UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

¨ Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

or

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2011

or

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                     

or

¨ Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of the event requiring this shell company report.

Commission file number: 001-32827

BANCO MACRO S.A.

(Exact Name of Registrant as Specified in its Charter)

Macro Bank, Inc.

(Translation of registrant’s name into English)

Argentina

(Jurisdiction of incorporation or organization)

Sarmiento 447, City of Buenos Aires, Argentina

(Address of registrant’s principal executive offices)

Jorge Scarinci

Financial and Investor Relations Manager

Banco Macro S.A.

401 Sarmiento, 3^th Floor

Buenos Aires—C1041AAI, Argentina

Telephone: (+54-11-5222-6730)

Facsimile: (+54-11-5222-7826)

(Name, telephone, e-mail and/or facsimile member and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
American Depositary Shares	New York Stock Exchange
Class B ordinary shares, par value Ps. 1.00 per share	New York Stock Exchange(*)
9.75% Fixed/Floating Rate Non-Cumulative Junior Subordinated Bonds Due 2036
8.50% Notes Due 2017
10.750% Argentine Peso-Linked Notes Due 2012

(*) Ordinary shares of Banco Macro S.A. are not listed for trading but only in connection with the registration of American Depositary Shares which are evidenced by American Depositary Receipts.

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:

9.75% Fixed/Floating Rate Non-Cumulative Junior Subordinated Bonds Due 2036

8.50% Notes Due 2017

10.750% Argentine Peso-Linked Notes Due 2012

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

11,235,670 Class A ordinary shares, par value Ps. 1.00 per share

573,249,498 Class B ordinary shares, par value Ps. 1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

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.    Yes  ¨    No  x

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:    Yes  x    No  ¨

Indicate by check mark whether 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  x                 Accelerated filer  ¨                 Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨	International Financial Reporting  ¨
Other  x	Standards as issued by the International Accounting Standards Board  ¨

If “Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Indicate by check mark which financial statement item the registrant has elected to follow:  Item 17  ¨    Item 18  x

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).    Yes  ¨    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 23 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court.    Yes  ¨    No  ¨

Please send copies of notices and communications from the Securities and Exchange Commission to:

Hugo N. L. Bruzone Bruchou, Fernández Madero & Lombardi Ing. Butty 275, 12^th Floor C1001AFA - Buenos Aires, Argentina Andrés de la Cruz Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, New York 10006-1470

Table of Contents

PART I	4
Item 1. Identity of Directors, Senior Management and Advisers	4
Item 2. Offer Statistics and Expected Timetable	4
Item 3. Key Information	4
Item 4. Information on the Bank	19
Item 4A. Unresolved Staff Comments	66
Item 5. Operating and Financial Review and Prospects	67
Item 6. Directors, Senior Management and Employees	81
Item 7. Major Shareholders and Related Party Transactions	91
Item 8. Financial Information	93
Item 9. The Offer and Listing	95
Item 10. Additional Information	96
Item 11. Quantitative and Qualitative Disclosure About Market Risk	112
Item 12. Description of Securities Other Than Equity Securities	114
PART II	115
Item 13. Defaults, Dividend Arrearages and Delinquencies	115
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	115
Item 15. Controls and Procedures	115
Item 16A. Audit Committee Financial Expert	116
Item 16B. Code of Ethics	116
Item 16C. Principal Accountant Fees and Services	117
Item 16D. Exemptions from the Listing Standards for Audit Committees	117
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	117
Item 16F. Change in Registrant’s Certifying Accountant	118
Item 16G. Corporate Governance	118
PART III	120
Item 17. Financial Statements	120
Item 18. Financial Statements	121
Item 19. Exhibits	121

1

Certain defined terms

In this annual report, we use the terms “the registrant,” “we,” “us,” “our” and the “Bank” to refer to Banco Macro S.A. and its subsidiaries, on a consolidated basis. References to “Banco Macro” refer to Banco Macro S.A. on an individual basis. References to “Class B shares^” refer to shares of our Class B common stock and references to “ADSs” refer to American depositary shares representing our Class B shares, except where the context requires otherwise. References to our “2036 Notes” refer to our 9.75% Fixed/Floating Rate Non-Cumulative Junior Subordinated Bonds due 2036. References to our “2017 Notes” refer to our 8.50% Notes due 2017. References to our “2012 Notes” refer to our 10.750% Argentine Peso-Linked Notes due 2012.

The term “Argentina” refers to the Republic of Argentina. The terms “Argentine government” or the “government” refer to the federal government of Argentina, the term “Central Bank” refers to the Banco Central de la República Argentina, or the Argentine Central Bank, the term “Superintendency” refers to the Superintendencia de Entidades Financieras y Cambiarias or the Superintendency of Financial and Exchange Entities, the term “CNV” refers to the Comisión Nacional de Valores, or the Argentine Securities Commission, the term “BCBA” refers to the Bolsa de Comercio de Buenos Aires, or the Buenos Aires Stock Exchange, the term “MAE” refers to the “Mercado Abierto Electrónico,” or the Electronic Open Market, the term “AFIP” refers to the Administración Federal de Ingresos Públicos or the Argentine Tax Authority, the term “IGJ” refers to the Inspección General de Justicia, or Public Registry of Commerce and the term “ANSES” refers to the Administración Nacional de la Seguridad Social or National Social Security Agency.

The terms “U.S. dollar” and “U.S. dollars” and the symbol “US$” refer to the legal currency of the United States. The terms “peso” and “pesos” and the symbol “Ps.” refer to the legal currency of Argentina. “U.S. GAAP” refers to generally accepted accounting principles in the United States, “Argentine GAAP” refers to generally accepted accounting principles in Argentina and “Central Bank Rules” refers to the accounting and other regulations of the Central Bank. The term “GDP” refers to gross domestic product and all references in this annual report to GDP growth are to real GDP growth.

The term “CER,” or benchmark stabilization coefficient, is an index issued by the Argentine government which is used to adjust value of credits and deposits. This index is based on the consumer price index published by the National Institute of Statistics and Census (“INDEC”).

Presentation of certain financial and other information. Accounting practices

We maintain our financial books and records in pesos and prepare and publish our consolidated financial statements in Argentina in conformity with Central Bank Rules, which differ in certain significant respects from U.S. GAAP and, to a certain extent, from Argentine GAAP. Our consolidated financial statements contain a description of the principal differences between Central Bank Rules and Argentine GAAP. Under Central Bank Rules, our financial statements were adjusted to account for the effects of wholesale-price inflation in Argentina for the periods through February 28, 2003. For the periods subsequent to February 28, 2003, the inflation adjustments were no longer applied to our financial statements under Central Bank Rules.

Our consolidated financial statements consolidate the financial statements of the following companies:

• Banco del Tucumán S.A. (“Banco del Tucumán”)

• Banco Privado de Inversiones S.A. (“Banco Privado”)

• Macro Bank Limited (an entity organized under the laws of Bahamas)

• Macro Securities S.A. Sociedad de Bolsa

• Macro Fiducia S.A. (former Sud Inversiones & Análisis S.A.)

• Macro Fondos S.G.F.C.I.S.A.

In August 2006 we acquired Nuevo Banco Bisel S.A. (“Nuevo Banco Bisel”). The results of operations of Nuevo Banco Bisel are consolidated with ours from August 11, 2006 through August 18, 2009, date on which it merged with and into us.

On September 20, 2010 we acquired Banco Privado. Our results of operations for the year ended December 31, 2010 consolidate the results of Banco Privado from the date of the acquisition.

Our audited consolidated financial statements as of and for the three years ended December 31, 2011 included in this annual report have been reconciled to U.S. GAAP. See note 32 to our audited consolidated financial statements as of and for the three years ended December 31, 2011 for a reconciliation of our financial statements to U.S. GAAP.

Our financial statements in conformity with Central Bank Rules are sent on a monthly basis to the Central Bank and are published on its website www.bcra.gob.ar. In addition, we also file quarterly and annual financial statements with the Central Bank, the CNV and the BCBA.

2

Rounding

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Market position

We make statements in this annual report about our competitive position and market share in, and the market size of, the Argentine banking industry. We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications.

Our internet site is not part of this annual report

We maintain an Internet site at www.macro.com.ar. Information contained in or otherwise accessible through this website is not a part of this annual report. All references in this annual report to this Internet site are inactive textual references to this URL, or “uniform resource locator” and are for your informational reference only.

Cautionary statement concerning forward-looking statements

This annual report contains certain statements that we consider to be “forward-looking statements”. We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:

• changes in general economic, business, political, legal, social or other conditions in Argentina and worldwide;

• effects of the global financial markets and economic crisis;

• deterioration in regional business and economic conditions;

• inflation;

• fluctuations and declines in the exchange rate of the peso;

• changes in interest rates which may adversely affect financial margins;

• government regulation (including tax regulations);

• adverse legal or regulatory disputes or proceedings;

• credit and other risks of lending, such as increases in defaults by borrowers and other delinquencies;

• increase in the provisions for loan losses;

• fluctuations and declines in the value of Argentine public debt;

• decrease in deposits, customers loss and revenue losses;

• competition in banking, financial services and related industries and the loss of market share;

• cost and availability of funding;

• technological changes, changes in consumer spending and saving habits, and inability to implement new technologies; and

• the risk factors discussed under “Item 3.D—Risk factors”.

The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “forecast” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.

3

Sections of this annual report that by their nature contain forward-looking statements include, but are not limited to, Item 3. “Key Information,” Item 4. “Information on the Bank, Item 5. “Operating and Financial Review and Prospects” and Item 11. “Quantitative and Qualitative Disclosure About Market Risk”.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The following tables present summary historical consolidated financial data for each of the periods indicated. You should read this information in conjunction with our consolidated financial statements and related notes, and the information under Item 5. “Operating and Financial Review and Prospects” included elsewhere in this annual report.

We have derived our selected consolidated financial data for the years ended December 31, 2010 and 2011 from our audited consolidated financial statements included in this annual report. We have derived our selected consolidated financial data for the years ended December 31, 2007, 2008 and 2009 from our audited consolidated financial statements not included in this annual report and it was restated for comparative purposes.

On August 18, 2009 Nuevo Banco Bisel merged with and into us and we therefore ceased consolidating its results of operations. As a result of the merger with Nuevo Banco Bisel, we made certain reclassifications in Banco Macro’s consolidated financial statements for the years ended December 31, 2008 and 2007, in order to make them comparable to Banco Macro’s current consolidated financial statements.

Additionally, during 2010 we acquired Banco Privado and we consolidated our results with the results of operations of this entity from September 20, 2010.

Solely for the convenience of the reader, the reference exchange rate for U.S. dollars as of December 31, 2011, as reported by the Central Bank was Ps. 4.3032 to US$1.00. See Item 10. “Additional Information—Exchange Controls” for additional information regarding peso/U.S. dollar exchange ratios.

	Year Ended December 31,
	2007			2008			2009 (1)			2010 (1)			2011
	(in thousands of pesos, except for number of shares, net income per share and dividends per share)
Consolidated Income Statement
Central Bank Rules:
Financial income		1,890,422			3,029,860			3,860,452			3,728,438			4,698,648
Financial expense		(805,265	)		(1,342,062	)		(1,511,607	)		(1,330,170	)		(1,718,721	)
Gross intermediation margin		1,085,157			1,687,798			2,348,845			2,398,268			2,979,927
Provision for loan losses		(94,717	)		(297,606	)		(197,512	)		(215,040	)		(273,224	)
Service charge income		662,326			891,700			1,050,275			1,324,541			1,969,173
Service charge expense		(150,282	)		(172,401	)		(226,599	)		(285,365	)		(428,021	)
Administrative expenses		(997,466	)		(1,270,002	)		(1,522,420	)		(1,917,314	)		(2,488,510	)
Other income		183,525			188,450			121,977			167,523			190,560
Other expense		(98,915	)		(103,328	)		(158,294	)		(89,540	)		(105,839	)
Minority Interest in subsidiaries		(2,083	)		(3,354	)		(5,092	)		(6,868	)		(10,111	)
Income Tax		(92,345	)		(261,207	)		(659,250	)		(365,775	)		(657,858	)
Net income		495,200			660,050			751,930			1,010,430			1,176,097
Net income per share (2)		0.72			1.00			1.26			1.70			1.98
Dividends per share (3)		0.25			0.25			0.35			0.85			0.00
Dividends per share in US$ (3)		0.08			0.07			0.09			0.21			0.00
Number of outstanding shares (in thousands)		683,979			608,437			594,485			594,485			584,485
U.S. GAAP: (4)
Net income before extraordinary items		385,537			631,171			993,769			865,215			1,198,411
Extraordinary Gain
Less: Net income attributable to the non-controlling interest		(1,497	)		(2,928	)		(7,484	)		(5,943	)		(8,380	)
Net income attributable to the controlling interest		384,040			628,243			986,285			859,272			1,190,031
Net income per share before extraordinary item(s)		0.56			0.95			1.66			1.45			2.02
Total net income per share (5)		0.56			0.95			1.66			1.45			2.01
Weighted average number of outstanding shares (in thousands)		683,952			658,124			595,634			594,485			593,220

(1) See note 4.2 to our audited consolidated financial statements for the year ended December 31, 2011.

(2) Net income in accordance with Central Bank Rules divided by weighted average number of outstanding shares.

(3) Includes cash dividends approved by the shareholders’ meetings for each of such fiscal years, if any.

(4) See note 32 to our audited consolidated financial statements for the year ended December 31, 2011 for a summary of significant differences between Central Bank Rules and U.S. GAAP.

(5) Net income in accordance with U.S. GAAP divided by weighted average number of outstanding shares.

4

	As of December 31,
Consolidated Balance Sheet		2007			2008			2009			2010 (1)			2011
Central Bank Rules:		(in thousands of pesos)
Assets
Cash and due from banks and correspondents			3,117,426			3,523,897			5,016,192			5,202,004			6,172,446
Government and private securities			3,914,536			4,708,649			6,901,041			7,030,074			4,396,862
Loans:
to the non-financial government sector			732,481			744,507			206,484			336,430			336,189
to the financial sector			161,702			80,423			90,916			155,701			343,282
to the non-financial private sector and foreign residents			9,335,656			10,893,376			11,247,452			15,932,882			24,238,011
Allowances for loan losses			(220,422	)		(438,348	)		(448,045	)		(514,910	)		(599,224	)
Other assets			2,682,167			2,917,768			3,845,198			5,382,226			6,554,560
Total assets			19,723,546			22,430,272			26,859,238			33,524,407			41,442,126
Average assets			17,691,769			21,865,952			23,964,067			28,078,290			35,042,459
Liabilities and shareholders’ equity
Deposits:
from the non-financial government sector			1,774,121			3,937,961			3,613,924			5,216,109			5,836,211
from the financial sector			13,310			22,438			14,052			15,776			17,731
from the non-financial private sector and foreign residents			11,803,718			11,867,958			14,964,890			18,175,508			23,313,136
Other liabilities from financial intermediation and other liabilities			2,813,065			3,157,646			4,222,152			5,224,974			6,750,362
Provisions			101,333			83,004			88,275			105,830			112,816
Subordinated corporate bonds			490,695			521,681			572,473			598,470			647,753
Items pending allocation			1,644			2,105			3,987			7,399			6,981
Minority interest in subsidiaries			12,640			15,568			20,684			27,499			37,584
Total liabilities			17,010,526			19,608,361			23,500,437			29,371,565			36,722,574
Shareholders’ equity			2,713,020			2,821,911			3,358,801			4,152,842			4,719,552
Average shareholders’ equity			2,461,668			2,778,572			3,055,736			3,733,181			4,400,739
U.S. GAAP: (2)
Shareholders’ equity attributable to the controlling interest			2,222,361			2,221,199			3,269,875			3,754,434			4,325,759
Non-controlling interests			12,640			15,568			23,052			28,995			37,375
Shareholders’ equity			2,235,001			2,236,767			3,292,927			3,783,429			4,363,134

(1) See note 4.2 to our audited consolidated financial statements for the year ended December 31, 2011.

(2) See note 32 to our audited consolidated financial statements for the year ended December 31, 2011 for a summary of significant differences between Central Bank Rules and U.S. GAAP.

	As of and for the year ended December 31,
Selected consolidated ratios:	2007		2008		2009 (1)		2010 (1)		2011
Profitability and performance
Net interest margin (%) (2)		6.85		7.93		12.56		11.15		10.93
Fee income ratio (%) (3)		37.90		34.57		30.90		35.58		39.79
Efficiency ratio (%) (4)		57.08		49.23		44.79		51.50		50.28
Ratio of earnings to fixed charges (excluding interest on deposits) (5)		4.28x		6.00x		10.65x		11.42x		14.37x
Ratio of earnings to fixed charges (including interest on deposits) (6)		1.88x		1.80x		2.06x		2.24x		2.32x
Fee income as a percentage of administrative expense (%)		66.40		70.21		68.99		69.08		79.13
Return on average equity (%)		20.12		23.76		24.61		27.07		26.72
Return on average assets (%)		2.80		3.02		3.14		3.60		3.36
Liquidity
Loans as a percentage of total deposits (%)		75.27		74.03		62.09		70.17		85.43
Liquid assets as a percentage of total deposits (%) (7)		53.11		51.40		60.60		51.87		35.67
Capital
Total equity as a percentage of total assets (%)		13.76		12.58		12.51		12.39		11.39
Regulatory capital as a percentage of risk-weighted assets (%)		26.81		22.95		27.38		24.74		18.26
Asset Quality
Non-performing loans as a percentage of total loans (%) (8)		1.55		2.64		3.25		2.11		1.51
Allowances as a percentage of total loans		2.15		3.74		3.88		3.13		2.40
Allowances as a percentage of non-performing loans (%) (8)		138.77		141.81		119.45		148.90		159.16
Differences due to court orders (Amparos) as a percentage of equity (%)		3.72		1.26		1.50		1.32		1.08
Operations
Number of branches		427		416		408		404		414
Number of employees		7,914		7,973		7,863		8,209		8,459

5

(1) See note 4.2 to our audited consolidated financial statements for the year ended December 31, 2011.

(2) Net interest income divided by average interest earning assets.

(3) Service charge income divided by the sum of gross intermediation margin and service charge income.

(4) Administrative expenses divided by the sum of gross intermediation margin and service charge income.

(5) For the purpose of computing the ratio of earnings to fixed charges excluding interest on deposits, earnings consist of income before income taxes plus fixed charges; fixed charges excluding interest on deposits consist of gross interest expense minus interest on deposits.

(6) For the purpose of computing the ratio of earnings to fixed charges including interest on deposits, earnings consist of income before income taxes plus fixed charges; fixed charges including interest on deposits is equal to gross interest expense.

(7) Liquid assets include cash, cash collateral, repos, LEBACs and NOBACs (considered cash equivalents under Central Bank Rules), interbanking loans and overnight loans to highly rated companies.

(8) Non-performing loans include all loans to borrowers classified as “3- troubled/medium risk,” “4-with high risk of insolvency/high risk,” “5-irrecoverable” and “6-irrecoverable according to Central Bank Rules” under the Central Bank loan classification system.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

You should carefully consider the risks described below with all of the other information included in the annual report before deciding to invest in our Class B shares or our ADSs or our notes. If any of the following risks actually occurs,it may materially harm our business and our financial condition and results of operations. As a result, the market price of our Class B shares or our ADSs or our notes could decline and you could lose part or all of your investment.

Investors should carefully read this annual report in its entirety. They should also take into account and evaluate, among other things, their own financial circumstances, their investment goals, and the following risk factors.

Risks relating to Argentina

Argentina’s current growth may not be sustainable

The Argentine economy has experienced significant volatility in recent decades, with periods of low or negative growth, high inflation and currency devaluation. During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Although the economy has recovered significantly since then, uncertainty remains as to whether the current growth is sustainable, since it has depended, to a significant extent, on favorable exchange rates, high commodity prices and excess capacity.

The Argentine economy showed a growth of 8.9% in 2011. This trend might be affected by the following reasons:

• incomplete normalization of the financial systems of the main developed economies;

• abrupt changes in the monetary and fiscal policies of the main economies worldwide;

• reversal of capital flows due to domestic and international uncertainty;

• the payment capacity of the Argentine public sector and the possibilities of procuring international financing;

• increase in inflation affecting competitiveness and economic growth;

• poor development of the credit market;

• insufficient levels of investment;

• evolution of the exchange rate;

6

• increase in public expenditure affecting the economy and the fiscal accounts;

• possible reduction or reversal in the trade balance;

• significant decrease in prices of main commodities exported by Argentina;

• restrictions on imports or exports;

• wage and price controls; and

• political and social tensions

Substantially all our operations, properties and customers are located in Argentina. As a result, our business is to a very large extent dependent upon the political, social and economic conditions prevailing in Argentina.

The Argentine economy could be adversely affected by economic developments in the global markets

Financial and securities market in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets.

The crisis in the United States in 2008 and the recession and fiscal deficits in Euro-zone countries have caused a downturn in the world’s main economies. Liquidity restrictions in the financial systems of these countries that started during the second semester of 2008 caused a credit squeeze that resulted in a sharp fall in the global economy. The depth, extension and speed of the credit squeeze generated a rapid response by the countries of the G20 through monetary and fiscal expansive policies designed to avoid a long and violent depression.

In that sense, the recession in the second semester of 2008 and the first semester of 2009 was short but severe. Both the United States economy and the European Union economy recovered, although such recovery was fueled by a bold step-up in public sector spending and expansive monetary policies, including, placements of sovereign debt by European countries in significant amounts, creating uncertainties regarding repayment capacity and potential difficulties in public financing. As a consequence, several European countries, such as Ireland, Greece, Portugal, Spain, the United Kingdom and Italy, have revealed significant macroeconomic imbalances.

On August 5, 2011, Standard & Poor’s downgraded the debt instruments issued by the United States and on January 13, 2012, Standard & Poor’s downgraded the instruments of nine European countries including France and Italy. Financial markets have reacted adversely curtailing the ability of certain of these countries to refinance their outstanding debt.

In addition, the current instability in several Middle East and African countries, as well as natural disasters, such as the 2011 earthquake and tsunami in Japan could have a negative impact in the global economy.

Global economic downturns and related instability have had, and may continue to have, a negative effect on economic growth in Argentina. A prolonged slowdown in economic activity in Argentina would adversely affect our business, financial condition and results of operations.

The financial systems of the main developed economies remain subject of uncertainty and might cause a reversal of the capital flows

Domestic as well as international uncertainty impacts adversely on Argentina’s ability to attract capital. Continued or worsening disruption and volatility in the global financial markets could have a material adverse effect on the Argentine financial market.

An abrupt change in the economic policies of the developed countries or changes in domestic policy might reverse the flow of capitals towards Argentina. Such changes would negatively impact the liquidity of the local market and our business and results of operations.

Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and public policies and foster economic growth

In the first half of 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001. The Argentine government announced that as a result of the restructuring, it had approximately US$126.6 billion in total outstanding debt remaining. Of this amount, approximately US$19.5 billion are defaulted bonds owned by creditors who did not participate in the restructuring. Some bondholders in the United States, Italy and Germany have filed legal actions against Argentina, and holdout creditors may initiate new suits in the future.

The Argentine government cancelled all of its pending debt with the IMF on January 3, 2006.

On September 2, 2008, by means of Decree No. 1,394, Argentina announced its decision to pay its debt to its creditor nations members of the Paris Club. At the same time, by means of a press release issued on September 18, 2008, the Paris Club announced that it accepted Argentina’s decision. However, negotiations came to a halt due to the international financial crisis affecting economies worldwide at such time and remain delayed. Argentina resumed negotiations in December 2010. However, as of the date of this annual report, the Argentine government has not yet cancelled such debt. Indeed, negotiations in this respect remain stagnant.

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On February 2, 2009, by means of Joint Resolutions 8/2009 and 5/2009 of the Secretariat of Economy and the Secretariat of Finance of the National Ministry of Economy and Public Finances, launched the local tranche of the exchange of certain liabilities due between 2009 and 2012 (See Item 5.A “Operating Results”) for new bonds. The government announced that 97% of the holders had accepted such exchange proposal, representing Ps. 15.1 billion of an aggregate domestic tranche of the debt due in 2009, 2010 and 2011 for a total of Ps. 15.6 billion. The new bonds delivered under the exchange are due as from 2014.

Afterwards, on November 18, 2009, the Argentine Federal Congress approved a suspension of the “lock law” (which was supposed to prevent the government from reopening the defaulted sovereign debt exchange offer), and therefore Argentine government was allowed to reopen the exchange offer to holdouts. On May, 2010, Argentina launched a new exchange offer for the debt that had not been included in the restructuring carried out in 2005. The results of the exchange offer were announced in June 2010 with 67% of the holdouts having accepted.

In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature adopted such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.

Argentina’s past default and its failure to completely restructure its remaining sovereign debt and fully negotiate with the holdout creditors may prevent Argentina from re-entering the international capital markets. Furthermore, Argentina’s inability to access the international capital markets in the medium and long term could have an adverse impact on our own ability to access international credit markets. In addition, financing from multilateral financing institutions may be limited or not available.

Litigation initiated by holdout creditors may result in material judgments against the Argentine government and could result in attachments of or injunctions relating to assets of Argentina that the government intended for other uses. As a result, the Argentine government may not have all the necessary financial resources to implement reforms and foster growth, which could have a material adverse effect on the country’s economy, and consequently, our business, financial condition and results of operations.

Argentina is subject to litigation by foreign shareholders of Argentine companies, which have resulted and may result in adverse judgments or injunctions against Argentina’s assets and limit its financial resources

Foreign shareholders of certain Argentine companies have filed claims in excess of US$17 billion in the International Center for the Settlement of Investment Disputes (“ICSID”), alleging that certain Argentine government measures are inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party and claiming damages compensation. To date, the ICSID has rendered decisions adverse to Argentina in several cases, such as (i) “Aguas del Aconquija S.A.,” in which the tribunal ordered Argentina to pay US$105 million to Compañía de Aguas del Aconquija S.A. and Vivendi Universal in relation to the termination of a water concession contract entered into with the Province of Tucumán; an annulment request was rejected on August 10, 2010; (ii) “CMS Gas Transmission Company,” in which the tribunal ordered Argentina to pay US$133.2 million plus interest, Argentina appealed the decision which was partially annulled, but the amounts to be paid by Argentina remained unchanged; and (iii) “LG&E Energy Corporation,” in which the tribunal ordered Argentina to pay US$57.4 million plus interest, the plaintiff requested a supplemental award for additional damages which was rejected and both parties have filed annulment requests which are currently suspended; (iv) “Azurix Corporation,” in which Argentina was ordered to pay US$165.2 million plus interest and Argentina filed an action for annulment against this decision, which was rejected in September 2009; (v) “Continental Casualty Company,” in which Argentina was ordered to pay US$2.8 million plus interest, and both parties have requested the annulment of the award; and (vi) “Suez, Sociedad General de Aguas de Barcelona S.A”., and “InterAguas Servicios Integrales del Agua S.A.” and “Suez, Sociedad General de Aguas de Barcelona, S.A.” and “Vivendi Universal, S.A.,” in which the tribunal declared that Argentina violated the fair and equitable treatment protection, but the award’s monetary aspect was deferred to a later phase in the proceedings.

Furthermore, under the United Nations Commission on International Trade Law (“UNCITRAL”) arbitration rules, arbitration tribunals have ordered Argentina (i) in December 2007, to pay US$185 million to British Gas (shareholder of Argentine gas company Metrogas); and (ii) in November 2008, to pay US$53.5 million to National Grid plc (shareholder of Argentine electricity transportation company Transener). Argentina filed with the U.S. District Court for the District of Columbia a petition to vacate both awards. The annulment request of the British Gas proceeding was granted in January 2012, while the National Grid plc annulment request was rejected by a lower court.

Litigation, as well as ICSID and UNCITRAL claims against the Argentine government, have resulted in material judgments and may result in new material judgments against the government, and could result in attachments of or injunctions relating to assets of Argentina that the government intended for other uses. As a result, the Argentine government may not have all the necessary financial resources to implement reforms and foster growth, which could have a material adverse effect on the country’s economy, and consequently, our business, financial condition and results of operations.

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Governmental intervention in the economy could affect Argentina’s economic growth.

During the last two years, the Argentine government has been increasing its direct intervention in the economy and in private sector businesses

Moreover, on April 16, 2012 the Argentine government sent a bill to Congress to declare of public interest and subject to expropriation 51% of Class D Shares of YPF S.A., a publicly-held oil company, indirectly controlled by Repsol, a spanish company. In addition, the Argentine government has intervened the management of YPF S.A. for a period of thirty (30) days.

The intervention of companies by the Argentine government may have an adverse impact on the level of foreign investment in Argentina, the access of Argentine companies in the international capital markets and Argentina’s commercial and diplomatic relations with other countries.

In the future, the level of governmental intervention in the economy may continue, which may have adverse effects on Argentina’s economy and, in turn, our business, results of operations and financial condition.

Suspension of tariff preferences for Argentine products made by the United States due to failure to comply with ICSID awards, may lead to similar measures by other trading partners

The United States has announced the suspension of Argentina from the US Generalized System of Preferences (GSP) under which Argentine exports enjoyed preferential tariffs, due to Argentina’s failure to comply with ICSID awards related to US companies.

This decision may lead to similar measures by other trading partners, in a scenario of repeated complaints from various countries against import restrictions implemented by Argentina.

A suspension of export preferences may have an adverse effect on exported volumes, affecting the trade balance and, consequently, would adversely impact Argentina’s economy and, therefore, our business, financial condition and results of operations.

Exchange controls and capital inflow and outflow restrictions have limited, and can be expected to continue to limit, the availability of international credit and may impair our ability to make payments on our obligations

Since 2002, Argentina has imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. In June 2005, the government issued Decree No. 616/2005, which established new controls on capital inflows that could result in reduced availability of international credit, including the requirement that 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for one year without yielding interest. Some of the original restrictions have been subsequently eased, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad in order to pay principal and interest on debt obligations.

In addition, during the second half of 2011, the Argentine government strengthened certain restrictions on the sale of foreign currency and on the creation of foreign assets belonging to residents. For example, the Central Bank issued regulations reducing the terms for the mandatory settlement of foreign financial indebtedness and access to the local foreign exchange market for prepayment of interest. Furthermore, new AFIP regulations require that all foreign exchange transactions be registered with AFIP, and that the formation of any off-shore assets by Argentine residents be approved by AFIP. The Argentine government may impose or increase exchange controls or transfer restrictions in the future, among other things, in response to capital flight or a significant depreciation of the peso.

Additional controls could have a negative effect on the economy and our business if imposed in an economic environment where access to local capital is constrained. Furthermore, in such event, the imposition of future restrictions on the transfers of funds abroad may impede our ability to transfer dividends to ADS holders or interest or principal payments to the holders of our notes.

A decline in the international prices for Argentina’s main commodity exports or a climate disaster could have an adverse effect on Argentina’s economic growth

Argentina’s financial recovery from the 2001-2002 local crisis occurred in a context of price increases for Argentina’s commodity exports, such as soy. High commodity prices have contributed to the increase in the Argentine exports since the third quarter of 2002 as well as in tax revenues from export withholdings.

The prices of commodities that Argentina exports decreased during the 2008 global economic crisis and may decline in the future. In addition, adverse weather conditions can affect production of commodities by the agricultural sector. These circumstances would have a negative impact on the levels of government revenues and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the Government’s reaction. Either of these results would adversely impact Argentina’s economy growth and, therefore, our business, financial condition and results of operations.

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High inflation may adversely affect the Argentine long-term credit markets as well as the Argentine economy in general

Since 2007 the inflation index has been extensively discussed in the Argentine economy. The intervention of the Argentine government in the INDEC and the change in the way the aforementioned inflation index is measured has resulted in disagreements between the government and private consultants as to the actual annual inflation rate.

The inflation rates according to the INDEC were 7.7%, 10.9% and 9.5% for 2009, 2010 and 2011, respectively. For the first two months of 2012 the INDEC reported an inflation rate of 1.7%. Uncertainty surrounding future inflation rates has slowed the rebound in the long-term credit market. Private estimates, on average, refer to annual rates of inflation in excess of those published by INDEC.

In the past, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that would permit stable growth. High inflation may also undermine Argentina’s foreign competitiveness in international markets, with the same negative effects on the level of economic activity and employment. In addition, high inflation may undermine the confidence in Argentina’s banking system in general, which would negatively and materially affect our business volumes and potentially affect our lending activities.

Significant devaluation of the peso against the U.S. dollar may adversely affect the Argentine economy

Despite the positive effects of the real depreciation of the peso on the competitiveness of certain sectors of the Argentine economy, it has also had a far-reaching negative impact on the Argentine economy and on the financial condition of businesses and individuals. The devaluation of the peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, has led to very high inflation initially, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, such as utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations.

If the peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our business, financial condition and results of operations. In addition, such devaluation could affect client’s confidence, as well as loan demand.

Significant appreciation of the peso against the U.S. dollar may adversely affect the Argentine economy

A substantial increase in the value of the peso against the U.S. dollar also presents risks for the Argentine economy. The appreciation of the peso against the U.S. dollar negatively impacts the financial condition of entities whose foreign currency-denominated assets exceed their foreign currency-denominated liabilities.

In particular, our results of operations are sensitive to changes in the Ps./US$ exchange rate because our primary assets and revenues are denominated in pesos while around 24% of our total assets and 22% of our total liabilities are denominated in foreign currencies.

In addition, in the short term, a significant real appreciation of the peso would adversely affect exports. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. This may have a material adverse effect in our business, our financial condition and results of operations.

The loss of competitiveness by Argentine companies may reduce or reverse the foreign trade balance, affecting Argentina’s economic growth.

In the current Argentine economic context, with active fiscal and monetary policies and the resulting increase of prices, the multilateral real exchange rate has deteriorated, leading to a reduction of competitiveness of Argentine companies. Loss of competitiveness may affect the foreign trade balance and therefore the economic growth.

As a remedy, the Argentine government has assumed substantial control over foreign trade to preserve the foreign trade balance. These control measures may result in a shortage of inputs and spare parts and in production disruptions that may affect the growth of the economy and, as consequence, could affect our business, financial condition and results of operations.

High public expenditure could result in long lasting adverse consequences for the Argentine economy

During the last few years, the Argentine Government has substantially increased public expenditure. In 2011, public expenditure increased by 32% year over year. In the past, the Argentine government resorted to the Central Bank and to local financial institutions to source part of its funding requirements. We cannot assure you that the government will not seek to finance its deficit by gaining access to the liquidity available in the local financial institutions. On that case, government initiatives that increase the exposure of local financial institutions to the public sector would affect our liquidity and assets quality and impact negatively on clients’ confidence.

In addition, a further deterioration in fiscal accounts could negatively affect the government’s ability to access the international financing markets.

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Argentine government measures to preempt, or in response to, social unrest may adversely affect the Argentine economy

Despite Argentina’s ongoing economic recovery and relative stabilization, the social and political tensions and high levels of poverty and unemployment continue. Future Argentine government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the economy, and thereby our business.

The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the growth of the Argentine economy.

On March 22, 2012, the Argentine Congress passed Law No. 26,739, which amended the charter of the Central Bank (the “Central Bank’s Charter) and Law No. 23,298 (the “Convertibility Law”). This new law amends the objectives of the Central Bank (established in its charter) and removes certain provisions previously in force. Pursuant to the amendment, the Central Bank will focus on promoting monetary and financial stability as well as development with social equity.

The principal amendment relates to the use of Central Bank reserves. Pursuant to this amendment, Central Bank reserves may be allocated to the payment of debt or to finance public expenses, which may result in increased inflation, affecting the Argentine economy growth. Likewise, this use of Central Bank reserves may result in Argentina being more vulnerable to external shocks, affecting the country’s capacity to overcome the effects of an external crisis.

In addition, Law No. 26,739 includes an amendment of the criteria for compliance with the minimum cash requirement for banks. The implementation of this amendment could affect financial institutions by forcing them to increase liquidity, with a potential adverse impact on credit supply, and therefore on the growth of the Argentine economy and on our business.

Risks relating to the Argentine financial system

The health of Argentina’s financial system depends on a return of the long-term credit market, which is currently recovering at a relatively slow pace

As a consequence of the 2008 global economic crisis, the banking industry in Argentina suffered a significant slowdown. This trend was reversed by the end of 2009.

Although private sector financing increased in 2009 and the beginning of 2010, 2010 ended with lower expansion. In 2011, the loan portfolio growth rate increased significantly year over year. Loans to the private sector grew by approximately 9% in 2009, 37% in 2010 and 46% in 2011.

In spite of the recovery of the credit activity, the long-term loans market (pledged loans and mortgage loans) is recovering at a slower pace.

If longer-term financial intermediation activity fails to resume at substantial levels, the ability of financial institutions, including us, to generate profits will be negatively affected. Even though deposits in the financial system and with us are having increased since mid-2002, most of these new deposits are either sight or very short-term time deposits, creating a liquidity risk for banks engaged in long-term lending, like us, and increasing their need to depend on the Central Bank as a potential liquidity backstop.

The health of the financial system depends upon the ability of financial institutions, including us, to retain the confidence of depositors

Despite the international crisis, total deposits with the financial system increased by 11% during 2009, by 28% during 2010 and by 31% in 2011.

The average total deposits in terms of GDP represented 31% during 2011, compared with 22.6% and 20.7% in average during 2010 and 2009.

In spite of the increasing trend showed during previous years, the deposit base of the Argentine financial system, including ours, may be affected in the future by adverse economic, social and political events. If there were a loss of confidence upon these events and, therefore, depositors once again withdraw significant holdings from banks (as they did in late 2001 and early 2002 as a result of the measures then implemented by the Argentine government), there will be a substantial negative impact on the manner in which financial institutions, including us, conduct their business and on their ability to operate as financial intermediaries. International loss of confidence in the financial institutions may also affect sensibility of Argentine depositors.

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The asset quality of financial institutions, including us, may be affected by the exposure to public sector debt

Financial institutions have bonds of, and loans to, the Argentine federal and provincial governments as part of their portfolios. Exposure to public sector of the financial system has decreased year after year, from a level of 48.9% in 2002 to 10.4% in 2011. Exposure to public sector debt as of December 31, 2011 represented approximately one quarter of financings granted by the financial system to the private sector.

To some extent, the value of the assets held by Argentine banks, as well as their income generation capacity, is dependent on the Argentine public sector’s creditworthiness, which is in turn dependent on the government’s ability to promote sustainable economic growth in the long run, generate tax revenues and control public spending.

As of December 31, 2011, our exposure to the public sector, not including LEBACs (Letras del Banco Central) and NOBACs (Notas del Banco Central), totaled approximately Ps. 1.3 billion, representing 3.1% of our total assets.

Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector is affected by the international financial crisis

The capacity of many Argentine private sector debtors to repay their loans has deteriorated as a result of the international economic crisis, materially affecting the asset quality of financial institutions, including us. From the end of 2008, we had consistently established large allowances for loan losses to cover the risks inherent to our private loan portfolio.

During 2010 and 2011, the ratio of the non-performing private sector lending showed a great decline from the levels reported for 2009, with a record minimum ratio of 2.1% as of December 31, 2010 and 1.4% as of December 31, 2011 for the financial system as a whole. Such improvements were reflected in both the consumer loan portfolio and the commercial portfolio.

Our credit portfolio quality ratio and coverage ratio followed the financial system trend standing at 1.5% and 158.1% ratios, respectively, as of December 31, 2011.

However, the current improvement may not continue, and we will likely not succeed in recovering substantial portions of loans that were provisioned. If Argentina’s recovery does not continue and the financial condition of the private sector deteriorates, we will experience an increase in our incidence of non-performing loans.

Class actions against financial entities for an indeterminate amount may adversely affect the profitability of the financial system

Certain public and private organizations have initiated class actions against financial institutions in Argentina. The Argentine National Constitution and Law No. 24,240 (the “Consumer Protection Law”) contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, by means of an ad hoc doctrine construction, Argentine courts have admitted class actions in some cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, applied interest rates, advice in the sale of public securities, etc. If class action plaintiffs were to prevail against financial institutions, their success could have an adverse effect on the financial industry and on our business.

Limitations on enforcement of creditors’ rights in Argentina may adversely affect financial institutions

To protect debtors affected by the economic crisis, beginning in 2002 the Argentine government adopted measures that temporarily suspended proceedings to enforce creditors’ rights, including mortgage foreclosures and bankruptcy petitions. Such limitations have restricted creditors’ ability to collect defaulted loans. Most of these measures have been rescinded; however, we cannot assure you that in an adverse economic environment the government will not adopt new measures in the future, which could have a material adverse effect on the financial system and our business.

The application of the Consumer Protection Law may prevent or limit the collection of payments with respect to services rendered by us

The Consumer Protection Law sets forth certain rules and principles designed to protect consumers, which include our customers. The Consumer Protection Law was amended on March 12, 2008 by Law No. 26.361 to expand its applicability and the penalties associated with violations thereof.

Additionally, Law No. 25,065 (as amended by Law No. 26,010 and Law No. 26,361, the “Credit Card Law”) also sets forth several mandatory regulations designed to protect credit card holders.

Both the involvement of the applicable administrative authorities at the federal, provincial and local levels, and the enforcement of the Consumer Protection Law and the Credit Card Law by the courts are increasing. This trend has increased general consumer protection levels. In the event that we are found to be in violation of any provision of the Consumer Protection Law or the Credit Card Law, certain penalties and remedies could prevent or limit the collection of payments due from services and financing provided by us and materially adversely affect our financial results and ability to meet our payment obligations. We cannot provide any assurance that judicial and administrative rulings based on the applicable regulation, or measures adopted by the enforcement authorities, will not increase the consumer protection given to debtors and other clients in the future, or that they will not favor the claims initiated by consumer groups or associations.

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Future governmental measures and/or regulations may adversely affect the economy and the operations of financial institutions

The Argentine government has historically exercised significant influence over the economy, and financial institutions, in particular, have operated in a highly regulated environment. In the first quarter of 2012, the Central Bank’s Charter was amended resulting in an increase influence of government over the financial system. We cannot assure that laws and regulations currently governing the economy or the banking sector will not continue to change in the future, such as the recent regulations of minimum capital requirements of financial institutions, or that any changes will not adversely affect our business, financial condition and results of operations.

As of the date of this report, three different bills to amend the Financial Institutions Law No. 21,526 as amended (the “Financial Institution Law”) have been put forth for review in the Argentine Congress, seeking to amend different aspects of the Financial Institutions Law. A thorough amendment of the Financial Institutions Law would have a substantial effect on the banking system as a whole. If any such bill is passed, or any other amendment to the Financial Institutions Law is made, we cannot foresee what effects the subsequent changes in banking regulations could have on financial institutions in general, and on our business, financial conditions and results of operations.

Argentina´s insufficient or incorrect implementation of certain anti-money laundering recommendations may result in difficulties to obtain financing and attract direct foreign investments.

In October 2010, the Financial Action Task Force (“FATF”) issued a report on Anti-Money Laundering and Combating the Financing of Terrorism in Argentina, including the evaluation of Argentina as of the time of the on-site visit (November 2009). This report states that since the latest evaluation, finalized in June 2004, Argentina had not made adequate progress in addressing a number of deficiencies identified at the time.

Moreover, in February 2011, Argentina, represented by the Minister of Justice, attended the FATF Plenary in Paris, in order to present a preliminary action plan. FATF has granted an extension to implement changes.

In compliance with recommendations made by the FATF on money laundering prevention, on June 1, 2011 the Congress enacted Law No. 26,683. Under this law, money laundering is now a crime per se, and self-laundering money is also considered a crime.

However, the FATF will continue carrying out evaluations. Therefore, the outcome of new evaluations could adversely affect Argentina’s ability to obtain financing from international markets and attract foreign investments.

Risks relating to us

Our target market may be the most adversely affected by economic recessions

Our business strategy is to increase fee income and loan origination in our target market, low- and middle-income individuals and small and medium-sized businesses.

This target market is particularly vulnerable to economic recessions and, in the event of such a recession, growth in our target market may slow and consequently adversely affect our business. The Argentine economy as a whole, and our target market in particular, have not stabilized enough for us to be certain that demand will continue to grow. Therefore, we cannot assure you that our business strategy will in fact be successful.

Our controlling shareholders have the ability to direct our business and their interests could conflict with yours

As of March 31, 2012, our controlling shareholders directly or beneficially owned 10,258,305 Class A shares and 218,155,827 Class B shares in the aggregate. Although currently there is no formal agreement among them, together our controlling shareholders control virtually all decisions with respect to our company made by shareholders. They may, without the concurrence of the remaining shareholders, elect a majority of our directors, effect or prevent a merger, sale of assets or other business acquisition or disposition, cause us to issue additional equity securities, effect a related party transaction and determine the timing and amounts of dividends, if any. Their interests may conflict with your interests as a holder of class B shares, ADSs or notes, and they may take actions that might be desirable to the controlling shareholders but not to other shareholders or holders of our notes.

We will continue to consider acquisition opportunities, which may not be successful

We have expanded our business primarily through acquisitions. We will continue to consider attractive acquisition opportunities that we believe offer additional value and are consistent with our business strategy. We cannot assure you, however, that we will be able to identify suitable acquisition candidates or that we will be able to acquire promising target financial institutions on favorable terms. Although to date all acquisitions have been authorized by the Central Bank and other relevant authorities, we can not assure you that any future acquisition will also be authorized by these authorities. Additionally, our ability to obtain the desired effects of such acquisitions will depend in part on our ability to successfully complete the integration of those businesses. The integration of acquired businesses entails significant risks, including:

• unforeseen difficulties in integrating operations and systems;

• problems assimilating or retaining the employees of acquired businesses;

• challenges retaining customers of acquired businesses;

• unexpected liabilities or contingencies relating to the acquired businesses; and

• the possibility that management may be distracted from day-to-day business concerns by integration activities and related problem solving.

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We depend on key personnel for our current and future performance

Our current and future performance depends to a significant degree on the continued contributions of our senior management team and other key personnel, in particular Jorge Horacio Brito and Delfín Jorge Ezequiel Carballo, who is on leave of absence since November 7, 2011. Our performance could be significantly harmed if we fail to staff and retain key senior management or if we lose their services and we are not able to locate or employ qualified replacements on acceptable terms. Should this occur our business, financial condition and results of operations may be adversely affected.

Increased competition and consolidation in the banking industry may adversely affect our operations

We expect trends of increased competition in the banking sector, as banks continue to recover from the 2008 global economic crisis. Additionally, if the trend towards decreasing spreads is not offset by increases in lending volumes, then resulting losses could lead to consolidation in the industry. We expect trends of increased consolidation to continue. Consolidation can result in the creation of larger and stronger banks, which may have greater resources than we do.

We expect that competition with respect to small and medium-sized businesses is likely to increase. As a result, even if the demand for financial products and services from these markets continues to grow, competition may adversely affect our results of operations by decreasing the net margins we are able to generate.

Reduced spreads between interest rates received on loans and those paid on deposits without corresponding increases in lending volumes could adversely affect our profitability

The spread for Argentina’s financial system between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the government’s tightening of monetary policy in response to inflation concerns.

Since 2009, the interest rate spreads throughout the financial system have increased. This increase was sustained by a steady demand for consumer loans in recent years.

However, we cannot guarantee that this trend will continue unless increases in lending or additional cost-cuttings take place. A reverse of this trend in such terms could adversely affect our profitability.

Our estimates and established reserves for credit risk and potential credit losses may prove to be inaccurate and/or insufficient, which may materially and adversely affect our financial condition and results of operations

A number of our products expose us to credit risk, including consumer loans, commercial loans and other receivables. Changes in the income levels of our borrowers, increases in the inflation rate or an increase in interest rates could have a negative effect on the quality of our loan portfolio, causing us to increase provisions for loan losses and resulting in reduced profits or in losses.

We estimate and establish reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. We may not be able to timely detect these risks before they occur, or due to limited resources or available tools, our employees may not be able to effectively implement our credit risk management system, which may increase our exposure to credit risk.

Overall, if we are unable to effectively control the level of non-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, our financial condition and results of operations may be materially and adversely affected.

Changes in market conditions, and any risks associated therewith, could materially and adversely affect our financial condition and results of operations

We are directly and indirectly affected by changes in market conditions. Market risk, or the risk that values of assets and liabilities or revenues will be adversely affected by variation in market conditions, is inherent in the products and instruments associated with our operations, including loans, deposits, securities, bonds, long-term debt and short-term borrowings. Changes in market conditions that may affect our financial condition and results of operations include fluctuations in interest and currency exchange rates, securities prices, changes in the implied volatility of interest rates and foreign exchange rates, among others.

Differences in the accounting standards between Argentina and certain countries with highly developed capital markets, such as the United States, may make it difficult to compare our financial statements and reported earnings with companies in other countries and the United States

Publicly available corporate information about us in Argentina is different from and may be more difficult to obtain than the information available for registered public companies in certain countries with highly developed capital markets, such as the United States. Except as otherwise described herein, we prepare our financial statements in accordance with Central Bank Rules, which differ in certain significant respects from U.S. GAAP and, to a certain extent, from Argentine GAAP. As a result, our financial statements and reported earnings are not directly comparable to those of banks in the United States.

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The instability of the regulatory framework, in particular the regulatory framework affecting financial entities, could have a material adverse affect in financial entities activities, including us.

During 2011 a series of new regulations have been issued, mainly regulating the foreign exchange market, capital requirements and dividend distribution for financial institutions.

In this regard, the Central Bank, increased the capital requirements for financial institutions carrying out activities in Argentina, establishing a minimum capital level to mitigate operational risk. The Central Bank has stated that this new requirement is based on the credit risk policies under Basel II.

Moreover, the Central Bank imposed new restrictions to the distribution of dividends, including a limitation on the maximum distributable amount of dividends which cannot exceed the excess in minimum regulatory capital, exclusively considering, to such end, a 75% incremental adjustment to the capital requirement; i.e. the capital remaining after the distribution of dividends must be sufficient to meet the regulatory capital requirement increased by 75%.

Changes in the regulatory framework could limit the ability of financial institutions, including us, to make long-term decisions, such as asset allocation decisions, that could cause uncertainty with respect to the future financial condition and results of operations.

Risks relating to our Class B shares and the ADSs

Holders of our Class B shares and the ADSs may not receive any dividends

In 2003, the Central Bank prohibited financial institutions from distributing dividends. In 2004, the Central Bank amended the restriction to require the Central Bank’s prior authorization for the distribution of dividends. We have consistently obtained authorization from the Central Bank to distribute dividends corresponding to fiscal years 2003 through 2010. Under new Central Bank Rules on distribution of dividends, the maximum distributable amount of dividends cannot exceed the excess in minimum regulatory capital, exclusively considering, to such end, a 75% incremental adjustment to the capital requirement; i.e. the capital remaining after the distribution of dividends must be sufficient to meet the regulatory capital increased by 75%. In 2011 we did not reach the regulatory benchmark for dividend distribution.

No assurance can be given that in the future we will be able to reach the regulatory benchmark, or that if so, the Central Bank will continue to grant us the authorization to distribute dividends by our shareholders at the annual ordinary shareholders’ meeting or that such authorization shall be for the full amount of distributable dividends

Additional regulatory and contractual restrictions exist which could affect the distribution of earnings and are included in note 15 of our consolidated financial statements as of December 31, 2011.

Holders of our Class B shares and the ADSs located in the United States may not be able to exercise preemptive rights

Under Argentine Corporate Law No. 19,550 (the “Argentine Corporate Law”), if we issue new shares as part of a capital increase, our shareholders may have the right to subscribe to a proportional number of shares to maintain their existing ownership percentage. Rights to subscribe for shares in these circumstances are known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed shares remaining at the end of a preemptive rights offering on a pro rata basis, known as accretion rights. Upon the occurrence of any future increase in our capital stock, United States holders of Class B shares or ADSs will not be able to exercise the preemptive and related accretion rights for such Class B shares or ADSs unless a registration statement under the Securities Act is effective with respect to such Class B shares or ADSs or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to those Class B shares or ADSs. We cannot assure you that we will file such a registration statement or that an exemption from registration will be available. Unless those Class B shares or ADSs are registered or an exemption from registration applies, a U.S. holder of our Class B shares or ADSs may receive only the net proceeds from those preemptive rights and accretion rights if those rights can be sold by the depositary; if they cannot be sold, they will be allowed to lapse. Furthermore, the equity interest of holders of Class B shares or ADSs located in the United States may be diluted proportionately upon future capital increases.

Non-Argentine companies that own our Class B shares directly and not as ADSs may not be able to exercise their rights as shareholders unless they are registered in Argentina

Under Argentine law, foreign companies that own shares in an Argentine corporation are required to register with IGJ, in order to exercise certain shareholder rights, including voting rights. If you own Class B shares directly (rather than in the form of ADSs) and you are a non-Argentine company and you fail to register with IGJ, your ability to exercise your rights as a holder of our Class B shares may be limited.

You may not be able to sell your ADSs at the time or the price you desire because an active or liquid market may not develop

Prior to March 24, 2006, there has not been a public market for the ADSs or, in the case of our Class B shares, a market outside of Argentina. We cannot assure you that any market for our Class B shares or for the ADSs will be available or liquid or the price at which the Class B shares or the ADSs may be sold in that market.

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The relative volatility and illiquidity of the Argentine securities markets may substantially limit your ability to sell Class B shares underlying the ADSs at the price and time you desire

Investing in securities that trade in emerging markets, such as Argentina, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Argentine securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as some of these other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. The ten largest companies in terms of market capitalization represented approximately 80% of the aggregate market capitalization of the BCBA as of December 31, 2011. Accordingly, although you are entitled to withdraw the Class B shares underlying the ADSs from the depositary at any time, your ability to sell such shares at a price and time at which you wish to do so may be substantially limited. Furthermore, new capital controls imposed by the Central Bank could have the effect of further impairing the liquidity of the BCBA by making it unattractive for non-Argentines to buy shares in the secondary market in Argentina.

Our shareholders may be subject to liability for certain votes of their securities

Our shareholders are not liable for our obligations. Instead, shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting may be held liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to Argentine Corporate Law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.

Our Class B shares or the ADSs might be characterized as stock in a “passive foreign investment company” for U.S. federal income tax purposes

The application of the “passive foreign investment company” rules to equity interests in banks such as us is unclear under current U.S. federal income tax law. It is therefore possible that our Class B shares or the ADSs could be characterized as stock in a “passive foreign investment company” for U.S. federal income tax purposes, which could have adverse tax consequences to U.S. holders in some circumstances. In particular, U.S. holders of our Class B shares or the ADSs generally would be subject to special rules and adverse tax consequences with respect to certain distributions made by us and on any gain recognized on the sale or other disposition of our Class B shares or the ADSs. Such U.S. holders might be subject to a greater U.S. tax liability than might otherwise apply and incur tax on amounts in advance of when U.S. federal income tax would otherwise be imposed. A U.S. holder of our Class B shares or the ADSs might be able to avoid these rules and consequences by making an election to mark such shares to market (although it is not clear if this election is available for the Class B shares). U.S. holders should carefully read “Taxation—Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” and consult their tax advisors regarding the “passive foreign investment company” rules.

Risks relating to our notes

The notes are effectively subordinated to our secured creditors and our depositors

Unless otherwise specified, the notes rank at least pari passu in right of payment with all of our existing and future unsecured and unsubordinated indebtedness, other than obligations preferred by statute or by operation of law, including, without limitation, tax and labor-related claims and our obligations to depositors.

In particular, under Financial Institutions Law, all of our existing and future depositors will have a general priority right over holders of notes issued under our medium-term note program. The Financial Institutions Law provides that in the event of judicial liquidation or insolvency, all depositors would have priority over all of our other creditors (including holders of notes), except certain labor creditors and secured creditors. Moreover, depositors would have priority over all other creditors, with the exception of certain labor creditors, to funds held by the Central Bank as reserves, any other funds at the time of any revocation of our banking license and proceeds from any mandatory transfer of our assets by the Central Bank.

We have issued and may also issue additional subordinated notes. In that case, in addition to the priority of certain other creditors described in the preceding paragraphs, subordinated notes will also rank at all times junior in right of payment to certain of our unsecured and unsubordinated indebtedness.

Exchange controls and restrictions on transfers abroad may impair your ability to receive payments on the notes

In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. Since then, these restrictions have been substantially eased, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad in order to pay principal and interest on debt obligations. However, Argentina may re-impose exchange controls and transfer restrictions in the future, among other things, in response to capital flight or a significant depreciation of the peso.

In such event, your ability to receive payments on the notes may be impaired.

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We may redeem the notes prior to maturity

The notes are redeemable at our option in the event of certain changes in Argentine taxes and, if so specified, the notes may also be redeemable at our option for any other reason. We may choose to redeem those notes at times when prevailing interest rates may be relatively low. Accordingly, an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the notes.

As a financial institution, any bankruptcy proceeding against us would be subject to intervention by the Central Bank, which may limit remedies otherwise available and extend the duration of proceedings

If we are unable to pay our debts as they come due, the Central Bank would typically intervene by appointing a reviewer, request us to file a reorganization plan, transfer certain of our assets and liabilities and possibly revoke our banking license and file a liquidation petition before a local court. Upon any such intervention, noteholders’ remedies may be restricted and the claims and interests of our depositors and other creditors may be prioritized over those of noteholders. As a result, the noteholders may realize substantially less on their claims than they would in a bankruptcy proceeding in Argentina, the United States or any other country.

Holders of notes may find it difficult to enforce civil liabilities against us or our directors, officers and controlling persons

We are organized under the laws of Argentina and our principal place of business (domicilio social) is in the City of Buenos Aires, Argentina. Most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and their assets are located outside of the United States. As a result, it may be difficult for holders of notes to effect service of process within the United States on such persons or to enforce judgments against them, including any action based on civil liabilities under the U.S. federal securities laws. Based on the opinion of our Argentine counsel, there is doubt as to the enforceability against such persons in Argentina, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely on the U.S. federal securities laws.

The ratings of the notes may be lowered or withdrawn depending on various factors, including the rating agency’s assessment of our financial strength and Argentine sovereign risk

Independent credit rating agencies may assign credit ratings to the notes. The ratings of the notes reflect the relevant rating agency’s assessment of our ability to make timely payment of principal and interest on the notes. Moreover, the methods of assigning ratings used by Argentine rating agencies may differ in important aspects from those used by the rating agencies in the United States or other countries. The ratings of the notes are not a recommendation to buy, sell or hold the notes, and the ratings do not comment on market prices or suitability for a particular investor. We cannot assure you that the ratings of the notes will remain for any given period of time or that the ratings will not be lowered or withdrawn. A downgrade in ratings will not be an event of default with respect to the notes. The assigned ratings may be raised or lowered depending, among other things, on the rating agency’s assessment of our financial strength as well as its assessment of Argentine sovereign risk generally, and any change to these may affect the market price or liquidity of the notes.

Risks relating to our 2036 Notes

Interest on the 2036 Notes may be limited to the extent we do not have sufficient Distributable Amounts

No interest on the 2036 Notes will be due and payable in the event that the payment of such interest, together with any other payments or distributions (other than payments in respect of redemptions or repurchases) on or in respect of our Parity Obligations (including the notes) previously made or scheduled to be made during the Distribution Period in which such Interest Payment Date falls, would exceed our Distributable Amounts for such Distribution Period. Interest payments on the notes are non-cumulative such that if an interest payment is not made in full as a result of the limitation described in the preceding sentence, such unpaid interest will not accrue or be due and payable at any time and, accordingly, holders of 2036 Notes will not have any claim thereon, whether or not interest is paid with respect to any other interest period.

The Distributable Amounts available for payment of interest on the 2036 Notes on an interest payment date is based principally on our unappropriated retained earnings from the prior year. Subject to certain limited exceptions, Argentine law does not restrict our shareholders from approving the payment of dividends to themselves out of our unappropriated retained earnings, and the indenture relating to the notes does not restrict our ability to pay dividends unless interest on the notes has not been paid in full as scheduled. In addition, Distributable Amounts available for payment of interest on the 2036 Notes depends on the amount of payments or other distributions on or in respect of our Parity Obligations previously made or schedule to be made during the relevant Distribution Period. Although we do not currently have any Parity Obligations outstanding, the indenture relating to the notes will not restrict our ability to issue Parity Obligations in the future. Accordingly, we cannot assure you that we will have sufficient Distributable Amounts to make interest payments on the 2036 Notes.

We may be prevented by the Central Bank or Argentine banking regulations from making interest or other payments on or in respect of the 2036 Notes

No interest on the 2036 Notes will be due and payable on an Interest Payment Date in the event that we would be prevented from paying interest on the notes on such Interest Payment Date as a result of (X) a general prohibition by the Central Bank on paying interest or making other payments or distributions on or in respect of our Parity Obligations (including the notes) or (Y) as provided in Communications “A” 4589 and “A” 4591 of the Central Bank or any successor regulations thereto, (a) we are subject to a liquidation procedure or the mandatory transfer of our assets by the Central Bank in accordance with Sections 34 or 35 bis of the Financial Institutions Law or successors thereto; (b) we are receiving financial assistance from the Central Bank (except liquidity assistance under the pesification rules pursuant to Decree No. 739/2003); (c) we are not in compliance with or have failed to comply on a timely basis with our reporting obligations to the Central Bank; or (d) we are not in compliance with minimum capital requirements (both on an individual and consolidated basis) or with minimum cash reserves (on average).

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As a result of the 2001 Argentine crisis, all banks were prohibited by the Central Bank from paying dividends in 2002 and 2003. As the economy recovered, the Central Bank eased the prohibition but still requires prior authorization for the distribution of dividends by banks. Although the prohibition is no longer in effect, we cannot assure you that, if confronted with a similar crisis, the Central Bank will not prevent banks from making interest payments on Parity Obligations, including the 2036 Notes.

The 2036 Notes are unsecured and subordinated and, in the event of our bankruptcy, the 2036 Notes will rank junior to our unsubordinated obligations and certain of our subordinated obligations

The 2036 Notes constitute our unsecured and subordinated obligations. In the event of our bankruptcy, the 2036 Notes will rank junior to all claims of our unsubordinated creditors and certain of our subordinated creditors. By reason of the subordination of the notes, in the case of our bankruptcy, although the notes would become immediately due and payable at their principal amount together with accrued interest thereon, our assets would be available to pay such amounts only after all such creditors have been paid in full. We expect to incur from time to time additional obligations that rank senior to the notes, and the indenture relating to the notes does not prohibit or limit the incurrence of such obligations.

Under Argentine law, our obligations under the 2036 Notes will also be subordinated to certain statutory preferences such as tax and labor-related claims and our obligations to depositors. In particular, under the Financial Institutions Law, all of our existing and future depositors will have a general priority right over holders of notes. The Financial Institutions Law provides that in the event of our bankruptcy or insolvency, all depositors would have priority over all of our other creditors (including holders of notes), except certain labor creditors and secured creditors. Moreover, depositors would have priority over all other creditors, with the exception of certain labor creditors, to funds held by the Central Bank as reserves, any other funds at the time of any revocation of our banking license and proceeds from any mandatory transfer of our assets by the Central Bank.

If we do not satisfy our obligations under the 2036 Notes, your remedies will be limited

Payment of principal on the 2036 Notes may be accelerated only in certain events involving our bankruptcy. There is no right of acceleration in the case of a default in the performance of any of our covenants, including a default in the payment of principal, premium or interest.

The U.S. federal income tax treatment of the 2036 Notes is unclear

Because of certain features of the 2036 Notes, the U.S. federal income tax treatment applicable to the 2036 Notes is uncertain. While we do not intend to treat the 2036 Notes as subject to the “contingent payment debt instrument” rules under U.S. federal income tax regulations, it is possible that the U.S. Internal Revenue Service (“IRS”) could assert such treatment. If this assertion were successful, U.S. Holders (as defined in “Taxation—Material U.S. Federal Income Tax Considerations”) generally would be required to include interest income on a constant yield basis at a rate that could differ from, and could at certain times be in excess of, the stated interest on the 2036 Notes. In addition, any gain on the sale of 2036 Notes derived by a U.S. holder would be treated as ordinary income rather than capital gain.

It is also possible that the IRS could assert that the 2036 Notes should be treated as equity for U.S. federal income tax purposes. If this assertion were successful, U.S. holders could also be subject to adverse tax rules (including an interest charge on and ordinary income treatment of any gain derived with respect to the notes) if it were also determined that we are a “passive foreign investment company” for U.S. federal income tax purposes. While we do not believe that we are currently a passive foreign investment company, the test for determining “passive foreign investment company” status is a factual one based upon a periodic evaluation of our assets and income and is unclear when applied to banking businesses such as our own. Thus we cannot provide any assurance that we will not be determined to be a “passive foreign investment company” as of the issuance of the 2036 Notes or in any future period.

Risks relating to our 2012 Notes

A devaluation of the Argentine peso will result in a loss of principal and interest in U.S. dollar terms, which could affect the value of our 2012 Notes

Payments of principal, interest, additional amounts and any other amounts in respect of the notes are determined based on the Argentine peso equivalent (based on an initial exchange rate of Ps. 3.0794 = US$1.00) of the aggregate principal amount of the 2012 Notes then outstanding and converted into U.S. dollars based on an exchange rate on the second business day prior the applicable payment date. As a result, a devaluation of the Argentine peso will result in a loss of principal and a reduction in the effective interest rate in U.S. dollar terms.

In circumstances where we can satisfy our payment obligations in respect of the 2012 Notes by transferring Argentine pesos to accounts located in Argentina, you may not be able to obtain U.S. dollars or transfer funds outside Argentina

If we are unable either to purchase U.S. dollars or to transfer funds outside Argentina in order to make a payment in respect of the notes, because of any legal or regulatory restriction or due to any other reason beyond our control, then we will be able to satisfy such payment obligation in Argentine pesos and with transfers to accounts located in Argentina. In such event, you may not be able to obtain U.S. dollars at the applicable exchange rate under the notes or at all, and you may not be able to freely transfer funds outside Argentina.

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Certain definitions

“Parity Obligations” means (i) all claims in respect of our obligations, or our guarantees of liabilities, that are eligible to be computed as part of our Tier 1 capital under Argentine banking regulations (without taking into account any limitation placed on the amount of such capital); and (ii) all claims in respect of any of our other obligations (including guarantees) that rank, or are expressed to rank, pari passu with the 2036 Notes.

“Distribution Period” means, with respect to an Interest Payment Date, the period from and including the date of our annual ordinary shareholders’ meeting immediately preceding such Interest Payment Date to but excluding the date of our annual ordinary shareholders’ meeting immediately following such Interest Payment Date.

“Distributable Amounts” for a Distribution Period means the aggregate amount, as set out in our audited financial statements for our fiscal year immediately preceding the beginning of such Distribution Period, prepared in accordance with Central Bank Rules and approved by our shareholders, of our unappropriated retained earnings minus: (i) required legal and statutory reserves; (ii) asset valuation adjustments as determined and notified by the Superintendency, whether or not agreed to by us, and the asset valuation adjustments indicated by our external auditor, in each case to the extent not recorded in such financial statements; and (iii) any amounts resulting from loan loss or other asset valuation allowances permitted by the Superintendency including adjustments arising from the failure to put into effect an agreed upon compliance plan. For the avoidance of doubt, the calculation of Distributable Amounts in respect of a particular Distribution Period shall be made prior to the appropriation or allocation of any amounts to any voluntary or contingent reserves and any dividends or distributions on any Junior Obligations or Parity Obligations during such Distribution Period.

Item 4. Information on the Bank

A. History and development of the Bank

Our legal and commercial name is Banco Macro S.A. We are a financial institution incorporated on November 21, 1966 as a sociedad anónima, a stock corporation, duly incorporated under the laws of Argentina for a 99-year period and registered on March 8, 1967 with the Public Registry of Commerce of the City of Bahía Blanca, in the Province of Buenos Aires, Argentina under No. 1154 of Book 2, Volume 75 of Estatutos. We subsequently changed our legal address to the City of Buenos Aires and registered it with the IGJ on October 8, 1996 under No. 9777 of Book 119, Volume A of Sociedades Anónimas.

Our principal executive offices are located at Sarmiento 447, Buenos Aires, Argentina, and our telephone number is (+ 54-11-5222-6500). We have appointed CT Corporation System as our agent for service of process in the United States, located at 111 Eight Avenue, New York, New York, 10011.

Our history – Banco Macro S.A.

Macro Compañía Financiera S.A. was created in 1977 as a non-banking financial institution. In May 1988, it received the authorization to operate as a commercial bank and it was incorporated as Banco Macro S.A. Subsequently, as a result of the merger process with other entities, it adopted other names (among them, Banco Macro Bansud S.A.) and since August 2006, the name of “Banco Macro S.A.”

Our shares have been publicly listed on the BCBA since November 1994, and since March 24, 2006, on the New York Stock Exchange (“NYSE”).

Since 1994 we have been focused on the regional areas outside the City of Buenos Aires. Following this strategy, in 1996, we started to acquire entities as well as assets and liabilities resulting from the privatization of provincial and other banks.

In 2001, 2004 and 2006, Banco Macro acquired the control of Banco Bansud S.A., Nuevo Banco Suquía S.A. (“Nuevo Banco Suquía”) and Nuevo Banco Bisel, respectively. Such entities merged with us on December 2003, October 2007 and August 2009, respectively.

During the fiscal year ended December 31, 2006, we acquired 79.84% of the capital stock of Banco del Tucumán and increased our participation to 89.93% of its capital stock during fiscal year 2007.

Additionally, on September 20, 2010, Banco Macro acquired 100% of the capital stock of Banco Privado. On December 20, 2010, Banco Macro sold 1% of the shares of Banco Privado to each of our subsidiaries Macro Fiducia S.A. and Macro Securities S.A. Sociedad de Bolsa.

The Bank currently offers traditional bank products and services to companies, including those operating in regional economies, as well as to individuals, thus reinforcing the Bank’s objective to be a multi-services bank.

In addition, Banco Macro performs certain transactions through its subsidiaries, including mainly Banco del Tucumán, Banco Privado, Macro Bank Limited, Macro Securities S.A. Sociedad de Bolsa, Macro Fiducia S.A. and Macro Fondos S.G.F.C.I. S.A.

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Nuevo Banco Bisel

In 2001, the run on bank deposits as a result of the economic crisis caused a liquidity crisis for the former Banco Bisel S.A. (“Banco Bisel”). Its controlling shareholder at the time decided not to make additional contributions. As a result, the Central Bank suspended and then restructured Banco Bisel’s operations, creating the Nuevo Banco Bisel with certain of Banco Bisel’s assets and liabilities. The Central Bank then passed a resolution providing for the sale of Nuevo Banco Bisel and requiring that the purchaser committe to capitalize the bank.

In August 2006, we acquired 100% of the voting rights and 92.73% of the capital stock of Nuevo Banco Bisel for Ps.19.5 million pursuant to an auction conducted by Banco de la Nación Argentina. In addition, as purchaser of Nuevo Banco Bisel, we were required to enter into a “Put and Call Options Agreement” with Seguro de Depósitos S.A. (SEDESA) regarding Nuevo Banco Bisel’s preferred shares.

The acquisition transaction was approved by the Central Bank in August 2006 and by the antitrust authorities in September 2006.

On May 28, 2007, we exercised our option to acquire Nuevo Banco Bisel’s preferred shares at an exercise price of Ps. 66,240,000 plus an annual nominal 4% interest to be capitalized annually until payment thereof. Such price will be paid on the 15^th anniversary of the acquisition of Nuevo Banco Bisel (i.e., August 11, 2021).

Nuevo Banco Bisel has a strong presence in the central region of Argentina, especially in the province of Santa Fe, and the acquisition has added 158 branches to our branch network.

On March 19, 2009, we entered into a “Preliminary Merger Agreement” for the merger of Nuevo Banco Bisel into us, retroactively effective as of January 1, 2009. On May 27, 2009, our shareholders and those of Nuevo Banco Bisel approved the merger of the latter into Banco Macro, which was subsequently approved by the BCBA, the CNV and the Central Bank, and registered with the IGJ on August 8, 2009.

Macro Fiducia S.A. and Macro Securities S.A. Sociedad de Bolsa received 1,147,887 common registered Class B shares of Banco Macro in exchange for their equity interest in the merged entity. The CNV and the BCBA authorized the public offering of such shares on July 29, 2009 and, during October 2009, such entities proceeded to sell those shares to unrelated parties.

Banco Privado

On March 30, 2010, we signed a share purchase agreement with the shareholders of Banco Privado, to purchase 100% of the shares of such entity. On September 9, 2010 the Central Bank issued Resolution 198/2010 stating that there were not objections for Banco Macro to acquire 100% of Banco Privado´s capital stock and to transfer 1% to each of our subsidiaries Macro Fiducia S.A. and Macro Securities S.A Sociedad de Bolsa.

On September 20, 2010, 100% of the capital stock of Banco Privado was transferred to the Banco Macro, which paid US$23.3 million, out of which, US$10.4 million is related to a guaranteed amount, as provided in the purchase agreement. As of such date, Banco Privado´s assets and liabilities amounted to Ps. 403.7 million and Ps. 368.0 million respectively.

On September 22, 2010, we made an irrevocable capital contribution of Ps.50 million to Banco Privado as provided in Resolution No. 443 of the Superintendency dated September 15, 2010.

On December 20, 2010, the Bank sold 1% of Banco Privado´s shares to each of our subsidiaries Macro Fiducia S.A. and Macro Securities S.A. Sociedad de Bolsa for a total aggregate amount of Ps.0.7 million. Consequently, as of December 31, 2011, Banco Macro held 98% of the capital stock and votes of Banco Privado.

Banco Privado´s integration enables us to serve a greater number of customers with our current structure, to complement lines of business, to expand our credit card business, in particular in the city of Buenos Aires, and to achieve greater economies of scale by additionally providing Banco Privado with a more efficient financing structure and permitting its clients access to a network with a greater geographical coverage.

At the date of this annual report, this acquisition remains subject to the approval of the National Commission of Competition Defense (the Argentine antitrust authority).

For more information on Banco Privado, see note 3.7 to our audited consolidated financial statements as of and for the three years ended December 31, 2011.

Investment in property

In 2011 we acquired from the Government of the City of Buenos Aires the real property located at Av. Eduardo Madero No. 1180, in the City of Buenos Aires, for an aggregate amount of Ps. 110 million.

For more information, see Item 4D. “Property, plants and equipment”.

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B. Business Overview

We are one of the leading banks in Argentina. With the most extensive private-sector branch network in the country, we provide standard banking products and services to a nationwide customer base. We distinguish ourselves from our competitors by our strong financial position and by our focus on low- and middle-income individuals and small and medium-sized businesses, generally located outside of the City of Buenos Aires. We believe this strategy offers significant opportunity for continued growth in our banking business. According to the Central Bank, as of December 31, 2011, we were ranked third in terms of private sector loans and equity and sixth in terms of deposits among banks.

As of December 31, 2011, on a consolidated basis, we had:

• Ps. 41,442.1 million (US$9,630.5 million) in total assets;

• Ps. 24,238.0 million (US$5,632.6 million) in loans to the non-financial private sector;

• Ps. 29,167.1 million (US$6,778 million) in total deposits;

• approximately 2.8 million retail customers and 0.1 million corporate customers that provide us with approximately 2.9 million clients; and

• approximately 1.1 million employee payroll accounts for private sector customers and provincial governments.

Our consolidated net income for the year ended December 31, 2011 was Ps. 1,176.1 million (US$273.3 million), representing a return on average equity of 26.7% and a return on average assets of 3.4%.

In general, given the relatively low level of banking intermediation in Argentina currently, there are limited products and services being offered. We are focusing on the overall growth of our loan portfolio by expanding our customer base and encouraging them to make use of our lending products. We have a holistic approach to our banking business; we do not manage the Bank by segments or divisions or by customer categories, by products and services, by regions, or by any other segmentation for the purpose of allocating resources and assessing profitability. We offer savings and checking accounts, credit and debit cards, consumer finance loans and other credit-related products and transactional services available to our individual customers and small and medium-sized businesses through our branch network. We also offer Plan Sueldo payroll services, lending, corporate credit cards, mortgage finance, transaction processing and foreign exchange. In addition, our Plan Sueldo payroll processing services for private companies and the public sector give us a large and stable customer deposit base.

Our competitive strengths

We believe we are well positioned to benefit from the opportunities created by the improving economic and business environment in Argentina. Our competitive strengths include the following:

• Strong financial position. As of December 31, 2011 we had excess capital of Ps. 2,032.6 million (18.3% capitalization ratio). Our excess capital is aimed at supporting growth, and consequently, a higher leverage of our balance sheet.

• Consistent profitability. As of December 31, 2011, we had obtained profitability for the last 40 consecutive quarters, being the only bank in Argentina to do so, with a return on average equity of 24.6%, 27.1% and 26.7% for 2009, 2010 and 2011, compared to 19.6%, 24.3% and 25.3% respectively, for the Argentine banking system as a whole.

• Our shareholders’ equity as of December 31, 2009, 2010 and 2011 as calculated under Central Bank Rules, was Ps. Ps.3,358.8 million, Ps.4,152.8 million and Ps. 4,719.6 million, respectively, and our shareholders’ equity under U.S. GAAP at December 31, 2009, 2010 and 2011 was Ps. 3,292.9 million, Ps.3,783.4 million and Ps. 4,363.1 million, respectively.

• Strong presence in fast-growing target customer market. We have achieved a leading position with low- and middle-income individuals and among small and medium-sized businesses, generally located outside of the City of Buenos Aires, which have been relatively underserved by the banking system. Based on our experience, this target market offers significant growth opportunities and a stable base of depositors.

• High exposure to export-led growth. Given the geographical location of the customers we target, we have acquired banks with a large number of branches outside of the City of Buenos Aires with the aim of completing our national coverage. The Bank´s focus is particulary in some export oriented provinces. Most of these provinces engage in economic activities primarily concentrated in areas such as agriculture, mining, cargo transportation, edible oils, ranching and tourism, which have been benefiting from the export-driven growth in the Argentine economy.

• Largest private-sector branch network in Argentina. With 414 branches, we have the most extensive branch network among private-sector banks in Argentina. We consider our branch network to be our key distribution channel for marketing our products and services to our entire customer base with a personalized approach. In line with our strategy, approximately 93% of these branches are located outside of the City of Buenos Aires, whereas 81% of the total branches for the Argentine financial system as a whole are located outside this area, which we believe better positions us to focus on our target market.

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• Loyal customer base. We have a loyal customer base, as evidenced in part by the quick recovery of our deposit base after the 2001-2002 local crisis. We believe that our customers are loyal to us due to our presence in traditionally underserved markets and to our Plan Sueldo payroll services. We have benefited from Argentine regulations that require all employees to maintain Plan Sueldo accounts for the direct deposit of their wages. In addition, we emphasize face-to-face relationships with our customers and offer them personalized advice.

• Exclusive financial agent for four Argentine provinces. We perform financial agency services for the governments of the provinces of Salta, Jujuy, Misiones and Tucumán in northern Argentina. As a result, each provincial government’s bank accounts are held in our bank and we provide all their employees with Plan Sueldo accounts, giving us access to substantial low cost funding and a large number of loyal customers.

• Strong and experienced management team and committed shareholders. We are led by a committed group of shareholders who have transformed our bank from a small wholesale bank to one of the strongest and largest banks in Argentina. Jorge Horacio Brito and Delfín Jorge Ezequiel Carballo, who is on leave of absence since November 7, 2011, have active senior executive roles in our management and each possesses more than 20 years of experience in the banking industry.

Our strategy

Our strengths position us to better participate in the coming years development of the financial system, which we believe will be stronger in our target market of low- and middle-income individuals, small and medium-sized businesses and in the provinces outside the City of Buenos Aires, where we have a leading presence.

Our goal is to promote the overall growth of the Bank by increasing our customer base, expanding our loan portfolio and generating more fee income from transactional services. We achieve this goal by managing the Bank on a holistic basis, focusing our growth strategy on the marketing and promotion of our standard banking products and services. We have pursued our growth strategy by acquiring banks throughout Argentina, which has enabled us to significantly expand our branch network and customer base. We make acquisition decisions in the context of our long-term strategy of focusing on low- and middle-income individuals, small and medium-sized businesses and to complete our national coverage of Argentina, especially in provinces outside of the City of Buenos Aires. We have taken advantage of the opportunities presented by the Argentine financial system to move into new locations by acquiring banks or absorbing branches from banks liquidated by the Central Bank. Our growth has been fueled by these acquisitions as well as organic growth, without the need to open or move branches.

We intend to continue enhancing our position as a leading Argentine bank. The key elements of our strategy include:

• Focus on underserved markets with strong growth potential. We intend to continue focusing on both low- and middle-income individuals and small and medium-sized businesses, most of which have traditionally been underserved by the Argentine banking system and are generally located outside of the City of Buenos Aires, where competition is relatively weaker and where we have achieved a leading presence. We believe that these markets offer attractive opportunities given the low penetration of banking services and limited competition. We believe the provinces outside of the City of Buenos Aires that we serve are likely to grow faster than the Argentine economy as a whole because their export-driven economies have benefited from the devaluation of the peso and higher prices for agricultural products and commodities.

• Further expand our customer base. We intend to continue growing our customer base, which is essential to increasing interest and fee-based revenues. To attract new customers we intend to:

• Utilize our extensive branch network. We intend to utilize our extensive branch network, which we consider our key distribution channel, to market our products and services to our entire customer base. We utilize a personalized approach to attract new customers by providing convenient and personalized banking services close to their homes and facilities.

• Offer medium- and long-term credit. We intend to capitalize on the increased demand for long-term credit that we believe will accompany the expected economic growth in Argentina. We intend to use our strong liquidity and our capital base to offer a more readily available range of medium- and long-term credit products than our competitors.

• Focus on corporate banking customers, strengthening financing to the small business segment.

• Expand our share in the agricultural and livestock industry and those export-related activities.

• Expand Plan Sueldo payroll services. We will continue to actively market our Plan Sueldo payroll services, emphasizing the benefits of our extensive network for companies with nationwide or regional needs.

• Offer personalized service. We offer our clients a menu of products and personalized, face-to-face advice to help them select the banking services that best respond to their needs.

• Expand the customer base in the City of Buenos Aires by opening new branches in this region.

• Strengthen our credit card market share by increasing promotion actions and benefits for clients.

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• Focus on efficiency and cost control. We intend to increase our efficiency creating new economies of scale, and reducing costs in connection with the integration of merged entities (Banco Macro, Nuevo Banco Suquía and Nuevo Banco Bisel). We have been working on upgrading our information systems and other technology in order to further reduce our operating costs and to support larger transaction volumes nationally. We have completed the integration of Nuevo Banco Suquía during the second half of 2007 and the integration of Nuevo Banco Bisel during the second half of 2009.

• Extend existing corporate relationships to their distributors and suppliers. We have established relationships with major corporations in Argentina and will focus our marketing efforts on providing services to their distributors, suppliers, customers and employees, including providing working capital financing and Plan Sueldo payroll services.

• Increase cross-selling. We plan to increase cross-selling of products and services to our existing clients. Since almost all of our clients have a checking and savings account, we have a significant opportunity to expand our relationships with them through other products such as credit cards, loans and insurance. For example, strong cross-selling opportunities lie with our retail clients, of whom only 27% currently have personal loans from us and only 35% currently have a credit card from us.

Our products and services

We provide our customers with a combination of standard products and services that is designed to suit individual needs. We have two broad categories of customers: retail customers which include individuals and entrepreneurs; and corporate customers, which include small, medium and large companies and major corporations. In addition, we provide services to four provincial governments. We offer a relatively narrow range of standard products, which are generally available to both our retail and corporate customers. We have a holistic approach to our banking business with a single commercial division responsible for all of our customers and our branch network; we do not manage the Bank by segments or divisions or by customer categories, by products and services, by regions, or by any other segmentation for the purpose of allocating resources or assessing profitability. Our strategy is to grow our business, as demand for credit in Argentina increases, by focusing on cross-selling opportunities among our broad customer base. The following discussion of our business follows the broad customer categories of retail and corporate as a way to understand who our customers are and the products and services that we provide.

Retail customers

Overview

Retail customers are individuals and entrepreneurs. We provide services to them throughout Argentina, in particular outside of the City of Buenos Aires, which has higher concentrations of low- and middle-income individuals who are traditionally underserved by large private banks. We serve our retail customers through our extensive, nationwide branch network. Approximately 93% of our branches are located outside of the City of Buenos Aires.

We offer our retail customers traditional banking products and services such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans (including personal loans), mortgage loans, automobile loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automatic teller machines (“ATMs”) and money transfers.

Our retail customers provide us with a key source of funding as well as a significant interest and fee income. We believe that our large retail customer client base provides us with an excellent opportunity to expand the volume of our lending business. For example, of our retail customers, only 27% currently have a personal loan from us and only 35% currently have a credit card, and we believe there is strong potential to increase these percentages.

Our efforts were aimed at strengthening relationships with our customers by offering them the products that are best suited to their needs and circumstances, based on our individualized, professional advice, which we believe is an important feature that distinguishes us in serving our target markets.

We defined as our main goals for the retail bank: to consolidate the leading and competitive position of our personal loans portfolio; to increase our market share in the credit cards business, using this product as a tool to strengthen relations with the various customer segments; to improve credit quality ratios, to promote an atomized time deposit portfolio and to generate a strong and stable fee base.

In 2010 market conditions improved and the demand for financing, mainly consumer loans, increased. During 2011, the demand for household financing continued to increase, mainly in terms of consumer loans (personal and credit card loans), allowing us to attain some of our strategic goals in this area.

Savings and checking accounts and time deposits

We generate fees from providing savings and checking account maintenance, account statements, check processing and other direct banking transactions, direct debits, fund transfers, payment orders and bank debit cards. In addition, our time deposits provide us with a strong and stable funding base.

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During 2010 and 2011 we continued fostering the atomized development of funding sources and established a solid commission base. Our commercial and customer bonding actions enabled us to achieve growth in the deposit portfolio, above market levels, mainly due to an increase in time deposits of retail customers (less than 1 million) which intensified funding atomization.

We have incorporated statistical tools and models which will make more effective commercial actions, for the purpose of improving the utilization of our customers’ information.

The following table reflects the number of retail accounts as of December 31, 2009, 2010 and 2011:

	Approximate number of retail accounts (as of December 31, of each year)
Product	2009		2010		2011
Savings
Total savings accounts		1,903,566		1,759,448		1,905,214
Plan Sueldo (private sector)		559,051		534,267		561,567
Plan Sueldo (public sector)		572,675		510,589		582,617
Retirees		400,114		382,872		424,905
Open market		371,726		331,720		336,125
Checking
Checking accounts		174,046		258,678		340,294
Electronic account access
Debit cards		1,420,971		1,550,806		1,694,305

Lending products and services

We offer personal loans, document discounts, (housing) mortgages, overdrafts, pledged loans and credit card loans to our retail customers.

We intend to continue to increase our retail lending by focusing our marketing efforts on underserved target markets such as the low- and middle-income individuals and to cross-sell our retail lending products to our existing customers, particularly those who have savings and checking accounts with us because we provide payroll and pension services to their employers.

We have developed a new product called “Rapicompra,” a credit line through which our clients can finance their purchases under convenient terms and conditions benefiting from agreements we entered with affiliated stores. This unique credit line provides us with an additional distribution channel by increasing our presence in strategic stores and enable us to increase personal loans granted. This system provides to our clients better financing condition than credit cards, such as fix interest rates, and longer installment plans in a significant range of affiliated stores.

In 2011, our retail loan portfolio grew by 59%; our market share for personal loans also increased, with the bank reaching the first position in the financial system based on the volume of its personal loans and credit card portfolios.

During 2011 our growth in personal loans reached 56%, outperforming the financial system which grew by 46%. This growth was accompanied by a substantial increase in profitability. This performance allowed us to maintain our leading position and expand our market share to 16.0% in 2011 from 15.0% in 2010.

We are also one of the major credit card issuers, with approximately 1.5 million credit cards in circulation as of December 31, 2011. One of our initiatives to expand lending is to encourage low- and middle-income customers to use credit cards for larger purchases.

In 2011, our credit card products faced a series of challenges in the attempt of improving market share, as basis for an increase in the volume of business. As a consequence, our business strategy was modified, expanding promotion actions and benefits for clients, combining a nation-wide marketing campaign with increasing selling efforts at a regional level. Through this marketing strategies in 2011 we achieved an increase of ten times in consumption in our credit card portfolio compared to 2010.

During 2011, we offered products aimed at the higher-income segment complemented with mass sales campaigns targeting new clients. As a result, the credit card portfolio grew by 98% in 2011 as compared to 2010, attaining a market share of 7.1%.

As of December 31, 2009, 2010 and 2011, our retail loan portfolio (which we define here as loans to individuals and loans to very small companies in an amount up to Ps.20,000) was as follows:

	Retail loan portfolio
	(as of December 31, of each year)
	(in millions of pesos and as percentage of retail loan portfolio)
	2009				2010				2011
Overdrafts		188.8	3.0	%		214.8	2.4	%		243.6	1.7	%
Documents (1)		393.1	6.3	%		545.1	6.0	%		793.1	5.5	%
Pledged loans (2)		151.3	2.4	%		141.5	1.6	%		243.7	1.7	%
Mortgage loans		395.7	6.3	%		433.0	4.8	%		532.3	3.7	%
Personal loans		4,052.6	64.7	%		5,865.6	64.9	%		9,129.0	63.8	%
Credit card loans		897.0	14.3	%		1,489.5	16.5	%		2,956.5	20.6	%
Other		184.1	2.9	%		349.9	3.9	%		436.1	3.0	%
Total		6,262.6	100.0	%		9,039.3	100.0	%		14,334.3	100.0	%

(1) Factoring, check cashing advances and loans with promissory notes.

(2) Primarily secured automobile loans.

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The table below sets forth additional information related to our retail loan portfolio (which we define here as loans to individuals and loans to very small companies in an amount up to Ps.20,000) as of December 31, 2011:

	Retail loan portfolio (in pesos except where noted) (as of December 31, 2011)
	Personal loans		Documents (1)		Mortgage loans		Overdrafts		Pledged loans (2)		Credit card loans		Others
Total customers with outstanding loans		710,012		10,571		6,013		257,448		1,904		706,985		8,521
Average gross loan amount		9,738		6,956		86,424		754		118,685		3,730		45,020

(1) Factoring, check cashing advances and loans with promissory notes.

(2) Primarily secured automobile loans.

Personal loans, the most representative share of our portfolio, carried as of December 31, 2011 an annual average interest rate of 35.25% and an average maturity of 45 months. Interest rates and maturities vary across products.

Plan Sueldo payroll services

Since 2001, Argentine labor law has provided for the mandatory payment of wages through accounts opened by employers in the name of each employee at financial institutions within two kilometers of the workplace, in the case of urban areas, and ten kilometers of the workplace, in the case of rural areas. There are similar requirements in place for pension payments. We handle payroll processing for private sector companies and the public sector, or Macrosueldos, which require employers to maintain an account with us for the direct deposit of employee wages. Currently, we provide payroll services for the governments of the Argentine provinces of Misiones, Salta, Jujuy and Tucumán and for the private sector, for a total aggregate of 1.6 million retail clients (including retirees). Our payroll services provide us with a large and diversified deposit base with significant cross-selling potential.

Corporate customers

Overview

We provide our corporate customers with traditional banking products and services such as deposits, lending (including overdraft facilities), check cashing advances and factoring, guaranteed loans and credit lines for financing foreign trade and cash management services. We also provide them trust, payroll and financial agency services, corporate credit cards and other specialty products.

The corporate business is focused on the classification by sizes and sectors. We have four categories for our corporate customers: small companies, which register up to Ps.52 million in sales per year; medium companies, which register more than Ps.52 million and less than Ps.150 million in sales per year; major companies, which register more than Ps.150 million in sales per year; and agro companies, which include individuals and companies who operate in agriculture or in the commerce of its products.

During 2011, the Bank continued developing its descentralized segment-specific service strategy aiming at improving customer service. At present, the Bank has 21 Corporate Banking Centers and a network of branches with business officials specialized in each category offering a wide range of products including working capital facilities, investment projects, leasings and foreign trade transactions.

Our corporate customer base also acts as a source of demand for our excess liquidity through overnight and short-term loans to major corporate customers. See Item 5. “Operating and Financial Review and Prospects—liquidity and capital resources”.

Lending products and services

Our lending activities to the corporate sector (defined here as firms with loans outstanding in excess of Ps.20,000) totaled Ps. 9,903.9 million as of December 31, 2011. Most of our current lending activity consists of working capital loans to small and medium-sized businesses. Our historic focus on small and medium-sized businesses has enabled us to diversify our credit risk exposure, by granting smaller-sized loans to clients in diverse business sectors. As of December 31, 2011, the average principal amount of our corporate loans was Ps. 0.4 million and our 20 largest private sector loans accounted for 15% of our total corporate loans.

We offer short-term and medium- to long-term corporate lending products.

Short-term: Products include credit lines for up to 180 days and consist mainly of overdraft facilities, corporate credit and debit cards and factoring, as well as foreign trade related financing, such as pre-export, post-shipment and import financing. These products also include contingency lines, such as short-term guarantees (performance guarantees and bid bonds) and import letters of credit. The credit risk assigned to these kinds of transactions is the debtor rating described below, unless increased as a result of a pledge or a guarantee.

Medium- to long-term: Products include credit lines and specific lending facilities of more than 180 days. Credits are usually asset-based, such as leasing, whereby a credit enhancement is achieved by means of the underlying asset.

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Medium- to long-term facilities risks are mitigated through different mechanisms that range from pledges and mortgages to structured deals through financial trusts whereby the debtor pledges the underlying asset, mostly future income flows. Regardless of the term and based on the fact that these credit lines are devoted to small to medium-size companies, our policy is to require personal guarantees from the owners, although the underlying debtor rating remains unchanged.

In 2011, our corporate loan portfolio recorded a 44% increase compared to 2010, driven mainly by increases in pledged loans, document discounts and, to a lesser extent, overdrafts.

Loans to agrocompanies and small sized companies, grew by 62% and 45% respectively in 2011 as compared to 2010 contributing to the increased atomization and stability of our corporate loan portfolio.

In 2011, the agricultural sector was one of the most active players in terms of financial activity in 2011, in line with the performance of the sector in the country. Significant efforts were made to increase our MacroAgro Cards portfolio, recording a 25% increase in the number of active accounts, which led to a 42% increase in consumption and 44% in portfolio balance. In addition, agreements were executed with over 70 machinery manufacturers to provide medium and long term funding of purchases of machinery by their customers.

In 2011, the credit portfolio for the small sized companies increased mainly as a consequence of an increase in document discounts and medium and long term loans, in particular pledged loans. The relevance of Micro-Enterprises within this segment should be highlighted, since they were an essential source of funds for us. With the purpose of improving our products and customer service, a bundle of products specifically designed for “comercios” was launched by mid-year, enhancing cross sales and improving profitability from this sector.

In 2011, the medium size companies and major companies’ portfolio increased 45% and 20%, respectively, as compared to 2010.

During 2011, we consolidated our competitive share in the foreign trade sector, due to the quality of our services and our continuous efforts to provide adequate and affordable services and products, both in terms of quantity and quality. Over this period, the bank’s portfolio of clients engaged in foreign trade increased by 58% compared to 2010, with a 25% growth in the volume of transactions and a 31% increase in the credit portfolio. This improvement was mainly due to an increase in pre-export financings to the agrocompanies and medium sized companies segments and a 143% increase in import financings. These increase show the significance of our foreign trade sector business which currently accounts for over 20% of our corporate loan portfolio.

As of December 31, 2009, 2010 and 2011, our loans to corporate customers were as follows:

	Loans to companies in excess of Ps. 20,000
	(as of December 31, of each year)
	(in millions of pesos and as percentage of corporate loan portfolio)
	2009				2010				2011
Overdrafts		1,273.7	25.6	%		1,857.2	26.9	%		2,556.8	25.8	%
Documents (1)		1,030.7	20.7	%		1,256.9	18.2	%		2,369.2	23.9	%
Pledged loans (2)		121.9	2.4	%		215.7	3.1	%		441.4	4.5	%
Mortgage loans		371.7	7.5	%		490.9	7.1	%		628.5	6.3	%
Other (3)		2,186.9	43.8	%		3,072.9	44.7	%		3,908.0	39.5	%
Total		4,984.9	100.0	%		6,893.6	100.0	%		9,903.9	100.0	%

(1) Factoring, check cashing advances and promissory notes.

(2) Primarily securing cargo transportation equipment.

(3) Mostly structured loans (medium- and long-term).

Transaction services

We offer transaction services to our corporate customers, such as cash management, customer collections, payments to suppliers, payroll administration, foreign exchange transactions, foreign trade services, corporate credit cards, and information services, such as our Datanet and Interpymes services. There are usually no credit risks involved in these transactions, except for intra-day gapping (payments done against incoming collections) as well as settlement and pre-settlement related to foreign exchange transactions which, in general, are approved following the debtor rating process explained above.

Payments to suppliers. Our payments to suppliers services enable our customers to meet their payment obligations to their suppliers on a timely basis through a simple and efficient system. This service also provides payment liquidations, tax payment receipts, invoices and any other documents required by the payer.

Collection services. Our collection services include cash or check deposits at our 414 branches, automatic and direct debits from checking or savings accounts and the transportation of funds collected from corporate customers to our branches for deposit. Our extensive branch network enables us to offer fast and efficient collection services throughout Argentina, which is of critical importance to both regional and nationwide companies.

Datanet and Interpymes. We provide our corporate clients with access to the Datanet service, which is an electronic banking network linking member banks in Argentina. These services permit our clients to obtain reliable on-line information on a real-time basis from their bank accounts in Datanet as well as perform certain transactions.

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Interpymes is an electronic banking system designed to meet the needs of small businesses. It does not require special installation procedures and is easily accessible through the Internet, helping to simplify day-to-day operations for our customers.

Tax collection and financial agency services. We also have exclusive, long-term arrangements to provide tax collection and financial agency services to four provinces.

Payroll services. We provide payroll services to four provinces and the private sector. See “Our products and services – Retail customers”.

Our distribution network

As of December 31, 2011 we had the largest private sector branch network in the country with 414 branches spread throughout Argentina. In particular, in line with our strategy of expanding nationally, we have extensive coverage of the provinces of Argentina with 93% of our branches located outside of the City of Buenos Aires. Furthermore, as of December 31, 2011 we had 953 ATMs, 781 self-service terminals (“SSTs”), 39 service points used for social security benefit payments and servicing of checking and savings accounts and an internet banking service (home banking).

The following table breaks down the current distribution of our branches per province and sets forth our market share for all banks in those provinces:

	As of December 31, 2011
Province	Branches		% of Total			Market Share of total branches in each province
City of Buenos Aires		27		6.5	%		3.4	%
Buenos Aires (rest)		57		13.8	%		4.4	%
Catamarca		1		0.2	%		4.2	%
Chaco		1		0.2	%		1.7	%
Chubut		5		1.2	%		5.4	%
Córdoba		66		15.9	%		15.8	%
Corrientes		3		0.7	%		4.6	%
Entre Ríos		6		1.5	%		4.9	%
Formosa		—		—			—
Jujuy		15		3.6	%		48.4	%
La Pampa		2		0.5	%		1.9	%
La Rioja		2		0.5	%		7.7	%
Mendoza		13		3.1	%		8.6	%
Misiones		35		8.5	%		53.8	%
Neuquén		4		1.0	%		4.5	%
Río Negro		6		1.5	%		8.8	%
Salta		25		6.0	%		46.3	%
San Juan		1		0.2	%		2.7	%
San Luis		1		0.2	%		2.2	%
Santa Cruz		2		0.5	%		5.1	%
Santa Fe		106		25.6	%		24.8	%
Santiago del Estero		1		0.2	%		1.9	%
Tierra del Fuego		2		0.5	%		11.8	%
Tucumán		33		8.0	%		44.0	%
TOTAL		414		100.0	%		9.9	%

Source:Central Bank

The Bank’s technological development is continuous and the number of alternative methods to perform banking transactions is increasing. Automated channels allow our clients to perform banking transactions with enhanced speed, comfort and safety, offering a wide variety of available transactions. During 2011, the use of automated channels continued expanding, in terms of volume of transactions and number of users. The transactions performed through these channels increased by 32% in 2011 and the number of active users grew by 27% during 2011. The significant and sustained increase in the number of users and transactions evidences the effectiveness and level of acceptance of these services in the market.

Technology

During the year 2010, in response to the Bank’s continued growth and for the purpose of continue improving our services to customers, we implemented amendments to the organizational structure of our Systems Department. Furthermore, we increased by 65% the data storage capacity of the Bank in order to meet the demand from our customers and to enable the execution of future projects.

We continued increasing the technology of our branches, by acquiring and installing new ATMs and SSTs. As of December 31, 2011 we had 953 ATMs and 781 SSTs, representing one of the widest networks in the country.

The plan for renewal, replacement and extension of ATMs, SSTs and access points resulted in the acquisition of 213 new terminals, of which, 61.5% were used as replacements, 23.0% for new positions and 15.5% for additional positions to existing terminals.

Furthermore, we will continue with our efforts to improve the management of business processes, by continue implementing a BPM (Business Process Management) software for the purpose of improving efficiency and providing adequate flexibility.

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In 2012, we plan to unify and centralize switchboards and to improve our server platform to optimize the use of space, reduce costs and improve quality.

The total amount that we plan to invest in such improvements in 2012 is approximately US$ 21.6 million.

Credit risk management

Credit policy and credit risk management

Our Board of Directors approves our credit policy and credit analysis based on the following guidelines:

• we seek to maintain a high quality portfolio that is diversified among customers;

• decisions regarding loan amounts are made following conservative parameters based upon the customer’s capital, cash flow and profitability, in the case of companies, and the customer’s income and asset base, in the case of individuals;

• the term of the loans offered to meet the customer’s needs must be appropriate for the purpose of the loan and the customer’s ability to repay the loan;

• transactions must be appropriately secured according to the loan’s term and the level of risk involved, and in the case of lending to small and medium-sized companies, we request personal guarantees from the company’s owners; and

• we continuously monitor credit portfolios and customer payment performance.

The Credit Risk Department is responsible for the implementation of policies and for managing and monitoring our credit risk exposure.

Procedure manuals and tools (information systems, rating and follow-up systems, risk models, and deliquency recovery policies) are used to manage risk efficiently based on the type of client. In addition, we continuosly monitor compliance with credit regulations of the Central Bank.

We have credit risk assessment specialists assigned to corporate, retail, small and medium size corporate and agrocompanies customers, with ample knowledge and experience to provide technical support for credit decisions.

Credit rating process

We establish contact with loan applicants through an officer, who is in charge of gathering the applicant’s information and documentation, visiting the applicant, if necessary, obtaining the reasons for the loan request and making an initial assessment of the application. The loan proposal is then reviewed by a banking manager and, if it complies with our credit policy, it is referred to our credit risk assessment management division, which prepares a risk report. The risk report is then provided to a committee in charge of reviewing and granting the loan. Depending upon the amount and type of loan involved, the responsible committee will be one of the committees acting under the supervision of our Board of Directors and responsible for reviewing and determining whether to approve the loan: a senior committee, a junior committee, a national committee, a regional committee. The senior committee consists of members of senior management and considers loan proposals in excess of Ps.10 million.

We also have in place circuits that allow decentralization of credit decisions, such as scoring models for individuals and small business, or delegation on senior-officers of credit-related decisions regarding the approval of short-term loans, and loans for small amounts, or with certain guarantees.

Our credit policies for individuals are based upon the applicable product lines, including credit cards, current account overdrafts, personal loans, pledged loans and real estate mortgage loans, and stipulate the permitted terms, maximum amounts available and interest rates. The amount of the customer’s indebtedness, loan repayment capability based on current income, and credit history are key tools used in assessing each application.

Credit risk rating

In order to determine the credit risk, our Credit Risk Department qualifies each individual or company by means of a risk rating model, assigning to a debtor a rating taking into consideration quantitative as well as qualitative concepts.

The Credit Risk Department has stressed its actions aimed at increasing the quality and efficiency of the credit risk rating process for Corporate Banking customers, including the implementation of a new Credit File Management System, which allows us to make a more efficient follow up of our credit portfolio.

As to our policy regarding credit facilities to individuals, we have made some changes in the generation of financing operations, including the startup of a new evaluation system for the Plan Sueldo segment, which evaluates companies and employees through credit point tables. These changes have caused a significant reduction in delinquency ratios.

During 2010 and 2011 we developed a new Credit Prequalification Model which allowed us both to reduce processing times and homogenize the criteria the analysis and the relevant evaluation.

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Currently, credit risk management requires increased sophistication efforts from financial institutions. Based on the banking regulations in force (Basel II), coupled with the economic volatility and competitive pressures, higher standards and stricter assessments need to be implemented.

The use of quantitative tools such as Credit Scoring models in consumer banking or Credit Ratings for corporate loans portfolios has proved essential for a more efficient decision making process. In addition, these tools may also be used for other purposes, such as:

• estimating and providing for losses (one of the most important credit risk management activities);

• determining risk adjusted rates; and

• performing Stress Tests.

The Bank is currently working on the application of these models in order to implement the methods necessary to estimate the DP (Default Probability), LGD (Loss Given Default) and EAD (Exposure at Default) parameters for its retail and corporate loans portfolios as well as for the above mentioned purposes.

The above mentioned actions allowed us to improve portfolio quality, which in turn is favored by the significant coverage with bad-debt provisions, derived from the strict debtor rating and provisioning policy applied by the Bank.

Credit monitoring and review process

Credit monitoring involves carefully monitoring the use of the loan proceeds by the customer, as well as the customer’s loan repayment performance with the objective of pre-empting problems relating to the timely repayment of the loan. The credit monitoring and review process also aims to take all steps necessary to keep delinquent loans within the parameters established by our credit policy for the purpose of curing the delinquency. If this objective is not accomplished, our credit management division will direct the collection of the loan to our pre-legal or legal collection unit. We standardize the early stages of the collection process by different measures (including contact by telephone and letter), beginning five days after maturity.

The year 2011 was marked by an important improvement in all management indicators within the Pre-Legal Recovery department. We completed the implementation of the new recovery system and differentiated collection strategies per customer segment, which resulted in management actions of increased quality, achieving also higher debt regularization and collection ratios in our arrears portfolio.

Risk Management – Communication “A” 5203 of the Central Bank

In May 2011, the Central Bank issued its “Risk Management Guidelines for Financial Institutions” establishing “good risk management practices”.

Based on these guidelines, we have adopted various measures at our organizational structure level and have implemented actions for the definition and/or adequacy of policies and procedures. This adequacy process will be implemented over the next fiscal year.

As to the Bank’s organizational structure, the Board of Directors has created a Risk Management Committee responsible for coordinating the application of risk management policies and the relevant responsible officers. For more information, see “Item 6. C”.

In addition, since we consider that professional and technical cohesion among work-teams is essential, we provided adequate training to our management.

Banking industry

The Argentine banking industry has been affected both by the 2001-2002 local crisis and the 2008 global financial crisis. In both cases, the sector showed an upward trend in terms of scale, profitability, solvency and asset quality.

Scale

The volume of intermediation recovered after the 2001-2002 local crisis and there was an annual uninterrupted growth of deposits and loans until the 2008 international crisis.

During 2009, and as a consequence of the 2008 international crisis and its impact on our economy, there was a significant slowdown in the activity of the financial sector. Financing intermediation by banks with the private sector recovered towards year-end, albeit with an expansion slower than that of previous years. The average of deposits from and loans to the private sector grew by 9% and 11% respectively during 2009.

Following the improved economic and financial outlook in Argentina, the financial intermediation activities of banks with the private sector expanded during 2010 and 2011. Deposits from private sector increased by 23% and 32% in average in 2010 and 2011, respectively. Loans to the private sector increased by 22% and 47% in average in 2010 and 2011, respectively, mainly as a result of an increase in the economic activity as a whole. Total deposits grew by 28% and 31% in average in 2010 and 2011, respectively.

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The level of private sector loans and deposits over GDP was still low as of December 31, 2011, at 16% for private sector loans/GDP and 25% for total deposits/GDP. These levels in terms of GDP allow to forecast a considerable potential growth in upcoming years.

	2009		2010		2011
	(in million of pesos)
Total Assets (1)		368,091		450,179		577,367
Total Deposits (1)		253,985		325,502		427,444
Gross Private Sector Loans (1)		137,559		167,213		245,666
Private Sector Deposits (1)		181,959		223,891		295,858

Source: Central Bank

(1) Twelve-month average.

Profitability

The Argentine financial system and the profitability of banks were deeply affected by the 2001-2002 local crisis. Since 2003, the financial system has steadily been on its path to recovery, with a growing number of profit-making entities each year.

The Argentine financial system continues its consolidation process after reaching a stage of more stable profits, and accumulating positive results for 10 years now, which underscores the sector’s solvency.

In 2011 the profitability of the financial system increased by 25% to Ps. 14,754 million in 2011 from Ps.11,780 million in 2010, signaling a recovery in the intermediation activity and generating an improvement of profitability ratios.

	2009			2010			2011
Net income (in millions of pesos) (1)		8,103			11,780			14,754
Return on average equity		18.0	%		24.3	%		25.3	%
Return on average assets		2.2	%		2.8	%		2.7	%

Source: Central Bank

(1) This indicator excludes results and asset accounts related to permanent interests in domestic financial institutions.

Asset Quality

Both the 2001-2002 local crisis and the 2008 global financial crisis have taken their toll on the quality of bank portfolios. From 2004 through 2008, ratios have gradually improved.

The credit quality of the Argentine financial system showed a marginal decline as a consequence of the 2008 global financial crisis due to a slowdown in the placement of credit to the public sector and the increase in delinquency rates. The growth in delinquency rates following the 2008 crisis, mainly in the consumer credit portfolio, started to reverse during mid-2009. During 2010 and 2011, the credit quality improved substantially, both for private and public sectors.

Financial entities continue to offer extensive coverage ratios for non-performing portfolio. As of December 31, 2011, the non-performing credit portfolio level reached 1.2% of the total credit portfolio, whereas the coverage ratio level reached 176.0%.

The following table shows the percentages of non-performing portfolios in the Argentine financial system:

	2009			2010			2011
Non-performing Credit Portfolio		3.0	%		1.9	%		1.2	%
Non-performing Credit Portfolio—Private Sector		3.5	%		2.1	%		1.4	%
Coverage ratio		125.7	%		164.2	%		176.0	%

Source: Central Bank

Competition

We believe that we have an important advantage over our competitors in providing banking products and services to small communities in the provinces of Argentina as a result of the close community relationships and strong loyalty we have developed over time with our customers in these areas.

We consider Banco Santander Río S.A., Banco de Galicia y Buenos Aires S.A., BBVA Banco Francés S.A., HSBC Bank Argentina S.A. and Banco Patagonia S.A. to be our main competitors. We also compete with regional banks.

In the future, we expect competition to increase in corporate transactions products, long-term lending, mortgage lending and other secured financings, credit cards, specialized credit packages, payroll services and investment management services.

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Competitive landscape

There are eight institutions that rank among the top ten in Argentina, based on private sector loans, equity, total deposits and net income: Banco de la Nación Argentina, Banco de la Provincia de Buenos Aires and Banco de la Ciudad de Buenos Aires, which are public banks, the Bank and Banco de Galicia y Buenos Aires S.A. which are both domestic banks, and Banco Santander Río S.A., HSBC Bank Argentina S.A. and BBVA Banco Francés S.A. which are foreign-owned banks. Below are the rankings of these banks across these metrics:

Private Sector Loans (As of December 31, 2011)	Ps. Million		Market Share (% share of total private sector loans for the Argentine financial system)
1 BANCO DE LA NACION ARGENTINA (1)		42,701		15	%
2 BANCO SANTANDER RIO S.A.		25,930		9	%
3 BANCO MACRO S.A. (2)		24,238		8	%
4 BANCO DE GALICIA Y BUENOS AIRES S.A.		23,425		8	%
5 BBVA BANCO FRANCES S.A.		20,826		7	%
6 BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		19,574		7	%
7 HSBC BANK ARGENTINA S.A.		14,194		5	%
8 BANCO CREDICOOP COOPERATIVO LIMITADO		11,769		4	%
9 BANCO DE LA CIUDAD DE BUENOS AIRES (1)		11,726		4	%
10 BANCO PATAGONIA S.A.		10,520		4	%
OTHERS		86,804		30	%
TOTAL		291,708		100	%

Source: Central Bank

(1) Public sector banks.

(2) Based on our consolidated financial statements.

Equity (As of December 31, 2011)	Ps. Million		Market Share (% share of equity for the Argentine financial system)
1 BANCO DE LA NACION ARGENTINA (1)		14,828		21	%
2 BANCO SANTANDER RIO S.A.		4,739		7	%
3 BANCO MACRO S.A. (2)		4,720		7	%
4 BBVA BANCO FRANCES S.A.		3,868		6	%
5 BANCO DE GALICIA Y BUENOS AIRES S.A.		3,603		5	%
6 BANCO HIPOTECARIO S.A.		3,212		5	%
7 CITIBANK N.A.		3,116		4	%
8 HSBC BANK ARGENTINA S.A.		2,996		4	%
9 BANCO DE LA CIUDAD DE BUENOS AIRES (1)		2,880		4	%
10 BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		2,765		4	%
OTHERS		23,027		33	%
TOTAL		69,755		100	%

Source: Central Bank

(1) Public sector banks.

(2) Based on our consolidated financial statements.

Total Deposits (As of December 31, 2011)	Ps. Million		Market Share (% share of total deposits for the Argentine financial system)
1 BANCO DE LA NACION ARGENTINA (1)		131,032		28	%
2 BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		38,076		8	%
3 BANCO SANTANDER RIO S.A.		33,144		7	%
4 BANCO DE GALICIA Y BUENOS AIRES S.A.		30,118		7	%
5 BBVA BANCO FRANCES S.A.		29,285		6	%
6 BANCO MACRO S.A. (2)		29,167		6	%
7 HSBC BANK ARGENTINA S.A.		20,921		5	%
8 BANCO CREDICOOP COOPERATIVO LIMITADO		18,432		4	%
9 BANCO DE LA CIUDAD DE BUENOS AIRES		16,574		4	%
10 CITIBANK N.A.		13,509		3	%
OTHERS		102,812		22	%
TOTAL		463,069		100	%

Source: Central Bank

(1) Public sector banks.

(2) Based on our consolidated financial statements.

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Net Income (12 months ended December 31, 2011)	Ps. Million		Market Share (% share of total net income for the Argentine financial system)
1 BANCO DE LA NACION ARGENTINA (1)		3,312		22	%
2 BANCO SANTANDER RIO S.A.		1,677		11	%
3 BANCO MACRO S.A. (2)		1,176		8	%
4 BANCO DE GALICIA Y BUENOS AIRES S.A.		1,107		8	%
5 BBVA BANCO FRANCES S.A.		1,006		7	%
6 CITIBANK N.A.		755		5	%
7 HSBC BANK ARGENTINA S.A.		713		5	%
8 BANCO DE LA CIUDAD DE BUENOS AIRES (1)		656		4	%
9 BANCO PATAGONIA S.A.		612		4	%
10 BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		600		4	%
OTHERS		3,141		21	%
TOTAL		14,754		100	%

Source: Central Bank

(1) Public sector banks.

(2) Based on our consolidated financial statements.

As of December 31, 2011, our return annualized on average equity was 26.7% compared to the 25.6% for private-sector banks and 25.3% for the banking system as a whole.

There is a large concentration of branches in the City and province of Buenos Aires in the financial system as a whole, as shown by the following table. However, we have the most extensive private-sector branch network in Argentina, and a leading regional presence in eight provinces including Santa Fe, Córdoba, Río Negro, and Tierra del Fuego, in addition to Misiones, Salta, Tucumán and Jujuy, where we are the largest bank in terms of branches.

	As of December 31, 2011
	Banking System					Banco Macro (1)
Province	Branches		% of Total			Branches		% of Total			Market Share (% share of total of branches in each province)
BUENOS AIRES (PROVINCE)		1,291		31.0	%		57		13.8	%		4.4	%
CITY OF BUENOS AIRES		789		19.0	%		27		6.5	%		3.4	%
CATAMARCA		24		0.6	%		1		0.2	%		4.2	%
CHACO		60		1.4	%		1		0.2	%		1.7	%
CHUBUT		92		2.2	%		5		1.2	%		5.4	%
CORDOBA		418		10.0	%		66		15.9	%		15.8	%
CORRIENTES		65		1.6	%		3		0.7	%		4.6	%
ENTRE RIOS		122		2.9	%		6		1.4	%		4.9	%
FORMOSA		18		0.4	%		0		0.0	%		0.0	%
JUJUY		31		0.7	%		15		3.6	%		48.4	%
LA PAMPA		106		2.5	%		2		0.5	%		1.9	%
LA RIOJA		26		0.6	%		2		0.5	%		7.7	%
MENDOZA		152		3.7	%		13		3.1	%		8.6	%
MISIONES		65		1.6	%		35		8.5	%		53.8	%
NEUQUÉN		88		2.1	%		4		1.0	%		4.5	%
RIO NEGRO		68		1.6	%		6		1.4	%		8.8	%
SALTA		54		1.3	%		25		6.0	%		46.3	%
SAN JUAN		37		0.9	%		1		0.2	%		2.7	%
SAN LUIS		45		1.1	%		1		0.2	%		2.2	%
SANTA CRUZ		39		0.9	%		2		0.5	%		5.1	%
SANTA FE		428		10.3	%		106		25.6	%		24.8	%
SANTIAGO DEL ESTERO		52		1.2	%		1		0.2	%		1.9	%
TIERRA DEL FUEGO		17		0.4	%		2		0.5	%		11.8	%
TUCUMAN		75		1.8	%		33		8.0	%		44.0	%
TOTAL		4,162		100.0	%		414		100.0	%		9.9	%

Source: Central Bank

(1) Includes branches of Banco Macro, Banco del Tucuman and Banco Privado.

Approximately 81% of the branches in the Argentine financial system are located outside the City of Buenos Aires; in our case, approximately 93% of our branches are outside the City of Buenos Aires. The ten largest banks, in terms of branches, account for 60% of the total amount of the system. As of December 31, 2011 we were second to Banco de la Nación Argentina in terms of market share outside the City of Buenos Aires, with a market share of 11%. The following ranking is based on financial institutions with 50 or more branches and with presence in 15 or more provinces as of December 31, 2011.

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	Number of provinces Served		Total Number of Branches		Market Share of Branches in Argentina			Branches in City of Buenos Aires		Market Share of Branches in City of Buenos Aires			Branches in the Rest of Country		Market Share of Branches in Rest of Country			% of Branches in the Rest of Country
1 BANCO MACRO S.A. (2)		23		414		10	%		27		3	%		387		11	%		93	%
2 BANCO DE LA NACION ARGENTINA (1)		24		626		15	%		63		8	%		563		17	%		90	%
3 COMPAÑIA FINANCIERA ARGENTINA S.A.		18		59		1	%		8		1	%		51		2	%		86	%
4 BANCO CREDICOOP COOPERATIVO LIMITADO		19		250		6	%		40		5	%		210		6	%		84	%
5 BANCO PATAGONIA S.A.		24		146		4	%		39		5	%		107		3	%		73	%
6 BANCO SANTANDER RIO S.A.		22		316		8	%		97		12	%		219		6	%		69	%
7 STANDARD BANK ARGENTINA S.A.		18		99		2	%		32		4	%		67		2	%		68	%
8 BANCO DE GALICIA Y BUENOS AIRES S.A.		24		244		6	%		80		10	%		164		5	%		67	%
9 HSBC BANK ARGENTINA S.A.		22		132		3	%		44		6	%		88		3	%		67	%
10 BBVA BANCO FRANCES S.A.		24		242		6	%		82		10	%		160		5	%		66	%
OTHERS		24		1634		39	%		277		35	%		1357		40	%		83	%
TOTAL		24		4162		100	%		789		100	%		3373		100	%		81	%

Source: Central Bank

(1) Public sector banks.

(2) Includes branches of Banco Macro, Banco del Tucumán and Banco Privado.

Argentine banking regulation

Overview

Founded in 1935, the Central Bank is the principal monetary and financial authority in Argentina. Its mission is to promote monetary and financial stability, employment and economic development with social equity.

It operates pursuant to its charter, which was amended on March 22, 2012 by Law No. 26,739 and the provisions of the Financial Institutions Law. Under the terms of its charter, the Central Bank must operate independently from the Argentine government.

Since 1977, banking activities in Argentina have been regulated primarily by the Financial Institutions Law, which empowers the Central Bank to regulate the financial sector. The Central Bank regulates and supervises the Argentine banking system through the Superintendency. The Superintendency is responsible for enforcing Argentina’s banking laws, establishing accounting and financial reporting requirements for the banking sector, monitoring and regulating the lending practices of financial institutions and establishing rules for participation of financial institutions in the foreign exchange market and the issuance of bonds and other securities, among other functions.

The powers of the Central Bank include the authority to fix monetary base, interest rate, minimum capital, liquidity and solvency requirements, regulate credit, approve bank mergers, approve certain capital increases and transfers of stock, grant and revoke banking licenses, and to authorize the establishment of branches of foreign financial institutions in Argentina and the extension of financial assistance to financial institutions in cases of temporary liquidity or solvency problems.

The Central Bank establishes certain “technical ratios” that must be observed by financial entities, such as ratios related to levels of solvency, liquidity, the maximum credits that may be granted per customer and foreign exchange assets and liability positions.

In addition, financial entities need the authorization of the Central Bank for the disposition of their assets, such as opening or changing branches or ATMs, acquiring share interests in other financial or non-financial corporations and establishing liens over their assets, among others.

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As supervisor of the financial system, the Central Bank requires financial institutions to submit information on a daily, monthly, quarterly, semi-annual and annual basis. These reports, which include balance sheets and income statements, information relating to reserve funds, use of deposits, classifications of portfolio quality (including details on principal debtors and any allowances for loan losses), compliance with capital requirements and any other relevant information, allow the Central Bank to monitor the business practices of financial entities. In order to confirm the accuracy of the information provided, the Central Bank is authorized to carry out inspections.

If the Central Bank’s rules are not complied with, various sanctions may be imposed by the Superintendency, depending on the level of infringement. These sanctions range from a notice of non-compliance to the imposition of fines or, in extreme cases, the revocation of the financial entity’s operating license. Additionally, non-compliance with certain rules may result in the compulsory filing of specific adequacy or restructuring plans with the Central Bank. These plans must be approved by the Central Bank in order to permit the financial institution to remain in business.

The Central Bank fulfills the function of lender of last resort, and is allowed to provide financial assistance to financial institutions with liquidity or solvency problems.

Banking regulation and supervision

Central Bank supervision

Since September 1994, the Central Bank has supervised the Argentine financial entities on a consolidated basis. Such entities must file periodic consolidated financial statements that reflect the operations of head offices or headquarters as well as those of their branches in Argentina and abroad, and of their significant subsidiaries, whether domestic or foreign. Accordingly, requirements in relation to liquidity and solvency, minimum capital, risk concentration and loan loss provisions, among others, should be calculated on a consolidated basis.

Permitted activities and investments

The Financial Institutions Law governs any individuals and entities that perform habitual financial intermediation and, as such, are part of the financial system, including commercial banks, investment banks, mortgage banks, financial companies, savings and loan companies for residential purposes and credit unions. Except for commercial banks, which are authorized to conduct all financial activities and services that are specifically established by law or by regulations of the Central Bank, the activities that may be carried out by Argentine financial entities are set forth in the Financial Institutions Law and related Central Bank Rules. Commercial banks are allowed to perform any and all financial activities inasmuch as such activities are not forbidden by law. Some of the activities permitted for commercial banks include the ability to (i) receive deposits from the public in both local and foreign currency; (ii) underwrite, acquire, place or negotiate debt securities, including government securities, in both exchange and over-the-counter markets (subject to prior approval by the CNV, if applicable); (iii) grant and receive loans; (iv) guarantee customers’ debts; (v) conduct foreign currency exchange transactions; (vi) issue credit cards; (vii) act, subject to certain conditions, as brokers in real estate transactions; (viii) carry out commercial financing transactions; (ix) act as registrars of mortgage bonds; (x) participate in foreign exchange transactions; and (xi) act as fiduciary in financial trusts. In addition, pursuant to the Financial Institutions Law and Central Bank Communication “A” 3086, commercial banks are authorized to operate commercial, industrial, agricultural and other types of companies that do not provide supplemental services to the banking services (as defined by applicable Central Bank Rules) to the extent that the commercial bank’s interest in such companies does not exceed 12.5% of its voting stock or 12.5% of its capital stock. Nonetheless, if the aforementioned limits were to be exceeded, the bank should (i) request Central Bank’s authorization; or (ii) give notice of such situation to the Central Bank, in certain circumstances. However, even when commercial banks’ interests do not reach such percentages, they are not allowed to operate such companies if (i) such interest allows them to control a majority of votes at a shareholders’ or board of directors’ meeting, or (ii) the Central Bank does not authorize the acquisition.

Under Central Bank Rules, the total amount of the investments of a commercial bank in the capital stock of third parties, including interests in Argentine mutual funds, may not exceed 50% of such bank’s regulatory capital (Responsabilidad Patrimonial Computable, or “RPC”). In addition, the total amount of a commercial bank’s investments in the following: (i) unlisted stock, excluding interests in companies that provide services that are supplementary to the finance business and interests in state-owned companies that provide public services, (ii) listed stock and interests in mutual funds that do not give rise to minimum capital requirements on the basis of market risk, and (iii) listed stock that does not have a “largely publicly available market price,” taken as a whole, is limited to 15% of such bank’s RPC.

To this effect, a given stock’s market price is considered to be “largely publicly available” when daily quotations of significant transactions are available, and the sale of such stock held by the bank would not significantly affect the stock’s quotation.

Operations and activities that banks are not permitted to perform

The Financial Institutions Law prohibits commercial banks from: (a) creating liens on their assets without prior approval from the Central Bank, (b) accepting their own shares as security, (c) conducting transactions with their own directors or managers and with companies or persons related thereto under terms that are more favorable than those regularly offered in transactions with other clients, and (d) carrying out commercial, industrial, agricultural or other activities without prior approval of the Central Bank, except those considered financially related activities under Central Bank Rules. Notwithstanding the foregoing, banks may own shares in other financial institutions with the prior approval of the Central Bank, and may own shares or debt of public services companies, if necessary to obtain those services.

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Liquidity and solvency requirements

As of 1994, the Central Bank supervision of financial institutions is carried out on a consolidated basis. Therefore, all of the documentation and information filed with the Central Bank, including financial statements, must show the operations of each entity’s headquarters and all of its branches (in Argentina and abroad), the operations of significant subsidiaries and, as the case may be, of other companies in which such entity holds stock. Accordingly, all requirements relating to liquidity, minimum capital, risk concentration and bad debts’ reserves, among others, are calculated on a consolidated basis.

Legal reserve

According to the Financial Institutions Law and Central Bank Rules, financial institutions are required to maintain a legal reserve of 20% of their yearly income plus or minus prior-year adjustments and minus the accumulated loss for the previous year closing period. This reserve can only be used during periods in which a financial institution has incurred losses and has exhausted all other reserves. If a financial institution does not comply with the required legal reserve, it would not be able to pay dividends to its shareholders.

Non-liquid assets

Since February 2004, non-liquid assets (computed on the basis of their closing balance at the end of each month, and net of those assets that are deducted to compute the regulatory capital, such as equity investments in financial institutions and goodwill) plus the financings granted to a financial institution’s related persons (computed on the basis of the highest balance during each month for each customer) cannot exceed 100% of the Argentine regulatory capital of the financial institution, except for certain particular cases in which it may exceed such limitation, although it shall not exceed 150% of the RPC of the relevant financial institution.

Non-liquid assets consist of miscellaneous receivables, bank property and equipment, miscellaneous assets, assets securing obligations, except for swap, futures and derivative transactions, certain intangible assets and equity investments in unlisted companies or listed shares, if the holding exceeds 2.5% of the issuing company’s equity.

Non-compliance with the ratio produces an increase in the minimum capital requirements equal to 100% of the excess on the ratio.

Minimum capital requirements

The Central Bank requires that financial institutions maintain minimum capital amounts measured as of each month’s closing, which are defined as a ratio of the counterparty risk and interest rate risk of the financial institution’s assets. Such requirement should be compared to the basic requirement, which is explained below, taking into account the one with the highest value. The basic requirement varies depending on the type of institution and the jurisdiction in which the relevant institution is registered, from Ps.10 million to Ps.25 million for banks, and from Ps.5 million to Ps.10 million for other institutions. In addition, financial institutions must comply with a market risk requirement that is calculated on a daily basis. Financial institutions (together with their branches in Argentina and abroad) must comply with minimum capital requirements both on an individual and a consolidated basis.

Basic minimum capital

The Central Bank classifies by type and category the minimum capital requirements for financial entities. The categories are established in accordance with the jurisdiction in which the respective financial entity is located:

Category	Jurisdiction	Banks		Other Entities (*)
I	City of Buenos Aires.		Ps.25 million		Ps.10 million
II	Comodoro Rivadavia–Rada Tilli, Rawson–Trelew, Greater Córdoba, Río Cuarto, Greater Buenos Aires(1), Bahía Blanca–Cerri, Mar del Plata–Batán, San Nicolás–Villa Constitución, Greater Mendoza, Neuquén–Plottier, Viedma–Carmen de Patagones, Greater Rosario, Viedma, General San Martín, San Justo, Tercero Arriba, Campana, Chivilcoy, Junín, Necochea, Olavarría, Pergamino, Pilar, Tandil, Tres Arroyos, Zárate, Bariloche, Castellanos, General López, San Martín, Santa Cruz Province, and Tierra del Fuego Province.		Ps.14 million		Ps.8 million
III	Cities of Greater Catamarca, Greater Resistencia, Greater Corrientes, Concordia, Jujuy-Palpalá, La Rioja, Posadas, Salta, Greater San Juan, San Luis-El Chorrillo, Santiago del Estero-La Banda, Greater Tucumán-Tafí Viejo, Colón, Federación, Gualeguay, Gualeguaychú, Paraná, Uruguay, General Pedernera, the Province of La Pampa and the remaining towns of the provinces of Buenos Aires (2), Córdoba (3), Chubut, Mendoza, Neuquén, Río Negro and Santa Fe (4).		Ps.12.5 million		Ps.6.5 million
IV	The rest of Argentina.		Ps.10 million		Ps.5 million

(*) Except credit entities.

(1) Excluding the City of Buenos Aires.

(2) Excluding Marcos Paz, Presidente Perón and San Vicente departments.

(3) Excluding Cruz del Eje department.

(4) Excluding Vera department.

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Notwithstanding the foregoing, the basic minimum capital requirement for banks that were operating on June 30, 2005 cannot exceed Ps.15 million.

Description of Argentine Tier 1 and Tier 2 capital regulations

Argentine financial institutions must comply with guidelines similar to those adopted by the Basel Committee on Banking Regulations and Supervisory Practices, as amended in 1995 (the “Basel Rules”). In certain respects, however, Argentine banking regulations require higher ratios than those set forth under the Basel Rules.

The Central Bank takes into consideration a financial institution’s regulatory capital (RPC) in order to determine compliance with capital requirements. RPC consists of Tier 1 capital (Basic Net Worth) and Tier 2 capital (Complementary Net Worth) minus certain deducted items.

Tier 1 capital consists of (i) capital stock as defined by the Argentine Corporate Law, (ii) irrevocable contributions on account of future capital increases, (iii) adjustments to shareholders’ equity, (iv) savings reserves, (v) retained earnings and (vi) subordinated debt securities and their reserve funds, provided they meet certain conditions and requirements. In the case of consolidation, non-controlling interests are also included.

Tier 2 capital consists of (i) liabilities (including debt securities) contractually subordinated to all other liabilities not computable as Tier 1 capital, with an average initial maturity of at least five years and issued under certain conditions and requirements, plus (ii) amounts of reserve funds applied to the payment of interest on subordinated debt securities before December 31, 2012 and as from such date also those amounts which have not been used, provided they exceed certain limits, plus or minus (iii) with respect to results at prior fiscal years, 100% of net earnings or losses recorded through the most recent audited quarterly financial statements in the event the yearly financials are not audited, plus or minus (iv) 100% of net earnings or losses for the current year as of the date of the most recent audited quarterly financial statement, plus or minus (v) 50% of profits or 100% of losses, from the most recent audited quarterly or annual financial statements, minus (vi) 100% of losses not shown in the financial statements, arising from quantification of any facts and circumstances reported by the auditor, plus (vii) 50% of loan loss provisions on the loan portfolio classified as “normal situation” or “performing” pursuant to Central Bank Rules on debtor classification and financing with preferred security, and plus or minus (viii) creditor or debtor balances in the following accounts: (a) unrealized gains from Argentine governmental securities available for sale (Diferencia de valuación no realizada de tenencias de títulos públicos nacionales disponibles para la venta), (b) unrealized gains from Central Bank bills available for sale (Diferencia de valuación no realizada de tenencias de Letras emitidas por el Banco Central disponibles para la venta), and (c) unrealized gains from Central Bank notes available for sale (Diferencia de valuación no realizada de tenencias de Notas emitidas por el Banco Central disponibles para la venta).

Items to be deducted include, among others: (a) demand deposits maintained with foreign financial institutions that are not rated as “investment grade”; (b) securities not held by the relevant financial institutions, except where the Central Bank (CRYL), Caja de Valores S.A., Clearstream, Euroclear, Depository Trust Company or Deutsche Bank, New York, are in charge of their registration or custody; (c) securities issued by foreign governments whose risk rating is lower than that assigned to Argentine government securities; (d) subordinated debt instruments issued by other financial institutions acquired prior to September 30, 2006; (e) equity interests in other Argentine or foreign financial institutions; (f) equity interests relating to the application of tax deferrals until February 19, 1999, or after such date provided they relate to irrevocable capital contributions made until such date, as from the month following expiration of the legal term of unavailability or loss of the tax benefits, as set forth in applicable regulations; (g) shareholders; (h) real property added to the assets of the financial entity and with respect to which the title deed is not duly recorded with the pertinent Argentine real property registry, except where such assets shall have been acquired in a court-ordered auction sale; (i) goodwill; (j) organization and development costs; (k) items pending allocation, debtor balances and other; (l) certain assets, as required by the Superintendency resulting from differences between carry amount and the fair value of assets; (m) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (n) equity interests in companies that have (i) financial assistance through leasing or factoring agreements or (ii) transitory equity acquisitions in other companies in order to further their development to the extent the ultimate purpose is selling such interest after development is accomplished; (o) excess in the granting of asset-backed guaranties, according to Central Bank’s regulations; and (p) the highest balance of that month’s financial assistance, when certain conditions are met.

Requirements for subordinated debt to be computed as Tier 1 capital

In general, debt securities can account for up to 20% of a financial institution’s Tier 1 capital through December 31, 2012 and up to 15% from January 1, 2013.

In order for debt securities to be computed as Tier 1 capital, the issuance must previously be approved by: (i) the shareholders, (ii) the Superintendency, (iii) the CNV and (iv) a stock exchange or over-the-counter market (whether local or foreign).

In addition, debt securities must have certain characteristics. Tier 1 capital must have a maturity of at least thirty years, and may permit optional redemption by the issuer only if, (i) at least five years have elapsed since issuance, (ii) prior authorization of the Superintendency has been obtained, and (iii) funds used for redemption are raised through the issuance of capital stock or other Tier 1 capital.

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Interest on Tier 1 capital debt securities may only accrue and be payable to the extent the interest does not exceed available distributable amounts based on the prior year’s audited financial statements. Accordingly, interest payments are non-cumulative such that if an interest payment is not made in full as a result of such limitation, the unpaid interest shall not accrue or be due and payable at any time. The available distributable amounts under Tier 1 capital debt instruments for an Argentine financial institution are determined by calculating the amount of its retained earnings minus (i) required legal and statutory reserves; (ii) asset valuation adjustments as determined and notified by the Superintendency, whether or not agreed to by such financial institution, and the asset valuation adjustments indicated by its external auditor, in each case to the extent not recorded in its respective financial statements; and (iii) any amounts resulting from allowances permitted by the Superintendency, including adjustments arising from the failure to put into effect an agreed upon compliance plan.

In order to make interest payments under Tier 1 capital debt instruments, the shareholders of the financial institution must, at their annual ordinary meeting that considers the allocation of the results available for distribution, approve the creation of a special reserve for such payments. Accrued interest shall not exceed the amount of such reserve, except for changes in exchange rates (for instruments issued in foreign currencies) or variable rates (in the case of instruments with floating rates). The creation of the reserve and any adjustments to the reserve amount must be approved by the Superintendency. Ordinary shareholders’ meetings to consider the allocation of results available for distribution must be held within four months of the end of each fiscal year.

No prior approval from the Superintendency is required in order to make interest payments under Tier 1 capital debt instruments to the extent that the reserve fund has been properly created and the Superintendency has approved such reserve according to the preceding paragraph.

Non-payment of principal or interest under Tier 1 capital debt instruments shall not be considered under applicable Central Bank Rules as a cause for forfeiture of banking license if: (i) all of the other non-subordinated obligations are paid when due; (ii) no cash dividends are distributed to shareholders; and (iii) no fees are paid to directors and members of the supervisory committee, except for certain cases.

Only one interest rate step-up is permitted during the life of the securities and it may occur only after ten years have elapsed since issuance Tier 1 capital debt securities may not be accelerated, nor have cross-acceleration provisions, except upon bankruptcy.

In the event of bankruptcy, Tier 1 capital debt securities rank before capital stock but after all senior debt and Tier 2 capital obligations (all Tier 1 capital debt securities rank pari passu among themselves). Tier 1 subordinated instruments cannot be secured or guaranteed by the issuer or subsidiaries affecting the above described ranking of priority rights in payments.

If at any time Tier 1 capital debt securities exceed the established percentage computable as Tier 1 capital, or if it is established that unpaid interest thereon will be cumulative, or when their residual maturity is less than ten years, then thereafter they will be computed as Tier 2 capital.

Argentine financial institutions cannot acquire Tier 1 capital debt securities issued by other Argentine financial institutions, nor can they purchase for subsequent resale their own Tier 1 capital debt securities.

In accordance with current Central Bank Rules, financial institutions would not be permitted to pay interest or make other payments on Tier 1 capital debt securities in the event that, as provided in Communication “A” 5072 of the Central Bank (as amended or supplemented), (a) they are subject to a liquidation procedure or the mandatory transfer of their assets by the Central Bank in accordance with Sections 34 or 35 bis of the Financial Institutions Law or successors thereto; (b) they are receiving financial assistance from the Central Bank (except liquidity assistance under the pesification rules pursuant to Decree No. 739/2003); or (c) they are not in compliance with minimum capital requirements (both on an individual and consolidated basis) or with minimum cash reserves (on average).

Requirements for subordinated debt to be computed as Tier 2 capital

Debt securities issued by a financial institution and its corresponding reserves computed as Tier 2 capital can account for up to 50% of such financial institution’s Tier 1 capital. Five years before the maturity date of Tier 2 capital debt securities, the amount to be computed as Tier 2 capital must be reduced by 20% of the outstanding principal amount (nominal issued amount minus the paid amortizations) per year. Notwithstanding the requirements described above, the amount to be computed as Tier 2 capital for each of those years cannot be higher than the amount equal to applying such percentage to the outstanding amount at the end of each such year.

In order for debt securities to be computed as Tier 2 capital, the issuance of Tier 2 capital debt securities must be approved by: (i) the shareholders, (ii) the Superintendency, and when applicable, (iii) the CNV and (iv) a stock exchange, if the debt securities are to be admitted for listing.

Central Bank Rules require Tier 2 capital debt securities to have an average life of no less than 5 years. If the securities allow optional redemption by the issuer, such redemption is only effective (i) with the prior authorization of the Superintendency, and (ii) if the RPC, after redemption, is equal or higher than the minimum capital required by the Central Bank.

Interest payments under Tier 2 capital debt securities can be cumulative, and the interest coupon may be linked to the income of the financial entity.

Tier 2 capital debt securities cannot be accelerated, nor have cross-acceleration provisions, except upon the bankruptcy of the issuer. In the event of bankruptcy, Tier 2 capital debt securities rank senior to capital stock and Tier 1 capital debt securities, but junior to all senior debt. In addition, distributions among holders of subordinated securities will be done pro rata based upon their acknowledged claims.

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Non-payment of principal or interest under Tier 2 capital debt securities shall not be considered under applicable Central Bank Rules as a cause for forfeiture of the banking license if: (i) within one year from the original due date of such unpaid obligations, the bank and the noteholders agree on the manner in which payments of the amounts due in respect of the debt securities shall be made; (ii) all of the other non-subordinated obligations are paid when due; (iii) no cash dividends are distributed to the shareholders; (iv) no fees are paid to directors and members of the supervisory committee, except for those cases in which they carry out executive tasks; and (v) in case they have interest coupons related to the bank’s results, the bank does not have distributable results, calculated in accordance with the general procedure set forth by the applicable Central Bank Rules.

Non-compliance by the bank with these requirements shall not result in any Central Bank liability.

Argentine financial institutions cannot acquire Tier 2 capital debt securities issued by other Argentine financial institutions, nor can they purchase for subsequent resale their own Tier 2 capital debt securities.

Other Tier 1 capital debt securities may be computed as Tier 2 capital even if those securities do not comply with all the requirements set forth in the requirements for Tier 2 capital described above: (i) if they allow unpaid interest to be cumulative, (ii) if their residual maturity is less than ten years, or (iii) if outstanding Tier 1 capital debt securities exceed the established percentage computable as Tier 1 capital, in which case the excess amount of such debt securities should be computed as Tier 2.

New requirements applicable to dividend distribution

The Central Bank has imposed certain restrictions on the payment of dividends, limiting the ability of financial institutions to distribute dividends without its prior consent.

Pursuant to Communication “A” 5072 (as amended and supplemented), the Central Bank amended and restated the regulations governing dividend distribution by financial institutions. The Superintendency will be in charge of reviewing the ability of a financial entities to distribute dividends upon their request for approval. The request must be filed within 30 business days prior to the shareholders’ meeting that approves the financial institutions’ annual financial statements. Financial institutions may distribute dividends only if each of the following conditions is not met during the month preceding the request:

• the financial institution is subject to a liquidation procedure or a mandatory transfer of assets ordered by the Central Bank in accordance with section 34 or 35 bis of the Financial Institutions Law;

• the financial institution has received financial assistance from the Central Bank;

• the financial institution do not comply of its reporting obligations under the Central Bank regulations; and

• the financial institution is in breach of minimum capital requirements (both on an individual and consolidated basis and excluding any individual exemption granted by the Superintendency) or with minimum cash reserves (on average), whether in pesos, foreign currency or securities issued by the public sector.

Any financial institution that does not comply with all of the abovementioned conditions may distribute dividends up to an amount equal to: (i) the positive balance of the account “unappropriated earnings” (“Resultados no asignados”) at the end of the fiscal year, (ii) plus voluntary reserves for future dividend payments, (iii) minus mandatory reserves and other items, such as: (a) balance of account related to payments made under pesification judicial rulings; (b) the net positive balance of the book-value and the market-value of certain public debt securities and Central Bank notes that the financial institution owns that are not marked to market; (c) unrecorded adjustments of asset value informed by the Superintendency or mentioned by external auditors on their report; (d) individual exemptions for asset valuation granted by the Superintendency; (e) balance of judicial deposits in foreign currency and accounting value of such deposits as required by Law No. 25,561 and Decree No. 214/02; and (f) net results of losses due to application of rules for valuation of securities of the non-financial public sector and monetary regulations of the Central Bank.

Dividends cannot be paid, however, in any of the following circumstances:

• if the integration of average minimum cash required pursuant to Central Bank regulations is lower than the one required according to the latest reported position or the pro-forma position after carrying out the dividend payment; and/or

• if the integration of minimum capital after effecting the dividend payment is lower than the amount in the previous item increased by 75% (pursuant to Central Bank regulations in force until January 2012, a 30% increase); and/or

• if the financial institution received any kind of financial assistance from the Central Bank due to liquidity problems, pursuant to Section 17 of the Central Bank’s charter.

In addition, for financial institutions that are branches of foreign financial institutions, the Superintendency will consider the liquidity and solvency of their headquarters and the markets in which they operate.

For 2011, we have not met the abovementioned conditions set forth by Central Bank regulations for dividend distribution. In particular, we have not met the threshold, pursuant to which the integration of minimum capital after carrying out the dividend payment should not be lower than the minimum capital requirement increased by 75%. We cannot assure that such conditions will be met for 2012 or subsequent years.

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Counterparty risk

The capital requirement for counterparty risk is defined as:

Cer = k* [a* Ais + c* Fsp + r* (Vrf + Vrani)] + INC + IP.

The required capital to assets-at-risk ratio is 10% (“a”) for fixed assets (“Ais”) and 8% (“r”) for loans (“Vrf”), other claims from financial intermediation and other financing (“Vrani”). The same ratio (“c”) is applied to claims on the public-sector loans (“Fsp”). The “INC” variable amount refers to increases in minimum capital requirements that arise when certain mandatory technical ratios are exceeded (fixed assets, counterparty risk diversification and rating and limitations on transactions with related clients). The variable “IP” refers to increases that arise from the extension of the general limit on negative foreign currency net global position

Each type of asset is weighted according to the level of risk assumed to be associated with it. In broad terms, the weights assigned to the different types of assets are:

Type of Asset	Weighting
Cash and cash equivalents	0-20%
Government Bonds
With market risk capital requirements and Central Bank monetary control instruments including those registered as “available for sale” and “investment accounts”	0%
Other domestic bonds (without Central Government collateral)	100%
OECD Central Government bonds—rated AA or higher	20%
Loans
To the non-financial private sector
With preferred collateral under the form of:
Cash, term deposit certificates issued by the creditor entity and given as security	0%
A guarantee by Reciprocal Guarantee Companies authorized by the Central Bank, export credit insurance, documentary credits	50%
Mortgages	50%-100%
Pledges	50%-100%
To the non-financial public sector	100%
To the financial sector
Public financial institutions with the collection of federal taxes as collateral	50%
To foreign financial institutions or to financial institutions backed by them (rated AA or higher)	0%-20%
Other credits from financial intermediation	0%-100%
Assets subject to financial leasing	50%-100%
Other assets	0%-100%
Guarantees and contingent liabilities	0%-100%

Minimum capital requirements also depend on the CAMELBIG rating (1 strongest, 5 weakest) assigned by the Superintendency, which also determines the “k” value. This rating system complies with international standards and provides a broad definition of the performance, risks and perspectives of financial entities. Financial entities have to adjust their capital requirements according to the following “k” factors:

CAMELBIG Rating	K Factor
1		0.97
2		1.00
3		1.05
4		1.10
5		1.15

Excluded items include: (a) securities granted for the benefit of the Central Bank for direct obligations; (b) deductible assets pursuant to RPC regulations; and (c) finance and securities granted by branches and local subsidiaries of foreign financial entities by order and on account of their headquarters or foreign branches or the foreign controlling entity, to the extent (i) the foreign entity has an investment grade rating, (ii) the foreign entity is subject to regulations that entail consolidated fiscalization, (iii) in case of finance operations, they shall be repaid by the local branch or subsidiary exclusively with funds received from the aforementioned foreign intermediaries; and (iv) in case of guarantees granted locally, they are in turn guaranteed by their headquarters or foreign branches or the foreign controlling entity and foreclosure on such guaranty may be carried out immediately and at the sole requirement of the local entity.

Interest rate risk

Financial entities must comply with minimum capital requirements regarding interest rate risk. These minimum capital requirements capture the risk arising from the different sensitivity of assets and liabilities adversely affected by adverse or unexpected changes in interest rates (“duration approach”). This effect is immediately evident in the case of secondary market, as a change in the interest rate leads to a change in the price of such assets, and therefore in the entity’s balance sheet. This regulation governs all the assets and liabilities derived from financial intermediation not subject to the minimum capital requirements covering market risk (including securities held at investment accounts).

Minimum capital requirements measure the value risk (“VaR”) or maximum potential loss due to interest rate risk increases, considering a 3-month horizon and with a confidence level of 99%.

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In case of transactions with fixed interest rates, when calculating the requirements, the cash flows of the financial entity’s transactions are assigned to different time bands taking into account their maturity. Financial entities with 1-3 CAMELBIG ratings may treat 50% of sight deposits as long-term maturities (in the case of financial entities with a 1 or 2 CAMELBIG rating, the entity may choose the assigned maturity, whereas in the case of financial entities with a 3 CAMELBIG rating, the assigned maturity cannot exceed 3 years). All entities may assign to the “zero” time band (i) 100% of the contingent credit lines with a fixed or variable interest rate based on a foreign indicator and usable at the entity’s mere requirement (without need for prior notice), irrevocably granted by foreign banks with an international “A” credit rating and that do not control, or are controlled by, the local entity, or by local banks with a 1 or 2 CAMELBIG rating, and (ii) 100% of the contingent credit lines irrevocably granted to other financial entities, whether at a fixed or variable rate based on a foreign indicator and usable at the entity’s mere requirement (without need for prior notice).

Transactions with variable interest rates related to a foreign index are treated as if they had fixed interest rates. The risk arising from liabilities with variable rates related to a domestic index is considered up to the first rate adjustment date. Financings to the non-financial public sector are treated in the same way as liabilities with variable rates related to a domestic index, provided that any such financings adjusted by CER shall be assigned to the time band relating to the first month. The remaining assets shall be assigned on an individual basis or grouped by kind of financing (i.e., mortgage loans, pledged loans, personal loans, etc.), as determined by each entity.

Market risk

Minimum capital requirements for market risks are added to previous requirements. Minimum capital requirements are computed as a function of the market risk of financial entities’ portfolios, measured as their VaR. The regulation includes those assets traded on a regular basis in open markets and excludes those assets held at investment accounts, which must meet counterparty and interest rate risk minimum capital requirements.

There are five categories of assets. Domestic assets are divided into equity and public bonds/Central Bank’s debt instruments, the latter being classified in two categories that, according to whether their modified duration is less than or more than 2.5 years. Foreign equity and foreign bonds make up another two categories classified according to their duration as well, the latter also comprising two separate categories, defined as for domestic assets. The fifth category is comprised of foreign exchange positions, differentiated according to currency involved.

Overall capital requirements in relation to market risk are the sum of the five amounts of capital necessary to cover the risks arising from each category.

Market risk minimum capital requirements must be met daily. Information must be reported to the Central Bank on a monthly basis. As from May 2003, the U.S. dollar has been included as a foreign currency risk factor for the calculation of the market risk requirement, considering all assets and liabilities in that currency.

Consequences of a failure to meet minimum capital requirements

In the event of non-compliance with capital requirements by a financial institution, Central Bank Communication “A” 3171 provides that:

• non-compliance reported by the institution: the institution must meet the required capital no later than the end of the second month after the date of non-compliance or submit a restructuring plan within 30 days after the end of the month in which such non-compliance was reported. In addition, non-compliance with minimum capital requirements will entail a number of consequences for the financial institution, including prohibition from opening branches in Argentina or in other countries, establishing representative offices abroad, or owning equity in foreign financial institutions, as well as a prohibition from paying cash dividends. Also, the Superintendency may appoint a delegate, who shall have the powers set forth by the Financial Institutions Law.

• non-compliance detected by the Superintendency: the institution may challenge the non-compliance determination within 30 days after being served notice by the Superintendency. If no challenge is made, or if the defense is dismissed, the non-compliance determination will be deemed to be final, and the procedure described in the previous item will apply.

Furthermore, pursuant to Communication “A” 5282, if a financial institution fails to meet market risk daily minimum capital requirements, except for any failure to meet the requirements on the last day of the month, calculated as a sum of values at risk of included assets (VaR), the financial institution must replace its capital or decrease its financial position until such requirement is met, having up to ten business days from the first day on which the requirement was not met to meet the requirement. If the financial institution fails to meet this requirement after ten business days, it must submit a regularization and reorganization plan within the following five business days, and it may become subject to an administrative proceeding initiated by the Superintendency.

Operational risk

The regulation on operational risk (“OR”) recognizes the management of OR as a comprehensive practice, separated from that of other risks given its importance. OR is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes strategic and reputational risk.

Financial institutions must establish a system for the management of OR that includes policies, processes, procedures and the structure for their adequate management.

Seven OR event types are defined, according to internationally accepted criteria: internal fraud; external fraud; employment practices and workplace safety; clients, products and business practices; damage to physical assets; business disruption and system failures, and execution, delivery and process management.

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A solid system for risk management must have a clear assignment of responsibilities within the organization of financial entities. Thus, the regulation describes the roles of each level of the organization for the management of OR (such as the roles of the Board of Directors, senior management and the business units of the financial institution).

An “OR unit” is required, adjusted to the financial institutions’ size and sophistication and the nature and complexity of its products and processes, and the extent of the transaction. For small institutions, this unit may even consist of a single person. This unit may functionally respond to the senior management (or similar) or a functional level with risk management decision capacity that reports to that senior management.

An effective risk management will contribute to prevent future losses derived from operational events. Consequently, financial entities must manage the inherent OR in their products, activities, processes and systems. The OR management process comprises:

a) Identification and assessment: the identification process should consider both internal and external factors that could adversely affect the development of the processes and projections done according to the business strategies defined by the financial institution. Financial entities should use internal data, establishing a process to register frequency, severity, categories and other relevant aspects of the OR loss events. This should be complemented with other tools, such as self-risk assessments, risk mapping and key risk indicators.

b) Monitoring: an effective monitoring process is required, for quickly detecting and correcting deficiencies in the policies, processes and procedures for managing OR. In addition to monitoring operational loss events, banks should identify forward-looking indicators that enable them to act upon these risks appropriately.

c) Control and mitigation: financial entities must have an appropriate control system for ensuring compliance with a documented set of internal policies, which involves periodic reviews (at least annually) of control strategies and risk mitigation, and should adjust them if necessary.

Pursuant to Communications “A” 5272 and “A” 5282, the minimum capital requirements regarding OR is equal to 15% of the annual average positive gross income of the last 36 months.

The gross income is equal to the sum of: (a) financial and service charge income minus financial and service charge expense, and (b) other income minus other expenses. The following items are excluded from the terms (a) and (b):

i) expenses derived from the creation or elimination of reserves during previous fiscal years and recovered credits during the fiscal year which were written-off in previous fiscal years;

ii) profits or losses from holding of equity in other financial institutions or companies, if these were deductible from RPC;

iii) extraordinary or unusual gains –i.e. those arising from unusual and exceptional events which resulted in gains- including income from insurance recovery; and

iv) gains from the sale of financial public sector notes, as set forth under the Central Bank Rules (“Valuación de instrumentos de deuda del sector público no financiero y de regulación monetaria del Banco Central de la República Argentina”).

Pursuant to Communications “A” 5272 and “A” 5282, the minimum capital requirements regarding OR in addition to requirements regarding counterparty and market risk will be applied progressively, according to the following timetable:

Period	Coefficient
February 2012—March 2012		0
April 2012—July 2012		0.50
August 2012—November 2012		0.75
December 2012		1

In addition, financial institutions must have a minimum amount of capital before the last day of each month that is equal to the higher of (i) the basic minimum capital requirement or (ii) the sum of the requirements for counterparty risk, interest rate risk, market risk and operational risk.

The determination of minimum capital requirements for operational risk complies with Basel II guidelines and enables entities to calculate the aforementioned requirements by applying basic or standardized approaches to calculation.

Minimum cash reserve requirements

The minimum cash reserve requirement requires that a financial institution keep a portion of its deposits or obligations readily available and not allocated to lending transactions. Pursuant to Communication “A” 3498 (as amended and supplemented) as of March 1, 2002, the minimum cash requirement includes deposits and obligations for other financial intermediation transactions (overnight and fix term transactions).

Minimum cash requirements are applicable to demand and time deposits and other liabilities arising from financial intermediation denominated in pesos, foreign currency, or government and corporate securities, and any unused balances of advances in checking accounts under formal agreements not containing any clauses that permit the bank to discretionally and unilaterally revoke the possibility of using such balances.

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Minimum cash reserve obligations exclude (i) amounts owed to the Central Bank, (ii) amounts owed to domestic financial institutions, (iii) amounts owed to foreign banks (including their head offices, entities controlling domestic institutions and their branches) in connection with foreign trade financing facilities, (iv) cash purchases pending settlement and forward purchases, (v) cash sales pending settlement and forward sales (whether or not related to repurchase agreements), (vi) overseas correspondent banking operations, and (vii) demand obligations for money orders and transfers from abroad pending settlement to the extent they do not exceed a 72 business hour term as from their deposit.

The liabilities subject to these requirements are computed on the basis of the effective principal amount of the transactions, excluding interest accrued, past due, or to become due on the aforementioned liabilities, provided they were not credited to the account of, or made available to, third parties, and, where available, the amount accruing upon the adjustment rate (CER) is applied.

The basis on which the minimum cash reserve requirement is computed is the monthly average of the daily balances of the liabilities at the end of each day during each calendar month, except for the period ranging from December of a year to February of the next, period in which it shall be applied on a quarterly average. Such requirement shall be complied with on a separate basis for each currency in which the liabilities are denominated.

The table below shows the percentage rates that should be applied to determine the required minimum cash reserve requirement:

Item	Rate (%) (Pesos)		Rate (%) (Foreign currency)
1-Checking account deposits		19		—
2-Savings account, basic account and free universal account		19		20
3-Legal custody accounts, special accounts for savings clubs, “Unemployment Fund for Construction Industry Workers” (Fondo de Cese Laboral para los Trabajadores de la Industria de la Construcción) and “Salary payment,” special checking accounts for legal entities and social security savings accounts		19		20
4-Other demand deposits and liabilities, pension and social security benefits credited by ANSES pending collection and immobilized reserve funds for liabilities covered by these regulations		19		20
5-Unused balances of advances in checking accounts under executed overdraft agreements		19		—
6-Deposits in checking accounts of non-bank financial institutions, computed for purposes of meeting their required minimum cash reserve		100		—
7-Time deposits, liabilities under acceptances, repurchase agreements (including responsibilities for sale or transfer of credits to agents different from financial institutions), stock-exchange repos (cautions and stock exchange passive repos), constant-term investments, with an option for early termination or for renewal for a specified term and variable income, and other fixed-term liabilities, except rescheduled deposits included in the following items 11, 12, 13 and 15 of this table:
(i) Up to 29 days		14		20
(ii) From 30 days to 59 days		11		15
(iii) From 60 days to 89 days		7		10
(iv) From 90 days to 179 days		2		5
(v) From 180 days to 365 days		—		2
(vi) More than 365 days		—		—
8-Liabilities owed due to foreign facilities (not executed by means of time deposits or debt securities)		—		—
9-Securities (including Negotiable Obligations)
a-Debt issued from 01/01/02, including restructured liabilities
(i) Up to 29 days		14		20
(ii) From 30 days to 59 days		11		15
(iii) From 60 days to 89 days		7		10
(iv) From 90 days to 179 days		2		5
(v) From 180 days to 365 days		—		2
(vi) More than 365 days		—		—
b-Others		—		—
10-Liabilities owing to the Trust Fund for Assistance to Financial and Insurance Institutions		—		—
11-Demand and time deposits made upon a court order with funds arising from cases pending before the court, and the related immobilized balances		10		10
12-Deposits as assets of a mutual fund		19		20
13-Special deposits related to inflows of funds. Decree 616/2005		100		100
14-Deposits and other liabilities in pesos (excluding “Fondo de Cese Laboral para los trabajadores de la Industria de la Construcción”) which return is higher than 15% of BADLAR rates average, corresponding to the preceding month		100		—
15-Time deposits in nominative, non-transferable Peso-denominated certificates, belonging to public sector holders, with the right to demand early withdrawal in less than 30 days from its setting up		16		—

In addition to the abovementioned requirements, the reserve for any defect in the application of resources in foreign currency for any given month shall be applied to an amount equal to the minimum cash requirement of the corresponding currency for each month.

The minimum cash reserve must be set up in the same currency to which the requirement applies, and eligible items include the following:

1. Cash (in treasury, cash in custody at other financial institutions and cash in transit and value carriers).

2. Accounts maintained by financial institutions with the Central Bank in pesos.

3. Accounts of minimum cash maintained by financial institutions with the Central Bank in U.S. dollars, or other foreign currency.

4. Special guarantee accounts for the benefit of electronic clearing houses and to cover settlement of credit card and ATM transactions.

5. Checking accounts maintained by non-bank financial institutions with commercial banks for the purpose of meeting the minimum reserve requirement.

6. Special accounts maintained with the Central Bank for transactions involving social security payments by the ANSES.

7. Minimum cash sub-account 60, authorized in the Registration and Settlement Central for Public Debt and Financial Trusts – CRYL (“Central de Registro y Liquidación de Pasivos Públicos y Fideicomisos Financieros – CRYL”) for public securities and securities issued by the Central Bank at their market value.

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These eligible items are subject to review by the Central Bank and may be changed in the future.

The Central Bank makes interest payments on reserve requirements up to the legal cash requirement level established for term transactions. Reserves in excess of that requirement will not be compensated.

Compliance on public bonds and time deposits must be done with holdings marked to market and of the same type, only in terms of monthly status. Holdings must be deposited on special accounts at the Central Bank.

Compliance with the minimum cash reserve requirement will be measured on the basis of the monthly average of the daily balances of eligible items maintained during the month to which the minimum cash reserve refers by dividing the aggregate of such balances by the total number of days in the relevant period.

The aggregate balances of the eligible items referred to from items (2) to (6) above, maintained as of each daily closing, may not, on any one day during the month, be less than 50% of the total required cash reserve, excluding the requirement for incremental deposits, determined for the next preceding month, recalculated on the basis of the requirements and items in force in the month to which the cash reserves relate. The daily minimum required is 70% when a deficit occurs in the previous month.

Any deficiencies in meeting the required minimum cash reserve and the daily minimum reserve in pesos are subject to a penalty equal to two times the private banks’ BADLAR rate for deposits in pesos for the last business day of the month.

Any deficiencies in meeting the required minimum cash reserve and the daily minimum reserve in foreign currency are subject to a penalty equal to two times the private banks’ BADLAR rate for deposits in U.S. dollars or two times the 30-day U.S. dollar LIBO rate for the last business day of the month (whichever is higher).

Internal liquidity policies of financial institutions

The regulations designed to limit liquidity risk provide that financial institutions should adopt management and control policies that ensure the maintenance of reasonable liquidity levels to efficiently manage their deposits and other financial commitments. Such policies should establish procedures for evaluating the liquidity of the institutions in the framework of prevailing market conditions to allow them to revise projections, take steps to eliminate liquidity constraints and obtain sufficient funds, at market terms, to maintain a reasonable level of assets over the long term. Such policies should also address (i) the concentration of assets and liabilities in specific customers, (ii) the overall economic situation, likely trends and the impact on credit availability, and (iii) the ability to obtain funds by selling government debt securities and assets.

Credit risk regulation

The regulations on credit risk prescribe standards in order to reduce such risk without significantly eroding average profitability. There are three types of ratios that limit a lender’s risk exposure, namely: risk concentration limits, limits on transactions with customers on the basis of the institution’s capital and credit limits on the basis of the customer’s net worth.

Risk concentration: means the aggregate amount of relevant transactions executed with companies, individuals or groups of companies—whether affiliated or not—where such transactions, measured for each one of such customers, are at any time equal to or higher than 10% of the institution’s RPC on the last day of the month prior to the relevant month. Total operations may not exceed, at any time:

(i) three times the institution’s RPC for the previous month, without considering the operations involving local financial institutions (domestic or foreign headquarters or branches);

(ii) five times the institution’s RPC for the previous month if operations involving local financial institutions are considered; or

(iii) ten times the institution’s RPC, in the case of second tier financial institutions (i.e., financial institutions that do not receive deposits from the general public) considering the loans to other domestic financial institutions.

Diversification of risk: limitations are established for operations with clients, which may not exceed certain percentages applied on top of the institution’s RPC for the previous month. These percentages vary in function depending upon the type of client, the type of operation and the collateral involved. The regulation sets forth a number of transactions that are excluded from the credit risk diversification rules.

Degree of risk: In the case of credit limits based on the customers’ net worth, as a general rule the financial assistance cannot exceed 100% of the customer’s net worth. The basic margin may be increased by an additional 200% provided such additional margin does not exceed 2.5% of the financial institution’s RPC and the increase is approved by the board of directors of the relevant financial institution.

Limits for affiliated individuals

Central Bank regulations regarding risk management determine certain limits to the transactions that financial institutions may carry out with parties related to them (whether individuals or corporate entities).

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A person is “related” to a financial institution based on different criteria including whether the financial institution directly or indirectly controls, is controlled by, or is under common control with, such person; whether this person has a participation on the financial institution; whether the financial institution or the person that controls the financial institution and such person have or may have common directors to the extent such common directors represent a majority of the board in either the person or the financial institutions; or, exceptionally, whenever the Central Bank board of directors determines – pursuant to Superintendency proposal – that a person maintains a relationship with the financial entity (or its controlling person) that may result in monetary damages for the financial institution.

Control by one person of another is defined under such regulations as:

(i) holding or controlling, directly or indirectly, 25% or more of the total voting stock of the other person;

(ii) having held 50% or more of the total voting stock of the other person at the time of the last election of directors or managers;

(iii) holding, directly or indirectly, any other kind of participation in the other person (even if it represents a participating interest below the above mentioned percentages) so as to be able to prevail in the institution’s decision making; or

(iv) when the Central Bank board of directors – pursuant to a proposal from the Superintendency—determines that a person is exercising a controlling influence over the financial institution.

The transactions taken into account for the purpose of this title include, among others, capital stock holdings, loans and securities issued by a local financial institution or its foreign branches or any foreign financial institution controlled by the local financial institution.

The limits for transactions with affiliated individuals depend on the financial institution’s RPC and its CAMELBIG rating:

A. In case of local financial institutions with a 1 to 3 CAMELBIG rating:

(i) General:

(a) Guaranteed operations: 10% of the RPC.

(b) Non-guaranteed operations: 5% of the RPC.

(ii) Related financial institutions which transactions are subject to consolidation:

Lender rating	Borrower rating		General			Additional
						Tranche I (*)			Tranche II (**)			Tranche III (***)
1, 2 or 3		1		100	%		25	%		25	%		—
		2		20	%		25	%		25	%		55	%
		3		10	%		20	%		20	%		—
		4 or 5		10	%		—			—			—
4 or 5		1 to 5		0	%		—			—			—

(iii) Related companies that provide complementary services:

Complementary services	Controlling financial entity		General			Additional
						Tranche I (***)			Tranche II		Tranche III
Stock exchange agent, financial assistance based on leasing and factoring, temporal adquisition of shares.		1		100	%		—			—		—
		2		10	%		90	%		—		—
		3		10	%		—			—		—
		4 o 5		0	%		—			—		—

Complementary services	Controlling financial entity		General			Additional
						Tranche I (*)			Tranche II (**)			Tranche III (***)
Credit and debit card issuers or similar services.		1		100	%		25	%		25	%		—
		2		20	%		25	%		25	%		55	%
		3		10	%		20	%		20	%		—
		4 o 5		0	%		—			—			—

(*) Subject to certain conditions.

(**) Only for guaranteed financings that comply with the conditions for Tranche I.

(***) Only for financings with an inicial term up to 180 days.

(iv) Related foreign banks:

(a) rated “investment grade”: 10% of the RPC.

(b) with a lower rating:

• 5% for unsecured transactions

• 10% for secured transactions

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The aggregate amount of financial assistance provided to affiliated parties cannot exceed 20% of the institution’s RPC (except those provided to financial entities and complementary services corporations subject to consolidation).

B. In case of local financial institutions with a 4 to 5 CAMELBIG rating cannot grant financial assistance to related parties, except in case of financial assistance to (including participation in the share capital of): (a) foreign branches of local financial entities subject to consolidation; (b) foreign bank that controls local financial institutions or their branches in other countries; or (c) companies that provide “complementary services” and that are subject to consolidation.

Transactions not subject to the limits described above for all financial institutions include: (i) financial assistance to the foreign bank that controls the financial institution and to its foreign branches, provided under certain conditions are met, and (ii) financial assistance secured by preferred guarantees rated “A”. Additionally, the Superintendency may exceptionally grant especial or additional exclusions to this regime for particular cases.

According to Central Bank regulations, financial institutions are not allowed to refinance, extend or renew financial assistance granted to related parties with a credit rating that is not “normal” or whose notes are rated below “BB” by a local rating agency.

The following parties must provide a sworn statement as to whether they qualify as “affiliated parties” or whether they have a controlling influence on the financial institution if (a) their debt exceeds the lower of Ps. 1,000,000 or 2.5% of the RPC; or (b) they directly or indirectly hold 5% or more of the voting rights or capital stock of the financial institution.

In addition, with respect to related parties who are natural persons, the total amount of loans to those related parties cannot exceed Ps.50,000, which amount 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.

Foreign exchange system

During the first quarter of 2002, the Argentine government established certain foreign exchange controls and restrictions.

On February 8, 2002, Decree No. 260 was issued, establishing as of February 11, 2002 a Local Foreign Exchange Market (“Mercado Único y Libre de Cambios”) system through which all transactions involving the exchange of foreign currency are to be traded at exchange rates to be freely agreed upon.

On such date, the Central Bank issued Communications “A” 3471 and “A” 3473, which stated that the sale and purchase of foreign currency can only be performed with entities authorized by the Central Bank to operate in foreign exchange. Item 4 of Central Bank Communication “A” 3471 stated that the sale of foreign currency in the local exchange market shall in all cases be against peso bills.

Since January 2, 2003, there have been further modifications to the restrictions imposed by the Central Bank. For further information, see Item 10.D “Aditional Information—Exchange Controls.”

Foreign currency lending capacity

The Regulations on the allocation of deposits in foreign currencies (updated by Communication “A” 5275) establish that the lending capacity from foreign currency deposits, including U.S. dollar-denominated deposits to be settled in pesos, must fall under one of the following categories: (a) pre-financing and financing of exports to be made directly or through principals, trustees or other brokers, acting on behalf of the owner of the merchandise; (b) financing for manufacturers, processors or collectors of goods, provided they refer to non-revocable sales agreements with exporters for foreign currency-denominated prices (irrespective of the currency in which such transaction is settled), and they refer to exchangeable foreign-currency denominated goods listed in local or foreign markets, broadly advertised and easily available to the general public; (c) financing for manufacturers of goods to be exported, as final products or as part of other goods, by third-party purchasers, provided that such transactions are secured or collateralized in foreign currency by third-party purchasers; (d) financing of investment projects, working capital or purchase of any kind of goods –including temporary imports of commodities- that increase or are related to the production of goods to be exported -including syndicated loans, whether granted by local or foreign financial institutions; (e) financing for commercial clients or commercial loans considered as consumer loans, with the purpose of importing capital goods, whenever they help to increase goods production for the domestic market; (f) debt securities or financial trust participation certificates whose underlying assets are loans made by the financial entities in the manners set forth in (a) to (d) above; (g) foreign currency debt securities or financial trust participation certificates, publicly listed under an authorization by the CNV, whose underlying assets are securities bought by the fiduciary and guaranteed by reciprocal guarantee companies or public guarantee funds, in order to finance export transactions; (h) financings for purposes other than those mentioned in (a) to (d) above, included under the IDB credit program (“Préstamos BID N° 119/OC-AR”), not exceeding 10% of the lending capacity; and (i) inter-financing loans (any inter-financing loans granted with such resources must be identified).

Communication “A” 4851 (as supplemented by Communication “A” 5275) provides a specific formula in order to calculate the financial institution’s capacity to lend money in foreign currency for imports (items (d) and (e), and, as applicable items (f) to (h) of the foregoing paragraph).

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The lending capacity shall be determined for each foreign currency raised, such determination being made on the basis of the monthly average of daily balances recorded during each calendar month. Any defect in the application shall give rise to an increase in the minimum cash requirement in the relevant foreign currency.

General exchange position

The general exchange position includes all the liquid external assets of the institution, such as gold, currency and foreign currency notes reserves, sight deposits in foreign banks, investments in securities issued by OECD member governments with a sovereign debt rating not below “AA”), certificates of time deposits in foreign institutions (rated not less than “AA”), and correspondents’ debit and credit balances. It also includes purchases and sales of these assets already arranged and pending settlement involving foreign exchange purchases and sales performed with customers within a term not exceeding two business days and correspondent balances for third-party transfers pending settlement. It does not include, however, foreign currency notes held in custody, term sales and purchases of foreign currency or securities nor direct investments abroad.

The GEP ceiling is calculated every month and, therefore, updated the first business day of the month. Pursuant to the relevant reporting system regulations this ceiling is set at 15% of the amount equivalent in U.S. dollars to the computable equity at the end of the month immediately preceding the last month when filing with the Central Bank has already expired. It will be increased by an amount equivalent in U.S. dollars to 5% of the total amount traded by the institution on account of the purchases and sales of foreign currency in the calendar month prior to the immediately preceding month, and by 2% of the total demand and time deposits locally held and payable in foreign bills, excluding deposits held in custody, recorded by the institution at the end of the calendar month prior to the immediately preceding month. If the ceiling does not exceed US$8.0 million, this figure will be considered its floor.

Institutions authorized to trade in foreign currency failing to comply with the GEP ceilings or the exchange reporting regulations should refrain from trading in foreign currency until they are in compliance with the above.

Although certain exceptions are admitted, institutions authorized to trade in foreign currency require the Central Bank’s prior consent to perform their own purchases when payment is made against delivery of foreign currency or other foreign assets comprising the GEP.

Foreign currency net global position

All assets and liabilities from financial intermediation in foreign currency and securities in foreign currency (deriving from cash and term transactions) are included in the net global position (for ongoing and completed operations).

In addition, forward transactions under master agreements entered within domestic self-regulated markets paid by settlement of the net amount without delivery of the underlying asset are also included. Deductible assets for determining RPC are excluded from the ratio.

Two ratios are considered in the Foreign Currency Net Global Position:

• Negative foreign currency net global position (liabilities exceeding assets): as from January 1, 2007 (Communications “A” 4577 and 4598) the limit is 15%, but it can be extended up to 15 p.p. provided the entity records at the same time: a) medium and long-term financing in pesos to non-financial private sector (mid and long-term financings are those exceeding 4 years, weighting capital maturity without considering CER) 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 negative foreign currency net global position.

• Positive net global position (assets exceeding liabilities): this limit cannot exceed the lesser of:

1. 30% of the RPC.

2. Own liquid funds (which refer to the RPC minus “fixed assets” and loans to related clients).

By Communication “A” 4350, the Central Bank suspended as of May 1, 2005 the limits for the positive net global position.

The excesses of these ratios are subject to a charge equal to the greater of twice the nominal interest rate of the U.S. dollar denominated LEBAC (Central Bank bill) or twice the 30-day U.S. dollar LIBO rate for the last business day of the month. Charges not paid when due are subject to the charge established for excesses, increased by 50%.

Debt classification and loan loss provisions

Credit portfolio

The regulations on debt classification are designed to establish clear guidelines for identifying and classifying the quality of assets, as well as evaluating the actual or potential risk of a lender sustaining losses on principal or interest, in order to determine, taking into account any loan security, whether the provisions against such contingencies are adequate. Banks must classify their loan portfolios into two different categories: (i) consumer or housing loans and (ii) commercial loans. Consumer and housing loans include housing loans, consumer loans, credit-card financings and other types of installment credits to individuals. All other loans are considered commercial loans. Consumer or housing loans in excess of Ps.750,000, the repayment of which is linked to its projected cash flows, are classified as commercial loans. Central Bank Rules allow financial institutions to apply the consumer and housing loan classification criteria to commercial loans of up to Ps.750,000, given with or without guarantees. If a customer has both kinds of loans (commercial and consumer and housing loans), the consumer or housing loans will be added to the commercial portfolio to determine under which portfolio they should be classified based on the amount indicated. In these cases, the loans secured by preferred guarantees shall be considered to be at 50% of its face value.

Under the current debt classification system, each customer, as well as the customer’s outstanding debts, are included within one of six sub-categories. The debt classification criteria applied to the consumer loan portfolio are primarily based on objective factors related to customers’ performance on their obligations or their legal standing, while the key criterion for classifying the commercial loan portfolio is each borrower’s paying ability based on its future cash flow.

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Commercial loans classification

The principal criterion to evaluate a loan pertaining to the commercial portfolio is its borrower’s ability to repay it, whose ability is mainly measured by such borrower’s future cash flow. Pursuant to Central Bank Rules, commercial loans are classified as follows:

Classification	Criteria
Normal Situation	Borrowers for whom there is no doubt as to their ability to comply with their payment obligations.
Subject to special Monitoring/Under observation	Borrowers that, among other criteria, are up to 90 days past due and, although considered to be able to meet all their financial obligations, are sensitive to changes that could compromise their ability to honor debts absent timely corrective measures.
Subject to special Monitoring / Under negotiation or refinancing agreement	Borrowers who are unable to comply with their obligations as agreed with the bank and, therefore, formally state, within 60 calendar days after the maturity date, their intention to refinance such debts. The borrower must enter into a refinancing agreement with the bank within 90 calendar days (if up to two lenders are involved) or 180 calendar days (if more than two lenders are involved) after the payment default date. If no agreement has been reached within the established deadline, the borrower must be reclassified to the next category according to the indicators established for each level.
Troubled	Borrowers with difficulties honoring their financial obligations under the loan on a regular basis, which, if uncorrected, may result in losses to the bank.
With high risk of insolvency	Borrowers who are highly unlikely to honor their financial obligations under the loan.
Irrecoverable	Loans classified as irrecoverable at the time they are reviewed (although the possibility might exist that such loans might be collected in the future). The borrower will not meet its financial obligations with the financial institution
Irrecoverable according to Central Bank’s Rules	(a) Borrower has defaulted on its payment obligations under a loan for more than 180 calendar days according to the corresponding report provided by the Central Bank, which report includes (1) financial institutions liquidated by the Central Bank, (2) residual entities created as a result of the privatization of public financial institutions, or in the privatization or dissolution process, (3) financial institutions whose licenses have been revoked by the Central Bank and find themselves subject to judicial liquidation or bankruptcy proceedings and (4) trusts in which Seguro de Depósitos S.A. (SEDESA) is a beneficiary, or (b) certain kinds of foreign borrowers (including banks or other financial institutions that are not subject to the supervision of the Central Bank or similar authority of the country in which they are incorporated) that are not classified as “investment grade” by any of the rating agencies approved by the Central Bank.

Consumer and housing loans classification

The principal criterion applied to loans in the consumer and housing portfolio is the length of period for which such loans remain overdue. Under the Central Bank Rules, consumer and housing borrowers are classified as follows:

Classification	Criteria
Performing	If all payments on loans are current or less than 31 calendar days overdue and, in the case of checking account overdrafts, less than 61 calendar days overdue.
Low Risk	Loans upon which payment obligations are overdue for a period of more than 31and up to 90 calendar days.
Medium Risk	Loans upon which payment obligations are overdue for a period of more than 90 and up to 180 calendar days.
High Risk	Loans in respect of which a legal action seeking collection has been filed or loans having payment obligations overdue for more than 180 calendar days, but less than 365 calendar days.
Irrecoverable	Loans in which payment obligations are more than one year overdue or the debtor is insolvent or in bankruptcy or liquidation.
Irrecoverable according to Central Bank’s Rules	Same criteria as for commercial loans in the Irrecoverable according to Central Bank Rules.

Minimum Credit Provisions

The following minimum credit provisions are required to be made by Argentine banks in relation to the credit portfolio category:

Category	With Preferred Guarantees			Without Preferred Guarantees
“Normal situation” and “Performing”		1	%		1	%
“Under observation” and “Low risk”		3	%		5	%
“Under negotiation or refinancing agreement”		6	%		12	%
“Troubled” and “Medium Risk”		12	%		25	%
“With high risk of insolvency” and “High Risk”		25	%		50	%
“Irrecoverable”		50	%		100	%
“Irrecoverable according to Central Bank’s Rules”		100	%		100	%

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The Superintendency may require additional provisioning if it determines that the current level is inadequate.

Financial institutions are entitled to record allowances for loan losses in amounts larger than those required by Central Bank Rules. In such cases and despite the existence of certain exceptions, recording a larger allowance for a commercial loan, to the extent the recorded allowance amount falls into the next credit portfolio category set forth by Central Bank Rules, shall automatically result in the corresponding debtor being recategorized accordingly.

Minimum frequency for classification review

Financial institutions are required to classify loans at least once a year in accordance with Central Bank Rules. Nevertheless, a quarterly review is required for credits that amount to 5% or more of the financial institution’s RPC and mid-year review for credits that amount to the lower of: (i) Ps.1 million or (ii) the range between 1% and 5% of the financial institution’s RPC. In addition, financial institutions have to review the rating assigned to a debtor in certain instances, such as when another financial institution reduces the debtor classification in the “Credit Information Database” and grants 10% or more of the debtor’s total financing in the financial system. Only one-level discrepancy is allowed in relation to the information submitted by financial institutions to the “Credit Information Database” and the lower classification awarded by at least two other banks and total lending from such banks account for 40% or more of the total informed; if there is a greater discrepancy, the financial institution will be required to reclassify the debtor.

Allowances for loan losses

The allowance for loan losses is maintained in accordance with applicable regulatory requirements of the Central Bank. Increases in the allowance are based on the level of growth of the loan portfolio, as well as on the deterioration of the quality of existing loans, while decreases in the allowance are based on regulations requiring the write-off of non-performing loans classified as irrecoverable after a certain period of time and on decisions of the management to write off non-performing loans evidencing a very low probability of recovery.

Priority rights of depositors

Under Section 49 of the Financial Institutions Law, in the event of judicial liquidation or bankruptcy of a bank, depositors have a general and absolute priority right to collect their claims over all other creditors, except claims secured by pledges or mortgages and certain employee liens. Additionally, the holders of any type of deposit have a special priority right over all other creditors of the bank, except certain employee creditors, to be paid out of (i) any funds of the branch that may be in the possession of the Central Bank as Minimum Cash Reserve, (ii) any other funds of the bank existing as of the date on which the bank’s license is revoked, or (iii) any proceeds resulting from the mandatory transfer of certain assets of the financial institution to another as determined by the Central Bank pursuant to Section 35 of the Financial Institutions Law, according to the following order of priority: (a) deposits of up to Ps.50,000 per person (including all amounts such person deposited in one financial entity), or its equivalent in foreign currency, (b) all deposits of an amount higher than Ps.50,000, or its equivalent in foreign currency for the amount exceeding Ps.50,000, and (c) the liabilities originated in commercial lines granted to the financial institution and which directly affect international commerce.

Mandatory deposit insurance system

Law No. 24,485 passed on April 12, 1995, as amended by Law No. 25,089 and Decrees No. 538/95 and No. 540/95, created a Deposit Insurance System, or “SSGD,” which is mandatory for bank deposits, and delegated the responsibility for organizing and implementing the system to the Central Bank. The SSGD is a supplemental protection to the privilege granted to depositors by means of Section 49 of the Financial Institutions Law, as mentioned above.

The SSGD has been implemented through the establishment of a Deposit Guarantee Fund, or “FGD,” managed by a private-sector corporation called Seguro de Depósitos Sociedad Anónima, (Deposit Insurance Corporation, or “SEDESA”). According to Decree No. 1292/96, the shareholders of SEDESA are the government through the Central Bank and a trust set up by the participating financial institutions. These institutions must pay into the FGD a monthly contribution determined by Central Bank Rules. The SSGD is financed through regular and additional contributions made by financial institutions, as provided for in Central Bank Communication “A” 4271, dated December 30, 2004.

The SSGD covers deposits made by individuals and legal entities in Argentine or foreign currency and maintained in accounts with the participating financial institutions, including checking accounts, savings accounts, and time deposits up to the amount of Ps.120,000, as set forth by Central Bank Communication “A” 5170, dated January 11, 2011.

Effective payment on this guarantee will be made within 30 business days after revocation of the license of the financial institution in which the funds are held; such payment is subject to the exercise of the depositor’s priority rights described above.

In view of the circumstances affecting the financial system, Decree No. 214/2002 provided that SEDESA may issue registered securities for the purpose of offering them to depositors in payment of the guarantee in the event it should not have sufficient funds available.

The SSGD does not cover: (i) deposits maintained by financial institutions in other financial institutions, including certificates of deposit bought in the secondary market, (ii) deposits made by persons directly or indirectly affiliated with the institution, (iii) time deposits of securities, acceptances or guarantees, (iv) any transferable time deposits that have been transferred by endorsement, (v) any deposits benefiting from some incentive (e.g., car raffles) in addition to the agreed upon interest rate, and (vi) any deposits in which the agreed-upon interest rate is higher than the reference interest rates periodically released by the Central Bank for time deposits and demand deposit account balances and available amounts from overdue deposits or closed accounts.

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Pursuant to Communication “A” 4271, every financial institution is required to contribute to the FGD a monthly amount of 0.015% of the monthly average of daily balances of deposits in local and foreign currency, as determined by the Central Bank. Prompt contribution of such amounts is a condition precedent to the continuing operation of the financial institution. The first contribution was made on May 24, 1995. The Central Bank may require financial institutions to advance the payment of up to the equivalent of two years of monthly contributions and debit the past due contributions from funds of the financial institutions deposited with the Central Bank. The Central Bank may require additional contributions by certain institutions, depending on its evaluation of the financial condition of those institutions.

When the contributions to the FGD reach the greater of Ps.2 billion or 5.0% of the total deposits of the system, the Central Bank may suspend or reduce the monthly contributions, and reinstate them when the contributions subsequently fall below that level.

Other restrictions

Pursuant to the Financial Institutions Law, financial institutions cannot create any kind of rights over their assets without the Central Bank’s authorization, nor enter into transactions with their directors, officers or affiliates in terms more favorable than arms-length transactions.

Capital markets

Commercial banks are authorized to subscribe for and sell shares and debt securities. At present, there are no statutory limitations as to the amount of securities for which a bank may undertake to subscribe. However, under Central Bank Rules, underwriting of debt securities by a bank would be treated as “financial assistance” and, accordingly, until the securities are sold to third parties, such underwriting would be subject to limitations.

In 1990, the Buenos Aires securities market authorized firms organized as brokerage houses, or sociedades de bolsa, to operate as brokers on the BCBA in addition to individual stockbrokers. There are currently no restrictions on ownership of a sociedad de bolsa by a commercial bank, and, in fact, most of the main commercial banks operating in Argentina have established their own sociedad de bolsa. All brokers, whether individuals or firms, are required to own at least one share of Mercado de Valores S.A. to be allowed to operate as brokers on the BCBA.

An agreement between the BCBA and representatives of the MAE dealers provides that trading in shares and other equity securities will be conducted exclusively on the BCBA and that all debt securities listed on the BCBA 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 or fondos comunes de inversión; provided, however, that a bank may not act simultaneously as manager and custodian for the same fund.

Financial institutions with economic difficulties

The Financial Institutions Law provides that any financial institution, including a commercial bank, operating at less than certain required technical ratios and minimum net worth levels, in the judgment of the Central Bank adopted by members representing the majority of the board of directors, with impaired solvency or liquidity or in any of the other circumstances listed in Section 44 of the Financial Institutions Law, must (upon request from the Central Bank and in order to avoid the revocation of its license) prepare a restructuring plan or plan de regularización y saneamiento. The plan must be submitted to the Central Bank on a specified date, not later than 30 calendar days from the date on which a request to that effect is made by the Central Bank. Upon the institution’s failure to submit, secure regulatory approval of, or comply with, a restructuring plan, the Central Bank will be empowered to revoke the institution’s license to operate as such.

Furthermore, the Central Bank’s charter authorizes the Superintendency to fully or partially suspend, exclusively subject to the approval of the President of the Central Bank, the operations of a financial institution for a term of 30 days if the liquidity or solvency thereof are adversely affected. Such term could be renewed for up to 90 additional days, with the approval of the Central Bank’s board of directors. During such suspension term an automatic stay of claims, enforcement actions and precautionary measures is triggered, any commitment increasing the financial institution’s obligations shall be null and void, and debt acceleration and interest accrual shall be suspended.

If per the Central Bank’s criteria a financial institution is undergoing a situation which, under the Financial Institutions Law, would authorize the Central Bank to revoke its license to operate as such, the Central Bank may, before considering such revocation, order a plan of restructuring that may consist on certain steps, including, among others: measures to capitalize or increase the capital of the financial institution; revoke any approval granted to the shareholders of the financial institution to hold interests therein; restructure or transfer assets and liabilities; grant temporary exemptions to comply with technical regulations or payment of charges and penalties arising from such flawed compliance; or appoint a delegate or auditor (“interventor”) that may prospectively replace the board of directors of the financial institution.

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Revocation of the license to operate as a financial institution

The Central Bank may revoke the license to operate as a financial institution in case a restructuring plan has failed or is not deemed feasible, or violations of local laws and regulations have been incurred, or solvency or liquidity of the financial institution has been affected, or significant changes have occurred in the institution’s condition since the original authorization was granted, or if any decision by the financial institution’s legal or corporate authorities concerning its dissolution has been adopted, among other circumstances set forth in the Financial Institutions Law.

Once the license to operate as a financial institution has been revoked, the financial institution shall be liquidated.

Liquidation of financial institutions

As provided in the Financial Institutions Law, the Central Bank must notify the revocation decision to a competent court, which will then determine who will liquidate the entity: the corporate authorities (extrajudicial liquidation) or an independent liquidator appointed by the court for that purpose (judicial liquidation). 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.

Bankruptcy of financial institutions

According to the Financial Institutions Law, financial institutions are not allowed to file their own bankruptcy petitions. In addition, the bankruptcy shall not be adjudged until the license to operate as financial institution has been revoked.

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 the Central Bank or by any creditor of the bank, in this case after a period of 60 calendar days has elapsed since the license was revoked.

Once the bankruptcy of a financial institution has been adjudged, provisions of the bankruptcy Law No. 24,522 (the “Bankruptcy Law”) and the Financial Institutions Law shall be applicable; provided however that in certain cases, specific provisions of the Financial Institutions Law shall supersede the provisions of the Bankruptcy Law (i.e. priority rights of depositors).

Merger, consolidation and transfer of goodwill

Merger, consolidation and transfer of goodwill may be arranged between entities of the same or different type and will be subject to the prior approval of the Central Bank. The new entity must submit a financial-economic structure profile justifying the transaction in order to obtain authorization from the Central Bank.

Financial system restructuring unit

The Financial System Restructuring Unit was created to monitor the implementation of a strategic approach for those banks benefiting from financial assistance granted by the Central Bank. This unit is in charge of rescheduling maturities, determining restructuring strategies and action plans, approving transformation plans, and accelerating repayment of the facilities granted by the Central Bank.

Money laundering

The concept of money laundering is generally used to denote transactions aimed at introducing funds from illicit activities in the institutional system and thus transform gains from illegal activities in assets of a seemingly legitimate source.

On April 13, 2000, the Argentine Congress passed Law No. 25,246 (as amended by Laws No. 26,087, 26,119, 26,286, and 26,683, together the “Money Laundering Law”), which sets forth an administrative criminal system and supersedes several sections of the Argentine Criminal Code related to money laundering. This law defines money laundering as a crime committed whenever a person converts, transfers, manages, sells, encumbers, or otherwise uses money, or any other assets, connected to a crime with the possible result that the original or substituted assets may appear to be of a legitimate origin, provided the value of the assets exceeds Ps. 300,000, whether such amount results from one or more transactions. Also, money laundering is considered as a separate crime against the economic and financial order, independent from the legal concept of concealment, which is considered an offense against the public administration. Thus, money laundering is a crime which may be prosecuted independently, whether or not the money launderer took part in the preceding crime from which the proceeds of which are being laundered.

In addition, the Money Laundering Law created the Financial Information Unit (hereinafter “UIF”), under the Argentine Ministry of Justice, Security and Human Rights, which is responsible for the handling and transmiting of information in order to prevent the laundering of assets originated from: (i) crimes related to illegal trafficking and commercialization of narcotics (Law No. 23,737); (ii) crimes related to arms trafficking (Law No. 22,415); (iii) crimes related to the activities of an illegal association as defined in Section 210 bis of the Argentine Criminal Code; (iv) illegal acts committed by illegal associations (Section 210 of the Argentine Criminal Code) organized to commit crimes with political or racial objectives; (v) crimes of fraud against the Public Administration (Section 174, Paragraph 5 of the Argentine Criminal Code); (vi) crimes against the Public Administration under Chapters VI, VII, IX and IX bis of Title XI of the Second Book of the Argentine Criminal Code; (vii) crimes of underage prostitution and child pornography under Sections 125, 125 bis, 127 bis and 128 of the Argentine Criminal Code; (viii) crimes involving terrorist financing (Section 213 quater of the Argentine Criminal Code); (ix) extortion (Section 168 of the Argentine Criminal Code), (x) crimes contemplated by Law No. 24,769; and (xi) human trafficking.

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The Money Laundering Law, like money laundering laws of other countries, does not designate sole responsibility to the Argentine government for the monitoring of these criminal activities, but rather also delegates certain duties to diverse private sector entities such as banks, stockbrokers, stock markets, and insurance companies. These obligations essentially consist of information gathering functions, such as: (a) obtaining from clients documents that indisputably prove the identity, legal status, domicile and other information, concerning their operations needed to accomplish the intended activity; (b) reporting any suspicious activity or operation; and (c) keeping any monitoring activities in connection with a proceeding pursuant to the Money Laundering Law confidential from both clients and third parties.

In addition, Argentine financial institutions are required to report to the UIF any suspicious or unusual transaction, as well as any transaction that lacks economic or legal justification, or is unnecessarily complex, whether performed on isolated occasions or repeatedly.

Central Bank Rules require Argentine banks to take certain minimum precautions to prevent money laundering. Each institution must have an Anti-Money Laundering Committee, formed by a member of the board of directors, the officer responsible for Anti-Money Laundering matters (Oficial de Cumplimiento) and an upper-level officer regarding financial intermediation and/or foreign exchange matters (i.e., with sufficient experience and knowledge on such matters and decision-making responsibilities). Additionally, as mentioned, each financial institution must appoint a member of the board of directors 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 and reporting any suspicious transactions to the UIF .

Argentine financial institutions must comply with all applicable anti-money laundering regulations as provided by the Central Bank and the UIF; in particular with Resolution No. 37/2011 of the UIF, dated February 8, 2011, which regulates Section 21 paragraphs (a) and (b) of Money Laundering Law that provides for the gathering of information regarding suspicious operations and its report to the authorities as well as with the anti-money laundering regime set forth by the Central Bank (by means of Communication “A” 5162, as amended or supplemented by Communication “A” 5218) and, when acting as placement agents in public offerings of securities, applicable CNV regulations.

The Central Bank itself must also comply with anti-money laundering regulations set forth by the UIF, including reporting suspicious or unusual transactions. In particular, the Central Bank must comply with UIF Resolution No. 12/2011, as amended or supplemented by Resolution No. 1/2012, which, among other things, lists a few examples of what constitute “suspicious or unusual transactions”. The listed transactions must be particularly scrutinized by the Central Bank and include, among others, any transaction involving financial institutions, regular transactions involving securities (specially daily purchases and sales of the same amount of securities), capital contributions into financial institutions that have been paid-in in cash (or means other than bank transfers), and capital contributions by companies incorporated or domiciled in jurisdictions that do not allow for information relating to family relations of its shareholders, board members or members of its supervisory committee, Deposits or withdrawals in cash for unusual amounts by entities or individuals that normally use checks or other financial instruments and/or whose declared business does not correspond with the type or amount of the transaction; subsequent cash deposits for small amounts that, in the aggregate, add up to a relevant sum; a single client holding numerous accounts that, in the aggregate, hold relevant sums inconsistent with such client’s declared business; transfers of funds for amounts inconsistent with the client’s business or usual kind of transaction; accounts with several authorized signatories that hold no apparent relation (in particular when domiciled or acting off-shore or in tax havens); clients that unexpectedly cancel loans; frequent cash deposits or withdrawals for relevant amounts without commercial justification.

Starting on August 19, 2011, financial institutions and foreign exchange entities are required to adopt a money laundering and terrorist financing prevention policy, consisting mainly in conducting an exhaustive analysis and recording of all transactions involving them. In this respect, financial entities are responsible for, among others, implementing a prevention manual describing the mechanisms and procedures to be observed in their practice, organizing periodic training activities for their employees, implementing periodic audits, preparing an analysis and risk management record of unusual and suspicious transactions detected, appointing a member of the board of directors as the compliance officer, implementing measures aimed at consolidating all transactions conducted with customers into an electronic file and developing technological tools to examine or monitor certain behaviors and detect suspicious transactions, requesting information and, if applicable, supporting documents from its customers, and also adopting reinforced identification methods applicable to customers with specific features as provided by applicable regulations.

The guidelines issued by the Central Bank to detect unusual or suspected money laundering or terrorist financing transactions require the reporting of unusual transactions, based on the resources of the entity subject to the reporting obligation and on the type of analysis performed. In particular, the following special circumstances, among others, shall be considered: (a) if the amount, type, frequency and nature of a transaction made by a customer bears no relationship to such customer’s previous history and financial activity; (b) amounts that are unusually high or transactions that are of a complexity and type not usual for the relevant customer; (c) if a customer refuses to provide information or documents required by the entity or the information furnished is found to have been altered; (d) if a customer fails to comply with any applicable regulation; (e) if a customer appears to show an unusual disregard for risks it may be assuming and/or costs involved in the transactions, and this is incompatible with the customer’s financial profile; (f) if a country or jurisdiction that are considered “tax havens” or have been identified as non cooperative by the Financial Action Task Force (“FATF”) are involved;(g) if a same address appears registered for different legal entities or the same natural persons have been empowered by and/or act as attorneys-in-fact for different legal entities and such circumstance is not justified by any financial or legal reason, in particular taking into account whether any such companies or entities are located in “tax havens” and their main business involves off-shore transactions; (h) if transactions of a similar nature, amount, type or which are conducted simultaneously, it may be presumed that a single transaction has been split into several for the purpose of avoiding the application of transaction detection and/or reporting procedures; (i) if continued profits or losses are derived from transactions repeatedly conducted between the same parties; or (j) if certain signs suggest an illegal source, handling or use of funds involved in the transactions, and the entity subject to the legal obligation does not have any explanation for this.

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In the context of the capital markets, in addition to the Money Laundering Law, any individual and/or legal entity authorized to act as agent, broker-dealer, agent of the MAE, futures and options broker, manager of mutual funds or intermediary for the purchase, lease or loan of securities acting in stock exchanges, with or without follower markets, shall observe the provisions of UIF Resolution No. 229/2011 (the “Resolution 229 Regulated Entities”), notwithstanding any other regulations issued by the CNV on this matter.

On January 21, 2009, the CNV issued General Resolution No. 547 (hereinafter the “Resolution 547”), replacing Chapter XXII (Prevention of Money Laundering and terrorism financing) with “Chapter XXII—Prevention of Money Laundering and the Financing of Terrorism,” of the CNV regulations (which were later amended by CNV General Resolution 602/2012). CNV regulations provide that Resolution 229 Regulated Entities, the entities involved in the public offering of securities (other than issuers), including, among others, underwriters of any primary issuance of securities, and other entities must comply with the standards set by the UIF. In particular, they must comply with the obligations regarding customer identification and required information, record-keeping, precautions to be taken to report suspicious operations and policies and procedures to prevent money laundering and financing of terrorism. With respect to issuers, CNV regulations provide that any entity performing significant capital contributions or loans must be identified as to whether or not it is a shareholder at the time of the contributions, and must meet the requirements for general participants in the public offering of securities, provided in the CNV regulations and the UIF regulations, especially with regards to the identification of such persons and to the origin and legality of the funds and loans provided.

Furthermore, the CNV, by Resolution No. 602/2012, established that the abovementioned entities shall only be able to carry out any transactions therein contemplated under the public offering system, when such transactions are carried out or ordered by persons organized, domiciled or resident in dominions, jurisdictions, territories or associated States not included in the tax haven list contained in Executive Decree No. 1037/00.

In compliance with recommendations made by the FATF on money laundering prevention, on June 1, 2011 the Argentine Congress enacted Argentine Law No. 26,683. Under this law, money laundering is a crime per se, and laundering one’s own money is also penalized. Also, this law extends reporting duties to certain members of the private sector who were formerly not under such an obligation, and extends the period during which suspicious activities or transactions must be reported from 30 to 150 days, in order to give private entities an opportunity to examine such activities or transactions in greater detail before reporting them to the enforcement authorities.

For a more thorough analysis of money laundering regulations in effect as of the date of this document, investors are advised to consult with their own legal counsel and to read Title XIII, Second Book of the Argentine Criminal Code and any regulations issued by the UIF in their entirety. For this purpose, interested parties may visit the websites of the Argentine Ministry of Economy and Public Finance www.infoleg.gov.ar, the UIF, www.uif.gob.ar, or the CNV, www.cnv.gob.ar.

C. Organizational Structure

Subsidiaries

We have six subsidiaries: (i) Banco del Tucumán, our acquired retail and commercial banking subsidiary in the province of Tucumán; (ii) Banco Privado, our retail banking subsidiary (iii) Macro Bank Limited, our subsidiary in the Bahamas through which we provide primarily private banking services; (iv) Macro Securities S.A. Sociedad de Bolsa, which is a member of the BCBA, and through which we provide investment research, securities trading and custodial services to our customers; (v) Macro Fiducia S.A., a subsidiary that acts as trustee and provides financial advisory and analysis services; and (vi) Macro Fondos S.G.F.C.I.S.A., an asset management subsidiary.

Subsidiary	Banco Macro  S.A.’s direct and indirect equity interest Percentage of  Capital Stock and possible votes
Banco del Tucumán S.A. (1)		89.932	%
Banco Privado de Inversiones S.A. (1)		99.994	%
Macro Bank Limited (2)(3)		99.999	%
Macro Securities S.A. Sociedad de Bolsa (1)		99.921	%
Macro Fiducia S.A. (1)		98.605	%
Macro Fondos S.G.F.C.I. S.A. (1)		99.936	%

(1) Country of residence: Argentina

(2) Country of residence: Bahamas

(3) Consolidates with Sud Asesores (ROU) S.A. (100% of capital stock and voting rights)

D. Property, plants and equipment

Property

We own 23,746 square meters of office space at Sarmiento 341-355, 401-447, 731-735 and Suipacha 555, in Buenos Aires, Argentina, where the headquarters for our management, accounting, administrative and investor relations personnel are located. As of December 31, 2011 our branch network consisted of 414 branches in Argentina, of which 206 were leased properties.

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In 2011 we acquired from the Government of the City of Buenos Aires a property located at Av. Eduardo Madero No. 1180, in the City of Buenos Aires, for an aggregate amount of Ps. 110 million.

The Bank intends to build its new corporate offices on this site. Construction is expected to begin in 2012, and the estimated completion term is four years. The new corporate tower will be designed taking full advantage of natural light, using materials that do not adversely affect the environment and with an efficient use of the available energy. It will be built in compliance with the Leed International Sustainability Standards of the “US Green Building Council”.

The building will have an area of 52,700 square meters and the Bank estimates that its construction will require an investment of approximately US$ 135.6 million.

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 Item 5. “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 32 to the consolidated financial statements for the three years ended on December 31, 2011 for a summary of the significant differences between Central Bank Rules and U.S. GAAP.

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 nominal rates for our interest-earning assets and interest-bearing liabilities for the years ended December 31, 2009, 2010 and 2011.

	Years ended December 31,
	2009							2010							2011
	Average Balance		Interest Earned/(Paid)		Average Nominal Rate			Average Balance		Interest Earned/(Paid)		Average Nominal Rate			Average Balance		Interest Earned/(Paid)		Average Nominal Rate
	(in thousands of pesos, except percentages)
ASSETS
Interest-earning assets
Government securities (1)
Pesos		5,124,739		785,628		15.33	%		5,366,274		853,997		15.91	%		3,370,212		428,324		12.71	%
Dollars		486,811		420,898		86,46	%		378,908		72,942		19.25	%		282,596		10,168		3.60	%
Total		5,611,550		1,206,526		21.50	%		5,745,182		926,939		16.13	%		3,652,808		438,492		12.00	%
Loans
Private and financial Sector
Pesos		8,633,930		2,008,428		23.26	%		10,589,164		2,256,182		21.31	%		16,961,109		3,641,606		21.47	%
Dollars		2,225,961		189,730		8.52	%		2,062,237		113,549		5.51	%		2,658,945		110,482		4.16	%
Total		10,859,891		2,198,158		20.24	%		12,651,401		2,369,731		18.73	%		19,620,054		3,752,088		19.12	%
Public Sector
Pesos		302,441		24,197		8.00	%		289,576		118,618		40.96	%		355,243		22,813		6.42	%
Total		302,441		24,197		8.00	%		289,576		118,618		40.96	%		355,243		22,813		6.42	%
Other assets
Pesos		1,075,212		194,537		18.09	%		763,631		82,886		10.85	%		920,941		126,023		13.68	%
Dollars		1,118,378		87,515		7.83	%		2,475,530		57,598		2.33	%		2,730,416		34,978		1.28	%
Total		2,193,590		282,052		12.86	%		3,239,161		140,484		4.34	%		3,651,357		161,001		4.41	%
Total interest-earning assets
Pesos		15,136,322		3,012,790		19.90	%		17,008,645		3,311,683		19.47	%		21,607,505		4,218,766		19.52	%
Dollars		3,831,150		698,143		18.22	%		4,916,675		244,089		4.96	%		5,671,957		155,628		2.74	%
Total		18,967,472		3,710,933		19.56	%		21,925,320		3,555,772		16.22	%		27,279,462		4,374,394		16.04	%
Non interest-earning assets
Cash and due from banks
Pesos		687,021							996,459							1,482,954
Dollars		513,818							617,398							619,348
Euros		11,312							25,449							16,813
Other		1,045							1,697							2,277
Total		1,213,196							1,641,003							2,121,392

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Investments in other companies
Pesos	9,755		9,295		9,218
Dollars	1,015		1,170		1,039
Total	10,770		10,465		10,257
Property and equipment and miscellaneous and intangible assets and items pending of allocation
Pesos	763,325		798,390		1,051,922
Total	763,325		798,390		1,051,922
Allowance for loan losses
Pesos	(367,163	)	(368,458	)