The Board of the BCRA established yesterday new parameters to authorize banks to buy local government bonds, setting tighter criteria to the financial system’s exposure to the provincial public sector.
The BCRA’s decision (Communication A 6270) will be effective as from August 1, and is in line with the provisions of the Fiscal Responsibility Law.
The monetary authority must continue to consider certain requirements before authorizing financial institutions to purchase provincial bonds, such as that the request for indebtedness be examined by the Ministry of Finance, and that such debt be guaranteed by revenues. However, the regulation introduces a relevant change by establishing that, in order to obtain the BCRA’s approval, the debt service/revenue ratio of the provincial state issuing the bond may not exceed 20%. At present, this ratio is capped at 40% and, in addition, only debt guaranteed by the local financial system is included in this calculation. As from this change, debt held abroad will also be included.
These changes in the requirements for institutions to acquire provincial bonds were made without modifying the maximum limits of exposure to the public sector set out in the regulations on Diversification of Credit Risk, in order to develop a sound and sustainable financial system.
