in listed
private securities:
|
§
|
Equity
and debt instruments: they were valued based on current listed prices as
of December 31, 2007 and 2006. Differences in listed prices were charged
to income for each fiscal year then
ended.
|
|
3.4.3.
|
Government
loans
|
Federal Government secured
loans – Decree No. 1387/01:
As of
December 31, 2007 and 2006, these loans were valued at the lower of present or
technical value, as established by Communication “A” 3911 of BCRA as amended of
the BCRA.
Present
values as of December 31, 2007 and 2006 were calculated by discounting the cash
flows as per the relevant contracts at an annual rate of 6.50% and 5%
respectively, in accordance with the provisions of the abovementioned
Communications for December, 2007 and 2006.
The
technical value was calculated in accordance with the swap values established by
the Ministry of Economy at November 6, 2001 converted into pesos at rate of
Ps.1.40 per dollar plus CER plus interest accrued through the end of each fiscal
year.
The net
effect of differences between the value determined for each loan (the lower of
present or technical value) and their theoretical value was charged to the
balancing account under Loans established by Communication “A” 3911 by the
BCRA.
In
accordance with the abovementioned communication, the theoretical value was
calculated based on the book value at February 28, 2003, net of the balancing
account derived from the swap set forth by Decree No. 1387/01 and restated by
the CER through the end of each fiscal year.
|
3.4.4.
|
Benchmark
stabilization coefficient (CER)
|
As of
December 31, 2007 and 2006, receivables and payables have been adjusted to the
CER as follows:
|
§
|
Federal
government guaranteed loans have been adjusted under Resolution No. 50/02
of the Ministry of Economy, which resolved that the CER business 10 (ten)
days prior to the maturity date of the related service will be considered
for yield and repayments of the
loans.
|
|
§
|
Federal
government secured bonds due in 2020: have been adjusted under Resolution
No. 539/02 of the Ministry of Economy, which resolved that the CER
business 5 (five) days prior to the maturity date of the related service
will be considered for yield and repayment of the
bonds
|
|
§
|
Deposits
and other assets and liabilities: have been adjusted considering the CER
prevailing as of December 31, 2007 and
2006.
|
|
3.4.5.
|
Allowance
for loans losses and contingent
commitments
|
For loans,
other receivables from financial transactions, assets subject to financing
leasing, receivables from sale of property assets and contingent commitments:
the allowances have been calculated based on the Bank’s estimated loan loss risk
in light of debtor compliance and the collaterals supporting the respective
transactions, as provided by Communication “A” 2950 and supplemented of the
BCRA.
F-19
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
3.4.6.
|
Interest
income recognition
|
Interest
has been accrued according to a compound interest formula in the periods in
which it was generated, except interest on transactions in foreign currency,
those whose maturity does not exceed 92 days, and adjustable assets and
liabilities and loans to financial sector which were apportioned on a linear
basis.
The Bank
suspends the accrual of interest generally when the related loan is
non-performing and the collection of interest and principal is in doubt. Accrued
interest remains on the Bank’s books and is considered a part of the loan
balance when determining the allowances for loan losses. Interest is then
recognized on a cash basis after reducing the balance of accrued interest, if
applicable.
|
3.4.7.
|
Unlisted
Corporate Bonds
|
They were
valued at acquisition cost plus income accrued but not collected as of December
31, 2007 and 2006.
|
3.4.8.
|
Instruments
to be received and to be delivered for spot and forward transactions to be
settled
|
The Bank
enters into forward contracts to buy or sell foreign currencies, listed
Government securities and other securities at future dates. Both a receivable
and a payable are recognized at the time of the agreement, which reflects the
amounts of cash, currency or listed securities to be exchanged at the closing
date. The difference between the receivable and payable at the original
transaction date (premiums) is deferred and amortized over the contract’s
life.
The Bank
purchases and sells foreign currencies, listed Government and other securities
on behalf of its customers which settle another day. An asset or liability is
reflected for the amount due from or to the customer and a corresponding asset
or liability is reflected for the currency or listed securities to be
exchanged.
The Bank’s
receivables or payables representing the future receipt or delivery of
currencies or securities are adjusted to reflect the current market price of
such currencies or securities. The amount of such market price differences is
recorded in income for the fiscal year.
Forward
sales and purchases of securities associated with repurchase agreements were
valued as follows:
|
§
|
In
foreign currency: as of December 31, 2007 and 2006, they were valued
according to the bench-mark exchange rate of the BCRA for each currency
determined on the last business day of the end of each fiscal
year.
|
|
§
|
Holdings
in investments:
|
|
-
|
Holdings
for trading (Government and private securities) as well as instruments
issued by the BCRA: in accordance with the method described in Note 3.4.2.
above.
|
|
-
|
Holdings
available for sale, instruments issued by the BCRA: in accordance with the
method described in Note 3.4.2.
above.
|
|
3.4.9.
|
Amounts
receivable and payable for spot and forward transactions pending
settlement
|
They were
valued based on the prices agreed-upon for each transaction, plus related
premiums accrued as of December 31, 2007 and 2006.
|
3.4.10.
|
Assets
subject to financing leasing
|
As of
December 31, 2007 and 2006, they have been valued at the present value of
unaccrued installments calculated as per the conditions agreed upon in the
respective contracts, applying the imputed interest rate thereto.
F-20
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
3.4.11.
|
Investments
in other companies
|
They have
been valued according to the following methods:
|
§
|
VISA
Argentina S.A., Banelco S.A., Consolidar A.R.T. S.A., Rombo Cía.
Financiera S.A., BBVA Consolidar Seguros S.A. and Interbanking S.A.: as of
December 31, 2007 and 2006 were valued by the equity method at the end of
each fiscal year.
|
|
§
|
Other:
as of December 31, 2007 and 2006 were valued at acquisition cost, without
exceeding their recoverable value.
|
|
3.4.12.
|
Premises
and equipment and Other assets
|
They have
been valued at acquisition cost plus increases from prior year appraisal
revaluations, restated by inflation as explained in Note 3.2., less related
accumulated depreciation calculated in proportion to the months of estimated
useful life of items concerned.
|
3.4.13.
|
Intangible
assets
|
They have
been valued at acquisition cost restated by inflation as explained in Note 3.2.,
less related accumulated depreciation calculated in proportion to the months of
estimated useful life of the items concerned.
This
caption includes the differences arising from compliance with court-ordered
measures arising from cases challenging the current rules and regulations
applicable to deposits with the financial system in the framework of the
provisions of Law No. 25,561, Decree No. 214/02 and supplementary provisions.
The assets mentioned (calculated on the basis of the nominal difference between
the exchange rate freely determined in the market and applied to the value of
the deposit recorded in the books at that date) are amortized within the 60
monthly installments starting in April 2003 in accordance with Communication “A”
3916 of the Argentine Central Bank.
As of
December 31, 2007 and 2006, the Bank recorded assets amounting to 57,489 and
343,450, respectively, to reflect the above items (after deduction of
accumulated amortization for 1,139,187 and 816,103, respectively), under the
caption Intangible Assets and in the account Organization and development
expenses.
The Bank,
however, notifies that such amortization is solely calculated to comply with the
regulations of the BCRA and that by no means does it imply a waiver to possible
compensation or recovery of the exchange difference resulting from compliance
with court orders corresponding to petitions for protection of civil rights or
other court action derived from the mandatory conversion of bank deposits into
pesos.
In its
decision in re “Massa, Juan Agustín versus National Executive Branch - Decree
No. 1570/01 and others following petitions for protection of civil rights under
Law No. 16,986” dated December 27, 2006, the Argentine Supreme Court of Justice
confirmed by the majority vote of its members the validity of the emergency
legislation enacted during 2001, 2002 and subsequent years; i.e., the Supreme
Court accepted the re-denomination into Pesos of deposits as well as the
calculation methodology for the reimbursement of the bank deposits subject to
the emergency regime imposed by the Argentine Government which
unconstitutionality was claimed in the case mentioned. This decision by the
Supreme Court of Justice establishes a calculation modality different from the
modality decreed by the Executive Branch, establishing in this particular case
the following criteria: each depositor is entitled to receive from the banking
institution a reimbursement of the amount deposited converted into Pesos a the
US$1 = Ps.1.40 exchange rate, adjusted by CER until the date of effective
payment, plus compensatory interest at the annual, non compoundable 4% interest
rate accruing as from the establishment of restrictions upon the availability of
bank deposits or as from the date of maturity of the deposit if it was
subsequent to February 28, 2002 subject to the monetary limit resulting from the
decision handed down by the Court of Appeals, in so far as its judgment has not
been appealed by the plaintiff. The Supreme Court of Justice has held, both in
this judgment and in a more recent judgment, “Kujarchuk versus the Argentine
Executive Branch”, that the amounts withdrawn from the bank as a result of
decisions handed down by a court or resulting from out-of-court arrangements
shall be deemed to be partial payments and that a deduction is to be performed
out of the original deposit denominated in foreign currency of the percentage
that, when converted into such currency, is represented by such payments
converted into US Dollars at the exchange rate quoted in the floating foreign
F-21
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
exchange
market prevailing on each date. The payments made are to be consolidated and
deducted as above described from the amount settled according to the guidelines
of the Massa judgment. Come this instance, costs are borne in equal parts by the
plaintiff and defendant and as regards previous instances, they are borne as
decided by the Court of Appeals. Additionally, the Court has placed a cap on the
amount pending reimbursement equivalent to the limit established by the Court of
Appeals, i.e., the value in US Dollars of the original deposit.
The Bank
has estimated this contingency and it has raised allowances for the total
amount.
The Bank’s
Board of Directors expects that the Argentine State remedies the significant
damage resulting from compliance with court-ordered measures on petitions for
protection of civil rights and actions for relief, particularly due to the
impact of differences in compensation or recovery as per the rulings in the
abovementioned actions and according to the law in relation to pesification of
the underlying deposits. In this regard, the Bank has informed of such financial
damages to the relevant authorities, with reservation of rights.
|
3.4.14.
|
Derivative
transactions:
|
Interest
rate swaps and Forward transactions
|
§
|
Interest
rate swaps are recorded at the value resulting from the application of
fixed and floating interest rate differences to residual notional amounts
at the end of each fiscal year.
|
|
§
|
Forward
transactions payable in Pesos without delivery of the underlying asset are
recorded for the amount receivable or payable, as appropriate, arising
from the difference between the agreed exchange rate and the exchange rate
at the end of each fiscal year as applied to stated notional
amounts.
|
|
3.4.15.
|
Employee
termination pay
|
The Bank
expenses employee termination pay as disbursed.
|
3.4.16.
|
Other
liabilities
|
They
include the debit balances non arising out of transactions relating to the
supply and demand of financial resources, plus the adjustments and interest
payable accrued as of December 31, 2007 and 2006.
|
3.4.17.
|
Allowance
for other contingencies
|
It
includes the estimated amounts to meet contingencies of probable occurrence
that, if occurred, would give rise to a loss for the Bank.
|
3.4.18.
|
Stockholders’
equity accounts
|
They are
restated by inflation as explained in Note 3.2., except for the “Capital Stock”
and “Non capitalized contributions” accounts which have been kept at original
value. The adjustment resulting from the restatement is included in the
“Adjustment to Stockholders´ Equity – Adjustment to Capital Stock”
account.
|
3.4.19.
|
Statements
of Operations Accounts
|
|
§
|
As
of December 31, 2007, 2006 and 2005, accounts accruing monetary
transactions (Financial Income (Expense), Service Charge Income (Expense),
Provision for Loan Losses, Operating Expenses, etc.) were computed on the
basis of their monthly accrual at historical
rates.
|
|
§
|
Accounts
reflecting the effect on income resulting from the sale, write-off, or use
of non-monetary assets were computed based on the value of such assets, as
mentioned in Note 3.2.
|
|
§
|
Income
from investments in subsidiaries was computed based on such companies’
income adjusted as explained in Note
3.2.
|
F-22
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
3.4.20.
|
Consolidated
Statements of Cash and Cash Equivalents
Flows
|
According
to Communication “A” 4667 dated May 14, 2007, the BCRA replaced the Consolidated
Statements of Cash Flows for the Consolidated Statements of Cash and Cash
Equivalents Flows. The Consolidated Statements of Cash and Cash Equivalents
Flows was prepared using the measurement methods prescribed by the
BCRA.
The
Statements of Cash and Cash Equivalents Flows as of December 31, 2007, 2006 and
2005 explain the changes in cash and its equivalents. For such purpose, a detail
is supplied of the items that the Bank considers to be cash and its
equivalents:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
a) Cash
and due from banks
|
3,169,314 | 2,558,484 | 1,611,506 | |||||||||
|
b) Government
securities held for trading or financial transactions
|
170,320 | 303,823 | 664,837 | |||||||||
|
c) Loans
to financial sector, calls granted maturity date less than three months as
from the end of the fiscal years
|
126,000 | 66,500 | 22,400 | |||||||||
|
CASH
AND ITS EQUIVALENTS
|
3,465,634 | 2,928,807 | 2,298,743 | |||||||||
Points b)
and c) are considered to be cash equivalents because they are held in order to
meet short-term commitments, they are easily convertible in known cash amounts,
they are subject to negligible changes in value and their maturity is less than
three months as from the year-end date.
|
3.4.21.
|
Other
assets and other liabilities from subsidiaries (Consolidar
Group)
|
They have
been valued in accordance with the accounting standards established by the
National Superintendence of Insurance and National Superintendence of Pension
Funds Managers.
|
3.4.22.
|
Use
of estimates
|
The
preparation of the Consolidated Financial Statements in accordance with the
standards set forth by the BCRA require the Bank’s Board of Directors to use
assumptions and estimates that affect certain assets such as allowances for
doubtful loan and certain liabilities such as provisions for other contingencies
as well as the income/loss generated during the fiscal years being reported.
Final income/loss may differ from such estimates.
NOTE
4—DIFFERENCES BETWEEN BCRA ACCOUNTING STANDARDS AND ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN BUENOS AIRES CITY - ARGENTINA
By
Resolution CD No. 93/05 the Professional Council in Economic Sciences of Buenos
Aires City (CPCECABA) adopted, with certain explanations, Technical
Pronouncements Nos. 16 to 22 of the FACPCE incorporating certain changes to the
professional accounting valuation and disclosure standards. Furthermore, by
General Resolutions No. 485/05 y 487/06, the CNV adopted, with certain
amendments, those Technical Pronouncements based on the resolutions of the
CPCECABA.
The Bank
has prepared these Consolidated Financial Statements by applying the regulations
of the BCRA, which do not contemplate some of the valuation criteria
incorporated to the accounting principles generally accepted in Buenos Aires
City.
The main
differences between the regulations of the BCRA and the accounting principles
generally accepted in Buenos Aires City are detailed below:
F-23
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
4.1.
|
Valuation
criteria
|
|
a)
|
National Government
Secured Loans
|
During the
year ended on December 31, 2001, as a consequence of the provisions of Decree
No. 1387/01, on November 6, 2001, the Bank exchanged national government
securities, bonds, treasury bills and/or unsecured loans with the National
Government for a face value of US$3,291,795 thousands for Secured loans. At
December 31, 2007 and 2006, those loans are recorded under “Loans – to the
Public Sector” amounting to 2,367,869 and 2,886,767, respectively, in accordance
with the criterion described in Note 3.4.3.
In
accordance with Resolution CD No. 290/01 of the CPCECABA, at December 31, 2007
and 2006, these assets should have been valued considering the respective
quotation values of the swapped bonds at November 6, 2001, delivered in exchange
and the increase sustained as a result of the interest accrued according to the
internal rate of return. However, as of December 31, 2007 and 2006 the book
value of these assets is not significantly different from their reasonable
realization value.
|
b)
|
Effects caused by
court measures related to deposits (constitutional protection
actions)
|
As
mentioned in Note 3.4.13., as of December 31, 2007 and 2006, the Bank records
assets amounting to 57,489 and 343,450 (whose original values had been 1,196,676
and 1,159,553) respectively, under “Intangible Assets – Organization and
Development Non Deductible Expenses” account corresponding to differences
resulting from compliance with the court measures generated by the payment of
deposits in the financial system within the framework of Law No. 25,561, Decree
No. 214/02 and complementary regulations, as established by Communication “A”
3916 of the BCRA. In accordance with professional accounting standards currently
in force in Buenos Aires City, the amounts detailed above should have been
covered by an allowance up to the concurrence of the balance that represents the
best possible estimate of the amounts to be recovered, an amount that may not be
objectively determined as of the date of issuance of these
statements.
|
c)
|
Tax
effects
|
As already
indicated in Note 5.1., the Bank has received various communications from the
BCRA pursuant to which that BCRA indicates that the capitalization of items
arising from the application of the deferred tax method is not allowed. In
accordance with professional accounting standards currently in force in Buenos
Aires City, a deferred tax asset should be recognized to the extent the reversal
of temporary differences generates a future decrease in the tax effectively
determined. As a result, the allowances set up by the Bank in this respect, for
55,500 and 337,000 as of December 31, 2007 and 2006, respectively, should be
recovered.
In
addition, the Bank has tax loss carryforwards estimated to be applied against
taxable income for the current fiscal year.
|
d)
|
Derivative financial
instruments
|
As
explained in the first bullet of the Note 3.4.14. and Note 12, as of December
31, 2007 the Bank recorded the effects of interest rate swap agreements as
established by the BCRA. Should the Entity have applied the professional
accounting standards currently applicable, it would have booked additional
liabilities for 7,433.
|
4.2.
|
Aspects
related to disclosure of
information
|
|
|
Holdings available for
sale
|
As
disclosed in Note 3.4.2. the Bank charged to the account “Unrealized valuation
difference” in stockholders' equity a loss of 42,796, which reflects the
difference between the cost of addition of these holdings and increased by the
accrual of the internal rate of return and the value as quoted of Government
securities and instruments issued by the BCRA, classified as Holdings available
for sale. The professional accounting standards in force in the City of Buenos
Aires do not endorse this accounting treatment. Therefore, as of December 31,
2007, this amount should have been charged to the income/loss for such fiscal
year.
F-24
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
4.3.
|
Other
differences with respect to generally accepted accounting principles
effective in Buenos Aires City, related to Consolidar
Group
|
|
a)
|
Consolidar
A.F.J.P. S.A.: the intangible assets of this subsidiary were amortized in
accordance with the standards of the A.F.J.P.'s
Superintendence.
|
|
b)
|
Consolidar
A.F.J.P. S.A., Consolidar Cía. de Seguros de Retiro S.A. and Consolidar
Cía. de Seguros de Vida S.A.: loans secured by the National Government -
Decree 1387/01 held by these subsidiaries amounting to 952,106 and 768,514
as of December 31, 2007 and 2006, were valued in accordance with the
regulations of the Superintendence of Pension Fund Administrators
(A.F.J.P) and the National Superintendence of
Insurance.
|
|
c)
|
Consolidar
Cía. de Seguros de Retiro S.A.: the portfolio of Government securities in
investment accounts has been booked in accordance with the standards of
the National Superintendence of
Insurance.
|
|
d)
|
Consolidar
Cía. de Seguros de Retiro S.A. and Consolidar Cía de Seguros de Vida S.A.:
a part of its portfolio of instruments issued by the BCRA has been
recorded in investment accounts, and they have been valued as per
Communication “A” 4698 of the BCRA. The net difference with the market
values as of December 31, 2007 amounted to 117
(income).
|
|
e)
|
The
items included under the captions Subsidiaries’ other assets and
Subsidiaries’ other liabilities were valued in accordance with the
regulations of the National Superintendence of
Insurance.
|
|
f)
|
Consolidar
Cía de Seguros de Retiro S.A.: the Company included the balance from the
technical commitments incurred with the insured in the Other Liabilities
caption. The abovementioned caption includes 22,099 and 25,947 at December
31, 2007 and 2006 corresponding to the regularizing account called
“Unaccrued secured loans valuation difference” which, as established by
the National Superintendence of Insurance, will be settled through
subsequent accrual of the regularizing accounts of secured loans. In
accordance with professional accounting standards currently in force in
the City of Buenos Aires, such amount should have been recorded as a loss
for the year ended December 31,
2003.
|
NOTE
5—TAX MATTERS
|
5.1.
|
Income
tax
|
The Bank
determined the charge for income tax by applying the effective 35% rate to
taxable income estimated for each period or fiscal year considering the effect
of temporary differences between accounting and taxable income. The Bank
considered as temporary differences those that have a definitive reversal date
in subsequent years. As of December 31, 2007 and 2006, the Bank has estimated
that there shall be no charge for income tax as the Bank is in a position to
absorb the tax loss carryforwards from previous fiscal years.
On June
19, 2003, the Bank received a note from the BCRA indicating that the
capitalization of items arising from the application of the deferred tax method
is not allowed.
On June
26, 2003, the Bank’s Board of Directors, based on the opinion of its legal
counsel, have responded the above mentioned note, indicating that in their
opinion the rules of the BCRA do not prohibit the application of the deferred
tax method generated by the recognition of temporary differences between the
accounting and tax result. Subsequently, Resolution No. 118/03 of the
Superintendent of Financial and Exchange Institutions received on October 7,
2003 confirmed the terms of the note dated June 19, 2003. Consequently, as from
that date the Bank has set up an allowance for the net balance between the
deferred tax assets and liabilities.
F-25
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
As of
December 31, 2007 and 2006, the Bank records under Other Receivables (in the Tax
Advance account) a taxable deferred asset amounting 55,500 and 337,000,
respectively. Such amounts are made up as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Deferred
tax assets
|
981,455 | 774,000 | ||||||
|
Deferred
tax liabilities
|
(925,955 | ) | (437,000 | ) | ||||
|
Net
deferred assets
|
55,500 | 337,000 | ||||||
|
Allowance
|
(55,500 | ) | (337,000 | ) | ||||
|
5.2.
|
Tax
on minimum presumed income
|
Tax on
minimum presumed income (TOMPI) was established by Law No. 25,063 in the year
ended December 31, 1998, for a ten-year term. This tax is supplementary to
income tax: while the latter is levied on the taxable income for the year, TOMPI
is a minimum levy determined by applying the current 1% rate on the potential
income of certain productive assets. Therefore, the Bank’s tax obligation for
each year will coincide with the highest of these taxes. The above Law provides
that institutions governed by Financial Institutions Law must consider as a tax
base 20% of their taxable assets, after deducting non-computable ones. However,
if TOMPI exceeds income tax in a given year, the excess thereof may be computed
as a payment on account of any income tax in excess of TOMPI that may occur in
any of the following ten years.
In every
year that net operating losses are offset, the tax benefit (the benefit of the
effective rate on the net operating loss used) will be realized to the extent
that income tax (net of the offsetting) equals or exceeds tax on minimum
presumed income, but will reduced by any excess of the latter over
former.
On
February 11, 2005, the Argentine Central Bank issued Communication “A” 4295
whereby it enabled, under certain rules, the accounting record of credits on Tax
on Minimum Presumed Income.
Consequently,
as of December 31, 2007 the Bank recorded the above asset in an amount of
186,761 (150,506 in the line Tax on minimum presumed income – Tax Credit and
36,255 in the line Others – Tax Advance, under Other Receivables). As of
December 31, 2006, the Bank recorded the above asset in an amount of 152,746
(118,746 in the line Tax on minimum presumed income – Tax credit and 34,000 in
the line Others – Tax Advance under Other Receivables).
|
5.3.
|
Other
tax issues
|
|
a)
|
The
Argentine Public Revenue Administration (AFIP) inspected open tax periods
and the Bank received ex officio assessments, which were appealed before
the Argentine Administrative Tax Court. Such Court, to the issuance date
of these financial statements, issued and opinion on the ex officio
assessment made in 1992 and 1993, partially admitting the claim of tax
authorities. On June 18, 2002 the Bank decided to appeal the ruling of
1992 with the Court of Appeals, where it is being treated at
present.
|
Furthermore,
on July 18, 2003 a remedy for the review and appeal against the 1993 judgment
was filed, and is currently pending. On March 8, 2006 the Court of Appeals
ratified the ruling, which caused the Bank to file an ordinary appeal with the
National Supreme Court, which was conceded on February 1, 2007.
The
Argentine Administrative Tax Court has issued an opinion in respect of the
appeals filed against the ex officio assessments concerning the tax on minimum
presumed income for year 1999 and the income tax for years 1994, 1995 and 1998,
fully upholding the claims filed and reversing the appealed resolutions.
However, on April 8, 2005 the Argentine Administrative Tax Court conceded to the
AFIP the appeal to Argentine Public Revenue Administration. On October 3, 2006,
the Argentine Administrative Tax Court confirmed the decision, and accordingly
the AFIP filed a new appeal against this ruling with the Argentine Supreme
Court, which conceded this appeal on March 8, 2007.
The
Management and tax and legal counsel estimate that the Bank made a reasonable
interpretation of effective regulations regarding the observed
periods.
F-26
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
b)
|
On
October 24, 2007, the Bank was notified by the Tax Bureau of the City of
Buenos Aires of the commencement of a sua sponte tax assessment on a
certain basis and partial in nature of the taxable income as regards
turnover tax for the fiscal years 2002 and
2003.
|
On
November 14, 2007, the Bank had filed its defences to the notice
mentioned.
The Bank’s
management as well as its legal and tax advisors estimate that the Bank has
reasonably interpreted currently applicable rules and regulations as regards the
periods covered by the notice.
The
Management and tax and legal counsel estimate that the Bank made a reasonable
interpretation of effective regulations regarding the observed
periods.
The Bank’s
Management does not expect an adverse financial impact in these
respects.
NOTE
6— BREAKDOWN OF MAIN ITEMS AND ACCOUNTS
Detailed
below are the balances of those accounts:
|
2007
|
2006
|
|||||||
|
a)
GOVERNMENT AND PRIVATE SECURITIES
|
||||||||
|
Holdings in investment
accounts
|
||||||||
|
Federal
Government Bonds LIBOR 2012 - Compensation
|
— | 108,622 | ||||||
|
Discount
Bonds in pesos
|
310,956 | 406,674 | ||||||
|
Federal
Government Bonds LIBOR 2014
|
34,927 | — | ||||||
|
Federal
Government Bonds in Pesos 10.5 % due in 2012
|
24,949 | — | ||||||
|
BCRA
Notes (NOBAC)
|
176,882 | — | ||||||
|
Total
|
547,714 | 515,296 | ||||||
|
Holdings for trading
or financial transactions
|
||||||||
|
Federal
Government Bonds 2008 (BODEN 2008)
|
115 | 8,748 | ||||||
|
Federal
Government Bonds LIBOR 2012
|
29,720 | 24,018 | ||||||
|
Federal
Government Bonds LIBOR 2013
|
3,583 |
2014
|
||||||
|
Buenos
Aires City Bond
|
3,563 | 6,648 | ||||||
|
Federal
Government Bonds LIBOR 2014
|
484 | 22,094 | ||||||
|
Discount
Bonds in pesos
|
50,615 | 85,947 | ||||||
|
Discount
Bonds in US dollar
|
2,805 | — | ||||||
|
Peso-denominated
GDP-related securities
|
11,607 | 20,476 | ||||||
|
Federal
Government Bonds in pesos 7% due in 2017
|
1,811 | — | ||||||
|
Federal
Government Bonds in pesos 7% due in 2013
|
1,248 | — | ||||||
|
Cuasipar
Bonds in pesos
|
6,365 | 8,104 | ||||||
|
Secured
Bonds due in 2018
|
16,422 | 93,602 | ||||||
|
Federal
Government Bocon PRE8
|
11,520 | 15,910 | ||||||
|
Federal
Government Bocon PRE9
|
6,900 | 2 | ||||||
|
Federal
Government Bonds in US dollar 7% due in 2011
|
8,873 | 9,807 | ||||||
|
Federal
Government Bonds in Pesos 10.5 % due in 2012
|
3,105 | — | ||||||
|
Other
|
11,584 | 6,453 | ||||||
|
Total
|
170,320 | 303,823 | ||||||
F-27
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
2007
|
2006
|
|||||||
|
Available for
sale
|
||||||||
|
Secured
Bonds due in 2018
|
73,284 | — | ||||||
|
Federal
Government Bocon PRO12
|
166,229 | — | ||||||
|
BCRA
Notes (NOBAC)
|
1,133,071 | — | ||||||
|
Total
|
1,372,584 | — | ||||||
|
Unlisted government
securities
|
||||||||
|
Secured
Bonds due in 2020
|
903,897 | 843,792 | ||||||
|
Tax
credit certificates due in 2003/2006
|
6 | 5 | ||||||
|
Total
|
903,903 | 843,797 | ||||||
|
Instruments issued by
the Argentine Central Bank
|
||||||||
|
BCRA
Bills (LEBAC)
|
140,068 | 75,139 | ||||||
|
BCRA
Notes (NOBAC)
|
1,865,723 | 2,445,767 | ||||||
|
Total
|
2,005,791 | 2,520,906 | ||||||
|
Investments in listed
private securities
|
||||||||
|
Edesur
S.A. Corporate Bonds
|
— | 16,755 | ||||||
|
Telefónica
de Argentina S.A. Corporate Bonds
|
2,269 | 9,405 | ||||||
|
Telecom
Personal Corporate Bonds
|
4,994 | 9,605 | ||||||
|
Camuzzi
Gas Pampeana Corporate Bonds
|
10,096 | 10,057 | ||||||
|
Rombo
Compañía Financiera Corporate Bonds
|
— | 6,906 | ||||||
|
Tarjeta
Naranja Trust
|
11,820 | 3,797 | ||||||
|
Acindar
S.A.
|
2,387 | 3,487 | ||||||
|
Telecom
|
5,197 | 4,280 | ||||||
|
Galtrust
1 Financial Trust
|
10,333 | 10,941 | ||||||
|
Milennium
Trust Financial Trust
|
— | 5,281 | ||||||
|
Petrobrás
Energía S.A.
|
4,051 | 6,616 | ||||||
|
FBA
Bonos Argentina
|
2,019 | 6,608 | ||||||
|
FBA
Ahorro Pesos
|
1,671 | 7,592 | ||||||
|
Fideicomiso
de Gas
|
30,629 | 30,391 | ||||||
|
Grupo
Concesionario del Oeste Corporate Bonds
|
9,985 | 10,095 | ||||||
|
1784
Inversión Pesos FCI
|
2,853 | 3,906 | ||||||
|
Pionero
Pesos FCI
|
10,015 | 4,068 | ||||||
|
Banco
Macro Corporate Bonds
|
2,538 | 3,718 | ||||||
|
Tarjeta
Cuyana Corporate Bonds
|
6,459 | — | ||||||
|
Petrobras
Energía S.A. Corporate Bonds
|
1,429 | 2,658 | ||||||
|
Radar
Financial Trust
|
36,788 | — | ||||||
|
Tenaris
|
3,160 | 2,755 | ||||||
|
Grupo
Financiero Galicia
|
1,734 | 5,874 | ||||||
|
SMAD
Schroder Corto Plazo
|
— | 3,004 | ||||||
|
Garbarino
Financial Trust
|
4,349 | — | ||||||
|
Secubono
Financial Trust
|
9,153 | — | ||||||
|
Cía.
Financiera Argentina Financial Trust
|
12,033 | — | ||||||
|
Rembrandt
Amor Pesos FCI
|
11,016 | — | ||||||
|
Other
|
44,965 | 35,597 | ||||||
|
Sub-Total
|
241,943 | 203,396 | ||||||
|
Allowances
|
(61,002 | ) | (15,186 | ) | ||||
|
Total
|
5,181,253 | 4,372,032 | ||||||
F-28
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
2007
|
2006
|
|||||||
|
b)
LOANS – Other
|
||||||||
|
Loans
granted to pre-finance and finance exports
|
1,497,988 | 1,109,307 | ||||||
|
Fixed-rate
financial loans
|
904,117 | 926,097 | ||||||
|
Other
|
264,738 | 246,839 | ||||||
|
Total
|
2,666,843 | 2,282,243 | ||||||
|
c)
INVESTMENTS IN OTHER COMPANIES – Others
|
||||||||
|
In
other non-controlled companies- unlisted
|
30,586 | 27,586 | ||||||
|
In
non-controlled companies-supplementary activities
|
15,801 | 12,860 | ||||||
|
Other
– unlisted
|
43 | 3,090 | ||||||
|
Total
|
46,430 | 43,356 | ||||||
|
d)
OTHER RECEIVABLES – Others
|
||||||||
|
Prepayments
|
46,200 | 22,602 | ||||||
|
Guarantee
deposits
|
25,551 | 27,059 | ||||||
|
Miscellaneous
receivables
|
60,226 | 64,193 | ||||||
|
Tax
prepayments (*)
|
93,647 | 372,364 | ||||||
|
Other
|
59,384 | 38,991 | ||||||
|
Total
|
285,008 | 525,209 | ||||||
|
(*)
As of December 31, 2007 and 2006, it includes the deferred tax asset for
55,500 and 337,000 respectively (see Note 5.1).
|
||||||||
|
e)
SUBSIDIARIES’ OTHER ASSETS
|
||||||||
|
Premium
receivables from insurance companies
|
— | 25,749 | ||||||
|
Others
related to insurance business
|
450 | 450 | ||||||
|
Total
|
450 | 26,199 | ||||||
|
f)
OTHER LIABILITIES FROM FINANCIAL
|
||||||||
|
TRANSACTIONS
– Other
|
||||||||
|
Correspondents
– our account
|
146,540 | 23,746 | ||||||
|
Collections
and other operations for the account of third parties
|
25,925 | 29,815 | ||||||
|
Other
withholdings and collections at source
|
104,883 | 57,461 | ||||||
|
Accounts
payable for consumption
|
140,105 | 108,636 | ||||||
|
Money
orders payable
|
244,410 | 203,635 | ||||||
|
Loans
received from Argentine Technological Fund (FONTAR)
|
20,623 | — | ||||||
|
Loans
received from Interamerican Development Bank (BID)
|
57,738 | — | ||||||
|
Other
|
57,003 | 51,230 | ||||||
|
Total
|
797,227 | 474,523 | ||||||
|
g)
OTHER LIABILITIES – Other
|
||||||||
|
Accrued
salaries and payroll taxes
|
194,226 | 150,102 | ||||||
|
Accrued
taxes
|
79,813 | 119,964 | ||||||
|
Miscellaneous
payables
|
91,845 | 65,532 | ||||||
|
Other
|
8,997 | 4,375 | ||||||
|
Total
|
374,881 | 339,973 | ||||||
F-29
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
2007
|
2006
|
|||||||
|
h)
SUBSIDIARIES’ OTHER LIABILITIES
|
||||||||
|
Insurance
companies, claims in adjustment process
|
94,013 | 98,077 | ||||||
|
Fluctuation
fund – Consolidar Cía. de Seguros de Retiro S.A.
|
138,480 | 108,585 | ||||||
|
Insurance
companies, mathematical reserve
|
1,896,586 | 1,574,347 | ||||||
|
Insurance
companies, reinsurer’s reserve
|
10 | (301 | ) | |||||
|
Difference
arising from secured loans accrued valuation Consolidar
|
(22,099 | ) | (25,947 | ) | ||||
|
Benefit
pending of integration – Resolution No. 29796 Consolidar Cía. de Seguros
de Retiro S.A.
|
— | (607 | ) | |||||
|
Others
related to insurance business
|
39,741 | 81,717 | ||||||
|
Total
|
2,146,731 | 1,835,871 | ||||||
|
i)
DEBIT ACCOUNTS – Control – Others
|
||||||||
|
Items
in safekeeping
|
9,433,738 | 9,993,701 | ||||||
|
Collections
items
|
579,318 | 512,838 | ||||||
|
Checks
drawn on the Bank pending clearing
|
223,112 | 157,409 | ||||||
|
Checks
not yet credited
|
786,562 | 521,952 | ||||||
|
Securities
representative of investment in escrow on behalf of the
Pension
Fund Manager
|
20,993,983 | 18,353,793 | ||||||
|
Other
|
62,182 | 27,298 | ||||||
|
Total
|
32,078,895 | 29,566,991 | ||||||
|
2007
|
2006
|
2005
|
||||||||||
|
j)
SERVICE CHARGE EXPENSE - Others
|
||||||||||||
|
Turnover
tax
|
34,175 | 27,574 | 22,541 | |||||||||
|
Other
|
10,381 | 6,087 | 2,402 | |||||||||
|
Total
|
44,556 | 33,661 | 24,943 | |||||||||
|
k)
OTHER INCOME - Others
|
||||||||||||
|
Premiums
– Insurance companies
|
299,659 | 181,662 | 125,861 | |||||||||
|
Rent
|
2,038 | — | — | |||||||||
|
Deferred
income tax
|
55,500 | — | 242,000 | |||||||||
|
Related
parties expenses recovery
|
6,100 | — | — | |||||||||
|
Others
|
20,368 | 25,757 | 22,395 | |||||||||
|
Total
|
383,665 | 207,419 | 390,256 | |||||||||
|
l)
OTHER EXPENSE – Others
|
||||||||||||
|
Insurance
companies, mathematical reserve
|
357,063 | 246,181 | 127,172 | |||||||||
|
Life
Annuities – Consolidar Cía. de Seguros de Retiro
|
119,971 | 98,279 | 85,312 | |||||||||
|
Tax
on bank credits and debits
|
33,064 | 24,189 | 17,670 | |||||||||
|
Deferred
tax expenses
|
337,000 | 23,000 | — | |||||||||
|
Insurance
premiums for disability and death
|
884 | — | — | |||||||||
|
Claims
paid – Insurance companies
|
200,459 | 192,122 | 170,452 | |||||||||
|
Others
|
44,916 | 24,885 | 50,362 | |||||||||
|
Total
|
1,093,357 | 608,656 | 450,968 | |||||||||
F-30
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
7—RESTRICTIONS ON ASSETS
As of
December 31, 2007, there were Bank’s assets, which were restricted as
follows:
|
a)
|
The
Government and Private Securities account includes 60,456 in Guaranteed
Bonds maturing in 2018, allocated to the guarantee required to act as
custodian of investment securities related to pension
funds.
|
|
b)
|
The
Bank appropriated loan funds of its active portfolio in an amount of 1,261
to secure debts with the Argentine Central
Bank.
|
|
c)
|
The
Bank appropriated BCRA Notes (Badlar), due 01/21/2009 in an amount of
126,530 to secure loans arranged under the Credit Global Program given by
the Banco Interamericano de Desarrollo
(B.I.D.).
|
|
d)
|
Francés
Valores Sociedad de Bolsa S.A. (stock broking company) holds shares of
Mercado de Valores de Buenos Aires S.A, booked in the amount of 6,400.
These shares have been pledged in favor of “CHUBB Argentina de Seguros
S.A.” in security of the contract this insurance company executed with
Mercado de Valores de Buenos Aires S.A. to cover the latter’s guaranteeing
any noncompliance of stock broking companies with their
obligations.
|
NOTE
8—BANK DEPOSIT GUARANTEE INSURANCE SYSTEM
The Bank
is included in the Deposit Guarantee System established by Law 24,485,
Regulatory Decrees No. 540/95, No. 1,292/96 and 1,127/98 and Communication “A”
2337 and BCRA's complementary regulations.
Such
law provided for the creation of the Company Seguros de Depósitos Sociedad
Anónima (SEDESA) for purposes of managing the Deposit Guarantee Fund (DGF),
whose shareholders, in accordance with the changes introduced by Decree No.
1292/96, shall be the BCRA with one share as a minimum and the trustees of the
trust created by the financial institutions in the proportion to be determined
for each by the BCRA according to their contributions to the DGF.
That
Company was incorporated in August 1995 and the Bank has a 13.3117% interest in
its capital stock.
The
Deposit Guarantee System, which is limited, compulsory and onerous, has been
created for purposes of covering the bank deposit risks subsidiarily and
complementarily to the deposit protection and privilege system established by
the Financial Institutions Law.
The
guarantee shall cover the repayment of principal disbursed plus interest accrued
through the date of revoking of the authorization to operate or through the date
of suspension of the institution through application of section 49 of the BCRA's
Charter provided that the latter had been adopted earlier than the former
without exceeding the amount of pesos thirty thousand. Regarding operations in
the name of two or more people, the guarantee shall be prorated between the
holders. In no event shall the total guarantee per person exceed the
abovementioned amount, whatever the number of accounts and/or
deposits.
NOTE
9—TRUST ACTIVITIES
|
|
9.1.
|
Financial
Trusts
|
On January
5, 2001, the BCRA’s Board of Directors issued Resolution No. 19/01, providing
for the exclusion of Mercobank S.A.’s senior liabilities under the terms of
Section 35 bis of the Financial Institutions Law, the authorization to transfer
the excluded assets to BBVA Banco Francés as trustee of the Diagonal Trust, and
the authorization to transfer the excluded liabilities to beneficiary banks.
Also, on the mentioned date, the agreement to set up the Diagonal Trust was
subscribed by Mercobank S.A. as settle and BBVA Banco Francés as trustee in
relation to the exclusion of assets as provided in the resolution
abovementioned. BBVA Banco Francés entrusted Atuel Fideicomisos S.A. the
management of collections and the realization of the corpus assets. As of
December 31, 2007 and 2006, total estimated corpus assets of Diagonal Trust
amount to 3,897 and 17,497, respectively, considering its recoverable values and
those of Inmobal Nutrer Trust amount to 25 at the end of the previous fiscal
year. Said amounts are recorded in memorandum debit accounts “For trustee
activities – Funds received in trust”.
F-31
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Under its
line of business, Atuel Fideicomisos S.A. acts in its capacity as a trustee for
the following trusts, in no case being personally liable for the liabilities
assumed; such liabilities will be satisfied out of the proceeds of the
underlying assets of each such trust.
|
|
§
|
Corp
Banca Trust: it was created by an agreement dated May 13, 1997, executed
by Atuel Fideicomisos S.A. as trustee, Corp. Banca S.A. (later BBVA Banco
Francés S.A.) as trustor and beneficiary, the Argentine Central Bank and
Seguro de los Depósitos S.A. as
beneficiaries.
|
|
|
§
|
Banco
Francés Trust: it was created by an agreement dated on May 12, 2000,
executed by Atuel Fideicomisos S.A. as trustee, and BBVA Banco Francés
S.A. as trustor and beneficiary. On January 1, 2002, by an assignment made
by BBVA Banco Francés S.A., the beneficiary of the Trust Certificate is
Banco Bilbao Vizcaya Argentaria S.A. (BBVA). On November 29, 2007, BBVA
transferred to BBVA Banco Francés S.A. ownership over the trust share
certificate. The transfer of assets and liabilities in order to settle the
Banco Francés Trust was executed on December 31, 2007. The fair value of
assets and liabilities transferred is not
material.
|
Atuel
Fideicomisos also acts as administration and collection manager for Fideicomiso
Diagonal, which was created by an agreement dated January 5, 2001, executed by
Mercobank S.A as trustor, BBVA Banco Francés S.A. as trustee and BBVA Banco
Francés S.A and other financial institutions and Seguro de Depósitos S.A. as
beneficiaries.
|
|
9.2.
|
Non-Financial
Trusts
|
The Bank
acts as trustee in 44 and 59 non financial trusts as of December 31, 2007 and
2006, respectively, and in no case being personally liable for the liabilities
assumed in the performance of the contract obligations; such liabilities will be
satisfied with and up to the full amount of the corpus assets and the proceeds
therefrom. The non financial trusts concerned were set up to secure the
receivables of several creditors (beneficiaries) and the trustee was entrusted
the management, care, preservation and custody of the corpus assets until (i)
the requirements to show the noncompliance with the obligations by the debtor
(settler) vis-à-vis the creditors (beneficiaries) are met, moment at which such
assets will be sold and the proceeds therefrom will be distributed (net of
expenses) among all beneficiaries, the remainder (if any) being delivered to the
settler, or (ii) all contract terms and conditions are complied with, in which
case all the corpus assets will be returned to the settler or to whom it may
indicate. The trust assets represent about 588.4 million and 1,220 million as of
December 31, 2007 and 2006, respectively, consist of cash, creditors’ rights,
real estate and shares.
NOTE
10—CORPORATE BONDS
On July
15, 2003, an Extraordinary Stockholders’ Meeting approved the setting up of a
Program for the issuance and re-issuance of ordinary non-convertible Negotiable
Obligations with ordinary guarantee, or such guarantees as may be decided by the
Board of Directors, and unsecured Subordinated Negotiable Obligations,
convertible or not into shares. During the life of the Program, which will be 5
(five) years, it shall be possible to issue and re-issue any number of series
and/or classes of Negotiable Obligations as long as at all times the maximum
amount in circulation after adding together all series and/or classes
outstanding under the Program pending redemption does not exceed at any time
US$300,000,000.
On March
15, 2007, the Bank paid the redemption price of Negotiable Obligations Class 15
maturing in 2008, which were issued for an aggregate principal amount of
US$121,504,050.
On April
26, 2007, the Ordinary Stockholders’ Meeting delegated to the Board of Directors
the authority to make certain amendments to the existing Negotiable Obligations
Global Program such as: i) updating the Program so that it is governed by
international terms and conditions, ii) existence of an international trustee in
respect of one or more series representing the interests of investors, iii)
drafting and execution of documentation in the English language and under
foreign laws, including global and final securities, and payment agency,
registrar, trust and underwriting agreements, as may be necessary, as well as
the preparation of information documents for purposes of placement in
international markets, including offering circulars and financial statements
prepared in a foreign language.
F-32
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
As
provided in the Negotiable Obligations Law and BCRA regulations, the proceeds
would be applied to: (i) extension of mortgage loans for the purchase and
renovation of housing and personal loans in Argentina; (ii) extension of
corporate loans in Argentina for purposes of payment of working capital,
investment in physical assets located in Argentina or refinancing of
liabilities; and (iii) capital contributions in the Bank's subsidiaries or
related companies.
NOTE
11—FUNDING OF THE FINANCIAL AND INSURANCE INSTITUTIONS ASSISTANCE TRUST FUND
(FFAEFS)
On
December 29, 2004, the Bank cancelled the last installment of the corporate
bonds related to the FFAEFS, after its conversion into Argentine pesos at the
exchange rate of 1 Argentine peso to each US dollar and its adjustment by
CER.
On January
10, 2003, the Federal Executive published Decree No. 53/03 which amended section
1 subsection j) of Decree No. 410/02, excluding from the conversion into pesos
provided for by section 1 of Decree No. 214/02 the “obligation of Public and
Private Sector Companies to pay any amount of money in foreign currency owed to
the NATIONAL GOVERNMENT as a result of subsidiary or other loans and guarantees
originally financed by Multilateral Credit Institutions or arising from
liabilities owed by the National Treasury and refinanced with external
creditors”.
The
decision taken by the Managing Committee of the Trust Fund for Reconstruction of
Companies at the meeting held on May 28, 2003 stating that only 50% of the
aforementioned financing was to be converted into pesos while the difference was
to be maintained in its original currency was notified by note dated June 9,
2003.
The Bank
filed a subsidiary appeal for reversal before a higher administrative authority
applying for a change in the aforementioned criterion and has reiterated its
position on occasion of each interest and principal payment. Upon the appeal for
reversal being dismissed, the claims were filed with the hierarchical superior
officer on March 16, 2004. On May 17, 2004 the grounds for the appeal before the
higher administrative authority were enlarged.
On
February 7, 2005, the Bank was notified of Resolution No. 25 dated January 17,
2005 executed by the Argentine Minister of Economy and Production, which
dismisses the Hierarchical Remedy filed.
On May 16,
2005, an administrative action under section 100 (D.R:1759/72, 1991 revision)
was filed against Resolution No. 25 issued by the Ministry of Economy and
Production, which dismissed the Hierarchical Appeal filed by the Bank. In May
2005 was recorded a liability in the account Financing received from Argentine
financial institutions under the caption Other Liabilities from Financial
Transactions. As of December 31, 2006, amounting to US Dollars thousand 25,604,
this being the estimated liability by the Bank in the filing mentioned above.
This effect was compensated under the terms of the compensation mechanism for
financial institutions during October 2006, with Boden 2012 having been
subscribed for a nominal value of US Dollars 50,288.
In
November 2006, the Bank submitted to the Trust Fund for Reconstruction of
Companies a proposal consisting in a settlement and total payment for the
purpose of fully and totally repaying the amounts owed by the Bank to the Trust
Fund.
On April
13, 2007, the Trust Fund accepted the proposal of settlement for the amount of
thousand Pesos 88,462, and accordingly the Bank transferred the funds for the
purpose of fully and totally repaying the debt as of April 20,
2007.
NOTE
12—DERIVATIVE FINANCIAL INSTRUMENTS
|
|
§
|
Transactions
as of December 31, 2007:
|
|
|
-
|
Interest
rate swaps for 232,000 (Fixed Rate versus Badlar), maturing within a
period not exceeding 3 years, for which the Bank pays a variable amount in
accordance with changes in the Badlar, Encuesta rate, and receives a fixed
amount based on stated notional amounts and interest rate swaps for 60,000
(Badlar versus Fixed Rate) maturing within a period not exceeding 3 years,
for which the Bank pays a fixed amount and receives a variable amount
based on the changes in the Badlar
rate.
|
F-33
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
In
addition, the Entity agreed on a variable interest rate swap for 50,000 (CER
versus Badlar) with final maturity in a period not exceeding 2 years, for which
the Bank pays a variable amount in accordance with changes in the Badlar rate
and receives a variable amount based on changes in the CER plus a 50-basis point
spread calculated on the stated notional amounts.
For
purposes of estimating the market value, in accordance with accounting
principles generally accepted in Buenos Aires City, the variable future amounts
(both Badlar and CER) not yet overdue are discounted. Swaps have been valued as
the difference between the current value of future receivable amounts and the
current value of future payable amounts.
These
transactions have been valued in accordance with the mechanism described in the
first bullet of the Note 3.4.14. generating loss as of the end of the fiscal
year for 619.
The
estimated market value of said instruments amounts to 7,919 (Liabilities). For
market value estimation purposes, the variable and fixed as yet not matured
future flows are discounted, with the swap value being the difference between
the current value of the future flows receivable and the current value of the
future flows payable.
As of the
end of the fiscal year, the above transactions were recorded under “Memorandum
debit accounts – From derivatives – Interest rate swaps” for 292,000 and
“Memorandum accounts - Debit accounts – From derivatives– Others” for
50,000.
|
|
-
|
Non-deliverable
forward purchase and sale transactions in foreign currency payable in
Pesos, maturing within a period not exceeding 1 year, for 1,164,392 and
1,289,267, which are recorded under “Memorandum Accounts - Debit accounts
- Derivatives - Notional amount of non-deliverable forward transactions”,
and “Memorandum accounts - Credit accounts - Derivatives - Notional amount
of non-deliverable forward transactions”,
respectively.
|
These
transactions have been valued in accordance with the mechanism described in the
second bullet of the Note 3.4.14., generating income as of the end of the fiscal
year for 6,457.
|
|
§
|
Transactions
as of December 31, 2006:
|
|
|
-
|
Interest
rate swaps for 30,000 (Fixed Rate versus Badlar), maturing within a period
not exceeding 3 years, for which the Bank pays a variable amount in
accordance with changes in the Badlar rate, Encuesta rate, and receives a
fixed amount based on stated notional
amounts.
|
These
transactions have been valued as described in the first bullet of the Note
3.4.14., resulting in a gain of 6 at year-end. At the end of the previous fiscal
year, these transactions were recorded for 30,000 under “Memorandum Accounts -
Debit accounts - Derivatives - Interest rate swaps”.
|
|
-
|
Non-deliverable
forward transactions in foreign currency payable in Pesos, maturing within
a period not exceeding 1 year, for 387,777 and 283,243, which are recorded
under “Memorandum Accounts - Debit accounts - Derivatives - Notional
amount of non-deliverable forward transactions”, and “Memorandum accounts
- Credit accounts - Derivatives - Notional amount of non-deliverable
forward transactions”,
respectively.
|
These
transactions have been valued as described in the second bullet of the Note
3.4.14., generating income as of the end of the fiscal year for
2,488.
F-34
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
13—COMPLIANCE WITH CNV REQUIREMENTS
|
|
13.1.
|
Compliance
with the requirements to act as agent in the over-the-counter
market
|
As of
December 31, 2007, the Bank’s Stockholders’ Equity exceeds the minimum requested
to act as agent in the over-the-counter market, according to Resolutions No.
368/01 and 489/06 of the CNV.
|
|
13.2.
|
Investment
Funds custodian
|
As of
December 31, 2007 and 2006, in its capacity of Investment Funds custodian of
“FBA Acciones Globales”, “FBA Total”, “FBA Renta”, “FBA Renta Pesos”, “FBA Renta
Dólares”, “FBA Bonos”, “FBA Calificado”, “FBA Ahorro Dólares”, “FBA Renta Fija”,
“FBA Ahorro Pesos”, “FBA Renta Corto Plazo”, “FBA Europa”, “FBA Horizonte”, “FBA
Internacional”, “FBA EEUU”, “FBA Renta Premium”, “FBA Acciones
Latinoamericanas”, “FBA Bonos Argentina” and “FBA Brasil”, “FBA México”, “FBA
Commodities”, “FBA Acciones Argentinas” and “FBA Bonos Globales” managed by
Francés Administradora de Inversiones S.A. Fund Manager, the Bank holds
certificates of deposits, shares, corporate bonds, government securities,
indexes, options, tax - credit certificates, securities issued by the Argentine
Central Bank and investments financial trust certificates in safekeeping in the
amount of 765,436 and 1,027,748 respectively, all of which making up the Fund’s
portfolio and booked in memorandum accounts “Debit-Control -
Other”.
The
Investment Funds´ equities are as follows:
|
December
31,
|
||||||||
|
Name
of Mutual Fund
|
2007
|
2006
|
||||||
|
FBA
Acciones Globales
|
136,139 | 61,275 | ||||||
|
FBA
Total
|
10,863 | 12,403 | ||||||
|
FBA
Renta
|
12,645 | 14,327 | ||||||
|
FBA
Renta Pesos
|
298,951 | 262,251 | ||||||
|
FBA
Renta Dólares
|
4,233 | 4,300 | ||||||
|
FBA
Bonos
|
8,832 | 11,249 | ||||||
|
FBA
Calificado
|
213,601 | 442,297 | ||||||
|
FBA
Internacional
|
497 | 473 | ||||||
|
FBA
Ahorro Dólares
|
11,730 | 12,615 | ||||||
|
FBA
Renta Fija
|
16,214 | 19,713 | ||||||
|
FBA
Ahorro Pesos
|
128,507 | 219,506 | ||||||
|
FBA
Renta Premium
|
6,755 | 7,584 | ||||||
|
FBA
Europa
|
4,770 | 2,257 | ||||||
|
FBA
Horizonte
|
27,847 | 74,846 | ||||||
|
FBA
EEUU
|
1,323 | 1,095 | ||||||
|
FBA
Renta Corto Plazo
|
495 | 523 | ||||||
|
FBA
Acciones Latinoamericanas
|
44,268 | 8,868 | ||||||
|
FBA
Bonos Argentina
|
8,069 | 16,578 | ||||||
|
FBA
Brasil
|
2,992 | — | ||||||
|
FBA
México
|
979 | — | ||||||
|
FBA
Commodities
|
50 | — | ||||||
|
FBA
Acciones Argentinas
|
485 | — | ||||||
|
FBA
Bonos Globales
|
50 | — | ||||||
|
Total
|
940,295 | 1,172,160 | ||||||
F-35
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
14—RESTRICTIONS ON EARNINGS DISTRIBUTIONS
|
a)
|
The
Ordinary and Extraordinary Shareholders’ Meeting held on April 26, 2007
approved the allocation of earnings as
follows:
|
|
|
-
|
To
Statutory Reserve: 82,064.
|
|
|
-
|
To
cash dividends: 90,000 (previously approved pursuant to File No. 6480/07
of the BCRA).
|
|
b)
|
In
accordance with Communication “A” 4664, issued on May 11, 2007 and with
the text issued by BCRA entitled “Distribution of Income”, to calculate
balances of distributable earnings, the Bank must deduct point 2.1 of said
Resolution from the Unappropriated earnings account on an off-balance
sheet basis. In addition, the authorization of the Superintendent of
Financial and Exchange Institutions shall be required in order to verify
that the procedure established in said resolution for earnings
distribution has been properly applied.
On
February 12, 2008 the Board of Directors resolved to propose to the
shareholders the distribution of dividends in cash for the total amount of
Ps. 164,000 to be distributed in proportion to the nominal holding of each
shareholder equivalent to Ps. 0.34793 per share.
On
March 28, 2008 the Argentine Central Bank issued an authorization to this
Bank for the payment of dividends in cash in accordance with Communication
“A” 4589 dated October 29, 2006 and
amendments.
|
|
c)
|
In
accordance with the provisions of BCRA, the next Shareholders' Meeting
must appropriate the amount of 47,010 currently included under
Unappropriated earnings to the Statutory
Reserve.
|
NOTE
15—CONSOLIDAR GROUP
|
a)
|
Consolidar
AFJP manages a pension fund that as of December 31, 2007 and 2006 amounted
to 17,268 million and 16,673 million
respectively.
|
|
b)
|
Pursuant
to Law No. 26,222, enacted on February 27, 2007, the Argentine social
security system was amended. Subsequent to that date, supplementary rules
were issued for the purpose of regulating the Law. The main amendments in
the social security system with an impact on the business of Consolidar
A.F.J.P. S.A. include the
following:
|
|
|
i)
|
The
possibility for the affiliates currently covered by the individually
funded scheme of choosing until January 15, 2008 to adhere to the
pay-as-you-go scheme managed by the Argentine
State;
|
|
|
ii)
|
As
from April 1, 2007, workers who within 90 days from the commencement of
their labor relation have not chosen a social security regime shall be
presumed to have chosen the pay-as-you-go system managed by the Argentine
State;
|
|
iii)
|
Men
older than 55 and women older than 50, who are currently affiliated to the
capitalization system and whose balances in the individually funded
account do not exceed 20,000 shall be transferred to the pay-as-you-go
system unless they expressly state their intent to remain affiliated to
the capitalization system. The transfers made by Consolidar A.F.J.P. S.A.
during the period amount to approximately 1,060,000 which stand for an
approximate number of 188,000
affiliates.
|
|
iv)
|
The
restriction of the commission charged by the Pension Fund Managers for
managing affiliates’ contributions to 1% of the basis used to calculate
such commissions. The commission thus determined applies to the salaries
accrued as from April 2007. Until such date, the commission that
Consolidar A.F.J.P. S.A. charged was
1.24%.
|
|
|
v)
|
Increase
the maximum of the basis used to determine the social security
contributions and commissions from 4,800 to 6,000 concerning the salaries
accrued as from April 1, 2007. It must be noted that on October 4, 2007,
Decree No. 1346 of the Argentine Executive Branch raised such maximum to
6,750 for salaries accrued as from September 1,
2007.
|
|
vi)
|
The
establishment starting on January 1, 2008 of a fund of mutual
contributions with the resources of the pension fund for purposes of
ensuring the full financing of the benefits for temporary disability
retirement, supplementary capitals and reconstruction corresponding to the
capitalization regime.
|
F-36
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
vii)
|
To
apply a percentage ranging from 5% to 20% of the assets held in the
pension funds to investments in production or infrastructure projects for
the medium and long terms.
|
The Board
of Directors of Consolidar A.F.J.P. S.A. is currently analyzing the effects of
the legal reforms and working on adjusting the Company's operations in order to
adapt to the new legal framework.
Given that
this reform has a significant impact on the social security system, it shall
entail a substantial change in the business of Consolidar Cía de Seguros de Vida
S.A., as starting on January 1, 2008, the issuance of new social-security
related life insurance policies shall cease. Management activities related to
social-security life insurance policies issued prior to the fiscal year
commenced on July 1, 2001 as well as the management activities related to
policies corresponding to group life insurance and mandatory life insurance
policies shall continue. The above notwithstanding, the Company’s Board of
Directors is presently analyzing the current situation and assessing the
alternatives most adequate for the continuity of the Company’s operations and it
estimates that the implementation of said plan would not have a material
negative impact on the Company’s financial situation as reflected in these
financial statements.
NOTE
16—MINORITY INTEREST IN SUBSIDIARIES
The
breakdown of balances in the “Minority interest in subsidiaries” account is as
follow:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Consolidar
Administradora de Fondos de Jubilaciones y Pensiones S.A.
|
126,305 | 121,401 | ||||||
|
Consolidar
Cía. de Seguros de Vida S.A.
|
65,736 | 44,393 | ||||||
|
Consolidar
Cía. de Seguros de Retiro S.A.
|
29,494 | 36,826 | ||||||
|
Francés
Valores Sociedad de Bolsa S.A.
|
470 | 302 | ||||||
|
Atuel
Fideicomiso S.A.
|
3 | 4 | ||||||
|
PSA
Finance Argentina Cía. Financiera S.A.
|
14,010 | 13,551 | ||||||
| 236,018 | 216,477 | |||||||
F-37
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
17—ACCOUNTS REFLECTING COMPLIANCE WITH MINIMUM CASH
The
following are the items computed for compliance with Minimum Cash Requirements
according to the regulations of the Argentine Central Bank, with their
corresponding balances:
|
COMPUTABLE
COMPLIANCE PESOS
|
|||||
|
Cash
|
309,219
|
(*)
|
|||
|
Special
Guarantee Accounts
|
108,697
|
||||
|
BCRA
Checking Account
|
1,372,244
|
||||
|
Cash
in valuables’ transportation
|
205,933
|
(*)
|
|||
|
Franchises
|
175,306
|
||||
|
TOTAL
|
2,171,399
|
||||
|
COMPUTABLE
COMPLIANCE IN US DOLLARS (Stated in Pesos)
|
|||||
|
Cash
|
133,245
|
(*)
|
|||
|
BCRA
Checking Account
|
703,779
|
||||
|
Cash
in transit
|
2,654
|
(*)
|
|||
|
Cash
in valuables’ transportation
|
49,849
|
(*)
|
|||
|
TOTAL
|
889,527
|
||||
|
COMPUTABLE
COMPLIANCE IN EUROS (Stated in Pesos)
|
|||||
|
Cash
|
25,697
|
(*)
|
|||
|
BCRA
Checking Account
|
20,448
|
||||
|
Cash
in transit
|
42
|
(*)
|
|||
|
Cash
in valuables’ transportation
|
13,154
|
(*)
|
|||
|
TOTAL
|
59,341
|
||||
| (*) Only 67% of these balances are admitted as compliance. | |||||
NOTE
18—RISK MANAGEMENT POLICIES
The
following is a description of the comprehensive policies and processes for
identifying, assessing, controlling and mitigating the following risks: credit,
market, liquidity and operational.
|
a)
|
Credit
Risk
|
|
| The
Risk Division is composed of the following areas: Retail Banking,
Enterprise and Corporate Banking. Each of these is in turn made up by:
Policies and Tools, Admission, Risk Follow-Up and Credit Recovery.
Approvals
are processed by virtue of the powers granted to Risk Analysts, the Credit
Risk Committee and the Technical Operations Committee, according to the
amount of the assistance, as well as according to the characteristics of
the customer and transaction (commercial areas are also authorized to
resort to delegated credit powers). Any exceptions to the policies
currently in force are dealt with by the Technical Operations
Committee.
The
assessment methodology is based on internally designed scoring and rating
models applied to the Retail Banking, Enterprise and Corporate Banking
portfolios management, respectively. The application of this methodology
leads to the calculation of the expected loss and in addition, to a
historical control over expected
|
||
F-38
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
| losses and over the
degree of severity of such losses in each portfolio. The scoring and
rating tools are re-estimated periodically.
The
following are some of the aspects taken into account upon subjecting
customers to a credit
assessment:
|
|
|
-
|
Verify
the client sufficient income-generation sources and an adequate financial
structure to face the commitments to repay principal and interest of the
owned receivables within the terms
agreed.
|
|
|
-
|
Adequate
and sufficient guarantees must to allow the loans
recovery.
|
|
|
-
|
Adequate
knowledge of the client so that the decision-making officials are
sufficiently confident and secure when they decide to grant the
loan.
|
|
|
-
|
Balance
and correlation between the use of the proceeds, the amount, the term and
the manner to repay the loan based on the client´s generation of resources
and the guarantees.
|
|
|
-
|
The
activities carried on by the client must be identified so that the client
can be assigned to the appropriate classification of sectors of the
economy assessing its positioning and growth
expectations.
|
|
|
-
|
Permanent
consulting for hints of junctures in the policies currently in force in
each sector for an adequate response in line with the general investment
or divestiture guidelines in a sector or sub-sector of the economy,
amongst others.
|
|
b)
|
Market
Risk
|
|
|
The
Market Risk area, which reports to the Risk Division, is the unit
responsible for identifying, assessing and controlling the market risks in
BBVA Banco Francés.
It
is in charge of the
following:
|
|
|
-
|
Identifying
the Business Units within BBVA Banco Francés that carry out transactions
entailing market risks, which should thus be included in the corporate
applications of measurement and control
risk.
|
|
|
-
|
Monitor
on a daily basis compliance with the risk limits and policies of the
Business Units.
|
|
The
most complex approach, adopted as a standard measurement tool, is the
Value at Risk (VaR) which provides a 99% confidence level at one
day.
Policies
are implemented through a limit structure, in terms of daily VaR and
daily, monthly and annual Stop Loss measures.
On
an annual basis, a proposal is prepared for the authorization of market
risk limits together with the Treasury Department. This standard sets
forth the identity of the officials who have the maximum control
responsibilities and decision-making attributes concerning the limits and
contingency plans to be implemented if such limits were
surpassed.
The
utility of the VaR model is fine-tuned through backtesting and
stresstesting techniques.
|
||
|
c)
|
Liquidity
Risk
|
|
|
Although
the Financial Division is responsible for managing the structural risks at
BBVA Banco Francés, which risks also include the liquidity risk, the
Market Risk Area, in its position as independent business unit and
responsible for management actions, is empowered to approve, follow up
(measure) and control the methodologies, the limits and the alerts that
the areas involved may propose and consume in order to adequately manage
the liquidity risk.
|
F-39
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
Faced
with any alarm hinting that a liquidity crisis can be on the making, the
Entity relies on a crisis committee made up by the areas of Financial
Management, Market Risk and the Treasury Department which must analyze the
situation and scale it up to the immediately higher level control (Board
of Directors - COAP).
The
Market Risk Area must obtain the flows of collections and payments,
prepare the daily liquidity map, propose the limits and alert alarms and
prepare and distribute the appropriate reports for the evolution of
liquidity to the internal areas of the Risk Division and to the top
executives of BBVA Banco Francés.
Liquidity
risks are monitored using three models: Short-term liquidity, Medium-term
liquidity and Stress-liquidity. This model is based on the study of past
crisis and it is used as a basis to generate the contingency
plan.
The
aim of the Contingency Plan is no other than to be in the best position to
face liquidity problems, to foresee potential crisis situations, both at
the Entity level and in the markets which may arise for the Entity in the
future.
|
|
d)
|
Operational
Risk
|
|
|
The
Risk Division, through the Operational Risk area, is entrusted with the
implementation of a working framework to allow it to identify, value,
follow up, control and mitigate operational risk through the development
of specific tools and the maintenance of a historical database of losses
as recorded, segmented by business areas and classes of
risks.
Both
the function used to identify and quantify operational risk (Ev-Ro tool)
and the function used for a dynamic control and follow-up of the efficacy
of the mitigation actions implemented (Trans-VaR) are highly widespread in
the various business areas and supporting areas.
The
follow-up of these tools and controls
allows:
|
|
|
-
|
To
assess the degree of mitigation activity implemented in the various
areas
|
|
|
-
|
To
verify that the measures have been adopted in accordance with priority
criteria for the mitigation of risk
factors.
|
|
|
-
|
To
ensure that the contingency plans and service continuity defined by the
various business units or supporting areas have been properly implemented
and updated to reduce the risk of certain high-impact risk
factors.
|
NOTE
19—OTHER REQUIERED DISCLOSURES IN ACCORDANCE WITH THE SEC’S
REQUIREMENTS
|
|
19.1.
|
Transactions
with related parties
|
| The balances as of December 31, 2007 and 2006 for transactions performed with parents, subsidiaries and affiliates are as follows: |
|
Balance
Sheet
|
Memorandum Accounts
(1)
|
|||||||||||||||||||||||
|
Assets
|
Liabilities
|
|||||||||||||||||||||||
|
Company
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
||||||||||||||||||
|
BBVA
S.A.
|
5,858 | 2,351 | 4,809 | — | 30,438 | 1,276 | ||||||||||||||||||
|
Consolidar
A.R.T. S.A.
|
58 | 151 | 87,282 | 20,235 | 389,552 | 344,167 | ||||||||||||||||||
|
BBVA
Consolidar Seguros S.A.
|
33 | 4 | 10,225 | 3,801 | 56,971 | 58,031 | ||||||||||||||||||
|
Rombo
Cía. Financiera S.A.
|
150,408 | 130,643 | 846 | 1,014 | 82,000 | 30,000 | ||||||||||||||||||
|
Inversora
Otar S.A.
|
— | 3,093 | 347 | 372 | 375,513 | 439,602 | ||||||||||||||||||
|
Consolidar
Salud S.A.
|
— | 108 | 55 | — | — | — | ||||||||||||||||||
|
Consolidar
Comercializadora S.A.
|
— | — | — | 291 | — | — | ||||||||||||||||||
|
|
(1)
|
Includes
items in safekeeping, Credit lines granted (unused portion) covered by
debtor classification regulations and Guaranties given covered by debtor
classification regulations.
|
F-40
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
The net
income as of December 31, 2007, 2006 and 2005, for transactions performed with
parents, subsidiaries and affiliates are as follows:
|
Net Income (1)
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Income
|
89,416 | 62,807 | 22,659 | |||||||||
|
Expenses
|
(2,658 | ) | (9,117 | ) | (3,871 | ) | ||||||
| 86,758 | 53,690 | 18,788 | ||||||||||
|
|
(1)
All
the concerted operations have been contracted according with market’s
conditions.
|
|
|
19.2.
|
Minimum
cash balances and restricted deposit
|
|
In
accordance with BCRA and foreign central banks’ regulations, the Bank is
required to maintain daily average minimum cash balances for each month in
cash, in its account with the BCRA. The required daily averages calculated
for the month ending on each balance sheet date are as
follows: |
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Peso
and Foreign Currency Balances
|
2,288,590 | 1,813,695 | ||||||
|
19.3.
|
Interest-bearing
deposits with other banks
|
|
a)
|
Included
in “Cash and Due from Banks” there are: (1) interest-bearing deposits with
the BCRA totaling 2,102,642 and 1,748,436 as of December 31, 2007 and
2006, respectively; (2) interest-bearing deposits in foreign banks
totaling 30,452 and 18,014 as of December 31, 2007 and 2006, respectively,
and (3) interest-bearing deposits in local banks totaling 1,092 and 408 as
of December 31, 2007 and 2006,
respectively.
|
|
b)
|
Included
in “Loans” there are: overnight foreign bank interest-bearing deposits
totaling 129,661 as of December 31, 2007. As of December 31, 2006 the Bank
did not register amounts for this kind of
operations.
|
|
c)
|
Included
in “Other Receivables from Financial Transactions” there are other
interest-bearing deposits with the BCRA totaling 108,697 and 99,242 as of
December 31, 2007 and 2006,
respectively.
|
|
|
19.4.
|
Securities
holdings in investment accounts and available for sale
|
|
The
book value and market value of holdings in investment accounts (including
those used for forward purchases under repurchase agreements) at December
31, 2007 and 2006 were as follows:
|
|
December
31,
|
||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
2007(*) | 2006(*) |
2007
|
2006
|
|||||||||||||||||||||||||
|
Book
value
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
|||||||||||||||||||||||||||||
|
Argentine
Governments Bonds
|
370,832 | 515,296 | — | — | 50,391 | 61,852 | 320,441 | 453,444 | ||||||||||||||||||||||||
|
Argentine
Central Bank Notes
|
176,882 | — | 334 | — | — | — | 177,216 | — | ||||||||||||||||||||||||
|
Total
|
547,714 | 515,296 | 334 | — | 50,391 | 61,852 | 497,657 | 453,444 | ||||||||||||||||||||||||
|
(*)
|
This
amount is accounted in the caption “Allowances” in our Consolidated
Financial Statements.
|
F-41
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
The book
value and the market value of holdings in investment accounts (including those
used for forward purchases under repurchase agreements) at December 31, 2007, by
contractual maturity, were as follows:
|
December
31, 2007
|
|||||||||
|
Book
value
|
Market
value
|
||||||||
|
Due
in one year or less
|
53,078 | 52,776 | |||||||
|
Due
after one year through five years
|
174,948 | 166,247 | |||||||
|
Due
after five years through ten years
|
8,732 | 7,236 | |||||||
|
Thereafter
|
310,956 | 271,398 | |||||||
|
Total
|
547,714 | 497,657 | |||||||
As of
December 31, 2007 and 2006, the Bank did not hold government securities
classified as “held to maturity” under U.S. GAAP. The government securities
classified as “holding in investment account” under BCRA rules were classified
either “available for sale” or “trading” under U.S. GAAP (see Notes 20.5.1. and
20.5.2.).
The
amortized cost and the market value of holdings in available for sale accounts
under BCRA’s rules at December 31, 2007, by contractual maturity, were as
follows:
|
December
31, 2007
|
|||||||||
|
Amortized
cost
|
Market
value
|
||||||||
|
Due
in one year or less
|
1,083,332 | 1,081,211 | |||||||
|
Due
after one year through five years
|
215,520 | 190,723 | |||||||
|
Due
after five years through ten years
|
115,144 | 99,448 | |||||||
|
Thereafter
|
1,384 | 1,202 | |||||||
|
Total
|
1,415,380 | 1,372,584 | |||||||
|
|
19.5.
|
Loans
|
A
description of certain categories of loans on the accompanying consolidated
balance sheets is as follows:
To
government sector: loans to public sector, excluding public financial
institutions.
To the
financial sector: loans to local financial institutions.
To the
non-financial private sector and residents abroad: loans given to the private
sector (excluding local financial institutions) and residents abroad from
Argentina.
Overdraft:
basically short-term loans to companies and overdraft lines of
credit.
Discounted
instruments: includes promissory notes, discounted documents and instruments
acquired under factoring agreements.
Consumer:
loans granted to individuals to acquired consumer goods.
Collateral
loans (real state mortgage and security agreements): loans secured by privileged
guarantees.
Credit
cards: consists mainly of credit card loans.
Under BCRA
rules, the Bank must disclose the type of collateral pledged on loans to
non-financial private sector and residents abroad. The classification of the
loan portfolio in this regard is as follows:
F-42
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Government
sector
|
2,367,869 | 2,887,276 | ||||||
|
Financial
sector
|
541,911 | 436,126 | ||||||
|
Non-financial
private sector and residents abroad
|
8,679,162 | 6,377,968 | ||||||
|
—Commercial
portfolio
|
||||||||
|
With
self-liquidating preferred guarantees
|
90,375 | 52,128 | ||||||
|
With
other preferred guarantees
|
107,790 | 42,395 | ||||||
|
Without
preferred guarantees
|
4,942,315 | 4,155,131 | ||||||
|
—Consumer
portfolio
|
||||||||
|
With
self-liquidating preferred guarantees
|
7,389 | 8,682 | ||||||
|
With
other preferred guarantees
|
724,817 | 474,633 | ||||||
|
Without
preferred guarantees
|
2,806,476 | 1,644,999 | ||||||
|
Less:
Difference arising from purchase of portfolio
|
(93 | ) | (90 | ) | ||||
|
Less:
Allowances for loan losses
|
(198,728 | ) | (167,097 | ) | ||||
|
Total
|
11,390,121 | 9,534,183 | ||||||
Commercial
loans: encompasses all financing facilities, other than those not reaching an
amount equivalent to 500 with or without preferred guarantees.
Consumer
loans: encompasses all financing facilities related to consumption (whether
personal, professional or family consumption, loans for purchasing of consumer
goods and financing credit cards) or housing loans (for buying, building or
refurbishing) and financing (credits and guarantees) of a commercial nature up
to an amount equivalent to 500 with or without preferred
guarantees.
“Self -
liquidating preferred” consist mainly of cash guarantees, gold guarantees,
warrants over primary products and other forms of collateral of
self-liquidation.
“Other
preferred guarantees” consist, in general, of real estate mortgages and other
forms of collateral pledged to secure the loan amount. The entire principal
amount of loan is included under the heading “preferred guarantees” regardless
of the current market value of the collateral.
“Without
preferred guarantees” consist, in general, of unsecured third-party
guarantees.
The Bank
also tracks its loan portfolio by industry segment. At December 31, 2007, the
following industry segments represented the loan concentrations:
|
Industry
Segment
|
Percentage
of
Total
Loans
|
|
Consumer
|
25.41%
|
|
Governmental
Services
|
20.43%
|
|
Other
|
13.92%
|
|
Food
Stuff
|
6.60%
|
|
Financial
Sector
|
4.68%
|
|
Oil
and Carbon
|
4.09%
|
|
Mining
Products
|
4.00%
|
|
Other
Manufacturing
|
3.20%
|
|
Agricultural
and Livestock
|
3.01%
|
|
Retail
Trade
|
2.70%
|
|
Wholesale
Trade
|
2.64%
|
|
Electrical
Machinery
|
2.50%
|
|
Industrial
Metals
|
1.89%
|
|
Beverage
|
1.79%
|
|
Construction
|
1.24%
|
|
Transportation
Material
|
1.16%
|
|
Rubber
Products
|
0.74%
|
|
Total
|
100.00%
|
F-43
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Substantially
most of Bank’s operations, property and customers are located in Argentina.
Therefore, the performance of Bank’s loan portfolio, financial condition and the
results of its operations depend primarily on the macroeconomic and political
conditions prevailing in Argentina.
The Bank
has significant exposure to the Argentine Federal Government in form of secured
loans and other debt obligations. Federal debt represents a significant portion
of Bank’s total risk assets.
During
2007, certain “related-parties” of the Bank were loan customers of the Bank. As
defined under BCRA rules, related-parties include the associated companies in
which the Bank has some sort of important influence (as stated by said rules)
and related persons such as any director or member of the Statutory Auditor
Committee of the Bank within the previous three years, senior management of the
Bank, members of the immediate families of any such persons, and companies with
which they are associated. The historical activity in principal amounts of loans
to related-parties during the fiscal years ended December 31, 2007 and 2006, are
as follows:
|
2007
|
2006
|
|||||||
|
Balance
at the beginning of the fiscal year
|
155,213 | 83,653 | ||||||
|
New
Loans
|
2,561 | 75,995 | ||||||
|
Repayments
|
(25,170 | ) | (4,435 | ) | ||||
|
Balance
at the end of the fiscal year
|
132,604 | 155,213 | ||||||
Total
loans outstanding to these related parties at December 31, 2007 and 2006
including accrued interest, amounted to 132,604 and 155,213, respectively. Such
loans are made in the ordinary course of business at normal credit terms,
including interest rate and collateral requirements, and, in the opinion of
management, do not represent more than normal credit risk.
At
December 31, 2007 and 2006, approximately 163,965 and 162,196 or 1.41% and 1.67%
of the Bank’s portfolio, respectively, consisted of loans to foreign
borrowers.
Certain
loan customers of the Bank are under court order or have entered into agreements
with the Bank to satisfy their debt on basis different from the original loan
terms. The Bank eliminates any differences between the principal and accrued
interest due under the original loan and the new loan amount through a charge to
the allowance for loan losses at the time of the restructuring.
At
December 31, 2007 and 2006, non-performing loans amounted to 62,978 and 79,876,
respectively. Past due loans included in the abovementioned amounts reach to
27,082 and 52,810 at December 31, 2007 and 2006, respectively.
|
|
19.6.
|
Allowance
for loan losses
|
The
activity in the allowance for loan losses for the fiscal years presented is as
follows:
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||
|
Balance
at the beginning of the fiscal year
|
167,097 | 184,885 | 202,693 | |||||||||
|
Provision
for loan losses
|
61,985 | 69,799 | 114,220 | |||||||||
|
Write-offs
|
(30,354 | ) | (87,587 | ) | (132,028 | ) | ||||||
|
Balance
at the end of the fiscal year
|
198,728 | 167,097 | 184,885 | |||||||||
F-44
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
19.7.
|
Other
receivables from financial
transactions
|
The
composition of other banking receivables by type of guarantee is as
follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
With
self-liquidating guarantees
|
11,818 | 1,397 | ||||||
|
With
preferred guarantees
|
463,621 | 423,032 | ||||||
|
Without
preferred guarantees
|
482,646 | 494,131 | ||||||
|
Allowances
|
(1,901 | ) | (1,028 | ) | ||||
| 956,184 | 917,532 | |||||||
The Bank
enters into spot, forward, repurchase agreements and reverse repurchase
agreements, to buy or sell foreign currency (principally U.S. dollars) and
Government securities. The Bank recognizes the cash, currency or security amount
to be exchanged in the future as a receivable and payable, at the initial
transaction date.
The assets
and corresponding liabilities related to such transactions are as
follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Forward
Purchases and Sales
|
||||||||
|
“Notional”
amount of non-deliverable forward purchases
|
1,164,392 | 387,777 | ||||||
|
Contra
debit derivatives accounts
|
1,506,392 | 417,777 | ||||||
|
Interest
rate SWAP
|
342,000 | 30,000 | ||||||
|
“Notional”
amount of non-deliverable forward sales
|
1,289,267 | 283,243 | ||||||
|
Contra
debit derivatives accounts
|
1,289,267 | 283,243 | ||||||
|
Non-deliverable
forward transactions balances pending
settlement-Receivables
|
6,292 | 1,052 | ||||||
|
Non-deliverable
forward transactions balances pending settlement-Liability
|
1,002 | 206 | ||||||
|
Forward
sales of securities
|
||||||||
|
Debtors
under forward sales of securities
|
— | 41 | ||||||
|
Forward
sales of foreign exchange
|
||||||||
|
Debtors
under forward sales of foreign exchange
|
16 | 61 | ||||||
|
Forward
purchases of securities
|
||||||||
|
Creditors
under other forward purchases
|
— | 41 | ||||||
|
Repurchase
and reverse repurchase agreements with government
securities
|
||||||||
|
Forward
purchases of government securities under repurchase agreements with
holdings
for trading
|
— | 307,900 | ||||||
|
Creditors
under government securities repurchase agreements with holdings
for
trading
|
— | 277,035 | ||||||
|
Forward
purchases of instruments issued by the BCRA under repurchase agreements
with holdings available for sale
|
67,720 | — | ||||||
|
Creditors
under instruments issued by the BCRA repurchase agreements with holdings
available for sale
|
61,802 | — | ||||||
|
Debtors
under reverse repurchase agreements
|
150,154 | — | ||||||
|
Forward
sales under reverse repurchase agreements
|
165,431 | — | ||||||
(1)
These
accounts include the contract amount of the transactions expressed in thousand
of Pesos using the closing exchange rate or quoted market
value.
F-45
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Spot
transactions with pending settlement
|
||||||||
|
Unsettled
spot securities purchases
|
33,075 | 20,233 | ||||||
|
Creditors
under unsettled spot securities purchases
|
33,075 | 20,263 | ||||||
|
Debtors
under unsettled spot securities sales
|
33,554 | 20,907 | ||||||
|
Unsettled
spot securities sales
|
32,892 | 19,513 | ||||||
|
Unsettled
spot foreign exchange purchases
|
7,924 | 6,075 | ||||||
|
Creditors
under unsettled spot foreign exchange purchases
|
7,918 | 5,913 | ||||||
|
Debtors
under unsettled spot foreign exchange sales
|
3,030 | 5,972 | ||||||
|
Unsettled
spot foreign exchange sales
|
3,032 | 6,000 | ||||||
|
Unsettled
spot Government securities purchases
|
1,436 | 116 | ||||||
|
Creditors
under unsettled spot Government securities purchases
|
1,428 | 116 | ||||||
|
Debtors
under unsettled spot Government securities sales
|
19,462 | 18,554 | ||||||
|
Unsettled
spot Government securities sales
|
5,111 | 8,751 | ||||||
|
|
19.8.
|
Premises
and equipment and other assets
|
|
19.8.1.
|
Premises
and equipment
|
The major
categories of the Bank’s premises and equipment, and accumulated depreciation
related thereto, are presented in the following table:
|
Estimated
useful
life
|
December
31,
|
|||||||||||
|
Description
|
(years)
|
2007
|
2006
|
|||||||||
|
Land
and buildings
|
50
|
465,620 | 465,568 | |||||||||
|
Furniture
and facilities
|
10
|
55,969 | 67,589 | |||||||||
|
Machinery
and equipment
|
5
|
100,040 | 82,163 | |||||||||
|
Vehicles
|
5
|
5,292 | 4,276 | |||||||||
|
Accumulated
depreciation
|
(227,306 | ) | (221,700 | ) | ||||||||
|
Total
|
399,615 | 397,896 | ||||||||||
Depreciation
expense was 37,203 and 31,781, at December 31, 2007 and 2006,
respectively.
|
19.8.2.
|
Other
assets
|
Other
assets consisted of the following at December 31, 2007 and 2006:
|
Estimated
useful
life
|
December
31,
|
|||||||||||
|
Description
|
(years)
|
2007
|
2006
|
|||||||||
|
Rent
assets
|
50
|
15,558 | 6,771 | |||||||||
|
Works
of art
|
—
|
983 | 983 | |||||||||
|
Assets
acquired for secure loans
|
50
|
4,646 | 6,283 | |||||||||
|
Stationery
and office supplies
|
—
|
2,693 | 2,380 | |||||||||
|
Land
and buildings not affected by banking activities
|
50
|
12,512 | 17,942 | |||||||||
|
Vehicles
to deliver for leasing
|
2,558 | 852 | ||||||||||
|
Total
|
38,950 | 35,211 | ||||||||||
Depreciation
expense was 4,035 and 872, at December 31, 2007 and 2006,
respectively.
F-46
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
19.9.
|
Intangible
assets
|
Goodwill
The
breakdown of goodwill account as of December 31, 2007 and 2006 is as
follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Goodwill
for the purchase of Corp Banca S.A., net of accumulated amortization
of
54,259 at December 31, 2007
|
12,200 | 18,831 | ||||||
Depreciation
expense on goodwill was 6,629 and 6,630 at December 31, 2007 and 2006,
respectively.
Organization
and development expenses
The
breakdown of organization and development account as of December 31, 2007 and
2006, is as follows:
|
Estimated
useful
life
|
December
31,
|
|||||||||||
|
Description
|
(years)
|
2007
|
2006
|
|||||||||
|
Start-up
expenses of Consolidar AFJP
|
11
|
12,244 | — | |||||||||
|
Organization
and development non – deductible expenses (1)
|
5
|
57,489 | 343,450 | |||||||||
|
Computer
software acquisition expenses and computer programs development
expenses
|
5
|
9,412 | 7,942 | |||||||||
|
Other
intangible assets
|
5
|
25,035 | 37,240 | |||||||||
|
Total
|
104,180 | 388,632 | ||||||||||
|
(1)
|
See
Note 3.4.13.
|
The 2007
and 2006’s variations in intangible asset accounts were as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Balance
at the beginning of the fiscal year
|
388,632 | 629,877 | ||||||
|
—Additions
|
60,648 | 53,284 | ||||||
|
—Decreases
|
— | 9,250 | ||||||
|
—Period
amortization
|
345,100 | 285,279 | ||||||
|
Balance
at the end of the fiscal year
|
104,180 | 388,632 | ||||||
|
19.10.
|
Other
liabilities from financial transactions – Argentine Central
Bank
|
The Bank
borrows funds under various credit facilities obtained from the Argentine
Central Bank for specific purposes, as follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Short-term
liabilities
|
1,833 | 1,761 | ||||||
|
Total
|
1,833 | 1,761 | ||||||
At
December 31, 2007 and 2006, accrued interests and other differences included on
the above liabilities amounted to 169 and 164, respectively.
F-47
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
19.11.
|
Other
liabilities from financial transactions – Banks and international
institutions and financing received from financial
institutions
|
The Bank
borrows funds under different credit arrangements from local and foreign banks
and international lending agencies, as follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Short-term
liabilities
|
||||||||
|
Other
lines of credit from local and foreign banks
|
617,050 | 418,234 | ||||||
|
Total
short-term liabilities
|
617,050 | 418,234 | ||||||
|
Long-term
liabilities
|
||||||||
|
Other
lines of credit from local and foreign banks
|
22,220 | — | ||||||
|
Total
long-term liabilities
|
22,220 | — | ||||||
|
Total
|
639,270 | 418,234 | ||||||
Accrued
interests included on the above liabilities are 10,756 and 3,423, at December
31, 2007 and 2006, respectively, and are included in the “Interest and
listed-price differences accrued payable” account in the accompanying
Consolidated Balance Sheets. Interest rates for long-term liabilities vary from
5.29% to 18.64% per annum.
Maturities
of the long-term liabilities in the table above for each of the following fiscal
years are as follows:
|
Fiscal
year
|
||||
|
2009
|
13,477 | |||
|
2010
|
4,900 | |||
|
2011
|
3,490 | |||
|
2012
|
353 | |||
|
Total
|
22,220 | |||
The funds
mentioned under the caption “Long-term liabilities: Other lines of credit from
local and foreign banks” are applied mainly to loans to companies involved in
foreign trade transactions.
|
19.12.
|
Balances
in foreign currency
|
The
balances of assets and liabilities denominated in foreign currency are as
follows:
|
December
31,
|
||||||||
|
Description
|
2007
|
2006
|
||||||
|
Assets
|
||||||||
|
Cash
and due from Banks
|
1,260,938 | 973,034 | ||||||
|
Government
and private securities
|
87,423 | 182,292 | ||||||
|
Loans
|
2,253,335 | 1,455,091 | ||||||
|
Other
receivables from financial transactions
|
106,975 | 85,069 | ||||||
|
Assets
subject to financial leasing
|
62 | 69 | ||||||
|
Investments
in other companies
|
833 | 810 | ||||||
|
Other
receivables
|
18,951 | 17,266 | ||||||
|
Suspense
items
|
352 | 103 | ||||||
|
Total
|
3,728,869 | 2,713,734 | ||||||
|
Liabilities
|
||||||||
|
Deposits
|
2,459,570 | 1,817,414 | ||||||
|
Other
liabilities from financial transactions
|
1,027,236 | 784,915 | ||||||
|
Other
liabilities
|
15,901 | 12,862 | ||||||
|
Suspense
items
|
2 | 66 | ||||||
|
Total
|
3,502,709 | 2,615,257 | ||||||
F-48
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
19.13.
|
Minimum
capital requirements
|
Under BCRA
regulations, the Bank is required to maintain individual and consolidated
minimum levels of equity capital (“minimum capital”). At December 31, 2007 and
2006 the consolidated minimum capital is based upon risk-weighted assets and
also considers interest rate risk and market risk. The required consolidated
minimum capital and the consolidated Bank’s capital calculated under the BCRA’s
regulations are as follows:
|
Required
Minimum
Capital
|
Computable
Capital
|
Excess
of actual
Minimum
Capital
over
Required
Minimum
Capital (1)
|
||||||||||
|
December
31, 2007
|
1,283,572 | 2,233,040 | 949,468 | |||||||||
|
December
31, 2006
|
1,004,554 | 2,089,708 | 1,085,154 | |||||||||
|
(1)
|
The
Bank must maintain a surplus of minimum paid-in
capitals amounting to at least Ps.53,432 and Ps.46,559 as at
December 31, 2007 and 2006, respectively, equivalent to 0.25% of the
amount of values under custody for securities representing
investments from pension funds, as well as in connection
with its function as registrar of mortgage-backed bonds, invested in
national public securities and other destinations authorized by the
BCRA and guaranteed in favour of the said
Entity
|
|
19.14.
|
Earnings
per share
|
Earnings
per share for the fiscal years ended December 31, 2007, 2006 and 2005, were
computed by dividing net income by the weighted-average number of Ordinary
Shares outstanding during each fiscal year.
|
19.15.
|
Employee
benefit plans
|
The Bank
does not maintain pension plans for its employees; nevertheless, since 2005 the
BBVA Banco Francés gives to certain executives, with a role at corporate level,
the possibility to access into defined contribution pension plan that it is
subject to SFAS No. 87 and 132 (revised 2003). This pension plan consists in a
percentage calculated over determinate recompensing concepts. At December 31,
2007 and 2006 the Bank has been accruing 883 and 4,580 in “Administrative
Expenses - Personal Expenses”, respectively. During the fiscal year ended
December 31, 2005 the Bank has been accruing initial contributions as hedge for
prior years by 3,430 and 669 for the 2005. These expenses are included in “Other
Expense - Charge for uncollectibility of other receivable and other allowances”
and “Administrative Expenses - Personal Expenses”, respectively, in the
Consolidated Financial Statements as of December 31, 2005. This concept has not
had impact under U.S. GAAP.
In
addition, the Bank is obligated to pay employer contributions to the National
Pension Plan System, determined on the basis of total monthly payroll. These
expenses aggregated 53,144, 42,423 and 31,294 for the fiscal years ended
December 31, 2007, 2006 and 2005, respectively, and are included in the
“Operating Expenses—Payroll expenses” account in the Consolidated Statements of
Income.
|
19.16.
|
Business
segment consolidated
information
|
FAS No.
131 requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
The Bank
is mainly concentrated on the financial sector, especially through its
activities related to banking/financial, pension fund manager and
insurance.
The
following information shows total assets, financial income, service charge
income and other income, total income, financial expenses, provision for loan
losses, operating expenses, other expenses, total expenses, loss on minority
interest in subsidiaries and total net income for each of the business segment
identified by the Bank’s management.
F-49
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
As
of December 31, 2007
|
||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.(3)
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
||||||||||||||||||||||
|
Total
assets
|
18,903,940 | 264,251 | 19,168,191 | 377,785 | 2,562,922 | (85,899 | ) | 22,022,999 | ||||||||||||||||||||
|
Financial
income
|
1,610,891 | 14,594 | 1,625,485 | 37,162 | 247,412 | (5,847 | ) | 1,904,212 | ||||||||||||||||||||
|
Service
charge income and other income
|
1,220,097 | 20,469 | 1,240,566 | 463,960 | 580,609 | (274,062 | ) | 2,011,073 | ||||||||||||||||||||
|
Total
income (1)
|
2,830,988 | 35,063 | 2,866,051 | 501,122 | 828,021 | (279,909 | ) | 3,915,285 | ||||||||||||||||||||
|
Financial
expenses
|
(682,913 | ) | (2,642 | ) | (685,555 | ) | (415 | ) | (8 | ) | 5,847 | (680,131 | ) | |||||||||||||||
|
Allowances
for doubtful loans
|
(60,370 | ) | (1,892 | ) | (62,262 | ) | — | — | — | (62,262 | ) | |||||||||||||||||
|
Operating
expenses
|
(872,913 | ) | (4,887 | ) | (877,800 | ) | (211,084 | ) | (38,741 | ) | 3,464 | (1,124,161 | ) | |||||||||||||||
|
Other
expenses
|
(1,027,268 | ) | (9,911 | ) | (1,037,179 | ) | (278,988 | ) | (748,572 | ) | 270,598 | (1,794,141 | ) | |||||||||||||||
|
Total
expenses (2)
|
(2,643,464 | ) | (19,332 | ) | (2,662,796 | ) | (490,487 | ) | (787,321 | ) | 279,909 | (3,660,695 | ) | |||||||||||||||
|
Loss
on minority interest in subsidiaries
|
(169 | ) | (458 | ) | (627 | ) | (4,903 | ) | (14,011 | ) | — | (19,541 | ) | |||||||||||||||
|
Total
net income
|
187,355 | 15,273 | 202,628 | 5,732 | 26,689 | — | 235,049 | |||||||||||||||||||||
|
As
of December 31, 2006
|
||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.(3)
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
||||||||||||||||||||||
|
Total
assets
|
16,294,763 | 109,151 | 16,403,914 | 373,844 | 2,204,731 | (147,860 | ) | 18,834,629 | ||||||||||||||||||||
|
Financial
income
|
1,514,699 | 7,030 | 1,521,729 | 44,237 | 384,026 | (13,588 | ) | 1,936,404 | ||||||||||||||||||||
|
Service
charge income and other income
|
653,149 | 11,249 | 664,398 | 377,019 | 410,135 | (221,237 | ) | 1,230,315 | ||||||||||||||||||||
|
Total
income (1)
|
2,167,848 | 18,279 | 2,186,127 | 421,256 | 794,161 | (234,825 | ) | 3,166,719 | ||||||||||||||||||||
|
Financial
expenses
|
(581,603 | ) | (95 | ) | (581,698 | ) | (234 | ) | (1 | ) | 13,588 | (568,345 | ) | |||||||||||||||
|
Allowances
for doubtful loans
|
(69,411 | ) | (714 | ) | (70,125 | ) | — | — | — | (70,125 | ) | |||||||||||||||||
|
Operating
expenses
|
(711,655 | ) | (3,320 | ) | (714,975 | ) | (171,273 | ) | (43,750 | ) | 2,594 | (927,404 | ) | |||||||||||||||
|
Other
expenses
|
(707,660 | ) | (4,219 | ) | (711,879 | ) | (249,662 | ) | (638,894 | ) | 218,643 | (1,381,792 | ) | |||||||||||||||
|
Total
expenses (2)
|
(2,070,329 | ) | (8,348 | ) | (2,078,677 | ) | (421,169 | ) | (682,645 | ) | 234,825 | (2,947,666 | ) | |||||||||||||||
|
Gain/(Loss)
on minority interest in subsidiaries
|
52 | (1,505 | ) | (1,453 | ) | (40 | ) | (37,523 | ) | — | (39,016 | ) | ||||||||||||||||
|
Total
net income
|
97,571 | 8,426 | 105,997 | 47 | 73,993 | — | 180,037 | |||||||||||||||||||||
___________________________
|
(1)
|
Includes:
financial income, service charge income and other
income.
|
|
(2)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income
tax.
|
|
(3)
|
Includes:
Atuel Fideicomisos S.A. and Francés Valores Sociedad de Bolsa
S.A.
|
F-50
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
As
of December 31, 2005
|
||||||||||||||||||||||||||||||||
|
Banking
Financial
|
||||||||||||||||||||||||||||||||
|
BBVA
Banco Francés S.A.(3)
|
Credilogros
Cía. Financiera S.A.
|
PSA
Finance S.A.
|
Total
|
Pension
Fund Manager
|
Insurance
|
Eliminations
|
Total
|
|||||||||||||||||||||||||
|
Total
assets
|
13,839,847 | 86,734 | 64,107 | 13,990,688 | 346,858 | 1,787,736 | (141,534 | ) | 15,983,748 | |||||||||||||||||||||||
|
Financial
income
|
1,412,036 | 27,469 | 3,093 | 1,442,598 | 40,067 | 183,627 | (12,140 | ) | 1,654,152 | |||||||||||||||||||||||
|
Service
charge income and other income
|
757,620 | 16,267 | 5,965 | 779,852 | 294,071 | 299,133 | (168,038 | ) | 1,205,018 | |||||||||||||||||||||||
|
Total income (1)
|
2,169,656 | 43,736 | 9,058 | 2,222,450 | 334,138 | 482,760 | (180,178 | ) | 2,859,170 | |||||||||||||||||||||||
|
Financial
expenses
|
(617,332 | ) | (3,551 | ) | (79 | ) | (620,962 | ) | (124 | ) | (3 | ) | 12,140 | (608,949 | ) | |||||||||||||||||
|
Allowances
for doubtful loans
|
(109,265 | ) | (4,970 | ) | (393 | ) | (114,628 | ) | — | — | — | (114,628 | ) | |||||||||||||||||||
|
Operating
expenses
|
(564,742 | ) | (24,751 | ) | (2,550 | ) | (592,043 | ) | (141,146 | ) | (44,302 | ) | 1,656 | (775,835 | ) | |||||||||||||||||
|
Other
expenses
|
(791,684 | ) | (3,703 | ) | (1,314 | ) | (796,701 | ) | (175,995 | ) | (419,089 | ) | 166,382 | (1,225,403 | ) | |||||||||||||||||
|
Total expenses (2)
|
(2,083,023 | ) | (36,975 | ) | (4,336 | ) | (2,124,334 | ) | (317,265 | ) | (463,394 | ) | 180,178 | (2,724,815 | ) | |||||||||||||||||
|
Loss
on minority interest in subsidiaries
|
(1 | ) | (1,850 | ) | (999 | ) | (2,850 | ) | (7,843 | ) | (6,458 | ) | — | (17,151 | ) | |||||||||||||||||
|
Total
net income
|
86,632 | 4,911 | 3,723 | 95,266 | 9,030 | 12,908 | — | 117,204 | ||||||||||||||||||||||||
|
(1)
|
Includes:
financial income, service charge income and other
income.
|
|
(2)
|
Includes:
financial expenses, provision for loan losses, service charge expenses,
operating expenses, other expenses and income tax.
|
|
(3)
|
Includes:
Atuel Fideicomisos S.A. and Francés Valores Sociedad de Bolsa
S.A.
|
The Bank’s
reportable segments are strategic business units that offer different products
and services. They are managed separately because each segment appeals to
different markets and, accordingly, requires different technology and marketing
strategies.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Bank evaluates performance based
on profit or loss from operations before income taxes not including
non-recurring gains or losses.
The Bank
does not have a single external private customer from whom it derives 10 percent
or more of its revenues and operates in one geographical area. Nevertheless, as
it is mentioned in Note 19.5., the Bank has significant exposure to the
Argentine Federal Government in form of secured loans and other debt
obligations. For the fiscal years ended December 31, 2007, 2006 and 2005, the
Bank recorded, under BCRA rules, income from secured loans (Decree No. 1387/01),
including CER accrual for 340,182, 526,613 and 805,273, respectively. In
addition, for the fiscal years ended December 31, 2007, 2006 and 2005, the Bank
recorded net income from government securities for 283,968, 523,158 and 176,156,
respectively.
Substantially
most of Bank’s operations, property and customers are located in
Argentina.
|
19.17.
|
Consolidated
income statements and balance
sheets
|
The
presentation of Financial Statements according to Argentine Central Bank rules
differs significantly from the format required by the US. Securities and
Exchange Commission under Rules 9-03 and 9-04 of Regulation S-X (“Article 9”).
These Consolidated Financial Statements were prepared using the measurement
methods prescribed by the BCRA, but in accordance with the presentation
requirements of the US SEC.
The
consolidated income statements presented below discloses the categories required
by Article 9:
F-51
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Consolidated
Income Statements
|
||||||||||||
|
Interest
and
fees on loans
|
1,202,946 | 1,132,766 | 1,254,007 | |||||||||
|
Interest
on investment securities
|
4,498 | 43,684 | 3,586 | |||||||||
|
Trading
account interest
|
403,747 | 580,901 | 243,751 | |||||||||
|
Total
interest income
|
1,611,191 | 1,757,351 | 1,501,344 | |||||||||
|
Interest
on deposits
|
578,982 | 471,763 | 365,106 | |||||||||
|
Interest
on short-tern borrowings
|
33,663 | 50,036 | 210,300 | |||||||||
|
Interest
on long-term debt
|
19 | 265 | 891 | |||||||||
|
Total
interest expense
|
612,664 | 522,064 | 576,297 | |||||||||
|
Net
interest income
|
998,527 | 1,235,287 | 925,047 | |||||||||
|
Provision
for loan losses
|
62,262 | 70,125 | 114,628 | |||||||||
|
Net
interest gain after provision for loan losses
|
936,265 | 1,165,162 | 810,419 | |||||||||
|
Service
charges on deposit accounts
|
191,952 | 165,776 | 143,933 | |||||||||
|
Credit
card service charges and fees
|
203,096 | 127,481 | 102,050 | |||||||||
|
Fees
on securities activities
|
11,464 | 12,600 | 15,598 | |||||||||
|
Other
commissions
|
825,990 | 640,702 | 539,462 | |||||||||
|
Income
from investment in equity securities
|
9,363 | 19,941 | 2,870 | |||||||||
|
Foreign
currency gains net
|
117,403 | 78,655 | 72,407 | |||||||||
|
Gains
on disposal of fixed and other assets
|
1,005 | — | — | |||||||||
|
Other
|
943,790 | 363,386 | 480,349 | |||||||||
|
Total
other income
|
2,304,063 | 1,408,541 | 1,356,669 | |||||||||
|
Consolidated
Expenses Statements
|
||||||||||||
|
Commissions
|
114,371 | 76,538 | 52,821 | |||||||||
|
Personnel
expenses
|
588,483 | 485,013 | 397,693 | |||||||||
|
Fees
and external administrative services
|
76,414 | 50,887 | 39,837 | |||||||||
|
Depreciation
of bank premises and equipment and other fixed assets
|
41,238 | 32,653 | 30,592 | |||||||||
|
Business
travel and development
|
18,317 | 16,628 | 12,961 | |||||||||
|
Utilities
|
26,016 | 21,714 | 21,440 | |||||||||
|
Advertising
and promotion
|
67,212 | 46,050 | 39,757 | |||||||||
|
Contributions
and taxes
|
148,858 | 118,847 | 92,564 | |||||||||
|
Maintenance
and repairs
|
38,553 | 30,712 | 26,157 | |||||||||
|
Amortization
of Goodwill
|
6,629 | 6,629 | 6,629 | |||||||||
|
Provision
for loss contingencies
|
157,626 | 312,485 | 422,924 | |||||||||
|
Loss
on disposal of fixed and other assets
|
— | 7,657 | 26,402 | |||||||||
|
Minority
interest in subsidiaries—loss
|
19,541 | 39,016 | 17,151 | |||||||||
|
Other
|
1,651,627 | 1,077,157 | 844,244 | |||||||||
|
Total
other expenses
|
2,954,885 | 2,321,986 | 2,031,172 | |||||||||
|
Income
before income tax and tax on minimum presumed income
expenses
|
285,443 | 251,717 | 135,916 | |||||||||
|
Income
tax and tax on minimum presumed income expenses (see Note 5.1. and
5.2.)
|
50,394 | 71,680 | 18,712 | |||||||||
|
Net
gain
|
235,049 | 180,037 | 117,204 | |||||||||
|
Net
gain per Ordinary Share
|
0.50 | 0.38 | 0.25 | |||||||||
Certain
categories of income and expense maintained by the Bank have been presented in
the above Article 9 consolidated statement of income in a manner which warrants
further discussion:
- “Foreign
currency gain (loss), net”: this item relates primarily to the differences in
exchange rates on the Bank’s investments, loans and deposits denominated in
foreign currency. The Bank does not maintain foreign currency gains or losses in
separate categories of assets and liabilities, respectively, and, therefore,
since such gains or losses cannot be separately identified by type of activity,
“Foreign currency gains, net”, is presented as a component of “Non-interest
income”.
F-52
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Argentine
Central Bank’s rules also required certain classifications of assets and
liabilities which are different from those required by Article 9. The following
balance sheets depict the Bank’s consolidated balance sheets at December 31,
2007 and 2006 as if the Bank followed the balance sheets disclosure requirements
under Article 9:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Assets
|
||||||||
|
Cash
and due from banks
|
1,035,128 | 791,626 | ||||||
|
Interest
bearing deposits in other banks
|
2,242,883 | 1,866,100 | ||||||
|
Forward
purchases and under reverse repurchase agreements
|
— | 307,900 | ||||||
|
Unsettled
spot purchases
|
42,435 | 26,424 | ||||||
|
Debtors
under forward sales and under reverse repurchase
agreements
|
150,170 | 102 | ||||||
|
Debtors
under unsettled spot sales
|
56,046 | 45,433 | ||||||
|
Trading
account assets
|
3,260,955 | 3,856,736 | ||||||
|
Investments
securities
|
625,700 | 569,734 | ||||||
|
Loans
|
11,588,849 | 9,701,280 | ||||||
|
Allowance
for loan losses
|
(198,728 | ) | (167,097 | ) | ||||
|
Premises
and equipment
|
399,615 | 397,896 | ||||||
|
Intangible
assets
|
116,380 | 407,463 | ||||||
|
Other
assets
|
2,703,566 | 1,031,032 | ||||||
|
Total
assets
|
22,022,999 | 18,834,629 | ||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Interest
bearing deposits
|
12,176,829 | 10,207,814 | ||||||
|
Non
interest bearing deposits
|
2,832,929 | 2,297,942 | ||||||
|
Creditors
under forward purchases and under reverse repurchase
agreements
|
1,002 | 277,282 | ||||||
|
Creditors
under unsettled spot purchases
|
104,223 | 26,292 | ||||||
|
Forward
sales and under repurchase agreements
|
165,431 | — | ||||||
|
Unsettled
spot sales
|
41,035 | 34,264 | ||||||
|
Other
short-term borrowings
|
1,357,341 | 959,491 | ||||||
|
Other
liabilities
|
80,989 | 2,179,957 | ||||||
|
Long-term
debt
|
2,528,401 | 186,678 | ||||||
|
Commitments
and contingent liabilities
|
441,964 | 493,848 | ||||||
|
Minority
Interest in subsidiaries
|
236,018 | 216,477 | ||||||
|
Common
Stock
|
471,361 | 471,361 | ||||||
|
Non-capitalized
contributions
|
175,132 | 175,132 | ||||||
|
Other
stockholders’ equity
|
1,410,344 | 1,308,091 | ||||||
|
Total
liabilities and stockholders’ equity
|
22,022,999 | 18,834,629 | ||||||
|
19.18.
|
Off-Balance
sheet financial instrument
|
The Bank
enters into various transactions involving off-balance-sheet financial
instruments. These instruments could be used to meet the risk management,
trading and financing needs of clients or for the Bank’s proprietary trading and
asset and liability management purposes, and could be subject to varying degrees
of credit and market risk. Credit risk and market risk associated with on- and
off-balance-sheet financial instruments are monitored on an aggregate
basis.
The Bank
uses the same credit policies in determining whether to enter or extend call and
put option contracts, commitments, conditional obligations and guarantees as it
does for granting loans. In the opinion of management, the Bank’s outstanding
off-balance-sheet items do not represent unusual credit risk.
F-53
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
a)
|
Derivatives
|
In the
normal course of its business, the Bank enters into a variety transactions
principally in the foreign exchange and stock markets. The majority of the
counterparties in the derivative transactions are banks and other financial
institutions.
These
instruments include:
§ Options:
they confer the right on the buyer, but no obligation, to receive or pay a
specific quantity of an asset or financial instrument for specified price at or
before a specified date. Options may be exchange traded or Over the Counter
(OTC) agreements. The Bank principally buys and sells interest options on an
index. As December 31, 2007, 2006 and 2005 the Bank does not have outstanding
options.
|
|
§
|
Futures
and Forwards: they are agreements to deliver or take delivery of a
specified rate, price or index applied against the underlying asset or
financial instrument, at a specific date. Futures are exchange traded at
standardized amounts of the underlying asset or financial instrument.
Forward contracts are OTC agreements and are principally dealt in by the
Bank in securities/foreign exchange as forward
agreements.
|
Forward
transactions are effected by the Bank in order to comply with the limits set
forth by the BCRA in relation to the technical ratio of the Net Global Position
in foreign currency and to reduce fluctuations risks in the rates of exchange.
However, such transactions do not qualify as foreign exchange hedge in terms of
SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities”.
§ Swaps:
they are agreements between two parts with the intention to exchange cash flows
and risks at a specific date and for a period in the future. Swaps may be
exchange traded or OTC agreements. In addition see Note 12.
Pursuant
to BCRA’s regulations, future and forward transactions must be recorded under
“Other Receivables from Financial Transactions” and “Other Liabilities from
Financial Transactions” in the accompanying Consolidated Balance Sheets and they
have been valued as mentioned in Notes 3.4.8. and 3.4.9. In addition, future and
forward transactions without delivery of underlying asset and the interest rate
swaps have been valued as mentioned in Note 3.4.14.
The
notional contractual amount of these instruments represents the volume of
outstanding transactions and does not represent the potential gain or loss
associated with the market or credit risk of such transactions. The market risk
of derivatives arises from the potential for changes in value due to
fluctuations in market prices. The Bank reduces its exposure to market risk, if
necessary, by entering into offsetting transactions in accordance with the
global policy of hedging defined by BBVA for its subsidiaries. The credit risk
of derivatives arises from the potential of a counterparty to default on its
contractual obligations. The effect of such a default varies as the market value
of derivative contracts changes. Credit exposure exists at a particular point in
time when a derivative has a positive market value. The Bank attempts to limit
its credit risk by dealing with creditworthy counterparties and obtaining
collateral where appropriate. At December 31, 2007 and 2006, the Bank entered
into forward contracts and interest rate swaps for trading purposes. The
notional amount of outstanding forward contracts as of the mentioned dates, are
included in Note 19.7. The following table shows at December 31, 2007 and 2006
the notional value forward transactions and SWAP divided between hedging and
trading:
|
December
31, 2007
|
December
31, 2006
|
|||||||||||||||
|
Trading
|
Total
|
Trading
|
Total
|
|||||||||||||
|
Forward
sales and purchases of foreign exchange
|
2,453,659 | 2,453,659 | 671,020 | 671,020 | ||||||||||||
|
Interest
rate SWAP
|
342,000 | 342,000 | 30,000 | 30,000 | ||||||||||||
F-54
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
b)
|
Credit-related
financial instruments
|
The Bank’s
exposure to credit loss in the event of non-performance by counterparties to
commitments to extend credit, guarantees granted and foreign trade acceptances
is represented by the contractual notional amount of those
investments.
A summary
of credit exposure related to these items is shown below (*):
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Credit
lines granted (unused portion) cover by debtor
classification
|
26,185 | 13,695 | ||||||
|
Foreign
trade acceptances and standby letters of credit
|
196,522 | 100,577 | ||||||
|
Guarantees
granted
|
270,396 | 178,079 | ||||||
(*) A
significant portion of the Bank’s guarantees as of December 31, 2007 and 2006,
have a remaining maturity of less than one year.
Commitments
to extend credit are agreements to lend to a customer at a future date, subject
to compliance with contractual terms. Commitments generally have fixed
expiration dates or other termination clauses and may require the payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent actual future
cash requirements for the Bank. The Bank evaluates each customer’s
creditworthiness on a case-by-case basis.
Foreign
trade acceptances represent Bank customers´ liabilities on outstanding drafts or
bills of exchange that have been accepted by the Bank and the Bank’s liability
to remit payment upon the presentation of the accepted drafts or bills of
exchange.
The credit
risk involved in foreign trade acceptances and guarantees granted is essentially
the same as that involved in extending loan facilities to customers. In order to
grant guarantees to its customers, the Bank may require counter guarantees. Such
financial instruments are classified, by type of guarantee, as
follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Self-liquidating
counter guarantees
|
14,873 | 12,000 | ||||||
|
Preferred
counter guarantees
|
3,816 | 5,579 | ||||||
The Bank
accounts for checks against it and other banks, as well as other items in
process of collection, such as notes, bills and miscellaneous items, in
memorandum accounts until such time as the related item clears or is accepted.
In the opinion of management, no significant risk of loss exists on these
clearing transactions. The amounts of clearing items in process are as
follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Checks
drawn on the Bank pending clearing
|
223,112 | 157,409 | ||||||
|
Checks
drawn against other Banks
|
388,952 | 228,192 | ||||||
|
Drafts
and notes for collection
|
579,318 | 512,838 | ||||||
|
|
c)
|
Trust
activities
|
See Note
9.
F-55
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
NOTE
20—SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN THE ARGENTINE CENTRAL BANK RULES
AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The
following is a description of the significant differences between BCRA rules
followed in the preparation of the Bank’s Consolidated Financial Statements and
those applicable in the United States under generally accepted accounting
principles (“U.S. GAAP”). References below to “SFAS” are to United States
Statements of Financial Accounting Standards. Pursuant to the BCRA’s rules, the
Bank’s Consolidated Financial Statements recognize the effects of inflation
until August 31, 1995 and since January 1, 2002 to February 28, 2003, as
mentioned in Note 3.2. As allowed by the U.S. Securities and Exchange Commission
under item 18 of Form 20-F, the effect of inflation accounting under BCRA’s
rules has not been reversed in the reconciliation to U.S.
GAAP.
|
|
20.1.
|
Income
taxes
|
As
explained in Note 5.1. the Bank determined the charge for income tax applying
the effective rate to taxable income estimated for each year considering the
effect of temporary differences between book and taxable income. The criterion
is in accordance with U.S. GAAP, based on SFAS No. 109, “Accounting for Income
Taxes”.
Under SFAS
No. 109, deferred tax assets or liabilities are recorded for temporary
differences between the financial and tax basis of assets and liabilities. A
valuation allowance is provided for the deferred tax assets to the extent that
it is more likely than not that they will not be realized.
The
following table accounts for the difference between the actual tax provision and
the amounts obtained by applying the statutory income tax rate in Argentina to
income before income tax in accordance with US. GAAP:
|
December
31,
|
||||||||||||
|
Description
|
2007
|
2006
|
2005
|
|||||||||
|
Income
before income tax in accordance with US GAAP
|
1,931,451 | 1,468,544 | 1,780,936 | |||||||||
|
Statutory
income tax rate
|
35.00 | % | 35.00 | % | 35.00 | % | ||||||
|
Income
tax (benefit) provision computed at statutory rate
|
676,008 | 513,990 | 623,328 | |||||||||
|
Tax
exempt income
|
78,754 | (14,257 | ) | (494,422 | ) | |||||||
|
Non-deductible
items
|
— | — | 84,700 | |||||||||
|
Other,
net
|
21,766 | (11,391 | ) | (30,890 | ) | |||||||
|
Initial
adjustments to net deferred tax assets
|
— | (104,391 | ) | (77,258 | ) | |||||||
|
Income
tax computed in accordance with U.S. GAAP
|
776,528 | 383,391 | 105,458 | |||||||||
|
Income
tax computed in accordance with BCRA’s rules
|
281,500 | 23,000 | (242,000 | ) | ||||||||
|
Adjustments
to reconcile income tax (benefit) to U.S. GAAP
|
495,028 | 360,391 | 347,458 | |||||||||
| (Recover) of allowances on deferred tax assets | (328,508 | ) | (325,939 | ) | (366,801 | ) | ||||||
The tax
exempt income adjustment noted above principally relates to gains generated by
equity investments, which were not subject to income tax (18,003, 31,109 and
19,758 for the fiscal years ended December 31, 2007, 2006 and 2005,
respectively), to the exemption established during the public debt swap
transaction, by which the income generated by the Guaranteed Loans received were
exempt in the income tax (9,798, 15,042 and 105,825 for the fiscal years ended
December 31, 2007, 2006 and 2005, respectively), and other net
effects.
The
non-deductible items noted above principally relate to the allowances booked
under BCRA rules (84,700 for the fiscal year ended December 31,
2005).
“Initial
adjustments to net deferred tax assets” are originated in changes that occurred
in the tax legislation for the fiscal years ended December 31, 2006 and
2005.
As
explained in Note 5.1, under Argentine BCRA banking GAAP the capitalization of
the net operating losses is not allowed. Consecuently, these adjustments have
not impact under such rules.
F-56
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Under US
GAAP, the net operating losses that are part of the net deferred tax assets are
entirely provisioned in the years 2004 and 2005. As the initial adjustment
affects net operating losses that are entirely provisioned, its impact in equity
as well as in the income/loss is neutral.
Under US
GAAP the Bank has considered that in terms of paragraph 27 and 45.g. of SFAS
109, “Accounting for Income Taxes”, these adjustments correspond to changes in
the tax legislation occurred in the fiscal year where the Initial adjustment to
net deferred tax assets is disclosed. These adjustments affect the initial
balances of net operating losses considered in determining income tax under
local accounting standards, and therefore are disclosed under Initial
adjustments to net deferred tax assets.
“Other,
net” includes other net effects, and tax exempt income and non-deductible items
arising from Consolidated Subsidiaries.
As
mentioned in Note 5.2 to the Consolidated Financial Statements, tax on minimum
presumed income (TOMPI) is a complementary tax to the income tax. The Bank’s tax
obligation for each year will coincide with the highest of two taxes, the BCRA
income tax and TOMPI . However, if TOMPI exceeds the income tax in a given year,
the excess thereof may be computed as a payment on account of any income tax in
excess of TOMPI that may occur in any of the following ten years. Since TOMPI is
calculated on different basis than income tax (under tax legislation is based on
taxable assets and it is not based in income for fiscal years and has no
relation with income), it is not included in the line “Income tax computed in
accordance with BCRA’s rules”.
“Income
tax computed in accordance with BCRA’s rules” corresponds to the Argentine GAAP
income tax determined as per the deferred tax method. Under BCRA’s rules, income
/ (losses) related to deferred tax method must be classified in the “Other
Income / Expenses” line items. Therefore, the deferred income tax amounting to
281,500 and 23,000 for the years 2007 and 2006, respectively, was classified in
the “Other Expenses” line item of the Consolidated Statement of Operations. For
the year 2005 it amounted to 242,000 and was classified in the “Other Income”
line item of the Consolidated Statement of Operations (see Note 6 with the
breakdown of Other Income and Other Expense accounts in accordance with BCRA’s
rules).
These
“BCRA income tax amounts” are not the same as the “income tax and tax on minimum
presumed income (loss)” – TOMPI – line item in the Argentine GAAP Consolidated
Statement of Operations on Page F-9. Under BCRA’s rules, this account should
include the current income tax and TOMPI, while income (losses) related to
deferred tax method must be classified in the “Other Income / Expenses” line
item. In the years 2007, 2006 and 2005 “income tax and TOMPI” account includes
only TOMPI for 50,394, 71,680 and 18,712, respectively.
The
amounts related to the Income Tax computed in accordance with BCRA’s rules and
Tax on minimun presumed income (TOMPI) are disclosed below:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Tax
on minimum presumed income (Income tax and TOMPI line item –
F-9)
|
50,394 | 71,680 | 18,712 | |||||||||
|
Income
tax computed in accordance with BCRA’s rule (Other Income/Expenses line
item)
|
281,500 | 23,000 | (242,000 | ) | ||||||||
|
Total
– Income tax plus Tax on minimum presumed income
|
331,894 | 94,680 | (223,288 | ) | ||||||||
SFAS No.
109 requires that an allowance for deferred tax assets is needed when, based on
the weight of available evidence, it is more likely than not that some portion
of the deferred tax assets will not be realized. The valuation allowance should
be sufficient to reduce the deferred tax assets to the amount that is more
likely than not to be realized.
As of
December 31, 2007, 2006 and 2005 a favourable evolution in the Argentine economy
has been noted. Accordingly, the Bank has assessed all available evidence to
determine the amount of valuation allowance needed, including financial and tax
projections. As a result, based on the weight of that evidence, the Bank
provided an additional valuation allowance of 151,426, 479,934 and 805,873 as of
December 31, 2007, 2006 and 2005, respectively.
F-57
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Deferred
tax assets (liabilities) are summarized as follows:
|
December
31,
|
||||||||||||
|
Description
|
2007
|
2006
|
2005
|
|||||||||
|
Deferred tax
assets:
|
||||||||||||
|
Government
and private securities valuation
|
— | 89,485 | — | |||||||||
|
Loans
|
— | — | 219,506 | |||||||||
|
Loan
origination and issuance credit card’s fees
|
18,004 | 14,733 | 9,241 | |||||||||
|
Property,
equipment and miscellaneous assets
|
13,491 | 11,575 | 5,962 | |||||||||
|
Other
liabilities
|
21,624 | 26,151 | 29,589 | |||||||||
|
Allowance
for loss contingencies
|
225,647 | 563,672 | 614,194 | |||||||||
|
Reserves
from insurance activities
|
2,174 | 80,515 | 72,549 | |||||||||
|
Net
operating loss
|
403,938 | 562,780 | 766,673 | |||||||||
|
Other
|
5,965 | 12,834 | 575 | |||||||||
| 690,843 | 1,361,745 | 1,718,289 | ||||||||||
|
Deferred tax
liabilities:
|
||||||||||||
|
Government
and private securities valuation
|
(23,484 | ) | — | (14,135 | ) | |||||||
|
Loans
|
(66,268 | ) | (43,251 | ) | — | |||||||
|
Foreign
exchange difference
|
(15,460 | ) | (10,839 | ) | (1,087 | ) | ||||||
|
Intangible
assets
|
(4,550 | ) | (982 | ) | (599 | ) | ||||||
| (109,762 | ) | (55,072 | ) | (15,821 | ) | |||||||
|
Net
deferred tax asset under U.S. GAAP
|
581,081 | 1,306,673 | 1,702,468 | |||||||||
|
Net
deferred tax asset in accordance with BCRA’s rules
|
55,500 | 337,000 | 360,000 | |||||||||
|
Adjustment
to reconcile net deferred tax assets / liabilities to U.S.
GAAP
|
525,581 | 969,673 | 1,342,468 | |||||||||
|
Allowances
on deferred tax assets in accordance with BCRA’s rules
|
(55,500 | ) | (337,000 | ) | (360,000 | ) | ||||||
|
Adjustment
to reconcile Allowances on deferred tax assets to U.S.
GAAP
|
(151,426 | ) | (479,934 | ) | (805,873 | ) | ||||||
|
Allowances
on deferred tax assets in accordance with US GAAP
|
(206,926 | ) | (816,934 | ) | (1,165,873 | ) | ||||||
|
Net
deferred tax asset under BCRA
|
— | — | — | |||||||||
|
Net
deferred tax asset under U.S. GAAP – Net of allowances
|
374,155 | 489,739 | 536,595 | |||||||||
The
natures of the most significant components of the deferred tax asset or
liability are described as follows:
|
|
§
|
Government
and private securities valuation: as mentioned in Note 20.5. all unlisted
government and private securities and those with non-representative
valuation, were adjusted at fair value, thus causing a increase/decrease
in their accounting value, which does not comply with the conditions
required for them to be taxable in the fiscal years ended December 31,
2007, 2006 and 2005.
|
|
|
§
|
Loans:
as regards deduction of uncollectible accounts, effective Argentine tax
rules require the existence of certain uncollectibility indicators defined
in the Income Tax Law (i.e.: to begin court proceedings or bankruptcy
adjudication), whereas under accounting criteria uncollectibility charges
are recorded on the basis of assessing the debtor’s payment capacity. This
difference principally relates to the accounting registration of the
impairment that took place in the loans to the provincial governmental
sector and to other public sector agencies (see Note 20.4.4.), which, as
mentioned above, does not comply with the indicators required to be
tax-deductible.
|
|
|
§
|
Loan
origination and issuance credit card’s fees: deferred assets result from
differences in the U.S. GAAP accounting and tax criteria used to assess
expense accruals of them (Note
20.2.).
|
|
|
§
|
Property,
equipment and miscellaneous assets: under tax criteria, PP&E
depreciation is determined on values equivalent to the acquisition cost of
the respective PP&E items and by the full-year-of-addition
depreciation method. Under accounting criteria, depreciation is determined
on values equivalent to the acquisition cost restated by inflation as
explained in Note 3.2. and on the basis of the months of useful life
elapsed from addition date through valuation
date.
|
F-58
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
§
|
Intangible
assets: under tax criteria, the amortization of these assets is determined
by the full-year-of-addition method, whereas accounting criteria
contemplate the calculation of amortization on the basis of the months of
useful life elapsed from addition through valuation
date.
|
|
|
§
|
Other
liabilities: deferred assets/liabilities result from differences in the
accounting and tax criteria used to assess expense accruals such as
accrual for dismissals calculation.
|
|
|
§
|
Allowance
for loss contingencies: as regards deduction of loss contingencies,
effective Argentine tax rules require the existence of certain indicators
defined in the Income Tax Law (i.e. final judgment), whereas under
accounting criteria, loss contingencies charges are recorded on the basis
of the estimated amounts necessary to meet contingencies of probable
occurrence.
|
§ Pension
and retirement obligations’ activities: deferred assets result from differences
in the U.S. GAAP accounting and tax criteria applying to certain allowances
related with Consolidar A.F.J.P.’s activities.
As of
December 31, 2007, the Bank (on individual basis) carries accumulated tax loss
carry-forwards of 403,938 that will expire as follows:
|
Amount
|
|
|
2008
|
316,544
|
|
2009
|
87,394
|
The Bank
estimates to use during the fiscal year 2008 tax loss for 236,000.
The
adjustments required in order to reconcile assets and liabilities with the U.S.
GAAP, as detailed in the following notes, are shown considering their effect on
the income tax. The effect of reflecting such adjustments on the Bank’s net
assets causes them to increase by 374,155, 489,739 and 536,595 as of December
31, 2007, 2006 and 2005, respectively. In addition, income would have decreased
by 166,520 and 34,452 as of December 31, 2007 and 2006, respectively, and
increased by 19,343 as of December 31, 2005.
The Bank
understands that there is not significant uncertainty related to income tax
benefits.
Tax
on minimum presumed income
As
mentioned in Note 5.2. as of December 31, 2007 the Bank has recorded an asset
for the credit for tax on minimum presumed income.
Had U.S.
GAAP been applied, the Bank’s net income would be decreased by 1,003 for the
fiscal year ended December 31, 2005.
As of
December 31, 2007, the Bank (on stand alone basis) carries accumulated tax on
minimum presumed income credits for 186,761 that will expire as
follows:
|
Amount
|
|
|
2011
|
17,115
|
|
2012
|
24,519
|
|
2013
|
23,997
|
|
2014
|
24,462
|
|
2015
|
28,653
|
|
2016
|
31,741
|
|
2017
|
36,274
|
F-59
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
20.2.
|
Loan
origination and issuance credit card’s
fees
|
The Bank
recognizes fees on credit card products, consumer loans and acceptances when
collected and charges direct origination costs when incurred. In accordance with
US. GAAP, particularly under SFAS No. 91, loan origination fees and certain
direct loan origination costs should be recognized over the life of the related
loan as an adjustment of yield.
The
effects of adjustments required to state such amounts in accordance with US.
GAAP would be decreased assets by 48,473, 38,638 and 23,051 at December 31,
2007, 2006 and 2005, respectively. On the other hand, income for the fiscal year
ended December 31, 2007, 2006 and 2005 would have decreased by 9,835, 15,587 and
2,270, respectively.
|
|
20.3.
|
Intangible
assets
|
The Bank
amortizes software development expenses (included in organization and
development expenses) over their estimated useful life, up to a maximum of 60
months. US. GAAP, in accordance with the Statement of Position 98-1, requires
that part of such expenses be written off to income when incurred, depending on
their characteristics.
Regulations
established by the Pension Fund Manager Superintendency, the agency overseeing
Consolidar AFJP S.A., authorized the capitalization of disbursements made
through September 25, 1994, for “salaries, advertising, software, agent’s
commissions, fees, brochures, forms printing and leases and rentals”, as the
most significant items. Consolidar AFJP S.A. capitalized expenses incurred in
connection with the launch of new activities. Under U.S. GAAP, the above
mentioned expenses are to be considered as expenses for the fiscal year in which
they are incurred.
The
effects of adjustments required to state such amounts in accordance with US.
GAAP would have decreased assets by 6,824, 11,372 and 16,890 at December 31,
2007, 2006 and 2005, respectively. In addition income would have increased by
4,548 and 5,518 at December 31, 2007 and 2006, respectively and decreased by 472
at December 31, 2005.
|
|
20.4.
|
Loan
loss reserve
|
The Bank
provides for losses on loans generally through specific allocations on a
loan-by-loan basis, once the loan becomes classified in a category which
indicates that collectibility may be impaired, and also through mandatory
general provisions on performing loans, which serves to cover inherent loan
losses for which specific provisions have not been made (see Note
3.4.5.).
SFAS No.
114, “Accounting by Creditors for Impairment of a Loan”, requires that an
allowance for loan losses be maintained to cover estimated losses inherent in
the loan portfolio. Under this concept, the specific allowances identified for
individual loans or pools of loans are supplemented by an amount provided for
inherent loan losses estimated to have been incurred but which are not
identified based on individual loan reviews. The amount of inherent loss for
loans not specifically provided is estimated based upon evaluation of historical
write-off experience, mix of loans and other factors.
The Bank’s
accounting for its loan loss reserve differs in some respects with practices of
U.S.-based banks, as discussed below in Notes 20.4.1, 20.4.2, 20.4.3 and
20.4.4.
F-60
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
The
following table discloses the amounts required by SFAS No. 114, as of December
31, 2007, 2006 and 2005:
|
December
31,
|
|||||
|
2007
|
2006
|
2005
|
|||
|
—Total
amount of loans considered as impaired
|
110,516
|
129,953
|
990,854
|
||
|
Amount
of loans considered as impaired for which there is a related allowance for
credit losses
|
110,516
|
129,953
|
990,854
|
||
|
Amount
of loans considered as impaired for which there is no related allowance
for credit losses
|
—
|
—
|
—
|
||
|
—Reserves
allocated to impaired loans
|
72,667
|
105,847
|
297,667
|
||
|
—Average
balance of impaired loans during the fiscal year
|
114,057
|
279,495
|
1,033,864
|
||
Under U.S.
GAAP, the activity in the allowance for loan losses for the fiscal years
presented is as follows:
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||
|
Balance
at the beginning of the fiscal year
|
96,852 | 284,327 | 340,402 | |||||||||
|
Provision
for loan losses
|
25,000 | 49,124 | 102,251 | |||||||||
|
Charge-offs
|
(30,354 | ) | (236,599 | ) | (158,326 | ) | ||||||
|
Balance
at the end of the fiscal year
|
91,498 | 96,852 | 284,327 | |||||||||
20.4.1.
Interest recognition—non-accrual loans
The method
applied to recognize income on loans is described in Note 3.4.6.
Additionally,
the Bank suspends the accrual of interest generally when the related loan is
non-performing and the collection of interest and principal is in doubt. Accrued
interest remains on the Banks books and is considered a part of the loan
balance. It allowances in its whole when the Bank determined the reserve for
credit losses. SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”,
requires that such accrued interest be charged off to income.
The Bank
recognizes interest income on a cash basis for non-accrual loans. SFAS No. 114,
requires that if the collectibility of the principal of the non-accrual loan is
in doubt, cash payments should be applied to reduce the principal to the extent
necessary to remove such doubt. Management believes that the effect of this
difference in interest recognition is not material to the Bank’s consolidated
income statements taken as a whole.
20.4.2.
Impaired loans—Non-Financial Private Sector and residents abroad
Effective
July 1, 1995, the Bank adopted SFAS No. 114, “Accounting by Creditors for
Impairment of a Loan” and SFAS No. 118, “Accounting by Creditors for Impairment
of a Loan—Income Recognition and Disclosures” for computing U.S. GAAP
adjustments. SFAS No. 114, as amended by SFAS No. 118, requires a creditor to
measure impairment of a loan based on the present value of expected future cash
flows discounted at the loan’s effective interest rate, or at the loan’s
observable market price or the fair value of the collateral if the loan is
collateral dependent. This Statement is applicable to all loans (including those
restructured in a troubled debt restructuring involving a modification of
terms), except large groups of smaller-balance homogenous loans that are
collectively evaluated for impairment. The Bank considers commercial loans over
500 for individual impairment evaluations. Loans are considered impaired when,
based on management’s evaluation, a borrower will not be able to fulfill its
obligation under the original terms of the loan. SFAS No. 118 amends the income
recognition provisions that had been included in SFAS No. 114.
Had U.S.
GAAP been applied, the Bank’s assets would have increased by 107,230, 70,245 and
49,569 at December 31, 2007, 2006 and 2005, respectively. On the other hand, the
income would have increased by 36,985, 20,676 and 11,968 at December 31, 2007,
2006 and 2005, respectively.
F-61
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
20.4.3.
Federal Government Secured Loans
During the
fiscal year ended December 31, 2001, and pursuant to Decrees No. 1387/01 and
1646/01, the Bank and its subsidiaries swapped a portion of their holdings in
federal government securities outstanding as of November 6, 2001, for a face
value of US$3,291,795 thousands, for Guaranteed Loans amounting to US$3,360,403
thousands.
As
provided for in BCRA’s Communications “A” 3366 and “A” 3385, the initial value
of the certificates matched that of the prior book value as of the date of the
swap. BCRA rules determined that these securities had to be recorded at their
amortized cost which was significantly higher than the market value. No
impairment was recorded as these asstes are not subject to impairment under
Argentine banking GAAP.
As of
December 31, 2001, the above mentioned debt swap was subject to the provisions
of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities”. According to SFAS No. 115 an “other than temporary impairment”
affects the swapped obligations and therefore requires that, in the event of
such obligations having been classified as “held to maturity”, a loss be
recorded for the difference between the book value of the obligation so swapped
and its quotation at the date of the swap, as such quotation is understood to be
the best measure for recognizing the above-mentioned impairment. In this case,
the listed value of the securities was much lower than the accounting value
under BCRA’s standards. Once this impairment
was recognized under US GAAP in fiscal year 2001, the new book value of the
obligations to be swapped will constitute the initial value of the new loans
received. As from such date, the Bank recorded these loans considering the
mentioned value plus the related CER adjustment and the interest
accretion.
According
to SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases”, the Bank
recognizes income for each fiscal year using the accretion interest
method.
For
subsequent periods, management evaluates the collection of these loans on a
regular basis, and considers that such loans are not impaired in accordance with
SFAS No. 114. In addition, the carrying amount under US GAAP is significantly
lower than the principal of such loans and the discounted cash flows expected to
be received from these loans. Therefore, the Bank has not recorded an allowance
for such loans.
In the
fiscal years for 2007, 2006 and 2005 the Bank’s equity was adjusted according to
the difference between the valuation of the holdings of these assets at the
close of each year under both US and Argentine Banking GAAP, as detailed
below:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Guaranteed
loan portfolio under BCRA
|
2,054,855 | 2,617,265 | 3,574,617 | |||||||||
|
Guaranteed
loan portfolio under USGAAP
|
1,712,450 | 2,058,051 | 2,665,617 | |||||||||
|
Difference
– Reconciliation adjustment
|
342,405 | 559,214 | 909,500 | |||||||||
As of
December 31, 2007, 2006 and 2005 the values calculated as mentioned in the above
paragraph were converted into pesos. The income for the fiscal years ended
December 31, 2007, 2006 and 2005 reflects mainly the revenues produced for the
sale of an important part of the stock of these assets effected during the years
then ended at market values significantly higher to those recorded in accordance
with U.S. GAAP, and by the interest accretion of the loans in
stock.
Detailed
below is the portfolio sales effected in the period 2007-2005 calculated and
their respective gain under US GAAP:
|
Portfolio
sales price
|
US
GAAP value
|
Gain
on portfolio sales
|
Total
income adjustment
|
||||
|
2005
|
2,550,984
|
1,734,669
|
816,315
|
912,300
|
|||
|
2006
|
1,199,288
|
904,768
|
294,520
|
350,286
|
|||
|
2007
|
677,304
|
533,362
|
143,942
|
216,809
|
|||
F-62
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
These
sales had no guarantee or recourse against the Bank, nor there is any commitment
from the Bank side regarding their collectibility or repurchase, as a
consequence they are made on a non-recourse basis as considered by SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities”
The
effects of adjustments required to state such amounts in accordance with U.S.
GAAP would decrease assets by 342,405, 559,214 and 909,500 at December 31, 2007,
2006 and 2005, respectively. On the other hand, the income for the fiscal years
ended December 31, 2007, 2006 and 2005 would have increased by 216,809, 350,286
and 912,300, respectively.
20.4.4.
Loans—Non-Financial Provincial Governmental Sector and other governmental sector
agencies
As a
result of Public Emergency and Exchange System Reform Law and the public debt
default, meeting such obligations is based on scant Argentine Treasury resources
and the persistent fiscal deficit of the Federal, Provincial and Municipal
Governments, which inevitably led to a significant public indebtedness.
Therefore, the Ministry of Economy was empowered to take the actions and deal
with the formalities needed to reschedule the Federal Government’s
debt.
During the
fiscal year ended December 31, 2006, the process of swap of Provincial
Development Trust Fund Corporate Bonds ended, for which the Bank received BOGAR
2020.
Considering
the issues mentioned above, impairment does affect such credit facilities and a
loss must therefore be recorded according to U.S. GAAP for the difference
between their accounting value and the expected value of their future cash
flows, taking into consideration the provision of SFAS No 115, “Accounting for
Certain Investments in Debt and Equity Securities”.
The
effects of adjustments required to state these amounts in accordance with U.S.
GAAP would be decreased assets by 149,012 at December 31, 2005. On the other
hand, income for the fiscal years ended December 31, 2006 and 2005 would have
increased by 149,012 and 26,298, respectively. (Additionally see Note
20.5.1.)
|
|
20.5.
|
Government
and private securities valuation
|
20.5.1.
Government and other debt securities—Available for sale
During the
fiscal year 2005, as a result of the Government’s debt restructuring, the Bank
received for the defaulted portfolio Dollar-denominated Discount bonds amounted
to US$26,083, and Peso-denominated Discount bonds amounted to Ps.146,818. During
the fiscal year 2006, the Bank swapped Provincial Development Trust Fund
Corporate Bonds into Secured Bond due in 2020, the face value of the corporate
bonds swapped amounted to 551,230,672.
According
to U.S. GAAP, the Bank decided to classify these Government Securities as
available for sale and carried at fair value (market value if available), with
unrealized gains and losses reported as a net amount, net of income tax, within
the stockholder’s equity accounts. However, SFAS No. 115 requires that if the
decline in fair value is judged to be other than temporary, the cost of the
security shall be written down to fair value, and the amount of the write down
shall be included in earnings /(losses). This valuation criteria differ from
BCRA rules, as described in Note 3.4.2.
Had U.S.
GAAP been applied, the Bank’s assets would have decreased 31,448, 76,307 and
173,002 at December 31, 2007, 2006 and 2005, respectively.
On the
other hand, the income for the fiscal years ended December 31, 2007, 2006 and
2005 would have increased by 147,594, 61,256 and 383,305,
respectively.
F-63
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
The
amortized cost and fair value of Government securities and Other debt securities
available for sale as of December 31, 2007 and 2006 are as follows:
|
Government
securities (*)
|
Other
debt securities (*)
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Amortized
cost
|
3,828,749 | 954,929 | 26,511 | — | ||||||||||||
|
Gross
Unrealized (Loss) / Gain
|
(119,310 | ) | 25,245 | (976 | ) | — | ||||||||||
|
Fair
Value
|
3,709,439 | 980,174 | 25,535 | — | ||||||||||||
|
Number
of Positions
|
53 | 3 | 3 | — | ||||||||||||
(*) All
these securities have been in an unrealized loss position for less than 12
months.
During the
second half of fiscal year 2007, the listed prices of the Argentine Government
Debt declined. Based on the evaluation of the market situation and the Bank’s
ability and intent to hold those investments for a reasonable period of time,
sufficient for a forecasted recovery of fair value, the Bank does not consider
these investments to be other-than- temporarily impaired as of December 31,
2007.
|
20.5.2.
|
Government
and private securities—Trading
Account
|
Under U.S.
GAAP, the Bank classified as trading securities, its holdings booked in
investment accounts under BCRA’s rules, basically BODEN 2012 and other
securities. The Bank carries these Government and private securities in
accordance with BCRA (see Note 3.4.2.). Under U.S. GAAP for trading securities,
taking into consideration the provision of SFAS No 115, “Accounting for Certain
Investments in Debt and Equity Securities”, a fair valuation methodology should
be used to value the securities for accounting purposes.
Had U.S.
GAAP been applied, the Banks assets would have decreased by 1,021 at December
31, 2006, and increased by 4,525 at December 31, 2005. On the other hand, the
income for the fiscal years ended December 31, 2007, 2006 and 2005 would have
increased by 1,021, 5,546 and 12,447, respectively.
|
|
20.6.
|
Gain
contingencies
|
Constitutional
protection actions:
At
December 31, 2003 the Bank recorded an asset for the difference in nominal terms
between the deposits at the free market exchange rate at the moment of each
payment compared to the book value of 1.40 pesos per dollar plus CER to that
date. This asset is being amortized in 60 monthly instalments as from April 2003
(see Note 3.4.13.).
SFAS No. 5
“Accounting for Contingencies” requires that contingencies that might result in
gains are not reflected in the accounts since to do so might be to recognize
revenue prior to its realization. Had U.S. GAAP been applied, the Bank’s assets
would have decreased by 78,177, 363,887 and 586,534 at December 31, 2007, 2006
and 2005, respectively. On the other hand the income for the fiscal years ended
December 31, 2007, 2006 and 2005 would have increased by 285,710, 222,647 and
152,755, respectively.
|
|
20.7.
|
Investment
in other companies
|
At
December 31, 2007, 2006 and 2005, the Bank accounted for the investment in the
Buenos Aires Stock Exchange at the market value at that date. Under SFAS No. 115
“Accounting for Certain Investments in Debt and Equity Securities”, such
investments would have been valued at cost or at a lesser amount where there is
an-other-than-temporary impairment in value. Had U.S. GAAP been applied, the
Bank’s assets would have decreased by 3,187, 1,196 and 1,796 at December 31,
2007, 2006 and 2005, respectively.
In
addition, there are a number of companies which are under 20% and they were
valued by the equity method in accordance with Argentine Central Bank’s rules.
Under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities”, such investments, which are non-marketable securities, would have
been valued at cost. Had U.S. GAAP been applied, the Bank’s assets would have
decreased by 24,621, 20,638 and 16,970 at December 31, 2007, 2006 and 2005,
respectively.
F-64
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
On the
other hand, the income for the fiscal years ended December 31, 2007, 2006 and
2005 would have decreased by 5,974, 3,068 and 5,924, respectively, due to the
effect of the differences mentioned in the preceding paragraphs.
|
|
20.8.
|
Vacation
expense
|
The cost
of vacations earned by employees is generally recorded by the Bank when paid.
SFAS No. 43, “Accounting for Compensated Absences”, requires that this expense
be recorded on an accrual basis as the vacations are earned.
Had U.S.
GAAP been applied, the Bank’s liabilities would have increased by 59,982, 48,394
and 44,829 at December 31, 2007, 2006 and 2005, respectively. In addition, the
income for the fiscal years ended December 31, 2007, 2006 and 2005 would have
decreased by 11,588, 3,565 and 8,756, respectively.
|
|
20.9.
|
Items
in process of collection
|
The Bank
does not give accounting recognition to checks drawn against the Bank or other
Banks or other items to be collected, until such time as the related item clears
or is accepted. Such items are recorded by the Bank in Memorandum accounts. U.S.
banks, however, account for such items through balance sheet clearing accounts
at the time the items are presented.
Had U.S.
GAAP been applied, the Bank’s assets and liabilities would have increased by
approximately 1,191,382 and 898,439 at December 31, 2007 and 2006,
respectively.
The same
effect would be displayed in the Balance Sheet disclosure requirements in
accordance with Regulation S-X (see Note 19.17.).
|
20.10.
|
Forward
and unsettled spot
transactions
|
The Bank
enters into forward and unsettled spot contracts with delivery of the underlying
asset for trading purposes.
The Bank
accounts for such forward and unsettled spot contracts on a basis different from
that required under U.S. GAAP.
For such
forward and unsettled spot transactions, the Bank recognizes both a receivable
and a payable at the time of the agreement, which reflect the amount of cash,
currency or securities to be exchanged at the closing date. The receivable or
payable representing the receipt or delivery of securities or currency is stated
at the quoted market value of such securities or currency (see Note 3.4.8.). In
the United States, accounting for forward foreign exchange contracts and futures
contracts are governed by SFAS No. 133, “Accounting for Derivated Instruments
and Hedging Activities” (see Note 20.16.). Under this standard, in general
entities would not recognize a receivable or payable but would recognize the
differences arising from changes in the market price of securities or currency
to be received or delivered if the transaction did not qualify as a
hedge.
Had U.S.
GAAP been applied, the Bank’s assets and liabilities would have decreased by
approximately 83,456 and 71,868 at December 31, 2007 and 2006,
respectively.
The same
effect would be displayed in the Balance Sheet disclosure requirements in
accordance with Regulation S-X (see Note 19.17.).
|
20.11.
|
Technical
Valuation – Inflation
adjustments
|
A
technical revaluation (inflation adjustments) of the Bank’s properties was made
in 1981 to eliminate relative price distortions generated by the hyper inflation
then prevailing in Argentina. This revaluation was recorded in the “Adjustments
to stockholders’ equity” caption. Under BCRA’s rules, when an asset which had
been revalued is sold at a loss, the loss is recorded directly to “Adjustments
to stockholders’ equity” to the extent of the original revaluation. Under SFAS
No. 52, “Foreign Currency Translation”, the technical valuation (inflation
adjustments) is considered to be a permanent addition to equity and,
accordingly, any loss on the sale of an asset which was revalued would be
reflected in net income. There has been no sale of revalued assets during the
fiscal years ended December 31, 2007,
F-65
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
2006 and
2005. Consequently, the balance related to the previously mentioned revaluation
included in the “Adjustments to Stockholders’ Equity” caption has not been
modified.
|
20.12.
|
Acceptances
|
Foreign
trade acceptances are not recorded on the balance sheet by the Bank. In
accordance with Regulation S-X, acceptances and related customer liabilities
should be recorded on the balance sheet. The adjustment required to state the
Bank’s balance sheets in accordance with Regulation S-X would be to increase
assets (due from customers on acceptances) and increase liabilities (bank
acceptances outstanding) by 196,522 and 100,577 at December 31, 2007 and 2006,
respectively.
The same
effect would be displayed in the Balance Sheet disclosure requirements in
accordance with Regulation S-X (see Note 19.17.).
|
20.13.
|
Provisions
and technical commitments related to insurance
activities
|
|
20.13.1.
|
Provision
related to insurance activities
|
As
indicated in Note 15. at December 31, 2007 and 2006, the subsidiary Consolidar
AFJP S.A. manages a retirement and pension plan for an amount of 17.3 and 16.7
billion pesos, respectively.
Consolidar
AFJP S.A. has recorded provisions related to insurance activities valued in
accordance with the accounting standards established by the Superintendence of
Pension Fund Administrators.
Under U.S.
GAAP, the effects of adjustments required to state such provisions for incurred
but not recorded claims related to death and disability, in accordance with SFAS
No. 60 “Accounting and Reporting by Insurance Enterprises”, would have decreased
stockholders’ equity by 230,194 and 209,039 at December 31, 2006 and 2005,
respectively.
As
mentioned in Note 15.b), the Argentine Congress enacted Law No. 26,222, which
eliminated the liability for pension fund managers for all death and disability
claims received after December 31, 2007. Beginning on January 1,
2008, all death and disability claims will be paid using a fund of mutual
contributions (“mutual fund”). In accordance with paragraph 16 of SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities” the Company’s liability for incurred but not reported claims has
been extinguished.
Pursuant
to the new law, Consolidar AFJP does not remain legally obligated on the death
and disability benefit claims that are received after December 31, 2007.
Furthermore the Company is legally discharged from the obligation for claims
received after December 31, 2007.
Therefore
the extinguished liability described above has been derecognized in the fiscal
year ended December 31, 2007. Had US GAAP been applied, the income for the
fiscal year ended December 31, 2007 would have increased by 230,194. On the
other hand, income for the fiscal years ended December 31, 2006 and 2005 would
have decreased by 21,155 and 36,109, respectively.
|
20.13.2.
|
Technical
Commitments
|
Consolidar
Cía. de Seguros de Retiro S.A. and Consolidar Cía. de Seguros de Vida S.A.
maintain reserves accounted in Other Liabilities from Subsidiaries valued in
accordance with the accounting standards established by the Superintendence of
Pension Fund Administrators and the National Superintendence of Insurance (see
Notes 4.3.e) and 6.).
The
effects of adjustments required to state such amounts in accordance with US.
GAAP, under SFAS No. 60, “Accounting and Reporting by Insurance Enterprises”,
would have decreased liabilities by 16,865, 30,150 and 10,114 at December 31,
2007, 2006 and 2005, respectively. On the other hand, income for the fiscal year
ended December 31, 2007 would have decreased by 13,285 and for the fiscal years
ended December 31, 2006 and 2005 would have increased by 20,036 and 46,897,
respectively.
F-66
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
20.14.
|
Fair
Value of Financial
Instruments
|
In
December 1991, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments” (SFAS No. 107). This pronouncement became effective for
fiscal years ended after December 15, 1992 and requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate fair value.
SFAS No.
107 defines a financial instrument as cash, evidence of an ownership in an
entity, or a contract that both conveys or imposes on an entity the contractual
right or obligation to either receive or deliver cash or another financial
instrument. Fair value is defined as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation, and is best evidenced by a quoted market price,
if one exists.
In cases
where quoted market prices are not available, fair value estimation are based on
the quoted market price of a financial instrument with similar characteristics,
the present value of expected future cash flow, or other valuation techniques,
all of which are significantly affected by the assumptions used. Although
management uses its best judgment in estimating the fair value of these
financial instruments, there are inherent weaknesses in any estimation
technique. As a result, the fair value may not be indicative of the net
realizable or liquidation value. Furthermore, minor changes in the assumptions
used could have a significant impact on the resulting estimated fair
values.
In
addition, disclosure of fair values is not required for non-financial assets and
liabilities such as property and equipment, sundry assets and intangible assets
and anticipated future business. As a result, the following fair values do not
reflect the underlying value of the Bank.
A
significant portion of the Bank’s assets and liabilities are in short-term
financial instruments, with a remaining maturity of under one year, and/or with
variable rates. These short-term and variable-rate financial instruments are
considered to have a fair value equivalent to their carrying value at the
balance sheet date.
For
financial instruments with remaining maturity over one year and with
fixed-rates, and therefore not included above, the following methods and
assumptions were used to estimate their fair value:
Government
and private securities
|
|
§
|
Listed-Investment
accounts: fair value for these securities is based upon quoted market
prices (if available) at December 31, 2007 and
2006.
|
|
|
§
|
Unlisted
government securities: fair value for these securities was taken to be
equal to the present value of future cash flows discounted at the average
year-end market interest rates for securities of similar interest rate,
credit risk and maturity.
|
Loans
and assets subject to financial leasing
Fair value
is estimated by discounting future cash flows using the current rates at which
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities, considering the contractual terms in effect as of December
31, 2007 and 2006.
Other
receivables from financial transactions
|
|
§
|
Forward
purchases of Government securities under repurchase agreements with
holdings in investment accounts: fair value for these receivables were
based upon quoted market prices (if available) at December 31, 2007 and
2006 of the securities to be received after the fiscal
year-end.
|
|
|
§
|
Unlisted
corporate bonds: fair value for these securities was taken to be equal to
the present value of future cash flows discounted at the average year-end
market interest rates for securities of similar interest rate, credit risk
and maturity.
|
F-67
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Deposits
As a
significant portion of the Bank’s deposits as of December 31, 2007 and 2006
(more than 99% considering the contractual terms in effect as of such date) have
a remaining maturity of under one year, they were considered to have a fair
value equivalent to their carrying value at the balance sheet date.
Other
liabilities from financial transactions
As of
December 31, 2007 and 2006, the majority of these operations have a variable
interest rate or a maturity less than a year; in these cases the Bank considers
that the fair value is the same that the carrying value at the balance sheet
date.
Off-Balance
sheet
Commitments
to extend credit, standby letter of credit, guarantees granted and foreign trade
acceptances (see Note 19.18.).
It is
estimated that the differential, if any, between the fee charged, which is
equivalent to the carrying amount, by the Bank for these transactions and the
average December 31, 2007 and 2006 market fee would not give rise to a material
variance from the carrying amount.
The
following is a summary of carrying amounts and estimated fair values of
financial instruments at December 31, 2007 and 2006:
|
December
31,
|
||||||||||||||||
|
2007
|
2006
|
|||||||||||||||
|
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
|||||||||||||
|
Financial
assets
|
||||||||||||||||
|
Cash
and due from banks
|
3,169,314 | 3,169,314 | 2,558,484 | 2,558,484 | ||||||||||||
|
Government
and private securities (1)
|
5,181,253 | 5,058,580 | 4,372,032 | 4,230,294 | ||||||||||||
|
Loans
(2)
|
11,390,121 | 10,856,600 | 9,534,183 | 9,300,353 | ||||||||||||
|
Other
receivables from financial transactions (3)
|
956,184 | 961,045 | 917,532 | 917,532 | ||||||||||||
|
Assets
subject to financial leasing
|
323,522 | 323,522 | 235,188 | 235,188 | ||||||||||||
|
Investments
in other companies
|
77,986 | 77,986 | 54,438 | 54,438 | ||||||||||||
| 21,098,380 | 20,447,047 | 17,671,857 | 17,296,289 | |||||||||||||
|
Financial
liabilities
|
||||||||||||||||
|
Deposits
|
15,009,758 | 15,009,758 | 12,505,756 | 12,505,756 | ||||||||||||
|
Other
liabilities from financial transactions (3)
|
1,750,021 | 1,755,344 | 1,484,007 | 1,484,085 | ||||||||||||
| 16,759,779 | 16,765,102 | 13,989,763 | 13,989,841 | |||||||||||||
|
|
(1)
|
Includes
the effect described in Note 20.5.
|
|
|
(2)
|
Includes
the effects described in Notes 20.4.2., 20.4.3. and
20.4.4.
|
|
|
(3)
|
Includes
the effects described in Notes
20.16.
|
|
20.15.
|
Goodwill
|
|
|
§
|
On
May 4, 1998, the General and Special Stockholder’s Meeting approved (to be
effective on April 30, 1998) the reversal of the shares issuance premium
in the amount of 428,661 related to the capital increase with face value
25,000 thousand paid in on December 19, 1997, and bearing up to 428,661 of
the Business Goodwill from the acquisition of 71.754% of the capital stock
of Banco de Crédito Argentino S.A. The mentioned reversal is not allowed
in accordance with US. GAAP. Under US. GAAP, the Bank should recognize the
issuance premium under “Issuance premiums” and capitalize the related
amount under Intangible Assets.
|
The effect
of adjustments required to state such amounts in accordance with U.S. GAAP would
have increased assets by 254,882 at December 31, 2007, 2006 and
2005.
F-68
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
|
§
|
On
May 13, 1999, BBVA (majority owner of BBVA Banco Francés) acquired CB and
Atuel Fideicomisos S.A. and on September, 13, 1999, BBVA sold its
interests in both companies to BBVA Banco Francés. For the difference
between the definitive price of the transaction and the incorporation
value of both companies, the Bank recognized goodwill and amortized it in
proportion to the months of estimated useful life (120-month period).
Under U.S. GAAP, the Bank would be required to account for the acquisition
of the mentioned companies at BBVA’s book balance. Had U.S. GAAP been
applied, the Bank’s assets would have increased by 42,495, 35,866 and
29,236 at December 31, 2007, 2006 and 2005, respectively. Additionally,
the income would have increased by 6,629, 6,630 and 6,629 for the years
ended December 31, 2007, 2006 and 2005,
respectively.
|
|
|
§
|
SFAS
No. 142 “Goodwill and Other Intangible Assets” requires, effective January
1, 2002, that goodwill is no longer amortized, but is subject to
impairment test annually or more frequently if events or changes in
circumstances indicate that the asset may be impaired. In 2001 the Bank
had recognized an impairment loss and wrote off the entire balance of the
U.S. GAAP goodwill. Had U.S. GAAP been applied, the Bank’s assets would
have decreased by 309,577 as of December 31, 2007, 2006 and 2005,
respectively.
|
|
20.16.
|
Accounting
for Derivative Instruments and Hedging
Activities
|
In June
1998, the U.S. Financial Accounting Standards Board issued SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities”. This statement,
as subsequently amended by SFAS No. 137, 138 and 149 is required to be adopted
for reporting under U.S. generally accepted accounting principles for all fiscal
years beginning after June 15, 2000.
SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available for sale security, or a foreign
currency denominated forecasted transaction.
Among
other provisions, SFAS No. 133 requires that for a transaction to qualify for
special hedge accounting treatment the transaction must meet specific test of
effectiveness and all hedge ineffectiveness is required to be reported currently
in computation of net income. SFAS No. 133 further requires the identification
of assets, liabilities or anticipated transactions being hedged and periodic
revaluation of such hedged positions to reflect the changes in market value of
risk being hedged. SFAS No. 133 further expands the definition of derivatives to
include certain contacts or provisions commonly embedded in contracts or
financial instruments and require that such derivatives be reported at fair
value.
Had US
GAAP been applied, the assets and liabilities would have increased by 4,861 and
8,300, respectively, at December 31, 2007. On the other hand, income for the
fiscal year ended December 31, 2007 would had decreased by 3,439.
In Note
19.18., it is explained in detail the derivate instruments used by the Bank and
the valuation methods of these instruments were explained in Notes 3.4.8. and
3.4.14.
|
20.17.
|
Allowance
for other contingencies
|
The Bank
maintains reserves accounted in Allowance for other contingencies valued in
accordance with the accounting standards established by BCRA (see Note 3.4.17.).
As of December 31, 2006, these reserves amounted 44,818 and have been reversed
on fiscal year 2007 under BCRA rules.
The
effects of adjustments required to state such amounts in accordance with SFAS
No. 5, “Accounting for Contingencies”, would have decreased Allowances for other
contingencies by 44,818 at December 31, 2006. On the other hand, income for the
fiscal year ended December 31, 2007 would have decreased by 44,818 and increased
by 44,818 for the fiscal year ended December 31, 2006.
F-69
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
20.18.
|
Set
forth below are the significant adjustments to consolidated net income and
consolidated stockholders’ equity which would have been required if U.S.
GAAP had been applied instead of Argentine Central Bank’s
rules:
|
|
Consolidated
Net Income
|
||||||||||||||||
|
December
31,
|
||||||||||||||||
|
Ref.
|
2007
|
2006
|
2005
|
|||||||||||||
|
Net
income as stated
|
235,049 | 180,037 | 117,204 | |||||||||||||
|
Deferred
taxes
|
20.1 | (495,028 | ) | (360,391 | ) | (347,458 | ) | |||||||||
|
Allowances
on deferred tax assets
|
20.1 | 328,508 | 325,939 | 366,801 | ||||||||||||
|
Tax
on minimum presumed income
|
20.1 | — | — | (1,003 | ) | |||||||||||
|
Loan
origination and issuance credit card’s fees
|
20.2 | (9,835 | ) | (15,587 | ) | (2,270 | ) | |||||||||
|
Intangible
assets
|
20.3 | 4,548 | 5,518 | (472 | ) | |||||||||||
|
Impaired
loans-Non Financial Private Sector and residents abroad
loans
|
20.4.2 | 36,985 | 20,676 | 11,968 | ||||||||||||
|
Federal
Government secured loans
|
20.4.3 | 216,809 | 350,286 | 912,300 | ||||||||||||
|
Loans-Non-Financial
Provincial Governmental Sector and other governmental sector
agencies
|
20.4.4 | — | 149,012 | 26,298 | ||||||||||||
|
Government
and private securities valuation
|
20.5 | 148,615 | 55,710 | 395,752 | ||||||||||||
|
Gain
contingencies
|
20.6 | 285,710 | 222,647 | 152,755 | ||||||||||||
|
Investment
in other companies
|
20.7 | (5,974 | ) | (3,068 | ) | (5,924 | ) | |||||||||
|
Vacation
expense
|
20.8 | (11,588 | ) | (3,565 | ) | (8,756 | ) | |||||||||
|
Provision
related to insurance activities
|
20.13.1 | 230,194 | (21,155 | ) | (36,109 | ) | ||||||||||
|
Technical
Commitments
|
20.13.2 | (13,285 | ) | 20,036 | 46,897 | |||||||||||
|
Goodwill
|
20.15 | 6,629 | 6,630 | 6,629 | ||||||||||||
|
Accounting
for Derivative Instruments and Hedging Activities
|
20.16 | (3,439 | ) | — | — | |||||||||||
|
Allowance
for other contingencies
|
20.17 | (44,818 | ) | 44,818 | — | |||||||||||
|
Net
income in accordance with U.S. GAAP
|
909,080 | 977,543 | 1,634,612 | |||||||||||||
|
Net
income per share in accordance with U.S. GAAP
|
1.93 | 2.07 | 3.47 | |||||||||||||
|
Weighted
average number of shares Outstanding (in thousands)
|
471,361 | 471,361 | 471,361 | |||||||||||||
|
Consolidated
Stockholders’ Equity
|
||||||||||||||||
|
December
31,
|
||||||||||||||||
|
Ref.
|
2007
|
2006
|
2005
|
|||||||||||||
|
Stockholders’
equity as stated
|
2,056,837 | 1,954,584 | 1,801,547 | |||||||||||||
|
Deferred
taxes
|
20.1 | 525,581 | 969,673 | 1,342,468 | ||||||||||||
|
Allowances
on deferred tax assets
|
20.1 | (151,426 | ) | (479,934 | ) | (805,873 | ) | |||||||||
|
Loan
origination and issuance credit card’s fees
|
20.2 | (48,473 | ) | (38,638 | ) | (23,051 | ) | |||||||||
|
Intangible
assets
|
20.3 | (6,824 | ) | (11,372 | ) | (16,890 | ) | |||||||||
|
Impaired
loans-Non Financial Private Sector and residents abroad
loans
|
20.4.2 | 107,230 | 70,245 | 49,569 | ||||||||||||
|
Federal
Government secured loans
|
20.4.3 | (342,405 | ) | (559,214 | ) | (909,500 | ) | |||||||||
|
Loans-Non-Financial
Provincial Governmental Sector and other governmental sector
agencies
|
20.4.4 | — | — | (149,012 | ) | |||||||||||
|
Government
and private securities valuation
|
20.5 | (31,448 | ) | (77,328 | ) | (168,477 | ) | |||||||||
|
Gain
contingencies
|
20.6 | (78,177 | ) | (363,887 | ) | (586,534 | ) | |||||||||
|
Investment
in other companies
|
20.7 | (27,808 | ) | (21,834 | ) | (18,766 | ) | |||||||||
|
Vacation
expense
|
20.8 | (59,982 | ) | (48,394 | ) | (44,829 | ) | |||||||||
|
Provision
related to insurance activities
|
20.13.1 | — | (230,194 | ) | (209,039 | ) | ||||||||||
|
Technical
Commitments
|
20.13.2 | 16,865 | 30,150 | 10,114 | ||||||||||||
|
Goodwill
|
20.15 | (12,200 | ) | (18,829 | ) | (25,459 | ) | |||||||||
|
Accounting
for Derivative Instruments and Hedging Activities
|
20.16 | (3,439 | ) | — | — | |||||||||||
|
Allowance
for other contingencies
|
20.17 | — | 44,818 | — | ||||||||||||
|
Consolidated
Stockholders’ equity in accordance with U.S. GAAP
|
1,944,331 | 1,219,846 | 246,268 | |||||||||||||
Had U.S.
GAAP been applied, the amounts of the assets and liabilities would have been as
follows:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Assets
|
23,266,358 | 19,230,659 | 15,421,682 | |||||||||
|
Liabilities
|
21,322,027 | 18,010,813 | 15,175,414 | |||||||||
F-70
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
|
20.19.
|
The
following presents the consolidated statement of operations adjusted to
reflect the application of U.S. GAAP using the Argentine Central Bank
format:
|
|
Consolidated
Net Income
|
||||||||||||
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Financial
income
|
2,012,758 | 2,028,677 | 2,113,219 | |||||||||
|
Financial
expenses
|
(681,573 | ) | (568,345 | ) | (608,949 | ) | ||||||
|
Allowances
for doubtful loans
|
(25,277 | ) | (49,450 | ) | (102,659 | ) | ||||||
|
Service
charge income
|
1,172,832 | 900,764 | 721,510 | |||||||||
|
Service
charge expenses
|
(158,927 | ) | (110,199 | ) | (77,764 | ) | ||||||
|
Operating
expenses
|
(1,127,325 | ) | (920,608 | ) | (781,067 | ) | ||||||
|
Other
income
|
1,650,388 | 1,129,778 | 1,187,397 | |||||||||
|
Other
expenses
|
(911,425 | ) | (942,073 | ) | (670,751 | ) | ||||||
|
Income
before income tax
|
1,931,451 | 1,468,544 | 1,780,936 | |||||||||
|
Income
Tax
|
(776,528 | ) | (383,391 | ) | (105,458 | ) | ||||||
|
Tax
on minimum presumed income
|
(50,394 | ) | (71,680 | ) | (18,712 | ) | ||||||
|
Net
income
|
1,104,529 | 1,013,473 | 1,656,766 | |||||||||
|
Loss
on minority interest in subsidiaries
|
(195,449 | ) | (35,930 | ) | (22,154 | ) | ||||||
|
Total
consolidated income
|
909,080 | 977,543 | 1,634,612 | |||||||||
|
Comprehensive
income
|
||||||||||||
|
Net
income in accordance with U.S. GAAP
|
909,080 | 977,543 | 1,634,612 | |||||||||
|
Other
comprehensive (loss) / income, net of tax (1)
(2)
|
(94,595 | ) | 23,035 | (62,543 | ) | |||||||
|
Comprehensive
net income in accordance with U.S. GAAP
|
814,485 | 1,000,578 | 1,572,069 | |||||||||
|
|
(1)
|
See
Note 20.20.
|
|
|
(2)
|
The
minority interest represents the effect of the U.S. GAAP adjustments in
the Group's consolidated subsidiaries (see Note
2.1.).
|
|
20.20.
|
Set
forth below are the related tax effects allocated to each component of
other comprehensive income (loss) and the accumulated other comprehensive
income (loss) balances, as of December 31, 2007, 2006 and
2005:
|
Tax
effects on Other Comprehensive (Loss) / Income
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||||||||
|
Before
Tax
Amount
|
Tax
(Expense)
or
Benefit
|
Net
of Tax Amount
|
Before
Tax
Amount
|
Tax
(Expense)
or
Benefit
|
Net
of Tax Amount
|
Before
Tax
Amount
|
Tax
(Expense)
or
Benefit
|
Net
of Tax Amount
|
||||||||||
|
Unrealized
gains/(losses)
on
securities
|
(145,531)
|
50,936
|
(94,595)
|
35,439
|
(12,404)
|
23,035
|
(96,220)
|
33,677
|
(62,543)
|
|||||||||
|
Other
comprehensive
income
gain/(loss)
|
(145,531)
|
50,936
|
(94,595)
|
35,439
|
(12,404)
|
23,035
|
(96,220)
|
33,677
|
(62,543)
|
|||||||||
F-71
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Accumulated Other
Comprehensive Income / (Loss) balances
|
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||||||||
|
Foreign
Currency
Items
|
Unrealized
Gains/
(Losses)
on securities
|
Accumulated
Other Comprehensive Income/(Loss)
|
Foreign
Currency
Items
|
Unrealized
Gains/
(Losses)
on securities
|
Accumulated
Other Comprehensive Income/(Loss)
|
Foreign
Currency
Items
|
Unrealized
Gains/
(Losses)
on securities
|
Accumulated
Other Comprehensive Income/(Loss)
|
||||||||||
|
Beginning
balance
|
—
|
16,409
|
16,409
|
—
|
(6,626)
|
(6,626)
|
—
|
55,917
|
55,917
|
|||||||||
|
Current-fiscal
year
change
|
—
|
(94,595)
|
(94,595)
|
—
|
23,035
|
23,035
|
—
|
(62,543)
|
(62,543)
|
|||||||||
|
Ending
balance
|
—
|
(78,186)
|
(78,186)
|
—
|
16,409
|
16,409
|
—
|
(6,626)
|
(6,626)
|
|||||||||
|
20.21.
|
Cash
flows information
|
As
explained in Note 3.4.20., under BCRA’s rules, the Bank considers certain
investments securities held for trading or financial transactions and loans to
financial sector as cash equivalents. These cash equivalents include some
investments with original maturities greater than three months which would not
qualify as cash equivalents under SFAS No. 95 “Statements of Cash Flows” as they
were acquired when they had maturities over three months. In any case, all
investments that would qualify as cash equivalents are required to be treated as
cash equivalents under US GAAP, in this respect, for US GAAP purpose, the Bank
has always considered that highly liquid investments are treated as investments
rather than cash equivalents as permitted by paragraph 10 of SFAS No.
95.
For
purposes of the accompanying statement of cash flows the Bank considers, under
SFAS No. 95 “Statements of Cash Flows”, cash and due from banks to be cash and
cash equivalents.
The
following supplemental cash flow information separately presents the effect of
exchange rate changes on cash.
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
and cash equivalents at the end of the fiscal year
|
3,169,314 | 2,558,484 | 1,611,506 | |||||||||
|
Cash
and cash equivalents at beginning of the fiscal year
|
2,558,484 | 1,611,506 | 1,666,617 | |||||||||
|
Increase
/ (Decrease) in cash and cash equivalents
|
610,830 | 946,978 | (55,111 | ) | ||||||||
|
CAUSES
OF CHANGES IN CASH AND CASH EQUIVALENTS
|
||||||||||||
|
Cash
provided by operating activities
|
375,222 | 1,102,921 | 467,876 | |||||||||
|
Cash
used in investing activities
|
167,392 | 2,183,393 | 534,780 | |||||||||
|
Cash
provided by financing activities
|
428,836 | 2,039,496 | 23,619 | |||||||||
|
Effect
of exchange rate changes on cash
|
25,836 | 12,046 | 11,826 | |||||||||
|
Increase
/ (Decrease) in cash and cash equivalents
|
610,830 | 946,978 | (55,111 | ) | ||||||||
F-72
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Set forth
below is the reconciliation of net income to net cash flow from operating
activities, as required by SFAS No. 95 “Statement of Cash Flows”:
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
gain for the fiscal year
|
235,049 | 180,037 | 117,204 | |||||||||
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
||||||||||||
|
Amortization
and depreciation
|
392,998 | 333,045 | 312,298 | |||||||||
|
Provision
for loan losses and special reserves, net of reversals
|
(223,362 | ) | 350,185 | 513,160 | ||||||||
|
Net
income for government and private securities
|
— | (559,877 | ) | (209,438 | ) | |||||||
|
Foreign
exchange differences
|
— | (78,666 | ) | (72,942 | ) | |||||||
|
Minority
interests in subsidiaries
|
19,541 | 39,016 | 17,151 | |||||||||
|
Deferred
taxes
|
50,394 | 116,016 | 50,917 | |||||||||
|
Equity
(loss) of unconsolidated subsidiaries
|
(3,042 | ) | (19,834 | ) | (2,870 | ) | ||||||
|
Net
(increase) / decrease in interest receivable and payable and other accrued
income and expenses
|
(96,356 | ) | 743,106 | (257,604 | ) | |||||||
|
Net
cash provided by operating activities
|
375,222 | 1,102,921 | 467,876 | |||||||||
|
20.22.
|
New
accounting pronouncements (U.S.
GAAP)
|
a) Fair
Value Measurements
In
September, 2006, the FASB issued Statement No. 157 “Fair Value
Measurements”.
This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements.
The
changes to current practice resulting from the application of this Statement
relate to the definition of fair value, the methods used to measure fair value,
and the expanded disclosures about fair value measurements. The definition of
fair value retains the exchange price notion in earlier definitions of fair
value. This Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market. The definition focuses on the price that would be
received to sell the asset or paid to transfer the liability (an exit price),
not the price that would be paid to acquire the asset or received to assume the
liability.
This
Statement emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.
The
guidance in this Statement applies for derivatives and other financial
instruments measured at fair value under Statement No. 133 at initial
recognition and in all subsequent periods.
The
expanded disclosures about the use of fair value to measure assets and
liabilities should provide users of financial statements with better information
about the extent to which fair value is used to measure recognized assets and
liabilities, the inputs used to develop the measurements, and the effect of
certain of the measurements on earnings (or changes in net assets) for the
period.
b)
Employers’
Accounting for Defined Benefit Pension and Other
Postretirement
In
September, 2006, the FASB issued Statement No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans” (an amendment of
FASB Statements No. 87, 106, and 132(R)).
SFAS
No. 158 requires employers to recognize a net liability or asset and an
offsetting adjustment to accumulate other comprehensive income to report the
funded status of defined benefit pension and other post-retirement benefit
plans. Previous standards required employers to disclose the complete funded
status of its plans only in the notes to the
F-73
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
financial
statements. Additionally, SFAS No. 158 requires employers to measure plan
assets and obligations at their year-end balance sheet date.
This
Statement does not have impact in our Consolidated Financial
Statements.
c)
The
Fair Value Option for Financial Assets and Financial Liabilities
In
February, 2007, the FASB issued Statement No. 159 “The Fair Value Option for
Financial Assets and Financial Liabilities” (including an amendment of FASB
Statement No. 115).
This
Statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. This Statement is
expected to expand the use of fair value measurement, which is consistent with
the Board’s long-term measurement objectives for accounting for financial
instruments.
A business
entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings.
The fair
value option:
|
|
1.
|
May
be applied instrument by instrument, with a few exceptions, such as
investments otherwise accounted for by the equity
method.
|
|
|
2.
|
Is
irrevocable (unless a new election date
occurs).
|
|
|
3.
|
Is
applied only to entire instruments and not to portions of
instruments.
|
d)
Non-controlling Interests in Consolidated Financial Statements
In
December 2007, the SFAS issued Statement No. 160 “Non-controlling Interests in
Consolidated Financial Statements” (an amendment of ARB No. 51).
From the
issue of the SFAS No. 160 the companies that present Consolidated Financial
Statements will have to report the minority interest inside the stockholders
equity but separated from the stockholders equity of the parent. In the same
form the entities will have to present the information in the Consolidated
Statements of Operations.
This new
pronouncement also foresees that if a parent retains a non-controlling equity
investment in the former subsidiary, that investment is measured at its fair
value.
Likewise,
on the occasion of the major degree of detail that this Statement demands, it
will have present a reconciliation between the stockholders equity to the
beginning and to the end of each fiscal year and a scheme showing the effects
for the changes in the participation of the parent.
This
Statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008 (that is, January 1, 2009, for
entities with calendar year-ends). Earlier adoption is prohibited.
e)
Business Combinations
In
December 2007, the SFAS issued a revised of the Statement No. 141 “Business
Combination”.
The main
features of this Statement and the more significant improvements it makes to how
the acquisition method was applied. SFAS 141(R) requires an acquirer to
recognize the assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree at the acquisition date, measured at their fair values
as of that date, with limited exceptions specified in the
Statement.
F-74
BBVA
BANCO FRANCES S.A. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For
the fiscal years ended December 31, 2007, 2006 and 2005
Stated
in thousands of Pesos
Likewise,
it requires an acquirer to recognize assets acquired and liabilities assumed
arising from contractual contingencies as of the acquisition date, measured at
their acquisition-date fair values.
This
Statement requires the acquirer to recognize goodwill as of the acquisition
date, measured as a residual, which in most types of business combinations will
result in measuring goodwill as the excess of the consideration transferred plus
the fair value of any non-controlling interest in the acquiree at the
acquisition date over the fair values of the identifiable net assets
acquired.
This
Statement does not have impact in our Consolidated Financial
Statements.
f) Disclosures
about Derivative Instruments and Hedging Activities
In March
2008, the SFAS issued Statement No. 161 “Disclosures about Derivative
Instruments and Hedging Activities” (an amendment of SFAS No. 133).
The new
standard is intended to improve financial reporting about derivative instruments
and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity’s financial position, financial
performance, and cash flows. The new standard also improves transparency
about the location and amounts of derivative instruments in an entity’s
financial statements; how derivative instruments and related hedged items are
accounted for under Statement No. 133; and how derivative instruments and
related hedged items affect its financial position, financial performance, and
cash flows.
SFAS No.
161 achieves these improvements by requiring disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format. It also
provides more information about an entity’s liquidity by requiring disclosure of
derivative features that are credit risk–related. Finally, it requires
cross-referencing within footnotes to enable financial statement users to locate
important information about derivative instruments.
This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged.
The
Company does not anticipate that the adoption of this new statement at the
required effective date will have a significant effect in its results of
operations, financial position or cash flows.
F-75
|
Exhibit
Number
|
Description
|
|
|
1.1
|
Amended
and Restated By-Laws (Estatutos) of BBVA Banco Francés S.A. (*)
|
|
|
1.2
|
English
translation of the Amended and Restated By-Laws (Estatutos) of BBVA Banco
Francés S.A. (*)
|
|
|
8.1
|
Subsidiaries
of the Company
|
|
|
12.1
|
Section
302 Certification of Chief Executive Officer
|
|
|
12.2
|
Section
302 Certification of Chief Financial Officer
|
|
|
13.1
|
Section
906 Certification
|
|
(*) Incorporated
by reference to the BBVA Banco Francés Annual Report on Form 20-F for the year
ended December 31, 2005 filed with the Securities and Exchange Commission on
June 29, 2006.