CB facilitates check discount

Argentine government knows that it is essential to raise loan if the idea is to increase investment to maintain growth, particularly when foreign capital is becoming scarce. In that line, Central Bank decided on Tuesday to relax deferred check discount standards. The aim is to make financing access easier and cheaper for small- and medium-sized companies. Banks can only consider credit status of the document issuer without taking into account the situation of the company seeking financing. The intention is to allow banks to fight against companies outside banking system which fund small- and medium-sized firms not accepted in formal circuit at excessively high rates.

Central Bank confirmed on Tuesday that it would be possible for companies to discount deferred payment checks and other credit instruments, as this newspaper anticipated last week. "The aim of these measures is to facilitate company access to bank loan," the institution explained.

Press Release "A" 4,522 modifies criteria so as to consider deferred payment check discount as Preferred Guarantee "A", reducing cost when this condition is satisfied.

With the new treatment, no capacities are required for checks issued by drawers in normal situation. This means that, by discounting checks, a small- and medium-sized company supplying another one labelled as situation 1 (without arrears) can gain access to an interest rate similar to that obtained by the firm .

"This statement implies that financial entities should not assess grantor payment capacity," Central Bank added. Moreover, companies submitting checks as preferred guarantee "A" will be treated in a preferred manner with respect to minimum allowances due to risk of financing irrecoverableness (an only 1-per cent allowance is requested).

The aim of these changes is to allow small- and medium-sized companies to gain access to cheaper bank rates when discounting documents, particularly deferred payment checks. Nowadays, many of these companies end up resorting to firms operating outside banking system which charge much higher rates. Entities controlled by Central Bank desire greater participation in this business.

Other related modifications were observed. For example, fragmentation limit applied when value of discounted documents issued by a single person exceeded 1.5 per cent of assets was eliminated.