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

☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2016

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

Finance 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 Class B ordinary shares, par value Ps.1.00 per share	New York Stock Exchange New York Stock Exchange(*)

(*) 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:

None

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

573,327,358 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  ☐

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  ☒

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer, accelerated filer and emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒                 Accelerated filer  ☐                Non-accelerated filer  ☐                Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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  ☐ Standards as issued by the International Accounting Standards Board  ☐ Other  ☒

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  ☒

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  ☒

(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 Jeffrey Cohen Linklaters LLP 1345 Avenue of the Americas New York, NY 10105

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	20
Item 4A.	Unresolved Staff Comments	84
Item 5.	Operating and Financial Review and Prospects	84
Item 6.	Directors, Senior Management and Employees	104
Item 7.	Major Shareholders and Related Party Transactions	112
Item 8.	Financial Information	113
Item 9.	The Offer and Listing	116
Item 10.	Additional Information	117
Item 11.	Quantitative and Qualitative Disclosure About Market Risk	133
Item 12.	Description of Securities Other Than Equity Securities	135
PART II		136
Item 13.	Defaults, Dividend Arrearages and Delinquencies	136
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	136
Item 15.	Controls and Procedures	136
Item 16A.	Audit Committee Financial Expert	138
Item 16B.	Code of Ethics	138
Item 16C.	Principal Accountant Fees and Services	138
Item 16D.	Exemptions from the Listing Standards for Audit Committees	138
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	138
Item 16F.	Change in Registrant’s Certifying Accountant	138
Item 16G.	Corporate Governance	139
PART III		142
Item 17.	Financial Statements	142
Item 18.	Financial Statements	142
Item 19.	Exhibits	142

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 otherwise requires.

The term “Argentina” refers to the Republic of Argentina. The terms “Argentine government” or the “government” or the “Federal Government” refer to the federal government of Argentina, the term “Argentine Congress” refers to the Argentine National Congress, the legislative branch of the 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 “MERVAL” refers to the Mercado de Valores de Buenos Aires, or the Buenos Aires Stock Market, the term “NYSE” refers to the New York Stock Exchange, 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 term “Brazil” refers to the Federative Republic of Brazil.

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 “INDEC” refers to the National Statistics Institute (Instituto Nacional de Estadísticas y Censos).

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. Assets and liabilities indexed by CER were adjusted according to the Autonomous City of Buenos Aires Urban Consumer Price Index (Indice de Precios al Consumidor de la Ciudad Autónoma de Buenos Aires) for the months of December 2015 and January 2016, replacing the prior measurement. Pursuant to Resolution 100/2016, from the Ministry of Economy and Finance, as of February 2016 and up to April 25, 2016, the San Luis Urban Consumer Price Index (Índice de Precios al Consumidor de la Provincia de San Luís) will be used to adjust the CER.

Presentation of certain financial and other information

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. In reviewing our financial statements, investors should consider that, in recent years, there have been significant changes in the prevailing prices of certain inputs and economic indicators, such as salary cost, interest and exchange rates. However, local regulations have not required the application of inflation adjustments to our consolidated financial statements.

Our consolidated financial statements consolidate the financial statements of our following subsidiaries:

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

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

• Macro Securities S.A. (“Macro Securities”)

• Macro Fiducia S.A.; and

• Macro Fondos S.G.F.C.I. S.A.

Our audited consolidated financial statements as of and for the three years ended December 31, 2016 included in this annual report have been reconciled to U.S. GAAP. See note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 for a reconciliation of our consolidated financial statements to U.S. GAAP. See also Item 5.A “Operating and Financial Review and Prospects” for a reconciliation of Central Bank Rules to U.S. GAAP.

Due to the modification of certain disclosure methods for certain items on the consolidated balance sheets and the consolidated statements of income, which did not affect our shareholders’ equity, the consolidated financial statements as of December 31, 2012 were modified for the sole purpose of comparability with the consolidated financial statements as of December 31, 2013, 2014, 2015 and 2016.

Based on Communication “A” 5940 of the Central Bank, we reversed certain provisions related to monetary sanctions amounting to Ps.1.468 million with retroactive effect from January 1, 2015.

As a result of Central Bank requirements, we expect to prepare our financial statements in accordance with International Financial Reporting Standards (“IFRS”) 1, First-time Adoption of IFRS, with certain criteria of measurement and exposure specifically established by the Central Bank, as from January 1, 2018. See note 7 to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

2

Our financial information, as prepared in conformity with Central Bank Rules, is sent on a monthly basis to the Central Bank and is 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 MERVAL.

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 Data

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;

• governmental intervention and regulation (including banking and 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, customer loss and revenue loss;

• 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;

• the integration of any acquisitions and the failure to realize expected synergies; and

• the risk factors discussed under Item 3.D “Risk Factors’’.

3

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 regulations and the effects of competition. Forward-looking statements speak only as of the date they were made, and we will not, and disclaim any 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.

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 as of and for the three years ended December 31, 2016 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, 2012, 2013 and 2014 from our audited consolidated financial statements not included in this annual report. Solely for the convenience of the reader, the reference exchange rate for U.S. dollars as of December 31, 2016, as reported by the Central Bank was Ps.15.8502 to US$1.00. See Item 10.D “Exchange Controls” for additional information regarding Peso/U.S. dollar exchange ratios.

	Year Ended December 31,
	2012 (1)			2013			2014			2015 (2)			2016
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
Selected Consolidated Income Statement
Central Bank Rules:
Financial income		6,904,370			9,753,531			14,682,649			20,109,123			28,935,288
Financial expense		(2,827,590	)		(4,021,540	)		(6,582,561	)		(8,842,655	)		(13,300,762	)
Gross intermediation margin		4,076,780			5,731,991			8,100,088			11,266,468			15,634,526
Provision for loan losses		(600,424	)		(540,032	)		(664,882	)		(877,134	)		(1,073,085	)
Service charge income		2,644,731			3,426,324			4,655,788			6,115,362			7,968,732
Service charge expense		(685,392	)		(917,807	)		(1,215,759	)		(1,714,833	)		(2,603,839	)
Administrative expenses		(3,115,385	)		(4,015,356	)		(5,498,879	)		(7,225,908	)		(9,970,656	)
Other income		196,662			253,214			351,203			409,172			598,449
Other expense		(156,089	)		(143,688	)		(262,350	)		(442,216	)		(481,326	)
Minority Interest in subsidiaries		(13,790	)		(18,173	)		(23,492	)		(35,359	)		(54,592	)
Income Tax		(853,475	)		(1,332,909	)		(1,962,186	)		(2,485,663	)		(3,477,377	)
Net income		1,493,618			2,443,564			3,479,531			5,009,889			6,540,832
Net income per share (3)		2.56			4.18			5.95			8.57			11.19
Dividends per share approved by the shareholder’s meeting		0.00			1.02			1.02			1.10			—	(4)
Dividends per share in US$ approved by the shareholder’s meeting		0.00			0.16			0.12			0.08			—	(4)
Dividends per share approved by the Central Bank		0.00			1.02			0.39			1.10			—	(4)
Dividends per share in US$ approved by the Central Bank		0.00			0.16			0.05			0.08			—	(4)
Number of outstanding shares (in thousands)		584,485			584,485			584,563			584,563			584,563

4

	Year Ended December 31,
	2012 (1)			2013			2014			2015 (2)			2016
	(in thousands of Pesos, except for number of shares, net income per share and dividends per share)
U.S. GAAP: (5)
Net income		1,551,994			2,479,680			3,572,933			4,947,144			6,637,008
Less: Net income attributable to the non-controlling interest		(14,159	)		(18,521	)		(25,424	)		(37,299	)		(58,097	)
Net income attributable to the controlling interest		1,537,835			2,461,159			3,547,509			4,909,845			6,578,911
Net income per share		2.66			4.24			6.11			8.46			11.35
Net income per share attributable to the controlling interest (6)		2.63			4.21			6.07			8.40			11.25
Weighted average number of outstanding shares (in thousands)		584,485			584,485			584,537			584,563			584,563

(1) Due to the modification of certain disclosure methods used for certain items in the consolidated balance sheets and consolidated statements of income, figures have been restated for comparability purposes. See “Presentation of certain financial and other information.”

(2) Based on Communication “A” 5940 of the Central Bank, we reversed certain provisions related to monetary sanctions amounting to Ps.1.468 million with retroactive effect on our 2015 financial statements.

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

(4) On March 8, 2017, the board of directors of Banco Macro S.A. (the “Board of Directors”) resolved to propose to the shareholders’ meeting a distribution of Ps.1.20 per share for the fiscal year ended December 31, 2016. Such dividends are pending approval from the Central Bank and shareholders as of the date of this annual report.

(5) See note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 for a summary of significant differences between Central Bank Rules and U.S. GAAP.

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

5

	As of December 31,
	2012 (1)			2013			2014			2015 (2)			2016
	(in thousands of Pesos)
Selected Consolidated Balance Sheet
Central Bank Rules:
Assets
Cash and due from banks and correspondents		10,047,048			12,860,529			15,434,202			19,402,821			36,089,156
Government and private securities		2,343,078			2,441,316			10,312,498			15,391,372			19,846,269
Loans:
to the non-financial government sector		586,557			640,158			604,417			748,067			1,532,532
to the financial sector		299,250			364,897			213,867			227,390			1,730,620
to the non-financial private sector and foreign residents		31,203,946			39,023,795			44,108,055			62,852,922			86,540,360
Allowances for loan losses		(887,156	)		(1,006,495	)		(1,186,044	)		(1,495,964	)		(1,830,505	)
Other assets		4,301,342			4,970,834			5,508,639			7,825,351			11,090,528
Total assets		47,894,065			59,295,034			74,995,634			104,951,959			154,998,960
Average assets		44,792,602			53,268,656			67,852,744			86,493,207			126,081,164
Liabilities and shareholders’ equity
Deposits:
from the non-financial government sector		8,318,383			6,580,041			8,570,055			9,588,378			9,552,190
from the financial sector		24,222			26,874			38,683			40,145			55,867
from the non-financial private sector and foreign residents		27,846,067			36,820,103			46,107,816			66,893,075			102,331,683
Other liabilities from financial intermediation and other liabilities		4,575,660			6,023,432			7,228,056			10,187,824			14,011,410
Provisions		131,683			159,381			171,923			258,025			335,007
Subordinated corporate bonds		740,192			981,142			1,287,317			1,957,618			6,407,840
Items pending allocation		7,408			7,128			6,966			21,039			16,266
Minority interest in subsidiaries		51,355			69,502			93,001			128,305			182,799
Total liabilities		41,694,970			50,667,603			63,503,817			89,074,409			132,893,062
Shareholders’ equity		6,199,095			8,627,431			11,491,817			15,877,550			22,105,898
Average shareholders’ equity		5,510,363			7,344,336			10,425,703			13,477,595			19,188,120
U.S. GAAP: (3)
Shareholders’ equity attributable to the controlling interest		5,876,589			8,332,414			11,323,047			15,740,455			22,113,057
Non-controlling interests		51,534			70,055			95,479			132,778			190,875
Shareholders’ equity		5,928,123			8,402,469			11,418,526			15,873,233			22,303,932

(1) Due to the modification of certain disclosure methods defined for certain items in the consolidated balance sheets and consolidated statements of income, figures have been restated for comparability purposes. See “Presentation of certain financial and other information.”

(2) Based on Communication “A” 5940 of the Central Bank, we reversed certain provisions related to monetary sanctions amounting to Ps.1.468 million with retroactive effect on our 2015 financial statements.

(3) See note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 for a summary of significant differences between Central Bank Rules and U.S. GAAP.

6

	As of and for the year ended December 31,
Selected consolidated ratios:	2012		2013		2014		2015		2016
Profitability and performance
Net interest margin (%) (1)		12.07		13.70		15.74		17.90		18.22
Fee income ratio (%) (2)		39.35		37.41		36.50		35.18		33.76
Efficiency ratio (%) (3)		46.35		43.84		43.11		41.57		42.24
Ratio of earnings to fixed charges (excluding interest on deposits) (4)		17.63x		20.70x		25.04x		31.40x		23.65x
Ratio of earnings to fixed charges (including interest on deposits) (5)		2.00x		2.14x		2.01x		2.07x		1.93x
Fee income as a percentage of administrative expense (%)		84.89		85.33		84.67		84.63		79.92
Return on average equity (%)		27.11		33.27		33.37		37.17		34.09
Return on average assets (%)		3.33		4.59		5.13		5.79		5.19
Liquidity
Loans as a percentage of total deposits (%)		88.67		92.17		82.11		83.41		80.22
Liquid assets as a percentage of total deposits (%) (6)		31.75		33.34		40.57		38.43		47.64
Capital
Total equity as a percentage of total assets (%)		12.94		14.55		15.32		15.13		14.26
Regulatory capital as a percentage of risk-weighted assets (%)		19.01		25.29		24.02		20.79		30.00
Asset Quality
Non-performing loans as a percentage of total loans (%) (7)		1.78		1.66		1.95		1.55		1.15
Allowances for loan losses as a percentage of total loans		2.76		2.51		2.64		2.34		2.04
Allowances for loan losses as a percentage of non-performing loans (%) (7)		155.39		151.67		135.29		151.48		176.77
Operations
Number of branches		428		430		434		439		444
Number of employees (8)		8,500		8,613		8,693		8,727		8,617

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

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

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

(4) 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.

(5) 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.

(6) Liquid assets include cash, cash collateral, reverse repos, Letras del Banco Central (Central Bank bonds, “Lebacs”) and Notas del Banco Central (Central Bank notes, “Nobacs”) and interfinancing loans.

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

(8) Were workers performing their duties pursuant to the “Acciones de entrenamiento para el trabajo” program of the Ministry of Labor, Employment and Social Security, and other casual workers included, the number of employees would have been 8,534, 8,708, 8,728, 8,765 and 8,666 for 2012, 2013, 2014, 2015 and 2016, respectively. We do not account for such workers as employees, as we do not remunerate them for their services, which are paid directly by the Argentine province where they work.

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. 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, our ADSs 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

The Argentine economy remains vulnerable and any significant decline could adversely affect our financial condition

Presidential and congressional elections in Argentina took place on October 25, 2015, and a runoff election (ballotage) between the two leading presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. The new administration assumed office on December 10, 2015.

Since assuming office, the new administration has announced several significant economic and policy reforms, including:

• INDEC reforms. After a long period in which certain statistical information failed to be published, the INDEC launched a plan to review growth data for the periods 2004 to 2015 and began to publish such revised data, including the Consumer Price Index (“CPI”) for the months of May 2016 onwards, as well as the modified statistics of the Gross Domestic Product, foreign trade and balance of payments. The new CPI average inflation index for July, August, September, October, November and December 2016 and January, February and March 2017 was 2.0%, 0.2%, 1.1%, 2.4% 1.6%, 1.2%, 1.3%, 2.5% and 2.4%, respectively. Potential investors are informed that all INDEC information is published and can be reviewed at www.indec.gov.ar/novedades.asp.

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• Foreign exchange reforms. The new administration eliminated a significant portion of foreign exchange restrictions, including certain currency controls that were imposed by the previous administration. On August 8, 2016, the Central Bank introduced material changes to the foreign exchange regime and established a new foreign exchange regime by means of Communication “A” 6037 that significantly eases access to the free floating foreign exchange market (the “MULC”). See “—Significant devaluation of the Peso against the U.S. dollar may adversely affect the Argentine economy” and Item 10.D “Exchange Controls”.

• Foreign trade reforms. The new administration eliminated or reduced the export duties applicable to several agricultural products and eliminated the export duties applicable to most exports of industrial and mining products.

• Financial policy. The new administration took steps to strengthen public accounts, reducing the fiscal deficit through a series of fiscal and other measures partly through the elimination of subsidies to existing public services, such as those applicable to electricity and gas services. The administration announced that its goal is to balance the primary budget by 2019.

• Correction of monetary imbalances: The new administration announced the adoption of a series of measures to reduce inflation and set inflation goals through 2019. The Central Bank has increased its efforts to reduce surplus monetary imbalances and increased interest rates in Pesos to offset inflationary pressure.

• Tax Amnesty Law: In July 2016, the Régimen de Sinceramiento Fiscal (the “Tax Amnesty Law”) was introduced to promote the voluntary declaration of assets by Argentine residents. The law allows Argentine tax residents holding undeclared funds or assets located in Argentina or abroad to (i) declare such property until March 31, 2017 without facing prosecution for tax evasion or being required to pay outstanding tax liabilities on the assets, provided they can provide evidence that the assets were held by certain specified cut-off dates, and (ii) keep the declared property outside Argentina and not repatriate such property to Argentina. In the case of cash that was not deposited in bank accounts by the specified cut-off dates, such amounts had to be disclosed by October 31, 2016 and deposited by November 21, 2016 in special accounts opened at Argentine financial entities. As of December 31, 2016, assets totaling approximately, US$97.8 billion had been declared pursuant to which the Argentine Government raised Ps.106.8 billion in the special tax established by such law.

As of the date hereof, the effect that these measures and any future measures taken by the new administration will have on the Argentine economy as a whole, and the financial sector in particular, cannot be predicted. In addition, there is uncertainty as to which measures announced during the presidential campaign of the Macri administration will be enacted and when. We cannot predict how the Macri administration will address certain other political and economic issues that were central during the presidential election campaign, such as the financing of public expenditures, public service subsidies and tax reforms, or the effect that any measures related to these issues that are implemented by the Macri administration will have on the Argentine economy as a whole. In addition, political parties opposed to the Macri administration retained a majority of the seats in the previous Argentine Congress elections, thereby requiring the Macri administration to seek political support from the opposition for its economic proposals and creating further uncertainty as to the ability of the Macri administration to obtain approval for measures which it seeks to implement. Political uncertainty in Argentina relating to the measures to be taken by the Macri administration could lead to volatility in the market prices of securities of Argentine companies, including in particular companies in the financial sector, such as ours, given the high degree of regulatory oversight and involvement in this sector.

A less favorable international economic environment, lack of stability, competitiveness of the Peso against other foreign currencies, lowered levels of confidence among consumers and foreign and domestic investors, a higher inflation rate and future political uncertainties, among other factors, should they occur, may affect the development of the Argentine economy and cause volatility in the local capital markets.

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 economic, social and political conditions prevailing in Argentina. No assurance can be given that future economic, social and political developments in Argentina, over which we have no control, will not have a material adverse effect on our business, financial condition and results of operations.

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

Financial and securities markets in Argentina are influenced by economic and market conditions in other markets worldwide. The international scenario shows contradictory signals of global growth, as well as high financial and exchange uncertainty. The global financial crisis that commenced in the last quarter of 2008, and from which many economies have not yet fully recovered, negatively affected the economies of numerous countries around the world, including Argentina and certain of its trading partners. In late 2011, the global financial system experienced unprecedented volatility and disruption. The resulting financial turmoil led to greater restrictions on access to credit, low liquidity, extreme volatility in foreign exchange markets and securities, and capital flight from emerging markets, including Argentina. In this context, and for the first time in history, on August 5, 2011, Standard & Poor’s Financial Services downgraded the debt instruments issued by the United States from “AAA” to “AA+”.

Moreover, emerging markets have been affected by the change in U.S. monetary policy, resulting in the sharp unwinding of speculative asset positions, depreciations and increased volatility in the value of their currencies and higher interest rates. The general appreciation of the U.S. dollar resulting from a more restrictive U.S. monetary policy contributed to the fall of the international price of raw materials, further increasing the difficulties of emerging countries which are exporters of these products.

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In addition, on June 23, 2016 the United Kingdom (the “UK”) voted in favor of the departure of the UK from the European Union (the “European Union”). At the date of this annual report, the actions to be taken by the UK to effectively leave the European Union and the duration of this process are uncertain. The results of the UK referendum have caused and are anticipated to continue to cause volatility in financial markets, which in turn could have a material adverse effect on our business, financial condition and results of operations.

The economy of Brazil, one of Argentina’s most important export markets and the main source of imports, is presently experiencing negative pressure due to the uncertainties arising from the political crisis, resulting in the dismissal of President Dilma Rousseff. On August 31, 2016, the Brazilian Senate resolved that Mr. Michel Temer, former vice president of Brazil, will fill the office until the end of the term on January 1, 2019.

On November 8, 2016, Donald Trump was elected as the President of the United States. During the election campaign, Mr. Trump showed a vested interest in implementing greater controls on free trade and limiting immigration. Possible changes in social, political, regulatory and economic conditions in the United States or in the legislation and policies governing international trade could generate uncertainty in international markets and may have a negative effect on emerging markets, such as Argentina, which could adversely affect our operations.

Although economic conditions vary from country to country, investors’ perceptions of events occurring in other countries have, and may continue to, substantially affect capital flows into and investments in securities from issuers in other countries, including Argentina. A prolonged slowdown in economic activity in Argentina or negative effects on the Argentine financial system or the securities markets would adversely affect our business, financial condition and results of operations.

Argentina’s economy is vulnerable to external shocks that could be caused by significant economic difficulties of its major regional trading partners or by more general “contagion” effects.

Argentina’s economy is vulnerable to adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners, such as Brazil, China or the United States, could have a material adverse effect on Argentina’s trade balance and adversely affect Argentina’s economic growth. The economic performance of other trading partners such as Chile, Spain and Canada may also affect Argentina’s trade balance.

Economic conditions in South America have recently been adversely affected by falling commodity prices and political uncertainty. More specifically, the current devaluation of the Brazilian currency and the slowdown of its economy may negatively affect the Argentine economy, and in turn, our business and results of operations.

Global economic slowdowns and uncertainty have led to declines in exports in 2015 of 23% with Mercosur (a sub-regional trade bloc consisting of Argentina, Brazil, Paraguay, Uruguay and Venezuela), 22% with NAFTA (USA and Canada), 19% with the European Union and 9% with Chile, each as compared to 2014. Declining demand for Argentine exports could have a material adverse effect on Argentina’s economic growth.

Because international investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investments is disfavored by international investors, Argentina could be adversely affected by negative economic or financial developments in other countries. This “contagion” effect, in turn, may have an adverse effect on our business, financial condition 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 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. In April 2016, the Argentine government settled U.S.$ 4.2 billion outstanding principal amount of debt held by creditors who had not participated in the 2005 and 2010 restructurings.

As of the date of this annual report, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.

Not all creditors have agreed to the terms of Argentina’s settlement offer. The continuation and outcome of the litigation may prevent Argentina from obtaining favorable terms or interest rates upon access to the international capital market. Litigation initiated by holders of defaulted bonds or other parties may result in rulings against the Argentine government and may result in restrictions or injunctions on Argentinean assets that may adversely affect the ability to obtain financing for the country and private companies, which could have a material adverse effect on Argentina’s economy, and consequently, our business, financial condition and results of operations.

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

In response to the emergency measures implemented by the Argentine government during the 2001-2002 economic crisis, a number of claims were filed before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina. Claimants allege that the emergency measures were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties by which Argentina was bound at the time. Claimants have also filed claims before arbitral tribunals under the rules of the United Nations Commission on International Trade Law (“UNCITRAL”) and under the rules of the International Chamber of Commerce (“ICC”). Several awards have been issued against Argentina and several cases are still ongoing.

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Litigation, as well as ICSID and UNCITRAL claims against the Argentine government, have resulted in material judgments and may result in further material judgments, and could result in attachment 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 honor its obligations, implement reforms and foster growth, which could have a material adverse effect on Argentina’s economy, and consequently, our business, financial condition and results of operations.

Government measures could adversely affect the Argentine economy.

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. In recent years, the Argentine government has increased its direct intervention in the economy and in private sector operations and companies, limiting certain aspects of private sector businesses.

In May 2013, the Argentine Congress passed a law providing for the expropriation of 51% of the share capital of YPF (Yacimientos Petroliferos Fiscales S.A.), the principal Argentine oil company, which shares were owned by Repsol, S.A. and its affiliates. In February 2015, the Argentine government sent a bill to the Argentine Congress in order to revoke certain train concessions, return the national rail network to state control and provide authority to review all concessions currently in effect. The bill was enacted on May 20, 2015 as Law No. 27,132.

In addition, on September 23, 2015 the Argentine Congress passed Law No. 27,181, which limits the sale of the Argentine government’s shares held in Argentine companies without prior approval of two-thirds of the members of the Argentine Congress, with the exception of the Argentine government’s shareholding in YPF.

Furthermore, financial institutions operate in a highly regulated environment. As of the date of this annual report, several different bills to amend various aspects of the Financial Institutions Law No. 21,526 (as amended, the “Financial Institution Law”) have been put forth for review in the Argentine Congress. A thorough amendment of the Financial Institutions Law could have a substantial effect on the banking system as a whole. See “—The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the Argentine economy” and “—Governmental measures and regulatory framework affecting financial entities could have a material adverse effect on the operations of financial entities”.

Moreover, the Argentine government has in the past enacted laws and regulations requiring private sector companies to maintain certain salary levels and provide their employees with additional benefits. Employers, both in the public and private sector, have also been experiencing intense pressures from their personnel, or from the labor unions representing them, demanding salary increases and certain benefits for the workers, given the high inflation rates.

Actions taken by the Argentine government concerning the economy, including decisions with respect to interest rates, taxes, price controls, salary increases, provision of additional employee benefits, foreign exchange controls and potential changes in the foreign exchange market, have had and could continue to have a material adverse effect on Argentina’s economic growth and in turn affect our business, financial condition and results of operations. In addition, any additional Argentine government policies to preempt, or in response to, social unrest could adversely and materially affect the economy, and thereby our business.

There is proposed legislation aimed at reducing the powers of government to intervene in private companies that is being discussed in the Argentine Congress. However, until this legislation is approved, we cannot provide any assurance that the Argentine government will not make use of such powers, which could have an adverse effect on us.

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

The numerous exchange controls introduced under the former administration gave rise to an unofficial U.S. dollar trading market, and the Peso/U.S. dollar exchange rate in such market differed substantially from the official Peso/U.S. dollar exchange rate. Certain relevant foreign exchange restrictions were lifted in December 2015 and, as a result, the spread between the official and unofficial Peso/U.S. dollar exchange rates has substantially decreased. For more information, see Item 10.D “Exchange Controls”.

Since taking office, the new administration has implemented significant reforms related to exchange rate restrictions, notably the elimination of certain exchange controls that had been imposed during the previous administration, in order to provide more flexibility and access to the MULC. On August 4, 2016, the Central Bank of Argentina issued Communication “A” 6037, under which it radically modified the applicable exchange regulations and eliminated the restrictions to access of the MULC.

Despite the measures recently adopted by the new administration, in the future, the Argentine government could impose further exchange controls, transfer restrictions, required repatriation through the MULC of proceeds raised through capital markets transactions conducted abroad or restrictions on the movement of capital and/or take other measures in response to capital flight or a significant depreciation of the Peso, which could limit our ability to access the international capital markets. Such measures could lead to political and social tensions and undermine the Argentine government’s public finances, as has occurred in the past, which could adversely affect Argentina’s economy and prospects for economic growth, which, in turn, could adversely affect our business, financial condition and results of operations.

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Additional controls may adversely affect Argentine entities’ ability to access the international capital markets for credit. Furthermore, the imposition of any future restrictions on the transfer of funds abroad may impede our ability to transfer dividends to ADS holders or interest or principal payments to the holders of our notes.

Severe or sustained declines in the international prices for Argentina’s main commodity exports or the occurrence of a climate disaster could have an adverse effect on Argentina’s economic growth.

High commodity prices have in the past contributed significantly to increases in Argentine exports as well as in governmental revenues from export taxes (witholdings). Argentina’s reliance on the export of certain commodities, such as soy, has made the Argentine economy more vulnerable to fluctuations in their prices.

Recently, commodity prices have suffered declines. If international commodity prices were to further decline or experience sustained declines, the Argentine government’s revenues could further decrease significantly, affecting Argentina’s economic activity. Accordingly, declines in international commodity prices may adversely affect Argentina’s economy, which in turn could produce a negative effect on our business, financial condition and results of operations.

In addition, adverse weather conditions can affect production of commodities in the agricultural sector, which account for a significant portion of Argentina’s export revenues. These circumstances could have a negative effect on government revenues, availability of foreign exchange and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. The occurrence of any of the above could adversely effect Argentina’s economic growth and, therefore, our business, financial condition and results of operations.

An increase in inflation could have a material adverse effect on Argentina’s economic prospects.

In January 2016, the new INDEC authorities appointed by the Macri administration announced the discontinuance of the methodology used by the prior administration to calculate national statistics and declared a state of administrative emergency, suspending the publication of all indices until the INDEC is able to calculate such indices based on accurate official data. In the meantime, during this period the INDEC continued to publish the inflation rate based on data provided by the province of San Luis and the City of Buenos Aires. According to the reports of these jurisdictions, the inflation rate in November and December 2015 was 2.9% and 6.5%, respectively, based on data provided by the province of San Luis and 2.0% and 3.9% respectively, based on data provided by the City of Buenos Aires. In January, February, March and April 2016, the monthly inflation rate as measured by the City of Buenos Aires was 4.1%, 4.0%, 3.3% and 6.5%, respectively, while according to the Province of San Luis, it was 4.2%, 2.7%, 3.0% and 3.4%, respectively.

After implementing the announced reforms, in June the INDEC continued reporting the CPI, reporting an inflation of 4.2% for May 2016. INDEC also reported monthly inflation of 3.1% and 2.0% for the months of June and July of 2016, respectively. The new inflation index measured by the INDEC CPI for August, September, October, November, December 2016 and January and February 2017 was 0.2%, 1.1%, 2.4%, 1.6% , 1.2%, 1.3% and 2.5%, respectively.

During 2013, 2014 and 2015, the former administration imposed price controls on certain goods and services to control inflation. The new administration has stated its intention to keep these price controls in effect, and as a consequence, has announced modifications to the previous price control program. The new program ran from September 6, 2016 to January 6, 2017, and was further extended until December 31, 2017.

In the past, inflation has materially undermined the Argentine economy and Argentina’s ability to create conditions that would permit growth. High inflation may also undermine Argentina’s competitiveness abroad and lead to a decline in private consumption which, in turn, could also affect employment levels, salaries and interest rates. Moreover, a high inflation rate could undermine confidence in the Argentine financial system, reducing the Peso deposit base and negatively affecting long-term credit markets.

There can be no assurance that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Argentine government to control inflation will be effective or successful. Inflation remains a challenge for Argentina. Significant inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively affect our business, financial condition and results of operations.

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 also had a far-reaching negative effect on the Argentine economy and on the financial condition of businesses and individuals. The devaluation of the Peso had a negative effect on the ability of Argentine businesses to honor their foreign currency-denominated debt, led to very high inflation initially, significantly reduced real wages, had a negative effect on businesses whose success is dependent on domestic market demand, such as utilities, and the financial industry.

After several years of moderate variations in the nominal exchange rate, the stock of the international reserves of the Central Bank started to decrease and, in order to contain the fall in reserves, the Central Bank accelerated the rate of nominal devaluation of the Peso. During 2013 the Peso lost more than 30% of its value with respect to the U.S. dollar and the same occurred during 2014. In 2015, the Peso lost approximately 52% of its value with respect to the U.S. dollar. In 2016, an approximate 22% further devaluation of the Peso with respect to the U.S. dollar followed. The stock of international reserves of the Central Bank was US$38.8 billion as of December 31, 2016 and US$50.5 billion as of March 31, 2016.

The Argentine macroeconomic environment, in which we operate, was affected by such devaluation which had an effect on our financial and economic position. 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.

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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 2016, public sector expenditure increased by 38.2% year over year and the government reported primary fiscal deficit of 4.6% over the GDP, which was below 2015. During recent years, the Argentine government has resorted to the Central Bank and to ANSES to source part of its funding requirements.

The Argentine government has commenced revision of its subsidy policies, particularly those related to energy, electricity and gas, water and public transportation. Accordingly, in September 2016, the Supreme Court of Argentina issued a ruling in favor of increasing electricity rates. The new administration has also ordered an increase in gas tariffs for small and medium enterprises (“SMEs”) and businesses.

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. In that case, government initiatives that increase the exposure of local financial institutions to the public sector could affect our liquidity and assets quality and have a negative effect on clients’ confidence.

In addition, further deterioration in fiscal accounts could negatively affect the Argentine government’s ability to access the international financing markets and could result in increased pressure on the Argentine private sector to cover the Argentine government’s financial needs. This could adversely affect the Argentine economy and our business, financial condition and results of operations.

The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect 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 Charter”) and Law No. 23,298 (the “Convertibility Law”). This law amended the principal objectives of the Central Bank and removed certain provisions previously in force. Pursuant to the amendment, the Central Bank focuses on promoting monetary and financial stability as well as development with social equity.

The key components of the amendment to the Central Bank Charter related to the use of international reserves and the implementation of policies by the Central Bank in order to interfere in the fixing of interest rates and terms of loans to financial institutions. Pursuant to the amendment, Central Bank reserves may be made available to the Argentine government for the repayment of debt or to finance public expenses. During 2013, the currency reserves in U.S. dollars held by the Argentine government in the Central Bank significantly decreased, from US$44.3 billion in 2012 to US$30.6 billion in 2013. During 2014, the reserves slightly increased to US$31.4 billion, but decreased again during 2015 to US$25.6 billion as of December 31, 2015. The stock of international reserves of the Central Bank was US$50.5 billion as of March 31, 2017.

The use of Central Bank reserves for such expanded purposes may result in Argentina being more vulnerable to inflation or external shocks, affecting Argentina’s capacity to overcome the effects of an external crisis, which in turn could negatively affect our business, financial condition and results of operations.

Growing uncertainty over the coming legislative elections may adversely affect the Argentine economy.

The next legislative elections will take place on October 22, 2017. The composition of the Argentine Congress following the elections and the impact it will have on policies in Argentina and consequently in the Argentine economy remains uncertain.

Risks relating to the Argentine financial system

The health of Argentina’s financial system depends on the growth of the long-term credit market.

In recent years, the loan portfolio of the Argentine financial system has grown significantly. Loans to the private sector grew by approximately 20% in 2014, 37% in 2015 and 32% in 2016 for the financial system as a whole. In spite of the recovery of credit activity, the long-term loans market (pledged loans and mortgage loans) did not grow at the same pace, with long-term loans to the private sector increasing by only 22% in 2015.

Since most deposits are short-term deposits, a substantial portion of the loans have the same or similar maturities, and there is a small portion of long-term credit lines.

The uncertainty of the level of inflation in future years is a principal obstacle to a faster recovery of Argentina’s private sector long-term lending. This uncertainty has had and may continue to have a significant effect on both the supply of and demand for long-term loans, as borrowers try to hedge against inflation risk by borrowing at fixed rates while lenders hedge against inflation risk by offering loans at floating rates.

If longer-term financial intermediation activity does not grow, the ability of financial institutions, including us, to generate profits will be negatively affected.

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

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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. Total deposits with the financial system increased by 30% in 2014, 38% in 2015 and 45% in 2016, but the ratio of total financial system deposits to GDP is still low when compared to international levels and lower than the periods prior to the crisis.

In spite of the positive trend in 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 due to such economic, social and political events causing depositors to withdraw significant holdings from banks, there could be a substantial negative effect 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 the behavior of Argentine depositors which could have a negative impact on our business, financial condition and results of operations.

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

Argentine financial institutions hold bonds of, and extend loans to, the Argentine federal and provincial governments as part of their portfolios. The financial institutions’ exposure to the public sector has decreased year after year, from 48.9% in 2002 to 3.1% of total assets in 2016.

As of December 31, 2016, our exposure to the public sector, excluding Letras del Banco Central (Central Bank bonds, “Lebacs”) and Notas del Banco Central (Central Bank notes, “Nobacs”), amounted to Ps.5.8 billion, representing 3.7% of our total assets as of that date.

To some extent, the value of the assets held by Argentine financial institutions, as well as their income generation capacity, is dependent on the public sector’s creditworthiness, which is in turn dependent on the Argentine and the provincial government’s ability to promote sustainable long-term economic growth, generate tax revenues and control public spending. Should the public sector fail to fulfill its commitments in due time and proper form, this could have a negative adverse effect on our business, financial situation and results of operations.

Our asset quality and that of other financial institutions may deteriorate if the Argentine private sector is affected by economic events in Argentina or international macroeconomic conditions.

The capacity of many Argentine private sector debtors to repay their loans has in the past deteriorated as a result of certain economic events in Argentina or macroeconomic conditions, materially affecting the asset quality of financial institutions, including us.

From 2009 to 2011, the ratio of non-performing private sector lending declined overall, with a record minimum ratio of 1.4% as of December 31, 2011 for the financial system as a whole. The improvement was reflected in both the consumer loan portfolio and the commercial portfolio. From 2012, the ratio of non-performing private sector lending increased, reaching 1.9% as of December 31, 2014. During 2015, the ratio of non-performing private sector lending decreased to 1.6% and during 2016 reached 1.7% for the financial system as a whole.

Our credit portfolio quality ratio followed the financial system trend standing at 1.1% for our entire portfolio, as of December 31, 2016. During 2016 our coverage ratio reached 176%.

Despite the quality of our portfolio, we may not succeed in recovering substantial portions of outstanding loans. If Argentina’s economic growth slows or the financial condition of the private sector deteriorates, the financial system, including us, could experience an increase in the incidence of non-performing loans.

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 has 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.

Despite the fact that most of these measures have been rescinded, we cannot assure you that in an adverse economic environment the government will not adopt new measures in the future, restricting the ability of creditors to enforce their rights, 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.

Law No. 24,240 (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.

On September 18, 2014, a dispute resolution mechanism was created by Law No. 26,993, so that consumers and suppliers can resolve any claim, the amount of which does not exceed a value equivalent to fifty-five (55) minimum monthly wage payments, within thirty (30) days. These regulations provide for fines for companies that do not attend the hearings.

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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. We cannot provide any assurance that judicial and administrative rulings based on applicable regulations, or measures adopted by the enforcement authorities, will not increase the consumer protection given to debtors and other clients in the future, nor can we provide any assurance that these rulings and measures will not favor the claims initiated by consumer groups or associations. In such circumstances, certain penalties and remedies could prevent or limit the collection of payments due for services and in connection with financing provided by banks, which could materially and adversely affect our business, financial condition and results of operations.

Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates that financial entities may charge clients and the fees that they may charge merchants. The Secretary of Commerce issued Resolution 51/2017 on January 20, 2017, which imposed certain changes to the methodology for the display of financed prices, among other issues related to consumption in quotas by individuals. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high. On the other hand, the Central Bank has also established certain rules that grant broad protections for consumers of financial services that offer greater control over the relationship between them and their clients. The Central Bank regulations provide: (i) that prior authorization is required to implement new commissions for new products and/or services offered and to increase existing commissions for products that are considered commodities and (ii) the ability of financial institutions to receive remuneration for any insurance product that the client is forced to purchase as a condition of access to financial services. A change in applicable law or the handing down of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged could reduce our revenues and therefore negatively affect our results of operations.

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 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. Nevertheless, 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 and advice in the sale of public securities, among others. 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.

Governmental measures and regulatory framework affecting financial entities could have a material adverse effect on the operations of financial entities.

The Argentine government has historically exercised significant influence over the economy. Financial institutions, in particular, have operated in a highly regulated environment. Between 2001 and 2015, a series of new regulations were issued, mainly regulating the foreign exchange market, capital and minimum cash requirements, lending activity, interest rate limits and dividend distribution for financial institutions. In addition, various international developments such as the adoption in Argentina of risk-based capital, leverage and liquidity standards by the Basel Committee on Banking Supervision in December 2010 known as “Basel III” will likely continue to impact us in the coming years.

Moreover, the Central Bank imposed new restrictions on the distribution of dividends, including a limitation on the maximum distributable amount of dividends. In addition, since January 2016, pursuant to Central Bank Communication “A” 5827, additional capital margin requirements have to be complied with, including a capital conservation margin and a counter-cycle margin. The capital conservation margin shall be 2.5% of the amount of capital risk weighted assets (“RWA”), in the case of entities considered systemically important (“D-SIB”), like us, the margin will be increased to 3.5% of the amount of capital RWA. The counter-cycle margin shall be within a range of 0% to 2.5% of RWA, but Communication “A” 5938 of the Central Bank, established countercyclical margin in 0% as of April 1, 2016. This margin can be reduced or cancelled by the Central Bank when it considers that the systematic risk has been diminished.

Since June 2012, the Central Bank has had in place a regime to finance productive investment, by which certain financial entities, including us, must allocate a certain amount of the deposits held by the non-financial private sector, at a fixed interest rate in Pesos determined by the Central Bank, to fund investment projects for the acquisition of capital goods, the construction of plants, the marketing of goods or the acquisition of property (subject in this case to certain additional requirements). The Central Bank extended the term of this regime during 2013, 2014, 2015 and 2016. As a result of the new administration taking office, the Central Bank established certain guidelines, and continued with the regime to finance productive investment setting its limitof at least 18% of the monthly average of the deposits held by the non-financial private sector (for first semester of 2017).

In addition, in March 2016, the Central Bank established that the net global position in foreign currency of financial institutions cannot exceed the lesser of 10% of the bank´s regulatory capital (Responsabilidad Patrimonial Computable, or the “RPC”) or the liquid funds of the institution, effective as of April, 2016. This limit shall be increased by an amount equal to the increase in the monthly balance of financing received from abroad and settled through the MULC, converted to Pesos at the reference exchange rate, during the time period between January 31, 2014 and the last month to which the global net position is referred to. As a result, financial entities, including us, sold part of their position in U.S. dollars in order to comply with such rule. We cannot assure that laws and regulations currently governing the economy or the financial sector will not continue to change in the future or that any changes will not adversely affect our business, financial condition and results of operations.

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Moreover, any insolvency proceeding against financial institutions would be subject to the powers of and intervention by the Central Bank, which may limit remedies otherwise available and extend the duration of the proceedings. Finally, special rules that govern the subordination of debt of financial institutions in Argentina, granting priority to depositors with respect to most other creditors, may negatively affect other shareholders in the event of our judicial liquidation or bankruptcy.

In addition, the new Civil and Commercial Code also modifies the applicable regime for contractual provisions regarding payment obligations in foreign currency, stating that such obligations can be settled in Pesos. This modifies the legal regime, under which debtors could only cancel such obligations by making the payment in the specific currency agreed in their contracts. Notwithstanding the foregoing, it is still under discussion as to whether the option to cancel an obligation in foreign currency in Pesos can be waived by the debtor.

Such changes in the regulatory framework and further changes in the future could limit the ability of financial institutions, including us, to make long-term decisions, such as asset allocation decisions, which could cause uncertainty with respect to our future financial condition and results of operations. We cannot assure that laws and regulations currently governing the economy or the financial sector will not continue to change in the future or that any changes will not adversely affect our business, financial condition and results of operations. For more information, see Item 4.B “Argentine Banking Regulation”.

Argentina’s insufficient or incorrect implementation of certain anti-money laundering and combating the financing of terrorism (“AML/CFT”) recommendations may result in difficulties to obtain international financing and attract direct foreign investments.

In October 2010, the Financial Action Task Force (“FATF”) issued a Mutual Evaluation Report (the “Mutual Report”) on AML and CFT in Argentina. The Mutual Report stated that, since the prior evaluation in 2004, Argentina had not made adequate progress in addressing a number of deficiencies identified at that time, and the FATF subsequently placed Argentina under enhanced monitoring.

In June 2011, Argentina made a high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies. In compliance with recommendations made by the FATF on money laundering prevention, on June 1, 2011 the Argentine 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.

In June 2012, the plenary meeting of the FATF held in Rome highlighted the progress made by Argentina but also urged the Argentine government to make further progress regarding its AML/CFT deficiencies. Notwithstanding the improvements that Argentina made, in October 2012 the FATF determined that certain strategic AML/CFT deficiencies continued, and that Argentina would be subject to continued monitoring.

Since October 2013, Argentina has taken steps towards improving its AML/CFT regime, including the issuance of new regulations strengthening suspicious transaction reporting requirements and the financial sector regulator’s existing powers to apply sanctions for AML/CFT deficiencies. Such progress has been recognized by the FATF. In this regard, in June 2014 the FATF stated that Argentina had made significant progress in addressing the deficiencies in its AML/CFT measures as identified in the Mutual Report, and that subsequent to the adoption of such measures, Argentina had strengthened its legal and regulatory framework, citing certain specific examples. As a result of such progress, the FATF plenary decided that Argentina had taken sufficient steps in addressing technical compliance with the core and key recommendations, such that Argentina could be removed from the compliance monitoring process. In addition, on October 24, 2014 the FATF welcomed Argentina’s significant progress in improving its AML/CFT regime and stated that Argentina would work with the FATF and the Financial Action Task Force of Latin America (Grupo de Acción Financiera de América del Sur) as it continued to address the full range of AML/CFT issues identified in its Mutual Report.

Although Argentina has made significant improvements in its AML/CFT regulations, and is no longer subject to the FATF’s ongoing global AML/CFT compliance process, no assurance can be given that Argentina will continue to comply with AML/CFT international standards, or that Argentina will not be subject to the FATF’s ongoing global AML/CFT compliance process in the future, circumstances which could adversely affect Argentina’s ability to obtain financing from international markets and attract foreign investments and which could in turn, negatively effect our business.

Certain changes to services and commissions charged by financial entities on debit and credit card sales may affect our result of operations.

We receive income from the commissions we charge merchants on debit and credit card transactions. A change in applicable law that place limits on the fees that merchants may be charged may adversely reduce our revenues. On September 8, 2016, one of the chambers of the Argentine Congress approved a draft bill that aims to reduce credit card sales commissions from 3% to 1.5%, and debit card sales commissions from 1.5% to 0%. The draft bill was not approved by the Argentine Congress in 2016. Nevertheless, on March 31, 2017, the Central Bank issued Communication “A” 6212, effective as of April 1, 2017, which reduces credit card and debit card sales commissions on a gradual annual plan. Pursuant to Communication “A” 6212, the maximum credit card sales commission rate for 2017 is 2.0% and for 2018, 2019, 2020 and 2021 and after, will be 1.85%, 1.65%, 1.50% and 1.30%, respectively. The maximum debit card sales commissions for 2017 is 1.0% and for 2018, 2019, 2020 and 2021 and after, will be 0.90%, 0.80%, 0.70% and 0.60%, respectively.

The application of the limits set by the Central Bank and any further reductions on credit and debit cards sales commissions could adversely affect our profitability, financial condition and results of operations.

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Increased operating costs may affect our results of operations

We face the risk of potential claims initiated by individual workers or unions, and possible strikes or general strikes, in the context of negotiations relating to salary increases, benefits and / or compensation. The occurrence of any of the above could increase our operating costs, which could in turn have a negative impact on our business, financial position and results of operations

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 one of our principal target markets; low- and middle-income individuals and small- and medium-sized companies (“Pymes”).

This target market is particularly vulnerable to economic recessions and, in the event of 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 ultimately be successful without undue delay or at all.

Major shareholders have the ability to direct our business and their interests could conflict with yours.

As of December 31, 2016, our major shareholders, Jorge Horacio Brito and Delfín Ezequiel Carballo, directly or beneficially own 5,366,463 Class A shares and 107,431,304 Class B shares and 4,895,416 Class A shares and 106,805,523 Class B shares, respectively. Although currently there is no formal agreement among them, if voting together, they could control all decisions made by shareholders with respect to us. 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.

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

We have historically expanded our business primarily through acquisitions. We will continue to consider attractive acquisition opportunities that we believe may 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 or that the Central Bank will approve any such transaction without undue delay or at all. Additionally, our ability to obtain the desired effects of any such acquisitions will depend in part on our ability to successfully complete the integration of those businesses and capture expected synergies, of which there can be no assurance. The integration of acquired businesses entails significant risks, including customer retention, integration, valuation adjustments and liability assumption risks. Any integration process gives rise to costs and uncertainties and may strain management resources and business functions. The occurrence of any of the above may have a material adverse effect on our business, results of operations, cash flow or financial condition.

Increased competition in the banking industry may adversely affect our operations.

We expect that competition in the banking industry, particularly with respect to Pymes, 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 achieve.

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 Argentine 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. During 2014, the Central Bank established new limits on borrowing and lending rates. However, the net interest margin of the financial system remained stable due to a substantial growth both in loan and deposit portfolios. As of December 17, 2015 these limits were removed by the new administration.

We cannot guarantee that interest rate spreads will remain attractive unless increases in our volume of lending or additional cost-cutting takes place. A reversal of this trend 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 availability of tools, our employees may not be able to effectively implement our credit risk management system, which may increase our exposure to credit risk.

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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.

Cybersecurity events could negatively affect our reputation, our financial condition and our results of operations.

We depend on the efficient and uninterrupted operation of internet-based data processing, communication and information exchange platforms and networks, including those systems related to the operation of our automatic teller machine (“ATM”) network. We have access to large amounts of confidential financial information and control substantial financial assets belonging to our customers as well as to us. In addition, we provide our customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. Accordingly, cybersecurity is a material risk for us. Cybersecurity incidents, such as computer break-ins, phishing, identity theft and other disruptions could negatively affect the security of information stored in and transmitted through our computer systems and network infrastructure and may cause existing and potential customers to refrain from doing business with us.

In addition, contingency plans in place may not be sufficient to cover liabilities associated with any such events and, therefore, applicable insurance coverage may be deemed inadequate, preventing us from receiving full compensation for the losses sustained as a result of such a disruption.

Although we intend to continue to implement security technology devices and establish operational procedures to prevent such damage, we cannot assure you that all of our systems are entirely free from vulnerability and these security measures will be successful. If any of these events occur, it could damage our reputation, entail serious costs and affect our transactions, as well as our results of operations and financial condition.

An increase in fraud or transactions errors may adversely affect us.

Given the number of transactions that take place in a financial institution, although we have implemented numerous controls to avoid the occurrence of inefficient or fraudulent operations, errors can occur and aggravate even before being detected and corrected. In addition, some of our transactions are not fully automatic, which may increase the risk of human error or manipulation, and it may be difficult to detect losses quickly. Likewise, cybersecurity is a significant risk to us. Cybersecurity incidents or personal and confidential information may adversely affect the security of information stored and transmitted through the Issuer’s computer systems and may cause existing and potential customers to refrain from doing business with us.

As with other financial institutions, we are susceptible to, among other things, fraud by employees or outsiders, unauthorized transactions by employees and other operational errors (including clerical or record keeping errors and errors resulting from faulty computer or telecommunications systems). Given the high volume of transactions that may occur at a financial institution, errors could be repeated or compounded before they are discovered and remedied. In addition, some of our transactions are not fully automated, which may further increase the risk that human error or employee tampering will result in losses that may be difficult to detect quickly or at all. Losses from fraud by employees or outsiders, unauthorized transactions by employees and other operational errors could have a material adverse effect on us.

Argentine corporate disclosure and governance requirements differ from those regulating highly-developed capital markets, such as the United States, and differences in the accounting standards applicable in Argentina and the United States may make it difficult to compare our financial statements and reported earnings with companies in other countries, such as the United States.

As a foreign private issuer, the Bank applies disclosure policies and requirements that differ from those governing U.S. domestic registrants. The securities laws of Argentina that govern publicly listed companies, such us, impose disclosure requirements that are more limited than those in the United States. In addition, 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. See Item 16.G “Corporate Governance”.

Moreover, there are important differences between accounting and financial reporting standards applicable to financial institutions in Argentina and to those in the U.S. 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. See Item 5. “Operating and Financial Review and Prospects—U.S. GAAP and Central Bank Rules Reconciliation” for a description of the principal differences

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between Central Bank Rules and U.S. GAAP and how they affect our financial statements and note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 for a summary of significant differences between Central Bank Rules and U.S. GAAP.

On February 12, 2014, the Central Bank, through Communication “A” 5541, established the general guidelines towards conversion to the IFRS issued by the International Accounting Standards Board (IASB) for preparing financial statements of the entities under its supervision, for the annual fiscal years beginning on January 1, 2018, as well as those of interim-periods. We are in the process of implementing such IFRS conversion process. See note 7 to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

If we should fail to comply with all applicable banking and securities laws and regulations or detect money laundering and other illegal or inappropriate activities in a comprehensive or timely manner, our business interests and reputation may be harmed.

We must be in compliance with all applicable banking and securities laws and regulations. In recent years, the Argentine government and relevant governmental agencies have modified policies and mechanisms of control over financial activity, as well as the parameters surrounding monetary and disciplinary penalties that may affect our results of operations and reputation.

For example, on November 29, 2012, the Argentine Congress passed Law 26,831 (the “Capital Markets Law”), which modified the public offer regime set forth by Law No.17,811, as amended. One of the most significant amendments introduced by refers to the powers of the CNV. The incorporation of Section 20 has raised concern in the market, especially among listed companies, as it entitles the CNV to (i) appoint supervisors with powers of veto on resolutions adopted by a company’s board of directors and (ii) disqualify a company’s board of directors for a period of 180 days when, as determined by the CNV, the interests of the minority shareholders and/or security holders are infringed. In addition, pursuant to section 51 of the Capital Markets Law, the CNV may suspend registered broker agents on a preventive basis, as ocurred during the first quarter of 2015 to several financial system entities, including with Banco Macro and our subsidiary Macro Securities. For more information see Item 8. “Legal Proceedings”.

In addition, anti-money laundering laws and regulations require, among other things, that we adopt and implement control policies and procedures which involve “know your customer” principles that comply with the applicable regulations and reporting of suspicious or unusual transactions to the applicable regulatory authorities. While we have adopted policies and procedures intended to detect and prevent the use of our network for money laundering activities and by terrorists, terrorist organizations and other types of organizations, those policies and procedures may fail to fully eliminate the risk that we have been or are currently being used by other parties, without our knowledge, to engage in activities related to money laundering or other illegal activities.

To the extent that we do not comply with applicable banking and securities laws and regulations or we don’t detect illegal activities from an anti-money laundering or other standpoint, the relevant governmental agencies (including the Central Bank, the CNV and the UIF) are authorized and empowered to impose fines, suspensions and other penalties on us. In particular, pursuant to Communication “A” 5785, as amended, sanctions imposed by the Central Bank, the UIF, the CNV and/or the National Superintendency of Insurance on financial institutions and/or their authorities, may result in the revocation of their licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the board of directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of (i) the members of a financial institution’s Board of Directors (directors, counselors or equivalent authorities), (ii) its shareholders, (iii) the members of its supervisory committee and (iv) others, such as its managers.

We cannot assure you that relevant governmental agencies will not continue to impose penalties or that such penalties will not adversely affect our business, reputation, 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 capital remaining after the distribution of dividends must be sufficient to meet the regulatory capital increased by 75%. See “—Risks relating to the Argentine financial system – Governmental measures and regulatory framework affecting financial entitites could have a material adverse effect on the operations of financial entities”.

Since January 2016, pursuant to Central Bank Communication “A” 5827, additional capital margin requirements have to be complied with, including a capital conservation margin and a countercyclical margin. The capital conservation margin shall be 2.5% of the amount of capital RWA, in the case of entities considered D-SIB, like us, and the margin will be increased to 3.5% of the amount of capital RWA. The countercyclical margin shall be within a range of 0% to 2.5% of RWA, but Central Bank Communication “A” 5938, established countercyclical margin of 0% as of April 1, 2016. This margin can be reduced or cancelled by the Central Bank upon its determination that the systematic risk has been diminished.

Since January 2015, Central Bank Communication “A” 5827, as amended, has required that financial entities must make an accounting entry of any administrative and/or disciplinary penalties and adverse criminal judgments pending before the courts, provisioning 100% of the respective penalty provided under each such action until payment is made or a final judgment is entered. Pursuant to Central Bank

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Communication “A” 5827 this provisioned amount must also be deducted from the distributable amount. In April 2016, the Central Bank issued Communication “A” 5940, pursuant to which the financial entities that, as of the date thereof, had an amount for such penalties and judgments registered in the account “Provisions – For administrative, disciplinary and criminal penalties,” must analyze, according to the enforcing legal reports, if each such penalty meets the conditions for its total or partial accountable registration, according to the provisions in the “Accounts Plan and Manual” issued by the Central Bank (which set forth that penalties must be probable and that their amount can be reasonably estimated).

For fiscal years ended December 31, 2011 and 2012, we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank regulations. We did reach such regulatory threshold for fiscal years ended December 31, 2013 and 2014. For fiscal year 2014 and 2015 we obtained authorization from the Central Bank to distribute dividends and distributed such dividends in March 2016 and August 2016, respectively. In addition, we have met the regulatory threshold for the fiscal year ended December 31, 2016 and are currently awaiting Central Bank and shareholder’s meeting approval to pay the relevant dividends accordingly.

No assurance can be given that in the future we will be able to reach the regulatory threshold or that, even if we are able to do so, the Central Bank will continue to grant us the authorization to distribute dividends 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 16 to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

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, U.S. 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 of 1933 (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.

Changes in the Argentine tax laws may adversely affect the results of our operations and the tax treatment of our Class B shares and/or ADSs.

On September 23, 2013, Law No. 26,893 amending the Argentine Income Tax Law (as amended by Decree 649/97 and its subsequent modifications, the “Income Tax Law”) was enacted. According to the amendments, the sale, exchange or disposition of shares and other securities not traded in or listed on capital markets and securities exchanges is subject to income tax at a rate of 15% when the income is obtained by Argentine resident individuals or by foreign beneficiaries (in the case of foreign beneficiaries, the capital gain tax could apply at a 13.5% rate on the gross price or 15% rate on actual net income, unless a treaty to avoid double taxation provides a reduced capital gains rate). These amendments were regulated by Decree 2334/2013. See “Taxation—Material Argentine tax considerations relating to our Class B shares and ADSs”. However, as of today, many aspects of this capital gain tax remain unclear. Pursuant to certain announcements made by Argentine tax authorities, the capital gain tax would be subject to further regulation and interpretation, which may adversely affect our results and the results of our subsidiaries, as well as the tax treatment of our Class B shares and/or ADSs.

The source of income derived from the sale of ADSs, distribution of dividends or exchanges of shares from the ADS facility may not be uniform under the revised Argentine income tax law. The possibly varying treatment of source income could impact both Argentine resident holders as well as non-Argentine resident holders. In addition, should a sale of ADSs be deemed to give rise to Argentine source income, as of the date of this annual report no regulations have been issued regarding the mechanism for paying the Argentine capital gains tax when the sale exclusively involves non-Argentine parties. As of the date of this annual report, no administrative or judicial rulings have clarified the ambiguity in the law.

Therefore, holders of both our Class B shares and ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences under their specific facts.

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 incorporated within the City of Buenos Aires 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.

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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 nor can we assure of the price at which the Class B shares or the ADSs may be sold in any such market.

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 and can be more volatile than major securities markets in the United States, and is not as highly regulated or supervised as such other markets. There is also significantly greater concentration in the Argentine securities market than in major securities markets in the United States. As of December 31, 2016, the ten largest companies in terms of market capitalization represented more than 84% of the aggregate market capitalization of the MERVAL). 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.

We are traded on more than one market, which may result in price variations and investors may not be able to easily move shares for trading between such markets.

The trading prices of our ADSs and our Class B shares may differ on different markets due to various factors. Any decrease in the price of our Class B shares on the MERVAL or the Mercado Abierto Electrónico (“MAE”) could cause a decrease in the trading price of the ADSs on the NYSE. Investors could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying Class B shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.

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 the 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.

Payments on Class B shares or ADSs may be subject to FATCA withholding.

Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a “foreign financial institution” may be required to withhold on certain payments it makes (“foreign pass thru payments”) to persons that fail to meet certain certification, reporting, or related requirements. We are a foreign financial institution for these purposes. A number of jurisdictions have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA (“IGAs”), which modify the way in which FATCA applies in their jurisdictions. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Class B Shares and the ADSs, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Class B shares or the ADSs, are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Class B Shares and the ADSs, such withholding would not apply prior to January 1, 2019. Holders should consult their own tax advisors regarding how these rules may apply to their investment in the Class B Shares and the ADSs.

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, City of 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.

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Our history – Banco Macro S.A.

Banco Macro commenced operations as a non-banking financial institution in 1985, through the acquisition of Macro Compañía Financiera S.A. (created in 1977). 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.”

From then onwards and up to 1995, Banco Macro operated as a wholesale bank, being a pioneer in corporate bonds issuances. It mainly acted in the areas of money markets, trading of government and corporate bonds and financial services for medium and big companies.

Since 1994, Banco Macro has substantially changed its business strategy, focusing on retail banking in market areas with a low level of banking transactions and high growth potential, particularly in 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, including Banco Misiones, Banco Salta and Banco Jujuy.

In 2001, 2004, 2006 and 2010, Banco Macro acquired control of Banco Bansud S.A., Nuevo Banco Suquía S.A., Nuevo Banco Bisel S.A. and Banco Privado de Inversiones S.A., respectively, expanding through these acquisitions its presence in the south and center of the country. Such entities merged with us on December 2003, October 2007, August 2009 and December 2013, respectively. In addition, during 2006, Banco Macro acquired control of Banco del Tucumán S.A.

We currently offer traditional bank products and services to companies, including those operating in regional economies, as well as to individuals, thus reinforcing our objective to be a multi-service bank.

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

Our shares have been publicly listed on the MERVAL since November 1994, and on the NYSE since March 24, 2006 and have been authorized to list on the MAE since October 2015.

Investment in property

In 2011 we acquired from the Government of the City of Buenos Aires a site located at Av. Eduardo Madero No. 1180, in the City of Buenos Aires, for an aggregate amount of Ps.110 million. We have developed a project to build our new corporate offices on this site. Work was initiated in 2012 and is expected to be complete by 2017. As of December 31, 2016 the total aggregate amount invested in the project was Ps.1,211.2 million (approximately US$122.5 million at the applicable exchange rates at the end of the month as of the respective dates of such investments). The total cost of this project, is estimated at approximately US$170 million.

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

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 Pymes, 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 November 30, 2016, we were ranked first in terms of branches and equity, third in terms of total loans and fourth in terms of total deposits among private banks in Argentina.

As of December 31, 2016, on a consolidated basis, we had:

• Ps.154,999.0 million (US$9,779.0 million) in total assets;

• Ps.86,540.4 million (US$5,459.9 million) in loans to the non-financial private sector and foreign residents;

• Ps.111,939.7 million (US$7,062.4 million) in total deposits;

• approximately 3.3 million retail customers and 0.1 million corporate customers; and

• approximately 1.6 million employee payroll accounts for private sector customers and provincial governments and 0.8 million retiree accounts.

Our consolidated net income for the year ended December 31, 2016 was Ps.6.540,8 million (US$412.7 million), representing a return on average equity of 34.1% and a return on average assets of 5.2%.

In general, given the relatively low level of banking intermediation in Argentina, 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 and 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 retail customers and Pymes 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.

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Our competitive strengths

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

• Strong financial position. As of December 31, 2016, we had excess capital of Ps.17,522.1 million. (22.1% 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, 2016, we had obtained profitability for the last 60 consecutive quarters, the only bank with such a track record in Argentina, with a return on average equity of 33.4%, 37.2% and 34.1% for the years ended December 31, 2014, 2015 and 2016 compared to 32.7%, 32.4% and 29.7%, respectively, for the Argentine banking system as a whole.

• Strong shareholders’ equity. Our shareholders’ equity as of December 31, 2014, 2015 and 2016 as calculated under Central Bank Rules, was Ps.11,491.8 million, Ps.15.877,6 million and Ps.22,105.9 million, respectively, and our shareholders’ equity under U.S. GAAP at December 31, 2014, 2015 and 2016 was Ps.11,418.5 million, Ps.15,873.2 million and Ps. 22,303.9 million, respectively.

• Strong presence in fast-growing target customer market. We have achieved a leading position with low- and middle-income individuals and among Pymes, generally located outside 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. Our focus is particularly on 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 benefited from the export-driven growth in the Argentine economy.

• Largest private-sector branch network in Argentina. With 444 branches and 1,395 ATMs as of December 31, 2016, 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.

• Loyal customer base. We believe that our customers are loyal to us due to our presence in traditionally underserved markets and 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 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 committed shareholders who have transformed us from a small wholesale bank to one of the strongest and largest banks in Argentina and by a senior management team with large experience in the banking industry.

Our strategy

Our competitive strengths position us to better participate in the future development of the Argentine financial system.

We operate in accordance with our sustainability policy based on five business-related strategic pillars that affect all our clients, establishing a short-, medium- and long-term sustainability strategy. Our strategic sustainability pillars are:

• Financial inclusion and education: encouraging the use of banking products and accessibility, focused on lower income sectors and the financial education of all communities.

• Direct and indirect environmental effect: encouraging the protection of the environment and society, both internally and in our value chain.

• Responsibility for the wellbeing and inclusion of people: aiming to improve the quality of life of individuals, we support the professional development of our staff and encourage diversity and inclusion.

• Development of Pymes and enterprises: accompanying our clients in the development of their businesses, offering customized products services and providing knowledge, advice and the best customer service.

• Transparency in all our actions: in order to create a framework of trust and credibility for all our interest groups, in compliance with the main national and international transparency and management responsibility standards and best practices.

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Our goal is to promote our overall growth 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 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.

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 Pymes, most of which have traditionally been underserved by the Argentine banking system and are generally located outside 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.

• Further develop branch network. We seek to further expand our branch network management model and the development of the network by opening new branches, reinforcing local business opportunities and targeting support and sale points in accordance with the specific needs of our clients.

• 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:

• 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. Increase corporate financing by means of a wide offer of credit and transaction products that suit each client’s profile and needs.

• 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.

• Strengthen our market share in credit cards by increasing promotional activity and benefits for clients.

• Further expand the use of automatic channels both in customer acquisition and retail products, increasing operational efficiency.

• Further expand the development of the customer service support, granting them different means to carry out financial transactions without time limits, in a total secure, simple and comfortable manner.

• Grow our high-end customer base through our Selecta product suite.

• Focus on new sustainability objectives. We intend to focus on new sustainability objectives in line with our business, in the fundamental areas of the Bank and further expand such initiatives.

• Look for growth opportunities. As we have done in the past, we expect to continue looking for opportunities to grow our bank and evaluate from time to time assets that may become available in our sector.

Our products and services

We provide our customers with a combination of standard products and services that are designed to suit individual needs. We have two broad categories of customers: (i) retail customers, who include individuals and (ii) corporate customers, which include small, medium and large companies and 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 and do not manage the Bank by segments or divisions or by customer categories, products and services, regions, or 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

We serve our retail customers with the objective of satisfying their financial needs, whether savings, transactional or funding. Retail customers are classified according to their labor condition or their main income source, in the following categories: Plan Sueldo (Salary Plan), Retired, Open Market and Professionals and Business. We provide services to them throughout Argentina, in particular in areas outside the City of Buenos Aires, which have 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 the City of Buenos Aires.

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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, 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 22% currently have a personal loan from us and only 39% currently have a credit card. We believe there is strong potential to increase these percentages.

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

Our main goals for the retail bank are to keep our leading position in personal loans, increase our market share in the credit cards business, using this product as a tool to strengthen relations with customers, improve credit quality ratios and promote a diversified time deposit portfolio and to generate a strong and stable fee base.

In this regard, and aiming to continue growing in the credit card market, we intensified efforts to increase consumption and total assets. We also improved the use of our clients’ information as a tool to implement better cross selling, client retention and default prevention commercial actions.

In 2016, the market share of our consumer financing product lines remained stable, as did our personal loan portfolio and we experienced significant growth in our credit card products.

Savings and checking accounts and time deposits

We generate fees from providing 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.

Our commercial and customer bonding actions enable us to achieve growth in the deposit portfolio above market levels, mainly due to an increase in time deposits of retail customers which intensified funding diversification. The deposits portfolio to individuals grew by 25% in 2014, 55% in 2015 and 62% in 2016, accounting for 64% of total deposits as of December 31, 2016.

Accounts and account packages are the primary channels for cash deposits and are two of the main drivers of fee income. For this reason, we focus on the life cycle of the account packages, promoting loyalty measures and retention of our products.

In 2013 the payment of governmental family credits into bank accounts was implemented, resulting in the opening of over 45,000 accounts and the issuance of associated debit cards. In 2014 we recorded an increase in accounts of approximately 180,000, or 7%. In 2015, the number of retail accounts increased by 17% and in 2016 by 11%.

In 2016, we implemented the opening of special savings account, which required customers only to provide their natural identity card, with the aim of introducing into the banking system those individuals who still do not have any accounts in the financial system. Furthermore, we launched new functionalities in “Home Banking” and established a customer call center so that our clients can open accounts and request the cancellation of products through this channel.

Within the framework provided by the Tax Amnesty Law No. 27.260, in 2016 we also worked on opening special accounts and accepting deposits in accordance with the options available to clients under the applicable regulations.

Our “debit card” service is critical within the framework of our strategy to increase customer transactions by encouraging the use of accounts. Debit card services also help to develop account balances into transactional accounts, as deposits increase, thereby expanding our demand deposit base. With respect to transactional accounts, the monetary volume of purchase transactions increased by 45%, 51% and 43% in 2014, 2015 and 2016, respectively. In 2016, the number of debit cards we issued increased by 13%.

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The following table reflects the number of retail accounts as of December 31, 2014, 2015 and 2016:

	Approximate number of retail accounts (as of December 31, of each year)
Product	2014		2015		2016
Savings
Total savings accounts		2,340,533		2,725,792		2,994,846
Plan Sueldo (private and public sector)		1,209,496		1,365,612		1,516,176
Retirees		700,340		711,514		763,028
Open market, professionals and business		430,697		648,666		715,642
Checking
Checking accounts		610,184		713,577		809,240
Electronic account access
Debit cards		2,327,188		2,558,520		2,928,969

Lending products and services

We offer personal loans, document discounts, residential 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 low- and middle-income individuals. We also plan to continue to cross-sell our retail lending products to our existing customers, particularly targeting those who may choose to open savings and checking accounts with us because we already provide their payroll and pension services.

During 2014, our retail loan portfolio increased by 21%, as compared to 2013, maintaining the second position among other institutions in the financial system in terms of volume of personal loan and credit card portfolios.

In 2014, our personal loan portfolio increased by 16%, allowing us to maintain our leading position with a market share of 14%, with such growth primarily due to our continuing with the mass communication strategy started in 2013. In addition to the communication tools already used by us, mainly based on mobile devices, we added the “pre-approved loan notice” alert on our Home Banking page. With the aim of improving service and streamlining the granting of loans, we utilized internal campaigns to encourage lending through automatic channels.

Our credit card business grew significantly in 2014, with the portfolio balance increasing by 35% and consumption increasing by 43% as compared to 2013. During the year, we carried out a vigorous telemarketing program, with the aim of improving benchmarks, including product activation, increased consumption and higher limits. Efforts were made to improve efficiency and reduce service costs, resulting in a material increase in the number of accounts subscribing to our e-account statement service. During 2014, we observed a significant increase in the profitability of our credit card products, due to the implementation of a strategy aimed at increasing fees and reducing funding costs while not affecting business volumes.

In 2015, our retail loan portfolio increased by 47%, our personal loan portfolio grew by 44% and our credit card portfolio increased by 60%, in each case as compared to 2014.

During 2016 we continued working on the promotion of an inclusive financial system, with a special focus on improving the accessibility of people with a low level of participation in the banking sector. We also worked to increase the personal loan portfolio and the volume of sales through alternative channels. We maintained our position in credit cards in terms of consumption and total assets, positioning it as a strategic product in the capture of customers. The PROCREAR Program is an Argentine government initiative aimed at boosting economic activity, creating jobs and providing solutions to the housing problems of low-income families (the “PROCREAR Program”). Additionally, we launched a new line of mortgage loans in adjustable purchase value units, or UVAs (an inflation adjustment unit), which allowed us to be part of the PROCREAR Program Own House Solution, for beneficiaries selected by ANSES. We also continued to encourage the granting of loans through automatic channels, with the objective of making life easier for our clients and facilitating their immediate access to loans, without having to visit our physical branches.

As of December 31, 2016, our retail loan portfolio accounted for 57% of our total loan portfolio. Our personal loan portfolio grew by 28% and our credit card portfolio grew by 30% compared to 2015.

We are one of the major credit card issuers in Argentina, with approximately 2.6 million credit cards in circulation for retail costumers as of December 31, 2016. One of our initiatives to expand lending is to encourage low- and middle-income customers to use credit cards for larger amount purchases.

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As of December 31, 2014, 2015 and 2016, our consumer loan portfolio was as follows:

	Consumer loan portfolio
	(as of December 31, of each year)
	(in millions of Pesos and as percentage of consumer loan portfolio)
	2014				2015				2016
Overdrafts		251.1	0.9	%		290.2	0.7	%		368.0	0.7	%
Documents		443.7	1.6	%		591.7	1.5	%		947.5	1.9	%
Mortgage and pledged loans		959.3	3.6	%		1,014.7	2.6	%		1,127.1	2.2	%
Credit card loans		8,554.9	31.8	%		13,661.9	34.5	%		17,796.0	34.8	%
Personal loans		16,401.5	61.0	%		23,688.9	59.8	%		30,280.4	59.3	%
Other		289.7	1.1	%		384.8	1.0	%		550.0	1.1	%
Total		26,900.2	100.0	%		39,632.2	100.0	%		51,069.0	100.0	%

As of December 31, 2016, personal loans, which comprise the largest share of our consumer loan portfolio, carried an annual average interest rate of 37.5% and an average maturity of 50.2 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, 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 to the private sector for a total aggregate of 2.3 million retail clients (including retirees). Our Plan Sueldo payroll services provide us with a large and diversified deposit base with significant cross-selling potential.

Corporate customers

Overview

Legal and natural persons of the private non-financial sector that develop commercial and/or industrial activities are included in the corporate customer category. 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 classification by size and sector. We have four categories for our corporate customers: (1) small companies, which register up to Ps.200 million in sales per year; (2) medium-sized and large companies, which register more than Ps.200 million and less than Ps.800 million in sales per year; (3) agro companies, which include individuals and companies who operate in agriculture or in the commerce of agricultural products and (4) corporates which register more than Ps.800 million in sales per year.

We support productive activities through the promotion of development, new trends and innovation, since our goal is to continue offering the best services for market participants active in agriculture, industry and commerce. Based on values of close customer relationships, effort, hard work, dedication and community, we offer financing lines according to each customer profile that contribute to their growth, their development and that of their communities.

As in previous years, in 2016 we continued developing our decentralized segment-specific service strategy aimed at improving customer service. At present, we have a network of branches with business officials specialized in each category, offering a wide range of products, including working capital facilities, and credit for 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 large corporate customers. See Item 5.B “Operating and Financial Review and Prospects—Liquidity and Capital Resources”.

Lending products and services

Most of our current lending activity consists of working capital loans to Pymes. Our historic focus on Pymes has enabled us to diversify our credit risk exposure, by granting smaller-sized loans to clients in diverse business sectors. As of December 31, 2016, our 20 largest private sector loans accounted for 7% 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 facility 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-sized companies, our policy is to require personal guarantees from the owners, although the underlying debtor rating remains unchanged.

In 2014, our corporate loan portfolio (without loans to large companies) increased by 17%, driven by an increase in pledge loans, discounted checks, work progress certificates and credit cards. This increase was offset by a 28% decrease in the large companies loan portfolio.

In respect of agribusiness banking, the weather in 2014 was not as harsh as in 2013, resulting in increased yields of traditional crops. In areas with higher productive potential, yields were in line with historical average values and in certain areas poor yields recorded in the two previous years were reversed. However, the general profitability of the sector is still affected by taxation and export controls, resulting in stagnation of business activity.

During 2014 we served the financial needs of more than 15,000 agricultural producers, such as providing working capital financing, including approximately 1,000 investment projects totaling over Ps.578 million through our program “Credit Facilities for Productive Investments. Additionally, measures adopted in connection with our credit product “Macro Agro Cards”, were especially important, resulting in a more effective activation of accounts and an increase in consumption volumes and portfolio balances of 51% and 62%, respectively, in 2014, mainly as a result of the new alliances with such agricultural producers. Loans to agribusiness companies grew by 14% in 2014 as compared to 2013.

In 2014, the loan portfolio for Pymes increased by 22%, mainly due to the increase in discounted checks, pledged loans and other advances. Through our program “Credit Facilities for Productive Investments”, we funded venture projects for over 1,500 companies in an aggregate amount of Ps.935 million. In this regard, our strategy of offering a wide range of products with a fast approval process was essential in reaching more clients,.

In 2014, our medium-sized companies loan portfolio increased 14%, as compared to 2013.

In 2015, we focused on expanding our leadership in the corporate banking business.

We focused on supporting the development of Pymes and local businesses. The greater portion of the Credit Facilities for Productive Investments Program was assigned to this group of clients, supporting investment projects that further develop these businesses and their related communities.

We forged strategic partnerships with the corporate banking sector, urging entities in this sector to offer high quality products to our Pymes clients. We created the Comunidad de Negocio (“Business Community”) concept, a management model that allowed us to increase our Pymes loan portfolio by 48% in the amount of granted credits. We also created specific credit facilities for Pymes.

In 2015, we developed specific credit lines for medium-sized and large companies. For large companies, we were able to increase the penetration of Plan Sueldo (Salary Plan) accounts by embracing the geographic distribution of the network and our relationship with large companies.

In 2015, in relation to the agribusiness sector, we focused on positioning ourself as a Banco de Proximidad (local bank), forging stronger relationships with producers by means of periodic meetings with our clients in strategic zones.

Our “Macro Agro Credit Cards” product presented significant growth in 2015, gaining the greatest increase in market share of similar products. We continued supporting local economies with customized products for the tobacco, sugar and yerba sectors.

We created strategic partnerships with large suppliers, which enabled our clients to purchase inputs at minimal financial cost. This was very beneficial for segments with seasonal activities.

We relaunched our credit line for the development of regional exports related to the Argentine Federal Investment Commission. In 2015, under this program, eleven transactions were closed totaling Ps.6.7 million.

As result of these measures, in 2015 the commercial loan portfolio increased by 34%, as compared to 2014. Loans to small and medium-sized companies increased by 47% in 2015, as compared to 2014, primarily due to a 53% increase in documents and a 62% increase in mortgage loans. Loans to agribusiness companies grew by 42% in 2015, as compared to 2014, primarily due to a 68% increase in credit card loans, a 46% increase in documents and a 47% increase in mortgage loans. The medium-sized and large companies loan portfolios increased by 30% and 2%, respectively, as compared to 2014.

During 2015 we provided Ps.3.0 billion in financing through our Credit Facilities for Productive Investments program. As of December 31, 2015, the total amount outstanding was Ps.6.3 billion.

As of December 31, 2016, the comercial loan porfolio accounted for 43% of the total loan porftolio, including loans to the financial and public sector, that accounted for 4%. In 2016, our focus was Pymes and regional businesses, working to offer products and services tailored to each company profile, primarily based on size and the location of operations. In 2016, our management has been focused on growing this segment and consolidating our relationships with existing clients.

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We supported the growth of Pymes through the development of businesses and sustainable links throughout the country. The geographic distribution, proximity, personalized attention and the knowledge of our clients and the regional economies allow us to detect their needs and support them in the financing of their projects, as well as to provide transactional solutions for the management of their payments and collections.

We have continued with actions aimed at financing small-scale client producers and suppliers of the value chain of our Megra customers. Among these actions are agreements with large companies buying yerba mate in the northeast region of Argentina and the tobacco companies of Salta and Jujuy.

Within our Corporate Banking division (“Corporate Banking”), we sought to strengthen our relationship with existing and new clients, in order to position ourselves as one of the main banks in the corporate banking sector. This allowed us to provide specialized assistance to each of the companies which constitute the different value chains, with products tailored to their needs. In addition, we worked together with our Retail Banking division and our network of branches to increase the base of Plan Sueldo and increase our market share in credit products.

Regarding our Agro Banking division (“Agro Banking”), we continued to support regional economies with tailor-made products for sectors such as tobacco, sugar and yerba mate, by financing all value chains from the primary producer to the industrial producer.

Through the “Instant Line of Credit” program for microentrepreneurs and Pymes throughout the country and with the objective of financing working capital, we offer existing and new customers the possibility of requesting instant credit, with minimum approval requirements. This line of credit is intended to finance working capital, for a maximum amount of up to Ps.$1,500,000 and offers discount deferred payment checks, current account agreement, single signature loan, the opportunity to apply for a Macro Agro Credit Card and foreign trade financing.

We provide access to credit to Pymes and microenterprises through different account packages and the Line of Production Investment. Likewise, we offer the “Prenda Ágil” product for the financing of roads and agricultural machinery for Pymes.

In the area of foreign trade, our digital e-Comex service should be highlighted as during 2016 it experienced growth in operations and an increase in customers of 161% as compared to 2015.

In addition, strategic alliances were created with large supplier companies that allow our customers to access purchases of inputs with reduced financial cost. As of December 2016, more than 30 agreements were signed with manufacturers or concessionaires for U.S. dollar credit lines to finance the purchase of agricultural machinery.

In 2016, total loans from the commercial portfolio increased by 60% compared to 2015. This growth was led by Corporate Banking, which recorded an increase in its loan portfolio of 229%, mainly for advances and foreign trade lines. Furthermore, our small business loans portfolio (including microenterprises) increased by 32% in 2016, our Agro portfolio increased by 30% and our Megra portfolio increased by 21%, in each case in 2016 as compared to 2015.

As of December 31, 2014, 2015 and 2016, our commercial loan portfolio was as follows:

	Commercial loan portfolio (1)
	(as of December 31, of each year)
	(in millions of Pesos and as percentage of commercial loan portfolio)
	2014				2015				2016
Overdrafts		3,261.9	18.1	%		4,547.8	18.8	%		8,747.6	22.6	%
Documents		4,115.6	22.8	%		5,823.7	24.1	%		10,125.9	26.1	%
Mortgage and pledged loans		3,483.6	19.1	%		4,782.4	19.8	%		5,429.0	14.0	%
Credit cards		634.6	3.5	%		1,131.4	4.7	%		1,055.5	2.7	%
Personal loans		14.2	0.1	%		14.8	0.1	%		22.4	0.1	%
Other		6,516.3	36.1	%		7,896.0	32.6	%		13,353.9	34.5	%
Total		18,026.1	100.0	%		24,196.1	100.0	%		38,734.4	100	%

(1) Including loans to micro credit institutions and commercial loans that, for the consolidated statements of debtors, was included as consumer portfolio following the criteria described in “-Argentine Banking Regulation – Credit Portfolio”.

Transaction services

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

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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 444 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 (“Datanet”), which is an electronic banking network linking member banks in Argentina. This service permits our clients to obtain reliable online information on a real-time basis from their bank accounts in Datanet as well as, to perform certain transactions.

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: Salta, Misiones, Jujuy and Tucumán. These contracts expire in 2026, 2019, 2024 and 2021, respectively.

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

Our distribution network

As of December 31, 2016, we had the largest private sector branch network in the country, with 444 branches spread throughout Argentina. In particular, in line with our strategy of expanding nationally, we have extensive coverage in the Argentine provinces with 93% of our branches located outside the City of Buenos Aires. Furthermore, as of December 31, 2016 we had 1,395 ATMs, 920 self-service terminals (“SSTs”) and several service points used for social security benefit payments and servicing of checking and savings accounts and internet home banking service (“Home Banking”).

The following table breaks down the distribution of our branches per province as of December 31, 2016:

	As of December 31, 2016
Province	Branches	% of total
City of Buenos Aires	31		7	%
Buenos Aires (Province)	59		13	%
Catamarca	1		0	%
Chaco	1		0	%
Chubut	5		1	%
Cordoba	69		16	%
Corrientes	3		1	%
Entre Rios	10		2	%
Formosa	0		0	%
Jujuy	15		3	%
La Pampa	2		0	%
La Rioja	2		0	%
Mendoza	15		3	%
Misiones	34		8	%
Neuquen	5		1	%
Rio Negro	6		1	%
Salta	35		8	%
San Juan	1		0	%
San Luis	1		0	%
Santa Cruz	2		0	%
Santa Fe	107		24	%
Santiago del Estero	2		0	%
Tierra del Fuego	2		0	%
Tucuman	36		8	%
TOTAL	444		100.0	%

Source:Central Bank

Technology and automated channels

Our 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 the last few years we have focused on automatic channels, giving customers more accessible and flexible services. As a result, the use of automated channels continued to expand, both in terms of volume of transactions and number of users.

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In 2016 the number of transactions made through automatic channels increased by 27% compared to 2015.

New actions were implemented to maintain high security, service quality and availability standards in our ATM network through preventive management and training strategies. We increased the number of ATMs with cash recognition and online deposit crediting, as well as the number of ATMs with voice guidance for the blind or vision impaired. We also implemented a new system that allows cash withdrawals from the ATM without a debit card, using only a code created by the Macro Banca Móvil mobile application. This has placed us in a leading position as to service quality, which is particularly important given the number and geographical dispersion of our ATMs.

Furthermore, we continued strengthening and updating the technology offered at our ATMs, reaching a total of 1,395 operating ATMs, representing one of the widest reaching networks in Argentina. In 2016, the amount transacted through ATMs increased by 16% compared to 2015.

We have SSTs terminals distributed in our branch network across Argentina, offering an ample variety of operations, including the possibility of making deposits twenty-four hours a day, every day, all year long. In 2014, we incorporated the smart check deposit functionality. This development has been beneficial both to us, increasing efficiency by reducing operating tasks in branches, and to clients, increasing safety and reducing transaction times. In 2016, the amount transacted through SSTs increased 34% compared to 2015. As of December 2016, we had 920 SSTs installed.

In respect of Home Banking, we have implemented a collections service for companies offering the following benefits: security (no cash or checks are transported to the branch), practicality (easy and safe, backup of receipts in a PDF file, possibility to review the history of payments and receipts), accessibility (from any computer) and no additional cost. We also use Home Banking to inform our retail customers about the possibility of getting a personal loan, the amount available and how to apply for it. The transactions performed through Home Banking increased by 30% in 2016.

Our Macro Banca Móvil channel has developed significantly in the last three years. In line with the characteristics of the users and the technological trends supporting the development of the service, the Macro Banca Móvil application is available in the main virtual stores of the principal operating systems.

The significant and sustained increase in the number of users and transactions performed by automated channels evidences the effectiveness and level of acceptance of these services in the market.

Risk management policies

To comply with the “Risk Management Guidelines for Financial Institutions” set forth under Communication “A” 5203, as amended, we have adopted various measures at our organizational structure level and have implemented procedures to ensure the establishment of an independent risk management process.

Our Board of Directors created a Risk Management Committee (the “Risk Management Committee”) and appointed a Comprehensive Risk Manager (the “Comprehensive Risk Manager”) and made them responsible for coordinating the application of risk management policies and the relevant responsible officers. For more information, see Item 6.C “Board Practices”.

The Comprehensive Risk Manager coordinates the heads of financial risk, credit risk and operational risk, who are in charge of implementing the guidelines contained in the risk management framework policy.

Our risk management framework policy establishes the environment for the risk management process under the notions of risk identification, measurement, monitoring and mitigation. In addition, it lays out the duties of each organizational level in the process.

Our risk management process includes setting of acceptable risk levels by our Board of Directors, monitoring of our compliance with such levels by responsible officers, the issuance of regular reports for the Risk Management Committee, follow up on alerts and the application of action plans in connection with such alerts and the guidelines for the development of stress tests, which commenced in 2013 based on an action plan approved by the Risk Management Committee.

The stress test development process we established includes documenting and formalizing the program, including selecting the persons in charge of carrying out the program, the frequency of testing and validation of the system. It also contemplates the contingency plan based on test results. The Risk Management Committee leads and coordinates these tasks.

Additionally, the system is supplemented with policies and procedures specific to each risk (financial, credit, operational, counterparty credit, country risk, securitization, reputational, compliance and strategic risks, among others).

Economic capital estimate

Economic capital is the estimated amount of unexpected losses identified for each one of the individual risks (financial, credit, counterparty credit, concentration, operational, securitization, strategic and reputational) determined for us on a consolidated basis.

Starting in January 2014, we implemented a formal procedure for quantifying economic capital, both current and prospective, and it is a tool used in the day-to-day management of risks, in preparing the business plan and in the stress tests.

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The methods used to measure the economic capital of each risk were documented and approved by management, pursuant to the internal rules on corporate governance and risk management.

The most significant risks we manage are financial risk, credit risk and operational risk.

Financial risk

Financial risk consists of liquidity, market and interest rate risks, which, independently or in an interrelated manner, can affect our liquidity and solvency.

We have strategies, policies and limits defined for each exposure which have been approved by our Board of Directors within the framework of market, liquidity and interest rate risk management. This process is reviewed periodically by the Risk Management Committee in accordance with the guidelines set forth by the Central Bank.

The purpose of the financial risk policy is to ensure that the Risk Management Committee and senior management have the proper procedures, tools and information to enable them to measure, manage and control the applicable risks.

For more information on financial risk definition and management processes see note 18 “Risk management policies” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Credit risk

Credit policy and credit risk management

The Credit Risk Management Committee is responsible for establishing the policies and procedures for risk management and monitoring our senior management’s activities involving the management of credit risks, among others. It advises our Board of Directors on our risks.

Our Credit Risk Management area is in charge of interpreting, executing and guaranteeing the application of our General Credit Policy approved by our Board of Directors, ensuring proper identification, assessment, control, follow-up and mitigation of credit risk.

Credit risk results from the possibility of loss derived from customers or counterparties from fully or partially breaching financial obligations they have undertaken with us.

We have counterparty and credit risk policies and strategies, the purpose of which are to ensure that risks fall within a risk tolerance level as determined by our Board of Directors and regulators.

Credit risk rating and approval process

In order to determine the credit risk, our Credit Risk Department qualifies each individual or company by means of a risk rating model, assigning a rating to each debtor, taking into consideration quantitative as well as qualitative concepts. The Credit Risk Department has focused its actions on increasing the quality and efficiency of the credit risk rating process.

There are specific policies and procedures for loan granting for corporate and retail customers, which differ according to the segment to which they belong (public or private payroll, retirees or open market).

Credit risk assessment for retail customers includes the use of risk applications based on screening and scoring methods related to an arrears level. There is also a mass-scale and centralized qualification process for clients and credit prequalification models for the assessment of potential customers from different sales campaigns.

Various credit committees, composed of members of the business and risk areas are responsible for reviewing and determining whether to approve certain loans, depending upon relevant market targeted and the amount involved. These include a senior credit committee, a junior credit committee, a credit committee by business, a credit committee by region and a small agribusiness committee. The senior credit committee consists of members of our Board of Directors and senior management and considers loan proposals in excess of Ps.25 million.

In Corporate Banking, approval by credit committees is required and specific risk reports are prepared by the customer or by the group of companies to support credit decisions. To streamline this process of approving pre-defined products and smaller amounts, there are decentralized assessment methods in place for agribusinesses, Pymes and microprojects, including screening and scoring parameters, which allow speeding up the approval of pre-defined products and smaller accounts.

We have a management information system suitable for the size of our operations. Its components include an automated tool for the calculation of key performance indicators, for which alert and limit values have been determined in order to monitor business changes according to the risk appetite defined by our Board of Directors. Other credit risk management tools used are evaluation or score models, which are used at different stages of the credit cycle, attributing an internal risk rating to customers, according to which the assigned credit limits are managed and according to which the portfolio is monitored. Those tools are complemented with expected losses, forecast and provision models.

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For more information on the credit risk management process see note 18 “Risk management policies” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Operational risk

Operational risk, which we define pursuant to the Basel II Accord and Central Bank Communication “A” 5398, consists of the risk of suffering losses due to inadequate or failed internal processes, systems or persons, or due to external events. This definition includes legal risk but excludes strategic and reputational risk.

We have policies, procedures and structures, appointing a head of operational risk and an operational risk committee, whose main objective is to secure an operational risk management plan which includes policies, programs, measurements and competencies for identifying, assessing and managing risks, with the purpose of assisting area managers and our Board of Directors, in an environment of rapidly changing and significant risks.

In this context, the “Evolutionary Comprehensive Operational Risk Management Model” was developed, which involves the identification, measurement, management and monitoring of operational risks. A training plan was designed to begin conveying the concepts inherent to operational risk and the cultural change that this generates, and an implementation plan of the model was put into practice to achieve full implementation of all of its stages.

A quantitative approach is used to measure operational risk and technological risk. In respect of risk management related to the IT and information systems, we have contingency and business continuity plans in place to minimize the risks that could affect our continuity of operations.

We have an incentives system to manage operational risk in such a way that it would encourage involvement and risk assessment. The risk assessment policy has also been reinforced for new products and in modifications to existing products.

In addition, the implementation of improvements on different functions of our risk management system also continued.

For more information on operational risk management processes see note 18 “Risk management policies” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

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 and Buenos Aires S.A., BBVA Banco Francés S.A., HSBC Bank Argentina S.A. and Banco Patagonia S.A. to be our main competitors among private banks. 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, personal loans, payroll services and investment management services.

Competitive landscape

We are ranked as the third private bank and the fifth bank overall in Argentina in terms of total loans as of November 30, 2016. Additionally, we are ranked as the fourth private bank and sixth bank overall in Argentina in terms of total deposits as of November 30, 2016. In terms of equity we are ranked as the first private bank and the second bank overall in Argentina as of November 30, 2016. Below are the rankings of banks across these metrics:

Total Loans (As of November 30, 2016)		Ps. Thousands		Market Share (% share of total private sector loans for the Argentine financial system)
1	BANCO DE LA NACION ARGENTINA(1)		155,139,470		14.2	%
2	BANCO SANTANDER RIO S.A.		108,656,097		9.9	%
3	BANCO DE GALICIA Y BUENOS AIRES S.A.		102,520,826		9.4	%
4	BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		98,372,513		9.0	%
5	BANCO MACRO S.A. (2)		81,048,073		7.4	%
6	BBVA BANCO FRANCES S.A.		73,336,154		6.7	%
7	BANCO DE LA CIUDAD DE BUENOS AIRES (1)		42,819,181		3.9	%
8	HSBC BANK ARGENTINA S.A.		41,881,107		3.8	%
9	BANCO PATAGONIA S.A.		39,634,263		3.6	%
10	INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ARGENTINA) S.A.		38,762,812		3.5	%
	OTHERS		311,691,245		28.5	%
	TOTAL		1,093,861,741		100.0	%

Source: Central Bank

(1) Public sector banks.

(2) Figures from Banco Macro S.A. and Banco del Tucumán S.A.

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Total Deposits (As of November 30, 2016)		Ps. Thousands		Market Share (% share of total private sector loans for the Argentine financial system)
1	BANCO DE LA NACION ARGENTINA (1)		475,267,996		25.7	%
2	BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		181,270,512		9.8	%
3	BANCO SANTANDER RIO S.A.		159,877,168		8.7	%
4	BANCO DE GALICIA Y BUENOS AIRES S.A.		144,180,829		7.8	%
5	BBVA BANCO FRANCES S.A.		110,622,318		6.0	%
6	BANCO MACRO S.A. (2)		110,188,003		6.0	%
7	BANCO CREDICOOP COOPERATIVO LIMITADO		74,417,413		4.0	%
8	BANCO DE LA CIUDAD DE BUENOS AIRES (1)		63,085,336		3.4	%
9	HSBC BANK ARGENTINA S.A.		61,746,336		3.3	%
10	INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ARGENTINA) S.A.		49,072,477		2.7	%
	OTHERS		417,552,966		22.6	%
	TOTAL		1,847,281,354		100.0	%

Source: Central Bank

(1) Public sector banks.

(2) Figures from Banco Macro S.A. and Banco del Tucumán S.A.

Equity (As of November 30, 2016)		Ps. Thousands		Market Share (% share of total private sector loans for the Argentine financial system)
1	BANCO DE LA NACION ARGENTINA (1)		78,123,262		26.8	%
2	BANCO MACRO S.A. (2)		21,398,403		7.3	%
3	BANCO SANTANDER RIO S.A.		20,730,347		7.1	%
4	BANCO DE GALICIA Y BUENOS AIRES S.A.		18,305,214		6.3	%
5	BBVA BANCO FRANCES S.A.		16,329,400		5.6	%
6	BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		11,893,350		4.1	%
7	CITIBANK N.A.		10,724,911		3.7	%
8	HSBC BANK ARGENTINA S.A.		9,951,983		3.4	%
9	INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ARGENTINA) S.A.		8,934,429		3.1	%
10	BANCO PATAGONIA S.A.		8,933,683		3.1	%
	OTHERS		86,160,389		29.6	%
	TOTAL		291,485,371		100.0	%

Source: Central Bank

(1) Public sector banks.

(2) Figures from Banco Macro S.A. and Banco del Tucumán S.A.

There is a large concentration of branches in the City and province of Buenos Aires for 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 holding 72% of our total branches in nine provinces including Santa Fe, Córdoba, Mendoza, Río Negro, and Tierra del Fuego, in addition to Misiones, Salta, Tucumán and Jujuy.

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	As of November 30, 2016
	Banking system					Banco Macro (1)					Market Share (% share of total of branches in each province)
Province	Branches		% of total			Branches		% of total
City of Buenos Aires		768		17.2	%		31		7.3	%		4.2	%
Buenos Aires (Province)		1,410		31.6	%		60		14.0	%		4.5	%
Catamarca		25		0.6	%		1		0.2	%		4.0	%
Chaco		63		1.4	%		1		0.2	%		1.6	%
Chubut		99		2.2	%		5		1.1	%		5.1	%
Cordoba		447		10.0	%		68		15.1	%		15.0	%
Corrientes		93		2.1	%		3		0.7	%		3.2	%
Entre Rios		141		3.2	%		10		2.3	%		7.1	%
Formosa		24		0.5	%		0		0.0	%		0.0	%
Jujuy		33		0.7	%		15		3.4	%		45.5	%
La Pampa		108		2.4	%		2		0.5	%		1.9	%
La Rioja		26		0.6	%		2		0.5	%		7.7	%
Mendoza		161		3.6	%		15		3.4	%		9.4	%
Misiones		64		1.4	%		34		7.6	%		52.4	%
Neuquen		102		2.3	%		5		1.1	%		5.2	%
Rio Negro		72		1.6	%		6		1.4	%		8.3	%
Salta		66		1.5	%		32		6.9	%		49.2	%
San Juan		38		0.9	%		1		0.2	%		2.7	%
San Luis		53		1.2	%		1		0.2	%		1.9	%
Santa Cruz		47		1.1	%		2		0.5	%		4.3	%
Santa Fe		465		10.4	%		107		24.3	%		23.1	%
Santiago del Estero		53		1.2	%		2		0.5	%		3.8	%
Tierra del Fuego		23		0.5	%		2		0.5	%		9.1	%
Tucuman		82		1.8	%		39		8.2	%		44.4	%
TOTAL		4,463		100.0	%		444		100.0	%		10.0	%

Source: Central Bank

(1) Includes branches of Banco Macro and Banco del Tucumán.

Approximately 83% of the branches in the Argentine financial system are located outside the City of Buenos Aires. Approximately 93% of our branches are outside the City of Buenos Aires. The ten largest banks, in terms of branches, account for 69% of the total number of branches in the Argentine financial system. As of November 30, 2016 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 11.2%. The following rankings are based on financial institutions with a relevant number of branches as of November 30, 2016:

	As of November 30, 2016
Entity	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
BANCO DE LA NACION ARGENTINA (1)		633		14.2	%		63		8.2	%		570		15.4	%		90.0	%
BANCO MACRO		444		9.9	%		29		3.8	%		415		11.2	%		93.5	%
BANCO SANTANDER RIO S.A.		405		9.1	%		105		13.7	%		300		8.1	%		74.1	%
BANCO DE LA PROVINCIA DE BUENOS AIRES (1)		340		7.6	%		38		4.9	%		302		8.2	%		88.8	%
BANCO DE GALICIA Y BUENOS AIRES S.A.		274		6.1	%		85		11.1	%		189		5.1	%		69.0	%
BANCO CREDICOOP COOPERATIVO LIMITADO		257		5.8	%		40		5.2	%		217		5.9	%		84.4	%
BBVA BANCO FRANCES S.A.		250		5.6	%		81		10.5	%		169		4.6	%		67.6	%
BANCO PATAGONIA S.A.		176		3.9	%		41		5.3	%		135		3.7	%		76.7	%
BANCO DE LA PROVINCIA DE CORDOBA S.A.		172		3.9	%		1		0.1	%		171		4.6	%		99.4	%
BANCO SUPERVIELLE S.A.		143		3.2	%		31		4.0	%		112		3.0	%		78.3	%
OTHERS		1,369		30.7	%		254		33.1	%		1,115		30.2	%		81.4	%
TOTAL		4,463		100.0	%		768		100.0	%		3,695		100.0	%		82.8	%

Source: Central Bank

(1) Public sector bank.

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

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 in 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.

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Since 1977, 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 credit 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.

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.

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 (“OTC”) 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, as amended, 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, as the case may be. 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.

Furthermore, in respect of supplementary services, pursuant to Communication “A” 5700, as amended, commercial banks are authorized to operate in local or foreign companies that have one or two of the exclusive corporate purposes listed in section 2.2 of Communication “A” 5700, in which the commercial bank’s interest either exceeds 12.5% of such companies’ voting stock or allows the commercial bank to control a majority of votes at a shareholders’ or board of directors’ meeting. If the corporate purposes of such companies include two of the corporate purposes listed in section 2.2 of Communication “A” 5700, the authorization of the Central Bank is required.

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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 investment funds, may not exceed 50% of such bank’s regulatory capital RPC. In addition, the total amount of a commercial bank’s investments in the following, taken as a whole: (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.

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

Pursuant to the Financial Institutions Law, we are required to maintain a legal reserve which must be funded with no more than 20% and no less than 10% of yearly income. Pursuant to Central Bank Rules, we maintain a legal reserve which is funded with 20% of our yearly income. 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 is not allowed 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) plus the financings granted to a financial institution’s related parties (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 up to 150%.

Non-liquid assets consist of miscellaneous assets and receivables, bank property and equipment, assets securing obligations, except for swaps, 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. The minimum capital is defined as the greater of (i) the basic minimum capital requirement, which is explained below, or (ii) the sum of the credit risk, operational risk and market risk. Financial institutions (including their domestic Argentine and international branches) must comply with the minimum capital requirements both on an individual and a consolidated basis.

The capital composition to be considered in order to determine compliance with minimum capital requirements is the financial institution’s RPC (Communication “A” 5580, as amended).

Minimum capital requirements of commercial banks acting as custodians of securities representing investments of the Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino and/or as registrar of mortgage securities must comply with an extra 0.25% of the value of securities in custody and/or mortgage securities and must be invested in Argentine public bonds or monetary regulation instruments.

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Basic minimum capital

The basic minimum capital requirement varies depending on the type of financial institution and the jurisdiction in which the financial institution’s headquarter is registered, with Ps.26 million for banks under Category I and II (Ps.12 million for other financial entities under this category), and Ps.15 million for banks under Category III to VI (Ps.8 million for other financial entities under this category).

Category	Banks	Other Entities (*)
I and II	Ps.26 million	Ps.12 million
III to VI	Ps.15 million	Ps.8 million

(*)    Except credit unions.

Additionally, financial entities located in ports and airports must comply with Category I requirements and those entities engaged in foreign trade transactions must comply with the requirements applicable to banks under such category.

Notwithstanding the foregoing, the regulatory capital of commercial banks acting as custodians of securities representing investments of the Fondo de Garantía de Sustentabilidad del Sistema Integrado Previsional Argentino must be equal to or exceed the greater of Ps.400 million or an amount equivalent to 1% of the total book value of the securities in custody.

Regulatory Capital of Financial Institution: 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 RPC in order to determine compliance with capital requirements. Pursuant to Communications “A” 5369 and “A” 5580, as amended and supplemented, RPC consists of Tier 1 Capital (Basic Net Worth) and Tier 2 Capital (Complementary Net Worth).

Tier 1 Capital consists of (i) Common Equity Tier 1 (“COn1”), (ii) deductible concepts from Common Equity Tier 1 (“CDCOn1”), (iii) Additional Tier 1 (“CAn1”), and (iv) deductible items from Additional Tier 1 (“CDCAn1”).

COn1 includes the following net worth items: (i) capital stock (excluding preferred stock); (ii) non-capitalized capital contributions (excluding share premium); (iii) adjustments to shareholders’ equity; (iv) earnings reserves (excluding the special reserve for debt instruments); (v) unappropriated earnings; (vi) other results either positive or negative, in the following terms:

• with respect to results from prior fiscal years, 100% of net earnings or losses recorded until the last quarterly financial statements with limited review report, corresponding to the last full fiscal year and in respect of which the auditor has not issued the audit report;

• 100% of net earnings or losses for the current year as of the date of the most recent audited quarterly financial statements;

• 50% of profits or 100% of losses for the most recent audited quarterly or annual financial statements; and

• 100% of losses not shown in the financial statements, arising from quantification of any facts and circumstances reported by the auditor;

(vii) share premiums of the instruments included in COn1, and, in the case of consolidated entities; and (viii) minority shareholdings (common shares issued by subsidiaries subject to consolidated supervision and belonging to third parties, if certain criteria are met).

In order for the shares to fall under COn1, at the time of issuance, the financial entity must not generate any expectation that such shares will be reacquired, redeemed or amortized, and the contractual terms must not contain any clause that might generate such an expectation.

The above-mentioned items will be considered without certain deductions pursuant to subsection 8.4.1 and 8.4.2 (as applicable) of Central Bank Communication “A” 5580.

Deductible Items

Items deductible from COn1 include, among others: (a) positive balances resulting from the application of income tax withholdings above 10% of the previous months of basic net worth; (b) deposits maintained in a corresponding account with a foreign financial institutions that are not rated as “investment grade”; (c) debt securities not held by the relevant financial institutions, except in the case of securities registered by or in custody of the Central Bank, Caja de Valores S.A., Clearstream, Euroclear or Depository Trust Company; (d) securities issued by foreign governments whose credit rating is at least ‘investment grade’ according to Communication “A” 5671; (e) subordinated securities and debt instruments issued by other financial institutions; (f) shareholders; (g) real property added to the assets of the financial entity and with respect to which the title deed is not duly recorded at the pertinent Argentine real property registry, except where such assets shall have been acquired in a court-ordered auction sale; (h) goodwill; (i) organization and development costs; (j) items pending allocation, debtor balances and other; (k) at the request of the Superintendency, amounts of certain comprehended assets, when the entities accounting registries do not reflect in a precise manner the economic and legal reality of operations or that actions have been taken to distort or to disguise the true nature or scope of operations; (l) any deficiency relating to the minimum loan loss provisions required by the Superintendency; (m) equity interests in companies that have the following activities: (i) financial assistance through leasing or factoring agreements, (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 and (iii) the issuance of credit or debit cards as provided by Communication “A” 5700; (n) excess in the granting of asset-backed guaranties, according to the Central Bank’s regulations; (o) the highest balance of that month’s financial assistance to the public sector, when certain conditions are met; (p) earnings

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from sales related to securitizations under certain circumstances; (q) gains and losses related to derivate transactions due to changes in the credit risk of the financial institution; and (r) equity interests in other Argentine or foreign financial institutions subject to a consolidated supervision.

Communication “A” 6008 provides a schedule for deducting investments in companies that provide supplemental services to the financial business not subject to consolidated supervision and insurance companies, as follows:

Date	Deductible Percentage
From December 2015 to December 2016		40	%
From January 2017		70	%
From January 2018		100	%

Communication “A” 6008 also provides a schedule for deducting equity interests in companies that provide supplemental services linked to the issuance of credit or debit cards and similar, as follows:

Date	Deductible Percentage
Through May 2015		0	%
From June 2015		25	%
From June 2016		50	%
From June 2017		75	%
From June 2018		100	%

CAn1 includes certain debt instruments of financial entities not included under COn1 that meet the regulatory criteria established in section 8.3.2 of Communication “A” 5580, as amended and supplemented, and share premiums resulting from instruments included in CAn1. Furthermore, in the case of consolidated entities, it includes instruments issued by subsidiaries subject to consolidated supervision and belonging to third parties, pursuant to applicable regulatory requirements.

Moreover, debt instruments included under CAn1 must comply with the following requirements:

• Must be totally subscribed and paid in full.

• Must be subordinated to depositors, unsecured creditors and to the subordinated debt of the financial entity. The instruments must contemplate that in the case of the entity’s bankruptcy and once all debts with all the other creditors are satisfied, its creditors shall have priority in the distributions of funds only and exclusively with respect to the shareholders (irrespective of their class), with the express waiver of any general or special privilege.

• Must not be insured or guaranteed by the issuer or a related entity, and with no agreement improving, either legally or economically, the payment priority in the case of the entity’s bankruptcy.

• They shall not contemplate any type of capital payment, except in the case of liquidation of the financial entity. Provisions gradually increasing remuneration or other incentives for anticipated amortization are not allowed.

• After 5 years, as from the issuance date, the financial entity can buy back the debt instruments if: (i) it has the prior authorization of the Superintendency; (b) the entity does not create any expectations regarding the exercise of the purchase option and (c) the debt instrument is replaced by a RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised, its RPC significantly exceeds at least by 20% of the minimum capital requirements.

• Any capital repayment requires previous authorization from the Superintendency. In the case of a capital repayment, the financial entity must not create any market expectations regarding the granting of such authorization.

• The financial entity can pay dividends/interest coupons at any time. The included dividends/interest coupons shall not have periodic adjustments because of the financial entity’s credit risk.

• They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.

• They should not have been bought with direct or indirect financing from the financial entity and they shall not contain elements that make re-capitalization difficult.

Instruments considered liabilities must absorb losses once a pre-established triggering event takes place. The instruments must do so through their conversion into common shares and a mechanism assigning losses to the instrument.

Complementary Net Worth (NWc): Tier 2

Tier 2 Capital includes (i) certain debt instruments of financial entities which are not included in Tier 1 Capital and meet the regulatory criteria established in section 8.3.3 of Communication “A” 5580, as amended and supplemented, (ii) share premium from instruments included in Tier 2 Capital, and (iii) loan loss provisions on the loan portfolio of debtors classified as being in a “normal situation” pursuant to Central Bank Rules on debtor classification and of financing with preferred security “A” not exceeding 1.25% of the assets measured for credit risk. Additionally, in the case of consolidated entities, it includes (iv) debt instruments issued by subsidiaries subject to a consolidated supervision and belonging to third parties, if they meet the criteria in order to be included under NWc. The above-described items will be considered less deductible items pursuant to section 8.4.2 of Central Bank Communication “A” 5580, as amended and supplemented, which is described below.

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Moreover, debt instruments included under NWc must comply with the following requirements:

• Must be totally subscribed and paid in full.

• Must be subordinated to depositors, unsecured creditors and the subordinated debt of the financial entity.

• Must not be insured or guaranteed by the issuer or a related entity, and with no agreement improving either legally or economically the payment priority in case of the entity’s bankruptcy.

• Maturity: (i) original maturity date within no less than five years; (ii) clauses considering gradually increasing remuneration or other incentives for anticipated amortization are not allowed and (iii) from the beginning of the last five years of life of the indebtedness, the computable amount will be diminished by 20% of its nominal issuance value. After five years as from the issuance date, the financial entity can buy back the debt instruments with the previous authorization of the Superintendency, and if the entity does not create any expectations regarding the exercise of the purchase option. The debt instrument must be replaced by an RPC of equal or greater value sustained by its revenue capacity, or if it is demonstrated that once the purchase option is exercised its RPC significantly exceeds at least in a 20% of the minimum capital requirements.

• The investor shall not be entitled to accelerate the repayment of future projected payments, except in the case of bankruptcy or liquidation.

• They cannot incorporate dividends/coupons with periodic adjustments linked to the financial entity’s credit risk.

• They should not have been bought by the financial entity or any other entity over which the financial entity has control or significant influence.

• They should not have been bought with direct or indirect financing from the financial entity.

Additionally, instruments included in Tier 2 Capital and CAn1, shall present the following conditions in order to assure their loss-absorbency capacity:

a) Their terms and conditions must include a provision pursuant to which the instruments must absorb losses–either through a release from debt or its conversion into ordinary capital–once a triggering event has occurred, as described hereunder.

b) If the holders receive compensation for the debt release performed, it should be carried out immediately and only in the form of common shares, pursuant to applicable regulations.

c) The financial entity must have been granted the authorization required for the immediate issuance of the corresponding common shares in the case of a triggering event, as described below.

Triggering events of regulatory provisions described above are: (i) when the solvency or liquidity of the financial entity is threatened and the Central Bank rejects the amnesty plan submitted or revokes its authorization to function, or authorizes restructuring protecting depositors (whichever occurs first) or (ii) upon the decision to capitalize the financial entity with public funds.

We have issued US$400,000,000, 6.750% Subordinated Resettable Notes due 2026, which are outstanding as of the date of this annual report. The notes, issued in November 2016, comply with all the requirements described above.

Further criteria regarding the eligibility of items included in the RPC calculation must be followed pursuant to the regulatory requirements of minority and other computable instruments issued by subsidiaries, subject to consolidated supervision by third parties. A minority shareholding may be included in COn1 of the financial entity if the original instrument complies with the requirements established for its qualification as common shares regarding the RPC.

Deductible items applied to the different capital levels

Investments in computable instruments under the financial entity’s RPC are not subject to consolidated supervision when the entity owns up to 10% of the issuer’s ordinary capital according to the following criteria: (i) investments include direct, indirect or synthetic interests; (ii) investments include the acquired net position; (iii) securities issued are placed within five (5) business days. When the holdings in other financial entity’s capital (individually representing less than 10% of each issuer’s COn1) exceed 10% of the COn1 of the financial entity, net of deductions, the amount over 10% must be deducted from each one of the capital levels according to the following formula:

• Amount to be deducted from COn1: the amount exceeding 10% multiplied by the proportion of holdings of COn1 over total capital interests.

• Amount to be deducted from CAn1: the amount exceeding 10% multiplied by the proportion of holdings of CAn1 over total capital interests.

• Amount to be deducted from NWc: the amount exceeding 10% multiplied by the proportion that represents the holdings of NWc over total capital interests.

Investments in computable instruments under the financial entity’s RPC are not subject to consolidated supervision when the entity owns up to 10% of the issuer’s ordinary capital or when the issuer is a subsidiary of a financial entity according to the following criteria: (i) investments include direct, indirect or synthetic interests; (ii) investments include the acquired net position and (iii) securities issued are placed within five (5) business days.

Limits

Communication “A” 5580, as amended and supplemented, establishes minimum thresholds regarding capital integration: (i) for COn1, the amount resulting from multiplying the capital RWA by 4.5%; (ii) for NWb, the amount resulting from multiplying RWA by 6% and (iii) for the RPC, the amount resulting from multiplying RWA by 8%. It is important to note that the RWA calculation results from multiplying the required minimum capital under Central Bank Rules by 12.5. The lack of compliance with any of these limitations is considered as an infringement to minimum capital integration requirements.

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Pursuant to Communication “A” 5867, which became effective on March 1, 2016, RWA shall be calculated as follows:

RWA = RWAc + [(MR+OR) x 12.5]

Where:

RWAc: credit risk weighted assets

MR: minimum capital requirement for market risk

OR: minimum capital requirement for operational risk

Economic Capital

Central Bank Communication “A” 5398 requires financial institutions to have an integrated global internal process in place to assess the adequacy of their economic capital based on their risk profile (the Internal Capital Adequacy Assessment Process or “ICAAP”), as well as a strategy aimed at maintaining their regulatory capital. If, as a result of this internal process, it is found that the regulatory capital is insufficient, financial institutions must increase regulatory capital based on their own estimates to meet the regulatory requirement.

The economic capital of financial institutions is the amount of capital required to pay not only unexpected losses arising from exposure to credit, operational and market risks, but also those arising from other risks to which the financial institution may be exposed.

Financial institutions must demonstrate that their internal capital targets are well-funded and adequate in terms of their general risk profile and operations. The ICAAP should take into consideration all material risks to which the institution is exposed. To this end, institutions must define an integral process for the management of credit, operational, market, interest rate, liquidity, securitization, graduation, reputational and strategic risks and use stress tests to assess potential adverse scenarios that may affect their regulatory capital.

The ICAAP must include stress tests supplementing and validating any other quantitative or qualitative approach employed by the institution in order to provide the board of directors and senior management with a deeper understanding of the interaction among the various types of risk under stress conditions. In addition, the ICAAP must consider the short- and long-term capital needs of the institution and ensure the prudent accumulation of excess capital during positive periods of the economic cycle.

The required amount of capital of each institution shall be determined based on its risk profile, taking into consideration other external factors such as the effects of the economic cycle and the economic scenario.

Requirements applicable to dividend distribution

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

By means of Communications “A” 6013, the Central Bank amended and restated its regulations regarding dividend distribution by financial institutions. Pursuant to such regulation, the Superintendency will review the ability of a financial entity to distribute dividends upon their request for approval. The request must be filed within thirty (30) business days prior to the shareholders’ meeting that will consider dividend distributions. The Superintendency may authorize the distribution of dividends when each of the following circumstances are applicable during the month preceding the request:

(i) the financial institution is not subject to a liquidation procedure or the mandatory transfer of assets ordered by the Central Bank in accordance with section 34 or 35 bis of the Financial Institutions Law;

(ii) the financial institution is not receiving financial assistance from the Central Bank;

(iii) the financial institution is in compliance with its reporting obligations to the Central Bank;

(iv) the financial institution is in compliance with minimum capital requirements (both on an individual and consolidated basis and excluding any individual franchise granted by the Superintendency) and with minimum cash reserves (on average), whether in Pesos, foreign currency or securities issued by the public sector; and

(v) the financial institution is not subject to any significant fines (i.e., fines exceeding 25% of the last reported computable regulatory capital) or debarment, suspension, revocation or prohibition imposed in the last five years by the Central Bank, the UIF, the CNV, and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación), except when such financial institution has implemented corrective measures that are satisfactory to the Superintendency (such corrective measures would also be brought to the attention of the regulatory body that originally imposed the sanction). The Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.

Financial institutions that comply with all of the above-mentioned 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; plus (ii) voluntary reserves for future dividend payments; minus (iii) voluntary reserves and mandatory statutory reserves and other items, such as (a) balance

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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 average minimum cash reserve is lower than the amount of cash required by the latest reported position or the pro-forma position after making the dividend payment;

• if the minimum regulatory capital after making the dividend payment is lower than the minimum capital required increased by 75%; and/or

• if the entity did not comply with the applicable additional capital margins (as described below).

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.

Pursuant to Communication “A” 5580, the minimum regulatory capital has to account for the requirement of counterparty risk capital for securitizations for every ongoing transaction at the time of determination.

In January 2015, within the scope of the principles of the Basel Committee on Banking Supervision, the Central Bank graded Banco Macro S.A. a D-SIB.

In November 2015, the Central Bank issued Communication “A” 5827, in force as of January 1, 2016, which aims to comply with the guidelines for the capital consolidation of the financial entities agreed in Basel III, introducing the capital conservation margin and the counter-cycle capital margin.

Communication “A” 5827, as amended, states that financial entities shall maintain a capital conservation margin in addition to the minimum capital requirements in order to ensure the accrual of owned resources to cope with eventual losses, reducing the non-compliance risk.

Financial entities considered D-SIBs or globally systemically important (“G-SIBs”), shall have a capital level that permits a greater capacity for loss absorption, by virtue of negative externalities that the effects of insolvency of such entities or their foreign holdings could create in the financial system and the economy.

The conservation capital margin shall be 2.5% of the amount of RWA. In cases of entities considered systemically important, the margin will be increased to 3.5% of the amount of capital risk weighted assets. These margins can be increased once again, according to the counter-cycle margin. The conservation capital margin, increased in the case of entities considered systemically important, must be integrated exclusively with Common Equity Tier 1 (COn1), net from deductible items (CDCOn1).

When such margin is used, the entities must raise capital with new capital contributions, or reduce future distributions.

The dividend distribution shall be limited whenever the level and composition of the computable asset liability, even when it complies with the minimum capital requirements, is within the range of the capital conservation margin. This limitation reaches solely the dividend distribution, but not the operation of the entity. Entities shall be able to operate normally when levels of Con1 are within the range of conservation margin. When the coefficient of Common Equity Tier 1 (Con1 as percentage of RWA) is within the range of margins conservation of capital, the restriction to the results distribution shall be increased whenever the coefficient of Con1 comes close to the minimum required in section 8.5.1 of regulations over “Minimum Capital for Financial Entities”. The following table shows the maximum percentages of dividend distribution, according to the compliance with the conservation margin presented:

Coefficient of Common Equity Tier 1 (COn1) net of deductions (CDcon1) – as percentage of RWA -.		Minimum coefficient of capital conservation – as percentage of dividend distribution -
Financial Entities – That are not categorized as D-SIBs or G-SIBs-	D-SIBs and G-SIBs Financial Entities
4.5 – 5.13	4.5 – 5.38	100
> 5.13 – 5.75	> 5.38 – 6.25	80
> 5.75 – 6.38	> 6.25 – 7.13	60
> 6.38 – 7.0	> 7.13 – 8	40
> 7	> 8	0

Currently, the minimum limits required by the regulations are:

• COn1/RWA: 4.5%

• NWb/RWA: 6.0%

• RPC/RWA: 8.0%

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COn1 must be used in the first place to satisfy the minimum capital requirement of 4.5% of RWA. Subsequently, and in the event the total does not have enough Additional Tier 1 (CAn1) or Tier 2 Capital (NWc), the COn1 shall also be applied to meet requirements of 6% and 8% of Tier 1 Capital and total capital.

Only the remaining COn1, if any, can be computed to satisfy the applicable conservation margin, increased in function of the counter-cycle margin, if applicable.

Any entity that desires to exceed the dividend distribution limits shall finance this distribution by new contributions of COn1 in the excess amount.

Financial entities must integrate additional capital equivalent to 2.5% of the RWA (3.5% for D-SIB and G-SIB entities).

Communication “A” 5827 also establishes the counter-cycle margin in order to allow the financial entities’ capital levels to correspond to the accumulative systematic risk associated with an excessive credit expansion and the macro-financial context. Pursuant to such communication, when the Central Bank considers that the credit growth is excessive, creating an increase in systematic risk, it can establish, with a twelve month advanced notice, the obligation to constitute a counter-cycle margin within a range of 0% to 2.5% of RWA. This margin can be reduced or cancelled by the Central Bank when it considers that the systematic risk has been diminished.

Financial entities with international activity shall consider the geographic location of their credit exposure with local and foreign residents of the private sector and calculate the counter-cycle margin as the mean between the required margins in foreign jurisdictions. This includes all credit exposure to private sectors subject to the requirement of credit risk capital.

In order to determine which jurisdiction corresponds to each exposure, the principle of ultimate risk shall be applied. Pursuant to this principle, one must identify the jurisdiction where the guarantor of the risk resides. The counter-cycle margin shall be observed by means of an increase in the conservation capital margin and shall be satisfied exclusively with Common Equity Tier 1, net of deductible concepts (CDCOn1).

For more information, see Item 8.A “Consolidated Statements and Other Financial Information—Amounts available for distribution and distribution approval process”.

Credit Risk

The minimum capital requirement in respect of counterparty risk (“CRC”) must be calculated according to the monthly balance. CRC is defined as:

CRC = k * (0.08* RWAc + no DvP + RCD) + INC + IP.

Variable “k”: Minimum capital requirements also depend on the CAMELBIG rating (1 is the strongest, 5 is the 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		1.00
2		1.03
3		1.08
4		1.13
5		1.19

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For the purposes of the calculation of the capital requirement, the rating will be that of the third month after the month of the most recent rating informed to the entity. For so long as no notice is given, the “k” factor will be equal to 1.03.

Variable “A” refers to computable assets/exposures; “PFB” is computable items which are not registered on the balance sheet (off balance sheet items), whether or not accounted for under memorandum accounts; “CCF” the conversion credit factor; and “p” refers to the weighting factor, expressed on a per unit basis.

“RWAc” stands for capital risk weighted assets calculated by adding the value obtained from applying the following formula:

A * p + PFB * CCF * p

“DvP” refers to failed delivery against payment transactions (for purposes of these rules, failed payment against payment (PvP) transactions are also included). The amount is determined by the addition of the amounts arrived at by multiplying the current positive exposure by the applicable capital requirement.

In addition, “no DvP” refers to transactions that do not involve delivery against payment. The amount is determined by the addition of the amounts arrived at by applying the weighting factor (p) on the relevant transactions.

“RCD” refers to requirements for counterparty risk in OTC transactions.

“INC” incremental minimum capital requirements based on any excess in the fixed assets and other ratios, the limitations established under “Credit risk fractioning” rules, and the limitations derived from the credit risk degree.

“IP” refers to the incremental minimum capital requirements derived from the general limit on the global net negative foreign currency position.

Pursuant to Communication “A” 6128, effective since January 2017, the minimum capital requirement for credit risk is calculated as follows:

CRC = (k x 0.08 x RWAc) + INC + IP

Variable “k,” as defined above.

“RWAc”: These are credit risk weighted assets, calculated by adding the following:

A x p + PFB x CCF x p + no DvP + (DVP + RCD+ INC_{(fractioning)}) x 12.5

Variable “A” as defined above.

“no DvP,” as defined above.

“DvP,” as defined above.

“RCD,” as defined above.

“INC_{(fractioning)}” means the incremental minimum capital requirements based on any excess over the following limits:

- equity interest held in companies: 15%

- total equity interests held in companies: 60%

The established maximum limits will be applied on the financial entity’s computable regulatory capital for the last day before the relevant date, as prescribed in the Central Bank regulations on “Credit Risk Fractioning”.

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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
Cash held in treasury, in transit (when the financial institution assumes responsibility and risk for transportation), in ATMs, in checking accounts and in special accounts with the Central Bank, gold coins or bars		0
Cash items in the process of collection, cash in armored cars and in custody at financial institutions.		20
Exposure to governments and central banks
To the Central Bank denominated and funded in Pesos.		0
To the public non-financial sector denominated and funded in Pesos, including securitized exposures.		0
To the public non-financial sector arising from financing granted to social security beneficiaries or public employees (with discount code that do not exceed at the time of the agreements, 30% of borrower’s income).		0
To the public non-financial sector and the Central Bank. Other.		100
To other sovereign states or their central banks and other foreign public non-financial sector institutions.		100
To the Bank for International Settlements, the IMF, the European Central Bank and the European Community.		0
Exposure to the Multilateral Development Banks (MDB)
The International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Inter-American Development Bank (IDB), the European Investment Bank (EIB), the Asian Development Bank (ADB), the African Development Bank (AFDB), the European Investment Fund (EIF), the Nordic Investment Bank (NIB), the Caribbean Development Bank (CBD), the Islamic Development Bank (IDB) and the European Council Development Bank (ECDB)		0
Other.		100
Exposure to local financial institutions
Denominated and funded in Pesos arising from transactions with an initial contractual term of up to 3 months		20
Other		100
Exposure to foreign financial institutions		100
Exposure to local and foreign companies and other entities - including national foreign exchange entities, insurance companies, brokerage houses and other companies considered non-financial private sector entities pursuant to the provisions of Section 1 of the regulations governing the “Financing of the non-financial public sector”		100
Exposures included in the retail portfolio
Loans to individuals (provided that installments of loans granted by the institution do not exceed, at the time of the agreements, 30% of borrower’s income) and to micro, small- and medium-sized companies (“MiPyMEs”).		75
Other		100
Exposures guaranteed by reciprocal guaranty companies (sociedades de garantía recíproca) or public security funds registered with the registries authorized by the Central Bank		50
Primary mortgages and mortgages of any ranking on residential homes, to the extent the entity is the mortgagee
If credit facility does not exceed 75% of the appraised value of such real property
- Sole, permanently-occupied family home.		35
- Other		50
On the amount exceeding 75% of the appraised value of such real property		100
Primary mortgages and mortgages of any ranking other than on residential homes, to the extent the entity is the mortgagee
Up to 50% of the lower of the real property market value or 60% of the mortgage loan.		50
On the remaining portion of the loan.		100
Delinquent loans over 90 days
Weighting varies according to the loan and specific provisions Created		50-150
Interests in companies		150
Exposures to central counterparty entities		2-100
Other assets and/or items off the balance sheet		100

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) financings and securities granted by branches or local subsidiaries of foreign financial entities by order and on account of their headquarters of 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 the 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 the case of guarantees granted locally, they are in turn guaranteed by their foreign branch headquarters 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

Until January 1, 2013, financial entities had to comply with minimum capital requirements regarding interest rate risk. These requirements were intended to capture the sensitivity of assets and liabilities to changes in the interest rates. Communication “A” 5369 removed all rules and regulations regarding minimum capital requirements for interest rate risk. Notwithstanding this change, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendency’s supervision.

Market risk

Pursuant to Communication “A” 5867, in force as of March 1, 2016, market risk is defined as the possibility of incurring losses in on- and off-balance sheet recorded positions as a result of adverse changes in market prices. The market risk minimum capital requirement is the arithmetic sum of the minimum capital requirement for interest rate (trading portfolio), stock (trading portfolio), exchange rate and options risks (trading portfolio). To meet this capital requirement, entities must apply a “Standard Measurement Method” based on an aggregate of components that separately capture the specific and general market risks for securities positions.

Market risk minimum capital requirements must be met daily. Information at the last day of each month, must be reported to the Central Bank on a monthly basis.

General considerations. Risks subject to this minimum capital requirement include risks derived from positions in instruments – such as securities and derivatives – recorded as part of the trading portfolio, and risks from foreign currency positions recorded, indistinctly, as part of the investment or trading portfolio. For the purpose of the above accounting recording, the trading portfolio of financial entities comprises positions in financial instruments included among an entity’s assets for purposes of trading or of providing hedging to other items contained in the portfolio. Pursuant to Communication “A” 5889, a financial instrument may be accounted for as part of the trading portfolio – for purposes of meeting the minimum capital requirement for market risk – if such instrument may be traded free from any restriction or if the instrument may be hedged in full. Also, the portfolio must be actively managed and its positions must be valued on a daily basis and with the required accuracy. Positions kept for trading purposes are those positions that the entity intends to sell in the short term or from which it intends to derive a profit as a result of changes, either actual or expected, in short-term prices, or by means of

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arbitrage activities. They include both positions that the entities keep for their own use and those they purchase in the course of services performed for customers or “market making’ activities”. Financial entities must calculate the minimum capital requirement for the counterparty credit risk involved in OTC transactions involving derivatives and securities financing transactions, such as repo transactions (repo agreements), recorded as part of the trading portfolio on a separate and additional basis to the calculation of capital requirements for general market risk and specific market risk of the underlying securities. For this purpose, entities will be required to apply the methods and weighting factors usually applicable when those transactions are recorded as part of the investment portfolio. Entities must have clearly defined policies and procedures in place, designed to determine the exposures that are to be included into or excluded from the trading portfolio in order to calculate their minimum capital requirement for market risk. On the other hand, the investment portfolio will include all securities held by the entity which are not included in the trading portfolio.

The minimum capital requirement for exchange rate risk will apply to the total position in each foreign currency. The minimum capital requirement for securities will be computed in respect of the instruments accounted for as part of the trading portfolio, which must be valued prudently (marked to market or marked to model). Instruments whose yield is determined in relation to CER must be considered fixed-rate securities. Whether recorded as part of the trading or of the investment portfolio, items to be deducted for purposes of calculating the RPC will be excluded from the calculation of the market risk minimum capital requirement.

Minimum capital requirement for interest rate risk. The minimum capital requirement for interest rate risk must be calculated in respect of any debt securities and other instruments accounted for as part of the trading portfolio, including any non-convertible preferred shares. This capital requirement is calculated by adding two separately calculated requirements: first, the specific risk involved in each instrument, either a short or a long position, and second, the general market risk related to the effect of interest rate changes on the portfolio. A set off of the long and short positions held in different instruments will be allowed.

Minimum capital requirement for positions in stock. The capital requirement for the risk of holding equity positions in the trading portfolio applies to both long and short positions in ordinary shares, convertible debt securities that function like shares and any call or put options for shares, as well as any other instrument with a market behavior similar to that of shares, excluding non-convertible preferred shares, which are subject to the minimum capital requirement for interest rate described in the preceding paragraph. Long and short positions in the same security may be computed on a net basis.

Minimum capital requirement for exchange rate risk. The capital requirement for exchange rate risk establishes the minimum capital required to hedge the risk involved in maintaining positions in foreign currency, including gold. To calculate the capital requirement for exchange rate risk, entities must first quantify its exposure in each currency, and then estimate the risks inherent in the combination of long and short positions in different currencies.

Minimum capital requirement for positions in options. The calculation of the capital requirement for the risk involved in positions in options may be based on the “simplified method” set forth in Communication “A” 5867 if the entity only purchases options; provided that, the market value of all the options in its portfolio does not exceed 5% of the entity’s RPC for the previous month, or if its positions in sold options are hedged by long positions in options pursuant to exactly the same contractual terms. In all other cases, the entity must use the alternative “delta plus” method, provided for in the regulation.

Consequences of a Failure to Meet Minimum Capital Requirements

In the event of non-compliance with capital requirements by an existing financial institution, Central Bank Communication “A” 6091 provides the following:

(i) 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 thirty (30) calendar 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 a prohibition to open branches in Argentina or in other countries, establish representative offices abroad, or own equity in foreign financial institutions, as well as a prohibition to pay cash dividends. Moreover, the Superintendency may appoint a representative, who shall have the powers set forth by the Financial Institutions Law.

(ii) Non-compliance detected by the Superintendency: the institution may challenge the non-compliance determination within thirty (30) calendar 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” 5889, 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 VaR of included assets or derived from the calculation of capital requirements for interest rate, exchange rate and stock risks, the financial institution must replace its capital or decrease its financial position until such requirement is met, and has up to ten (10) 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 (10) business days, it must submit a regularization and reorganization plan within the following five (5) business days and may become subject to an administrative proceeding initiated by the Superintendency.

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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. This framework must also allow the financial entity to evaluate capital sufficiency.

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.

Financial entities are charged with implementing an efficient OR management system following the guidelines provided by the Central Bank. 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 prepared by each level of the organization in managing of OR (such as the roles of the board of directors, senior management and the business units of the financial institution).

A financial institution’s size and sophistication, and the nature and complexity of its products and processes, and the extent of the transaction determines the type of “OR unit” required. 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 OR inherent 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 created 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 necessary 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 involve periodic reviews (to occur at least annually) of control strategies and risk mitigation, and adjust these as necessary.

Pursuant to Communication “A” 5282, the minimum capital requirements regarding OR are equal to 15% of the annual average positive gross income of the last thirty-six (36) months.

The OR formula is as follow:

The variables in the OR formula are defined as follows:

• “C_ro”: the capital requirement for operational risk.

• “a”: 15%.

• “n”: the number of 12-month consecutive terms with positive IB, based on the 36 months preceding the month of calculation. The maximum value of n is 3.

• “IBt”: gross income from 12-month consecutive terms; provided that, it is a positive figure, corresponding to the 36 months preceding the month of calculation.

IB is defined as the sum of (a) financial and service income minus financial and service expenses and (b) other income minus other expenses.

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The following items are excluded from items (a) and (b) above:

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

(ii) profits or losses from holding 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 that 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 regulations (“Valuación de instrumentos de deuda del sector público no financiero y de regulación monetaria del Banco Central de la República Argentina”).

New financial institutions must comply, in their first month, with an OR minimum capital requirement equivalent to 10% of the aggregate requirements determined for credit and market risks, in the latter case, for the positions on the last day of that month. As from the second and up to the thirty-sixth month, the monthly capital requirement will be equivalent to 10% of the average requirements determined for the months elapsed until, and including, the calculation period based on a consideration of the risks referred to in the preceding paragraph. From the thirty-seventh month onwards, the monthly requirement is calculated based on the OR formula.

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 fixed-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.

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 that they do not exceed a seventy-two (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, in the case of fixed-term deposit of UVIs and UVAs (as defined below), the accrued amount resulting from the increment of the value of such unit.

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 year, during 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.

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The table below shows the percentage rates that should be applied (from March 2017 for Peso denominated amounts, and as from February 1, 2016, for foreign currency denominated amounts) to determine the required minimum cash reserve requirement, which in the case of transactions in Pesos, will depend on the category under which the jurisdiction of the main office of the financial entity falls (Communication “A” 6195 and Communication “A” 6080):

	Rate %
	Category I				Categories II to VI
Item	Pesos		Foreign Currency		Pesos		Foreign Currency
1-Checking account deposits		20				18
2-Savings account, basic account and free universal account		20		25		18		25
3-Legal custody accounts, special accounts for savings clubs, “Unemployment Fund for Construction Industry Workers” (Fondo de Cese Laboral para los Trabajadores de la lndustria de la Construcción) and “Salary payment,” special checking accounts for legal entities and social security savings accounts		20		25		18		25
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		20		25		18		25
5-Unused balances of advances in checking accounts under executed overdraft agreements		20		—		18		—
6-Deposits in checking accounts of non-bank financial institutions, computed for purposes of meeting their required minimum cash reserve		100		—		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 and 13 of this table:
(i) Up to 29 days		14		23		13		23
(ii) From 30 days to 59 days		10		17		9		17
(iii) From 60 days to 89 days		5		11		4		11
(iv) From 90 days to 179 days		1		5		—		5
(v) From 180 days to 365 days		—		2		—		2
(vi) More than 180 days		—		—		—		—
(vii) More than 365 days		—		—		—		—
8-Liabilities owed due to foreign facilities (not executed by means of time deposits or debt securities)		—		—		—		—
9-Securities (including Notes)
(i) Up to 29 days		14		23		14		23
(ii) From 30 days to 59 days		10		17		10		17
(iii) From 60 days to 89 days		5		11		5		11
(iv) From 90 days to 179 days		1		5		1		5
(v) From 180 days to 365 days		—		2		—		2
(vi) More than 180 days		—		—		—		—
(i) More than 365 days		—		—		—		—
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		13		15		13		15
12-Special deposits related to inflows of funds. Decree 616/2005		—		100		—		100
13-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		—		15		—
14-Deposits and term investments of UVIs and UVAs
(i) Up to 29 days		7		—		6		—
(ii) From 30 days to 59 days		5		—		4		—
(iii) From 60 days to 89 days		3		—		2		—
(iv) From 90 days		—		—		—		—
15-Deposits and term investment on behalf of minors for funds received free of charge		—		—		—		—

In addition to the abovementioned requirements, the reserve for any defect in the application of resources in foreign currency for a certain 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 may include the following:

1. accounts maintained by financial institutions with the Central Bank in Pesos;

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

3. special guarantee accounts for the benefit of electronic clearing houses and to cover settlement of credit card and ATM transactions and immediate transfer of funds;

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

5. special accounts maintained with the Central Bank for transactions involving social security payments by ANSES; and

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

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

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

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Compliance time deposits in public bonds must be done with holdings marked to market and of the same type, only in terms of monthly status. Holdings must be deposited in 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 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 has occurred 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 twice 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 twice the private banks’ BADLAR rate, for deposits in U.S. dollars or twice the 30-day U.S. dollar LIBOR rate for the last business day of the month (whichever is higher).

Minimum cash requirements may decrease:

(i) according to the participation in total financing to the non-financial private sector in pesos in the micro, small and medium-sized enterprise (“MiPyMES”)

(ii) based on cash withdrawals made through ATMs of the entity

(iii) depending on the accreditations made by the National Social Security Administration (ANSES) for the payment of social security benefits.

(iv) depending on the granting of financing to MiPyMES from 1.1.14

(v) depending on the granting of financing under the “AHORA 12” Program.

Minimum cash requirements may decrease with: (i) the implementation of the Consumer Promotion Program and the Production of Goods and Services named “Ahora 12” created by Resolution 671/2014 of the Ministry of Economy and (ii) the payment of social security benefits. Minimum cash requirements may increase with a defect in the application of credit quotas to clients other than micro, small- and medium-sized companies (“MiPyMEs”).

Internal liquidity policies of financial institutions

Pursuant to the Central Bank regulations on the liquidity coverage ratio (the “LCR”), financial institutions must 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 effect on credit availability and (iii) the ability to obtain funds by selling government debt securities and/or own assets

The organizational structure of the entity must place a specific unit or person in charge of managing liquidity and assign levels of responsibility to the individuals who will be responsible for managing the LCR, which will require daily monitoring. The participation and coordination of the entity’s top management authority (e.g., general manager) will be necessary.

In addition, financial institutions must designate a director or advisor who will receive reports at least weekly, or more frequently if circumstances so require, such as when changes in liquidity conditions require new courses of action to safeguard the entity. In the case of branches of foreign financial institutions, the reports must be delivered to the highest authority in the country.

Appointed officers and managers will be responsible for managing the liquidity policy that, in addition to monitoring the LCR, includes taking the necessary steps to comply with minimum cash requirements.

Financial institutions must report the list of such officers and directors, as well as any subsequent changes, to the Superintendency within ten (10) calendar days from the date of any such change.

Liquidity Parameters

In addition to the LCR, there are other parameters that are used as systematic tools of control. These policies contain specific information regarding cash flows, balance structure and available underlying assets free of charge. These parameters, along with the LCR, offer basic information to evaluate the liquidity risk. The included parameters are:

• gaps in contractual terms;

• funding concentration; and

• available assets free of restrictions.

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Credit risk regulation

The Central Bank regulations on credit risk establish 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, (i) risk concentration limits, (ii) limits on transactions with customers on the basis of the institution’s capital and (iii) credit limits on the basis of the customer’s net worth.

Risk concentration: Regulations include the concept of risk concentration, defined as the sum of loans that individually exceed 10% of the financial institution’s RPC. Total operations may not exceed, at any time:

• three times the institution’s RPC for the previous month, without considering the operations involving local financial institutions;

• five times the institution’s RPC for the previous month, on total financings; and/or

• ten times the institution’s RPC for the previous month, for second tier commercial banks, when taking into account transactions with other financial institutions.

The three-times and five-times limits listed above are increased to four-times and six-times the institution’s RPC for the previous month, respectively, whenever increases are allocated to provide assistance to trusts or fiduciary funds from the non-financial public sector.

Loans (other than inter-bank loans) that exceed 2.5% of the financial institution’s RPC must be recommended by senior management and approved by the institution’s board of directors or similar authority.

Diversification of risk: Financial institutions must ensure that their loan portfolio is diversified among the highest possible number of individuals or companies and across all economic sectors to avoid a concentration of risk arising from a small group of individuals or companies or related to a specific sector that could significantly affect the institution’s net worth.

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 as of the last day of the second month prior to the date of the financing and the increase is approved by the board of directors, or similar authority, of the relevant financial institution.

Limits on credit assistance

The Central Bank regulations list maximum individual limits on credit assistance for each type of client and are calculated as a percentage of the financial institution’s RPC.

Maximum limits for credit assistance to non-financial public sector are as follows:

Transactions with the non-financial public sector	Maximum limit (*)
i) Transactions with the national public sector		50	%
ii) Transactions with each provincial jurisdiction or the City of Buenos Aires		10	%
iii) Transactions with each municipal jurisdiction		3	%

(*) Individual limits will be increased by 15% when the increase is applied to financial assistance granted to trusts or fiduciary funds, subject to certain conditions and related to the financing of public sector or the inclusion of debt instruments issued by them.

Globally, lending to the public sector cannot exceed 75% of the institution’s RPC. Monthly average daily credit assistance to the public sector cannot exceed 35% of a financial institution’s assets at the last day of the previous month.

Maximum limits for credit assistance to the non-financial private sector of the country and non-financial sector abroad are as follows:

Transactions with the non-financial private sector of the country and non-financial sector abroad	Maximum limit
i) For each borrower
a) Unsecured financings		15	%
b) Total financings (secured or unsecured) and/or collateralized obligations including financings guaranteed by third parties		25	%
ii) For each Reciprocal Guarantee Company (RGC) (including affiliates) or public guarantee fund		25	%
iii) For each export credit insurance company		15	%

Maximum limits for credit assistance to the financial sector of the country are as follows:

	Taker
Financiaciones al sector financiero del país	Rating	Basic Margin			Additional Margins
i) If the financial institution is not a second tier comercial bank to a local financial institution.	Rated 1		100	%	25%*
	Rated2		20	%	25% (Sectors I y II)
ii) Financing by a financial institution that is a second tier commercial bank	Rated 3		10	%	55% (Sectors III)
	Rated 4 o 5		10	%	20%

* This limit can be divided in two segments, with and without collateral, in each case by 25% subject to compliance with certain requirements.

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Maximum limits for credit assistance to the financial sector abroad are as follows:

	Borrower
Financing to the foreign financial sector	Type	Unsecured			Secured
i) If the lender is Rated 1 to 3	Related Company rated Investment Grade		10	%
	Other related companies not included above		5	%		10	%
ii) If the lender is Rated 4 to 5	Subsidiary subject to consolidation with the lender and the foreign bank, rated Investment Grade		10	%
	Other subsidiaries not included above		5	%		10	%
	Related company rated Investment Grade (only equity interests)		10	%
	Other related companies not included above (only equity interests)		5	%
	Other		0	%

The allocation of margins for exposure to counterparty credit risk in derivative contracts is done on the basis of risk-sensitive measures and the features of each particular type of transaction (type of contract, frequency of marking to market, volatility of the asset). Transactions to be included are forwards, futures and options on shares and public bonds, and Central Bank debt instruments for which volatility is published, purchase and sale options on such assets, and swaps.

Limits for Affiliated Individuals

The aggregate amount of relevant transactions with affiliated companies or individuals may not exceed at any time the limits of the financial institution’s net worth as of the last day of the month prior to the month of calculation, according to the following general rules:

	Borrower
Financing to domestic providers of ancillary services	Type	Base Margin			Additional Margin
i) If the lender is Rated 1	Company subject to consolidation with the lender, providing ancillary services such as the issuance of credit or debit cards or similar services		100	%	25%
	Other companies subject to consolidation with the lender with respect to ancillary services included in the Central Bank regulations on “Credit Risk Fractioning”		100	%
	Other companies subject to consolidation with the lender not included above		10	%
ii) If the lender is Rated 2	Company subject to consolidation with the lender, providing ancillary services such as the issuance of credit or debit cards or similar services		20	%	25% (Tranches I and II) 55% (Tranche III)
	Other companies subject to consolidation with the lender with respect to ancillary services included in the Central Bank regulations on “Credit Risk Fractioning”		10	%	90%
	Other related companies not included above		10	%
iii) If the lender is Rated 3	Company subject to consolidation with the lender, providing ancillary services such as the issuance of credit or debit cards or similar services		10	%	20%
	Other related companies not included above		10	%
iv) If the lender is Rated 4 or 5	Company subject to consolidation with the lender		10	%
	Other related companies not included above		0	%

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	Borrower
Financing to foreign providers of ancillary services	Type	Unsecured			Secured
i) If the lender is Rated 1 to 3	Related company providing ancillary services		5	%		10	%
ii) If the lender is Rated 4 to 5	Company subject to consolidation with the lender, providing ancillary services included in the Central Bank regulations on “Credit Risk Fractioning”		5	%		10	%
	Other related companies not included above		0	%

Under Central Bank Rules, a person (either an individual or a company) is “related” to a financial institution (and thus part of the same “economic group”):

• if the financial institution directly or indirectly controls, is controlled by, or is under common control with, such person;

• if any institution has shared directors with the entity or company that has direct or indirect control of the financial entity or with the financial entity, whenever those directors jointly make up the simple majority of each of the boards; or

• as an exception, determined by the Board of Directors of the Central Bank (pursuant to a proposal from the Superintendency).

In turn, control by one person over another is defined under Central Bank Rules as:

• holding or controlling, directly or indirectly, 25.0% or more of the voting stock of the other person;

• having held 50% or more of the voting stock of the other person at the time of the last election of directors;

• holding, directly or indirectly, any other kind of participation in the other person (even if it represents a participating interest below the abovementioned percentages) so as to be able to prevail in its shareholders’ or board of directors’ meetings; or

• when the Board of Directors of the Central Bank, pursuant to a proposal from the Superintendency, determines that a person is exercising a controlling influence, directly or indirectly, in the direction or policies of another person.

Central Bank Rules contain several non-exclusive factors to be used in determining the existence of such controlling influence, including, among others:

• the holding of a sufficient amount of the other person’s capital stock as to exercise influence over the approval of such person’s financial statements and payment of dividends;

• representation on the other person’s board of directors;

• significant transactions between both persons;

• transfers of directors or senior officers between both persons;

• technical and administrative subordination by one person to the other; and

• participation in the creation of policies by one person to the other.

Interest rate and fee regulations

Fees

Central Bank regulations granted broad protection to customers in 2013. The protection includes, among other things, the regulation of fees and commissions charged by financial institutions for services provided. Fees and charges must represent a real, direct and demonstrable cost and should be supported by a technical and economic justification.

On December 23, 2014, the Central Bank issued Communication “A” 5685 amending Communication “A” 5460, setting forth that any increase in commissions of new products or services must have the prior authorization of the Central Bank.

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On August 21, 2015, the Central Bank issued Communication “A” 5795, as amended and supplemented by several regulations, including but not limited to Communication “A” 5828, establishing additional rules aimed at protecting financial services customers by reinforcing regulations that prohibit financial institutions from charging fees and commissions related to insurance products that financial services customers purchase as accessories of financial services, regardless of whether it is a customer request or a condition set by the financial institution to access the financial service. In this regard, beginning on November 13, 2015, financial institutions may not receive remunerations or profits from such insurance products or receive remunerations or profits, directly or indirectly, from insurance companies with respect to such products.

On March 21, 2016, the Central Bank issued Communication “A” 5927 (as supplemented by Communication “A” 5928) that established new rules aimed at protecting the financial user and an increase of the banking services use. In this regard, beginning on April 1, 2016, the electronic transfers ordered or received by clients categorized as financial services costumers will not be charged with fees or commissions. For clients that do not meet this category, as companies, transfers of funds up to Ps.250,000, ordered or received by electronic means, will not be charged fees or commissions. Communication “A” 5927 also established that immediate transfers of funds up to Ps.100,000 per day and account can be made via Home Banking every day of the year.

On March 21, 2016, the Central Bank issued Communication “A” 5928, pursuant to which all saving accounts shall be free, including the use of the corresponding debit card. In this regard, all existing saving accounts shall be now free of charge, as well as for new clients. The saving accounts shall not have amount limits or any charge related to their creation, maintenance or renovation. In addition, pursuant to such regulation, commissions could be increased up to 20%, but such increase must be informed to the client sixty (60) days in advance. Furthermore, as of September 1, 2016 commissions’ caps are eliminated, but financial institutions will have to inform their customers in advance about the commissions that other financial entities are charging.

Central Bank issued Communication “A” 6212, effective as of April 1, 2017, which reduces credit card and debit card sales commissions on a gradual annual plan. Pursuant to Communication “A” 6212, the maximum credit card sales commission rate for 2017 is 2.0% and for 2018, 2019, 2020 and 2021 and after, will be 1.85%, 1.65%, 1.50% and 1.30%, respectively. The maximum debit card sales commissions for 2017 is 1.0% and for 2018, 2019, 2020 and 2021 and after, will be 0.90%, 0.80%, 0.70% and 0.60%, respectively.

Mandatory extension of credit facilities for productive investments

On July 5, 2012, the Central Bank issued Communication “A” 5319, mandating financial entities to extend credit facilities for productive investments (the “2012 Quota”), according to the terms and conditions described therein. Subsequently, the Central Bank issued Communication “A” 5380 and “A” 5449 (the “2013 Quota”), “A” 5516 and “A” 5600 (the “2014 Quota”), “A” 5681 and “A” 5771 (the “2015 Quota”), “A” 5874 and “A” 5975 (the “2016 Quota”) and “A” 6084 (the “2017 Quota”), establishing new regulations applicable to credit facilities for productive investments. The 2012 Quota, the 2013 Quota, the 2014 Quota, the 2015 Quota, the 2016 Quota and the 2017 Quota are not cumulative and must be complied with, independently, in each year. Financial institutions subject to this regime are those operating as financial agents of the national, provincial, City of Buenos Aires and/or municipal governments and/or those whose average total deposits over a related three-month period are equal to or greater than 1% of the total deposits in the financial system.

2012 Quota

Financial entities included in the 2012 Quota must extend credit facilities in respect of product investments in an aggregate amount equal to at least 5% of deposits of non-financial private sector deposits in Pesos, calculated based on the average balances as of the end of June 2012. The maximum interest rate is 15.01% fixed per annum for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 400 basis points.

The 2012 Quota must target at least 50% of the credit facilities rendered to MiPyMEs. The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. Financing required pursuant to the 2012 Quota must be granted by December 31, 2012.

2013 Quota

Financial entities included in the 2013 Quota must extend credit facilities in respect of productive investments in an aggregate amount equivalent to 5% of the non-financial private sector deposits in Pesos, calculated based on the balance resulting as of the end of November 2012 for the first tranche, and as of the end of May 2013 for the second tranche. The maximum interest rate is 15.25% fixed per annum for at least the first 36 months (for both tranches). After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 400 basis points.

The 2013 Quota must target at least 50% of the credit facilities rendered to MiPyMEs The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. Financing required pursuant to the first tranche must be granted by June 30, 2013. Financing under the second tranche must be granted by December 31, 2013.

2014 Quota

Financial entities included in the 2014 quota must extend credit facilities in respect of productive investments in an aggregate amount equivalent to 5% of the nonfinancial private sector deposits in Pesos, calculated based on the balance resulting as of the end of November 2013, for the first tranche, and for an amount equal to at least 5.5% of deposits of non-financial private sector deposits in Pesos, calculated according to the balance resulting as of the end of May 2014, for the second tranche. The maximum interest rate for the first tranche is 17.50% and for the second tranche is 19.50% fixed per annum for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 300 basis points.

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The 2014 Quota must target 100% of the credit facilities rendered to MiPyMEs. The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. Financing required pursuant to the first tranche must be granted by June 30, 2014. Financing under the second tranche must be granted by December 31, 2014. The maximum interest rate for the second semester of 2014 Quota is 19.50% fixed per annum for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the total BADLAR rate in Pesos plus 300 basis points.

2015 Quota

Financial entities included in the 2015 Quota must extend credit facilities in respect of productive investments in the first tranche in an aggregate amount equal to at least 6.5% of deposits of non-financial private sector deposits in Pesos, calculated based on the average balances of November 2014, and in the second tranche for an amount equal to at least 7.5% of deposits of non-financial private sector deposits in Pesos, calculated according to the average balances of May 2015. The maximum interest rate for the 2015 Quota was established at a fixed 19% per annum for the first tranche and at a fixed 18% per annum for the second tranche, for at least the first 36 months. After the completion of this period, if the financing continues, institutions may apply a variable rate that may not exceed the BADLAR rate in Pesos plus 150 basis points for the first tranche and BADLAR rate in Pesos plus 50 basis points for the second tranche.

The 2015 Quota must target 80% of the credit facilities rendered to MiPyMEs. The remaining 20% can target enterprises that exceed the maximum established for their area of activity in the rules on MiPyMEs and that the total exports do not exceed the 20% of total sales of the last financial year. The credits granted must be denominated in Pesos and, at the time of disbursement of the funds, must have a weighted average life equal to or greater than 24 months and shall mature beyond 36 months. All financing required pursuant to the 2015 Quota must be granted by December 31, 2015.

2016 Quota – Credit Lines for Production and financial inclusion

Central Bank Communications “A” 5874 and “A” 5975, established the following guidelines for the 2016 Quota.

Financial entities acting as financial agents for the national, provincial, City of Buenos Aires’ and/or municipal governments and/or whose share in the non-financial private sector deposits in Pesos in the financial system is equal to or greater than 1% (based on the simple average of daily balances of the non-financial private sector deposit in Pesos for the previous calendar nine-month period), will be required to extend certain credit lines, pursuant to the Central Bank regulations on “Credit lines for Financial Production and Inclusion” up to an annual quota, calculated based on deposits from the non-financial private sector in Pesos, computed based on the average and daily balances for: (i) November 2015 (for the first half of 2016), 14%; (ii) May 2016 (for the secondhalf of 2016), 15.5% and (iii) November 2016 (for the first half of 2017), 18%.

In addition, not less than 75% of the 2016 Quota must be allocated to credit facilities intended for MiPyMEs. The amount of the financing arises from applying to the disbursed capital a weight per category and location of the company

Communication “A” 5874, as amended, sets forth the type of financing which may be considered eligible to be computed as part of the 2016 Quota, which includes the following:

(i) financing of investment projects (meaning financing extended for the purchase of capital goods and/or the construction of facilities necessary for the production of goods and/or services and for the commercialization of goods and/or services; financing of working capital for investment projects for up to an amount equivalent to 20% of the total project amount; the purchase of real estate, provided the financing amount does not exceed 70% of the value attributable to the constructions built on the land; and financing for the purchase of motor vehicles and machinery, provided that the purchase transaction be carried out at the selling price applied to cash transactions; among others);

(ii) discount of deferred payment checks, certificates of public works (or any documentation that may replace them) and invoices and promissory notes for customers that are MiPyMEs for up to an amount equivalent to 30% of the first tranche of the 2016 Quota and for the whole quota of the second tranche of the 2016 Quota;

(iii) inclusion, by means of an assignment or discount, of financing facilities provided to users of financial services, or of receivables in respect of trusts whose trust assets consist primarily of such financing provided by financial entities not included within the scope of the above mentioned rules, with a total nominal annual financial cost not exceeding 27%, for the financings granted as of October 31, 2016 and 21% for the financings granted from November 1, 2016, which may amount to up to 5% of the 2016 Quota;

(iv) microcredit extended to micro entrepreneurs that meet certain requirements (including that, either individually or as a family group, they do not have revenues exceeding two adjustable minimum living wages and are not registered as value added tax, income tax and personal assets tax payers with AFIP). On a supplemental basis, micro entrepreneurs may be granted loans for the purchase of consumption goods or services;

(v) loans extended to individuals at an interest rate of up to a nominal annual 22% for the first year and as from the second year, if the above rate is not maintained, at a variable interest rate equivalent to the Peso BADLAR rate charged by private banks, plus 150 basis points. The proceeds of these loans must be used directly for the purchase of a sole family dwelling for the respective family group, and must be implemented by means of a collateral assignment of rights in the trusts created for the construction of those properties, subject to certain conditions. This type of financing may collectively amount to up to 10% of the 2016 Quota;

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(vi) mortgage loans extended to individuals for the purchase, construction or enlargement of dwellings, at an interest rate of up to a nominal annual 22% for the first year and as from the second year, if the above rate is not maintained, at a variable interest rate equivalent to the Peso BADLAR rate charged by private banks, plus 150 basis points. These loans may collectively amount to up to 10% of the 2016 Quota;

(vii) assistance provided to natural persons and/or legal entities in areas where an emergency situation prevails as a result of natural disasters. This assistance may amount to up to 15% of the 2016 Quota;

(viii) financing extended by financial entities that do not fall within the scope of these rules and/or to companies that provide financial assistance through capital lease transactions, provided the proceeds of such transactions are applied to funds, as of the effective date of the legal regulation, to provide financing to MiPyMEs for the purchase of motor vehicles and/or machinery at prices not exceeding cash transaction prices (i.e., list price, net of any general discounts) and pursuant to the conditions of the 2016 Quota. The proceeds must be used within a term of ten (10) business days between the date when financial assistance is received from the financial entity and the date the funds are used for lending to MiPyMEs (Communication “A” 5929);

(ix) financing extended to financial institutions regarding assistances mentioned in item (vii) and incorporations made from those assistances if granted by financial institutions. The entity which provides financing or its assignee, may compute such assistance, for which a report from the external auditor is required;

(x) working capital financing to MiPyMEs, extended from August 1, 2016, for working capital allocated to livestock farming (i.e., for the purchase and/or production of cattle, sheep, pigs, poultry, apiculture, etc.), dairy farming or other productive activities carried out in regional economies within the scope of section 2.2.9. of the “Minimum loan loss provisions” regulations, for up to an amount equivalent to 10% of the 2016 Quota; and

(xi) financing to non-financial institutions that issue credit cards and have joined the Ahora 12 Program.

The maximum interest rate to be applied, except for the financing facilities described in items (iii), (v), (vi) and (vii) above, will be a nominal annual fixed rate of 22% for the financings granted as of October 31, 2016 and of 17% for the financings granted from November 1, 2016. In the case of financings restated in “Purchasing Power Units”, CER adjustable, or UVA, the maximum interest rate is a nominal annual fixed rate of 1%. The rate will be free for transactions with customers who do not meet the conditions of a MiPyMEs.

Financing facilities must be denominated in Pesos and have – at the time of disbursement – an average maturity period equal to or longer than 24 months, based on weighted principal maturities, and the total maturity period must not be less than 36 months. Financing facilities described in item (i) above and to be used for working capital purposes must have an effective weighted average maturity period equal to or longer than 24 months. The discount transactions contemplated in items (ii) and (iii) will not be subject to a minimum maturity period requirement. The mortgage loans referred to in item (vi) must have a minimum term of 10 years. The working capital financing facilities for MiPyMEs described in item (x) must have an effective weighted average term equal to or longer than 18 months for financings through October 31, 2016 and a minimum term of 12 months as from November 1, 2016.

The entities may make up this portfolio with loans extended on a joint basis with other entities, in the relevant proportion. In case early pre-payment is accepted, only debtors will be entitled to such pre-payment right.

2017 Quota

Financial entities will be required to extend credit facilities from January 1, 2017 to June 30, 2017, equivalent to at least 18% of the non-financial private sector deposits in Pesos, calculated on the basis of the monthly average of daily balances in November 2016.

In the case of entities falling within the above scope whose share of total non-financial private sector deposits in Pesos is lower than 0.25% (calculated as described in the preceding paragraph) the percentage to be applied will be not less than 10%, from January 1, 2017 to June 30, 2017.

Loans and Housing Units

The Central Bank has adopted measures for taking deposits and extending loans expressed in a special measuring unit adjustable by the CER. These special units are referred to as Adjustable Purchase Value Units (Unidades de Valor Adquisitivo Actualizables, or “UVAs”].

In addition, Law No. 27,271 provides for the adjustment of deposits and loans by reference to the construction index, expressed in a special measuring unit referred to as Housing Units (Unidades de Vivienda or “UVIs”).

Consequently, UVAs and UVIs coexist and may be used both with respect to bank loans and deposits. The initial value of the UVI was Ps. 14.05 (the same as the UVA), representing the cost of construction of one thousandth square meter of housing as of March 31, 2016.

Both units are amended based on the indices published by the INDEC and the Central Bank on its website.

Foreign Exchange System

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

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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 foreign exchange transactions must be traded at exchange rates to be freely agreed upon.

Also on February 8, 2002, 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 the 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 local currency.

Regulations imposed by the Central Bank have been subject to further modifications as of the date of this document. For further information, see Item 10.D “Exchange Controls”.

As of mid December 2015, there have been significant changes to the legal framework applicable to the foreign exchange market aiming at granting greater flexibility to foreign exchange transactions.

These changes, initially contemplated under Communication “A” 5850, Communication “A” 5899 and Communication “A” 5955, among others, allowed those entities authorized to operate in the exchange market to engage in foreign currency arbitrage and exchange transactions with their customers. In addition, these regulations made it less burdensome for residents to access the foreign exchange market in order to acquire external assets, and for the repatriation by non residents of both portfolio and direct investment.

Effective as of August 9, 2016, the Central Bank continued to establish more flexible rules for foreign exchange transactions, for example through the issuance of Communication “A” 6037, which resulted in a simplification of the rules that had been in place since 2002.

The new regulations provide that foreign exchange transactions may be performed under a sworn statement detailing the subject matter of the transaction, insofar no specific requirements apply to the transaction, and eliminated the obligation to produce documents supporting each foreign exchange transaction.

In addition, transactions involving the creation of external assets by residents are no longer limited by a specific amount, and regulations restricting market access to transactions involving derivative instruments with foreign counterparties have been suppressed. The new regulations also provided greater flexibility to the requirements needed to engage in exchange transactions during extended schedule hours.

Foreign currency lending capacity

Central Bank Communication “A” 4851, as amended (the “Credit Policy”) contains regulations on the allocation of deposits in foreign currencies and establishes 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 (excluding syndicated loans); (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; (i) interfinancing loans (any interfinancing loans granted with such resources must be identified); (j) Central Bank bills denominated in dollars; (k) direct investments abroad by resident companies in Argentina, with the purpose of the development of non- financial productive activities of goods and/or services, either through contributions and/or purchases of shares in companies, to the extent that are constituted in countries or territories considered to be cooperators for the purposes of fiscal transparency, according to section 1 of Decree No. 589/13 as supplemented; (l) financing of investment projects, including its working capital, that allows the increase in the production on the energy sector, and have sales contracts in firm and/or endorsement or guarantees in foreign currency; (m) primary subscription of debt securities in foreign currency issued by the Argentine national treasury for up to an amount equivalent to 1/3 of the total allocations made as established herein; and (n) primary underwriting of debt instruments in foreign currency of the Argentine national treasury, up to the equivalent of a third of total allocations pursuant to these categories; and (m) (n) financing of investments in cattle farming, including working capital, not exceeding 5% of our deposits in foreign currency.

Communication “A” 5534, as amended, provides the rates for the integration of the minimum currency amount, for operations in foreign currency.

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.

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General Exchange Position

The general exchange position (“GEP”) 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 Organisation for Economic Co-operation and Development (OECD) members’ governments with a sovereign debt rating not below “AA,” certificates of time deposits in foreign institutions (rated not less than “AA”), correspondents’ debit and credit balances and the third parties funds pending of settlement. 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 (2) 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 (Communication “A” 4646 and “A” 4814).

The GEP ceiling is calculated every month and updated the first business day of the month. Pursuant to the relevant reporting system regulations this ceiling is set at 15.0% of the amount equivalent in U.S. dollars to the RPC 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 5.0% 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, by 10.0% of the total demand and time deposits locally held and payable in foreign bills, excluding deposits held in custody and deposits made under Law No. 27,260, recorded by the institution at the end of the calendar month prior to the immediately preceding month and by the daily amount equivalent in U.S. dollars to the foreign currency deposits made under Law No. 27,260, net of foreign currency banknotes submitted through foreign exchanges and arbitrations as from October 1, 2016. If the resulting ceiling is lower than US$8.0 million plus the daily amount equivalent in U.S. dollars resulting from the foreign currency deposits made under Law No. 27,260, net of foreign currency banknotes submitted through foreign exchanges and arbitrations as from October 1, 2016, the minimum amount of the ceiling shall be set at the sum of the latter two amounts.

It will be increased by an amount equivalent in U.S. dollars to 5.0% of the total amount traded by the institution on account of the purchases and sales of foreign currency with clients in the calendar month prior to the immediately preceding month, and by 2.0% 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 resulting ceiling is lower than US$8.0 million, the limit shall be set at US$8.0 million (Communication “A” 4646, “A” 4814, “A” 5837 and “A” 5850).

Institutions authorized to trade in exchanges failing to comply with the GEP ceilings or the exchange reporting regulations should refrain from exchanging until they are in compliance with the above (Communication “A” 4646).

Financial institutions can seek prior authorization from the Central Bank to exceed the prescribed limits, where required to meet specific needs and for a pre-determined period of time, which authorization may be granted provided it is consistent with the Central Bank’s monetary and foreign exchange objectives.

Foreign Currency Net Global Position

All assets and liabilities from financial intermediation in foreign currency and securities in foreign currency (originating in spot and forward transactions) are included in the net global position, including related derivatives and agreements contemplating variations in the rate of exchange, the items included in the computation of the “General Foreign Exchange Position,” foreign currency deposits in accounts maintained with the Central Bank as well as gold, Central Bank Bills in foreign currency, subordinated debt in foreign currency and debt securities issued in foreign currency.

Forward transactions under master agreements executed in authorized domestic markets paid by settlement of the net amount without delivery of the underlying asset are also included. Likewise, certificates or notes issued by financial trusts and claims under common trusts are also included in the relevant proportion, provided that the underlying assets are denominated in foreign currency.

Deductible assets when determining a bank’s RPC and Argentine government bonds linked to the growth of the GDP are excluded from the ratio.

Limits:

Negative Foreign Currency Net Global Position (liabilities exceeding assets): as of January 1, 2017 (Communication “A” 6128) the limit is 25% of the RPC of the immediately preceding month.

Positive Foreign Currency Net Global Position (assets exceeding liabilities): Communication “A” 6128 of the Central Bank established that, effective as of January 1, 2017, this daily position (monthly average of the daily balance converted to Pesos at the reference exchange rate) cannot exceed 25% of the lesser of the RPC or the entity’s own liquid assets (own liquid assets meaning the RPC surplus over fixed assets and other concepts to be computed in accordance with Central Bank regulation related to the “fixed assets and other concepts ratio”) of the immediately preceding month.

The excesses of these ratios are subject to a charge equal to 1.5 times the nominal interest rate of the Peso-denominated Lebacs. Charges not paid when due are subject to a charge equal to one and a half times the charge established for excesses.

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In addition to the above-mentioned charge, sanctions set forth in section 41 of the Financial Institutions Law shall apply (including: caution; warning; fine; temporary or permanent disqualification to dispose of a banking current account; temporary or permanent disqualification to act as promoters, founders, directors, administrators, members of surveillance committees, comptrollers, liquidators, managers, auditors, partner or shareholders; and license revocation).

Assignment of foreign exchange positions by financial and foreign exchange entities

On December 17, 2015, Communication “A” 5852 provided that financial entities authorized to deal in exchange transactions and foreign exchange entities were required to sell to the Central Bank their respective positive foreign currency positions at closing on December 16, 2015, valued at the reference exchange rate of such date, and then repurchase them in full. The repurchase transaction could be effected on December 17, 18 or 21, 2015, at the Central Bank’s choice, at the reference exchange rate prevailing on the day of the repurchase.

In particular, an open purchase position in U.S. dollar futures traded on the Mercado a Término de Rosario S.A. (Rosario Futures Exchange, or “ROFEX”) and having had its original price adjusted as provided under Item II of Communication 657 of Argentina Clearing S.A. was required to be sold to the Central Bank at the adjusted original price resulting from the enforcement of such Communication, and then repurchased in full at the reference exchange rate prevailing on the day of the repurchase.

For the purpose of exercising the repurchase date option contemplated in the first paragraph, the entities were required to submit a letter signed by its president or chief local officer to the General Operations Sub-department before 10:00 a.m. of the selected day, expressly stating the decision it had adopted.

If an entity failed to exercise the option contemplated in the first paragraph or to comply with any of the formal requirements set forth above, the repurchase was to be completed on December 22, 2015 at the reference exchange rate prevailing on such date.

The notion of “foreign currency position” referred to above was determined as follows: (i) for foreign exchange bureaus, agencies and offices: their GEP; and (ii) for financial entities authorized to deal in foreign exchange transactions: their net global foreign currency position, less any net assets corresponding to their liabilities in foreign-currency denominated government securities, based on the currency in which the respective financial services were paid (either a foreign currency or U.S. dollar-linked Argentine Pesos).

If the determined foreign currency position was negative, no sale to the Central Bank and repurchase was required.

Fixed Assets and Other Items

The Central Bank determines that the fixed assets and other items maintained by the financial entities must not exceed 100% of the entity’s RPC.

Such fixed assets and other items include the following:

• Shares of local companies;

• Miscellaneous receivables;

• Property and equipment; and

• Other assets.

The calculation of such assets will be effected according to the month-end balances, net of depreciations, accumulated amortizations and allowances for loan losses.

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

Credit Ratings

Since November 28, 2014, Communication “A” 5671, as amended by Communication “A” 6162, supersedes the provisions issued by the Central Bank containing ratings requirements assigned by a local risk rating company. Where provisions require certain international ratings, the criteria set forth by Communication “A” 5671 govern.

The provisions of Communication “A” 5671 are basic guidelines to properly assess the credit risk that financial institutions must observe when implementing Central Bank Rules including the requirement of a particular rating and do not replace the credit assessment that each financial institution must make to their counterparts. International credit ratings that refer to these provisions shall be issued by rating agencies that have a code of conduct based on the “Principles of the Code of Conduct for Agents Rate Risk” issued by the International Organization of Securities Commissions.

Annex II of Communication “A” 5671 provides a table regarding the new qualification requirements for financial institutions. This table classifies the credit ratings requirements for different transactions.

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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 or housing loans include housing loans, consumer loans, credit-card financings, loans of up to Ps.1,250,000 to micro-credit institutions and commercial loans of up to Ps.2,500,000 with or without preferred guarantees when the institution elected. All other loans are considered commercial loans. Consumer or housing loans in excess of Ps.2,500,000, the repayment of which is linked to the evolution of its productive or commercial activity, are classified as commercial loans. If a customer has both kinds of loans (commercial and consumer or 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 of their obligations or their legal standing, while the key criterion for classifying the commercial loan portfolio is each borrower’s paying ability based on their future cash flow.

Commercial loans classification

The principal criterion used 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 that demonstrate their ability to comply with their payment obligations. High repayment capacity.
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 or 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 Central Bank Rules, consumer and housing borrowers are classified as follows:

Classification	Criteria
Normal Situation	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 31 and 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.

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Classification	Criteria
Irrecoverable	Loans in which payment obligations are more than one year overdue or the debtor is insolvent or in bankruptcy or liquidation.
Irrecoverable Loans	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”		1	%		1	%
“Under observation” and “Low risk”		3	%		5	%
“Under negotiation or refinancing agreement”		6	%		12	%
“With problems” 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	%

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

In accordance with Central Bank Rules financial institutions are required to develop procedures for the analysis of the credit facilities assuring an appropriate evaluation of a debtor’s financial situation and a periodic revision of its situation concerning objective and subjective conditions of all the risks taken. The procedures established have to be detailed in a manual called “Manual of Procedures for Classification and Allowances” which shall be permanently available for the Superintendency. The frequency of the review of existing classifications must answer to the importance considering all facilities. The classification analysis shall be duly documented. The classification review must include (i) clients whose credits (in Pesos and in foreign currency) exceed the lower of 1% of the financial institution’s RPC corresponding to prior month and Ps.4.0 million and (ii) at least 20% of the financial institution’s total active credit portfolio, which, if applicable, shall be completed by incorporating clients (in decreasing order) whose total indebtedness is inferior to the limits described in (i).

In the case of commercial loans, applicable regulations require a minimum frequency of review. Such review must take place: (i) quarterly for clients with indebtedness equal or greater than 5% of the financial entity’s RPC for the prior month and (ii) semi-annually for clients whose indebtedness is (x) higher than the lower of 1% of the financial entity’s RPC for the prior month and Ps.4.0 million, and (y) lower than 5% of the financial entity’s RPC for the prior month. At the end of the first calendar semester, the total review under (i) and (ii) should have covered no less than 50% of the financial entity’s commercial loan portfolio and, if less, it shall be completed by incorporating clients (in descending order) whose total indebtedness is inferior to the limits described in the preceding point (ii)(x).

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” (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 all depositors, irrespective of the type, amount or currency of their deposits, will be senior to the other remaining creditors (such as shareholders of the bank), with

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exceptions made for certain labor liens (section 53 paragraphs (a) and (b)) and for those creditors backed by a pledge or mortgage, in the following order of priority: (a) deposits of up to Ps.450,000 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.450,000, or its equivalent in foreign currency, and (c) the liabilities originated in commercial lines granted to the financial institution and which directly affect international commerce. Furthermore, pursuant to section 53 of the Financial Institutions Law, as amended, Central Bank claims have absolute priority over other claims, except for pledged or mortgaged claims, certain labor claims, the depositors’ claims pursuant to section 49, paragraph e), points i) and ii), debt granted under section 17, paragraphs (b), (c) and (f) of the Central Bank’s Charter (including discounts granted by financial entities due to a temporary lack of liquidity, advances to financial entities with security interest, assignment of rights, pledges or special assignment of certain assets) and debt granted by the Banking Liquidity Fund backed by a pledge or mortgage.

The amendment to section 35 bis of the Financial Institutions Law by Law No. 25,780 sets forth that if a bank is in a situation where the Central Bank may revoke its authorization to operate and become subject to dissolution or liquidation by judicial resolution, the Central Bank’s Board of Directors may take certain actions. Among these actions, in the case of excluding the transfer of assets and liabilities to financial trusts or other financial entities, the Central Bank may totally or partially exclude the liabilities mentioned in section 49, paragraph (e), as well as debt defined in section 53, giving effect to the order of priority among creditors. Regarding the partial exclusion, the order of priority of paragraph (e), section 49 must be followed without treating liabilities of the same grade differently.

Mandatory deposit insurance system

Law No. 24,485, passed on April 12, 1995, as amended, 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 Argentine individuals and legal entities in Pesos and 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.350,000, as set forth by Central Bank Communication “A” 5659, dated October 31, 2014, as amended. Pursuant to Communication “A” 5943, as of May 1, 2016, the Central Bank set Ps.450,000 as the guarantee amount for these deposits.

Effective payment on this guaranty will be made within thirty (30) business days after revocation of the license of the financial institution in which the funds are held; such payments are 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, (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, and (vii) immobilized credit from deposits and excluded transactions.

Pursuant to Communication “A” 5710, every financial institution is required to contribute to the FGD a monthly amount of 0.06% of the monthly average of daily balances of deposits in local and foreign currency, as determined by the Central Bank. When fixed term deposits in U.S. dollars of the private non-financial sector are used to purchase Central Bank bills denominated in U.S. dollars, financial institutions must contribute 0.015% of the monthly average of daily balances of the net position of such bills. 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. Pursuant to Communication “A” 5943, effective as of April 7, 2016, the monthly contribution to the FDG was established as 0.015%

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.

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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.

The Capital Markets Law introduced substantial changes to regulations governing markets, stock exchanges and the various agents operating in capital markets, as well as certain amendments to the CNV’s powers. On September 9, 2013, the CNV published Resolution No. 622/2013 (the “CNV Rules”) supplementing the Capital Markets Law. The CNV Rules have been in force since September 18, 2013.

One of the most significant modifications introduced by the Capital Markets Law and the CNV Rules is that agents and markets must comply with the CNV’s requirements for applying for an authorization to operate, as well as registration requirements. It further provides that each category of agent must meet minimum net worth and liquidity requirements.

Additionally, under the Capital Markets Law, the self-regulation of markets was eliminated, and authorization, supervision, control, as well as disciplinary and regulatory powers, are conferred to the CNV regarding all capital market players.

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 a remediation and regularization plan. The plan must be submitted to the Central Bank on a specified date, no later than thirty (30) calendar days from the date on which a request to that effect is made by the Central Bank. If the institution fails 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.

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 thirty (30) days if the liquidity or solvency thereof is adversely affected. Such term could be renewed for up to ninety (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 a financial institution meets the Central Bank’s criteria and is found to be in a situation covered by the Financial Institutions Law, then the Central Bank is authorized to revoke the institution’s operation license. The Central Bank may order a restructuring plan before revoking an institution’s license. The restructuring plan may consist of certain steps, including, among others:

• adoption of a list of measures to capitalize or increase the capital of the financial institution;

• revoke the 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.

Revocation of the license to operate as a financial institution

The Central Bank may revoke the license to operate as a financial institution in the situations outlined in the Financial Institutions Law. These situations include if a restructuring plan fails or is not deemed feasible, local laws and regulations are violated, the solvency or liquidity of the financial institution is affected, significant changes occur in the institution’s condition from when the original authorization was granted, if any decision by the financial institution’s legal or corporate authorities concerning its dissolution is adopted. Further, pursuant to the Central Bank regulations on “Incorporation of Financial Entities,” sanctions imposed by the Central Bank, the UIF, the CNV and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación) on financial institutions and/or their authorities, may result in the revocation of their licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the Board of Directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of:

(i) the members of a financial institution’s board of directors (directors, counselors or equivalent authorities),

(ii) its shareholders,

(iii) the members of its supervisory committee and

(iv) others, such as its managers.

For such purposes, the Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.

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Once the license to operate as a financial institution has been revoked, the financial institution will 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 there are sufficient assurances 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 a 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 sixty (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. 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 supporting the project in order to obtain authorization from the Central Bank.

Financial system restructuring unit

The Financial System Restructuring Unit was created to oversee the implementation of a new approach towards those banks that benefit from assistance provided 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.

Anti-money laundering

The concept of money laundering is generally used to denote transactions aimed at introducing funds from illicit activities into the institutional system and thus transform gains from illegal activities into 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 “Anti-Money Laundering Law”), which sets forth an administrative criminal system and supersedes several sections of the Argentine Criminal Code related to money laundering.

The Anti-Money Laundering Law defines money laundering as a crime committed whenever a person converts, transfers, manages, sells, encumbers, disguises or in any other way commercializes goods obtained through a crime, with the possible consequence that the original assets or the substitute may appear to be of a legitimate origin. The value of the assets must exceed Ps.300,000. This amount may be the product of one or more related transactions.

Money laundering is a separate crime from concealment. Money laundering is a crime against the economic and financial order, whereas concealment is considered an offense against the public administration. Therefore, an individual or entity can be prosecuted for money laundering even if they did not participate in the underlying crime to illegally obtain goods.

To comply with recommendations made by the FATF on money laundering prevention, on June 1, 2011, the Argentine Congress enacted Law No. 26,683. Under this law, money laundering is a crime per se. Laundering one’s own money is also sanctionable. This law extends reporting duties to certain members of the private sector who were formerly not under such an obligation.

The Anti-Money Laundering Law created the UIF, under the Argentine Ministry of Justice, Security and Human Rights, which is responsible for the handling and transmitting of information to prevent (a) the laundering of assets mainly 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;

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(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 (sections 41 and 306 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.

The UIF is also responsible for transmitting information to prevent (b) terrorism financing (sections 41 and 306 of the Argentine Criminal Code).

The Anti-Money Laundering Law, like anti-money laundering laws of other countries, does not place sole responsibility on the Argentine government to monitor these criminal activities, but rather it also places certain duties on various private sector entities, such as banks, shareholders, stock markets and insurance companies. Under the Anti-Money Laundering law, these private sector entities are now legally bound reporting parties. 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 (know your customer policy);

b) reporting to the UIF any transaction considered suspicious (as such term is explained below), as well as any transaction that lacks economic or legal justification, or is unnecessarily complex, whether performed on isolated occasions or repeatedly; and

c) keeping any monitoring activities in connection with a proceeding pursuant to the Anti-Money Laundering Law confidential from both clients and third parties.

Argentine financial institutions must comply with all applicable anti-money laundering regulations as provided by the UIF, the Central Bank, and, if applicable (as is the case of Banco Macro), by the CNV. In this regard, in accordance with Resolution No. 229/2014 of the UIF, both the Central Bank and the CNV are considered “Specific Control Organs.” In such capacity, they must cooperate with the UIF in the evaluation of the compliance with the anti–money laundering proceedings of the legally bound reporting parties subject to their control. In that respect, they are entitled to supervise, monitor and inspect such entities, and if necessary, implement certain corrective measures and actions.

Resolution 121/2011 issued by the UIF, as amended among others by Resolution No. 196/2015 (“Resolution 121”), is applicable to financial entities subject to the Financial Institutions Law, to entities subject to the Law No. 18,924, as amended, and to individuals and legal entities authorized by the Central Bank to intervene in the purchase and sale of foreign currency through cash or checks issued in foreign currency or through the use of credit or payment cards, or in the transfer of funds within or outside the national territory. Resolution No. 229/2011 of the UIF, as amended or supplemented by Resolutions No. 52/2012 and 140/2012 (“Resolution 229”), is applicable to brokers and brokerage firms, companies managing common investment funds, agents of the OTC market, intermediaries in the purchase or leasing of securities affiliated with stock exchange entities with or without associated markets, and intermediary agents registered on forwards or option markets. Resolution 121 and Resolution 229 regulate the obligation to collect documentation from clients and the terms, obligations and restrictions for compliance with the reporting duty regarding suspicious money laundering and terrorism financing transactions.

Resolution 121 and Resolution 229 set forth general guidelines in connection with the client’s identification (including the distinction between occasional and regular clients), the information to be requested, the documentation to be filed and the procedures to detect and report suspicious transactions.

The main duties under Resolution 121 and 229 are:

a) to create a manual establishing the mechanisms and procedures to be used to prevent money laundering and terrorism financing;

b) to appoint a member of the board of directors as compliance officer;

c) to implement periodic audits;

d) to offer personnel training;

e) to create a record of detected unusual (as such term is explained below) and suspicious operations;

f) to implement technological tools to allow the development of efficient control systems for prevention of money laundering and terrorism financing;

g) to implement measures to allow persons obliged under Resolution 121 and Resolution 229, to electronically consolidate the transactions carried out with clients, and to develop electronic tools to identify certain behaviors and observe possible suspicious transactions, requesting information and, if applicable, supporting documents from its customers and

h) to adopt reinforced identification methods applicable to customers with specific features as provided by applicable regulations. Entities covered by Resolution 121 and Resolution 229, as legally bound reporting parties, must report any money laundering suspicious activity to the UIF within 150 calendar days of its occurrence (or attempt) and any terrorism financing suspicious activity before a 48 hours period of its occurrence (or attempt) has elapsed. However, as discussed in Resolution UIF 3/2014, within a maximum of 150 calendar days, entities covered by Resolution 121 and Resolution 229 must report any money laundering suspicious activity to the UIF within thirty (30) calendar days as of the day on which any such activity is qualified as suspicious by such legally bound reporting party.

According to Resolution 121 and Resolution 229, unusual transactions are those attempted or consummated transactions, on a one-time or on a regular basis, without economic or legal justification, inconsistent with the risk level or transactional profile of the client or, and which deviate from standard market. Under Resolution 121 and Resolution 229, suspicious transactions are those attempted or consummated transactions that, having been previously identified as unusual transactions by the legally bound reporting party, are inconsistent with the lawful activities declared by the client or, even if related to lawful activities, give rise to suspicion that they are linked or used to finance terrorism.

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On August 2016, UIF Resolution No. 94/2016 established that the legally bound reporting parties under Resolution 121 may apply simplified due diligence measures for customer identification when opening a savings account (i.e., presentation of identification, PEP declaration and verification that the holder is not on the lists of terrorists and/or terrorist organizations) in cases where the client meets certain specified requirements. According to this resolution, the simplified identification measures do not release the legally bound reporting party from the duty of monitoring the operations carried out by such customer. Also, if any of the requirements stated in the resolution cannot be verified, the legally bound reporting parties must apply the identification measures set out in Resolution 121.

The Central Bank and the CNV must also comply with anti-money laundering regulations set forth by the UIF, including reporting suspicious transactions. In particular, the Central Bank must comply with UIF Resolution No. 12/2011, as supplemented, among others, by Resolutions No. 1/2012 and No. 92/2012, which sets forth the Central Bank’s obligation to evaluate the anti-money laundering controls implemented by Argentine financial institutions (with the limitation of the access to the reports and records of suspicious operations, which are, as aforementioned, confidential and subject only to the UIF’s supervision), and lists examples of what circumstances should be specially considered in order to stablish if a particular transaction may be considered unusual and eventually qualified as suspicious.

The listed transactions are closely reviewed by the Central Bank. Such transactions include, 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 total, 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. The CNV must comply with UIF Resolution No. 22/2011, as supplemented, by Resolutions No. 1/2012 and No. 92/2012, which sets forth the CNV’s obligation to evaluate the anti-money laundering controls implemented by entities subject to its control (with the limitation of the access to the reports and records of suspicious operations, which are confidential and subject only to the UIF’s supervision), and also lists some examples of what circumstances should be specially considered in order to establish if a particular transaction may be considered unusual and eventually qualified as suspicious.

Central Bank Rules require Argentine banks to take certain precautions to prevent money laundering. In this regard, the Central Bank recommends financial institutions create an anti-money laundering committee to assist in the compliance of the anti-money laundering regulations.

Each financial institution must appoint a member of the board of directors as the person responsible for money laundering prevention. This board member is in charge of centralizing any information the Central Bank may require or information that any other competent authority may request. They must also report any suspicious transactions to the UIF.

The guidelines issued by the Central Bank to detect unusual or suspected money laundering or terrorist financing transactions require the reporting of suspicious transactions and are based on the resources of the entity subject to the reporting obligation and on the type of analysis performed. In particular, the following circumstances are 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 is not a territory or associated state included in the cooperating countries list contained in Executive Decree No. 589/2013, section 2(b) is 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 not organized, domiciled or resident in dominions, jurisdictions, territories or associated states included in the cooperating countries list contained in Executive Decree No. 589/2013, section 2(b), 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.

Pursuant to Communication “A” 5738, as amended and supplemented, including without limitation, by Communication “A” 6060, of the Central Bank, in force as of February 2015, Argentine financial institutions must comply with certain additional “know your customer policies.” New commercial relationships cannot be initiated if the “know your customer policies” and the risk management legal standards

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have not been met. Regarding existing clients, if the “know your customer policies” cannot be complied with, the Argentine financial institution must discontinue operations with such client (i.e. cease the relationship with the client in accordance with Central Bank’s regulations for each type of product) within 150 calendar days as of the notice of such circumstances. Operations do not have to be discontinued when the “know your customer policies” are complied with in such period or when simplified due diligence procedures were implemented pursuant to the applicable laws. Further, under this Communication, Argentine financial entities must keep the documentation related to the discontinuance for 10 years and include in their prevention manuals the detailed procedures to initiate and discontinue operations with clients in accordance with the above-mentioned additional “know your customer policies” in place.

The CNV Rules, as amended in September 2013, include a specific chapter regarding “Prevention of Money Laundering and the Financing of Terrorism” and state that the persons set forth therein (including, among others, Negotiation Agents, Clearing and Settlement Agents (which are stockbrokers), and Distribution and Placement Agents) are to be considered legally bound reporting under the Anti-Money Laundering Law, and therefore must comply with all the laws and regulations in force in connection with anti-money laundering and terrorism financing, including resolutions issued by the UIF, presidential decrees referring to resolutions issued by the United Nations Security Council in connection with the fight against terrorism and the resolutions (and its annexes) issued by the Ministry of Foreign Affairs. In addition, CNV Rules impose certain restrictions in connection with payment arrangements (restricting, among others, to Ps.1,000 the cash amount that the entities set forth therein could receive or pay per day and per client) and impose certain reporting obligations.

The CNV Rules establish that the above-mentioned entities shall only be allowed to carry out any transactions contemplated under the public offering system, if such transactions are carried out or ordered by persons organized, domiciled or resident in dominions, jurisdictions, territories or associated States included in the cooperating countries list contained in Executive Decree No. 589/2013, section 2(b). When such persons are not included in such list and in their home jurisdiction qualify as registered intermediaries in an entity under control and supervision of a body that carries out similar functions to those carried out by the CNV, they will only be allowed to carry out such transactions if they provide evidence indicating that the relevant securities and exchange commission in their home jurisdiction has signed a memorandum of understanding for cooperation and exchange of information with the CNV.

On February 17, 2016, the “National Coordination Program for the Prevention of Asset Laundering and the Financing of Terrorism” was created by Executive Decree No. 360/2016 as an instrument of the Ministry of Justice and Human Rights. This Program is responsible for reorganizing, coordinating and strengthening the national system for the prevention of money laundering and the financing of terrorism. The program considers in particular the specific risks that may have an effect on Argentine territory and the global demand for a more effective compliance with international obligations and recommendations established under United Nations Conventions and the standards of the FATF. The National Coordinator leads the program and ensures its responsibilities are performed and implemented. Applicable statutory rules were also modified and the Ministry of Justice and Human Rights were placed primarily in charge of the inter-institutional coordination among all public and private agencies and entities with competent jurisdiction on this matter, while the Financial Information Unit (UIF) will retain the ability to perform operating coordination activities at the national, provincial and municipal levels in relation to matters strictly within its jurisdiction as a financial intelligence agency.

Law No. 27,260 and its supplemental Decree No. 895/2016, allow the UIF to provide information to other public entities who also have intelligence or investigation rights, so long as the sharing of this information has been previously authorized by the president of the UIF and if there is reasonable, precise and serious evidence of the commission of any of the crimes contemplated under the Anti-Money Laundering Law. The entities receiving the communications of the UIF providing this information will be subject to the confidentiality obligations of Section 22 of the Anti-Money Laundering Law, and will be subject to the criminal penalties of such law if they breach their duty of confidentiality and reveal secret information. The UIF is not entitled to exercise this right with respect to voluntary and exceptional declarations made pursuant to Law No. 27,260. In addition, pursuant to the UIF Resolution No. 92/2016, reporting agents have to implement a special risk management system. The UIF implemented a special reporting system for operations carried out under the abovementioned tax amnesty disclosure prior to March 31, 2017.

On January 11, 2017, the UIF published Resolution No. 4/2017 (“Resolution 4/2017”), which allows the legally bound reporting parties detailed in subsections 1, 4 and 5 of section 20 of Law No. 25,246, as amended, (the “Legally Bound Reporting Parties of Res. 4/2017”), to apply special due diligence identification measures to foreign and national investors (which must comply with the requirements established by Resolution 4/2017 to qualify) to Argentina when at-distance opening special investment accounts (the “Accounts”). The special due diligence regime shall not exempt the Legally Bound Reporting Parties of Res. 4/2017 from monitoring and supervising the transactions performed during the course of the commercial relationship, according to a risk-based approach.

Resolution 4/2017 also regulates the due diligence measures between legally bound financial reporting parties. It requires that when the opening of the Accounts is requested by settlement and clearing agents, or the ALyCs, the local financial entity will have complied with current anti-money laundering and counter terrorist financing regulations after performing due diligence with respect to the ALyCs. The ALyCs shall be responsible for performing due diligence with respect to its customers. Resolution 4/2017 expressly establishes that, even though the financial entities are not responsible for performing due diligence with respect to the ALyCs’ customers, they are not exempt from monitoring and supervising the transactions performed by their clients (the ALyCs) during the course of the commercial relationship, according to a risk-based approach.

Anti-Money Laundering and Prevention of Terrorist Financing Program of the Bank

One of the most significant operational risks that is monitored is that of the activities of “Anti-Money Laundering and Prevention of Terrorist Financing.” There is a program designed to safeguard us against any unintentional involvement or participation in criminal or illicit activities or terrorist financing, and to reaffirm the policy of fully cooperating with the strict application of law and cooperation with the authorities and regulatory bodies.

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In order to ensure that the financial system is not used as a channel of funds from criminal activities, employees must determine the true identity of all customers and final beneficiaries of the contracted products and services.

The term terrorism means any premeditated and politically motivated violent act perpetrated against non-combatant targets by clandestine agents or anti-national groups, usually aimed at influencing one or more sectors.

Our regulatory framework categorizes commercializing goods obtained through a crime, with the possible consequence that the original assets or the substitute thereof may appear to be of a legitimate origin, as money laundering. Terrorist financing refers to the funding of a criminal activity, whether through money obtained illegally or legally.

Roles and responsibilities of the program

The term “Anti-Money Laundering Program” refers to the procedures and policies we have adopted to comply with the Anti-Money Laundering Law.

All employees have roles and responsibilities in the implementation of the Anti-Money Laundering Program. These roles and responsibilities vary depending on the employee’s business line or business area.

Elements of the Anti-Money Laundering Program

We adopt specific procedures for our various operational and commercial areas as applicable.

The following are the most important components of the Bank’s Anti-Money Laundering Program:

1. Prevention: We carry out different tasks in order to mitigate the risk of money laundering:

a. Generation of policies and procedures

b. Reliable identification of customers and knowledge of their activities (“Know Your Customer” process).

c. Specific risk analysis in the product and process approval process.

d. Training and ongoing communication to update all relevant staff.

e. Existence of an Operational and Regulatory Risk Management Unit, a responsible Officer and a Committee for Anti-Money Laundering, Prevention of Terrorist Financing and “Know Your Customer.”

2. Monitoring: We monitor the activity of clients, suppliers, etc., by setting parameters and alerts to be able to identify cases that must be reported to the appropriate authorities.

3. Relationship with regulatory agencies or industry: We maintain relations with the BCRA/FIU/CNV by carrying out all necessary actions in order to collect and maintain adequate identification of clients and transaction records, in accordance with regulatory requirements . Likewise, we respond to the information requirements of the mentioned entities.

4. Audits and Reviews: this program will be periodically reviewed through by its own assurance program and different types of audits (internal, external, comptroller) to identify opportunities for improvement.

5. Training and Communication: All our staff (including executive staff) who have a relationship with clients or handle their transactions must receive training in anti-money laundering. This training is institutional and mandatory.

6. Know Your Client (KYC): Similar to our efforts to prevent money laundering, and terrorist financing begins with an appropriate “Know Your Customer” process.

a. Customer awareness allows financial institutions to determine if certain customers are included on terrorist lists issued by governments and regulatory agencies. This process also allows us to establish whether we are facing high-risk clients (eg, Politically Exposed Persons) in order to carry out an Improved Due Diligence process (EDD).

b. We will not enter into any relationship with any individual or entity who cannot prove their true identity.

7. Recognition and reporting of unusual or suspicious activities: When employees receive indications that make them assume that clients’ funds come from criminal activities, they should report this to the Operational and Regulatory Risks Management Unit for evaluation in accordance with established procedure.

For a thorough analysis of money laundering regulations in effect as of the date of this document, please consult with your own legal counsel and to read Title XIII, Second Book of the Argentine Criminal Code and any regulations issued by the UIF, the CNV and the Central Bank 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.gov.ar, the CNV, www.cnv.gob.ar or the Central Bank, www.bcra.gov.ar none of which websites are incorporated by reference herein.

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C. Organizational Structure

Subsidiaries

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

	Banco Macro’s direct and indirect interest
Subsidiary	Percentage of Capital Stock			Percentage of possible votes
Banco del Tucumán S.A. (1)		89.932	%		89.932	%
Macro Bank Limited (2)		99.999	%		100.00	%
Macro Securities S.A. (1)		99.921	%		99.932	%
Macro Fiducia S.A. (1)		98.605	%		98.605	%
Macro Fondos S.G.F.C.I. S.A. (1)		99.936	%		100.00	%

(1) Country of residence: Argentina

(2) Country of residence: The Bahamas

D. Property, plants and equipment

Property

Our headquarters consist of 25,146 square meters of office space that is used by management, accounting and administrative personnel. Our headquarters consist of 23,646 square meters that we own and 1,500 square meters that are leased. Our headquarters are split between offices located in Sarmiento 341-355, 401-447,731-735, Perón 564 and Leandro N. Alem 1110, all in the City of Buenos Aires. As of December 31, 2016, we have a branch network that consists of 444 branches in Argentina, of which 177 were leased properties.

In 2011 we acquired a site, located at Av. Eduardo Madero No. 1180, in the City of Buenos Aires, from the Government of the City of Buenos Aires, for an aggregate amount of Ps.110 million. We have developed a project to build our new corporate offices on this site. Work on the site began in 2012 and is expected to be completed during 2017. The new corporate tower was designed to take full advantage of natural light and maximize energy efficiency, while also using materials that do not adversely affect the environment. It is being built in compliance with the Leed International Sustainability Standards of the “U.S. Green Building Council.”

The building will have an area of 52,700 square meters and we estimate that this project would require an investment of approximately U.S.$170 million. As of December 31, 2016, the total aggregate amount invested in the project was Ps.1,211.2 million (approximately U.S.$122.5 million at the applicable exchange rates at the end of the month as of the respective dates of such investments).

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 extracted from the Bank’s internal documentation that supports 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 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 for a summary of the significant differences between Central Bank Rules and U.S. GAAP.

Due to the modification of certain disclosure methods used for certain items in the consolidated balance sheets and consolidated statements of income, certain figures have been restated for comparability purposes. See “Presentation of Certain Financial and Other Information.”

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, 2014, 2015 and 2016.

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	2014								2015								2016
	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)
ASSETS
Interest-earning assets
Government securities (1)
Pesos		8,322,927			1,971,981		23.69	%		10,926,858			3,377,979		30.91	%		18,653,682			5,537,801		29.69	%
Foreign currency		1,654,116			47,449		2.87	%		3,032,056			191,906		6.33	%		2,971,253			129,950		4.37	%
Total		9,977,043			2,019,430		20.24	%		13,958,914			3,569,885		25.57	%		21,624,935			5,667,751		26.21	%
Loans
Private and financial Sector
Pesos		37,004,555			11,068,167		29.91	%		48,630,232			14,800,448		30.43	%		64,337,442			21,156,414		32.88	%
Foreign currency		2,184,470			258,640		11.84	%		2,328,639			293,347		12.60	%		5,215,644			352,779		6.76	%
Total		39,189,025			11,326,807		28.90	%		50,958,871			15,093,795		29.62	%		69,553,086			21,509,193		30.92	%
Public Sector
Pesos		610,798			201,470		32.98	%		512,488			112,880		22.03	%		918,159			414,198		45.11	%
Total		610,798			201,470		32.98	%		512,488			112,880		22.03	%		918,159			414,198		45.11	%
Other assets
Pesos		1,893,423			131,748		6.96	%		2,744,649			591,426		21.55	%		2,932,300			763,470		26.04	%
Foreign currency		1,010,274			31,904		3.16	%		990,097			39,116		3.95	%		1,073,205			17,209		1.60	%
Total		2,903,697			163,652		5.64	%		3,734,746			630,542		16.88	%		4,005,505			780,679		19.49	%
Total interest-earning assets
Pesos		47,831,703			13,373,366		27.96	%		62,814,227			18,882,733		30.06	%		86,841,583			27,871,883		32.10	%
Foreign currency		4,848,860			337,993		6.97	%		6,350,792			524,369		8.26	%		9,260,102			499,938		5.40	%
Total		52,680,563			13,711,359		26.03	%		69,165,019			19,407,102		28.06	%		96,101,685			28,371,821		29.52	%
Non interest-earning assets
Cash and due from banks
Pesos		2,710,272			—		—			3,072,264			—		—			3,448,130			—		—
Foreign currency		756,574			—		—			1,045,614			—		—			2,300,383			—		—
Total		3,466,846			—		—			4,117,878			—		—			5,748,513			—		—
Investments in other companies
Pesos		11,595			—		—			9,870			—		—			9,889			—		—
Foreign currency		2,164			—		—			2,586			—		—			3,733			—		—
Total		13,759			—		—			12,456			—		—			13,622			—		—
Property and equipment and miscellaneous and intangible assets and items pending of allocation
Pesos		1,767,760			—		—			2,609,333			—		—			3,570,014			—		—
Foreign currency		0			—		—			0			—		—			—			—		—
Total		1,767,760			—		—			2,609,333			—		—			3,570,014			—		—
Allowance for loan losses
Pesos		(1,038,264	)		—		—			(1,223,389	)		—		—			(1,527,248	)		—		—
Foreign currency		(57,546	)		—		—			(73,549	)		—		—			(140,753	)		—		—
Total		(1,095,810	)		—		—			(1,296,938	)		—		—			(1,668,001	)		—		—
Other assets
Pesos		6,588,491			—		—			8,086,665			—		—			12,112,830			—		—
Foreign currency		4,431,135			—		—			3,798,792			—		—			10,202,501			—		—
Total		11,019,626			—		—			11,885,458			—		—			22,315,331			—		—
Total non interest-earning assets
Pesos		10,039,854			—		—			12,554,743			—		—			17,613,615			—		—
Foreign currency		5,132,327			—		—			4,773,443			—		—			12,365,864			—		—
Total		15,172,181			—		—			17,328,187			—		—			29,979,479			—		—
TOTAL ASSETS
Pesos		57,871,557			—		—			75,368,970			—		—			104,455,198			—		—
Foreign currency		9,981,187			—		—			11,124,235			—		—			21,625,966			—		—
Total		67,852,744			—		—			86,493,207			—		—			126,081,164			—		—
LIABILITIES
Interest-bearing liabilities
Savings accounts
Pesos		7,714,543			49,175		0.64	%		10,894,390			68,098		0.63	%		14,655,907			89,544		0.61	%
Foreign currency		1,741,369			594		0.03	%		2,239,920			71		0.00	%		4,531,299			320		0.01	%
Total		9,455,912			49,769		0.53	%		13,134,310			68,169		0.52	%		19,187,206			89,864		0.47	%
Time deposits
Pesos		23,407,958			5,128,065		21.91	%		29,119,497			6,655,538		22.86	%		41,444,932			10,126,746		24.43	%

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	2014							2015							2016
	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)
Foreign currency		2,142,104		10,962		0.51	%		2,264,310		51,250		2.26	%		7,141,501		163,806		2.29	%
Total		25,550,062		5,139,027		20.11	%		31,383,807		6,706,788		21.37	%		48,586,433		10,290,552		21.18	%
Borrowing from the Central Bank
Pesos		14,957		1,308		8.75	%		9,201		793		8.62	%		2,619		203		7.75	%
Foreign currency		75		—		0.00	%		23		—		0.00	%		—		—		0.00	%
Total		15,032		1,308		8.70	%		9,224		793		8.60	%		2,619		203		7.75	%
Borrowings from other financial institutions
Pesos		116,446		23,331		20.04	%		115,511		22,720		19.67	%		246,109		66,791		27.14	%
Foreign currency		282,786		9,997		3.54	%		91,129		5,137		5.64	%		67,307		3,228		4.80	%
Total		399,232		33,328		8.35	%		206,640		27,857		13.48	%		313,416		70,019		22.34	%
Corporate Bonds
Foreign currency		2,082,246		194,864		9.36	%		2,376,493		220,402		9.27	%		4,690,211		412,225		8.79	%
Total		2,082,246		194,864		9.36	%		2,376,493		220,402		9.27	%		4,690,211		412,225		8.79	%
Other liabilities
Foreign currency		26,740		0		0.00	%		0		0		0.00	%		1,192		0		0.00	%
Total		26,740		0		0.00	%		0		0		0.00	%		1,192		0		0.00	%
Total Interest-bearing liabilities
Pesos		31,253,904		5,201,879		16.64	%		40,138,599		6,747,149		16.81	%		56,349,567		10,283,284		18.25	%
Foreign currency		6,275,320		216,417		3.45	%		6,971,875		276,860		3.97	%		16,431,510		579,579		3.53	%
Total		37,529,224		5,418,296		14.44	%		47,110,474		7,024,009		14.91	%		72,781,077		10,862,863		14.93	%
Non-interest bearing liabilities and Shareholders’ equity
Demand deposits
Pesos		15,741,946		0		—			21,001,262		0		—			24,124,498		0		—
Foreign currency		555,170		0		—			579,129		0		—			1,700,492		0		—
Total		16,297,116		0		—			21,580,391		0		—			25,824,990		0		—
Other liabilities
Pesos		2,477,047		0		—			3,301,677		0		—			5,501,029		0		—
Foreign currency		1,037,833		0		—			911,428		0		—			2,635,271		0		—
Total		3,514,880		0		—			4,213,105		0		—			8,136,300		0		—
Minority Interest
Pesos		82,807		0		—			111,642		0		—			150,677		0		—
Foreign currency		3,014		0		—			0		0		—			0		0		—
Total		85,821		0		—			111,642		0		—			150,677		0		—
Shareholders’ equity
Pesos		10,425,703		0		—			13,477,595		0		—			19,188,120		0		—
Total		10,425,703		0		—			13,477,595		0		—			19,188,120		0		—
Total non–interest bearing liabilities and shareholders’ equity
Pesos		28,727,503		0		—			37,892,176		0		—			48,964,324		0		—
Foreign currency		1,596,017		0		—			1,490,557		0		—			4,335,763		0		—
Total		30,323,520		0		—			39,382,733		0		—			53,300,087		0		—
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Pesos		59,981,407		0		—			78,030,775		0		—			105,313,891		0		—
Foreign currency		7,871,337		0		—			8,462,432		0		—			20,767,273		0		—
Total		67,852,744		0		—			86,493,207		0		—			126,081,164		0		—

(1) Includes instruments issued by the Central Bank. The interest earned/paid includes changes due to mark-to-market of those securities.

Changes in interest income and interest expense; volume and rate analysis

The following tables allocate, by currency of denomination, changes in our interest income and interest expense segregated for each major category of interest-earning assets and interest-bearing liabilities into amounts attributable to changes in their average volume and their respective nominal interest rates for fiscal year ended December 31, 2014 compared to the fiscal year ended December 31, 2013; for fiscal year ended December 31, 2015 compared to the fiscal year ended December 31, 2014 and for fiscal year ended December 31, 2016 compared to fiscal year ended December 31, 2015.

70

	December 2014/December 2013									December 2015/December 2014									December 2016/December 2015
	Increase (Decrease) Due to Changes in									Increase (Decrease) Due to Changes in									Increase (Decrease) Due to Changes in
	Volume			Rate			Net Change			Volume			Rate			Net Change			Volume			Rate			Net Change
ASSETS
Interest-earning assets
Government securities
Pesos		532,228			1,156,260			1,688,488			616,959			789,039			1,405,998			2,388,706			(228,884	)		2,159,822
Foreign currency		42,471			(29,520	)		12,951			39,527			104,930			144,457			(3,848	)		(58,108	)		(61,956	)
Total		574,699			1,126,740			1,701,439			656,486			893,969			1,550,455			2,384,858			(286,992	)		2,097,866
Loans
Private and financial Sector
Pesos		1,399,471			1,764,336			3,163,807			3,477,273			255,008			3,732,281			4,780,437			1,575,529			6,355,966
Foreign currency		16,281			46,955			63,236			17,070			17,637			34,707			363,686			(304,254	)		59,432
Total		1,415,752			1,811,291			3,227,043			3,494,343			272,645			3,766,988			5,144,123			1,271,275			6,415,398
Public Sector
Pesos		8,082			60,951			69,033			(32,427	)		(56,163	)		(88,590	)		89,353			211,965			301,318
Total		8,082			60,951			69,033			(32,427	)		(56,163	)		(88,590	)		89,353			211,965			301,318
Other assets
Pesos		(32,855	)		(118,991	)		(151,846	)		59,230			400,448			459,678			40,436			131,608			172,044
Foreign currency		866			19,875			20,741			(637	)		7,849			7,212			3,283			(25,190	)		(21,907	)
Total		(31,989	)		(99,116	)		(131,105	)		58,593			408,297			466,890			43,719			106,418			150,137
Total interest-earning assets
Pesos		1,906,926			2,862,556			4,769,482			4,121,035			1,388,332			5,509,367			7,298,932			1,690,218			8,989,150
Foreign currency		59,618			37,310			96,928			55,960			130,416			186,376			363,121			(387,552	)		(24,431	)
Total		1,966,544			2,899,866			4,866,410			4,176,995			1,518,748			5,695,743			7,662,053			1,302,666			8,964,719
LIABILITIES
Interest-bearing liabilities
Savings accounts
Pesos		9,680			(1,377	)		8,303			20,269			(1,346	)		18,923			23,512			(2,066	)		21,446
Foreign currency		393			(484	)		(91	)		170			(693	)		(523	)		73			176			249
Total		10,073			(1,861	)		8,212			20,439			(2,039	)		18,400			23,585			(1,890	)		21,695
Time deposits
Pesos		696,853			1,376,560			2,073,413			1,251,247			276,226			1,527,473			2,817,095			654,113			3,471,208
Foreign currency		2,425			(4,422	)		(1,997	)		625			39,663			40,288			110,389			2,167			112,556
Total		699,278			1,372,138			2,071,416			1,251,872			315,889			1,567,761			2,927,484			656,280			3,583,764
Borrowing from the Central Bank
Pesos		(280	)		(15	)		(295	)		(503	)		(12	)		(515	)		(567	)		(23	)		(590	)
Total		(280	)		(15	)		(295	)		(503	)		(12	)		(515	)		(567	)		(23	)		(590	)
Borrowings from other financial institutions
Pesos		(2,647	)		11,416			8,769			(187	)		(424	)		(611	)		25,687			18,384			44,071
Foreign currency		4,862			(183	)		4,679			(6,775	)		1,915			(4,860	)		(1,343	)		(566	)		(1,909	)
Total		2,215			11,233			13,448			(6,962	)		1,491			(5,471	)		24,344			17,818			42,162
Corporate Bonds
Foreign currency		63,218			529			63,747			27,537			(1,999	)		25,538			214,580			(22,757	)		191,823
Total		63,218			529			63,747			27,537			(1,999	)		25,538			214,580			(22,757	)		191,823
Total Interest-bearing liabilities
Pesos		703,606			1,386,584			2,090,190			1,270,826			274,444			1,545,270			2,865,727			670,408			3,536,135
Foreign currency		70,898			(4,560	)		66,338			21,557			38,886			60,443			323,699			(20,980	)		302,719
Total		774,504			1,382,024			2,156,528			1,292,383			313,330			1,605,713			3,189,426			649,428			3,838,854

71

Interest-earning assets: net interest margin and spread

The following table analyzes, by currency of denomination, the levels of our average interest-earning assets and net interest income, and illustrates the comparative margins and spreads for each of the years indicated.

	Year Ended December 31,
	2014			2015			2016
	(in thousands of Pesos, except percentages)
Average interest-earning assets
Pesos		47,831,703			62,814,227			86,841,583
Foreign currency		4,848,860			6,350,792			9,260,102
Total		52,680,563			69,165,019			96,101,685
Net interest income (1)
Pesos		8,171,487			12,135,584			17,588,599
Foreign currency		121,576			247,509			(79,641	)
Total		8,293,063			12,383,093			17,508,958
Net interest margin (2)
Pesos		17.08	%		19.32	%		20.25	%
Foreign currency		2.51	%		3.90	%		(0.86	)%
Weighted average rate		15.74	%		17.90	%		18.22	%
Yield spread nominal basis (3)
Pesos		11.32	%		13.25	%		13.85	%
Foreign currency		3.52	%		4.29	%		1.87	%
Weighted average rate		11.59	%		13.15	%		14.60	%

(1) Defined as interest earned less interest paid. Trading results from our portfolio of government and private securities are included in interest.

(2) Net interest income (including income from government and private securities) divided by average interest-earning assets.

(3) Defined as the difference between the average nominal rate on interest-earning assets and the average nominal rate on interest- bearing liabilities.

Investment portfolio: government and private securities

We own, manage and trade a portfolio of securities issued by the Argentine and other governments and private issuers. The following table analyzes, by currency of denomination, our investments in Argentine and other governments and private securities as of December 31, 2014, 2015 and 2016. Securities are stated before deduction of allowances.

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
In Pesos:
Government securities at market value (1)
Discount bonds at 5.83% – Maturity: 2033		862,088		1,597,140		1,422,251
Consolidation bonds – 8° Serie		65,085		119,119		214,751
Federal government bonds at Badlar + 2% – Maturity: 03-28-2017		494,833		484,928		142,097
Secured bonds under Presidential Decree 1579/02 at 2% – Maturity 02-04-2018		111,749		94,259		65,962
Federal government bonds at Badlar Private – Maturity: 2017		—		—		54,281
Federal government bonds at Badlar Private + 2.5% – Maturity: 2019		38,560		47,577		30,221
Consolidation bonds – 6° serie at 2% – Maturity: 2024		21,636		4,937		23,303
Federal government bonds adjustable by CER 2.5% – Maturity: 07-22-2021		—		—		7,394
Federal government bonds at fixed rate – Maturity: 09-19-2018		—		—		5,100
Par bonds at variable rate – Maturity: 2038		—		—		3,157
Others		692,750		900,290		1,761
Subtotal Government securities at market value		2,286,701		3,248,250		1,970,278
Government securities at amortized cost
Province of Buenos Aires bonds at Badlar Private + 4% – Maturity: 12-06-2019		—		—		338,086
Province of Neuquén guarantee treasury bills Class II Series II – Maturity: 06-06-2018		—		—		145,006
Federal government bonds at Badlar Private + 2.5% – Maturity: 2019		161,937		115,302		106,508

72

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
Province of Río Negro guarantee Treasury Bills Class I Serie VI – Maturity: 03-15-2017		—		—		95,439
Province of Neuquén guarantee treasury bills – Maturity: 09-09-2020		—		—		71,202
Municipality of Córdoba City Treasury Bills Serie XXIII – Maturity 03-30-2017		—		—		9,880
Municipality of Córdoba City Treasury Bills Serie XXI – Maturity 03-21-2017		—		—		7,399
Province of Tucumán bonds – 1° series – Maturity: 2018		3,407		2,398		1,370
Province of Chubut treasury bills Class XVI – Maturity: 11-26-2016		—		400,682		—
Province of Neuquén guarantee Treasury Bills Class I Serie III – Maturity: 11-23-2017		—		130,764		—
Others		40,940		142,453		—
Subtotal Government securities at amortized cost		206,284		791,599		774,890
Instruments Issued by Central Bank of Argentina (2)
Listed Central Bank of Argentina bills and notes (Lebacs/Nobacs)		3,820,548		5,066,846		964,212
Unlisted Central Bank of Argentina bills and notes (Lebacs/Nobacs)		1,618,630		1,105,912		14,181,042
Subtotal Instruments Issued by Central Bank.		5,439,178		6,172,758		15,145,254
Total Government securities in Pesos		7,932,163		10,212,607		17,890,422
In Foreign Currency:
Government securities at market value (1)
US Treasury Bill – Maturity: 01-12-2017		—		—		427,916
Federal government bonds in U.S. dollars at 8.75% – Maturity: 2024		—		215,298		289,758
US Treasury Bill – Maturity: 01-05-2017		—		—		110,949
Federal government bonds in U.S. dollars at 7% – Maturity: 2017		27,313		45		5,791
Federal government bonds in U.S. dollars at 0.75% – Maturity: 09-21-2017		—		—		2,466
Debt Securities of Province of Córdoba in US dollars at 12% – Maturity: 2017		1,864		1,723		1,071
Federal government bonds in U.S. dollars at 7.5% – Maturity: 2026		—		—		852
Federal government bonds in U.S. dollars at 0.75% – Maturity: 02-22-2017		—		—		809
Federal government bonds in U.S. dollars at 2.4% – Maturity: 2016		—		—		384
Federal government bonds in U.S. dollars at 8% – Maturity: 2020		—		—		337
Others		1,153.738		1,489,974		227
Subtotal Government securities at market value		1,182,915		1,707,040		840,560
Government securities at amortized cost
Federal government Treasury Bills in U.S. dollars – Maturity: 03-20-2017		—		—		787,649
Federal government Treasury Bills in U.S. dollars – Maturity: 07-03-2017		—		—		7,112
Federal government Treasury Bills in U.S. dollars – Maturity: 02-22-2017		—		—		1,057
Argentine saving bond for the economy development in U.S. dollars at 4% – Maturity: 07-27-2016		129,184		196,411		—
Deposit certificates for investment		—		17,681		—
Province of Tucumán bonds – 2° Serie at 9.45% – Maturity: 2015		834		—		—
Others		—		—		—
Subtotal Government securities at amortized cost		130,018		214,092		795,818
Instruments Issued by Central Bank of Argentina (2)
Unlisted Central Bank of Argentina bills and notes (Lebacs/Nobacs)		290,747		2,130,234		—
Subtotal Instruments Issued by Central Bank.		290,747		2,130,234		—
Total Government securities in foreign currency		1,603,680		4,051,366		1,636,378
Total Government securities		9,535,843		14,263,973		19,526,800
Investments in Listed Private Securities
In Pesos:
Mutual Funds		88,047		174,416		161,888
Shares		776,655		1,127,399		319,469

73

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
In Foreign Currency:
Mutual Funds		20		25		2,407
Total Private securities		864,722		1,301,840		483,764
Total Government and Private securities		10,400,565		15,565,813		20,010,564
Investments in Unlisted Private Securities
In Pesos:
Certificates of Participation in Financial Trusts (3)		244,965		234,345		224,043
Debt Securities in Financial Trusts		134,048		152,151		688,619
Corporate Bonds (4)		284,399		450,627		226,428
In Foreign Currency:
Debt Securities in Financial Trusts		34,337		43,405		42,053
Corporate Bonds (4)		179,417		152,940		259,716
Total Investments in Unlisted Private Securities		877,166		1,033,468		1,440,859
Total		11,277,731		16,599,281		21,451,423

(1) As of December 31, 2016 the book value and market value of instruments issued by Argentine goverment amount Ps.2,810,838 thousand (not including Treasury bills, Central Bank bills and notes, and provincial debt securities).

(2) As of December 31, 2016 the book value and market value of instruments issued by Central Bank of Argentina amount Ps.15,145,254 thousand and Ps.15,970,936 thousand, respectively.

(3) We booked allowances for impairment in value amounting to Ps.224,043 thousand; Ps.224,043 thousand and Ps.223,831 thousand as of December 31, 2016, 2015 and 2014 respectively.

(4) We booked allowances for impairment in value amounting to Ps.11,298 thousand; Ps.13,148 thousand and Ps.8,743 thousand as of December 31, 2016, 2015 and 2014 respectively.

Remaining maturity of government and private securities

The following table analyzes the remaining maturities of our investment portfolio as of December 31, 2016, in accordance with issuance terms (before allowances).

	Maturing within 1 year		Maturing after 1 year but within 5 years		Maturing after 5 year but within 10 years		Maturing after 10 years		Without due date		Total
	Book Value (in thousands of Pesos, except percentages)
In Pesos:
Government securities at market value (1)
Discount bonds at 5.83% – Maturity: 2033		—		—		426,675		995,576		—		1,422,251
Consolidation bonds – 8° Serie		—		141,736		73,015		—		—		214,751
Federal government bonds at Badlar + 2% – Maturity: 03-28-2017		142,097		—		—		—		—		142,097
Secured bonds under Presidential Decree 1579/02 at 2% – Maturity 02-04-2018		55,887		10,075		—		—		—		65,962
Federal government bonds at Badlar Private – Maturity: 2017		54,281		—		—		—		—		54,281
Federal government bonds at Badlar Private + 2.5% – Maturity: 2019		—		30,221		—		—		—		30,221
Consolidation bonds – 6° serie at 2% – Maturity: 2024		3,197		12,786		7,320		—		—		23,303
Federal government bonds adjustable by CER 2.5% – Maturity: 07-22-2021		—		7,394		—		—		—		7,394
Federal government bonds at fixed rate – Maturity: 09-19-2018		—		5,100		—		—		—		5,100
Par bonds at variable rate – Maturity: 2038		—		—		—		3,157		—		3,157
Others		181		1,214		50		—		316		1,761

74

	Maturing within 1 year			Maturing after 1 year but within 5 years			Maturing after 5 year but within 10 years			Maturing after 10 years			Without due date		Total
	Book Value (in thousands of Pesos, except percentages)
Government securities at amortized cost
Province of Buenos Aires bonds at Badlar Private + 4% – Maturity: 12-06-2019		—			338,086			—			—			—		338,086
Province of Neuquén guarantee treasury bills Class II Series II – Maturity: 06-06-2018		—			145,006			—			—			—		145,006
Federal government bonds at Badlar Private + 2.5% – Maturity: 2019		—			106,508			—			—			—		106,508
Province of Río Negro guarantee Treasury Bills Class I Serie VI – Maturity: 03-15-2017		95,439			—			—			—			—		95,439
Province of Neuquén guarantee treasury bills I – Maturity: 09-09-2020		—			71,202			—			—			—		71,202
Municipality of Córdoba City Treasury Bills Serie XXIII – Maturity 03-30-2017		9,880			—			—			—			—		9,880
Municipality of Córdoba City Treasury Bills Serie XXI – Maturity 03-21-2017		7,399			—			—			—			—		7,399
Province of Tucumán bonds – 1° series – Maturity: 2018		1,161			209			—			—			—		1,370
Others		—			—			—			—			—		—
Instruments Issued by Central Bank of Argentina (2)
Listed Central Bank of Argentina bills and notes (Lebacs/Nobacs)		964,212			—			—			—			—		964,212
Unlisted Central Bank of Argentina bills and notes (Lebacs/Nobacs)		14,181,042			—			—			—			—		14,181,042
Total Government securities in Pesos		15,514,776			869,537			507,060			998,733			316		17,890,422
In Foreign Currency:
Government securities at market value (1)
US Treasury Bill – Maturity: 01-12-2017		427,916			—			—			—			—		427,916
Federal government bonds in U.S. dollars at 8.75% – Maturity: 2024		—			144,821			144,937			—			—		289,758
US Treasury Bill – Maturity: 01-05-2017		110,949			—			—			—			—		110,949
Federal government bonds in U.S. dollars at 7% – Maturity: 2017		5,791			—			—			—			—		5,791
Federal government bonds in U.S. dollars at 0.75% – Maturity: 09-21-2017		2,466			—			—			—			—		2,466
Debt Securities of Province of Córdoba in U.S. dollars at 12% – Maturity: 2017		1,071			—			—			—			—		1,071
Federal government bonds in U.S. dollars at 7.5% – Maturity: 2026		—			—			852			—			—		852
Federal government bonds in U.S. dollars at 0.75% – Maturity: 02-22-2017		809			—			—			—			—		809
Federal government bonds in U.S. dollars at 2.4% – Maturity: 2016		—			384			—			—			—		384
Federal government bonds in U.S. dollars at 8% – Maturity: 2020		—			337			—			—			—		337
Others		202			—			6			15			4		227
Government securities at amortized cost
Federal government Treasury Bills in U.S. dollars – Maturity: 03-20-2017		787,649			—			—			—			—		787,649
Federal government Treasury Bills in U.S. dollars – Maturity: 07-03-2017		7,112			—			—			—			—		7,112
Federal government Treasury Bills in U.S. dollars – Maturity: 02-22-2017		1,057			—			—			—			—		1,057
Others		—			—			—			—			—		—
Total Government securities in foreign currency		1,345,022			145,542			145,795			15			4		1,636,378
Total Government securities		16,859,798			1,015,079			652,855			998,748			320		19,526,800
Weighted average rate (1)		22.88	%		20.80	%		6.52	%		4.09	%
Private securities
Investments in Listed Private Securities
In Pesos:

75

	Maturing within 1 year			Maturing after 1 year but within 5 years			Maturing after 5 year but within 10 years			Maturing after 10 years			Without due date		Total
	Book Value (in thousands of Pesos, except percentages)
Mutual Funds		161,888			—			—			—			—		161,888
Shares		—			—			—			—			319,469		319,469
In Foreign Currency:
Mutual Funds		2,407			—			—			—			—		2,407
Shares		—			—			—			—			—		—
Investments in Unlisted Private Securities
In Pesos:
Certificates of Participation in Financial Trusts (3)		—			—			—			—			224,043		224,043
Debt Securities in Financial Trusts		688,619			—			—			—			—		688,619
Corporate Bonds (4)		103,664			116,264			—			—			6,500		226,428
In Foreign Currency:
Certificates of Participation in Financial Trusts (3)		—			—			—			—			—		—
Debt Securities in Financial Trusts		11,214			30,839			—			—			—		42,053
Corporate Bonds (4)		—			259,716			—			—			—		259,716
Total Private securities		967,792			406,819			—			—			550,012		1,924,623
Weighted average rate (1)		1.66	%		10.62	%		0.00	%		0.00	%

(1) Effective yield based on December 31, 2016 quoted market values.

(2) As of December 31, 2016, “Instruments Issued by the Central Bank” includes Ps.11,299,828 thousand to fall due in 30 days, Ps.3,218,676 thousand to fall due in 60 days and Ps.626,750 thousand to fall due in 90 days.

(3) We booked allowances for impairment in value amounting to Ps.224,043 thousand as of December 31, 2016.

(4) We booked allowances for uncollectibility risk and impairment in value amounting to Ps.11,298 thousand as of December 31, 2016.

Loan portfolio

The following table analyzes our loan portfolio (without considering leasing agreements) by type as of December 31, 2012, 2013, 2014, 2015 and 2016.

	As of December 31,
	2012			2013			2014			2015			2016
	(in thousands of Pesos)
To the non-financial government sector		586,557			640,158			604,417			748,067			1,532,532
To the financial sector (1)		299,250			364,897			213,867			227,390			1,730,620
To the non-financial private sector and foreign residents
Overdrafts (2)		4,280,640			4,449,988			3,385,551			4,707,889			8,837,695
Documents (3)		3,651,390			4,320,772			4,627,375			6,550,151			11,198,902
Mortgage loans		1,508,463			2,308,916			2,466,073			3,508,512			4,158,608
Pledged loans (4)		928,693			1,429,414			1,857,121			2,152,645			2,285,050
Consumer loans (5)		15,551,778			20,715,186			25,310,403			38,024,897			48,636,378
Other loans		4,808,641			5,206,630			5,835,233			7,078,576			10,465,842
Accrued Interest, adjustments, foreign exchange and quoted price differences receivables		570,281			779,436			831,683			1,186,116			1,317,912
Less: Unearned discounts		(95,940	)		(186,547	)		(205,384	)		(355,864	)		(360,027	)
Less: Allowances		(887,156	)		(1,006,495	)		(1,186,044	)		(1,495,964	)		(1,830,505	)
Total Loans		31,202,597			39,022,355			43,740,295			62,332,415			87,973,007

(1) Includes loans to financial institutions, interfinancing (granted call) and other financing to Argentine financial institutions.

(2) Includes overdraft lines of credit resulting from checking accounts.

(3) Includes the face values of drafts, promissory notes and other bills transferred to us by endorsement for which the assignor is liable, whenever the latter is part of the non- financial private sector.

(4) Includes the principal amounts actually lent of automobile and other collateral granted, for which the obligor is part of the non-financial private sector and productive investment loans.

(5) Includes personal loans, credit card loans and other consumer loans. Overdrafts to individuals are included under “Overdrafts.”

76

Maturity composition of the loan portfolio

The following table analyzes our loan portfolio as of December 31, 2016, by type and by the time remaining to maturity. Loans are stated before deduction of the allowance for loan losses. We expect most loans to be repaid at maturity in cash or through refinancing at market terms.

	Maturing
	Amount as of December 31, 2016			Within 1 Year			After 1 Year but Within 5 Years			After 5 Years
	(in thousands of Pesos, except percentages)
To the non-financial government sector		1,532,532			1,156,917			375,615			—
To the financial sector (1)		1,730,620			1,566,617			164,003			—
To the non-financial private sector and foreign residents
Overdrafts (2)		9,098,047			9,047,262			50,785			—
Documents (3)		11,073,469			10,748,850			324,619			—
Mortgage loans		4,234,121			1,605,424			2,456,149			172,548
Pledged loans (4)		2,321,972			1,062,296			1,259,676			—
Consumer loans (5)		49,154,391			27,709,655			20,829,319			615,417
Other loans		10,658,360			7,653,394			2,999,515			5,451
Total Loans		89,803,512			60,550,415			28,459,681			793,416
Percentage of total loan portfolio		100	%		67	%		32	%		1	%

(1) Includes loans to financial institutions, interfinancing (granted call) and other financing to Argentine financial institutions.

(2) Includes overdrafts lines of credit resulting from checking accounts.

(3) Includes the face value of drafts, promissory notes and other bills transferred to us by endorsement for which the assignor is liable, whenever the latter is part of the non- financial private sector.

(4) Includes the principal amount actually lent of automobile and other collateral granted, for which the obligor is part of the non- financial private sector and productive investment loans.

(5) Includes personal loans, credit card loans and other consumer loans. Overdrafts to individuals are included under “Overdrafts.”

Interest rate sensitivity of outstanding loans

The following table presents the interest rate sensitivity of our outstanding loans with maturities over one year as of December 31, 2016:

	As of December 31, 2016
	(in thousands of Pesos)
Loans with maturities over one year:
Variable Rate
To the non-financial government sector		347,302
To the financial sector		13,601
To the non-financial private sector and foreign residents		3,021,055
Total		3,381,958
Fixed rate
To the non-financial government sector		28,313
To the financial sector		150,402
To the non-financial private sector and foreign residents		25,692,424
Total		25,871,139
Total Loans with maturities over one year		29,523,097
Total Loans with terms of less than one year		60,550,415
Total Loans		89,803,512

Loans—portfolio classification

The following table presents our loan portfolio, before deduction of the allowance for loan losses, using the classification system of the Central Bank in effect at the end of each year:

	As of December 31,
Loan Portfolio	2012				2013				2014				2015				2016
	(in thousands of Pesos, except percentages)
Categories
1 – Normal situation/ Performing		31,096,866	96.91	%		38,927,002	97.25	%		43,634,978	97.13	%		62,363,785	97.70	%		88,190,158	98.20	%
2 – Subject to special monitoring –in observation- in negotiation or with rollover agreement/ Low risk		421,981	1.31	%		438,254	1.10	%		414,729	0.92	%		477,035	0.75	%		577,836	0.64	%
3 – Troubled/Medium risk		203,545	0.63	%		245,887	0.61	%		325,499	0.72	%		309,191	0.49	%		490,338	0.55	%
4 – With high risk of insolvency/ High risk		185,723	0.58	%		345,494	0.86	%		449,355	1.00	%		493,598	0.77	%		452,714	0.51	%
5 – Irrecoverable		181,502	0.57	%		71,926	0.18	%		101,574	0.23	%		184,309	0.29	%		92,256	0.1	%
6 – Irrecoverable according to Central Bank’s Rules		136	0.00	%		287	0.00	%		204	0.00	%		461	0.00	%		210	0.00	%
Total Loans		32,089,753	100.00	%		40,028,850	100.00	%		44,926,339	100.00	%		63,828,379	100.00	%		89,803,512	100.00	%

For the explanation of each category please see “Argentine Banking Regulation—Liquidity and Solvency Requirements—Debt classification and loan loss provisions.”

77

Non-performing loans

The following table presents our non-performing loan portfolio, before deduction of the allowance for loan losses, using the loan classification criteria of the Central Bank in effect, at the end of each year:

	As of December 31,
Non-performing loans	2012		2013		2014		2015		2016
	(in thousands of Pesos)
With preferred guarantees		45,260		104,181		203,224		209,469		164,867
Unsecured		525,646		559,413		673,408		778,090		870,651
Total non-performing loans		570,906		663,594		876,632		987,559		1,035,518

For additional information on non-accrual loans, past due loans and restructured loans please see note 35.4.c) and d) to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Analysis of the allowance for loan losses

The table below sets forth the activity in the allowance for loan losses for the years ended December 31, 2012, 2013, 2014, 2015 and 2016:

	Year Ended December 31,
	2012			2013			2014			2015			2016
	(in thousands of Pesos)
Balance at the beginning of the year		599,224			887,156			1,006,495			1,186,044			1,495,964
Provisions for loan losses		688,966			707,370			757,445			1,057,228			1,223,678
Charge off (1)		(401,034	)		(588,031	)		(577,896	)		(747,308	)		(889,137	)
Overdrafts		(23,288	)		(49,973	)		(46,794	)		(37,210	)		(36,454	)
Documents		(6,695	)		(10,819	)		(131	)		(25,533	)		(15,260	)
Mortgage loans		(11,951	)		(9,617	)		(4,321	)		(34,810	)		(91,500	)
Pledged loans		(5,766	)		(4,550	)		(3,703	)		(2,122	)		(2,638	)
Personal Loans		(258,508	)		(365,779	)		(338,382	)		(400,762	)		(426,870	)
Credit Cards		(56.823	)		(99,188	)		(111,796	)		(124,691	)		(142,867	)
Consumer loans		(315,331	)		(464,967	)		(450,178	)		(525,453	)		(569,737	)
Other		(38,003	)		(48,105	)		(72,769	)		(122,180	)		(173,548	)
Balance at the end of year		887,156			1,006,495			1,186,044			1,495,964			1,830,505	)
Charge-off/average loans (1)		1.52	%		1.76	%		1.47	%		1.47	%		1.28	%

(1) Charge-off includes reversals.

Central Bank Rules allow us to establish additional allowances for loan losses based on management’s risk policies. Our executive committee decided to increase the allowance for loan losses related to our loan portfolio as of December 31, 2016, 2015 and 2014 after evaluating the risk of our loan portfolio.

Under Central Bank Rules, non-performing loans must be charged-off seven months after such loans were classified as “irrecoverable without preferred guaranties” and fully provisioned. Pursuant to the current regulations, we charge-off non-performing loans on the next month following the date on which such circumstances are verified. Such debts are registered in off-balance sheet accounts as we continue with collection efforts.

Allocation of the allowances for loan losses

The following table allocates the allowance for loan losses by each category of loans and sets forth the percentage distribution of the total allowance for each of the years ended December 31, 2012, 2013, 2014, 2015 and 2016.

	As of December 31,
	2012				2013				2014				2015					2016
	(in thousands of Pesos, except percentages)
Overdrafts		111,419	12.56	%		122,006	12.12	%		84,162	7.10	%		91,149	6.09	%	134,695		7.36	%
Documents		58,493	6.59	%		82,751	8.22	%		100,213	8.45	%		110,044	7.36	%	126,138		6.89	%
Mortgage loans		30,126	3.40	%		48,361	4.80	%		67,760	5.71	%		115,025	7.69	%	74,815		4.09	%
Pledged loans		16,772	1.89	%		23,258	2.31	%		31,064	2.62	%		37,855	2.53	%	41,815		2.28	%
Consumer loans		503,441	56.75	%		584,583	58.08	%		736,390	62.09	%		916,072	61.24	%	1,257,311		68.69	%
Other loans		166,905	18.81	%		145,536	14.46	%		166,455	14.03	%		225,819	15.10	%	195,731		10.69	%
Total allowances		887,156	100.00	%		1,006,495	100.00	%		1,186,044	100.00	%		1,495,964	100.00	%	1,830,505		100.00	%

78

Loans by economic activities

The table below analyzes our loan portfolio according to the borrowers’ main economic activity as of December 31, 2012, 2013, 2014, 2015 and 2016.

	As of December 31,
	2012					2013					2014					2015					2016
	(in thousands of Pesos, except percentages)
	Loan Portfolio		% of Loan Portfolio			Loan Portfolio		% of Loan Portfolio			Loan Portfolio		% of Loan Portfolio			Loan Portfolio		% of Loan Portfolio			Loan Portfolio		% of Loan Portfolio
Retail Loans		13,432,743		41.86	%		17,762,834		44.38	%		21,299,813		47.41	%		31,867,480		49.93	%		41,740,476		46.48	%
Agricultural livestock- Forestry- Fishing- Mining- Hunting		4,191,012		13.06	%		4,155,033		10.38	%		4,526,591		10.08	%		6,625,416		10.38	%		8,814,256		9.82	%
Construction		1,594,771		4.97	%		1,767,016		4.41	%		2,266,493		5.04	%		3,164,972		4.96	%		3,093,077		3.44	%
Other services		1,920,122		5.98	%		1,682,547		4.20	%		2,027,874		4.51	%		2,547,403		3.99	%		2,587,890		2.88	%
Retail and consumer products		2,260,041		7.04	%		3,484,567		8.71	%		4,036,678		8.98	%		5,485,954		8.60	%		9,160,153		10.20	%
Foodstuff and beverages		2,393,940		7.46	%		2,894,059		7.23	%		2,542,659		5.66	%		3,245,347		5.09	%		5,624,698		6.26	%
Financial Services		760,903		2.37	%		828,678		2.07	%		632,579		1.41	%		688,377		1.08	%		2,731,216		3.04	%
Governmental services		764,150		2.38	%		870,545		2.17	%		1,211,314		2.70	%		1,666,133		2.61	%		2,613,850		2.91	%
Real estate, business and leases		527,821		1.64	%		739,238		1.85	%		770,437		1.71	%		1,098,488		1.72	%		1,572,538		1.75	%
Transportation, storage and communications		871,237		2.72	%		1,299,210		3.25	%		1,240,657		2.76	%		1,668,776		2.61	%		2,064,160		2.30	%
Manufacturing and wholesales		754,009		2.35	%		1,247,855		3.12	%		1,022,551		2.28	%		1,692,774		2.65	%		2,590,603		2.88	%
Chemicals		883,970		2.75	%		1,097,191		2.74	%		1,391,433		3.10	%		1,113,050		1.74	%		1,531,698		1.71	%
Electricity, oil, water		210,974		0.66	%		164,620		0.41	%		178,516		0.40	%		452,372		0.71	%		977,057		1.09	%
Hotels and restaurants		93,902		0.29	%		184,876		0.46	%		166,216		0.37	%		173,591		0.27	%		213,517		0.24	%
Other		1,430,158		4.46	%		1,850,581		4.62	%		1,612,528		3.59	%		2,338,246		3.66	%		4,488,323		5.00	%
Total Loans		32,089,753		100.00	%		40,028,850		100.00	%		44,926,339		100.00	%		63,828,379		100.00	%		89,803,512		100.00	%

Deposits

The following table sets out the composition of each category of deposits that exceeded 10% of average total deposits in each of the years ended December 31, 2014, 2015 and 2016.

	Year Ended December 31,
	2014			2015			2016
	(in thousands of Pesos)
Deposits in Domestic Bank Offices
Non-interest-bearing Demand Deposits (1)
Average
Pesos		15,739,885			20,999,761			24,123,138
Foreign currency		554,238			579,115			1,699,995
Total		16,294,123			21,578,876			25,823,133
Saving Accounts
Average
Pesos		7,714,543			10,894,390			14,655,907
Foreign currency		380,361			500,154			1,994,689
Total		8,094,904			11,394,544			16,650,596
Average nominal rate
Pesos		0.64	%		0.63	%		0.61	%
Foreign currency		0.02	%		0.01	%		0.02	%
Total		0.61	%		0.60	%		0.54	%

79

	Year Ended December 31,
	2014			2015			2016
	(in thousands of Pesos)
Time Deposits
Average
Pesos		23,407,958			29,119,497			41,444,932
Foreign currency		1,916,721			2,264,310			7,141,501
Total		25,324,679			31,383,807			48,586,433
Average nominal rate
Pesos		21.91	%		22.86	%		24.43	%
Foreign currency		0.52	%		2.26	%		2.29	%
Total		20.29	%		21.37	%		21.18	%
Deposits in Foreign Bank Offices
Non-interest-bearing Demand Deposits
Average
Pesos		2,061			1,501			1,360
Foreign currency		932			14			497
Total		2,993			1,515			1,857
Saving Accounts
Average
Foreign currency		1,361,008			1,739,766			2,536,610
Total		1,361,008			1,739,766			2,536,610
Average nominal rate
Foreign currency		0.04	%		0.00	%		0.00	%
Total		0.04	%		0.00	%		0.00	%
Time Deposits
Average
Foreign currency		225,383			—			—
Total		225,383			—			—
Average nominal rate
Foreign currency		0.47	%		0.00	%		0,00	%
Total		0.47	%		0.00	%		0.00	%

(1) Non-interest-bearing demand deposits consist of checking accounts.

Maturity of deposits at December 31, 2016

The following table sets forth information regarding the maturity of our deposits at December 31, 2016.

	Maturing
	Total		Within 3 Months		After 3 but Within 6 Months		After 6 but Within 12 Months		After 12 Months
	(in thousands of Pesos)
Checking accounts		21,974,269		21,974,269		—		—		—
Savings accounts		28,639,301		28,639,301		—		—		—
Time deposits		51,449,978		49,623,177		1,552,741		265,082		8,978
Investment accounts		1,639,793		1,466,837		140,800		32,156		—
Other		8,236,399		8,236,399		—		—		—
Total Deposits		111,939,740		109,939,983		1,693,541		297,238		8,978

Maturity of outstanding time deposits and investment accounts in amount of Ps.100,000 or more at December 31, 2016

The following table sets forth information regarding the maturity of our time deposits and investment accounts in denominations of Ps.100,000 or more at December 31, 2016.

	Maturing
					After 3		After 6
	Total		Within 3 Months		but Within 6 Months		but Within 12 Months		After 12 Months
	(in thousands of Pesos)
Domestic Bank Offices
Times deposits		44,517,704		42,870,290		1,398,151		241,735		7,528
Investment accounts		1,633,959		1,464,094		137,819		32,046		—
Total		46,151,663		44,334,384		1,535,970		273,781		7,528

80

Return on equity and assets

The following table presents certain selected financial information and ratios for the years indicated.

	Year Ended December 31,
	2014			2015			2016
	(in thousands of Pesos, except percentages)
Net income		3,479,531			5,009,889			6,540,832
Average total assets		67,852,744			86,493,207			126,081,164
Average shareholders’ equity		10,425,703			13,477,595			19,188,120
Shareholders’ equity at the end of the fiscal year		11,491,817			15,877,550			22,105,898
Net income as a percentage of:
Average total assets		5.13	%		5.79	%		5.19	%
Average shareholders’ equity		33.37	%		37.17	%		34.09	%
Declared cash dividends		227,708			643,019			(2	)
Dividend payout ratio (1)		6.54	%		12.84	%		0.00	%
Average shareholders’ equity as a percentage of Average total assets		15.37	%		15.58	%		15.22	%

(1) Declared cash dividends stated as percentage of net income

(2) On March 8, 2017, our Board of Directors resolved to propose to the shareholders’ meeting a distribution of Ps.701.5 million for the fiscal year ended December 31, 2016. Such dividends are pending approval from the Central Bank and the shareholders’ meeting as of the date of this annual report.

Short-term borrowings

Our short-term borrowings totaled approximately Ps.3,958.7 million, Ps.5,155.3 million and Ps.9,138.0 million for the years ended December 31, 2014, 2015 and 2016, respectively. The table below shows the breakdown of those amounts at the end of each year.

	Year Ended December 31,
	2014					2015					2016
			Annualized					Annualized					Annualized
	Amount		Rate			Amount		Rate			Amount		Rate
	(in thousands of Pesos, except percentages)
Central Bank of Argentina:
Total amount outstanding at the end of the reported period		10,746		5.09	%		12,706		4.28	%		8,298		0.03	%
Average during year (1)		11,669		4.61	%		12,456		4.52	%		8,960		1.72	%
Maximum month-end balance (2)		13,511					13,245					10,454
Banks and international institutions:
Total amount outstanding at the end of the reported period		88,313		6.28	%		98,598		4.91	%		129,916		3.93	%
Average during year (1)		257,405		3.71	%		94,337		5.43	%		60,207		4.67	%
Maximum month-end balance (2)		421,242					126,441					129,916
Non-subordinated Corporate Bonds:
Total amount outstanding at the end of the reported period		32,225		8.50	%		49,005		8.50	%		1,684,893		8.50	%
Average during year (1)		21,821		8.50	%		27,568		8.50	%		1,637,028		8.50	%
Maximum month-end balance (2)		32,225					49,005					1,684,893
Financing received from Argentine financial institutions:
Total amount outstanding at the end of the reported period		15,534		5.43	%		61,644		13.41	%		118,263		21.07	%
Average during year (1)		19,268		5.06	%		59,730		10.85	%		70,303		13.33	%
Maximum month-end balance (2)		26,974					140,625					122,182
Other:
Total amount outstanding at the end of the reported period		3,807,404		0.00	%		4,926,449		0.00	%		6,971,882		0.01	%
Average during year (1)		3,104,144		0.00	%		4,020,421		0.00	%		5,664,363		0.01	%
Maximum month-end balance (2)		3,807,404					4,926,449					6,971,882
Subordinated corporate bonds:
Total amount outstanding at the end of the reported period		4,517		9.75	%		6,868		9.75	%		67,760		6.75	%
Average during year (1)		19,268		9.75	%		21,809		9.75	%		49,824		8.99	%
Maximum month-end balance(2)		35,074					39,031					67,760
Total short –term borrowings		3,958,739					5,155,270					9,137,990

(1) Average balances are calculated from quarterly-end balances.

(2) Maximums are calculated from quarterly-end balances.

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Interest rate sensitivity

Interest rate sensitivity measures the effect on the gross intermediation margin in response to a change in market interest rates. For any given period, the pricing structure is matched when an equal amount of assets and liabilities reprice. Any mismatch of interest-earning assets and interest-bearing liabilities is known as a gap position and is shown in the following tables. A negative gap denotes liability sensitivity and normally means that a decline in interest rates would have a positive effect on net interest income while an increase in interest rates would have a negative effect on interest income.

The following table shows the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities based on contractual maturities. Variations in interest rate sensitivity may also arise within the repricing periods presented.

	Remaining Maturity at December 31, 2016
	0-1 Year			1-5 Years			5-10 Years			Over 10 years			Without due date			Total
	(in thousands of Pesos)
Interest-earning assets:
Interest-bearing deposits in other banks		648,060			0			0			0			0			648,060
Government securities (1)		16,859,798			1,015,079			652,855			998,748			320			19,526,800
Receivables from financial leases		171,417			202,574			154			0			0			374,145
Loans to the non-financial government sector (2)		1,156,917			375,615			0			0			0			1,532,532
Loans to the private and financial sector (2)		59,393,497			28,084,067			711,738			81,678			0			88,270,980
Other Assets		803,497			406,819			0			0			230,543			1,440,859
Total Interest-Earning Assets		79,033,186			30,084,154			1,364,747			1,080,426			230,863			111,793,376
Interest-bearing liabilities:
Checking accounts		756,764			0			0			0			0			756,764
Savings accounts		28,639,301			0			0			0			0			28,639,301
Time Deposits		51,440,999			8,370			232			377			0			51,449,978
Investment Accounts		1,639,793			0			0			0			0			1,639,793
Non- subordinated Corporate Bonds		1,684,893			0			0			0			0			1,684,893
Subordinated corporate bonds		67,760			0			0			6,340,080			0			6,407,840
Liabilities with Central Bank		8,298			105			0			0			0			8,403
Liabilities with Argentine financial institutions		118,263			14,013			8,520			0			0			140,796
Liabilities with Banks and International Institutions		129,916			0			0			0			0			129,916
Other liabilities		1,604,249			12,710			114,967			0			0			1,731,926
Total Interest-Bearing Liabilities		86,090,236			35,198			123,719			6,340,457			0			92,589,610
Asset (Liability) Gap		-7,057,050			30,048,956			1,241,028			-5,260,031			230,863			19,203,766
Cumulative Asset/Liability Gap		-7,057,050			22,991,906			24,232,934			18,972,903			19,203,766			—
Cumulative sensitivity gap as a percentage of total interest-earning assets		-6.31	%		20.57	%		21.68	%		16.97	%		17.18	%		—

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	0-1 Year			1-5 Years			5-10 Years			Over 10 years			Without due date			Total
Interest-earning assets in Pesos
Government securities (1)		15,514,776			869,537			507,060			998,733			316			17,890,422
Receivables from financial leases		171,417			202,574			154			0			0			374,145
Loans to the non financial government sector (2)		1,156,917			375,615			0			0			0			1,532,532
Loans to the private and financial sector (2)		52,416,832			25,314,009			711,342			81,678			—			78,523,861
Other Assets		792,283			116,264			0			0			230,543			1,139,090
Total Interest-Earning Assets in Pesos		70,052,225			26,877,999			1,218,556			1,080,411			230,859			99,460,050
Interest-bearing liabilities in Pesos
Checking accounts		0
Savings accounts		20,547,260			0			0			0			0			20,547,260
Time Deposits		42,909,006			6,480			92			377			0			42,915,955
Investment Accounts		1,617,601			0			0			0			0			1,617,601
Liabilities with Central Bank		8,298			105			0			0			0			8,403
Liabilities with Argentine financial institutions		118,263			14,013			8,520			0			0			140,796
Other Liabilities		1,233,629			12,710			114,967			0			0			1,361,306
Total Interest-Bearing Liabilities in Pesos		66,434,057			33,308			123,579			377			0			66,591,321
Asset (Liability) Gap		3,618,168			26,844,691			1,094,977			1,080,034			230,859			32,868,729
Cumulative Asset/Liability Gap		3,618,168			30,462,859			31,557,836			32,637,870			32,868,729			0
Cumulative sensitivity gap as a percentage of total interest-earning assets		3.64	%		30.63	%		31.73	%		32.82	%		33.05	%		0

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	0-1 Year			1-5 Years			5-10 Years			Over 10 years			without due date			Total
Interest-earning assets in foreign currency
Interest-bearing deposits in other banks		648,060			0			0			0			0			648,060
Government securities (1)		1,345,022			145,542			145,795			15			4			1,636,378
Loans to the private and financial sector(2)		6,976,665			2,770,058			396			0			0			9,747,119
Other assets		11,214			290,555			0			0			0			301,769
Total Interest-Earning Assets		8,980,961			3,206,155			146,191			15			4			12,333,326
Interest-bearing liabilities in foreign currency
Checking accounts		756,765			0			0			0			0			756,765
Savings accounts		8,092,040			0			0			0			0			8,092,040
Time Deposits		8,531,994			1,890			140			0			0			8,534,024
Investment Accounts		22,192			0			0			0			0			22,192
Non-subordinated Corporate Bonds		1,684,893			0			0			0			0			1,684,893
Subordinated Corporate Bonds		67,760			0			0			6,340,080			0			6,407,840
Liabilities with Banks and International Institutions		129,916			0			0			0			0			129,916
Other liabilities		370,620			0			0			0			0			370,620
Total Interest-Bearing Liabilities		19,656,180			1,890			140			6,340,080			0			25,998,290
Asset (Liability) Gap		-10,675,219			3,204,265			146,051			-6,340,065			4			-13,664,964
Cumulative Asset/Liability Gap		-10,675,219			-7,470,954			-7,324,903			-13,664,968			-13,664,964			0
Cumulative sensitivity gap as a percentage of total interest-earning assets		-86,56	%		-60,58	%		-59,39	%		-110,80	%		-110,80	%		0

(1) Includes instruments issued by the Central Bank.

(2) Loan amounts are stated before deducting the allowance for loan losses. Non-accrual loans are included with loans as interest- earning asset.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Cautionary statement concerning forward-looking statements,” “Risk Factors,” and the matters set forth in this annual report in general.

The following discussion is based on, and should be read in conjunction with, our consolidated financial statements and related notes contained elsewhere in this annual report, as well as “Selected Financial Data” and the other financial information appearing elsewhere in this annual report in general.

A. Operating results

FINANCIAL PRESENTATION

Our audited consolidated financial statements as of and for the three years ended December 31, 2014, 2015 and 2016, included elsewhere in this annual report, have been prepared in accordance with Central Bank Rules. Central Bank Rules differ in certain significant aspects from U.S. GAAP. See note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Our consolidated financial statements recognized the changes in the Peso purchasing power until February 28, 2003, when the adjustments to reflect those changes were discontinued, as provided by the professional accounting standards effective in the City of Buenos Aires and as required by Presidential Decree 664/2003, Article No. 312 of General Resolution No. 7/2015 of the IGJ, Central Bank Communication “A” 3921 and CNV General Resolution No. 441. In reviewing our financial statements, investors should consider that, in recent years, there have been significant changes in the prevailing prices of certain inputs and economic indicators, such as salary cost, interest and exchange rates, however, local regulations have not required the application of inflation adjustments to our consolidated financial statements.

MACROECONOMIC ENVIRONMENT

World economic growth slowed down after a short period of growth from 2010 and 2012, which overcame the 2008 crisis caused by private over-indebtedness in the United States and public debt problems in Europe.

During 2013, the global economy grew at very different rates. This affected the performance of the Argentine economy. The United States and Europe maintained a weak recovery after the 2008 crisis due to fiscal adjustment and debt pressures partially offset by expansive monetary policies implemented by the respective central banks.

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Although China’s expansion rate decreased, its demand for raw materials from commodity producing regions, specifically Latin America, continued.

Latin America maintained its growth rate because of two opposing forces: (i) the deceleration in the volume of exports coupled with a reduction in commodity prices and the slowdown in the Brazilian economy as a result of its anti-inflationary policy, and (ii) the inflow of financial capital and direct investment. Latin America’s growth rate remained at 3.5%, as in the previous year.

In this international context, Argentina grew by 3.0% in 2013, more than in 2012, but below the annual average of 7.2% maintained since 2003. An expansive fiscal policy resulted in an increase of primary expenditures (current and capital expenses) by 33% while the national government’s income increased by 30%. As a result, the national public sector reported a primary deficit of Ps.22.3 billion, equal to 0.8% of the GDP. Including the payment of interest, the financial deficit amounted to Ps.64.6 billion, or 2.4% of the GDP, a similar percentage of the previous year.

By the end of 2013, the Argentine government implemented an external risk mitigation process by increasing the devaluation rate, imposing quantitative restrictions on imports and higher taxes on luxury assets and on the purchase of foreign currency for tourism. Inflation reached a rate of 10.9% per annum according to the INDEC, while at the same time the Argentine Peso depreciated 32.6% against the U.S. dollar. See item 3.D “Risk Factors—An increase in inflation could have a material adverse effect on Argentina’s economic prospects.”

In 2014, the global economy expanded by approximately 3%, a slightly lower rate than the average annual 3.4% recorded between 2010 and 2013. This is largely due to the slow recovery of developed countries as well as the deceleration trend in emerging countries.

The United States reported growth of 2.3%, as in the post-crisis years of 2008 and 2009, this continued during the second half of 2014 largely due to the reduction in the debt burden of families and the resulting increase of domestic spending stemming from the improvement in employment levels.

Despite the fiscal adjustment process in place since 2009 to stabilize public debt, Europe recorded slight improvement as compared to the light contraction registered in 2013.

China, recording a growing share, reached 12% of the world’s GDP as a result of a 7.4% year over year expansion. The sustained domestic market economic process driven by credit combined with increased migration to the cities, resulted in an increase in global demand for raw material.

Latin America, which represents 7.5% of the world’s GDP, experienced a slowdown as compared to the sustained growth rate recorded in the last few years due to a drop in the price of commodities and the deceleration of Brazil’s economy.

Brazil’s economy experienced a slowdown due to reduced productivity, higher public expenditure and a lower fiscal surplus. These factors in part led to high inflation and capital flight, stopping the inflow of investments of the preceding years. Brazil grew by 0.5% , following an average annual growth rate of 3.5% between 2003 and 2013.

Considering this international context and the dynamics of macroeconomic imbalances, the actual GDP of Argentina did not expand in 2014. The slowdown of the domestic economy, coupled with a drop in the demand of Argentina’s main trading partners, resulted in a reduction in the trading volume, causing a decrease in the trade balance by 16% as compared to the previous year, with exports falling by 12% (due to a reduction of prices of 2% and of volumes of 10%) and imports by 11% (due to a reduction of prices of 1% and of volumes of 11%).

In contrast to contractionary initiatives in the private sector, the Argentine government maintained its expansionary fiscal policy, in line with increased tax revenues. Tax revenues increased by 36% year over year, representing 27% of the GDP. Primary expenditures grew by 43% driven by the policy of subsidies to utilities and capital expenditures. National public expenditures, including interest expense, represented 26% of the GDP.

Both the primary and financial deficits increased in 2014 as compared to 2013. Within the context of the Argentine government’s debt reduction policy, the Central Bank has provided funds to the Argentine government by issuing additional Pesos and withdrawing funds out of reserves.

During 2015, slow growth continued, with varying speeds of growth between the developed, Asian and emerging markets.

The United States maintained its annual economic growth rate at 2.4%. Europe also sustained its rate of growth in 2015. In contrast, China experienced an economic slowdown and its annual economic growth rate for 2015 was below the annual 7% rate recorded in previous years.

The slow growth of most developed countries, coupled with decreases in China’s economic growth, negatively effected the price of commodities, including raw materials such as steel, copper and oil and, to a lesser extent, agricultural and food prices. Accordingly, the effects on Latin America were different to the effects on those economies with a greater dependence on raw materials and/or less agricultural production.

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Despite these adverse external factors, the the Argentine economy grew by 2.1% in 2015, recovering the growth lost in the previous two years, primarily as a result of increased commercial openness and relaxed capital flows. However, this recovery is largely based on utilization of non-sustainable resources, which influenced fiscal imbalance and increased internal expenditures.

The increase in the fiscal imbalance was financed by high inflation, loss of reserves and debt placement. In 2015, the deficit represented 5% of GDP.

Global growth in 2016 was similar to 2015 and was almost one point below that recorded from 2010 to 2014. This result was due to the fact that developed economies, China and Latin America slowed their expansion. This slow in growth was partially offset by increases in India, Africa and the return to growth of oil economies of the former Soviet Union.

The developed economies formed by the U.S. and the European Economic Area (EEA) reduced their growth rate. The U.S. GDP grew by 1.6% in 2016, which represents a reduction of one percentage from 2015. This decrease is primarily due to the slow development of household consumption, a continuing effect of the process of deleveraging started in 2008.

The change of U.S. government is likely to lead to adjustments in U.S. economic policy, which will have global consequences. The new authorities are expected to reduce taxes on families and businesses and encourage private productive investment, with a favorable tax treatment for the repatriation of profits of American corporations, as well as addressing a broader infrastructure plan and a more restrictive trade policy. On the other hand, such policies could modify the flows of trade and global production patterns, favoring countries that produce food commodities.

In Europe, the growth rate was also reduced in the context of a slow decline in the fiscal deficit. Countries such as Spain, France, Portugal and Italy presented increasing public indebtedness and in high levels, without favoring the investment process. While Europe’s economic anchor Germany, which represents 30% of GDP in the EEA, showed a fiscal surplus and a fall in debt over the last three years Certain events are concerning for Europe. Events, as Brexit, indicate that support for the Euro Area has weakened and consequently raise concerns about the viability of the common currency in the long term.

China grew 6.6%, continuing the diminishing growth of the last 6 years. The deceleration of its external sales, the slow pace of private investment, restrictions on leverage and the low productivity of public companies led to a loss of competitiveness with Southeast Asian countries are some of the factors that explain the decline in growth in relation to what was registered until 2010. Greater internal consumption as advocated by the authorities in recent years did not manage to compensate for the effect of the factors mentioned above.

The poor performance of the world economy and some specific sectoral situations lowered commodity prices for the third consecutive year. The commodity market was volatile throughout the year. This volatility was mainly due to fluctuations in oil prices and the change in the energy matrix towards renewable sources. A slowdown in global demand for industrial goods was largely responsible for a decrease in the price of hard metals.

The slow global growth of commodities, together with the dynamics of the economic policies that followed meant both Brazil and Argentina recorded declining trends in real GDP during 2016.

Brazil’s economy fell for the second consecutive year and recorded a 7% loss of GDP in that two year period, which had a negative effect on Argentine exports, as they are heavily dependent on the Brazilian market. The outflow of capital in 2015 led to a Real’s depreciation of 41% as a correlation of the institutional crisis and a strong fiscal deficit. In 2016, this situation began to reverse in part because of the re-entry of capital, which has been associated with the political changes in Brazil. The new authorities announced the freezing of public spending and advances in the deregulation of markets with the aim of improving fiscal solvency with greater competitiveness.

As a consequence of the developments discussed above, the depreciation of the Brazilian currency was reduced to an annual average of just 4% and inflation was reduced. This will lead to a more expansive monetary policy (i.e. lower rates), and allow a slight recovery of GDP for the year 2017.

During 2016, Argentina underwent the beginning of a process of deregulation of relevant variables, such as the exchange rate, interest rates, certain prices and tariffs, in addition to an opening to a broader market.

Specifically, exchange controls were eliminated, export withholdings were either reduced or eliminated and restrictions to imports were suppressed while, at the same time, the process of obtention of import permits was simplified.

Such measures were complemented by a restrictive monetary policy and a gradual tax policy. In this context, the Argentine government seeks to cancel its debts (refund of wrongly withheld coparticipated taxes) while inducing reforms in provincial taxes which affect investments.

The Argentine government confirmed the restructuring of the debt with the holdouts (U.S.$12.5 thousand million), which had been pending since 2005, which allowed access to capital markets in order to fund the tax authorities necessities.

2016 closed with a primary deficit of 4.6% of the GDP. This was an improvement from the 2015 results, even with revenues affected by the GDP’s decrease and tax restructuring.

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In addition to the reformulation of certain rules which affect economic decisions, the administration seeks to foster private internal savings and foreign investments, as part of a chain of sustainable expansion. The transition to sustainable growth has affected the economy during 2016. Strong increases of the exchange rate and tariffs and the decreases in withholdings led to a substantial increase in the inflation rate, which reached 40% interannual (“i.a.”), representing a 13 percentage points increase in comparison to the previous year.

Registered inflation led to a decrease of real income with a full effect on domestic expenditures and activity. GDP fell 2.3% in the first three quarters. An improvement had been predicted for the fourth quarter although in fact a decrease was recorded.

As a result, the real GDP of the economy is believed to have fallen by 2.3% during 2016.

Towards the final quarter of 2016, most of activity indicators followed an increasing trend, which was sustained by the marginal recovery of domestic consumption, greater public expenditure, an increase of sales to Brasil and a stock recovery.

Money market and Argentine financial system

In 2014, a slight demonetization of the economy was observed due to a shift from an expansive monetary policy between 2010 and 2013 to a moderate monetary policy after the devaluation. The placement of Central Bank debt instruments absorbed a material portion of the monetary expansion derived from fiscal assistance to the government and the purchase of foreign currency from the private sector.

The Central Bank’s reserves as of December 31, 2014 amounted to U.S.$31.4 billion, an increase of approximately U.S.$844 million over the prior year. This increase was primarily the result of the private-sector purchase of foreign currency, certain swap transactions entered into with China and the issuance and placement of dollar-denominated Lebacs and Nobacs.

In line with the reduced growth of the monetary base, financial activity slowed down. The average total deposits and the average total credits increased by 27% and 24% respectively, as compared to the 27% and 30% increase reported in average in 2013.

Regarding deposits, the trend of the last few years continued in 2014, with private sector deposits growing more than public sector deposits as a result of the permanent fiscal deficit of the national and provincial governments.

With respect to interest earning assets, the growth rate of total loans in the financial system was lower than that of the previous year, but Lebac holdings doubled. The Lebac/Loan ratio increased from 19% in 2013 to 32% in 2014.    

Systemic liquidity grew from 33% to 45% with respect to deposits in December 2014 due to increased holdings of Lebacs in the financial system.

Interest rates also rose during the year, offsetting the reduction in the total amount of money in circulation (“Monetary Base”). In 2014, the Central Bank implemented a scheme of maximum reference lending rates for consumer and pledge loans in order to increase the demand for credit.

During 2014, borrowing rates decreased largely due to excess funds. With respect to borrowing rates, the Central Bank implemented a control mechanism, establishing a minimum borrowing rate for certain term deposits.

Changes were implemented in the operation of the financial system as a result of the monetary and sector-specific policies of the Central Bank. In 2014, after nine years of positive results, the strength of the financial system increased, with a net worth of Ps.168.1 million (a 38% increase as compared to the previous year).

In 2014, the soundness of the financial system improved, increasing its capacity to overcome potential economically volatile scenarios.

In 2015, there was an average monetary base increase of 33%. This increase was related to the Central Bank’s assistance to the federal government, that almost doubled the amount for 2014. The effect of such assistance was offset by a strong contraction by sales of foreign currencies and by the issuance of notes and repurchase agreements with the Central Bank.

In line with a passive monetary administration of the Central Bank, the sale of foreign currencies for approximately U.S.$8 billion lead to a net decrease of the Central Bank reserves of U.S.$5.4 billion. The reserves of the Central Bank as of December 31, 2015 amounted to U.S.$25.6 billion.

In this context, in 2015, the growth of the financial activity increased; increasing the degree of bancarization.

In terms of deposits, there was a greater increase in the private sector than in the public sector. The deposits in the private sector increased by 47% as compared to 2014, with an increase in private time deposits of 61%. There was a significant increase in the number of fixed-term deposits in the fourth quarter in light of the increase of interest rates initiated by the Central Bank.

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In terms of profitable assets, the financial system registered a total increase of loans of 37% and an increase of tenure of Lebacs of 23% over the prior year. The Lebac/Loan ratio decreased from 32% in 2014 to 29% in 2015.

Private sector loans increased by 37% over the prior year, recording a significant acceleration in consumer loans (credit cards and personal).

During 2015, the Central Bank implemented strong regulations relating to limits on lending rates, commissions and the launching of new financial products. These restrictions started to be reversed with the change to the Central Bank authorities. The change in the government in December lead to the implementation of a distinct monetary policy which has seen an initial increase in interest rates and the return of a floating exchange rate.

By the third quarter of 2016, the main monetary aggregates slightly increased. By moving from a fixed and administered exchange rate to a flexible one, the Central Bank has gained control over the main monetary aggregates. This control is an indispensable tool for the transition towards lower inflation.

Under the new exchange scheme, the expansion of the Monetary Base has decelerated substantially, from a 33% average growth on 2015 to 24% during 2016. This deceleration was reflected through lower inflation during the latter part of the year.

In order to achieve this monetary reduction, the Central Bank used Lebacs, securities and increases in legal banking reserves as absorption mechanisms. The goal of these measures was to adjust the expansion factors presented by currency purchases, government assistance and interests for passives (quasi-fiscal) that comprise the supply for the demand of Monetary Base.

The Central Bank assisted the National Treasury with Ps.151 billion and purchased U.S.$14 billion worth of currency. Another expansion factor included the interest generated by the growing debt of the Central Bank and the increase in rates.

The number of securities and Lebacs held by the Monetary Base doubled in 2016, reaching 87% of the Monetary Base (8% of GDP). Paid interests were 2.3% of the GDP.

Consistent with the anti-inflationary policy and prices liberation, the Central Bank raised the interest rate, in the hopes that this would help decrease inflation through saving in Pesos. The Central Bank also stipulated that the Lebacs rate would be set in the range of 38% during May, to begin a continuous lowering process from May to December, depending on the results of gradual inflation decrease, cutting down 13 percentage points from the annual maximums. Asset and liability rates followed the same pattern as Lebacs rate.

Asset and liability rates copied the direction and intensity of the Lebacs’ trail.

During 2016, financial penetration (deposits and loans / GDP) in Pesos fell, and remained stable when including assets and liabilities in dollars. The Argentine financial system continues to be the smallest one in terms of GDP in Latin America.

Deposits in the financial system grew 40% interannually, pushed by the deposits from private sector which increased 45% i.a. Additionally, dollar deposits grew 130% i.a., due to the elimination of the dollar clamp, the growing credibility of higher dollar rates and, in the last part of the year, as a result of capital bleaching.

In terms of assets, the financial system grew in total loans and Lebacs’ holdings in 26% and 28%, respectively.

Private loans registered an increase of 30% i.a. with a 28% i.a. increase from commercials and a 32% i.a. improvement of consumer loans.

Personal credits grew by 36% i.a. This increase was 8 percentage points more than the ones carried out through credit cards.

There was strong liquidity and a higher increase in deposits over credits in both currencies throughout the year. This meant that the financial system was in a strong position in terms of risk diversification. Furthermore, it lead to increasing the holding of Lebacs in pesos and the excess of dollars raised the Central Bank reserves.

RESULTS OF OPERATIONS

The following discussion of our results of operations is for the Bank as a whole and without reference to any operating segments. We do not manage our 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.

During 2016, We have emphasized the importance of the efficiency indicators without neglecting a focus on growth and market share.

Our loan portfolio to the private sector has grown and is above the average of the rest of the system as a whole. Similarly deposits have had an outstanding performance, partly due to the end of the tax amnesty regime, which mainly related to dollar savings accounts.

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Our loan portfolio to the private sector grew to Ps.44,108 million as of December 31, 2014, increasing 13% compared to 2013. Growth continued as our loan portfolio grew from Ps.62,853 million as of December 31, 2015, increasing 42% compared to 2014. Most recently our loan portfolio grew to Ps.86,540 million as of December 31, 2016, increasing 38% compared to 2015.

Within this context of increasing prices, we, alongside the financial system as a whole, benefited from a continuous demand of consumer loans, the main growth driver of our portfolio for the last three years. During 2014, 2015 and 2016 consumer loans (personal loans and credit card loans), which are short term loans, have driven the expansion of our loan portfolio, increasing 22%, 50% and 28%, respectively.

During 2016, we maintained a leading position in terms of personal loans, which increased by 28% and represent a 15% of market share (as of November 30, 2015). As to its credit card products, in 2014 the Argentine government launched a plan for credit card purchases in 12 interest free installments, which led to increased consumption and higher use of credit cards. The credit card loans in 2015 increased by 61% over the previous year balance. During 2016, credit card loans registered an interannual increase of 27%

During 2014, 2015 and 2016, pledge and mortgages loans (mainly productive investments loans with mortgage and pledge guarantees respectively, according to Communication “A” 5319, “A” 5380,”A” 5449, “A” 5516 , “A” 5600, “A” 5681 and “A” 5771 of BCRA), grew 16%, 31% and 14%, respectively.

During 2016, we continued our policy of maintaining high coverage of non-performing loans through the creation of additional provisions to such required by the Central Bank. The coverage indicator reached a 176% ratio towards the end of the fiscal period, substantially above the average of the financial system. The levels of delinquency have stayed in historically low values, reaching a 1.1% ratio of non-performing loans over total portfolio.

Our total deposits increased by 26%, 40% and 46% as of December 31, 2014, 2015, and 2016, respectively, up to Ps.111,940 million as of December 31, 2016.

The increase in deposits followed the needs of the business, in order to maintain conservative liquidity and solvency ratios in accordance with the applicable regulations.

As of December 31, 2016, we had liquid assets of Ps.53,333.5 millions, primarily comprised of cash and amounts due from banks (Ps.36,089.2 millions) and Lebacs (Ps.15,145.3 million). In 2016, we maintained a high liquidity ratio of 47.6% and exceeded the liquidity ratio of the financial system as a whole.

During 2014 and 2015, private sector deposits increased by 25% and 45% respectively, with increase in time deposits and demand deposits. Public sector deposits increased by 30% during 2014 and 12% during 2015.

During 2016, demand deposits increased by 54%, influenced by the process of tax amnesty mentioned above. Time deposits increased by 37% in comparison to 2015, above the average of the system, which allowed us to gain market share.

We were the third largest private financial institution in terms of volume of total loans with a 7.4% of market share, and the fourth largest private financial institution in terms of total deposits and 6.0% of market share, as of November 30, 2016, maintaining a leading position, as in prior years.

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YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015 AND YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014

Net income

The following table sets forth certain components of our income statement for the years ended December 31, 2014, 2015 and 2016:

	Year Ended December 31,									Change December 31,
	(in thousands of Pesos)
	2014			2015			2016			2016-2015			2015-2014
Financial income		14,682,649			20,109,123			28,935,288			8,826,165			5,426,474
Financial expenses		(6,582,561	)		(8,842,655	)		(13,300,762	)		(4,458,107	)		(2,260,094	)
Gross intermediation margin		8,100,088			11,266,468			15,634,526			4,368,058			3,166,380
Provision for loan losses		(664,882	)		(877,134	)		(1,073,085	)		(195,951	)		(212,252	)
Service charge income		4,655,788			6,115,362			7,968,732			1,853,370			1,459,574
Service charge expenses		(1,215,759	)		(1,714,833	)		(2,603,839	)		(889,006	)		(499,074	)
Administrative expenses		(5,498,879	)		(7,225,908	)		(9,970,656	)		(2,744,748	)		(1,727,029	)
Net other income (expense)		88,853			(33,044	)		117,123			150,167			(121,897	)
Minority interest in subsidiaries		(23,492	)		(35,359	)		(54,592	)		(19,233	)		(11,867	)
Net income before income tax		5,441,717			7,495,552			10,018,209			2,522,657			2,053,835
Income tax		(1,962,186	)		(2,485,663	)		(3,477,377	)		(991,714	)		(523,477	)
Net income		3,479,531			5,009,889			6,540,832			1,530,943			1,530,358

Our consolidated net income for 2016 increased 31% or Ps.1,530.9 million as compared to 2015, from Ps.5,009.9 million in 2015 to Ps.6,540.8 million in 2016. This increase was primarily attributable to:

• 44% increase in financial income of Ps.8,826.2 million; and

• 30% increase in service charge income of Ps.1,853.4 million.

This increase was partially offset by a:

• 50% increase in financial expenses of Ps.4,458.1 million;

• 52% increase in service charge expenses of Ps.889.0 million;

• 38% increase in administrative expenses of Ps.2,744.7 million; and

• 40% increase in income tax of Ps.991.7 million.

Financial income

The components of our financial income for the years ended December 31, 2014, 2015 and 2016 were as follows:

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
Interest on cash and due from banks		127		155		1,199
Interest on loans to the financial sector		64,293		87,991		248,095
Interest on overdrafts		1,338,170		1,407,015		2,494,351
Interest on documents (1)		960,429		1,146,153		1,559,061
Interest on mortgage loans		483,143		556,620		729,785
Interest on pledged loans (2)		274,287		385,022		360,722
Interest on credit card loans		1,930,082		2,646,060		3,950,929
Interest on financial leases		76,320		81,711		89,867
Interest on other loans (3)		6,272,353		8,811,767		12,197,589
Income from government and private securities, net		1,974,166		3,985,892		6,222,773
Interest on other receivables from financial intermediation		3,455		4,105		6,191
Income from guaranteed loans (4)		40,201		25,077		33,671
CER (Indexation by benchmark stabilization coefficient) adjustment (5)		78,299		58,463		255,904
CVS (Indexation by salary variation coefficient) adjustment		737		669		786
Difference in quoted prices of gold and foreign currency		827,599		653,120		516,894
Other (6)		358,988		259,303		267,471
Total financial income		14,682,649		20,109,123		28,935,288

(1) Includes income on factoring, check cashing advances and loans with promissory notes.

(2) Includes primarily income on interest on loans with collateral pledge.

(3) Includes interest on loans not classified under prior headings, including interest on personal loans.

(4) Includes income on loans to the Argentine government that were issued in exchange for federal and provincial government bonds.

(5) Includes CER accrued for all the assets subject to CER adjustments.

(6) Mainly results from pre-financing and financing export transactions, forward foreign currency transactions and premiums on reverse repos.

2016 and 2015 - Our financial income increased 44% or Ps.8,826.2 million as compared to 2015, mainly due to higher interest income from loans and the rise in government and private securities income.

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Interest on loans (excluding guaranteed loans) grew 43%, or Ps.6,508.1 million, as a result of an increase of 37% in the average loan portfolio and to a lesser extent due to an increase in the average interest rate. Additionally the average interest rate for private sector loans increased from 29.6% in 2015 to 30.9% in 2016.

The main variation of total interest on loans was from consumer loans with interest on credit card loans which increased by 49% and interest on other loans (including interest on personal loans) which increased by 38% compared to 2015. The average volume of credit cards increased by 46% and the average volume of personal loans increased 34%, in each case as compared to the average of 2015. Regarding commercial loans, the main variation was in interest on overdraft, which increased by 77% and interest on documents, which increased by 36% compared to 2015. The average volume of advances increased by 52% and the average volume of documents increased by 44% in each case compared to 2015.

Net income from public and private securities increased 56%, or Ps.2,236.9 million, mainly due to a 90% increase in the income generated by Lebacs and to a lesser extent by a 13% increase in the profit generated by other government securities as a result of the general increase in market prices.

2015 and 2014 - Our financial income increased 37% or Ps.5,426.5 million as compared to 2014, driven primarily by higher income from government and private securities and higher income derived from interest on loans.

Interest on loans (excluding guaranteed loans) grew 33%, or Ps.3,723.3 million, as a result of an increase of 29% in the average loan portfolio and to a lesser extend due to an increase in the average interest rate. Additionally the average interest rate for private sector loans increased from 28.9% in 2014 to 29.6% in 2015.

The main variation of total interest on loans stemmed from consumer loans with interest on credit card loans which increased 37% and interest on other loans (including interest on personal loans) which increased 40% as compared to 2014. The average volume of credits cards increased 44% and the average volume of other loans increased 37%, in each case as compared to the average in 2014. On the commercial side, the main variation came from interest on documents, which increased 19% and interest on pledge loans, which increased 40% compared to 2014. The average volume of documents increased by 29% and the average volume of pledged loans increased by 34%, in each case as compared to 2014.

Income from government and private securities grew 102%, or Ps.2,011.7 million, mainly due to an increase in income from private securities and other government securities as a result of the general increase of market prices.

The following tables set forth the changes in financial income due to increases (decreases) in volume and increases (decreases) in nominal rates of average interest-earning assets. Such financial income excludes exchange valuation differences and premiums on forward sales of foreign exchange:

Changes in financial income (interest earned)	December 31 2015 vs. December 31 2014		December 31 2016 vs. December 31 2015
	Increase (Decrease)		Increase (Decrease)
	(in thousands of Pesos)
Due to changes in the volume of interest-earning assets		4,176,995		7,662,053
Due to changes in average nominal rates of interest-earning assets		1,518,748		1,302,666
Net change		5,695,743		8,964,719

Changes in financial income due to changes in volume	December 31 2015 vs. December 31 2014			December 31 2016 vs. December 31 2015
	Increase (Decrease)			Increase (Decrease)
	(in thousands of Pesos)
Government and private securities		656,486			2,384,858
Loans to private and financial sector		3,494,343			5,144,123
Loans to public sector		(32,427	)		89,353
Other assets		58,593			43,719
Net change		4,176,995			7,662,053

Changes in financial income due to changes in nominal rates	December 31 2015 vs. December 31 2014			December 31 2016 vs. December 31 2015
	Increase (Decrease)			Increase (Decrease)
	(in thousands of Pesos)
Government and private securities		893,969			(286,992	)
Loans to private and financial sector		272,645			1,271,275
Loans to public sector		(56,163	)		211,965
Other assets		408,297			106,418
Net change		1,518,748			1,302,666

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Financial expenses

The components of our financial expenses for the years ended December 31, 2014, 2015 and 2016 were as follows:

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
Interest on checking accounts		533		0		0
Interest on savings accounts		49,237		68,169		89,865
Interest on time deposits		5,137,168		6,704,910		10,283,706
Interest on interfinancing received loans (received call)		1,202		7,036		2,953
Interest on other financing from the financial institutions		17		1		7
Interest on other liabilities from financial intermediation (1)		91,733		96,022		145,837
Interest on subordinated corporate bonds		120,407		136,191		277,211
Other interest		3,109		2,634		4,170
CER adjustment (2)		9,183		4,595		12,128
Contribution to Deposit Guarantee Fund		151,048		418,437		215,002
Other (3)		1,018,924		1,404,660		2,269,883
Total financial expenses		6,582,561		8,842,655		13,300,762

(1) Includes lines of credit from other banks, repurchase agreements and Central Bank borrowings.

(2) Includes CER accrued for all the liabilities subject to CER adjustments.

(3) Mainly resulting from turnover tax.

2016 and 2015 - Financial expenses increased 50% or Ps.4,458.1 million as compared to 2015

Interest on deposits represented 78% of total financial expenses and increased by 53% or Ps.3,600.5 million compared to 2015 due to an increase on average portfolio of 52%. Interest rates on time deposits showed a slight decline, from 21.4% on average in 2015 to 21.2% on average in 2016.

Other financial expenses increased by 62% as compared to 2015 mainly due to an increase in the gross income tax mainly due to an increase in the tax base (48%) and, to a lesser extent, to an increase in the rates of certain provinces in which we operate.

2015 and 2014 - Financial expenses increased 34% or Ps.2,260.1 million as compared to 2014.

Interest on deposits represented 77% of total financial expenses and increased by 31% or Ps.1,586.1 million as compared to 2014 due to an increase on average portfolio by 29% and a slight increase in the interest rate (from 20.1% on average in 2014 to 21.4% on average in 2015).

Other financial expenses increased by 38% as compared to 2014 mainly due to an increase in turnover tax as a result of our higher computable financial income and, to a lesser extent, an increase in tax rates in certain provinces in which we operate.

Changes in financial expense (interest paid)

	December 31 2015 vs. December 31 2014		December 31 2016 vs. December 31 2015
	Increase (Decrease)		Increase (Decrease)
	(in thousands of Pesos)
Financial Expense due to changes in the volume of interest-bearing liabilities		1,292,383		3,189,426
Financial Expense due to changes in average nominal rates of interest-bearing liabilities		313,330		649,428
Net change		1,605,713		3,838,854

Changes in financial expense due to changes in volume

	December 31 2015 vs. December 31 2014			December 31 2016 vs. December 31 2015
	Increase (Decrease)			Increase (Decrease)
	(in thousands of Pesos)
Deposits		1,272,311			2,951,069
Borrowings from Central Bank and other financial institutions		(7,465	)		23,777
Corporate Bonds		27,537			214,580
Net change		1,292,383			3,189,426

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Changes in financial expense due to changes in nominal rates

	December 31 2015 vs. December 31 2014			December 31 2016 vs. December 31 2015
	Increase (Decrease)			Increase (Decrease)
	(in thousands of Pesos)
Deposits		313,850			654,390
Borrowings from Central Bank and other financial institutions		1,479			17,795
Corporate Bonds		(1,999	)		(22,757	)
Net change		313,330			649,428

Provision for loan losses

2016 and 2015 – Provision for loan losses increased by 22% or Ps.195.9 million in 2016 mainly as a result of an increase in the loan portfolio and the increase in the additional provisions in virtue of provisioning policies at year-end.

2015 and 2014 – Provision for loan losses increased 32% or Ps.212.3 million in 2015 mainly due to the increase in the loan portfolio and the increase in the additional provisions for commercial loans required by the Central Bank.

Service charge income

The following table provides a breakdown of our service charge income by category for the years ended December 31, 2014, 2015 and 2016:

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
Service charges on deposit accounts		2,798,967		3,561,203		4,597,495
Debit and credit card income		1,147,740		1,628,556		2,256,372
Other fees related to foreign trade		67,123		100,581		134,803
Credit-related fees		92,101		124,559		152,634
Capital markets and securities activities		7,895		18,273		34,720
Lease of safe-deposit boxes		84,201		95,553		119,859
Fees related to guarantees		1,672		1,266		1,502
Other (1)		456,089		585,371		671,347
Total service charge income		4,655,788		6,115,362		7,968,732

(1) Includes insurance income and revenue from joint ventures.

2016 and 2015 - Service charge income increased 30% or Ps.1,853.4 million in 2016, mainly due to the increase in commissions from deposit accounts of 29%, due to the greater number of accounts/customers and commissions charged for those accounts. During 2016, commissions for debit and credit cards increased 39% as a result of an increase in the consumption of such cards.

2015 and 2014 - Service charge income increased 31% or Ps.1,459.6 million in 2015, mainly due to an increase in service charges on deposit accounts (27%) and higher debit and credit card income (42%). During 2015 the number of active accounts increased 14%, the banking product packages increased 7%, and the fees charged for such accounts and banking product packages grew 16% in average. The increase in charged fees is due to the increase in consumption of debit and credit cards.

Service charge expenses

2016 and 2015 - In 2016, service charge expenses increased 52% or Ps.899.0 million as compared to 2015 due to an increase in debit and credit card expenses.

2015 and 2014 - In 2015, service charge expenses increased 41% or Ps.499.1 million as compared to 2014 due to an increase in debit and credit card expenses as result of a vigorous marketing campaigns for credit card products as part of our strategy to strengthen our credit card market share.

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Administrative expenses

The components of our administrative expenses for the years ended December 31, 2014, 2015 and 2016 are reflected in the following table:

	Year Ended December 31,
	2014		2015		2016
	(in thousands of Pesos)
Personnel expenses		3,190,774		4,324,067		6,039,039
Directors and statutory auditors fees		163,378		233,030		314,522
Other professional fees		181,427		217,948		283,231
Advertising and publicity		128,387		143,883		197,505
Taxes		323,463		411,789		534,431
Depreciation of equipment		130,678		170,613		205,122
Amortization of organization costs		122,704		150,619		197,052
Maintenance, conservation and repair expenses		256,937		322,436		430,881
Security services		249,176		313,310		410,036
Electric power and communications		146,145		172,669		283,455
Lease payments		110,875		137,288		197,095
Insurance		22,678		27,200		38,472
Stationery and office supplies		26,761		35,446		39,923
Other		445,496		565,610		799,892
Total administrative expenses		5,498,879		7,225,908		9,970,656

2016 and 2015 - Administrative expenses increased 38% or Ps.2,744.7 million in 2016, due to the increase in personnel expenses and other operating expenses.

Personnel expenses increased 40% as a result of a 33% wage increase agreed with the union in April 2016 and an increase in other staff costs. The remaining administrative expenses increased by 35% in 2016, in line with annual recorded inflation.

2015 and 2014 - Administrative expenses increased 31% or Ps.1,727.0 million in 2015, due to increase personnel expenses and other administrative expenses.

Personnel expenses increased by 35% as a result of a salary increase between 28 and 33% agreed with the labor unions between January and June 2015 and higher other personnel expenses. The remaining administrative expenses increased by 26% in 2015, in line with the recorded annual inflation.

Net other income (expense)

2016 and 2015. In 2016 net other income was a gain of Ps.117.1 million, compared to a loss of Ps.33.0 million in 2015. The variation was mainly due to higher total other income by 46% or Ps.189.3 million, mainly because of an increase in recovered loans and reversed allowances by Ps.77.8 million and others by Ps.90.3 million mainly due to other adjustments and interests for recovered credits.

2015 and 2014. In 2015 net other income was a loss of Ps.34.5 million, decreasing 139% or Ps.123.3 million compared to 2014. The variation was mainly due to higher total other expenses by 69% or Ps.181.3 million, mainly because of an increase in charges for other receivables uncollectibility and other allowances of Ps.143 million. Total other income increased by 16% or Ps.58 million as compared to 2014, mainly as a result of higher other income (mainly tax return for Ps.49 million) and an increase in recovered loans and reversed allowances by Ps.25.3 million.

Income tax

2016 and 2015. In 2016 income tax expenses increased 40% to Ps.3,477.4 million compared to 2015 with a tax effective rate of 34.7% for fiscal year 2016. This increase was due to the increase in taxable revenues.

2015 and 2014. In 2015 income tax expenses increased 27% to Ps.2,485.7 million compared to 2014 with a tax effective rate of 33.2% for fiscal year 2015. This increase was due to the increase in taxable revenues.

U.S. GAAP and Central Bank Rules Reconciliation

General

We prepare our consolidated financial statements in accordance with Central Bank Rules, which differ from U.S. GAAP in certain respects. For more detail on differences in the accounting treatment between Central Bank Rules and U.S. GAAP as of December 31, 2016, see Note 35 to our consolidated financial statements as of and for the year ended December, 2016.

Summary of significant differences between Central Bank Rules and U.S. GAAP:

a. Exposure to the Argentine Public Sector and Private Securities:

a.1. Loans—Non-financial federal government sector: Guaranteed loans (maturing around 2017) were valued according to Central Bank Communication “A” 4898 and “A” 5180. Under U.S. GAAP, the difference between the cost of each acquired loan and its expected future cash flows is accounted for in accordance with FASB ASC 310-30 “Loans and debts acquired with deteriorated credit quality.” In accordance with this rule, we should continue to estimate the cash flows expected to be collected over the life of the loan. The effects of the adjustments required to state such amounts in accordance with U.S. GAAP would decrease assets by Ps.25.6 million, Ps.148.2 million and Ps.200.3 million as of December 31, 2016, 2015 and 2014, respectively. On the other hand, income would increase by Ps.122.6 million and Ps.52 million for the years ended December 31, 2016 and 2015, respectively, and would decrease by Ps.42 million for the year ended December 31, 2014.

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a.2. Government and private securities:

(i) Available for sale: Under U.S. GAAP, securities for which the Bank’s management has the intention and the ability to hold them for an indefinite period of time, but not necessarily to maturity, are classified as “available for sale securities.” They are carried at fair value with the unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320 “Investment – Debt and Equity Securities.”

(ii) Trading securities: Under U.S. GAAP, securities maintained for intermediation are classified as “trading securities” because they are bought mainly with the intent to buy and sell in the short term as part of the Bank’s trading or intermediation activities. They are carried at fair value considering their active market, with changes in fair value recorded in the consolidated statement of income.

Under Central Bank rules, Government and private securities were valued as explained in Note 4.5.b) to our consolidated financial statements. The effects of the adjustments required in accordance with U.S. GAAP, would increase assets by Ps.5.5 million as of December 31, 2016, and would decrease assets by Ps.26.2 million and Ps.21.3 million as of December 31, 2015 and 2014, respectively. Net income excluding OCI effects, would increase by Ps.13.3 million and Ps.3 thousand for the years ended December 31, 2016 and 2014, respectively, and would decrease by Ps.29.3 million for the year ended December 31, 2015.

a.3. Instruments issued by Central Bank of Argentina: Under Central Bank Rules, instruments issue by the Central Bank of Argentina were valued at the quoted price of each security or at the cost value increased by their internal rate of return. Under U.S. GAAP, considering what is mentioned in Note 35.2.b.1) to our consolidated financial statements, these securities should be considered as “available for sale” and carried at fair value, with unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320. The effects of the adjustments required to state such amounts in accordance with U.S. GAAP, would increase assets by Ps.6.7 million, Ps.4.1 million and Ps.2.4 million as of December 31, 2016, 2015 and 2014, respectively. Net income excluding OCI effects, would decrease by Ps.22.1 million for the year ended December 31, 2016, and would increase by Ps.12.3 million and Ps.7.2 million for the years ended December 31, 2015 and 2014, respectively.

a.4. Securities in financial trust and others: Under Central Bank Rules, securities in financial trust and others were valued at the cost value increased by their internal rate of return. Under U.S. GAAP, considering what is mentioned in Note 35.2.b.1) to our consolidated financial statements, these securities should be considered as “available for sale” and carried at fair value, with unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320. The effects of the adjustments required to state such amounts in accordance with U.S. GAAP would increase assets by Ps.7.5 million, Ps.35.8 million and Ps.30.9 million as of December 31, 2016, 2015 and 2014, respectively. Net income excluding OCI effects would decrease by Ps.15.3 million and Ps.10.4 million for the years ended December 31, 2016 and 2014, respectively, and would increase by Ps.16.5 million for the year ended December 31, 2015.

b. Loans origination fees: Fees on consumer loans, such as credit cards, mortgage, pledged and personal loans, stand by letters of credit and guarantees issued, are recognized when collected and charges direct origination costs when incurred. In accordance with U.S. GAAP under FASB ASC 310-20 “Nonrefundable Fees and Other Costs,” loan origination fees and certain direct loan origination costs should be recognized over the life of the related loan as an adjustment of yield or by straight-line method, as appropriate. The effects of the adjustments required to state such amounts in accordance with U.S. GAAP, would decrease assets by Ps.110.5 million, Ps.38 million and Ps.91.3 million as of December 31, 2016, 2015 and 2014, respectively. Income would decrease by Ps.72.4 million for the year ended December 2016, and would increase by Ps.53.2 million and Ps.20.6 million for the years ended December 31, 2015 and 2014, respectively.

c. Allowance for loan losses

c.1. Credit card loans: We establish a reserve for credit card loans based on the past due status of the loan. All loans without preferred guarantees greater than 180 days have been reserved at least at 50% in accordance with the Central Bank Rules. Under U.S. GAAP, we adopted a policy to fully provision loans which are 180 days past due. Had U.S. GAAP been applied, our assets would decrease by Ps.42.2 million, Ps.33.9 million and Ps.25.7 million as of December 31, 2016, 2015 and 2014, respectively. In addition, income would decrease by Ps.8.4 million, Ps.8.2 million and Ps.8.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.

c.2. Impaired loans - Non Financial Private Sector and residents abroad: FASB ASC 310 “Receivables,” requires a creditor to measure impairment of a loan based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. This statement is applicable to all loans (including those restructured in a troubled debt restructuring involving amendment of terms), except large groups of smaller-balance homogenous loans, not considered troubled debt restructuring, that are collectively evaluated for impairment. Loans are considered impaired when, based on Management’s evaluation, a borrower will not be able to fulfill its obligation under the original loan terms. The collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate various estimates and judgments. We have performed a migration analysis based on uncollectability following the FASB ASC 450 “Contingencies.” Had U.S. GAAP been applied, the Bank’s assets would increase by Ps.75.2 million and Ps.3.8 million, as of December 31, 2016 and 2014, respectively, and would decrease by Ps.17.1 million as of December 31, 2015. In addition, income would increase by Ps.92.4 million and Ps.0.9 million for the years ended December 31, 2016 and 2014, respectively, and would decrease by Ps.20.9 million for the year ended December 31, 2015.

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c.3. Interest recognition – non-accrual loans : The method applied to recognize income on loans is described in Note 4.5.d) to our consolidated financial statements. Additionally, the accrual of interest is discontinued generally when the related loan is non-performing and the collection of interest and principal is in doubt generally after ninety (90) days of being past due. Accrued interest remains on the Bank’s books and is considered a part of the loan balance when determining the reserve for credit losses. Under U.S. GAAP the accrual of interest is discontinued when the management has serious doubts about further collectability of principal or interest, usually after ninety (90) days, even though the loan is currently performing. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Had U.S. GAAP been applied, the Bank’s assets would decrease by Ps.19.3 million, Ps.24.2 million and Ps.22.1 million as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by Ps.5 million for the year ended December 31, 2016, and would decrease by Ps.2.2 million and Ps.9.1 million for the years ended December 31, 2015 and 2014 respectively.

d. Income Tax: Central Bank Rules do not require the recognition of deferred tax assets and liabilities and, therefore, income tax is recognized on the basis of amounts due in accordance with Argentine tax regulations and no deferred tax and liabilities are recognized. Under U.S. GAAP we apply FASB ASC 740 “Income Taxes.” Under this method, income tax is recognized based on the liability method whereby deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax basis of assets and liabilities at each reporting date. FASB ASC 740 requires that an allowance for deferred tax assets be provided to the extent that it is more likely than not that they will not be realized, based on the weight of available evidence. In order to determine the amount of the valuation allowance required, in accordance with FAS ASC 740-10-30-16 through 30-25, we evaluate all available evidence for each consolidated entity, both positive and negative and the future realization of the tax benefit in a relatively short period of time, considering future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax-planning strategies. Had U.S. GAAP been applied, the Bank’s net assets would increase by Ps.197.4 million, Ps.190.2 million and Ps.366.1 million as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by Ps.64.3 million and Ps.154.9 million for the years ended December 31, 2016 and 2014, respectively, and would decrease by Ps.104.9 million for the year ended December 31, 2015.

e. Intangible assets:

(i) Software cost: Under Central Bank Rules, it includes software costs relating to preliminary, application development and post – implementation stages of software development. Central Bank Rules permits the capitalization of certain costs that are not eligible for capitalization under FASB ASC 350-40 “Internal- Use Software”. The effects of the adjustments required to state such amounts in accordance with U.S. GAAP, would decrease assets by Ps.7 million, Ps.7.7 million and Ps.9.1 million as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by Ps.0.7 million, Ps.1.4 million and Ps.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

(ii) Organizational costs: Under Central Bank Rules, it includes inherent cost of set up and organization of the Bank. Applying U.S. GAAP and in accordance with FASB ASC 720-15 “Start Up Costs,” these cost are not eligible for capitalization and would result in a decrease to the Bank’s assets by Ps.4.9 million as of December 31, 2014. In addition income would increase by Ps.4.9 million for the year ended December 31. 2015, and would decrease by Ps.2.3 million for the year ended December 31, 2014.

f. Vacation accrual: The cost of vacations earned by employees is generally recorded by us when paid. U.S. GAAP requires that this expense be recorded on an accrual basis as the vacations are earned. Had U.S. GAAP been applied, the Bank’s liabilities would increase by Ps.349.7 million, Ps.268.4 million and Ps.202.9 million as of December 31, 2016, 2015 and 2014, respectively. In addition, income would decrease by Ps.81.3 million, Ps.65.5 million and Ps.50.6 million for the years ended December 31, 2016, 2015 and 2014, respectively.

g. Business combination: Under Central Bank Rules, business combinations and step acquisitions are accounted for the carryover book value of the acquired company. Additionally, at the acquisition date, the Bank recognized the difference between the book value of the net equity acquired and the purchase price as a positive goodwill. Such goodwill is being amortized under the straight line method over 10 years. Under U.S. GAAP FASB ASC 805 requires the acquisition of controlling interest to be accounted for as a business combination applying the purchase method. The assets acquired and liabilities assumed are measured based on their estimated fair values as of the acquisition date. Had U.S. GAAP been applied, the Bank’s net assets would decrease by Ps.26.7 million, Ps.29.4 million and Ps.37.7 million as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by Ps.2.7 million, Ps.8.5 million and Ps.9.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.

h. Accounting for derivative instruments and hedging activities: Pursuant to Central Bank Rules, derivatives are recorded as described in Notes 4.5.g) and 4.5.k) to our consolidated financial statements. FASB ASC 815 “Derivatives and Hedging” establishes accounting and reporting standards for derivative instruments, including certain ones embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Had U.S. GAAP been applied, the Bank’s liabilities would decrease by Ps.35.5 million as of December 31, 2015. In addition income would decrease by Ps.35.5 million and Ps.1.7 million for the years ended December 31, 2016 and 2014, respectively, and would increase by Ps.35.5 million for the year ended December 31, 2015.

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i. Foreign currency translation: U.S. GAAP foreign currency translation requirements are covered by FASB ASC 830-20 “Foreign Currency Matters” and differ from Central Bank Rules in the translation of the income statement accounts, which under U.S. GAAP should have been translated at the average exchange rate other than at the year-end exchange rate. Had U.S. GAAP been applied, the Bank’s net income would decrease by Ps.133.1 million, Ps.200.5 million and Ps.87.6 million for the years ended December 31, 2016, 2015 and 2014, respectively, and these resulting differences recognized as other comprehensive income.

j. Corporate bonds: Under Central Bank Rules, cost of issuance was recognized as expenses when they were incurred and the interest has accrued according to the contract terms of the bonds in the period in which it was generated. Under U.S. GAAP, the Bank recognizes direct incremental costs and interest based on the effective interest method over the life of the loan. Had U.S. GAAP been applied, the Bank’s assets would increase by Ps.31.6 million, Ps.85.9 million and Ps.38.6 million as of December 31, 2016, 2015 and 2014, respectively. In addition income would decrease by Ps.54.3 million for the year ended December 31, 2016 and would increase by Ps.47.3 million and Ps.33.3 million for the years ended December 31, 2015 and 2014, respectively.

k. Foreclosed assets: Under Central Bank Rules, these assets are carried at cost adjusted by depreciation over the life of the assets. Under U.S. GAAP, in accordance with FASB ASC 360 “Property, Plant and Equipment,” such assets classified as held for sale shall be measured at the lower of its carrying amount or fair value less cost to sell. Had U.S. GAAP been applied, the Bank’s assets would increase by Ps.17.9 million, Ps.15.5 million and Ps.12.8 million as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by Ps.2.4 million and Ps.2.7 million for the years ended December 31, 2016 and 2015, respectively, and would decrease by Ps.1.3 million for the year ended December 31, 2014.

l. Capitalization of interest cost: Under Central Bank Rules, is not allowed to capitalized interest cost from borrowings. Under U.S. GAAP, in accordance with FASB ASC 835-20 “Capitalization of Interest Cost”, if an asset requires a period of time in which to carry out the activities necessary to bring it to the condition and location necessary for its intended use, the interest cost incurred during that period as a result of expenditures for the asset is a part of historical cost of acquiring the asset. Had U.S. GAAP been applied, the Bank’s assets would increase by Ps.254.4 million, Ps.112.8 million and Ps.37.8 million as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by Ps.141.6 million, Ps.75 million and Ps.28.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.

m. Contingencies: In accordance with Central Bank rules, certain items were booked as liability when paid and certain other items were booked to cover contingent losses, independently the probability of occurrence. Under US GAAP, in accordance with FASB ASC 450 “Contingencies,” the Bank should recognize a liability to cover contingent losses in view of their probability of occurrence. The effects of adjustments required to state such amounts in accordance with US GAAP would increase the Bank’s liabilities by Ps.19.3 million and Ps.43.4 million as of December 31, 2015 and 2014, respectively. In addition, income would increase by Ps.19.3 million, Ps.24.2 million and Ps.25.6 million, for the years ended December 31, 2016, 2015 and 2014, respectively.

n. Noncontrolling Interest in subsidiaries: Central Bank Rules requires to record noncontrolling interests as a component of liabilities. FASB ASC 810 requires to record such interest as shareholders’ equity. Had U.S. GAAP been applied, the Bank’s shareholder’s equity would increase by Ps.182.8 million, Ps.128.3 million and Ps.93 million as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by Ps.54.4 million, Ps.35.3 million and Ps.23.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Had U.S. GAAP been applied the Bank’s shareholders’ equity would increase by Ps.198 million as of December 31, 2016 and decrease by Ps.4.3 million and Ps.73.3 million as of December 31, 2015 and 2014, respectively.

In addition, net income calculated according U.S. GAAP would increase by Ps.96.2 million and Ps.93.4 million for the years ended December 31, 2016 and 2014, respectively, and would decrease by Ps.62.7 million for the year ended December 31, 2015.

B. Liquidity and Capital Resources

Our main source of liquidity consists of deposits, which totaled Ps.111,939.7 million as of December 31, 2016, Ps.76,521.6 million as of December 31, 2015 and Ps.54,716.6 million as of December 31, 2014. These deposits include deposits generated by our branch network, from institutional, very large corporate clients and from provincial governments for whom we act as financial agent. We consider the deposits generated by our branch network and the provincial deposits to be stable.

Approximately 9% of our total deposits as of December 31, 2016 were derived from the non-financial government sector, in particular as a consequence of the Bank’s role as financial agent of four provinces. This is an important source of low-cost funding.

Total deposits, which grew 46% in 2016 compared to 2015, represented 84% of our total liabilities as of December 31, 2016. Deposits were used primarily to finance the growth in credit made available to the private sector and the balance was invested in liquid assets. This approach has enabled us to maintain a high liquidity to deposits ratio while we await a return to stronger demand for private sector loans.

As of December 31, 2016, we had liquid assets up to Ps.53,333.5 millions, primarily comprised of cash and due from banks (Ps.36,089.2 millions) and Lebacs (Ps.15,145.3 million). During 2016 the liquidity ratio increased from 38.4% as of December 31, 2015 to 47.6% as of December 31, 2016. Our liquidity ratio exceeds the aggregate liquidity ratio of the Argentine financial system as a whole.

On November 4, 2016, we issued U.S.$400 million of Tier II Subordinated Resettable Notes due 2026 and on December 18, 2016, we redeemed in full U.S.$150 million of our Series No. 1 of Subordinated Notes due 2036. Additionally, on February 1, 2017, we redeemed the outstanding principal amount plus accrued and unpaid interest of our Series No. 2 Notes due 2017 (U.S.$106.4 million of principal amount).

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Additionally, we currently have access to uncommitted lines of credit with foreign banks and to letters of credit.

We manage the excess liquidity by analyzing interest rates from a limited number of liquid and short-term assets including Central Bank bills, deposits with the Central Bank and overnight loans to highly rated companies. The amount allocated to overnight loans is determined by the amount of deposits received from institutional investors, and as such, there is a high degree of volatility in our overnight allocations.

We believe that we have adequate working capital to meet our current and reasonably foreseeable needs. As of December 31, 2016, we had excess capital of Ps.17,522.1 million. Our excess capital is aimed at supporting growth, and consequently, a higher leverage of our balance sheet.

For further information regarding management and administration guidelines in relation to liquidity risk please note 18 “Risk management policies” to our audited consolidated financial statements as of and for the three years ended December 31, 2016. Additionally for further information regarding our restricted assets, assets in custody and trust agreements please see notes 8 “Restricted assets,” 12 “Items in custody” and 14 “Trust agreements” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Minimum capital requirements

Our excess capital (representing the amount in excess of minimum reserve requirements of the Central Bank) is as set forth in the table:

	As of December 31,
	2014			2015			2016
	(in thousands of Pesos, except ratios and percentages)
Calculation of excess capital:
Credit risk		3,991,731			6,088,387			7,634,561
Market risk		388,136			568,798			267,224
Operational risk		1,278,035			1,734,888			2,368,028
Required minimum capital under Central Bank Rules		5.657.902			8,392,073			10,269,813
Common Equity Tier 1 (COn1)		11,204,326			14,892,648			21,258,273
Deductible concepts COn1		(431,969	)		(535,091	)		(684,259	)
Additional Tier 1 (CAn1)		366,816			320,964			—
Tier 2 Capital (COn2)		441,495			629,164			7,217,915
Total capital under Central Bank Rules		11,580,668			15,307,685			27,791,929
Excess capital		5,922,766			6,915,612			17,522,116
Selected capital and liquidity ratios:
Regulatory capital/risk weighted assets		24.02	%		20.79	%		30.00	%
Average shareholders’ equity as a percentage of average total assets		15.37	%		15.58	%		15.22	%
Total liabilities as a multiple of total shareholders’ equity		5.53	x		5.61	x		6.01	x
Cash as a percentage of total deposits		28.21	%		25.36	%		32.24	%
Liquid assets as a percentage of total deposits (1)		40.57	%		38.43	%		47.64	%
Loans as a percentage of total assets		58.32	%		59.39	%		56.76	%

(1) Total liquid assets include cash, cash collateral, reverse repos,, Lebacs, Nobacs and interbank loans.

As of December 31, 2016, we had no material commitments for capital expenditures. We believe that our capital resources are sufficient for our present capital requirements on an individual and a consolidated basis.

Funding

Our principal source of funding is mainly deposits from individuals and corporate clients located in Argentina. Deposits include checking accounts, savings accounts and time deposits. The following table sets forth our sources of funding as of December 31, 2014, 2015 and 2016.

	As of December 31
	2014		2015		2016
	(in thousands of Pesos)
Deposits
From the non-financial government sector		8,570,055		9,588,378		9,552,190
From the financial sector		38,683		40,145		55,867
From the non-financial private sector and foreign residents
Checking accounts		11,896,322		14,062,853		17,686,171
Savings accounts		11,013,878		15,507,850		27,895,965

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	As of December 31
	2014		2015		2016
	(in thousands of Pesos)
Time deposits		21,510,754		34,719,816		47,652,387
Investment accounts (1)		190,503		545,092		333,786
Other (2)		1,137,750		1,348,989		8,113,965
Accrued interest, adjustments, foreign exchange and quoted price differences payable		358,609		708,475		649,409
Borrowing from Central Bank and financial institutions
Central Bank		16,959		12,917		8,403
Banks and international institutions		88,313		98,598		129,916
Financing received from Argentine financial institutions		51,787		84,384		140,796
Other		3,899,498		5,024,061		7,097,263
Minority interest in subsidiaries		93,001		128,305		182,799
Non-subordinated Corporate Bonds		942,115		1,432,672		1,684,893
Subordinated Corporate Bonds		1,287,317		1,957,618		6,407,840
Shareholders’ equity		11,491,817		15,877,550		22,105,898
Total funding		72,587,361		101,137,703		149,697,548

(1) Time deposit payable at the option of the depositor.

(2) Includes, among others, expired time deposits and judicial deposits.

Critical accounting policies

Our accounting and reporting policies comply with Central Bank Rules, which differ in certain significant respects from US GAAP. See Note 35 to our audited consolidated financial statements as of and for the three years ended December 31, 2016 included in this annual report for a reconciliation of our audited financial statements to U.S. GAAP. The preparation of our consolidated financial statements requires management to make, in certain cases, estimates and assumptions to determine the book value of assets and liabilities, income, expenses and contingencies. Our financial position and results of operations are based on the best estimate regarding the probability of occurrence of different future events and, thereof, the final amount may differ from such estimates, which may have a positive or negative effect on future years.

Critical accounting policies are those accounting policies that require management to make estimates based on assumptions about matters that are highly uncertain at the time the estimate is made and such estimates reasonably could have a material effect on the financial condition. Several factors are considered in determining whether or not a policy is critical in the preparation of our financial statements. These factors include, among others, whether the estimates are material to our financial statements, the nature of the estimates, the ability to readily validate the estimates with other information including information from third parties or available prices, and sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be utilized under Central Bank Rules. Significant accounting policies are discussed in Note 4 to our audited consolidated financial statements as of the year ended December 31, 2016.

Allowance for loan losses

The loan loss reserve represents the estimate of probable losses in the loan portfolio. Pursuant to Central Bank Rules, a bank must classify its loan portfolio into two categories: consumer and commercial portfolio. Under each of these categories, customers are included within one of six sub-categories depending on the credit quality and the fulfillment of its obligations. A minimum allowance for loan losses is required to be established primarily based upon this classification and guarantees and collateral, supporting the transactions.

Determining the loan loss reserve requires significant management judgments and estimates. According to Central Bank Rules, for consumer portfolio, management must classify each customer based primarily on delinquency aging with us and the financial system. For commercial portfolio, management must analyze the borrowers’ operating and payment history, ability to service its debt, its internal information and control systems and the risk of the sector in which it operates.

Central Bank Rules allow us to establish additional allowances for loan losses and changes loan classification, as the case may be, based on management’s risk management policies. Our executive committee decided to increase the allowance for loan losses related to our loan portfolio as of December 31, 2016, 2015 and 2014 after evaluating the risk of our loan portfolio. Our management determines increase or decrease in allowances based on repayment estimates. International and local macroeconomic conditions generate a certain degree of uncertainty regarding future progress as a result of the contractions in growth levels, the volatility of financial assets and the foreign exchange market, among other issues, which has been observed with various degrees of intensity over the last few years. This scenario leads us to the assumption that some of the loans that currently make up our portfolio might sustain an impairment value.

The accounting for loan loss reserve under Central Bank Rules differs in some respects with practices of US-based banks, as mentioned below.

Under U.S. GAAP loans are considered impaired when, based on management’s evaluation, a borrower will not be able to fulfill its obligation under the original loan terms.

The methodology used for calculating impairment involves significant judgment. First, it involves the early identification of credits that are deteriorating. Second, it involves judgment in establishing the inputs used to estimate the allowance. Third, it involves management judgment to evaluate certain macroeconomic factors and other relevant internal and external factor affecting the credit quality of a current portfolio, and to refine loss factors to better reflect these conditions.

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FASB ASC 310 requires a creditor to measure impairment of a loan based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. FASB ASC 310 is not applicable for large groups of smaller-balance homogeneous loans that are collectively evaluated. An allowance for impaired loans is provided when discounted future cash flows or the fair value of the collateral is lower than the book value.

To calculate the allowance required for smaller-balance impaired loans and other groups of loans that have not yet been individually identified as impaired or measured in the group mention before, historical loss ratios are determined by analyzing historical losses. Loss estimates are analyzed by loan type for homogeneous groups of clients. Such historical ratios are updated to incorporate the most recent data reflecting current economic conditions, trends and any other pertinent information that may affect the estimation of the allowance for loan losses.

Management estimates require significant judgment regarding identifying impaired loans, determining customers’ ability to pay and estimating the fair value of underlying collateral or the expected future cash flows to be received. Actual events will likely differ from the estimates and assumptions used in determining the loan loss reserve. Additional loan loss reserves could be required in the future.

Income tax

In estimating accrued taxes, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial and regulatory guidance in the context of the tax position.

Because of the complexity of tax laws and regulations, interpretation can be difficult and subject to legal judgment. It is possible that others, given the same information, may reach different reasonable conclusions regarding the estimated amounts of accrued taxes.

Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of the status of examinations being conducted by various taxing authorities, and newly-enacted statutory and regulatory guidance that affect the relative merits and risks of tax positions. These changes, when they affect accrued taxes, can be material to our operating results.

As explained in note 5 to our audited consolidated financial statements as of and for the three years ended December 31, 2016, Central Bank Rules do not require the recognition of deferred tax assets and liabilities and, therefore, income tax is recognized on the basis of amounts due in accordance with Argentine tax regulations and no deferred tax and liabilities are recognized.

For purposes of US GAAP reporting, we apply FASB ASC 740 “Income Tax.” Under this method, income tax is recognized based on the liability method whereby deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax basis of assets and liabilities at each reporting date. FASB ASC 740 requires us to record an allowance for deferred tax assets to the extent that it is more likely than not that deferred tax assets will be realized, based on the weight of available evidence. In order to determine the amount of the valuation allowance required, in accordance with FASB ASC 740-10-30-16 through 30-25, we evaluate for each consolidated entity all available evidence, both positive and negative and the future realization of the tax benefit in a relatively short period of time, considering future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax-planning strategies.

FASB ASC 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

There were no unrecognized tax benefits as of December 31, 2016, 2015 and 2014.

Contingent liabilities

In the normal course of business, we are a party to lawsuits of various types. We disclose contingent liabilities with respect to existing or potential claims, lawsuits and other legal proceedings and record an accrual for litigation when it is probable that future costs will be incurred and these costs can be reasonably estimated. These accruals are based on the most recent developments, our evaluation of the merit of each claim, our assessment of the likely outcome of the litigation and our counsel’s advice in dealing with, litigating and settling this and other similar legal matters. Thus, these determinations are based on certain assumptions from our management. Changes to the accrual may be necessary if future events differ substantially from the assumptions used in the assessment for each period.

Fair Value of financial instruments

Under US GAAP, a portion of our assets and liabilities are measured at fair value, including Government and private securities (debt instruments issued by Argentine government and the Central Bank and shares), other receivables from financial intermediation (mutual funds, securities in financial trusts and corporate bonds), and derivative instruments.

Under Central Bank Rules, those assets are valued as mentioned in Note 4.5 to our consolidated financial statements as of and for the three years ended December 31, 2016.

FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the

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measurement date. To measure fair value, FASB ASC 820 has established a three-level hierarchy to prioritize the valuation input among (1) unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access, (2) other than quoted prices that are observable for the asset or liability, either directly or indirectly and (3) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

When observable quoted prices are not available, fair value is based upon internally developed valuation techniques that use, quoted prices for similar assets or liabilities in active markets. Financial instruments valued at this manner are classified within Level 2 of the fair value hierarchy.

Most fair value estimations (related mainly to unlisted government and private securities and unlisted corporate bonds) were made using the “income approach”, converting future amounts to a single current amount, considering an effective interest rate developed on the basis of the “yield curve” methodology taking observable inputs of similar instruments.

For instruments classified in Levels 1 and 2, where inputs are principally based on observable market data, there is less judgment applied in arriving at the fair value measurement.

For assets and liabilities that do not have similar or identical instruments traded in the market we used an internally developed model to measure significant instruments. Those instruments would be classified as Level 3 of the fair value hierarchy, which requires significant management judgment or estimation. In arriving at an estimate valuation policies and procedures for Level 3 instruments (in our case mainly debt securities and derivative instruments) are under the direction of the accounting and financial management.

Management is in charge of developing, reviewing, approving and monitoring the key model inputs, critical valuation assumptions and proposed discount rates utilized for the valuation of Level 3 instruments. In addition, the management is also in charge of monitoring the changes in fair values of Level 3 instruments from period to period.

An income approach is used in this level for estimates fair value. We use discounted cash flow methodologies, such as discount interest rate and projected exchange rate.

Our management believes its valuation approach and techniques are appropriate and consistent with other market participants, however, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate or fair value at different reporting dates.

C. Research and Development, Patents and Licenses, Etc.

We incur research and development expenses in connection with information technology projects. The amount spent during each of the last three years was not material. We plan infrastructure development (processing, telecommunications, Internet, information security) based upon present and projected future demand of such services. See Item 4. “Information on the Bank—Business Overview—Technology”.

D. Trend Information

We believe that the macroeconomic environment and the following trends in the Argentine financial system and in our business have affected and will, for the foreseeable future, continue to affect our results of operations and profitability. Our continued success and ability to increase our value to our shareholders will depend, among other factors, upon the economic growth in Argentine economy and the corresponding growth of the market for long-term private sector lending. For information about the macroeconomic environment see Item 5.A. “Operating Results”. For information about the argentine financial system see “The Argentine Financial System”.

We believe that the macroeconomic environment is more promising and that the financial system should follow a trend of further growth and penetration, which will have a positive impact on our profitability. For 2017 we expect a recovery in the economy, which should affect the growth of loans and deposits and margins between stable and slightly declining in an environment with downward interest rates. Likewise, the efficiency ratio, measured as expenses over net financial and service income is expected to remain stable.

The increase in credit in Argentina offers strong prospects for the future due to the low penetration in the current market. Penetration is low both in respect of consumer loans and commercial loans, with loans comprising 16% of GDP, a percentage less than various other countries in the region. Argentina possesses the second highest GDP in the region, and the informal sector is less significant than in other countries, which suggests that the conditions exists for further growth in the banking sector when adequate policies are implemented, and levels of inflation and rates are normalized.

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The Argentine Financial System

The Argentine financial system has maintained a consistent positive trend in the last three years with our performance improving accordingly, as evidenced by the following indicators:

	As of December 31,
	2014		2015		2016
	(In million of Pesos)
Banco Macro
Total loans		43,740		62,332		87,973
Total deposits		54,717		76,522		111,940
Financial System
Total loans		666,170		911,871		1,164,597
Total deposits		979,691		1,354,393		1,968,456

Source: Central Bank

Financial activity gained strength during the last three years.

Total loans in the financial system increased 18% in 2014, 36% in 2015 and 28% in 2016, amounted to Ps.1,164.6 billion as of December 31, 2016, driven by private sector loans.

Total deposits in the financial system increased by 30% in 2014, 38% in 2015 and by 45% in 2016, driven by private sector deposits. Private sector deposits increased by 31% in 2014, 47% in 2015 and by 44% in 2016, amounting to Ps.1,516.5 billion as of December 31, 2016. Public sector deposits increased 27% in 2014, 13% in 2015 and by 50% in 2016, amounting to Ps.435.0 billion.

The level of loans and deposits over GDP was still low as of December 31, 2016, at 12% for total private sector loans/GDP and 19% for total deposits/GDP. As a result of such GDP levels, we believe that there is considerable potential for growth in upcoming years.

Consistent with the anti-inflationary and price liberalization policies, the Central Bank increased interest rates, in order to decrease inflation by promoting savings in Pesos. Interest rates increased in the first semester of 2016, but starting a decrease process from May to December, in virtue of the decrease in inflation, decreasing by 13 points from annual maximums.

Private sector lending

During the last three years, loans to the private sector grew 20% in 2014, 37% in 2015 and 32% in 2016 for the financial system as a whole. This trend was also reflected in the evolution of our portfolio. Our private sector loan portfolio increased to Ps.44,108 million (13%) in 2014, to Ps.62,853 million (42%) in 2015 and to Ps.86,540 million (38%) in 2016, as shown in the following table:

	As of December 31,
	2014		2015		2016
	(In million of Pesos)
Banco Macro
Private sector loans		44,108		62,853		86,540
Financial System
Private sector loans		603,969		827,943		1,085,346

Source: Central Bank

Asset Quality

The financial system continued to show low levels of non-performing portfolio and extensive coverage ratios for non-performing portfolio.

As of December 31, 2016, the non-performing credit portfolio level reached 1.7% of the total credit portfolio, whereas the coverage ratio level reached 139% across the financial system as a whole.

Our figures reflect an improvement in the quality of our portfolio in the last year, with a non-performing ratio of 1.1% and a coverage ratio of 176% as of December 31, 2016. During 2014, 2015 and 2016, we established additional allowances above those required by the Central Bank, with the aim of maintaining the coverage ratio set forth by the Bank’s policies.

The table below reflects our asset quality for the financial system for 2014, 2015 and 2016:

	As of December 31,
	2014			2015			2016
Banco Macro
Allowances/lending (1)		2.6	%		2.3	%		2.0	%
Non-performing lending ratio (2)		1.9	%		1.5	%		1.1	%
Coverage ratio (3)		135	%		151	%		176	%
Financial System
Allowances/lending (1)		2.3	%		2.1	%		2.2	%
Non-performing lending ratio (2)		1.8	%		1.6	%		1.7	%
Coverage ratio (3)		142	%		147	%		139	%

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Source: Central Bank

(1) Allowances as a percentage of total credit portfolio. Credit portfolio includes loans, other receivables from financial transactions, financial leases, memorandum accounts—other guarantees provided and unused portion of loans granted (included in Debtors Rating Standards).

(2) Non-performing lending includes all lending 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.

(3) Allowances for uncollectibility risk as a percentage of non-performing credit portfolio.

Profitability

During the last three years the profitability of the financial system increased by 57% in 2014, 31% in 2015 and 24% in 2016, achieving a total of Ps.74,646 million as of December 31, 2016.

The table below reflects our profitability for the financial system for 2014, 2015 and 2016:

	As of December 31,
	2014			2015			2016
Banco Macro
Net income (in millions of Pesos) (1)		3,479.5			5,008.4			6,540.8
Return on average equity		33.4	%		37.2	%		34.1	%
Return on average assets		5.1	%		5.8	%		5.2	%
Financial System
Net income (in millions of Pesos) (1)		45,937			60,004			74,646
Return on average equity		32.7	%		32.4	%		29.7	%
Return on average assets		4.1	%		4.1	%		3.7	%

Source: Central Bank

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

Commercial and balance sheet strategies

We have the most extensive branch network among private-sector banks in Argentina, with 93% of our branches located outside of the City of Buenos Aires. Our extended presence in Argentine regional economies and sectors that have benefited from Argentina’s economic recovery grant us a key advantage with respect to other banks in terms of competing in the credit expansion service in Argentina. In addition, our strong network of branches and our role as the financial agent of various provinces provide us with a source of growth and low cost in our deposit base.

We will continue our diversification strategy regarding the credit portfolio, thus enabling to obtain satisfactory efficiency, growth, security and profitability in commercial management. We will continue to focus our assistance to small and medium-sized enterprises, emphasizing the election of dynamic economic sectors and growth potential in industrial, commercial and service areas for the purpose of contributing to companies’ expansion and ensuring an acceptable return of the funds assigned. At the same time, we will also offer these enterprises a complete range of corporate financial services, including exports and imports financing, letters of credit confirmation and opening, and granting guarantees to third parties on behalf of its customers.

We maintain a strong position with respect to excess capital, the liquidity ratio and the level of our provisions for loan losses. To prevent a run on deposits, one of our main priorities is to give depositors confidence that we would be able to absorb losses and fulfill our obligations to them.

Our practice of maintaining high liquidity levels throughout the business cycles has allowed us to withstand the economic crisis by serving two key purposes. First, we have funds available in the face of adverse systemic events. Second, we give our depositors confidence that they would be able to have access to their deposits at any time, even during the depth of a crisis. We also minimize excess cash deposited in the Central Bank, without harming our overall liquidity position. In this way, we maximize the return on our liquidity stock by keeping funds in more profitable assets, such as Central Bank-issued Lebacs.

The meeting of the Board of Directors held on March 30, 2017 resolved to convene a General Ordinary and Extraordinary Shareholders’ Meeting for April 28, 2017, to discuss, among other matters, a capital increase through the issuance of up to 74,000,000 Class B shares of the Bank and the increase of the maximum amount of our Global Medium-Term Note Program from US$1,000,000,000 to US$1,500,000,000. As a result of such increase, the Bank expects to access on a more frequent basis than in the past the domestic and international capital markets with debt issues the proceeds of which will be used to fund the expected growth in its lending activities and for other general corporate purposes.

E. Off-Balance Sheet Arrangements

We enter into various transactions involving off-balance sheet financial instruments and we use these instruments to meet the risk management, trading and financing needs of customers or for our proprietary trading and asset and liability management purposes.

These instruments are subject to varying degrees of credit and market risk. We monitor credit risk and market risk associated with on- and off-balance sheet financial instruments on an aggregate basis. We use the same credit policies in determining whether to enter or extend option contracts, commitments, conditional obligations and guarantees as we do for granting loans. Our management believes that the outstanding off-balance sheet items do not represent an unusual credit risk.

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For additional information of financial instruments with off-balance sheet risk see note 33 “Financial instruments with off-balance sheet risk” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

F. Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2016:

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
	(in thousands of Pesos)
Contractual obligations
Central Bank		8,403		8,298		105		—		—
Banks and international institutions		129,916		129,916		—		—		—
Non-Subordinated Corporate Bonds		1,684,893		1,684,893		—		—		—
Financing received from Argentine financial institutions		140,796		118,263		14,013		8,520		—
Other		7,097,263		6,972,235		12,710		105,530		6,788
Operating leases		344,930		134,520		152,081		57,101		1,228
Subordinated corporate bonds		6,407,840		67,760		—		—		6,340,080
Total contractual obligations		15,814,041		9,115,885		178,909		171,151		6,348,096
Commercial commitments
Lines of credit		264,246		264,246		—		—		—
Guarantees		446,483		209,685		116,397		113,553		6,848
Standby letters of credit		191,007		191,007		—		—		—
Total commercial commitments		901,736		664,938		116,397		113,553		6,848

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

We are managed by our Board of Directors, which as of the date of this annual report is comprised of 13 members and 2 alternate members. On April 16, 2012, our shareholders approved a proposal of the Board of Directors and amended our bylaws increasing the maximum size of our Board from 12 to 13 members. Currently, the shareholders present at any annual ordinary meeting may determine the size of the Board of Directors, provided that there shall be no less than three and no more than thirteen directors. Any director so appointed will serve for three fiscal years. If the shareholders elect more than nine board members, each director will be reelected as a staggered board, to be renewed by thirds, provided that in all cases no less than three directors shall be renewed each time. The annual ordinary shareholders’ meeting may also appoint an equal or lesser number of alternate directors, to hold office for the same term than regular directors, to fill any vacancy in the board occurring for any reason whatsoever, and shall further determine the order of substitution. Alternate directors shall hold office until the regular directors in whose place they have acted as substitutes shall resume office, and in case any such absence is permanent, until the next ordinary meeting of shareholders where at directors shall be appointed. Both regular and alternate directors may be re-elected indefinitely.

DUTIES AND LIABILITIES OF DIRECTORS

Under Argentine Corporate Law, directors have the obligation to perform their duties with the loyalty and the diligence of a prudent business person. Directors are jointly and severally liable to a corporation, the shareholders and third parties for the improper performance of their duties, for violating the law, the corporation’s bylaws or regulations, if any, and for any damage caused by fraud, abuse of authority or gross negligence. The following are considered integral to a director’s duty of loyalty: (i) the prohibition on using corporate assets and confidential information for private purposes; (ii) the prohibition on taking advantage, or to allow another to take advantage, by action or omission, of the business opportunities of the Bank; (iii) the obligation to exercise board powers only for the purposes for which the law, the corporation’s bylaws or the shareholders’ or the Board of Directors’ resolutions have intended; and (iv) the obligation to take strict care so that acts of the board do not go, directly or indirectly, against the Bank’s interests. A director must inform the Board of Directors and the supervisory committee of any conflicting interest he may have in a proposed transaction and must abstain from voting thereon.

Under Argentine law, the Board of Directors is in charge of our management and administration and, therefore, makes any and all decisions in connection therewith, as well as those decisions expressly provided for in the Argentine Corporate Law, the Bank’s bylaws and other applicable regulations. Furthermore, the board is generally responsible for the execution of the resolutions passed by shareholders meetings and for the performance of any particular task expressly delegated by the shareholders. In general, our Board of Directors is more involved in operating decision-making than might be customary in other jurisdictions. Our Board of Directors delegates affairs related to management and corporate activities to an executive committee with the assignment of specific duties pursuant to the Bank’s bylaws.

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BOARD OF DIRECTORS

The following table sets forth certain relevant information of the members of the Board of Directors:

Name	Position	Age	Year First Appointed	Year of Expiration of Term
Jorge Horacio Brito	Chairman	64	2002	2017
Delfin Jorge Ezequiel Carballo	Vice Chairman	64	2002	2017
Jorge Pablo Brito	Director	37	2002	2018
Carlos Alberto Giovanelli	Director	59	2016	2018
Nelson Damián Pozzoli	Director	50	2016	2018
José Alfredo Sánchez (2)	Director	61	2016	2018
Martín Estanislao Gorosito (1) (2)	Director	32	2016	2018
Roberto Julio Eilbaum (2)	Director	72	2016	2017
Mario Luis Vicens (2)	Director	65	2016	2017
Luis María Blaquier (1) (2) (3)	Director	51	2016	2017
Marcos Brito	Director	34	2007	2016
Delfín Federico Ezequiel Carballo	Director	32	2015	2016
Alejandro Eduardo Fargosi (1) (2)	Director	62	2016	2016
Constanza Brito	Alternate director	35	2007	2018
Eliseo Félix Santi (1) (2)	Alternate director	28	2016	2018

(1) Proposed by ANSES-FGS.

(2) Independent Director under CNV Rules.

(3) On March 13, 2017, Mr. Luis María Blaquier provided notice of his resignation to the position of director, effective as of date of the next shareholders’ meeting.

The following family relationships existed during 2016 or currently exist within our Board of Directors:

(i) Jorge Horacio Brito and Delfín Jorge Ezequiel Carballo are brothers-in-law;

(ii) Jorge Pablo Brito and Marcos Brito are the sons of Jorge Horacio Brito and the nephews of Delfín Jorge Ezequiel Carballo;

(iii) Constanza Brito is the daughter of Jorge Horacio Brito and the niece of Delfín Jorge Ezequiel Carballo;

(iv) Jorge Pablo Brito, Marcos Brito, Constanza Brito and Santiago Brito are siblings;

(v) Delfín Federico Ezequiel Carballo is the son of Delfín Jorge Ezequiel Carballo and the nephew of Jorge Horacio Brito;

(vi) Delfín Federico Ezequiel Carballo and Jorge Pablo Brito, Marcos Brito and Constanza Brito are cousins.

SENIOR MANAGEMENT

Our senior management oversees our day-to-day operations to ensure that our overall strategic objectives are being implemented. The actual composition is a deputy general manager that reports to the Board of Directors and Senior managers that report to the deputy general manager. In addition, we have, among others the following committees comprised of different directors and senior management:

• internal audit committee,

• systems committee,

• senior credit committee,

• assets and liabilities committee,

• anti-money laundering committee,

• recovery committee,

• risk management committee,

• ethics and compliance committee,

• corporate governance and appointments committee,

• personnel incentives committee, and

• the Crisis Committee and the Strategic Management Committee.

The following table sets forth certain relevant information on our executive officers and our senior management:

Name	Position	Age	Year First Appointed
Gustavo Alejandro Manriquez	General manager	47	2015
Ernesto Eduardo Medina	Human resources manager	50	2007
Jorge Francisco Scarinci	Finance manager	46	2006
Ana María Magdalena Marcet	Credit risk manager	55	2006
Francisco Muro	Distribution and sales manager	43	2013
Brian Anthony	Management control and strategic planning manager	43	2008
María Milagro Medrano	Institutional relations manager	40	2002
Alberto Figueroa	Comprehensive risk management manager	56	2009
María José Van Morlegan	Legal manager	42	2016
Agustín Devoto	Investment banking manager	40	2015
Martín Kaplan	Commercial banking manager	47	2017

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Set forth below are brief biographical descriptions of members of our directors and our senior management as of March 31, 2017:

Jorge Horacio Brito was born on July 23, 1952. He is the chairman of our Board of Directors and our Chief Executive Officer. He joined our board in June 1988. He also serves as chairman of the Board of Directors of Banco del Tucumán S.A. and Inversora Juramento S.A.

Delfín Jorge Ezequiel Carballo was born on November 21, 1952. He was the deputy chairman of our Board of Directors until April 23, 2015 and was reappointed deputy chairman on April 26, 2016. Mr. Carballo holds a law degree from the Law School of Universidad Católica Argentina. He joined our board in June 1988. Mr. Carballo also serves as deputy chairman of the Board of Directors of Banco del Tucumán S.A.

Jorge Pablo Brito was born on June 29, 1979. He has been a member of our Board of Directors since 2002 and our Chief Financial Officer since April 16, 2012. Mr. Brito also serves as chairman of the Board of Directors of Macro Securities S.A., Coy Aike S.A. and Genneia S.A., as deputy chairman of the Board of Directors of Inversora Juramento S.A. and as incumbent director of Banco del Tucumán S.A., Mercado Abierto Electrónico S.A. and Macro Bank Limited.

Carlos Alberto Giovanelli was born on April 6, 1957. He has been a member of our Board of Directors since April 26, 2016. In the financial sector, he worked as Deputy Credit Manager (1980-1983), Branch Deputy Manager (1983-1986), Credit Officer (1986-1989) and Deputy Commercial Manager (1991-1997) of Citibank Argentina. He was Vice President of Investment Banking in Citibank USA (1989-1991) and Vice President of Planning in Citibank N.A. Argentina (1997-2002). He also held the position of Deputy Chairman of Asociación de Bancos (2001-2002) and incumbent director of Banco Patagonia S.A. (2007-2016). Mr. Giovanelli also serves as incumbent director of Banco del Tucumán S.A. and chairman of the Board of Directors of Havanna S.A. and Inverlat S.A.

Nelson Damián Pozzoli was born on May 6, 1966. He has been a member of our Board of Directors since April 26, 2016. Mr. Pozzoli holds a degree in public accounting from Universidad Católica Argentina. In the financial sector, he was Director of Citibank Argentina (1989-1992), Head of Capital Markets (1992-1994) and Corporate Banking Manager (1996-1997) of ABN AMRO Bank Argentina, Head of Equity (LATAM origination) of ABN AMRO Netherlands (1994-1995) and Corporate Banking Manager of ABN AMRO Bank USA (1995-1996). He also held the position of Director of Banco Liniers Sudamericano (1997-1998), Investment Banking Manager of the Bankers Trust (1997-1999) and worked for the Chase Manhattan Bank and the First National Bank of Chicago from 1998 to 1999. He was also General Manager of Deutsche Bank Argentina (1999-2003).

José Alfredo Sanchez was born on January 27, 1956. He has been a member of our Board of Directors since April 26, 2016. Mr. Sanchez holds an actuary degree from Universidad de Buenos Aires and an M.B.A. in Finance from University of Chicago. In the financial industry, he was a Trainee in Citibank N.A. Argentina (1983-1986), Vice President of Citibank N.A. USA (1987-1988), Vice President of Banque Nationale de Paris USA (1988-1990), Investment Banking Responsible Officer of Banque Nationale de Paris Argentina (1990-1998), Assistant Director in West Merchant Bank LTD (representation office in Argentina) (1998), consultant of Banco Comafi S.A. (1998-1999), Director of Comafi Soc. Gte. Fondo Común de Inversión (1999-2001), Investment Banking Responsible Officer of Banco Comafi S.A. (2000-2001), Incumbent Director of Banco Comafi S.A. (2002-2006), Seconded Director of Banco Comafi S.A. (2014-2016), Alternate Director of Banco del Tucumán S.A. (2000-2001), Incumbent Director of The Capita Corporation (2004-2006), Incumbent Director of MBA Asset Management S.G.F.C.I.S.A. (2008-2010), Incumbent Director of MBA Lazard Soc. de Bolsa S.A. (2008-2014), Incumbent Director of MBA Lazard Banco de Inversiones S.A. (2010-2014) and Alternate Director of MBA Lazard Holdings S.A. (2010-2011). He also serves as director of Macro Securities S.A.

Martin Estanislao Gorosito was born on March 11, 1984. He has been a member of our Board of Directors since April 26, 2016, appointed as representative of ANSES-FGS. Mr. Gorosito holds a BA degree in Political Sciences from Universidad Católica Argentina. In the financial industry, he served as Adviser to the Board of Directors of Banco de la Provincia de Buenos Aires (2009-2011).

Roberto Julio Eilbaum was born on December 23, 1944. He has been a member of our Board of Directors since April 26, 2016 and previously served on our Board from 2002 through 2010. Mr. Eilbaum holds a law degree from the Law School of Universidad de Buenos Aires. In the public sector, Mr. Eilbaum was member of the Board of Directors and Vice President of the Central Bank of the Republic of Argentina (1986-1989). He also served as Secretary of Legal and Administrative Coordination of the National Ministry of Economy (1999-2001).

Mario Luis Vicens was born on July 14, 1951. He has been a member of our Board of Directors since April 26, 2016. Mr. Vicens holds a degree in economics degree from Universidad Católica Argentina and a superior course degree in monetary and banking finance of Universidad Católica Argentina. In the financial industry, he worked assessing investment projects for Caja Nacional de Ahorro y Seg./Consejo Federal de Inversiones (1975-1978). In the Public Sector, he was employed by the Central Bank of the Republic of Argentina as economist (1980-1981) and Incumbent Director (1986-1988) and as Treasury Secretary of the Ministry of Economy (1999-2001). In the banking sector, he served as Planning Manager of Banco de Crédito Argentino (1981-1986), Incumbent Director of Banco Sudameris (2001-2002), chief executive officer of Asociación de Bancos de la Argentina (2002-2011), Incumbent Director of Federación Latinoamericana de Bancos (2002-2004/2008-2010), Incumbent Director of Seguro de Depósitos S.A. (2008-2011), Incumbent Director of BBVA Consolidar Seguros S.A. (2012-2016), Incumbent Director of Generali Arg. Cia. de Seguros (2014-2015), Incumbent Director of PSA Finance Arg. Cia. Financiera S.A. (2012), Incumbent Director of Rombo Cía. Financiera S.A. (2012-2016) and Incumbent Director of BBVA Francés S.A. (2012-2016). He also acted as advisor on economic and financial matters for companies and banks (1989-1999).

Luis María Blaquier was born on October 26, 1965. He has been a member of our Board of Directors since April 26, 2016, appointed as representative of ANSES-FGS. Mr. Blaquier holds a BA degree in economics from Universidad Católica Argentina and a Master’s degree from Amok Tuck Graduate School. In the financial industry he is Deputy Director of Operations of FGS. He was Vice President of Goldman Sachs USA (1993-1999) and director of Goldman Sachs Argentina (1999-2006). He also served as incumbent director of TGS S.A., Executive Director of Pegasus S.A., incumbent director of Grupo Clarín S.A. and incumbent director of Arcor S.A. On March 13, 2017, Mr. Luis María Blaquier provided notice of his resignation to the position of director, effective as of date of the next shareholders’ meeting.

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Marcos Brito was born on October 5, 1982. He holds a BA degree in business economics from Universidad Torcuato Di Tella. He is a member of our Board of Directors since 2007 and chairman of Comercio Interior S.A., Macro Warrants and Macro Fiduciaria S.A. He also serves as incumbent director of Inversora Juramento S.A. and alternate director of Banco del Tucumán S.A. and Genneia S.A. He joined us in October 2005.

Delfín Federico Ezequiel Carballo was born on July 4, 1984. He has been a member of our Board of Directors since April 26, 2016, and previously served on our Board from 2009 through 2011. He holds a BA degree in business economics from Universidad Torcuato Di Tella. Mr. Carballo also serves as alternate director of Genneia S.A.

Alejandro Eduardo Fargosi was born on November 28, 1954. He has been a member of our Board of Directors since April 26, 2016, appointed as representative of ANSES-FGS. Mr. Fargosi holds a law degree from the Law School of Universidad de Buenos Aires. Mr. Fargosi served as Director of the Legal Department of Telefónica Argentina S.A. (1990-1995), Partner of the law firm Estudio O’Farrell Abogados (1995-1997) and Councilor of the Magistracy Council (Consejo de la Magistratura) (2010-2014). He also practices law independently.

Constanza Brito was born on October 2, 1981. She has been an alternate Director since April 26, 2016. Previously, she served as Director from 2007 through 2015. She joined us in May 2005. Ms. Brito holds a BA degree in Human Resources from Universidad del Salvador. Ms. Brito also serves as alternate director of Banco del Tucumán S.A.

Eliseo Félix Santi was born on August 11, 1988. He has been a member of our Board of Directors since April 26, 2016, appointed as representative of ANSES-FGS. He holds a BA degree in economics from Universidad de Buenos Aires and a Masters degree in applied economics from Universdad Torcuato Di Tella. Mr. Santi has served as technical consultor in the Universidad Nacional Tres de Febrero since 2014 and is manager of Fasta Catherina.

Gustavo Alejandro Manriquez was born on August 23, 1969. He is our General Manager since May 2016 and a member of the Assets and Liabilities Committee, the Senior Credit Committee, the Systems Committee, the Risk Management Committee, the Crisis Committee and the Strategic Management Committee. Mr. Manriquez holds a degree in Business Management from Universidad de Belgrano and a post-graduate degree in Finance from Universidad del CEMA, as well as a Management degree from IAE. He joined us in February 2015.

Ernesto Eduardo Medina was born on January 9, 1967. He is our Human Resources Manager and a member of the Risk Management Committee, the Ethics and Compliance Committee, the Nominating and Corporate Governance Committee and the Staff Incentives Committee. Mr. Medina holds degrees in Public Accounting and Business Management from the School of Economic Sciences of Universidad de Buenos Aires. He also has a Systems Analyst degree from Universidad de Buenos Aires and a Psychology degree from Universidad de Ciencias Empresariales y Sociales. Mr. Medina joined us in February 1989. He is also Alternate Director of Banco del Tucumán S.A. and Director of Provincanje S.A.

Jorge Francisco Scarinci was born on May 19, 1970. He is our Finance Manager and a member of the Assets, Liabilities Committee and the Risk Management Committee. Mr. Scarinci holds a BA in Economics from Universidad de Belgrano and a Masters degree in Finance from Universidad del CEMA. He joined us in May 2006.

Ana María Magdalena Marcet was born on February 24, 1961. She is our Credit Risk Manager and a member of the Senior Credit Committee, the Risk Management Committee and the Recovery Committee. Mrs. Marcet holds degrees in Public Accounting, Economics and Business Management from the School of Economic Sciences of Universidad de Buenos Aires and a Masters degree in Bank Management from Universidad del CEMA. Mrs. Marcet joined us in December 1996.

Francisco Muro was born on March 2, 1973. He is our Distribution and Sales Manager. Mr. Muro holds a degree in Accounting from the School of Economic Sciences of Universidad de Buenos Aires and a Masters degree from IAE (Universidad Austral). He joined us in August 2004.

Brian Anthony was born on April 17, 1973. He is our Management Control and Strategic Planning Manager and a member of the Assets and Liabilities Committee and the Systems Committee. Mr. Anthony holds a BA in Management from Universidad CAECE. He joined us in September 2005.

María Milagro Medrano was born on October 27, 1976. She is our Institutional Relations Manager. Mrs. Medrano holds a BA in Business Management from Universidad Católica de Salta. She joined us in April 1997. Mrs. Medrano is also Alternate Director of Banco del Tucumán S.A.

Alberto Figueroa was born on September 1, 1960. He is our Manager of Comprehensive Risk Management and a member of the Systems Committee, the Anti-Money Laundering Committee, the Risk Management Committee, the Ethics and Compliance Committee, the Nominating and Corporate Governance Committee and the Staff Incentives Committee. Mr. Figueroa holds a degree in Accounting from Universidad de Buenos Aires. He joined us in March 2007.

María José Van Morlegan was born on August 31, 1974. She is our Legal Manager and a member of the Senior Credit Committee, the Anti-Money Laundering Committee, the Recovery Committee, the Ethics and Compliance Committee and the Nominating and Senior Governance Committee. Mrs. Van Morlegan holds a Law degree from Universidad Católica Argentina. She joined us in July 2012.

Agustín Devoto was born on April 11, 1976. He is our Investment Banking Manager and the Assets and Liabilities Committee. Mr. Devoto holds a degree in Business Management from Universidad Católica Argentina and a Masters degree in Finance from Universidad Torcuato Di Tella. He joined us in December 2000.

Martín Kaplan was born on February 21, 1969. He is our Commercial Banking Manager and member of the Asset and Liability Committee and the Senior Credit Committee. Mr. Kaplan holds a degree in Communication from Universidad de Buenos Aires and a Masters degree in Management from IAE. He joined us in December 2016.

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B. Compensation

Argentine law provides that the compensation paid to all directors and syndics (including those directors who are also members of senior management) in a fiscal year may not exceed 5.0% of net income for such year, if we are not paying dividends in respect of such net income. Argentine law increases the annual limitation on director compensation to up to 25.0% of net income based on the amount of such dividends, if any are paid. In the case of directors that perform duties at special commissions or perform administrative or technical tasks, the aforesaid limits may be exceeded if a shareholders’ meeting so approves and such issue is included in the agenda and is in accordance with the regulations of the CNV. In any case, the compensation of all directors and members of the supervisory committee requires shareholders’ approval at an ordinary meeting.

The aggregate amount of compensation paid by Banco Macro and its subsidiaries to all of their directors, alternate directors and members of supervisory committee for fiscal year 2016 was Ps.314.5 million. The aggregate amount of compensation paid by Banco Macro to its senior management during 2016 was Ps.37 million, including salaries and bonuses. This amount also includes compensation accrued during 2015 and paid in 2016.

Neither we nor any of our subsidiaries have entered into any agreement that provides for any benefit or compensation to any director after the expiration of his term or upon his retirement.

C. Board Practices

Corporate Governance

As a listed company on the NYSE, we are required under the rules governing listed companies to:

(i) comply with SEC’s requirements concerning an audit committee,

(ii) submit an annual written affirmation to the NYSE and interim written affirmations, if applicable,

(iii) disclose any significant ways in which our corporate governance practices differ from those followed by domestic companies under the NYSE listing standards, and

(iv) our CEO must promptly notify the NYSE in writing after any executive officer becomes aware of any non-compliance with any of the applicable NYSE corporate governance rules. We incorporate the information regarding the significant ways in which our corporate governance practices differ from those followed by domestic companies under the NYSE listing standards by reference to our website www.macro.com.ar. For further information see item 16.G.

Independence of the Members of the Board of Directors and the Supervisory Committee

The members of the Board of Directors and the supervisory committee of a public company in Argentina must inform the CNV within ten (10) days from the date of their appointment whether such members of the Board of Directors or the supervisory committee are “independent” pursuant to CNV standards.

CNV standards provide that a director will not be considered independent in certain specified situations, including where a director

(i) owns a 15% equity interest in a company, or a lesser interest if such director has the right to appoint one or more directors of a company (hereinafter “significant participation”) or has a significant participation in a corporation having a significant participation in the company or a significant influence in the company;

(ii) depends on shareholders, or is otherwise related to shareholders, having a significant participation in the company or of other corporations in which these shareholders have directly or indirectly a significant participation or significant influence;

(iii) is or has been in the previous three years an employee of the company;

(iv) has a professional relationship or is a member of a corporation that maintains professional relationships with, or receives remuneration (other than the one received in consideration of his performance as a director) from, a company or its shareholders having a direct or indirect significant participation or significant influence on the same, or with corporations in which the shareholders also have a direct or indirect significant participation or a significance influence;

(v) directly or indirectly sells or provides goods or services to the company or to the shareholders of the same who have a direct or indirect significant participation or significant influence, for higher amounts than his remuneration as a member of the administrative body; or

(vi) is the spouse, legally acknowledged partner or parent (up to second grade of affinity or consanguinity) of persons who, if they were members of the administrative body, would not be independent, according to the above listed rules.

As of December 31, 2016, Roberto Julio Eilbaum, Mario Luis Vicens, José Alfredo Sanchez, Martín Estanislao Gorosito, Luis María Blaquier y Alejandro Eduardo Fargosi and the alternate director Eliseo Felix Santi qualified as independent members of our Board of Directors under these criteria specified by the CNV.

Pursuant to the Capital Markets Law, all of the members of the supervisory committee of companies admitted to the public offering regime shall have independent status.

Additionally, the Buenos Aires Professional Council of Economic Sciences (Consejo Profesional de Ciencias Económicas de la Ciudad de Buenos Aires or “CPCECABA”) also established certain requirements regarding the independence of public accountants which act as members of the supervisory committee. Pursuant to regulations issued by the CPCECABA and the CNV, syndics must be independent from the company they are auditing. A syndic will not be independent if:

(i) it is the owner, partner, director, administrator, manager or employee of the company or economically related entities;

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(ii) it is the spouse or relative (collateral until fourth grade), or relatives by affinity until second grade, of one of the owners, partners, directors, administrators or managers;

(iii) it is a shareholder, debtor, creditor or guarantor of the company or economically related entities, representing a significant amount if compared with its own wealth or the company’s net equity;

(iv) it posses a significant amount of interest in the company or economically related entities (or if it has had such interest during the period to be audited);

(v) if the remuneration depends on or is contingent with the conclusions or results of its auditing work;

(vi) if the remuneration agreed depends on the result of the operations of the company.

As of December 31, 2016, Alejandro Almarza, Carlos Javier Piazza, Enrique Alfredo Fila, Alejandro Carlos Piazza, Leonardo Pablo Cortigiani and Silvana María Gentile qualified as independent members of our supervisory committee under these criteria.

For information on the expiration of current terms of directors see Item 6.A “Directors and Senior Management.”

For information on service contracts with directors providing benefits upon termination of employment see Item 6.B “Compensation.”

Supervisory Committee

Our bylaws provide for a supervisory committee, which consists of three syndics and three alternate syndics that serve for a term of one fiscal year. Pursuant to the Argentine Corporate Law, only lawyers and accountants admitted to practice in Argentina or civil partnerships composed of such persons may serve as syndics of an Argentine sociedad anónima, or limited liability corporation.

The primary responsibilities of the supervisory committee are to monitor the management’s compliance with the Argentine Corporate Law, the bylaws, its regulations, if any, and the shareholders’ resolutions, and to perform other functions, including:

(i) attending meetings of the Board of Directors, management committee and shareholders,

(ii) calling extraordinary shareholders’ meetings when deemed necessary and ordinary and special shareholders’ meetings when not called by the Board of Directors and

(iii) investigating written complaints of shareholders. In performing these functions, the supervisory committee does not control our operations or assess the merits of the decisions made by the directors.

The supervisory committee has unlimited access to our books and registers and a right to request as much information as necessary for the performance of its duties.

The following table sets forth certain relevant information of the members of our supervisory committee as of December 31, 2016:

Name	Position	Age	Year of Appointment	Current Term Ends
Alejandro Almarza	Syndic	58	2016		April 2017
Carlos Javier Piazza	Syndic	58	2016		April 2017
Enrique Alfredo Fila (1)	Syndic	57	2016		April 2017
Alejandro Carlos Piazza	Alternate syndic	62	2016		April 2017
Leonardo Pablo Cortigiani	Alternate syndic	48	2016		April 2017
Silvana María Gentile	Alternate syndic	46	2016		April 2017

(1) Proposed by ANSES - FGS

The business address of the members of the Supervisory Committee is Sarmiento 447, Buenos Aires, Argentina. Set forth below are brief biographical descriptions of the members of our supervisory committee as of December 31, 2016:

Alejandro Almarza is a syndic on our supervisory committee. Mr. Almarza holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Almarza also serves as syndic of Macro Securities S.A., Macro Fiducia S.A., Macro Warrants S.A., Banco del Tucumán S.A., Telecom Personal S.A and Seguro de Depósitos S.A. and as alternate syndic of Opción Seguros S.A. Mr. Almarza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1983.

Carlos Javier Piazza is a syndic on our supervisory committee. Mr. Piazza holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Piazza serves as syndic of Macro Warrants S.A. and Central Tucumano S.A. Mr. Piazza also served as alternate syndic of Macro Securities S.A., Macro Fiducia S.A., Banco del Tucumán S.A. and Opción Seguros S.A. Mr. Piazza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1983.

Enrique Alfredo Fila is a syndic of the supervisory committee. Mr. Fila holds an accounting degree from Universidad Nacional de la Plata.

Alejandro Carlos Piazza is an alternate syndic on our supervisory committee. Mr. Piazza holds accounting and business administration degree from the School of Economics of the University of Buenos Aires in Argentina. Mr. Piazza also serves as syndic of Macro Fondos Sociedad Gerente de Fondos Comunes de Inversion S.A., Macro Warrants S.A., Servente Sociedad de Bolsa, CRIBA S.A. and Ingemática S.A. and as alternate syndic of Macro Securities S.A. and Macro Fiducia S.A. Mr. Piazza was admitted to the Accountants Professional Association of the City of Buenos Aires in 1978.

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Leonardo Pablo Cortigiani is an alternate syndic on our supervisory committee. Mr. Cortigiani holds an accounting degree from the University of Buenos Aires in Argentina. Mr. Cortigiani also serves as syndic of Macro Fiducia S.A., Macro Fondos Sociedad Gerente de Fondos Comunes de Inversion S.A., Macro Securities S.A. and E.d.E.R.S.A. He also serves as alternate syndic Macro Warrants S.A. and Havanna S.A. Mr. Cortigiani was admitted to the Accountants Professional Association of the City of Buenos Aires in 1995.

Silvana María Gentile is an alternate syndic of the supervisory committee. Mrs. Gentile holds a an accounting degree from Universidad de Lomas de Zamora.

Audit Committee

As of December 31, 2016, our audit committee is comprised of three directors, Roberto Julio Eilbaum, José Alfredo Sánchez and Mario Luis Vicens, all of which have independent status according to CNV. The Argentine independence standards under the rules of the CNV differ in many ways from the NYSE and U.S. federal securities law standards. See item 16.G “Corporate Governance.”

The audit committee is responsible for the fulfillment of the duties within its powers, as set forth under the Capital Markets Law, including, among others, the following:

(i) delivering an opinion regarding the board of director’s proposal of appointment of our external auditors and controlling their independent status,

(ii) supervising the correct performance of our internal control and accounting systems,

(iii) supervising the observance of the policies regarding information about our risk management and

(iv) delivering an opinion regarding transactions with related parties or transactions that may threaten any conflicts of interest.

We currently comply with the requirements of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, as applicable to foreign private issuers with respect to the composition and functions of our audit committee.

Committees Reporting to the Board of Directors and to the CEO and the CFO

The following committees are under the supervision of our Board of Directors:

Strategic Management Committee: The strategic management committee is composed of four directors, the General Manager and the managers who are invited to the effect. In this committee, the General Manager proposes the strategic or business plan as well as the management objectives and annual budgets and provides periodic reports on the progress of the same as well as the general state of the entity.

Internal Audit Committee. The internal audit committee is comprised of at least two directors, and the internal audit manager of the Bank. The term of each member is for a minimum period of two years (provided their directorship does not expire beforehand) and a maximum of three years. The internal audit committee is responsible for supervising the correct functioning of our internal control systems and procedures. Furthermore, this committee reviews our annual and quarterly financial statements, the external auditor’s reports, the syndic’s reports, the relevant financial information and the audit committee’s reports.

Systems Committee. The systems committee must be composed of, at least, one director or equivalent authority and the manager of the informatics technology and systems area. Our system committee has three directors, the General Manager, the Organization and Technology Manager, the Management Control and Strategic Planning Manager, the Internal Audit Manager and the Comprehensive Risk Manager. The systems committee is responsible for the issuance of the systems and operations management policies. Furthermore, this committee verifies that the several management plans are in accordance with our business strategy and oversees the implementation of our strategic projects.

The main functions of the systems committee are to:

(i) oversee the proper functioning of Information Technology and Systems,

(ii) contribute to the improvement of the information technology and systems environment effectiveness;

(iii) note Systems Plan;

(iv) periodically evaluate the Information Technology and Systems Plan and review its compliance;

(v) review the reports issued by environmentally related audits of Information Technology and Systems and oversee the implementation of corrective actions designed to stabilize or minimize any weaknesses observed; and

(vi) maintain timely communication with officials of the External Audit Management Systems Division of the Superintendence in relation with any problems identified in inspections and monitor actions undertaken to solve such problems.

Senior Credit Committee. The senior credit committee is comprised of two directors, the General Manager, the Credit Risk Manager, the Corporate Credit Risk Manager, the Commercial Banking Manager and the Legal Manager.

The senior credit committee is responsible for the issuance of our credit policy and credit analysis guidelines. Furthermore, this committee reviews and approves margins of credit and/or extraordinary operations which exceed Ps.58,000,000 and examines periodic reports related to our loan portfolio.

Assets and Liabilities Committee. The assets and liabilities committee has three directors, the General Manager, the Commercial Bank Managers, the Manager of Management Control and Strategic Planning and the Finance Manager. The committee is responsible for the financial strategy of the Bank. In addition, it carries on deep market analysis and establishes strategic policies related to our liquidity, market, interest rate and currency risks.

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Anti-money Laundering Committee. The Committee is made up of four directors, one of whom is a responsible officer designated as Compliance Officer, the Manager of Comprehensive Risk Management, the Legal Manager and the senior officer responsible for the anti-laundering unit. The anti-money laundering committee is responsible for planning, coordinating and monitoring compliance with anti-money laundering policies approved by the Board of Directors and its powers include to:

(i) define policies for compliance with anti-money laundering corporate guidelines,

(ii) be a permanent forum for the discussion of money laundering and terrorist financing risks that affect the Bank,

(iii) promote the definition of strategies controls to prevent money laundering and terrorist financing and implement such controls,

(iv) be responsible for the continued update of the manual of procedures for the prevention of money laundering and terrorist financing, in accordance with regulatory changes and new Bank needs,

(v) monitor the implementation of a program designed to provide training and raise awareness regarding the prevention and control of money laundering and terrorist financing,

(vi) establish appropriate mechanisms for internal reporting of unusual or suspicious activities,

(vii) analyze any unusual or suspicious transactions to be reported to the relevant governmental agencies in compliance with applicable regulations, and subsequently inform to the Board of Directors,

(viii) provide support to the head of the anti-money laundering committee in the examination of unusual or suspicious transactions,

(ix) approve and follow-up on the work program submitted by the anti-money laundering committee for the relevant fiscal year, for which it will report to the Board of Directors and

(x) perform any other duties that may be imposed under applicable laws and regulations.

Recovery Committee. The recovery committee is made up of two directors, the Credit Risk Manager and the Legal Manager. The committee manages outstanding loans on behalf of the Board of Directors, which nevertheless retains its power in that regard. The committee’s functions and powers are to:

(i) define and approve the general debt reduction and refinancing policy;

(ii) decide on repayment or refinancing proposals in amounts exceeding Ps.5.0 million;

(iii) analyze and decide on proposals for the termination of account management and the filing of court proceedings for unpaid principal amounts and higher than Ps.2.0 million;

(iv) discuss and decide on recovery policies or portfolio sales proposed by the Junior Recovery Committee and

(v) decide on the value of assets to be auctioned where the outstanding debt exceeds Ps.5.0 million.

Risk Management Committee. The risk management committee is made up of three independent directors, the General Manager, the Comprehensive Risk Management Manager, the Planning Manager, the Credit Risk Manager, the Operations and Technology Manager and the Compliance Manager.

The committee is responsible for monitoring senior management activities involving the management of credit, market, liquidity, operational, compliance and reputational risks, among others. The committee’s mission is to supervise and ensure that the controls and procedures in place are adequate to mitigate any risk, and to recommend and implement updates to risk management policies and procedures. In addition, this committee gives advice to the Board of Directors regarding the Bank’s overall risk. This committee is also responsible for notifying the Board of Directors and senior management about any failure to comply with applicable limits to risk exposure, suggesting remedies, such as assuming the risk or mitigating the risk.

Ethics and Compliance Committee. The ethics and compliance committee is comprised of three directors, the Comprehensive Risk Management Manager, the Human Resources Manager and the Legal Manager.

This committee is responsible for implementing ethic guidelines set forth by the Board of Directors and supervising compliance. In addition, this committee promotes the implementation of our social responsibility policies and fosters the adoption of such policies by setting forth tools and procedures that will enable our management to incorporate social responsibility policies and consequently implement those policies within the Bank.

Corporate Governance and Appointments Committee. The committee is comprised of three directors, the Comprehensive Risk Management Manager, the Human Resources Manager and the Legal Manager.

This committee is responsible for processes related to the renewal, substitution and succession of members of our senior management. This committee is also responsible for the implementation of our corporate governance code at the Bank and its subsidiaries.

Personnel Incentives Committee. The personnel incentives committee is comprised of three directors, the comprehensive risk management manager and the human resources manager.

The committee’s main functions are to control that incentives plans to all personnel, excluding directors, are consistent with our business culture, goals, long term business plan, business strategy, control environment and prudent risk taking.

Crisis Committee. The committee meets upon request and is convened by the General Manager in accordance with the needs that arise from time to time. This committee is composed of directors and senior managers.

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D. Employees

As of December 31, 2016, we had 8,617 employees, 39% of whom worked at our headquarters and the remaining 61% at our branches. Our employees are represented by a national bank union, which negotiates a collective bargaining agreement setting minimum wages for all of its members. We maintain good relations with our employees and have never experienced a work stoppage.

	As of December 31,
Employees	2014		2015		2016
Headquarters		3,453		3,429		3,399
Branches		5,240		5,298		5,218
Total (1)		8,693		8,727		8,617

(1) If workers were performing their duties pursuant to the “Acciones de entrenamiento para el trabajo” program of the Ministry of Labor, Employment and Social Security and other casual workers included in the calculation, the number of our employees would have been 8,728, 8,765 and 8,666 for 2014, 2015 and 2016, respectively. We do not account for such workers as employees, as we do not remunerate them for their services, which are paid directly by the Argentine province where they work.

E. Share Ownership

As of March 31, 2017, the persons who were members of our Board of Directors and our supervisory committee held as a group a total of 229,551,932 shares of our capital stock. This represented approximately 39% of our outstanding capital stock and 43% of the voting rights as of such date. Other than Jorge Horacio Brito, Delfín Jorge E. Carballo, Delfín Federico E. Carballo and Jorge Pablo Brito, no member of our Board of Directors or our supervisory committee directly or beneficially owned shares of the Bank as of March 31, 2017. In addition, Alberto Figueroa, member of our senior management, owned less than one percent of Class B shares as of March 31, 2017.

The following table sets forth the beneficial ownership of our shares by the members of our Board of Directors and our supervisory committee, as of March 31, 2017:

Shareholder Name	Number of Class A shares owned		Number of Class B shares owned		Percentage of Capital stock (%)			Percentage of Voting rights(%)
Jorge Horacio Brito		5,366,463		107,021,816		19.23	%		21.26	%
Delfín Jorge Ezequiel Carballo		4,895,416		106,805,523		19.11	%		20.85	%
Other members		0		5,462,714		0.93	%		0.87	%
Total		10,261,879		219,290,053		39.27	%		42.99	%

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

As of December 31, 2016, we had 584,563,028 outstanding shares of common stock, consisting of 11,235,670 Class A shares and 573,327,358 Class B shares. Each share of our common stock represents the same economic interests, except that holders of our Class A shares are entitled to five votes per share and holders of our Class B shares are entitled to one vote per share. Other than noted differences among holders of Class A shares and holders of Class B shares, the holders of these shares listed in the table below do not have different voting rights.

The following table sets forth information regarding the ownership of our Class A and Class B shares as of December 31, 2016:

Shareholder Name	Number of Class A shares owned		Number of Class B shares owned		Total		Percentage of capital stock (%)			Percentage of Voting rights (%)
ANSES (as manager of the Fondo de Garantía de Sustentabilidad)		0		184,120,650		184,120,650		31.50	%		29.25	%
Jorge Horacio Brito		5,366,463		107,431,304		112,797,767		19.30	%		21.33	%
Delfín Jorge Ezequiel Carballo		4,895,416		106,805,523		111,700,939		19.11	%		20.85	%
Other Shareholders (1)		973,791		174,969,881		175,943,672		30.10	%		28.57	%
Total		11,235,670		573,327,358		584,563,028		100.00	%		100.00	%

(1) Includes the Bank of New York as depositary of our ADSs.

As of March 31, 2017, we had 584,563,028 outstanding shares of common stock, consisting of 11,235,670 Class A shares and 573,327,358 Class B shares. Each share of our common stock represents the same economic interests, except that holders of our Class A shares are entitled to five votes per share and holders of our Class B shares are entitled to one vote per share. Other than aforementioned differences among holders of Class A shares and holders of Class B shares, the holders of these shares listed in the table below do not have different voting rights.

The following table sets forth information regarding the ownership of our Class A and Class B shares as of March 31, 2017:

Shareholder Name	Number of Class A shares owned		Number of Class B shares owned		Total		Percentage of capital stock (%)			Percentage of Voting rights (%)
ANSES (as manager of the Fondo de Garantía de Sustentabilidad)		0		184,120,650		184,120,650		31.50	%		29.25	%
Jorge Horacio Brito		5,366,463		107,021,816		112,388,279		19.23	%		21.26	%
Delfín Jorge Ezequiel Carballo		4,895,416		106,805,523		111,700,939		19.11	%		20.85	%
Other		973,791		175,379,369		176,353,160		30.17	%		28.63	%
Total		11,235,670		573,327,358		584,563,028		100.00	%		100.00	%

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The table below represents the evolution of our capital stock and the material changes in equity participation of the major shareholders, in both cases, for the three last years:

Date	Capital Stock (Shares)		Major Shareholders
December 31, 2014		584,563,028	Jorge H. Brito 19.76% Delfín Jorge Ezequiel Carballo 19.11% ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 31.50% Juan Pablo Brito Devoto 0.88%.
December 31, 2015		584,563,028	Jorge H. Brito 19.61% Delfín Jorge Ezequiel Carballo 19.11% ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 31.50% Juan Pablo Brito Devoto 0.71%.
December 31, 2016		584,563,028	Jorge H. Brito 19.30% Delfín Jorge Ezequiel Carballo 19.11% ANSES (as manager of the Fondo de Garantía de Sustentabilidad) 31.50%

B. Related Party Transactions

We are not party to any transactions with, and have not made any loans to, any of our directors, key management personnel or other related parties, nor are there any proposed transactions with such persons, except for those permitted by applicable law. Some of our directors have been involved in certain credit transactions with us. The Argentine Corporate Law and Central Bank Rules allow directors of a corporation to enter into a transaction with such corporation if the transaction is in line with prevailing market practice.

“Related parties” under local regulations, refers to our directors, our key officers, our syndics, our controlling shareholders as well as individuals related to them and any entities directly or indirectly affiliated with any of these parties that are not required to be consolidated.

For the years ended December 31, 2014, 2015 and 2016 an aggregate of Ps.300.4 million, Ps.602.8 million and Ps.946.3 million, respectively, in financial assistance granted by us (including loans, leases and guarantees granted) was outstanding to related parties. The largest outstanding amount granted by us (including loans, leases and guarantees granted) to related parties during 2016 was a total amount of Ps.594.2 million to Genneia S.A. mainly composed of a syndicated loan in dollars by US$ 36 million granted on December 7, 2016 and cancelled on January 27, 2017 (with a 7% average rate) and Ps.16.2 million in other loans in pesos (with a 40.7% average rate).

All financial assistance to related parties (a) were made in the ordinary course of business; (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features.

Likewise, as of December 31, 2014, 2015 and 2016, the total amount of deposits made by related parties to us amounted Ps.909.9 million, Ps.1,272.2 million and Ps.1,786.6 million, respectively.

For further information regarding related party transactions see note 9 “Transactions with related parties” to our audited consolidated financial statements as of and for each of the three years ended December 31, 2016.

C. Interest of experts and counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

See Item 18 and our audited consolidated financial statements as of and for each of the three years ended December 31, 2016 included in this annual report.

Legal Proceedings

We are involved in normal collection proceedings and other legal proceedings in the ordinary course of business. We are not involved in any litigation or other legal proceedings that, if adversely determined, would individually or in the aggregate have a material adverse effect on our operations.

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For further information regarding legal proceedings, see note 17 “Tax and other claims” to our audited consolidated financial statements as of and for the three years ended December 31, 2016. In connection with such claims, our management and its tax and legal advisors believe there are no additional significant effects to those already recognized in the books that may result from the final outcome of such claims.

As required by the BCRA Communication “A” 5689, we detail in note 20 “Summary Judgements and penalties applied by certain regulators against Banco Macro S.A. and Banco del Tucumán S.A.” to our audited consolidated financial statements as of and for the three years ended December 31, 2016, the summaries initiated and sanctions imposed by the BCRA or their authorities on us. We also note the sanctions imposed by the UIF and pending summaries at CNV and UIF. In January 2015, pursuant to such regulations, we made accounting provisions for administrative and/or disciplinary sanctions, which were applied or initiated by the Central Bank, UIF and CNV. In April 2016, the Central Bank issued Communication “A” 5940, which amended Communication “A” 5689 provisions. Pursuant to such Communication, the financial entities that, to the date thereof, have an amount for these items registered in the account “Provisions – For administrative, disciplinary and criminal penalties,” must analyze, according to the applicable legal reports, if each such penalty meets the conditions for its total or partial accountable registration, according to the provisions in the “Accounts Plan and Manual” (which set forth that penalties must be probable and that their amount can be reasonably estimated). Such provisions totaled Ps.9.1 million as of December 31, 2016.

Dividend Policy

Although we do not have, and have no current plans to adopt, a formal dividend policy governing the amount and payment of dividends, we currently intend to pay dividends subject to approval by a majority vote of our shareholders. All shares of our capital stock are pari passu with respect to the payment of dividends.

In addition, we are subject to Central Bank Rules regarding dividends distribution. In particular, pursuant to Communication “A” 5273, as amended and supplemented, the Central Bank imposed restrictions on the payment of dividends, limiting the ability of financial institutions to distribute dividends without its prior consent. In addition, under the Central Bank Rules, dividends cannot be distributed if, among other requirements, after effecting such distribution certain minimum capital requirements are not met. For more information, see Item 4.B “Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

The following table sets forth the cash dividends paid to our shareholders from 2003 through 2015. All banks were prohibited by the Central Bank from paying dividends in respect of the results of 2001 and 2002.

Based on financial statements for year ended December 31,	Payment Dates	Dividends per Share (in Pesos)		Aggregate Dividend Payment (in millions of Pesos)
2003	July 2004		0.10		60.9
2004	April 2005		0.05		30.4
2005	May 2006		0.10		68.4
2006	May 2007		0.15		102.6
2007	May 2008		0.25		171.0
2008	September 2009		0.25		149.9	(1)
2009	June 2010		0.35		208.1
2010	May 2011		0.85		505.3
2013	July 2014		1.02		596.3
2014	March 2016		0.39		227.7	(2)
2015	August 2016		1.10		643.0
2016	(3)		1.20		701.5

(1) For fiscal year ended December 31, 2008, dividends paid in cash were Ps.148.3 million based on the outstanding number of shares on the payment dates.

(2) For the fiscal year ended December 31, 2014, we sought authorization from the Central Bank to distribute Ps.596.3 million (Ps.1.02 per share) and on February 2016 we received authorization to distribute Ps.227.70 million (Ps.0.3895 per share).

(3) On March 8, 2017, our Board of Directors resolved to propose to the shareholders’ meeting a distribution of Ps.701.5 million for the fiscal year ended December 31, 2016. Such dividends are pending approval from the Central Bank and the shareholders’ meeting as of the date of this annual report.

For fiscal years ended December 31, 2011 and 2012 we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank Rules. We cannot assure that in the future we will be able to reach this regulatory threshold for dividend distribution.

On March 8, 2017, our Board of Directors proposed a dividend payment of Ps.1.20 per share for the fiscal year ended December 31, 2016, which is pending approval by the Central Bank and the shareholders’ meeting expected to be held on April 28^th, 2017.

For more information, see Item 4.B “Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

Central Bank and contractual limitations on distribution of dividends

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

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The Central Bank has eased these restrictions through Communication “A” 4589, as amended by Communication “A” 4591, “A” 5072, “A” 5827 and others, by providing for a mechanism for the calculation of distributable profits of the financial institutions.

The Superintendency will review our ability to distribute dividends upon the Bank’s requests for its approval. Such request has to be filed within thirty (30) business days prior to the shareholders meeting that will consider dividend distributions. The Superintendency will authorize the distribution of dividends when none of the following circumstances are verified during the month preceding the request for the payment of dividends:

(i) we are subject to a liquidation procedure or the mandatory transfer of assets by the Central Bank in accordance with section 34 or 35 bis of the Financial Institutions Law;

(ii) we are receiving financial assistance from the Central Bank;

(iii) we are not in compliance with or have failed to comply on a timely basis with our reporting obligations to the Central Bank;

(iv) we are not in compliance with minimum capital requirements (both on an individual and consolidated basis) or with minimum cash reserves (on average) whether in Pesos, foreign currency or securities issued by the public sector; or

(v) we are subject to a significant fine, debarment, suspension, revocation or prohibition imposed in the last five years by the Central Bank, the UIF, the CNV, and/or the National Superintendency of Insurance (Superintendencia de Seguros de la Nación), that are considered as significant, except when such financial institution has implemented corrective measures that are satisfactory to the Superintendency (such corrective measures would also be brought to the attention of the regulatory body that originally imposed the sanction). The Superintendency also takes into consideration information that it receives from, and/or sanctions imposed by, equivalent foreign agencies or authorities. When weighing the significance of the sanctions, the Superintendency takes into account the type of sanctions, the underlying reason for such sanctions and the amount of sanctions imposed on the financial institution. Additionally, the Superintendency factors in the degree of participation in the events leading up to the sanction, the economic effects of the violation, the degree of damage caused to third parties, the economic benefit that the sanctioned party received from the violation, the sanctioned party’s operating volume, its liability and the title or function that such party holds.

The amount to be distributed, as filed with the Superintendency, shall not compromise the liquidity and solvency of the entity.

Any distribution of dividends will be authorized only to the extent we comply with the minimum capital and minimum cash requirements calculated considering the proposed distribution and the additional capital margins, as applicable pursuant to Communication “A” 5827. The dividend distribution shall be limited whenever the level and composition of the RPC – even when it complies with the minimum capital requirements – is within the range of the capital conservation margin. This limitation applies solely to the dividend distribution, but not the operation of the entity. For more information see Item 4.B “Argentine banking regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

We have obtained authorization from the Central Bank to distribute dividends for fiscal years 2003 through 2010. For fiscal years ended December 31, 2011 and 2012 we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank Rules. For fiscal year 2013, we obtained authorization from the Central Bank to distribute dividends, which we paid in July 2014. For fiscal year 2014 and 2015, we sought authorization from the Central Bank to distribute dividends, which we paid in March 2016 and August 2016, respectively.

We cannot guarantee that we will be able to reach the regulatory threshold for dividend distribution in the future. For more information, see Item 4.B “Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

Additional regulatory and contractual restrictions exist which could affect the distribution of earnings and are included in note 16 of our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Amounts available for distribution and distribution approval process

Under the Argentine Corporate Law, declaration and payment of annual dividends, to the extent funds are legally available, is determined by our shareholders at the annual ordinary shareholders’ meeting. Generally, but not necessarily, our Board of Directors makes a recommendation with respect to the payment of dividends.

Dividends may be lawfully declared and paid only out of our retained earnings stated in our yearly financial statements according to Central Bank Rules and approved by a shareholders’ meeting as described below.

The Board of Directors submits our financial statements for the preceding fiscal year, together with reports thereon by the supervisory committee, at the annual ordinary shareholders’ meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders’ meeting must be held to approve the financial statements and determine the allocation of our net income for such year.

Under applicable CNV regulations, but subject to prior Central Bank approval, cash dividends must be paid to shareholders within thirty (30) days of the shareholders’ meeting approving such dividends. In the case of stock dividends, shares are required to be delivered within three months of our receipt of notice of the CNV authorization for the public offering of the shares arising paid as dividends. We were not able to make payment of dividends within this term in connection with fiscal years 2003, 2008 and 2009 due to Central Bank’s delay in granting its approval. For fiscal years ended December 31, 2011 and 2012 we were not able to distribute dividends because we did not reach the regulatory threshold for dividend distribution under Central Bank Rules. For fiscal year 2013 and 2014, we obtained authorization from the Central Bank to distribute dividends, which we paid in July 2014 and March 2016, respectively.. For fiscal year 2015, we obtained authorization from the Central Bank to distribute dividends, which we paid in August 2016.

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Legal reserve requirement

Pursuant to the Financial Institutions Law, we are required to maintain a legal reserve which must be funded with no more than 20% and no less than 10% of yearly income. Pursuant to Central Bank Rules, we maintain a legal reserve which is funded with 20% of our yearly income. 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 is not allowed to pay dividends to its shareholders.

Under the Argentine Corporate Law and our bylaws, our yearly net income (as adjusted to reflect changes in prior results) is allocated in the following order:

(i) to comply with the legal reserve requirement,

(ii) to pay the accrued fees of the members of the Board of Directors and statutory supervisory committee;

(iii) to pay fixed dividends, which are applied first to pending and unpaid dividends and holders of preferred stock (if applicable);

(iv) for voluntary or contingent reserves, as may be resolved from time to time by our shareholders at the annual ordinary shareholders’ meeting; and

(v) the remainder of the net income for the year may be distributed as dividends on common stock or as otherwise decided by our shareholders at the annual ordinary shareholders’ meeting.

Personal assets tax

Our shareholders will consider the absorption of personal asset tax by us for fiscal year 2016 in the shareholders’ meeting to be held on April 28^th, 2017. There can be no assurance that in the future this tax will be absorbed by the Bank. For more information, see Item 10.E “Taxation—Material Argentine tax considerations relating to our Class B shares and ADSs—Personal assets tax.”

B. Significant Changes

Except as otherwise disclosed in this annual report, there has been no undisclosed significant change since the date of the most recent annual financial statements included herein.

Item 9. The Offer and Listing

A. Offer and listing details

The table below shows the high and low market prices in Pesos for our Class B shares on the MERVAL for the periods indicated:

	Ps.per Class B Share
Banco Macro	High		Low
2017:
March		134.95		122.5
February		134.50		118.00
January		126.00		102.70
2016:
December		114.00		95.10
November		118.00		100.00
October		123.50		114.00
2016		123.50		73.30
2015		103.00		45.00
2014		61.00		19.00
2013		30.25		10.70
2012		12.50		7.35
2016
4th quarter		123.50		95.10
3rd quarter		123.00		107.10
2nd quarter		112.10		82.00
1st quarter		117.50		73.30
2015
4th quarter		103.00		50.00
3rd quarter		69.30		47.55
2nd quarter		72.00		54.40
1st quarter		80.00		45.00

Source: Yahoo Finance.

The ordinary shares trade on the NYSE in the form of ADSs issued by The Bank of New York, as depositary. Each ADS represents ten ordinary shares. The table below shows the high and low market prices of the ADSs in dollars on the NYSE for the periods indicated.

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	US$ per ADS
Banco Macro	High		Low
2017:
March		86.90		77.55
February		87.00		74.34
January		78.79		66.34
2016:
December		72.15		61.12
November		77.68		64.70
October		81.41		75.78
2016		83.18		52.88
2015		69.75		35.93
2014		51.96		16.42
2013		32.85		13.53
2012		27.06		10.79
2016
4th quarter		81.41		61.12
3rd quarter		83.18		71.41
2nd quarter		76.27		56.87
1st quarter		74.64		52.88
2015
4th quarter		69.75		35.93
3rd quarter		51.97		36.25
2nd quarter		59.74		43.90
1st quarter		67.00		38.00

Source: Yahoo Finance

B. Plan of Distribution

Not applicable.

C. Markets

Our Class B shares are currently traded on the MERVAL (since November 1994) and MAE (since October 2015) under the symbol ‘BMA’. Additionally, our ADSs have been trading on the NYSE since March 24, 2006 under the symbol ‘BMA’.

Our notes are currently listed on both the MERVAL and the Luxembourg Stock Exchange.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable

B. Memorandum and Articles of Association

General

We are a financial institution incorporated on November 21, 1966 as a sociedad anónima, or 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 Bahía Blanca, Province of Buenos Aires, Argentina, under No. 1154 of Book 2, Folio 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. A translation of our bylaws has been filed on august 21, 2014 on Form 6-k.

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As of December 31, 2016, our capital stock consists of Ps.584,563,028, represented by 11,235,670 common, book-entry Class A shares, with a par value of one Peso each and the right to five votes per share, and 573,327,358 common, book-entry Class B shares, with a par value of one Peso each and the right to one vote per share.

Under our bylaws, we may issue different classes of shares of common stock entitled with one or five votes per share. However, as long as we remain in the public offering regime we cannot issue additional shares of any class of capital stock that could entitle the holder thereof to more than one vote per share. All outstanding shares are fully paid.

Our Class B shares have been listed on the MERVAL since November 1994 and have been authorized to list on the Mercado Abierto Electrónico (“MAE”) since October 2015. Our ADSs have been listed in the NYSE since March 24, 2006. Holders of Class A shares are permitted to convert their shares into Class B shares on a one-for-one basis.

Corporate Purpose

Our bylaws sets forth that our corporate purpose is to engage within or outside of Argentina in any banking transaction contemplated and authorized under the Financial Institutions Law and other laws, rules and regulations governing banking activities in the place of performance, under the guidelines and with prior authorization, if appropriate, of the Central Bank. In addition, we are capable of acting as any category of “agent” under the Capital Markets Law and supplementing regulations, in connection with securities in the transactions contemplated under the legal provisions in effect governing the activity, under the guidelines and with the prior authorization, if appropriate, of the CNV. To that effect, we have full legal capacity to develop rights, incur obligations, and execute any kind of act and transaction related thereto. Furthermore, we are capable of having interests in other domestic or foreign financial institutions and or companies with the prior authorization of the Central Bank and in compliance with the rules of such entity, as applicable.

In respect of the different categories of agents established by the Capital Markets Law, effective as of January 28, 2013, and the CNV Rules, we, and certain of our subsidiaries are registered with the CNV in one or more of the following categories: negotiation, clearing and settlement agent (ALyC), custody of collective investment products agent (AC PIC FCI), placement and distribution of mutual funds agent (ACYD FCI), financial trustees agent (FF) and nonfinancial trustees agent (FNOF), as applicable.

Shareholders’ liability

Shareholders’ liability for losses of a company is limited to the value of their shareholdings in the company. Under the Argentine Corporate Law, however, shareholders who voted in favor of a resolution that is subsequently declared void by a court as contrary to Argentine laws or a company’s bylaws (or regulations, if any) may be held jointly and severally liable for damages to such company, other shareholders or third parties resulting from such resolution. See also Item 3.D ^“Risk Factors—Risks relating to our Class B shares and the ADSs—Our shareholders may be subject to liability for certain votes of their securities.”

Redemption and rights of withdrawal

Our shares are subject to redemption in connection with a reduction in capital by the vote of a majority of shareholders at an extraordinary shareholders’ meeting. Any shares so redeemed must be cancelled by us. Whenever our shareholders approve a spin-off or merger in which we are not the surviving corporation, the change of our corporate legal status, a fundamental change in our corporate purpose, change of our domicile outside of Argentina, voluntary withdrawal from public offering or delisting, our continuation in the case of mandatory delisting or cancellation of the public offering authorization, or a total or partial recapitalization following a mandatory reduction of our capital or liquidation, any shareholder that voted against such action that was approved or did not attend the meeting at which the decision was taken, may withdraw and receive the book value of its shares, determined on the basis of our latest balance sheet prepared or that should have been prepared in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within a determined period. However, because of the absence of legal precedent directly on point, there is doubt as to whether holders of ADSs will be able to exercise appraisal rights either directly or through the depositary with respect to Class B shares represented by ADSs. Appraisal rights must be exercised within the five (5) days following the adjournment of the meeting at which the resolution was adopted, in the event that the dissenting shareholder voted against such resolution, or within fifteen (15) days following such adjournment if the dissenting shareholder did not attend such meeting and can prove that he was a shareholder on the date of such meeting. In the case of merger or spin-off, appraisal rights may not be exercised if the shares to be received as a result of such transaction are authorized for public offering or listed. Appraisal rights are extinguished if the resolution giving rise to such rights is revoked at another shareholders’ meeting held within seventy-five (75) days of the meeting at which the resolution was adopted.

Payment on the appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except when the resolution was to delist our stock or to continue following a mandatory delisting, in which case the payment period is reduced to sixty (60) days from the resolution date.

Preemptive and accretion rights

In the event of a capital increase, a holder of existing common shares of a given class has a preemptive right to subscribe for a number of shares of the same class sufficient to maintain the holder’s existing proportionate holdings of shares of that class.

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In addition, shareholders are entitled to the right to subscribe on pro-rata basis for the unsubscribed shares remaining at the end of a preemptive rights offering, known as accretion rights.

Holders of ADSs may be restricted in their ability to exercise preemptive rights if an annual report under the Securities Act relating thereto has not been filed or is not effective or an exemption is not available. Preemptive rights are exercisable during the thirty (30) days following the last publication of notice to the shareholders in the Official Bulletin of the Republic of Argentina, or the Official Gazette and an Argentine newspaper of wide circulation. Pursuant to the Argentine Corporate Law, in the case of public companies, such thirty- (30)day period may be reduced to a minimum of ten (10) days if approved by the company’s shareholders at an extraordinary shareholders’ meeting.

Shares not subscribed by the shareholders by virtue of their exercise of preemptive rights or accretion rights may be offered to third parties.

Voting rights

Under our bylaws, each Class A share entitles the holder thereof to five votes at any meeting of our shareholders and Class B shares entitle the holders thereof to one vote per share. However, according to the Argentine Corporate Law, shares entitle the holder to only one vote per share to vote the approval of: an early dissolution, a merger or spin-off when we are not the surviving entity, a reduction of capital stock and redemption of shares, a transformation from one type of entity to another, a limitation of shareholders’ preemptive rights, a transfer of our domicile outside Argentina, and a fundamental change of our corporate purpose set forth in our bylaws. In such cases Class A shares are entitled to only one vote per share and Class B shares are entitled to only one vote per share. In addition, pursuant to Argentine applicable law, as long as we remain public we cannot issue additional shares of any class of capital stock that could entitle the holder thereof to more than one vote per share.

Rights attaching to shares

Shareholders may not claim the payment of dividends from us after three years have elapsed from the date on which the relevant dividend was made available to such shareholders. For a description of requirements applicable to dividend distribution see Item 4.B “Argentine Banking Regulation—Liquidity and Solvency Requirements—Requirements Applicable to Dividend Distribution.”

Registration requirements of foreign companies that hold Class B shares directly

There are no restrictions imposed by Argentine law or our by-laws or other organizational documents regarding the rights of non-residents or foreign persons to hold or vote our shares or our ADSs.

Under Argentine regulations, foreign companies that hold shares directly (and not as ADSs) in an Argentine company must register with the IGJ to exercise certain shareholder rights, including voting rights. The registration requires the filing of corporate and accounting documents in order to demonstrate that the foreign shareholder’s main activity is conducted outside of Argentina.

Liquidation rights

In the case of our liquidation or dissolution we are requested to communicate such event to the Central Bank, and our assets will be applied to satisfy our outstanding liabilities and proportionally distributed first among our holders of preferred stock as per the terms of the preferred stock, if any. If any surplus remains, it will be proportionally distributed among holders of our common stock.

Other shareholders’ rights

In addition to the rights mentioned above, the shareholders of Argentine corporations are entitled to the following additional rights that cannot be subject to any kind of limitation or suspension as they protect the minority shareholders in such capacity:

(i) the right to participate in the company’s profits;

(ii) the right to be informed and receive information from the company through the syndics or supervisory committee, including the right to request information or reports (shareholders representing at least 2% of the capital stock of the company are entitled to request the syndic or the members of the supervisory committee information related to their functions and certain investigations);

(iii) the right to request a shareholders’ meeting (shareholders representing at least 5% of the capital stock of the company may request the call of a shareholders’ meeting);

(iv) the right to disapprove the performance of the members of the Board of Directors (the liability of the company’s directors and managers shall be extinguished if their performance is later approved by the shareholders at a shareholders’ meeting, or if they resign, provided that such liability is not incurred as a consequence of the violation of the applicable laws or the company’s bylaws and if it does not mediate opposition of at least 5% of the capital stock) and

(v) the right to judicially object those shareholders’ meetings resolutions violating the law or company’s regulations and a right to ask for a judicial or administrative intervention when the administrator or administrators of a company execute acts or neglect acts whose omission places the company in serious danger.

In addition, according to the Capital Markets Law, the CNV is entitled to (i) appoint supervisors with powers of veto of the resolutions adopted by the board of directors and (ii) separate the board of directors for a period of 180 days when, as determined by the CNV, the interests of the minority shareholders and/or securities holders are affected.

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Ordinary and extraordinary meetings

Shareholders’ meetings may be ordinary meetings or extraordinary meetings. We are required to convene and hold an ordinary meeting of shareholders within four months of the close of each fiscal year to consider the matters specified in the first two paragraphs of Section 234 of the Argentine Corporation Law, such as the approval of our financial statements, allocation of net income for such fiscal year, approval of the reports of the board of directors and the supervisory committee and election and remuneration of directors and members of the supervisory committee. In addition, pursuant to the Capital Markets Law, at an ordinary shareholders’ meetings, our shareholders must consider

(i) the disposition of, or creation of any lien over, our assets as long as such decision has not been performed under the ordinary course of business;

(ii) the execution of administration or management agreements; and

(iii) whether to approve the payment of any agreement providing assets or services to us as long as such payment is material when measured against the volume of the ordinary course of business and our shareholders’ equity.

Other matters which may be considered at an ordinary meeting convened and held at any time include the responsibility of directors and members of the supervisory committee, capital increases and the issuance of certain corporate bonds. Extraordinary shareholders’ meetings may be called at any time to consider matters beyond the authority of an ordinary meeting, including amendment of the bylaws, issuance of debentures, early dissolution, merger, spin off, reduction of capital stock and redemption of shares, transformation from one type of entity to another and limitation of shareholders’ preemptive rights.

Notices of meetings

Notices of shareholders’ meetings are governed by the provisions of Argentine Corporations Law, and in case of publicly traded companies, Capital Markets Law. Furthermore, notice of shareholders’ meetings must be published for five (5) days in the Official Gazette, in an Argentine newspaper of wide circulation and in the publications of Argentine exchanges or securities markets in which our shares are traded, at least twenty (20) but not more than forty-five (45) days prior to the date on which the meeting is to be held. Such notice must include information regarding the type of meeting to be held, the date, time and place of such meeting and the agenda. If a quorum is not available at such meeting, a notice for a second meeting, which must be held within thirty (30) days of the date on which the first meeting was called, must be published for three (3) days, at least eight (8) days before the date of the second meeting. The above described notices of shareholders’ meetings may be effected simultaneously for the second meeting to be held on the same day as the first meeting, only in the case of ordinary meetings. Shareholders’ meetings may be validly held without notice if all shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote of such shares.

Quorum and voting requirements

The quorum for ordinary meetings of shareholders on first call is a majority of the shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the shares present that are entitled to vote on such action. If a quorum is not available at the first meeting a second meeting may be held at which action may be taken by the holders of an absolute majority of the shares present, regardless of the number of such shares. The quorum for an extraordinary shareholders’ meeting on first call is 60% of the shares entitled to vote, and if such quorum is not available, a second meeting may be held, for which the quorum is 20% of the shares entitled to vote.

Action may be taken at extraordinary shareholders’ meetings by the affirmative vote of an absolute majority of shares present that are entitled to vote on such action, except that: the approval of a majority of shares with voting rights (for these purposes non-voting preferred shares shall have voting rights), without application of multiple votes, is required at both the first and second meeting for:

(i) the transfer of our domicile outside Argentina,

(ii) a fundamental change of the corporate purpose set forth in our bylaws,

(iii) our anticipated dissolution,

(iv) the total or partial redemption of shares,

(v) our merger or spin-off, if we are not the surviving entity, or

(vi) the transformation of our corporate legal status, in which cases resolutions shall be adopted by the affirmative vote of the majority of shares with the right to vote.

Preferred shares will be entitled to one vote in these circumstances.

The Argentine Corporate Law reserves the right to cumulative voting in order to elect up to one third of the directors and one third of the members of the supervisory committee to fill vacancies of the board of directors and of the supervisory committee, respectively, sharing such part with candidates voted for by means of the plural system. Cumulative voting is a system designed to protect minority interests, as it gives rise to the possibility, but does not ensure, that minority interests will be able to elect some of their candidates. Each shareholder who votes cumulatively shall have a number of votes equal to the result of multiplying his/her own votes by the number of vacancies. On the other hand, shareholders who vote by the ordinary procedure and those who vote by cumulative vote will compete for the election of one third of the vacancies. The larger the number of vacancies, the greater the possibility that minority groups or shareholders will win positions in the board of directors or the supervisory committee.

Shareholders’ meetings may be called by the board of directors or the members of the supervisory committee whenever required by law or whenever they deem it necessary. Also, the board or the members of the supervisory committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock. If the board or the supervisory committee fails to call a meeting following such a request, a meeting may be ordered by the CNV or by the courts. In order to attend a meeting, a shareholder must also deposit with us a certificate of book-entry shares registered in its name and issued by Caja de Valores S.A. at least three (3) business days prior to the date on which the meeting is to be held. If so entitled to attend a meeting, a shareholder may be represented by proxy. Proxies may not be granted to our board, members of the supervisory committee, officers or employees.

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Election of directors

The shareholders present at any annual ordinary meeting may determine the size of the board of directors, provided that there shall be no less than three and no more than 13 directors. Any director so appointed will serve for three fiscal years. If the shareholders elect nine or more board members, each director will be re-elected as a staggered board, to be renewed by thirds, provided that in all cases no less than three directors shall be renewed each time. The annual ordinary shareholders’ meeting may also appoint an equal or lesser number of alternate directors, to hold office for the same term than regular directors, to fill any vacancy in the board occurring for any reason, and shall further determine the order of substitution. Alternate directors shall hold office until the regular directors in whose place they have acted as substitutes shall resume office, and in case any such absence is permanent, until the next ordinary meeting of shareholders where at directors shall be appointed. Both regular and alternate directors may be re-elected indefinitely.

Change in capital

Our by-laws do not establish conditions for the changes in our capital more stringent than those conditions imposed by the Argentine Corporate Law. For a description of conditions for the changes in our capital imposed by the Argentine Corporate Law see “—Ordinary and extraordinary meetings.”

Purchases of Equity Securities by the Issuer

According to the Capital Markets Law, a stock corporation may acquire the shares it issued, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and those set forth by the CNV. The above-mentioned conditions are:

(a) the shares to be acquired shall be fully paid up;

(b) there shall be a resolution signed by the board of directors to such effect (duly reported to the supervisory committee and the audit committee);

(c) the acquisition shall be made using the net profits or free or voluntary reserves; and

(d) the total amount of shares acquired by the company, including previously acquired shares (and still hold by the company), shall not exceed 10% of the capital stock or such lower percentage determined by the CNV.

The shares acquired by the company in excess of such limit shall be disposed of within a period of ninety (90) days after the date of the acquisition originating such excess. The shares acquired by the company shall be disposed of by the company within the maximum term of three years counted as from the date of acquisition thereof or cancelled. Upon disposing of the shares, the issuer shall make a preemptive offer thereof. Such preemptive offer will not be mandatory in certain specific cases, pursuant to which shares may be sold in the open market. For more information, please see Item 16.E “Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”

Anti-takeover provisions

Our bylaws do not contain any provision that would (i) oblige us to disclose information regarding our shareholders; and (ii) have the effect of delaying, deferring or preventing a change in control, the last of which may happen only in the event of a merger, acquisition or public offering for acquisition.

Tender offer regime

Optional mandatory tender offer regime in the case of a change in control

Mandatory tender offer or exchange in Argentina

The mandatory tender offer rules set forth in Capital Markets Law, apply to all companies having publicly traded shares in Argentina. Under such rules, in the event of change of control or acquisition of a significant shareholding, as described below, a company having publicly traded shares will be subject to a mandatory tender offer (“oferta pública de adquisción” or “OPA”) with respect to some or all of the outstanding shares, as described below.

Pursuant to such regulation, the mandatory tender offer will take place when anyone intends to purchase, either directly or indirectly, for cash, either individually or collectively, either in one act or in a series of successive acts during a period of ninety (90) consecutive days, a number of voting shares, subscription rights or stock options, negotiable securities or similar securities which directly or indirectly, and by computing the prior holding of such person, may entitle such person to subscribe, purchase or convert voting shares, shares entitled to or that once exercised grant the right to a “significant share” in the voting capital stock and/or in the votes of a company having publicly traded shares. In such cases, the OPA must be launched by the prospective purchaser within ten (10) days of having made the decision to participate in such offer, except in those cases expressly mentioned in the CNV Rules.

Such obligation is not applicable in cases where the acquisition of the significant share does not imply the acquisition of the company’s control. It also does not apply in cases where there is a change of control as a consequence of a corporate reorganization, merger or split-off. However, the regulation is applicable in certain cases of indirect acquisitions by means of a merger of the purchaser with the controlling shareholding company of the affected company or the taking of control of such controlling shareholding company.

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Concept of a “Significant Share”

The regulations establish a duty to effect an offer with respect to a part or all of the outstanding shares depending on the percentage of the capital stock or relating to the votes to be acquired. The regulations provide for the following duties relating to the OPA:

• Whenever the goal is to acquire participation rights equal to or greater than 15% of the capital stock and/or the company’s votes, the offer must be made for a number of securities that would enable the purchaser to acquire at least 50% of the voting capital stock of the affected company.

• Whenever an entity already holds participation rights equal to or greater than 15% of the voting capital stock and/or the company’s votes but less than 51% of such rights, and the intention is to increase such share of the affected company’s capital stock at least 6% during a 12-month period, the offer shall be made on the number of securities representing at least 10% of the voting capital stock of the affected company.

• Whenever participation rights equal to or greater than 51% of the voting capital stock and/or the company’s votes are sought, the offer shall be made for the number of securities that would enable the purchaser to obtain 100% of the voting capital stock of the affected company. The application of this stipulation shall have priority over the stipulations discussed in the preceding paragraphs.

Determination of the price of the OPA in the case of a change in control

The price shall determined by the offeror with the following exceptions:

• Whenever the purchaser would have purchased other securities related to the offering in the prior ninety (90) consecutive days beginning as of the date the price was announced, the price cannot be lower than the highest price the purchaser would have paid in such transactions.

• Whenever the purchaser would have obtained firm sales commitments from the controlling shareholder or other shareholders with the right to take part in the public offering, the price cannot be lower than the price provided for in such commitments.

In order to determine the price, the purchaser shall also consider (“ponderar”) the following criteria, according to the CNV Rules:

(i) book value of the shares;

(ii) valuation of the target company according to discounted cash flows (DCF) or other applicable valuation criteria applicable to comparable business; and

(iii) average price of the shares for the last six months before the “offer.”

Penalties for breach

Without prejudice to the penalties established by the CNV, the Capital Markets Law provides that purchases of shares of a company in violation of the OPA regime shall be declared irregular and ineffective for administrative purposes by the CNV and cause the auction of the shares acquired on infringement, without prejudice to the penalties that may correspond.

Tender offer regime in the case of a voluntary withdrawal from the public offering and listing system in Argentina

The Capital Markets Law and its regulations also established that when a company, whose shares are publicly offered and listed in Argentina, agrees to voluntarily withdraw from the public offering and listing system in Argentina, it must follow the procedures provided for in the CNV’s regulations and it must likewise launch an OPA for its aggregate shares and/or subscription rights or securities convertible into shares or stock options under the terms provided for in such regulation. It is not necessary to extend the public offering to those shareholders that voted for the withdrawal at the shareholders’ meeting. The public offering can only be made as a purchase and sale and the consideration must be cash.

The acquisition of one’s own shares must be made with liquid and realized profits or with free reserves, whenever paid up in full, and for the amortization or disposition thereof, within the term set forth in section 221 of the Argentine Companies Law and the company must present the CNV with evidence that it has the necessary solvency to effect such purchase and that the payment for the shares will not affect its solvency.

Determination of the price of the OPA in the case of a voluntary withdrawal from the public offering and listing system in Argentina

The price offered should be an equitable price. To determine if an equitable price is offered, the following criteria must be considered:

• The equity value of the shares, taking into account a special financial statement for the withdrawal from the public offering system and/or listing.

• The value of the company, in accordance with discounted cash flow criteria and/or ratios applicable to comparable businesses or companies.

• The company’s liquidation value.

• Average quotation prices on the stock exchange where the shares are listed during the six month period immediately preceding the withdrawal application, no matter the number of sessions necessary for such negotiation.

• The consideration offered beforehand, or the placement of the new shares, in the event that a public offering has been made with regard to the same shares or if new shares have been issued, if applicable, during the last year, to be counted as of the date of the agreement for the withdrawal application.

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Under no circumstances can the price offered be lower than the average quotation price discussed in this paragraph.

Form and transfer

Our current capital stock is represented by book-entry shares. Our shareholders are required to hold their shares through book-entries directly made by Caja de Valores S.A. in the stock registry of the company carried by Caja de Valores S.A. or through book-entries with brokers, banks and other entities approved by the CNV that have accounts with Caja de Valores S.A., or with the participants of the Caja de Valores S.A.

Caja de Valores S.A. is in charge of maintaining a stock registry on our behalf based on information received from shareholders that choose to hold their shares directly by registration on the stock registry of the company and from participants of the Caja de Valores S.A. Under Argentine law, only those holders listed in the stock registry, either directly or through participants of the Caja de Valores S.A., will be recognized as shareholders. Shares held by participants of the Caja de Valores S.A. have the same rights as shares recorded in our shareholders’ register.

C. Material Contracts

During the past two years we did not enter into or become a party to any contract that is required to be disclosed under this item.

D. Exchange Controls

Exchange rates

On January 6, 2002, the Argentine Congress enacted the Public Emergency Law, abandoning over ten years of fixed Peso-U.S. dollar parity at Ps.1.00 per U.S.$1.00. After devaluing the Peso and setting the official exchange rate at Ps.1.40 per U.S.$1.00, on February 11, 2002, the government allowed the Peso to float. The shortage of U.S. dollars and their heightened demand caused the Peso to be significantly devalued in the first half of 2002 reaching a value of Ps.3.8675 per U.S.$1.00 in June 2002. During the first quarter of 2014, the Peso-U.S. dollar exchange rate has significantly increased, resulting in a devaluation of the Peso by 23% since December 31, 2013. The value of the Peso has gradually depreciated during 2014. In 2015, the Peso lost up to a 52% of its value against the U.S. Dollar. In 2016, the Peso lost up to a 21.9% of its value against the U.S. Dollar. See Item 3.B “Risk Factors—Risks relating to Argentina—Significant devaluation of the capital Peso against the U.S. dollar may adversely affect the Argentine Economy”.

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The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Pesos per U.S. dollar and not adjusted for inflation. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.

	Exchange Rates (Peso per Dollar)
	High		Low		Average (1)		Period-end
2011		4.3035		3.9715		4.1302		4.3032
2012		4.9173		4.3048		4.5515		4.9173
2013		6.5180		4.9228		5.4798		6.5180
2014		8.5555		6.5430		8.1188		8.5520
2015		13.7633		8.5537		9.2689		13.0050
2016		16.0392		13.0692		14.7794		15.8502
October 2016		15.2250		15.1152		15.1810		15.1745
November 2016		15.8442		15.0183		15.3399		15.8442
December 2016		16.0392		15.5225		15.8296		15.8502
January 2017		16.0533		15.8083		15.9065		15.9117
February 2017		15.8350		15.3675		15.5983		15.4550
March 2017		15.6687		15.3818		15.5237		15.3818

Source: Central Bank

(1) Based on daily closing price.

The exchange rate on April 21, 2017 was Ps. 15.3930 to U.S.$1.00.

EXCHANGE CONTROLS

In January 2002, with the approval of the Public Emergency Law, Argentina declared a public emergency situation in its social, economic, administrative, financial and foreign exchange matters and authorized the Argentine Executive Branch to establish a system to determine the foreign exchange rate between the Peso and foreign currencies and to issue foreign exchange-related rules and regulations. Within this context, on February 8, 2002, through Decree No. 260/2002, the Argentine Executive Branch established (i) the MULC through which all foreign exchange transactions in foreign currency must be conducted, and (ii) that foreign exchange transactions in foreign currency must be conducted at the foreign exchange rate to be freely agreed upon among contracting parties, subject to the requirements and regulations imposed by the Central Bank (please see below for a summary of the main regulations).

On June 9, 2005, through Decree No. 616/2005, the Argentine Executive Branch mandated that (i) all inflows of funds into the local foreign exchange market arising from foreign debts incurred by residents, both individuals or legal entities in the Argentine private sector, except for those concerning foreign trade financing and primary issuances of debt securities admitted to public offering and listed in authorized markets; and (ii) all inflows of funds by non-residents channeled through the MULC and aimed at being held in local currency, acquiring all types of financial assets or liabilities in the financial or non-financial private sector (except for foreign direct investments and primary issuances of debt securities and shares admitted to public offering and listed in authorized markets), and investments in securities issued by the public sector and acquired in secondary markets, must meet the following requirements: (i) such inflows of funds may only be transferred outside the local foreign exchange market at the expiration of a term of 365 calendar days as from the date of settlement of such funds into Pesos; (ii) the proceeds of such inflows of funds must be credited to an account in the local banking system; (iii) a non-transferable and non-interest-bearing deposit for 30% of the amount of the transaction must be kept in Argentina for a period of 365 calendar days, in accordance with the terms and conditions set forth in the applicable regulations (the “Deposit”); and (iv) the Deposit is to be denominated in U.S. dollars and be held in Argentine financial institutions and the Deposit may not be used to guarantee or as collateral in any type of credit transaction. The requirements of Decree 616/2005 were subsequently eased, as detailed below.

On December 18, 2015, through Resolution No. 3/2015, the Ministry of Treasury and Public Finances amended Executive Decree No. 616/2005, reducing (i) the Deposit percentage to 0% and (ii) the required period that the proceeds of any new financial indebtedness incurred by residents, held by foreign creditors and transferred through the MULC had to be kept in Argentina from 365 calendar days to 120 calendar days from the date of the transfer of the relevant amount. On January 5, 2017, pursuant to Resolution 1-E/2017 of the Ministry of Treasury, the mandatory stay period of 120 calendar days was further reduced to 0 days.

On August 8, 2016, the Central Bank established a new foreign exchange regime through Communications “A” 6037, which substantially modifed the existing exchange regulations and easing the access to the MULC. The following is a description of the main aspects of Central Bank regulations concerning inflows and outflows of funds in Argentina.

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Inflow of Capital

Foreign Financial Indebtedness

Foreign financial indebtedness incurred by the private non-financial sector, the financial sector and Argentine local governments with foreign creditors will not be subject to the requirement of having the proceeds from such indebtedness initially transferred and settled through the MULC. Regardless of whether or not the funds are settled through the MULC, pursuant to Article No. 1 of Decree 616/2005, debt resulting from transactions by the private non-financial sector and the financial sector must be registered in the “ Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-financial Sector”.

Outflow of Capital

Payment of Services and other income (interests, utilities and dividends)

There are no restrictions on remittances abroad for payment of services rendered by non-residents, irrespective of the item (freights, insurance, royalties, technical assistance, fees, etc.), interest, utilities and dividends and the acquisition of non-financial non-produced assets, regardless of the nature of the transaction. Access to the MULC requires a sworn affidavit from the resident confirming the presentation of the “Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-financial Sector” and the “Direct Investments Report”, if applicable.

Non-residents have access to the MULC for services, income and current transfers payable in Argentina according to the laws that regulates the access to this market by non-residents.

External Financial Debts

In order to access the MULC for principal payment of external financial debts, including the cancellation of financial standby granted by local financial institutions a sworn affidavit from the debtor confirming the presentation, if applicable of the “Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-financial Sector” is required.

Local Debt Instruments in Foreign Currency

In order to access the MULC for services of local debt issuances in foreign currency a sworn affidavit from the debtor is required stating that it, if applicable, it has filed the declaration of debt required under “Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-financial Sector” pursuant to Communication “A” 3602 and supplementary regulations.

Other Regulations

Sales of Foreign Currency to Non-residents

Communication “A” 6037 (as amended and supplemented) published a restatement of regulations and also issued new regulations applicable to access to the MULC by non-residents. Financial institutions are authorized to grant access to the MULC, subject to the prior delivery by the client of a sworn affidavit stating the concept under which access to the MULC is being requested, in the case of the transfer of currency abroad and the selling of currency, checks, and traveler’s checks in foreign currency to the following non-resident clients:

1. international organizations and institutions that serve as export financing official agencies;

2. diplomatic and consular representatives and diplomatic personnel duly authorized in the country for transfers made pursuant to their duties;

3. representatives in Argentina of courts, offices, special missions, commissions and bilateral institutions established pursuant to treaties or international agreements in which the Republic of Argentina is a party, insofar as such transfers are made pursuant to their duties.

Additionally, financial institutions may also grant other non-residents access to the MULC to transfer funds received in Argentina to accounts abroad, provided they have a sworn affidavit from the client that such funds have been received pursuant to:

a. payment of Argentine imports paid on demand;

- external debts of residents for Argentine imports of goods;

- services, income and other current transfers abroad

b. financial indebtedness originating in external loans of non-residents;

c. income resulting from bonds and loans guaranteed by the national government and issued in local currency;

d. recovery of claims in local bankruptcy proceedings and collection of debts under reorganization proceedings to the extent that the non-resident client has been recognized as creditor by a final non-appealable decision of the court of such proceedings.

e. inheritances pursuant to a judicial declaration of heirs;

f. benefits resulting from services or transfer of values received from the national government pursuant to the legal framework contemplated under Laws No. 24,042, 24,441, and 25,914.

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g. repatriations of direct investments in companies in the private, non-financial sector that do not control local financial institutions and/or real estate, provided that the foreign beneficiary is either a natural or legal entity residing or incorporated and established in, or the payment is performed, in domains, jurisdictions, territories or associated states that are considered “cooperators for the purposes of fiscal transparency” according to the provisions of section 1 of Decree 589/2013, as amended and supplemented for the following purposes: (i) sale of the direct investment, (ii) final liquidation of the direct investment, (iii) capital reduction decided by the local company, and (iv) reimbursement of irrevocable contributions by the local company. In these cases the intervening entity must verify that the “Direct Investments Report”, has been fulfilled, if applicable.

h. Collection of service or sales proceeds of other portfolio investments (and their profits) provided that the foreign beneficiary is either a real or legal person residing in or incorporated and established in domains, jurisdictions, territories or associated states that are considered “cooperators for the purposes of fiscal transparency” according to the provisions of Art.1 of Decree 589/2013, as amended and supplemented. These investments repatriations include, but are not limited to, portfolio investments in shares and ownership interests in local companies, investments in mutual funds and local trusts, purchases of portfolios of loans granted to residents by local banks, purchases of invoices and promissory notes for local business transactions, investments in local bonds issued in Pesos and in foreign currency payable locally, as well as purchases of other internal receivables.

i. Indemnifications granted by Argentine courts in favor of non-residents.

Notwithstanding the foregoing, in all the previously enumerated cases, it is also possible for the resident to access the MULC to transfer funds in favor of the non-resident. However, prior to accessing the MULC, the intervening entity must verify that the transaction fulfills the requirements established under applicable regulations. When access to the MULC is complete by a resident, the exchange ticket must be issued in his name, and the concept to be declared will depend on the nature of the underlying transaction.

The rest of the transactions involving the transfer of currency, checks and traveler’s checks in foreign currency to non-residents will be subject to the prior authorization of the Central Bank when the aggregate amount does not exceed the equivalent of U.S.$ 10,000 per calendar month across all entities authorized to deal in foreign currency transactions. For transactions of an amount less than U.S.$10,000, the only requirement will be proof of identity pursuant to the applicable regulations regarding “Valid Identification Documents” issued by the Central Bank.

In relation to services of capital and interests of public debt instruments issued by the national government in foreign currency and other bonds issued by residents in foreign currency that are deposited by non-residents in local custody accounts, the non-resident can choose among the following: (i) receipt of the funds in foreign currency, (ii) payment of the funds in a local bank account in foreign currency in his name, or (iii) retransfer of the funds to an account in his name abroad. In these cases, no exchange tickets will be issued.

If, after the payment of the services rendered, the beneficiary of the funds wants to convert the funds received in foreign currency to local currency, the exchange must be made in the exchange market based on the general legal framework for portfolio investments by non-residents.

Transactions made in the name of non-resident clients by intermediaries regardless of whether they are included within the financial entities law that are not administrators of social pension funds or mutual funds, must be made in the name of the non-resident client that wants to access the MULC.

Financial institutions are authorized to sell foreign currency banknotes to non-residents without amount restriction if funds are to be credited in a local bank account in foreign currency in the client´s name.

Financial institutions may act as representative agent of investors non-residents legal entities for issuing the exchange tickets in their name, if applicable regulations are fulfilled.

Formation and Repatriation or Sale of Off-shore Assets by Residents

Pursuant to Communication “A” 6037 (as amended by Communications “A”6163) resident individuals, legal entities from the private sector organized in Argentina and not authorized to deal in foreign exchange, certain trusts and other estates domiciled in Argentina, as well as Argentine local governments will be allowed access to the MULC without the prior authorization of the Central Bank with respect to the following types of transactions: direct investments by residents, portfolio investments abroad by residents, loans granted in favor of non-residents by residents, traveler’s checks and foreign currency banknotes for residents own possession or related to transactions between residents.

In the case of foreign currency transactions related to the formation or repatriation of off-shore assets and other portfolio investments abroad, the transfer must be made to an account or to another foreign financial assets holding, registered under the name of the client. Such banks or entities must not have been organized in countries or jurisdictions considered non-cooperative for fiscal transparency purposes under Section 1 of Executive Decree No. 589/13, as amended and supplemented, or in countries or jurisdictions where the Recommendations of the Financial Action Task Force are not followed or sufficiently followed. Non-cooperative countries or jurisdictions will be identified as such by the Financial Action Task Force (www.fatf-gafi.org). The identification of the foreign entity where the client’s account has been created and the account number must be recorded in the applicable exchange ticket.

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Capital Markets

Securities-related transactions carried out through stock exchanges and authorized securities markets must be paid using any of the following mechanisms: (i) in Pesos; (ii) in foreign currency through electronic fund transfers from and to sight accounts in local financial institutions; and (iii) through wire transfers against foreign accounts. Under no circumstances is the settlement of these securities purchase and sale transactions to be made in foreign currency bills or through deposits in escrow accounts or in third-party accounts (Communication “A” 4308).

Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-financial Sector

Pursuant to Communication “A” 3602 dated May 7, 2002, as amended, all individuals and legal entities in the private financial and non-financial sector must report their outstanding foreign indebtedness (whether Peso or foreign currency-denominated) at the end of each quarter. The debts incurred and repaid within the same calendar quarter need not be reported.

Direct Investments Report

Communication “A” 4237 dated November 10, 2004, as amended, established reporting requirements in connection with direct investments made by local residents abroad and by non-residents in Argentina. Direct investments are defined as those that reflect the long-standing interest of a resident in one economy (direct investor) in another economy’s resident entity, such as an ownership interest representing at least 10% of a company’s capital stock or voting rights. The reporting requirements prescribed by this Communication “A” 4237 are to be fulfilled bi-annually.

E. Taxation

Material U.S. federal income tax considerations relating to our Class B shares and ADSs

The following discussion is a summary of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our Class B shares or ADSs. This discussion applies only to beneficial owners of Class B shares or ADSs that are “U.S. holders” (as defined below) that hold Class B shares or ADSs as “capital assets” (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (“IRS”) and judicial decisions, all as currently in effect and all of which are subject to change (possibly on a retroactive basis) and to different interpretations. This discussion does not purport to address all U.S. federal income tax considerations that may be relevant to a particular U.S. holder and you are urged to consult your own tax advisor regarding your specific tax situation. The discussion does not address the tax considerations that may be relevant to U.S. holders in special tax situations, such as:

• dealers in securities or currencies;

• insurance companies;

• holders liable for the Medicare tax on net investment income;

• individual retirement accounts and other tax deferred accounts;

• tax-exempt organizations;

• traders in securities that elect to mark to market;

• certain financial institutions;

• entities or arrangements treated as partnerships or other pass-through entities for U.S. federal income tax purposes;

• holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

• U.S. expatriates;

• holders that hold Class B shares or ADSs as part of a hedge, straddle, conversion transaction, constructive sale transaction or other integrated transaction;

• holders that own, directly, indirectly, or constructively, 10% or more of the total combined voting power of our shares;

• real estate investment trusts; or

• regulated investment companies.

This discussion does not address the estate, gift, or alternative minimum tax consequences of holding Class B shares or ADSs or the indirect consequences to holders of equity interests in entities or arrangements treated as partnerships for U.S. federal income tax purposes that own our Class B shares or ADSs. Moreover, this discussion does not address the state, local, or non-U.S. income or other tax consequences of an investment in our Class B shares or ADSs, or any aspect of U.S. federal taxation other than income taxation.

We do not believe that we were a passive foreign investment company (a “PFIC”) for our most recent taxable year and do not expect to be one in our current taxable year. As discussed below under “Passive Foreign Investment Companies,” the application of the PFIC rules to banks is unclear under present U.S. federal income tax law. If we were treated as a PFIC in the past or if we are treated as a PFIC in any future periods, a U.S. holder that held our Class B shares or ADSs while we were or are a PFIC could be subject to unfavorable U.S. tax consequences. You should carefully consider the discussion under “Passive Foreign Investment Companies” below and consult your own tax advisor regarding the consequences of investing in a PFIC. Unless otherwise noted, the following discussion assumes that we are not a PFIC.

For the purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of Class B shares or ADSs and you are for U.S. federal income tax purposes:

• an individual who is a citizen or resident of the United States;

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• a corporation, or any other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our Class B shares or ADSs, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and upon the activities of the partnership. A prospective investor who is a partner of an entity or arrangement treated as a partnership for U.S. federal income tax purposes holding our Class B shares or ADSs should consult its own tax advisor.

In general, for U.S. federal income tax purposes, U.S. holders that are beneficial owners of ADSs will be treated as the beneficial owners of the Class B shares represented by those ADSs. No gain or loss will be recognized on the exchange of ADSs for the U.S. holder’s proportionate interest in Class B shares. A U.S. Holder’s tax basis in the Class B shares received will be the same as the U.S. Holder’s tax basis in the ADSs surrendered, and the holding period of the Class B shares will include the holding period of the ADSs.

Taxation of Dividends. Distributions of cash with respect to the Class B shares or ADSs generally will, to the extent made from our current or accumulated earnings and profits as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes. To the extent that a distribution by us exceeds the amount of our earnings and profits, it will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the Class B shares or ADSs, and thereafter as capital gain.

However, we do not maintain calculations of our earnings and profits under U.S. federal income tax principles. U.S. Holders should therefore assume that any distribution by us with respect to Class B shares or ADSs will be reported as ordinary dividend income for U.S. federal income tax purposes. In general, cash dividends (including amounts withheld in respect of Argentine taxes) paid with respect to:

• the Class B shares generally will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the U.S. holder; or

• the Class B shares represented by ADSs generally will be includible in the gross income of a U.S. holder as ordinary income on the day on which the dividends are received by the depositary;

and, in either case, these dividends will not be eligible for the dividends received deduction allowed to corporations. To the extent that a distribution by us exceeds the amount of our earnings and profits, it will be treated as a non-taxable return of capital to the extent of the U.S. holder’s adjusted tax basis in the Class B shares or ADSs, and thereafter as capital gain.

Subject to certain exceptions for short-term and hedged positions, the amount of dividends received by certain U.S. holders (including individuals) with respect to the ADSs will be subject to taxation at a maximum rate of 20% under current law if the dividends represent “qualified dividend income.” Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC. The ADSs (but not the Class B shares) should qualify as readily tradable on an established securities market in the United States so long as they are listed on the NYSE. See “Passive Foreign Investment Companies” below for a discussion of the PFIC rules.

In addition, the U.S. Treasury Department has indicated that it continues to consider whether detailed information reporting guidance is necessary pursuant to which holders of ADSs and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividend income. However, no such detailed procedures have yet been issued and therefore we are not certain that we will be able to comply with them. You should consult your own tax advisors regarding the availability of the preferential dividend tax rate in light of your own particular circumstances.

Dividends paid in Pesos will be includible in the gross income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day they are received by the U.S. holder, in the case of Class B shares, or the depositary, in the case of Class B shares represented by ADSs, regardless of whether the payment is in fact converted to U.S. dollars. If dividends paid in Pesos are converted into U.S. dollars on the day they are received by the U.S. holder or the depositary, as the case may be, U.S. holders should not be required to recognize foreign currency gain or loss in respect of the dividend income. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. holder through the date such payment is converted into U.S. dollars (or otherwise disposed of) will be treated as U.S. source ordinary income or loss. However, U.S. holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss if any Pesos received by the U.S. holder or the depositary are not converted into U.S. dollars on the date of receipt.

A U.S. holder will be entitled, subject to a number of complex limitations and conditions, to claim a U.S. foreign tax credit in respect of any Argentine income taxes withheld on dividends received on shares. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, the dividends should generally constitute “passive category income,” or in the case of certain U.S. holders, “general category income.” U.S. holders who do not elect to claim a credit for any foreign taxes paid during the taxable year may instead claim a deduction of such Argentine income taxes, provided that the U.S. holder elects to deduct (rather than credit) all foreign income taxes paid or accrued for the taxable year. Dividends received with respect to the Class B shares or ADSs will be treated as foreign source income, which may be relevant in calculating a U.S. holder’s foreign tax credit limitation. The rules relating to computing foreign tax credits or deducting foreign taxes are extremely complex, and U.S. holders are urged to consult their independent tax advisors regarding the availability of foreign tax credits with respect to any Argentine income taxes withheld from a

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dividend on the Class B shares or ADSs. The IRS has expressed concern that intermediaries in connection with depositary arrangements may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. persons who are holders of depositary shares. Accordingly, investors should be aware that the discussion above regarding the availability of foreign tax credits for Argentine withholding tax on dividends paid with respect to Class B shares represented by ADSs could be affected by future action taken by the IRS.

Sale, Exchange or Other Taxable Disposition.

In general, gain or loss realized by a U.S. holder on the sale, exchange or other taxable disposition of Class B shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the amount realized (including the gross amount of the proceeds of the sale or other taxable disposition before the deduction of any Argentine tax) on the taxable disposition and such U.S. holder’s basis in the Class B shares or the ADSs. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in the Class B shares or ADSs exceeds one year. The deductibility of capital losses is subject to limitations. Any gain or loss realized by a U.S. holder will generally be treated as a U.S. source gain or loss for U.S. foreign tax credit purposes.

If Argentine withholding tax is imposed on the sale or disposition of Class B shares or ADSs, the amount realized by a U.S. holder will include the gross amount of the proceeds of such sale or disposition before deduction of the Argentine withholding tax. The availability of U.S. foreign tax credits for these Argentine taxes and any Argentine taxes imposed on distributions that do not constitute dividends for U.S. tax purposes is subject to various limitations and involves the application of rules that depend on a U.S. holder’s particular circumstances. In particular, because any gain from the sale or other disposition of Class B shares or ADSs generally will be treated as U.S. source income, a U.S. holder may not be able to fully utilize its U.S. foreign tax credits in respect of such Argentine withholding taxes unless such U.S. holder has other income from foreign sources. U.S. holders are urged to consult their own tax advisors regarding the application of the U.S. foreign tax credit rules to their investment in, and disposition of, Class B shares or ADSs.

Passive Foreign Investment Companies.

In general, if during any taxable year of a non-U.S. corporation, 75% or more of the corporation’s gross income consists of certain types of “passive” income, or the average value of the “passive assets” of the corporation (generally assets that generate passive income) is 50% or more of the average value of all the corporation’s assets, the corporation will be treated as a PFIC under U.S. federal income tax law. Passive income for this purpose generally includes interest, dividends, royalties, rents and gains from commodities and securities transactions. Certain exceptions are provided, however, for passive income derived in the conduct of an active business. A non-U.S. corporation that owns (directly or indirectly) at least 25% of another corporation is treated as owning a proportionate share of the assets, and earning a proportionate share of the income, of the other corporation for purposes of determining whether the non-U.S. corporation is a PFIC.

We do not believe that we were a PFIC for our most recent taxable year and do not expect to be a PFIC for our current taxable year. While banks generally derive a substantial part of their income from assets that are interest bearing or that otherwise could be considered passive under the PFIC rules, the IRS has issued a notice and has proposed regulations that exclude from passive income any income derived in the active conduct of a banking business by a qualifying foreign bank (the “active bank exception”). The IRS notice and proposed regulations have different requirements for qualifying as an active foreign bank, and for determining the banking income that may be excluded from passive income under the active bank exception. Moreover, the proposed regulations have been outstanding since 1995 and will not be effective unless finalized.

Because final regulations have not been issued and because the definition of banking income for purposes of the active bank exception is unclear under both the notice and the proposed regulations, our status under the PFIC rules is subject to uncertainty. We conduct, and intend to continue to conduct, a significant banking business, and therefore we believe we should qualify as an active foreign bank. However, our possible status as a PFIC must be determined annually and therefore may be subject to change. Accordingly, there can be no assurance that we will not be a PFIC in the current taxable year or any future taxable year

If we are treated as a PFIC for any taxable year during which a U.S. holder owns Class B shares or ADSs, such U.S. holder would be subject to special rules (and may be subject to increased tax liability and form filing requirements) with respect to (a) any gain realized on the sale or other disposition of Class B shares or ADSs, and (b) any “excess distribution” made by us to the U.S. holder (generally, any distribution during a taxable year in which distributions to the U.S. holder on the Class B shares or ADSs exceed 125% of the average annual distributions the U.S. holder received on the Class B shares or ADSs during the preceding three taxable years or, if shorter, the U.S. holder’s holding period for the Class B shares or ADSs). Under those rules, (a) the gain or excess distribution would be allocated ratably over the U.S. holder’s holding period for the Class B shares or ADSs, (b) the amount allocated to the taxable year in which the gain or excess distribution is realized and to taxable years before the first day on which we became a PFIC would be taxable as ordinary income, (c) the amount allocated to each prior year in which we were a PFIC would be subject to U.S. federal income tax at the highest tax rate in effect for that year and (d) the interest charge generally applicable to underpayments of U.S. federal income tax would be imposed in respect of the tax attributable to each prior year in which we were a PFIC. In addition, as discussed above, a U.S. holder would not be entitled to (if otherwise eligible for) the preferential reduced rate of tax payable on qualified dividend income.

A U.S. holder may mitigate these effects by electing mark-to-market treatment for its ADSs or Class B shares, provided the relevant shares constitute “marketable stock” as defined in Treasury regulations. Our ADSs and our Class B shares will be “marketable stock” if they are “regularly traded” on a “qualified exchange or other market.” The term “qualified exchange or other market” includes the NYSE where our ADSs are listed. Our ADSs will be “regularly traded” if they are traded on at least fifteen (15) days during each calendar quarter, other than in de minimis quantities. No assurance can be provided that our ADSs will be characterized as regularly traded on a qualified exchange or

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other market for this purpose. Our Class B shares will be treated as listed on a “qualified exchange or other market” for purposes of the relevant Treasury regulations if the exchange on which they are listed has sufficient trading volume, listing, financial disclosure and surveillance, is regulated or supervised by a governmental authority of the country in which the market is located, and meets certain other characteristics. It is unclear whether the MERVAL and MAE would meet these requirements and whether there would be sufficient trading of the Class B shares for the Class B shares to be characterized as “regularly traded.” It is therefore unclear whether a U.S. holder would be able to elect mark-to-market treatment for the ADSs or Class B shares.

A U.S. holder electing the mark-to-market regime generally would compute gain or loss at the end of each taxable year as if the Class B shares or ADSs had been sold at fair market value. Any gain recognized by the U.S. holder under mark-to-market treatment, or on an actual sale, would be treated as ordinary income, and the U.S. holder would be allowed an ordinary deduction for any decrease in the value of Class B shares or ADSs as of the end of any taxable year, and for any loss recognized on an actual sale, but only to the extent, in each case, of previously included mark-to-market income not offset by previously deducted decreases in value. Any loss on an actual sale of Class B shares or ADSs would be a capital loss to the extent in excess of previously included mark-to-market income not offset by previously deducted decreases in value. A U.S. holder’s tax basis in Class B shares or ADSs would increase or decrease by gain or loss taken into account under the mark-to-market regime.

A mark-to-market election under the PFIC rules applies to all future years of an electing U.S. holder during which the Class B shares or ADSs are regularly traded on a qualifying exchange, unless revoked with the IRS’s consent.

If we are characterized as a PFIC and, at any time, we have non-U.S. subsidiaries that are classified as PFICs, U.S. holders generally will be deemed to own, and also would be subject to the PFIC rules with respect to, their indirect ownership interests in that lower-tier PFIC. If we are characterized as a PFIC, the U.S. holder could incur liability for the deferred tax and interest charge described above if either:

(1) we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC or

(2) the U.S. holder disposes of all or part of its Class B shares or ADSs.

A mark-to-market election under the PFIC rules with respect to shares would not apply to a lower-tier PFIC, and a U.S. holder would not be able to make such a mark-to-market election in respect of its indirect ownership interest in that lower-tier PFIC. Consequently, U.S. holders of shares could be subject to the PFIC rules with respect to income of the lower-tier PFIC the value of which already had been taken into account indirectly via mark-to-market adjustments.

Furthermore, if we are characterized as a PFIC, a U.S. holder will be required to annually file an IRS Form 8621. Under recent legislation, the statute of limitations on assessment and collections will remain open with respect to unreported PFIC interests. U.S. Holders should consult their own tax advisor regarding the PFIC rules.

Information Reporting and Backup Withholding. Information reporting requirements will apply to dividends in respect of the Class B shares or ADSs or the proceeds from the sale, exchange or other taxable disposition of the Class B shares or ADSs paid within the United States (and, in some cases, outside of the United States) to U.S. holders, unless, in either case, the U.S. holder is an exempt recipient (such as a corporation). Backup withholding may apply to such amounts if the U.S. holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to comply with applicable certification requirements. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. U.S. holders should consult their tax advisers about these rules and any other reporting obligations that may apply to the ownership or disposition of Class B shares or ADSs, including requirements related to the holding of certain foreign financial assets.

Material Argentine tax considerations relating to our Class B shares and ADSs

The following discussion is a summary of the material Argentine tax considerations relating to the purchase, ownership and disposition of our Class B shares or ADSs.

Income Tax

Taxation on Dividends paid in excess of taxable accumulated income

At the present date there is no Argentine income tax withholding except for the application of the “Equalization Tax” described below.

Dividends paid in excess of taxable accumulated income at the previous fiscal period will be subject to an additional withholding tax (the “Equalization Tax”) at the rate of 35% applicable on such excess and regarding both Argentine and non-Argentine resident shareholders. Equalization Tax is applicable when dividends distributed are higher than the “net accumulated taxable income” of the immediate previous fiscal year from when the distribution is made. In order to assess the “net accumulated taxable income” from the income calculated by the Income Tax Law, the income tax paid in the same fiscal period should be subtracted and the local dividends received in the previous fiscal year should be added to such income.

The Equalization Tax will be imposed as a withholding tax on the shareholder receiving the dividend. Dividend distributions made in property (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends on fully paid shares (“acciones liberadas”) are not subject to Equalization Tax.

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Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from profit distributions made on Class B shares and ADSs.

Capital gains tax

Prior to September 23, 2013, gains derived by non-resident individuals or foreign companies from the sale, exchange or other disposition of ADSs or Class B shares were exempt from income tax in Argentina. As of September 23, 2013, the results derived from the transfer of shares, quotas and other equity interests, titles, bonds and other securities, are subject to Argentine income tax, regardless of the type of beneficiary who realizes the gain.

Capital gains obtained by Argentine corporate entities (in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina) derived from the sale, exchange or other disposition of shares are subject to income tax at the rate of 35% on net income. Losses arising from the sale of shares can only be offset against income derived from the same type of operations, for a five-year carryover period.

Amendments to the Argentine Income Tax Law by Law 26,893 now mean that income derived by Argentine resident individuals from the sale of shares and other securities are exempt from capital gains tax, unless such securities were not traded in stock markets and/or do not have public offering authorization in which case this income are subject to income tax at a 15% rate on net income. The amendments introduced by implementing decree 2334/2013 state that the exemption includes income derived from the sale of shares and other securities made through a stock exchange market duly authorized by the CNV. It is unclear whether the exemption also includes securities traded through a stock exchange market duly authorized by the CNV (i.e. in addition to publicly offered securities), or whether the exemption only includes securities made through a stock exchange market duly authorized by the CNV. Certain qualified tax authorities publicly held the latter opinion in tax conferences.

Capital gains obtained by non-Argentine resident individuals or non-Argentine entities from the sale, exchange or other disposition of shares would be subject to income tax, as mentioned above the exemption for shares is not applicable to non-Argentine beneficiaries. Therefore, the gain derived from the disposition of shares would be subject to Argentine income tax at a 15% rate on the net capital gain or at a 13,5% rate on the gross price. The purchaser of the shares, whether Argentine resident or not, will be under an obligation to withhold the tax due by the seller and pay it to the Argentine tax authorities, although the Argentine tax authorities have not yet implemented any mechanism to make such withholding and payment when both seller and purchaser are non-Argentine residents.

Holders are encouraged to consult a tax advisor as to the particular Argentine income tax consequences derived from holding and disposing of Class B shares and ADSs.

Personal assets tax

Argentine entities, like us, have to pay the personal assets tax corresponding to Argentine and foreign domiciled individuals and foreign domiciled entities for the holding of company shares at December 31 of each year. The applicable tax rate is 0.25% and is levied on the proportional net worth value (“valor patrimonial proporcional”), or the book value, of the shares arising from the last balance sheet. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders. The Argentine company may seek this reimbursement of Personal Assets Tax by setting off the applicable tax against any amount due to its shareholders or in any other way or, under certain circumstances, waive its right under Argentine law to seek reimbursement from the shareholders.

Holders are encouraged to consult a tax advisor as to the particular Argentine personal assets tax consequences derived from the holding of Class B shares and ADSs.

Value added tax

The sale, exchange or other disposition of our Class B shares or ADSs and the distribution of dividends are exempted from the value added tax.

Tax on debits and credits on Argentine bank accounts

All credits to and debits from bank accounts held at Argentine financial institutions, as well as certain cash payments, are subject to this tax, which is assessed at a general rate of 0.6%. There are also increased rates of 1.2% and reduced rates of 0.075%. Owners of bank accounts subject to the general 0.6% rate may consider 34% of the tax paid upon credits to such bank accounts as a tax credit. The taxpayers that are subject to the 1.2% rate may consider 17% of all tax paid upon credits to such bank accounts as a credit. Such amounts can be utilized as a credit for income tax or tax on presumed minimum income. Whenever financial institutions governed by Law No. 21.526 make payments acting in their own name and behalf, the application of this tax is restricted to certain specific transactions. Such specific transactions include, among others, dividends or profits distributions.

Tax on minimum presumed income

Entities domiciled in Argentina are subject to this tax at the rate of 1% applicable over the total value of their assets, above an aggregate amount of AR$ 200,000. Specifically, the Law establishes that banks, other financial institutions and insurance companies will consider a taxable base equal to 20% of the value of taxable assets. This tax shall be payable only to the extent the income tax determined for any

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fiscal year does not equal or exceed the amount owed under the tax on minimum presumed income. In such case, only the difference between the tax on minimum presumed income determined for such fiscal year and the income tax determined for that fiscal year shall be paid. Any tax on minimum presumed income paid will be applied as a credit toward income tax owed in the immediately-following ten fiscal years. Please note that shares and other equity participations in entities subject to tax on minimum presumed income are exempt from this tax.

Holders are encouraged to consult a tax advisor as to the particular Argentine tax on minimum presumed income consequences derived from the holding of Class B shares and ADSs.

Pursuant to Law No. 27,260, passed by the Argentine Congress on June 29, 2016, the tax on minimum presumed income will be eliminated beginning on January 1, 2019.

Gross turnover tax

In addition, gross turnover tax could be applicable on the transfer of Class B shares or ADSs and on the perception of dividends to the extent such activity is conducted on a regular basis within an Argentine province or within the City of Buenos Aires. However, under the Tax Code of the City of Buenos Aires, any transaction with shares as well as the perception of dividends are exempt from gross turnover tax. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular gross turnover tax consequences of holding and disposing of Class B shares and ADSs in the involved jurisdictions. Different tax authorities (i.e., City of Buenos Aires, Corrientes, Córdoba, Tucumán, Province of Buenos Aires and Salta, among others) have established collection regimes for gross turnover tax purposes applicable to those credits verified in accounts opened at financial entities, of any type and/or nature and including all branch offices, irrespective of territorial location. These regimes apply to those taxpayers included in the lists provided monthly by the tax authorities of each jurisdiction. The applicable rates may vary depending on the jurisdiction involved. Collections made under these regimes shall be considered as a payment on account of the turnover tax. Note that certain jurisdictions have excluded the application of these regimes on certain financial transactions. Holders shall corroborate the existence of any exclusions to these regimes in accordance with the jurisdiction involved.

Stamp taxes

Contracts entered into for consideration may be subject to stamp tax in certain Argentine provinces or in the City of Buenos Aires in case agreements related to the transfer of our Class B shares or ADSs is performed or executed within such jurisdictions. In the City of Buenos Aires, acts or instruments related to the negotiation of shares and other securities duly authorized for its public offering by the CNV are exempt from stamp tax. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular stamp tax consequences arising in the involved jurisdictions.

Other taxes

There are no Argentine inheritance or succession taxes applicable to the ownership, transfer or disposition of our Class B shares or ADSs, except for the province of Buenos Aires and Entre Ríos. In such jurisdictions, there is a tax on free transmission of assets, including inheritance, legacies, donations, etc. Since January 2011, the tax rates have been set between 4% and 21.925% according to the taxable base and the degree of kinship involved. Free transmission of Class B shares or ADSs could be subject to this tax. Holders of Class B shares and ADSs are encouraged to consult a tax advisor as to the particular tax consequences arising in the involved jurisdictions.

Court tax

In the event that it becomes necessary to institute enforcement proceedings in relation to our Class B shares and ADSs in the federal courts of Argentina or the courts sitting in the City of Buenos Aires, a court tax (currently at a rate of 3.0%) will be imposed on the amount of any claim brought before such courts. Certain court and other taxes could be imposed on the amount of any claim brought before the Province courts.

Tax treaties

Argentina has signed tax treaties for the avoidance of double taxation with Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the UK. New treaties with the Arabian Emirates, Chile and Mexico have been recently signed but are still undergoing their respective ratification procedures. There is currently no tax treaty or convention in effect between Argentina and the United States.

Deposit and Withdrawal of Class B shares in Exchange for ADSs

No Argentine tax is imposed on the deposit or withdrawal of Class B shares in exchange for ADSs.

F. Dividends and Paying Agents

Not applicable.

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G. Statement by Experts

Not applicable.

H. Documents on Display

We are required to file annual reports, including exhibits, and other information with the SEC and to furnish interim information on Form 6-K. You may read and copy any documents filed by the Company at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov which contains reports and other information regarding registrants that file electronically with the SEC.

We are subject to the reporting requirements of the Exchange Act of 1934, as applied to foreign private issuers. Because we are a foreign private issuer, the SEC’s rules do not require us to deliver proxy statements or to file quarterly reports. In addition, our “insiders” are not subject to the SEC’s rules that prohibit short-swing trading.

We prepare quarterly and annual reports containing consolidated financial statements in accordance with Central Bank Rules which are translated into English and filed with the SEC. Our annual consolidated financial statements are certified by an independent accounting firm.

We have appointed The Bank of New York Mellon to act as depositary for our ADSs. During the time the deposit agreement remains in force, we will furnish the depositary with:

• our annual reports; and

• summaries of all notices of general meetings of shareholders and other reports and communications that are made generally available to our shareholders.

The depositary will, as provided in the deposit agreement, if we so request, arrange for the mailing of summaries in English of the reports and communications to all record holders of our ADSs. Any record holder of ADSs may read the reports, notices, or summaries thereof, and communications at the depositary’s office located at 101 Barclay Street, 22W, New York, New York 10286.

I. Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosure About Market Risk

Market Risk

Market risk is the risk of loss arising from fluctuations in financial markets variables such as interest rates, foreign exchange rates and other rates or prices. This risk arises from our lending, trading and investments businesses and mainly consists of interest rate risk, foreign exchange risk and financial asset and risk.

In the periods prior to August 1, 2016, we used the VaR methodology in order to measure significant market risks (whether arising in trading or non-trading portfolios). This methodology is based on statistical methods that take into account many variables that might cause a change in the value of our portfolios, including interest rates, foreign exchange rates, securities and equity prices, volatility and any correlation among them.

VaR is an estimation of potential losses that could arise from reasonably likely adverse changes in market conditions. It expresses the maximum amount of loss expected (given confidence interval) over a specified time period, or “time horizon,” if that portfolio were held unchanged over that time period.

All VaR models, while forward-looking, are based on past events and are dependent upon the quality of available market data. The quality of our VaRs models was therefore continuously monitored. As calculated by the Bank, VaR was an estimate of the expected maximum loss in the market value of a given portfolio over a five-day horizon at a one-tailed 99% confidence interval. We assumed a five-day holding period and adverse market movements of 2.32 standard deviations as the standard for risk measurement and comparison.

As of August 1, 2016, due to new regulation, we define market risk as the possibility of incurring losses in on- and off-balance sheet recorded positions as a result of adverse changes in market prices. The market risk minimum capital requirement is the arithmetic sum of the minimum capital requirement for interest rate, stock price, exchange rate and options risks.

The risks subject to the requirement for market risk are the risks of positions in instruments - securities and derivatives - imputed to the trading portfolio and the risks of positions in foreign currencies, regardless of the portfolio - investment or trading - to which they are charged.

To meet this capital requirement, entities must apply a “Standard Measurement Method” based on an aggregate of components that separately capture the specific and general market risks for securities positions. The capital requirement for general market risk is obtained through the residual term method, which consists of the arithmetic sum of the absolute value of the net weighted position in the trading book, the vertical rejection (percentage of positions offset within each time band), horizontal rejection (percentage of positions offset through different time bands) and the net change in option positions.

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The requirements are calculated separately for positions in pesos and in foreign currency, depending on the applicable area, term and coupon value.

The capital requirement for stock price risk is equivalent to the arithmetic sum of the requirement for specific stock price risk (equivalent to 8% of the gross position in shares) and the requirement for general market risk (equivalent to 8% of the net position in shares - total long position minus total short positions in each stock). The capital requirement for exchange rate risk is equivalent to 8% of the total net position. For measuring options risk, entities that only buy options (and their value is less than 5% of the computable equity liability of the previous month) or whose positions are covered by positions purchased under the same conditions, may use the option so-called “Simplified method”. This requirement incorporates both the general market risk and the specific risk. In the remaining cases, entities must use the delta-plus method, which uses Greek letters (delta, gamma and vega) to determine the delta equivalent of each position

For comparative purposes, we provide disclosures for the current year and preceding fiscal year under the newly-adopted method.

In million pesos	2015		2016		Change
Minimum		360.4		331.7		-28.7
Maximum		663.4		854.3		190.9
Average		495.0		579.4		84.4
December 31		568.8		345.4		-223.4
Currency risk for foreign exchange position	2015		2016		Change
Minimum		45.1		14.0		-31.1
Maximum		85.4		278.4		193.0
Average		71.3		145.1		73.8
December 31		51.0		141.3		90.3
Market risk for securities position	2015		2016		Change
Minimum		295.6		203.3		-92.3
Maximum		579.1		584.3		5.2
Average		423.7		434.3		10.6
December 31		517.8		204.1		-313.7

The following tables show the main reasons for changes in VaR between 2015 and 2016 if we consider for comparative purposes the VaR method (in millions of Pesos):

Change in currency risk (VaR) for foreign exchange position (YoY):
Change in VaR due to change in position	-19.3
Change in VaR due to change in volatility	102.6
Change in VaR due to change in price	7.0
Total Change in VaR	90.3
Change in market risk (VaR) for securities position (YoY):
Change in VaR due to change in position	-310.2
Change in VaR due to change in volatility	-54.4
Change in VaR due to change in price	50.9
Total Change in VaR	-313.7

The market risk requirements under the new regulations for the months of September to December 2016 (in millions of pesos) is detailed below:

Concept	09/30/2016		10/31/2016		11/30/2016		12/31/2016
Capital requirement for interest rate risk		68.5		67.7		81.1		97.5
Capital requirement for specific risk		53.4		51.6		62.0		74.5
Capital requirement for general market risk		15.1		16.1		19.2		23.0
Capital requirement for equity position risk		147.2		110.3		52.0		51.1
Capital requirement for specific risk		73.6		55.2		26.0		25.6
Capital requirement for general market risk		73.6		55.2		26.0		25.6
Capital requirement for exchange rate risk		38.2		55.4		79.2		118.6
Total requirement for market risk		253.9		233.4		212.4		267.2

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Sensitivity to interest rate

Sensitivity to interest rate arises in our normal course of business as the re-pricing characteristics of its interest-earning assets do not necessarily match those of its interest-bearing deposits and other borrowings. The re-pricing structure of assets and liabilities is matched when an equal amount of assets and liabilities re-price for any given period. Any excess of assets or liabilities over these matched items results in a gap or mismatch.

Our interest rate sensitivity analysis measures the risk arising from the different sensitivity of assets and liabilities when interest rate changes occur (“duration” approach). It covers all the assets and liabilities excluding tradable portfolios.

In this case our VaR model or maximum potential loss in the net economic value of the portfolio of assets and liabilities due to interest rate risk increases, considers a 3-month horizon and with a confidence level of 99%.

Our methodology also captures the real interest rate risk, which is the risk arising from the mismatch produced as a consequence of an imperfect correlation between inflation rate movements and financing interest rate variations.

The following table shows our 3-month 99% confidence for our VaR combined interest rate position for last two years (in millions of Pesos):

	2015		2016
Minimum		1,315.1		2,088.9
Maximum		1,861.2		2,711.7
Average		1,555.7		2,359.7
December 31		1,861.2		2,711.7

It should be noted that, based on the methodological change established by the BCRA in relation to the requirement for market risk, the instruments - securities and derivatives - not imputed to the trading book are incorporated into the risk measurement by rate variation.

The Central Bank removed all rules and regulations regarding minimum capital requirements for interest rate risk. Notwithstanding this, financial entities must continue to calculate the interest rate risk and remain subject to the Superintendency’s supervision.

For additional information regarding market and interest rate risk management see note 18 “Risk Management Policies” to our audited consolidated financial statements as of and for the three years ended December 31, 2016.

Item 12. Description of Securities Other Than Equity Securities

A- Not applicable

B- Not applicable

C- Not applicable

D – American Depositary Shares

Fees and Charges Applicable to ADS Holders

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary also collects fees for making distributions to investors, by deducting those fees from amounts being distributed or by selling a portion of the distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

Persons depositing or withdrawing shares may be request to pay:	For:
US$5.00 (or less) per 100 ADSs (or portion thereof)	•       Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property •       Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
A fee equivalent to the fee that would be payable if securities distributed had been shares and the shares had been deposited for issuance of ADSs	•       Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
US$0.02 (or less) per ADS (or portion thereof)	•       Any cash distribution to ADS registered holders
Registration fees	•       Registration of transfer of shares on our stock registry to or from the name of the depositary or its nominee or the custodian, or its nominee when making deposits or withdrawals
Expenses of the depositary	•       Cable, telex and facsimile transmissions •       Conversion of foreign currencies into U.S. dollars
Taxes and other governmental charges the depositary or the custodian, have to pay on any ADS or share underlying an ADS	•       As necessary
Any charges incurred by the depositary or its agents, including the custodian, for servicing the deposited securities	•       As necessary

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Fees and Direct and Indirect Payments Made by the Depositary to us

Future Fees and Payments

The depositary has agreed to reimburse us for expenses incurred by us in connection with the administration and maintenance of the ADSs program, including, but not limited to, investor relation expenses, annual NYSE listing fees or other program related expenses. The depositary has also agreed to pay its standard out-of-pocket administrative, maintenance and shareholder services expenses for providing services to the registered American depositary receipts holders, which consist, without limitation, of expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. There are limits and conditions on the amount of expenses for which the depositary will reimburse us. In 2016 we have received the agreed reimbursement from the Depositary.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2016. There are, as described below, inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon and as of the date of our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act is recorded, processed, summarized and reported as and when required.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Bank’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that:

a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Bank;

b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Bank; and

c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Bank’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on its assessment and those criteria, the Bank’s management concluded that, as of December 31, 2016 the Bank’s internal control over financial reporting was effective.

136

The effectiveness of the Bank’s internal control over financial reporting as of December 31, 2016, has been audited by Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global), an independent registered public accounting firm, as stated in their report which appears herein.

Attestation Report of the Independent Registered Public Accounting Firm

Our independent registered public accounting firm, Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global), has issued an attestation report on the effectiveness of the Bank’s internal control over financial reporting. The report follows below:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

BANCO MACRO S.A. and subsidiaries

Sarmiento 447

City of Buenos Aires

We have audited the internal control over financial reporting of BANCO MACRO S.A. (a bank organized under Argentine legislation) and its subsidiaries (the Bank) as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Bank’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, BANCO MACRO S.A. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the consolidated balance sheets of BANCO MACRO S.A. and its subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 of BANCO MACRO S.A. and its subsidiaries, and our report dated April 24, 2017 expressed an unqualified opinion thereon.

City of Buenos Aires,

April 24, 2017

PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.

Member of Ernst & Young Global

/S/ NORBERTO M. NACUZZI

Partner

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

137

Item 16A. Audit Committee Financial Expert

As of March 31, 2017 José Alfredo Sánchez, independent member of the audit committee, met the standards set forth in Item 16A of Form 20-F for “audit committee financial experts.”

Item 16B. Code of Ethics

We adhere to the best practices and requires that all its employee’s act according to the highest standards of personal and professional integrity in all aspects of their activities.

In addition to the general code of conduct that applies to all of our employees, we have adopted a code of ethics that applies to directors and senior management, including specifically to our chief executive officer, chief financial officer, chief accounting officer, as well as persons performing similar functions. The text of our code of ethics for our directors and senior management is posted on our web site at: https://www.macro.com.ar/PortalMacro/content/conn/macro/path/Contribution%20Folders/contenido/legales/Pdf/Code_of_Ethics.pdf

Item 16C. Principal Accountant Fees and Services

Fees Paid to Our Principal Accountant

Since 2006 Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global) has served as our principal external auditor. Fees payable to Pistrelli, Henry Martin y Asociados S.R.L. (Member of EY Global) in 2015 and 2016 are detailed below.

Thousands of Pesos	2015		2016
Audit Fees		25,882		35,517
Audit Related Fees		—		—
Tax Fees		—		264
All Other Fees		462		83
Total		26,344		35,864

Audit Fees

Audit fees were paid for professional services rendered by the auditors for the audit of our consolidated financial statements.

Audit-Related Fees

Audit-related fees are typically services that are reasonably related to the performance of the audit or review of the consolidated financial statements and are not reported under the audit fees item above. This item includes fees for attestation services on our financial information.

Tax Fees

Tax fees consist of tax advice services.

All Other Fees

Fees disclosed in the table above under “All Other Fees” consisted of other fees paid for professional services.

Audit Committee’s Pre-approval Policies and Procedures

Our audit committee is responsible for, among other things, the oversight of our independent auditors. During the year, the audit committee reviews together with management and the independent auditor, the audit plan, audit related services and other non-audit services and approves the related fees.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 16F. Change in Registrant’s Certifying Accountant

None.

138

Item 16G. Corporate Governance

Companies listed on the NYSE must comply with certain standards regarding corporate governance as codified in Section 303A of NYSE’s Listed Company Manual, as amended. Nevertheless, the Bank, while a listed company, qualifies also as a foreign private issuer and, as such, is permitted to follow its home country corporate governance practices, governed by the Argentine Corporate Law, the Capital Markets Law and the standards of the CNV and the Central Bank, in lieu of the provisions of Section 303A, except that it is required to comply with the requirements of Sections 303A.06, 303A.11 and 303A.12(b) and (c).

Accordingly:

(i) we must satisfy the audit committee requirements of Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”) (Section 303A.06);

(ii) we must provide a brief description of any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards (Section 303A.11); and

(iii) our Chief Executive Officer (as of the date hereof, Mr. Jorge Horacio Brito) must promptly notify the NYSE in writing after any of our executive officers become aware of any non-compliance with the applicable NYSE corporate governance rules (Section 303A.12(b)); and we must submit an executed written affirmation (in relation to the members of our audit committee) annually or interim written affirmations, if required by the NYSE (Section 303A.12(c)).

As required by Section 303A.11 of NYSE’s Listed Company Manual, the table below discloses any significant differences between the NYSE rules and our corporate governance practices pursuant to Argentine corporate governance rules.

NYSE Corporate Governance Standards - Section 303.A	Banco Macro Corporate Practices
303A.01-Independent Directors- Listed companies must have a majority of independent directors on their Boards of Directors.	Neither Argentine law nor our by-laws require us to have a majority of independent directors.

303A.02-Independence Tests- This section establishes general standards to determine directors’ independence.

(a) (i) No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The board of directors is required to identify its independent directors.

(ii) In addition, in affirmatively determining the independence of any director who will serve on the compensation committee of the listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

(A) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the listed company to such director; and

(B) whether such director is affiliated with the listed company, a subsidiary of the listed company or an affiliate of a subsidiary of the listed company.

(b) In addition, a director is not independent if:

A. the director is or has been within the last three years, an employee, or an immediate family member is, or has been within the last three years, an executive officer, of the listed company, its parent or a consolidated subsidiary. Employment as interim chairman or CEO or other executive officer shall not disqualify a director from being considered independent.;

B. the director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than U.S.$120,000 in direct compensation from the listed company, its parent or a consolidated subsidiary, other than director and committee fees and pension or other forms of deferred compensation for prior services (provided such compensation is not contingent in any way on continued service);

C. (i) the director is a current partner or employee of a firm that is the listed company’s internal or external auditor; (ii) the director has an immediate family member who is a current partner of such firm; (iii) the director has an immediate family member who is a current employee of such firm and personally works on the company’s audit; or (iv) the director or an immediate family member was within the last three years a partner or employee of such firm and personally worked on the company’s audit within that time;

D. the director, or an immediate family member is, or has been with the last three years, employed as an executive officer of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee;

E. the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from the listed company its parent or a consolidated subsidiary for  

Pursuant to General Resolution No. 622/13 of the CNV, a director is not independent if such director is:

(a) a member of management or an employee of shareholders who hold material holdings in the listed company or of other entities in which these shareholders have material holdings or over which these shareholders exercise a material influence;

(b) is currently an employee or has, in the last three years, been an employee of the listed company;

(c) a person who has a professional relationship or is part of a company or professional association that maintains professional relations with, or that receives remunerations or fees (other than directors’ fees) from, the listed company or from shareholders that have material holdings in the listed company, or with a company in which such shareholders have material holdings or exercise a material influence;

(d) a person who has material holdings in the listed company or in an entity that has material holdings in, or exercises a material influence over, the listed company;

(e) a person who provides goods or services to the listed company or to shareholders that have material holdings in or exercise a material influence over the listed company and receives compensation for such services that is substantially higher than that received as director of the listed company; or

(f) the member is married to or is the legally acknowledged partner or a family member, up to the second degree of consanguinity or affinity, of an individual who would not qualify as independent according to the CNV Rules.

“Material holdings” are shareholdings, either directly or indirectly, that represent at least 15% of the capital stock of the relevant entity, or a smaller percentage when the person has the right to elect one or more directors per class of shares or by having entered into agreements with other shareholders relating to the governance and the management of the relevant entity or of its parent company. Likewise, the definition of “material influence” should consider the criteria established in the generally accepted accounting standards.

Pursuant to Central Bank Communication “A” 5201 “Corporate Governance Guidelines for Financial Institutions,” a director is not independent if such director:

(a) has control over the Bank pursuant to the guidelines set forth under Section 2, subsection 2.2.1 of the “Credit Risk Fractioning” regulations;

(b) is carrying out executive functions or has carried out executive functions for the Bank during the last three years as of the day following the last day in office. In the case of public financial institutions, this term shall be one year;

(c) is married to or a family member up to the second degree of consanguinity or first degree of affinity of an individual meeting the above criteria.

139

NYSE Corporate Governance Standards - Section 303.A	Banco Macro Corporate Practices
property or services in an amount which, in any of the last three fiscal years, exceeds the greater of U.S.$1 million, or 2% of such other company’s consolidated gross revenues. A non-independent director will only be deemed independent upon the elapse of a three-year look-back period. “Immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who share such person’s home.	The above-mentioned Credit Risk Fractioning regulations establish general standards to determine the existence of control and a relationship: In this regard, the following individuals and entities shall be considered “related” to the Bank: i) any entity or person other than from the non-financial public sector of the country, having direct or indirect control over the Bank. ii) any entity or person, other than from the non-financial public sector of the country, directly or indirectly controlled by an entity or person having direct or indirect control over the Bank. iii) any entity or person directly or indirectly controlled by the Bank, pursuant to the provisions of section 28, subsection a) of the Law on Banks and the regulations on “Services supplementary to the financial activity and permitted activities” and “Credit Grading.” iv) any Bank or entity engaged in the provision of supplementary services to the financial activity other than those contemplated in the preceding items, subject to consolidated supervision with the Bank. v) any entity other than those contemplated in the preceding items, having directors in common with the institution or entity, other than from the non-financial public sector of the country, having direct or indirect control over of with the Bank, to the extent such directors represent a simple majority of the members of the boards of each such entities or the Bank. Likewise, control by one person or entity over another is defined as: i) holding or controlling, directly or indirectly, 25% or more of the total voting stock in the other entity. ii) having held, directly or indirectly, 50% or more of the total voting stock in the other entity, at the last election of directors or managers. iii) holding a direct or indirect interest in the other entity, even if its voting rights do not amount to 25%, sufficient to adopt resolutions in shareholders’ meetings or meetings of the board or a similar corporate body. iv) having direct or indirect controlling influence over the management and/or policies of the other entity, as of the effective date of the relevant resolution of the board of directors of the Central Bank of the Republic of Argentina, based on the recommendation of the Head of the Supervisory Board of Financial and Exchange Institutions (Superintendencia de Entidades Financieras y Cambiarias).
303A.03-Executive Sessions- Non-management directors of each listed company must meet at regularly scheduled executive sessions without management.	Neither Argentine law nor our by-laws require the holding of such meetings and we do not hold non-management directors meetings. Our by-laws provide, however, that the board shall meet as often as required in the best interest of the Bank and at least once a month.
303A.04-Nominating/Corporate Governance Committee- Listed companies must have a nominating/corporate governance committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties and details about committee members and the committee structure.	Neither Argentine law nor our by-laws require a nominating/corporate governance committee, however, our by-laws provide for the possibility to create a nominating/corporate governance committee. As a result of a general recommendation issued by the Central Bank of the Republic of Argentina to all financial institutions, we have created a Corporate Governance and Appointments Committee composed of three members from the Board of Directors, all of whom are independent, and the Comprehensive Risk Manager, Human Resources Manager, and the Legal Manager. This Committee has an approved charter establishing its functions and responsibilities. Directors are nominated and appointed by the shareholders, with no involvement of the Corporate Governance and Appointments Committee.
303A.05-Compensation Committee- Listed companies must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties and details about committee members and the committee structure.	Neither Argentine law nor our by-laws require the establishment of a compensation committee. The compensation of our directors is determined at the annual ordinary shareholders’ meeting. Additionally, the audit committee must issue an opinion regarding the reasonableness of such compensation. However, as a result of a general recommendation issued by the Central Bank to all financial institutions, we have created a Personnel Incentives Committee composed of three members from the Board of Directors, all independent, the human resources manager and the Comprehensive Risk Manager. The Committee’s main function is to control that the fixed and variable staff incentives – excluding directors- are consistent with the business culture, long term business plan, goals and business strategy of the Bank as well as with the applicable regulations governing the Bank.
303A.06/07- Audit Committee/Requirements- Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act.	(a)    Argentine law requires that the audit committee be composed of three or more members from the Board of Directors (with a majority of independent directors), all of whom must be well-versed in business, financial or accounting matters. All the members of our Audit Committee, satisfy the independence requirements of Rule 10A-3.

140

NYSE Corporate Governance Standards - Section 303.A	Banco Macro Corporate Practices
(a)    The audit committee must have a minimum of three members. All of its members shall be financially literate or must acquire such financial knowledge within a reasonable period of time after the appointment and at least one of its members shall	(b)    Neither Argentine law nor the CNV standards contain provisions relating to an audit committee member’s simultaneous service on the audit committee of other public companies.

have experience in accounting or financial management. In addition to meeting any requirement of Rule 10A-3(b)(1), all audit committee members must satisfy the independence requirements set out in Section 303A.02.

(b) The audit committee must have a written charter that establishes the duties and responsibilities of its members, including, at a minimum, some of the duties and responsibilities required by Rule 10A-3 of the Exchange Act and the following responsibilities set forth in NYSE Sections 303A.07(b)(iii)(A)-H) of the NYSE Manual.

A. at least annually, obtain and review a report by the independent auditor describing: the firm’s internal quality-control procedures; any material issues raised in the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the independent auditor and the listed company;

B. meet with management and the independent auditor to review and discuss the listed company’s annual audited financial statements and quarterly financial statements, including a review of the company’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

C. discuss the listed company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;

D. discuss risk assessment and risk management policies;

E. hold separate regular meetings with management, the internal auditors (or other personnel responsible for the internal audit function) and the independent auditors;

F. review any issue or difficulty arising from the audit or management’s response with the independent auditor;

G. set clear policies for the recruitment of employees or former employees of the independent auditors; and

H. report regularly to the board of directors.

(c) Rule 303A.07(c) establishes that each listed company must have an internal audit function to provide management and the audit committee with ongoing advice on the company’s risk management processes and internal control systems.

If a member of the audit committee is simultaneously a member of the audit committee of more than three public companies the board of directors shall determine whether such simultaneous service would prevent such members from effectively serving on the listed company’s audit committee, and disclose such determination in the order of business of the annual shareholders’ meeting of the listed company or in the company’s annual report on Form 10-K filed with the SEC.

303A.08-Shareholder Approval of Equity Compensation Plans- Shareholders must be given the opportunity to vote on all equity compensation plans and material amendments thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans.

303A.09-Corporate Governance Guidelines- Listed companies must adopt and disclose corporate governance guidelines. The corporate governance guidelines must address director qualification standards, director responsibilities, director access to management, director compensation, director orientation and continuing education, management succession, and annual performance evaluation of the board.

303A.10-Code of Business Conduct and Ethics- Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for the benefit of directors or executive officers. Each listed company may determine its own policies, which should address conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of listed company assets, compliance with laws, rules and regulations, and encouraging the reporting of any illegal or unethical behavior.

303A.12-Certification Requirements-

(a) The CEO of each listed company must certify to the NYSE, on an annual basis, that he or she is not aware of any breach by the company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary.

(c) The responsibilities of the audit committee, as provided for in the Capital Markets Law No. 26,831, as regulated by Decree No. 1023 and the CNV standards (NT 2013) regarding the functions of the Committee, are essentially the same as those provided for under Rule 10A-3 of the Exchange Act, including, without limitation, the following:

i. issuing an opinion about the Board of Directors’ proposal for the appointment of the external auditors to be retained by the Bank, and ensuring that auditors are independent;

ii. overseeing the performance of the internal control systems and the administrative-accounting system as well as the reliability of the latter and of all financial information or other facts which could be submitted to the CNV and self-regulated entities in compliance with the applicable reporting regime;

iii. supervising the enforcement of the Bank’s risk management information policies;

iv. providing the market with full disclosure with respect to transactions that give rise to conflict of interests with the members of the Bank’s corporate bodies or controlling shareholders;

v. issuing an opinion on the reasonableness of any proposal regarding the Directors’ and management fees and stock option plans proposed by the Board of Directors;

vi. issuing an opinion on the compliance with applicable legal requirements and on the reasonableness of the terms of any issuance of stock or convertible securities in case of capital increase excluding or limiting preemptive rights;

vii. assessing compliance with relevant rules of conduct;

viii. issuing a well-founded opinion on transactions with related parties as established in this Decree. Issue a well-founded opinion and inform the same to the self-regulated entities as determined by the CNV in the event of a conflict or interest or a potential conflict of interest.

In addition, pursuant to the provisions of the CNV Rules, the audit committee is responsible for:

• reviewing external and internal auditors’ plans, evaluating their performance, and issuing an opinion on such regard upon the publication of the annual financial statements;

• analyzing the various services provided by the external auditors and their independence, as established in the Professional Technical Resolutions of the Federación Argentina De Consejos Profesionales De Ciencias Económicas and any other regulations of the applicable supervisory authorities;

• reporting on invoiced fees, broken down as follows: 1) external audit and other related services aiming to ensure reliability (e.g. special analyses on the verification and assessment of internal controls, taxes, involvement in offering memorandums, certifications and special reports required by supervisory authorities, etc.); 2) special services other than those mentioned in item 1) above (e.g. design and implementation of information systems, legal, financial aspects, etc.). Said assessment shall be made by the audit committee including a verification of their respective independence policies to ensure compliance therewith.

We do not currently offer equity-based compensation to our directors, executive officers or employees; therefore, we have no policy on this matter.

Neither Argentine law nor our by-laws require the adoption or disclosure of corporate governance guidelines. However, due to our size and the importance of our business we have implemented a Corporate Governance Code based on the recommended Code of Corporate Governance for listed companies issued by the CNV and the recommended corporate governance guidelines for financial institutions issued by the Central Bank.

Neither Argentine law nor our by-laws require the adoption or disclosure of a code of business conduct and ethics. However, we have adopted a code of conduct applicable to all our employees. In addition, we have adopted a specific Code of Ethics applicable to our Directors and Senior Officers.

No comparable provisions exist under Argentine law.

However, the Bank is in compliance with the certification requirements of Section 303A.12 (b) and (c) of the NYSE rules.

141

NYSE Corporate Governance Standards - Section 303.A

Banco Macro Corporate Practices

(b)    The CEO of each listed company must promptly notify the NYSE in writing upon any executive officer of the listed company becoming aware of any non-compliance with any applicable provisions of this Section 303A. (c)    Each listed company must submit an annual executed Written Affirmation to the NYSE. In addition, each listed company must submit an interim written affirmation as and when required and using the interim written affirmation form specified by the NYSE.

PART III

Item 17. Financial Statements

We have responded to Item 18 in lieu of responding to this Item.

Item 18. Financial Statements

See pages F-1 through F-114 of this annual report.

Item 19. Exhibits

EXHIBIT INDEX

Exhibit Number	Description
1.1	Restated Bylaws of the Bank, as amended and restated on April 29, 2014, incorporated by reference to the Form 6-K filed by the Bank on August 21, 2014 (File No. 001-32827).
2.1	Deposit Agreement among the registrant, The Bank of New York, as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts, incorporated by reference to the Registration Statement on Form F-1, as amended, filed by the Bank on March 20, 2006 (File No. 333-130901).
8.1*	List of subsidiaries of the Bank as of December 31, 2016.
12.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herein

142

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

BANCO MACRO S.A.
By:	/s/ Jorge Horacio Brito
Name:	Jorge Horacio Brito
Title:	Chief Executive Officer

Date: April 24, 2017

143

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016 TOGETHER WITH THE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

BANCO MACRO S.A. and subsidiaries

Sarmiento 447

City of Buenos Aires

We have audited the accompanying consolidated balance sheets of BANCO MACRO S.A. (a bank organized under Argentine legislation) and its subsidiaries (the Bank) as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Bank’s Management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BANCO MACRO S.A. and its subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in accordance with Central Bank of Argentine Republic rules applicable to the consolidated financial statements, which differ in certain respects from the United States of America generally accepted accounting principles (see note 35 to the consolidated financial statements).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), the internal control over financial reporting of BANCO MACRO S.A. and its subsidiaries as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 24, 2017 expressed an unqualified opinion thereon.

City of Buenos Aires,

April 24, 2017

PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.

Member of Ernst & Young Global

/S/ NORBERTO M. NACUZZI

Partner

F - 2

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015

(Figures stated in thousands of pesos)

	2016			2015
ASSETS
CASH
Cash on hand		4,955,294			5,575,677
Due from banks and correspondents
Central Bank of Argentina		28,482,100			11,956,958
Local Other		79,473			17,046
Foreign		2,571,298			1,852,327
Other		991			813
		36,089,156			19,402,821
GOVERNMENT AND PRIVATE SECURITIES
Holdings booked at market value		2,810,838			4,955,290
Holdings booked at amortized cost		1,570,708			1,005,691
Instruments issued by the Central Bank of Argentina		15,145,254			8,302,992
Investments in listed private securities		319,469			1,127,399
		19,846,269			15,391,372
LOANS
To the non-financial government sector		1,532,532			748,067
To the financial sector
Interfinancing (granted call)		5,000			160,000
Other financing to Argentine financial institutions		1,659,738			67,010
Accrued interest, adjustments, foreign exchange and quoted price differences receivable		65,882			380
To the non-financial private sector and foreign residents
Overdrafts		8,837,695			4,707,889
Documents		11,198,902			6,550,151
Mortgage loans		4,158,608			3,508,512
Pledge loans		2,285,050			2,152,645
Personal loans		29,784,759			23,231,551
Credit cards		18,851,619			14,793,346
Other		10,465,842			7,078,576
Accrued interest, adjustments, foreign exchange and quoted price differences receivable		1,317,912			1,186,116
less: Unearned discount		(360,027	)		(355,864	)
less: Allowances		(1,830,505	)		(1,495,964	)
		87,973,007			62,332,415

F - 3

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015

(Figures stated in thousands of pesos)

	2016			2015
OTHER RECEIVABLES FROM FINANCIAL INTERMEDIATION
Central Bank of Argentina		2,093,960			1,606,203
Amounts receivable from spot and forward sales pending settlement		297,107			187,196
Securities and foreign currency receivables from spot and forward purchases pending settlement		1,259,031			119,752
Unlisted corporate bonds		486,144			603,567
Receivables from forward transactions without delivery of underlying asset		855			—
Other receivables not covered by debtors classification standards		1,119,756			604,344
Other receivables covered by debtors classification standards		296,787			416,946
Accrued interest receivables covered by debtors classification standards		232			273
less: Allowances		(240,265	)		(243,028	)
		5,313,607			3,295,253
RECEIVABLES FROM FINANCIAL LEASES
Receivables from financial leases		369,146			432,506
Accrued interest and adjustments		4,999			6,778
less: Allowances		(3,993	)		(5,352	)
		370,152			433,932
INVESTMENTS IN OTHER COMPANIES
In financial institutions		1,247			1,025
Other		11,691			11,479
less: Allowances		(1,586	)		(1,595	)
		11,352			10,909
OTHER RECEIVABLES
Receivables from sale of assets		—			36
Other		1,281,229			983,440
Accrued interest and adjustments receivable on from sale of assets		—			1
less: Allowances		(4,148	)		(4,596	)
		1,277,081			978,881
BANK PREMISES AND EQUIPMENT, NET		1,460,092			1,180,959
OTHER ASSETS		1,980,746			1,405,155
INTANGIBLE ASSETS
Goodwill		20,609			30,684
Organization and development costs		643,463			464,415
		664,072			495,099
ITEMS PENDING ALLOCATION		13,426			25,163
TOTAL ASSETS		154,998,960			104,951,959

F - 4

(Contd.)

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015

(Figures stated in thousands of pesos)

	2016		2015
LIABILITIES
DEPOSITS
From the non-financial government sector		9,552,190		9,588,378
From the financial sector		55,867		40,145
From the non-financial private sector and foreign residents
Checking accounts		17,686,171		14,062,853
Savings accounts		27,895,965		15,507,850
Time deposits		47,652,387		34,719,816
Investment accounts		333,786		545,092
Other		8,113,965		1,348,989
Accrued interest, adjustments, foreign exchange and quoted price differences payable		649,409		708,475
		111,939,740		76,521,598
OTHER LIABILITIES FROM FINANCIAL INTERMEDIATION
Central Bank of Argentina – Other		8,403		12,917
International Banks and Institutions		128,912		97,789
Non-subordinated Corporate Bonds		1,627,261		1,383,667
Amounts payable for spot and forward purchases pending settlement		1,310,696		279,858
Securities and foreign currency to be delivered under spot and forward sales pending settlement		156,536		42,752
Financing received from Argentine financial institutions
Interfinancing (received call)		90,000		44,000
Other financing received from Argentine financial institutions		30,568		15,106
Accrued interest payable		126		39
Payables from forward transactions without delivery of underlying asset		—		562,123
Other		7,095,374		5,022,561
Accrued interest, adjustments, foreign exchange and quoted price differences payable		80,627		76,553
		10,528,503		7,537,365
OTHER LIABILITIES
Dividends Payable		—		596,254
Fees		96,020		25,721
Other		3,386,887		2,028,484
		3,482,907		2,650,459
PROVISIONS		335,007		258,025
SUBORDINATED CORPORATE BONDS		6,407,840		1,957,618
ITEMS PENDING ALLOCATION		16,266		21,039
MINORITY INTERESTS IN SUBSIDIARIES		182,799		128,305
TOTAL LIABILITIES		132,893,062		89,074,409
SHAREHOLDERS’ EQUITY		22,105,898		15,877,550
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		154,998,960		104,951,959

The accompanying Notes 1 through 35 to the consolidated financial statements

are an integral part of these consolidated financial statements.

F - 5

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015

MEMORANDUM ACCOUNTS

(Figures stated in thousands of pesos)

	2016		2015
DEBIT-BALANCE ACCOUNTS		89,304,148		241,010,767
Contingent		23,017,895		19,539,120
Guarantees received		22,116,120		17,998,080
Other not covered by debtors classification standards		39		60
Contingent debit-balance contra accounts		901,736		1,540,980
Control		65,012,008		214,365,689
Receivables classified as irrecoverable		1,898,911		1,641,179
Other		61,978,148		212,111,015
Control debit-balance contra accounts		1,134,949		613,495
Derivatives		495,787		6,703,049
Notional value of put options taken		—		11,821
Notional value of forward transactions without delivery of underlying asset		135,597		3,253,734
Derivatives debit-balance contra accounts		360,190		3,437,494
Trust activity		778,458		402,909
Trust funds		778,458		402,909

F - 6

(Contd.)

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015

MEMORANDUM ACCOUNTS

(Figures stated in thousands of pesos)

	2016		2015
CREDIT-BALANCE ACCOUNTS		89,304,148		241,010,767
Contingent		23,017,895		19,539,120
Other guarantees provided covered by debtors classification standards		287,497		163,905
Other guarantees provided not covered by debtors classification standards		158,986		137,227
Other covered by debtors classification standards		354,315		1,227,180
Other not covered by debtors classification standards		100,938		12,668
Contingent credit-balance contra accounts		22,116,159		17,998,140
Control		65,012,008		214,365,689
Checks to be credited		1,134,949		613,495
Control credit-balance contra accounts		63,877,059		213,752,194
Derivatives		495,787		6,703,049
Notional value of call options sold		167,721		138,521
Notional value of forward transactions without delivery of underlying asset		192,469		3,298,973
Derivatives credit-balance contra account		135,597		3,265,555
Trust activity		778,458		402,909
Trust activity credit-balance contra accounts		778,458		402,909

The accompanying Notes 1 through 35 to the consolidated financial statements

are an integral part of these consolidated financial statements.

F - 7

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(Figures stated in thousands of pesos)

	2016		2015		2014
FINANCIAL INCOME
Interest on cash and due from banks		1,199		155		127
Interest on loans to the financial sector		248,095		87,991		64,293
Interest on overdrafts		2,494,351		1,407,015		1,338,170
Interest on documents		1,559,061		1,146,153		960,429
Interest on mortgage loans		729,785		556,620		483,143
Interest on pledge loans		360,722		385,022		274,287
Interest on credit card loans		3,950,929		2,646,060		1,930,082
Interest on financial leases		89,867		81,711		76,320
Interest on other loans		12,197,589		8,811,767		6,272,353
Net income from government and private securities		6,222,773		3,985,892		1,974,166
Interest on other receivables from financial intermediation		6,191		4,105		3,455
Income from guaranteed loans - Presidential Decree No. 1387/01		33,671		25,077		40,201
CER (Benchmark Stabilization Coefficient) adjustment		255,904		58,463		78,299
CVS (Salary Variation Coefficient) adjustment		786		669		737
Difference in quoted prices of gold and foreign currency		516,894		653,120		827,599
Other		267,471		259,303		358,988
		28,935,288		20,109,123		14,682,649
FINANCIAL EXPENSE
Interest on checking accounts		—		—		533
Interest on savings accounts		89,865		68,169		49,237
Interest on time deposits		10,283,706		6,704,910		5,137,168
Interest on interfinancing received loans (received call)		2,953		7,036		1,202
Interest on other financing from financial institutions		7		1		17
Interest on other liabilities from financial intermediation		145,837		96,022		91,733
Interest on subordinated bonds		277,211		136,191		120,407
Other interest		4,170		2,634		3,109
CER adjustment		12,128		4,595		9,183
Contribution to Deposit Guarantee Fund		215,002		418,437		151,048
Other		2,269,883		1,404,660		1,018,924
		13,300,762		8,842,655		6,582,561
GROSS INTERMEDIATION MARGIN – GAIN		15,634,526		11,266,468		8,100,088
PROVISION FOR LOAN LOSSES		1,073,085		877,134		664,882
SERVICE-CHARGE INCOME
Related to lending transactions		152,634		124,559		92,101
Related to deposits transactions		4,597,495		3,561,203		2,798,967
Other commissions		171,025		120,120		76,690
Other		3,047,578		2,309,480		1,688,030
		7,968,732		6,115,362		4,655,788

F - 8

(Contd.)

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(Figures stated in thousands of pesos)

	2016			2015			2014
SERVICE-CHARGE EXPENSE
Commissions		530,808			410,588			288,053
Other		2,073,031			1,304,245			927,706
		2,603,839			1,714,833			1,215,759
ADMINISTRATIVE EXPENSES
Personnel expenses		6,039,039			4,324,067			3,190,774
Directors’ and statutory auditors’ fees		314,522			233,030			163,378
Other professional fees		283,231			217,948			181,427
Advertising and publicity		197,505			143,883			128,387
Taxes		534,431			411,789			323,463
Depreciation of equipment		205,122			170,613			130,678
Amortization of organization costs		197,052			150,619			122,704
Other operating expenses		1,399,862			1,008,349			812,572
Other		799,892			565,610			445,496
		9,970,656			7,225,908			5,498,879
NET INCOME FROM FINANCIAL INTERMEDIATION - GAIN		9,955,678			7,563,955			5,376,356
OTHER INCOME
Income from long-term investments		44,462			33,692			49,635
Penalty interest		83,204			72,770			60,801
Recovered loans and allowances reversed		229,633			151,829			126,502
CER adjustment					30			102
Other		241,150			150,851			114,163
		598,449			409,172			351,203
OTHER EXPENSE
Penalty interest and charges payable to the Central Bank of Argentina		233			48			1,531
Charges for other receivables uncollectibility and other allowances		203,256			185,714			42,731
Depreciation and loss of other assets		5,264			3,748			3,196
Goodwill amortization		10,076			14,052			14,052
Other		262,497			238,654			200,840
		481,326			442,216			262,350
MINORITY INTEREST IN SUBSIDIARIES		(54,592	)		(35,359	)		(23,492	)
INCOME BEFORE INCOME TAX		10,018,209			7,495,552			5,441,717
INCOME TAX		3,477,377			2,485,663			1,962,186
NET INCOME FOR THE FISCAL YEAR		6,540,832			5,009,889			3,479,531
NET INCOME PER SHARE - stated in pesos		11.19			8.57			5.95

The accompanying Notes 1 through 35 to the consolidated financial statements

are an integral part of these consolidated financial statements.

F - 9

(Contd.)

BANCO MACRO S.A. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(Figures stated in thousands of pesos)

								Earnings reserved
Changes	Capital stock			Stock issuance premium		Adjustments to Shareholders’ equity		Legal		Subordinated Corporate Bonds			Voluntary			Unappropriated earnings			Total
Balances as of December 31, 2013		594,563			398,755		4,511		1,500,169		—			3,614,033			2,515,400			8,627,431
Distribution of unappropiated earnings, as approved by the Shareholders’ Meeting held on April 29, 2014,
- Legal reserve									488,713								(488,713	)
- Cash dividends														(596,254	)					(596,254	)
- Special reserve for Subordinated Corporate Bonds (1)											95,326						(95,326	)
- Voluntary reserve for future distribution of earnings														1,911,651			(1,911,651	)
- Tax on personal assets																	(19,712	)		(19,712	)
Reversal of special reserve for Subordinated Corporate Bonds (1)											(95,326	)					95,326
Other changes derived from the legal merger with Banco Privado de Inversiones SA					744												77			821
Capital stock decrease		(10,000	)														10,000
Net income for the fiscal year																	3,479,531			3,479,531
Balances as of December 31, 2014		584,563			399,499		4,511		1,988,882		—			4,929,430			3,584,932			11,491,817
Distribution of unappropiated earnings, as approved by the Shareholders’ Meeting held on April 23, 2015,
- Legal reserve									695,908								(695,908	)
- Cash dividends (2)														(596,254	)					(596,254	)
- Special reserve for Subordinated Corporate Bonds (1)											125,073						(125,073	)
- Voluntary reserve for future distribution of earnings														2,736,054			(2,736,054	)
- Tax on personal assets																	(27,902	)		(27,902	)
Reversal of special reserve for Subordinated Corporate Bonds (1)											(125,073	)					125,073
Net income for the fiscal year (3)																	5,009,889			5,009,889
Balances as of December 31, 2015		584,563			399,499		4,511		2,684,790		—			7,069,230			5,134,957			15,877,550

F - 10

(Contd.)

BANCO MACRO S.A. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(Figures stated in thousands of pesos)

							Earnings reserved
Changes	Capital stock		Stock issuance premium		Adjustments to Shareholders’ equity		Legal		Subordinated Corporate Bonds			Voluntary			Unappropriated earnings			Total
Balances as of December 31, 2015		584,563		399,499		4,511		2,684,790		—			7,069,230			5,134,957			15,877,550
Distribution of unappropiated earnings, as approved by the Shareholders’ Meeting held on April 26, 2016,
- Legal reserve								1,001,682								(1,001,682	)
- Cash dividends (2)													(643,019	)					(643,019	)
- Movements of voluntary reserve (2)													368,546						368,546
- Special reserve for Subordinated Corporate Bonds (1)										190,198						(190,198	)
- Voluntary reserve for future distribution of earnings													3,903,591			(3,903,591	)
- Tax on personal assets																(38,011	)		(38,011	)
Reversal of special reserve for Subordinated Corporate Bonds (1)										(190,198	)					190,198
Net income for the fiscal year																6,540,832			6,540,832
Balances as of December 31, 2016		584,563		399,499		4,511		3,686,472		—			10,698,348			6,732,505			22,105,898

(1) See Note 11.a.1).

(2) See Note 16.

(3) The net income for the fiscal year 2015 was adjusted for an amount of 1,468. See also Note 20.

The accompanying Notes 1 through 35 to the consolidated financial statements

are an integral part of these consolidated financial statements.

F - 11

BANCO MACRO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

(Figures stated in thousands of pesos)

	2016			2015			2014
CHANGES IN CASH AND CASH EQUIVALENTS (Note 4.5.q))
Cash and cash equivalents at the beginning of the fiscal year		22,672,977			18,193,305			13,512,271
Cash and cash equivalents at the end of the fiscal year		39,818,086			22,672,977			18,193,305
Net increase in cash and cash equivalents		17,145,109			4,479,672			4,681,034
Causes of changes in cash and cash equivalents
Operating activities
Net collections / (payments) for:
- Government and private securities		(1,978,802	)		(1,381,114	)		(4,804,248	)
- Loans
- To the financial sector		(1,255,135	)		74,468			215,323
- To the non-financial government sector		(498,388	)		(60,705	)		152,978
- To the non-financial private sector and foreign residents		(3,158,267	)		(4,443,122	)		5,594,127
- Other receivables from financial intermediation		(279,770	)		(241,524	)		851,139
- Receivables from financial leases		155,006			31,300			77,320
- Deposits
- From the financial sector		15,722			1,462			11,809
- From the non-financial government sector		(884,770	)		328,522			1,210,587
- From the non-financial private sector and foreign residents		25,691,772			14,281,665			4,727,295
- Other liabilities from financial intermediation
- Financing facilities from the financial sector (received calls)		43,134			37,003			(1,298	)
- Others (except liabilities included under financing activities)		2,535,567			1,804,336			1,193,222
Collections related to service-charge income		7,942,217			6,114,393			4,652,186
Payments related to service-charge expenses		(2,572,351	)		(1,689,901	)		(1,174,403	)
Administrative expenses paid		(9,282,454	)		(6,780,651	)		(5,091,123	)
Payment of organization and development costs		(376,100	)		(250,620	)		(201,927	)
Net collections from penalty interest		82,971			72,760			60,798
Differences from payments related to court orders		(7,195	)		(5,677	)		(4,938	)
Collections of dividends from other companies		19,717			22,869			27,619
Other collections related to other income and losses		128,373			56,516			17,527
Net payments from other operating activities		(1,146,271	)		(1,087,999	)		(1,410,131	)
Payment of income tax		(2,545,339	)		(2,330,121	)		(1,623,725	)
Net cash flows generated by operating activities		12,629,637			4,553,860			4,480,137
Investing activities
Net payments for bank premises and equipment		(400,420	)		(382,214	)		(261,181	)
Net payments for other assets		(677,813	)		(601,266	)		(394,756	)
Collections from sales of investment in others companies		—			—			11,126
Net cash flows used in investing activities		(1,078,233	)		(983,480	)		(644,811	)
Financing activities
Net (payments) / collections for:
- Non-subordinated corporate bonds		(131,071	)		(80,680	)		(73,443	)
- Central Bank of Argentina:
- Other		(4,718	)		(4,835	)		(6,343	)
- International Banks and Institutions		27,992			4,851			(247,742	)
- Subordinated corporate bonds		3,419,647			(167,819	)		(121,994	)
- Financing received from Argentine financial institutions		15,455			(5,384	)		(3,883	)
- Payment of dividends		(962,631	)		—			(598,486	)
Net cash flows generated in / (used in) financing activities		2,364,674			(253,867	)		(1,051,891	)
Financial income and holding gains on cash and cash equivalents		3,229,031			1,163,159			1,897,599
Net increase in cash and cash equivalents		17,145,109			4,479,672			4,681,034

The accompanying Notes 1 through 35 to the consolidated financial statements

are an integral part of these consolidated financial statements.

F - 12

BANCO MACRO SA AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016 AND 2015

(Figures stated in thousands of pesos, except otherwise indicated)

1. OVERVIEW OF THE BANK

Macro Compañía Financiera SA 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 SA. Subsequently, as a result of the merger process with other entities, it adopted other names (among them, Banco Macro Bansud SA) and since August 2006, Banco Macro SA (hereinafter, the Bank).

The Bank’s shares have been publicly listed on the Merval (Mercado de Valores de Buenos Aires- Buenos Aires Stock Exchange) since November 1994, as from March 24, 2006 they are listed on the New York Stock Exchange (NYSE). Additionally, on October 15, 2015 they were authorized to list on the Mercado Abierto Electrónico SA (MAE).

Since 1994, Banco Macro SA’s market strategy was mainly focused on the regional areas outside the City of Buenos Aires. Following this strategy, in 1996, Banco Macro SA started the process to acquire entities and assets and liabilities during the privatization of provincial and other banks.

In 2001, 2004, 2006 and 2010, the Bank acquired the control of Banco Bansud SA, Nuevo Banco Suquía SA, Nuevo Banco Bisel SA and Banco Privado de Inversiones SA, respectively. Such entities merged with and into Banco Macro SA in December 2003, October 2007, August 2009 and December 2013, respectively. In addition, during fiscal year 2006, Banco Macro S.A. acquired control over Banco del Tucumán SA.

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, the Bank performs certain transactions through its subsidiaries, Banco del Tucumán SA, Macro Bank Limited (an entity organized under the laws of Bahamas), Macro Securities SA, Macro Fiducia SA and Macro Fondos SGFCISA.

The chart showing the organizational structure as of December 31, 2016, is disclosed in Note 4.1 with the percentages indicating the ownership in each subsidiary.

2. CHANGES IN THE ARGENTINE MACROECONOMIC ENVIRONMENT, AND THE SITUATIONS OF THE FINANCIAL AND CAPITAL SYSTEM AND THE BANK

The international and local macroeconomic context generates a certain degree of uncertainty regarding its future progress as a result of political matters and the economic level growth, among other issues. Besides, at a local level, although it cannot be confirmed as a definitive trend, volatility of government and private securities, interest rates and exchange rate have decreased. In addition, there is an increase in prices of other relevant variables, such as salary cost and the prices of the main raw materials.

Specifically in connection with the Argentine foreign exchange market, from October 2011 through mid-December 2015, when the new federal government took power, there were certain restrictions to access the MUyLC (single and freely-floating foreign exchange market), the only market approved by Argentine regulations for purchasing and selling foreign exchange. As from that date, the new authorities of the Federal Government made appropriate amendments to current foreign exchange deregulations, while there was significant Argentine peso depreciation with respect to the US dollar, mainly during December, 2015.

The Federal Government also implemented new monetary and tax policies, like regulations of lending and borrowing rates, restrictions to foreign currency positions and operations involving foreign-currency futures at the different markets, among others.

Therefore, the Bank’s Management permanently monitors the change of the abovementioned situations in international and local markets, to determine the possible actions to adopt and to identify the possible impacts on its financial situation that may need to be reflected in the consolidated financial statements for future periods.

F - 13

BANCO MACRO SA AND SUBSIDIARIES

3. BANK OPERATIONS

3.1. Agreement with the Misiones Provincial Government

The Bank and the Misiones Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a five-year term since January 1, 1996, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent.

On November 25, 1999, and December 28, 2006, extensions to such agreement were agreed upon, making it currently effective through December 31, 2019.

As of December 31, 2016 and 2015, the deposits held by the Misiones Provincial Government with the Bank amounted to 2,495,781 and 1,579,311 (including 139,610 and 86,650 related to court deposits), respectively.

3.2. Agreement with the Salta Provincial Government

The Bank and the Salta Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-year term since March 1, 1996, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent.

On February 22, 2005 and August 22, 2014, extensions to such agreements were agreed upon, making it currently effective through February 28, 2026.

As of December 31, 2016 and 2015, the deposits held by the Salta Provincial Government with the Bank amounted to 1,340,738 and 877,967 (including 370,154 and 301,855 related to court deposits), respectively.

3.3. Agreement with the Jujuy Provincial Government

The Bank and the Jujuy Provincial Government entered into a special-relationship agreement whereby the Bank was appointed, for a ten-year term since January 12, 1998, as the Provincial Government’s exclusive financial agent, as well as revenue collection and obligation payment agent.

On April 29, 2005 and July 8, 2014, extensions to such agreement were agreed upon, making it currently effective through September 30, 2024.

As of December 31, 2016 and 2015, the deposits held by the Jujuy Provincial Government with the Bank amounted to 1,580,312 and 1,439,377 (including 253,622 and 186,700 related to court deposits), respectively.

3.4. Agreements with Tucumán Provincial and Municipal Governments

Banco del Tucumán SA entered into special-relationship agreements with the Tucumán Provincial Government and with the Municipality of San Miguel de Tucumán, appointing it their exclusive financial agent, as well as revenue collection and obligation payment agent, through 2011 and 2013, respectively.

On June 30, 2010, the service agreement with the Tucumán Provincial Government was extended through July 8, 2021, while the agreement executed with the Municipality of San Miguel de Tucumán was automatically extended through July 8, 2018, as set forth in the original agreement.

As of December 31, 2016 and 2015, the deposits held by the Tucumán Provincial Government and the Municipality of San Miguel de Tucumán with Banco del Tucumán SA amounted to 2,450,436 and 2,688,401 (including 943,683 and 750,818 related to court deposits), respectively.

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3.5. Uniones Transitorias de Empresas (joint ventures)

a) Banco Macro SA - Siemens Itron Business Services SA

On April 7, 1998, the Bank entered into a joint venture agreement with Siemens Itron Business Services SA, in which each holds a 50% equity interest, whereby a provincial data processing center would be provided to manage tax-related issues, to modernize tax collection systems and procedures in the Province of Salta, and to manage and perform the recovery of taxes and municipal assessments payable.

b) Banco Macro SA – Gestiva SA

On May 4, 2010, and August 15, 2012, the Bank and Gestiva SA entered into a joint venture under the name “Banco Macro SA – Gestiva SA – Unión Transitoria de Empresas” which is jointly controlled and is engaged in providing a comprehensive tax processing and management system for the Province of Misiones, its administration and collection of taxes thereof. The Bank has a 5% interest in its capital stock.

As of December 31, 2016 and 2015, the net assets of such joint ventures recorded and consolidated in the Bank’s consolidated financial statements through the proportionate consolidation method amounted to 56,001 and 35,102, respectively.

Also, as of December 31, 2016, 2015 and 2014 net income recorded through the method mentioned in the previous paragraph amounted to 49,209, 44,910 and 35,674 respectively.

4. SIGNIFICANT ACCOUNTING POLICIES

4.1. Consolidation and basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles issued by the Central Bank of Argentine (Central Bank rules).

For the purpose of these consolidated financial statements, certain disclosures related to formal legal requirements for reporting in Argentina have been omitted since they are not required for SEC (Securities and Exchange Commission) reporting purposes.

Under Central Bank rules, Banco Macro SA has consolidated the following subsidiaries:

	Shares				Percentage held of						Equity Investment amounts as of
Company	Class		Number		Capital Stock			Votes			December 31, 2016		December 31, 2015
Banco del Tucumán SA		Common		395,341		89.932	%		89.932	%		1,628,973		1,142,776
Macro Bank Limited (a)		Common		39,816,899		99.999	%		100.00	%		769,018		595,553
Macro Securities SA (b) and (c)		Common		12,776,680		99.921	%		99.932	%		236,971		169,286
Macro Fiducia SA		Common		6,475,143		98.605	%		98.605	%		19,122		18,032
Macro Fondos SGFCISA		Common		327,183		99.936	%		100.00	%		25,319		15,545

(a) Consolidated with Sud Asesores (ROU) SA (voting rights: 100%, equity interest: 3,539).

(b) Consolidated with Macro Fondos SGFCISA.

(c) The indirect equity interest of Banco Macro SA comes from Macro Fiducia SA.

Intercompany transactions were eliminated in the consolidation process.

Furthermore, the financial statements of Macro Bank Limited (consolidated with Sud Asesores (ROU) SA) were adapted to the Central Bank rules. Also, as they are originally stated in US dollars, they were translated into pesos following the procedures indicated below:

(a) Assets and liabilities were translated at the reference exchange rate at the closing of transactions on the last business day of the years ended December 31, 2016 and 2015.

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(b) Figures related to the owners’ contributions (capital stock, additional paid-in capital and irrevocable capital contributions) were translated by applying the effective exchange rates as of the date on which such contributions were paid in.

(c) Retained earnings were estimated by the difference between assets, liabilities and owners’ contributions, translated into pesos, as indicated above.

(d) The amounts of income were translated into pesos, as described in (a) above. The difference between retained earnings at beginning of year and retained earnings at year-end was recorded in “Other income – Income from long-term investments” and “Financial income – Difference in quoted prices of gold and foreign currency’’ or “Financial expense – Difference in quoted prices of gold and foreign currency” accounts, as the case may be.

4.2. Comparative information

The consolidated financial statements as of December 31, 2016, are presented comparatively with those as of December 31, 2015 and 2014.

4.3. Unit of measurement

The Bank’s consolidated financial statements recognize the changes in the peso purchasing power until February 28, 2003, when the adjustments to reflect those changes were discontinued, as provided by the professional accounting standards effective in the City of Buenos Aires and as required by Presidential Decree 664/2003, Article N° 312 of General Resolution No. 7/2015 of the Business Association Regulatory Agency, Central Bank Communiqué “A” 3921 and CNV (Argentine Securities Commission) General Resolution No. 441.

However, the interpretation of the consolidated financial statements should consider the fact that, in recent fiscal years, there have been significant changes in the prices for relevant economic variables, such as salary cost, interest and exchange rates.

4.4 Significant accounting judgments, estimates and assumptions

The preparation of consolidated financial statements requires the Bank to make, in certain cases, estimates to determine the book values of assets and liabilities, income, expenses and contingencies, as well as the disclosures thereof, as of each date of accounting information filing. The Bank’s records are based on the best estimate regarding the probability of occurrence of different future events and, therefore, the final amount may differ from such estimates, which may have a positive or negative impact on future fiscal years.

4.5 Valuation methods

The main valuation methods used to prepare these consolidated financial statements as of December 31, 2016, and 2015, were as follows:

a) Assets and liabilities denominated in foreign currency:

The assets and liabilities denominated in US dollars were valued at Central Bank benchmark US dollar exchange rate effective as of the closing date of transactions on the last respective business day. Additionally, assets and liabilities denominated in other foreign currencies were translated at the exchange rate communicated by the Central Bank’s dealing room. Foreign exchange differences were recorded in the related consolidated statements of income.

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b) Government and private securities:

b.1) Government securities - Holdings booked at market value:

They were valued at the quoted prices or present values reported by the Central Bank, as the case may be. Differences in quoted prices and present values were recorded in the related consolidated statements of income, translated into pesos, in accordance with the criterion stated in Note 4.5.a), wherever applicable.

b.2) Government securities - Holdings booked at amortized cost:

As set forth in Central Bank Communiqué “A” 5180, as supplemented, except what is mentioned in the third paragraph, they were valued at acquisition cost increased by the accrued internal rate of return, net of the related offset account, also compared with the present values calculated by the Bank, in accordance with the criterion stated in Note 4.5.a), wherever applicable. The acquisition value previously mentioned is related to the present value of each security at acquisition date.

As of December 31, 2016 and 2015, the present value calculated by the Bank for these securities amounted to 1,581,774 and 800,944, respectively.

As required under Central Bank Communiqué “A” 5506, BAADE (Argentine saving bonds for the economy development) were valued at acquisition cost increased by the accrued internal rate of return, translated into pesos, in accordance with the criterion stated in Note 4.5.a).

b.3) Listed Instruments issued by the Central Bank – Holdings booked at market value:

They were valued at the quoted price as of the last respective business day. Differences in quoted prices were recorded in the related consolidated statements of income.

b.4) Instruments issued by the Central Bank – Holdings booked at amortized cost:

Holdings with no volatility published by the Central Bank were valued at acquisition cost plus accrued interest, exponentially applying the internal rate of return as per their issuance terms and conditions, in accordance with the criterion stated in Note 4.5.a), wherever applicable. The accruals of the internal rate of return mentioned above were recorded in the related consolidated statements of income.

b.5) Private Securities – Investment in listed private securities:

They were valued at the quoted price as of the last respective business day. Differences in quoted prices were recorded in the consolidated statement of income.

c) Guaranteed loans – Presidential Decree No. 1387/2001:

As set forth in Central Bank Communiqués “A” 4898, “A” 5180, as supplemented, the guaranteed loans issued by the Argentine Government under Presidential Decree No. 1387/2001 were valued at the specific acquisition value of each security, increased by accrued income including the benchmark stabilization coefficient (CER), net of the related offset account, compared in turn with the present values reported by the Central Bank.

As of December 31, 2016 and 2015, the present value reported by the Central Bank for these securities amounted to 726,098 and 533,962, respectively.

On January 30, 2017 the total holding related to these items were cancelled and collected, for an amount of 740,653.

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d) Interest accrual:

Interest has been accrued according to a compound interest formula in the period in which it was generated, except interest on transactions in foreign currency and those whose maturity does not exceed 92 days, on which interest has been accrued according to a simple interest formula.

The Bank suspends the interest accrual whenever loan payments are not settled (generally, after 90 days) or when the recoverability of the collection of principal or interest accrued is doubtful. Accrued interest is considered part of the loan balance when determining the allowances for loan losses. Afterwards, interest is only recognized on a cash basis.

e) CER accrual:

Receivables and payables have been indexed by the CER, wherever applicable, as follows:

e.1) Guaranteed loans: as explained in Note 4.5.c).

e.2) Deposits and other assets and liabilities: the CER as of the last respective business day was applied.

f) Allowance for loan losses and provision for contingent commitments:

These provisions have been calculated based on the estimated uncollectibility risk of the Bank’s credit portfolio, which, among other factors, results from the evaluation of the degree of debtors compliance and the guarantee/security supporting the respective transactions, considering Central Bank Communiqué “A” 2950, as supplemented, and the Bank’s provisioning policies.

When loans covered by specific allowances are settled or generate a reversal of the allowances recorded in the current fiscal year, and in cases where the allowances set in prior years exceed what is considered necessary, the excess allowance is reversed with effects on income for the current fiscal year.

The recovery of receivables previously classified under “Debit-balance control memorandum accounts - Receivables classified as irrecoverable” are recorded directly in the related consolidated statement of income.

The Bank assesses the credit risk related to possible commitments and determines the appropriate amount of allowances to be recorded. The allowances related to amounts recorded in memorandum accounts contingent commitments, are included under “Provisions”.

g) Other receivables from financial intermediation and Other liabilities from financial intermediation:

g.1) Amounts receivable from spot and forward sales pending settlement and amounts payable for spot and forward purchases pending settlement:

They were valued based on the prices agreed upon for each transaction, plus related premiums accrued.

g.2) Securities and foreign currency to be received for spot and forward purchases pending settlement and to be delivered for spot and forward sales pending settlement:

i. With volatility (active market): they were valued at the effective quoted prices for each of them at the last respective business day. Differences in quoted prices were recorded in the related consolidated statements of income.

ii. Without volatility (without active market): they were valued at their cost value increased exponentially by their internal rate of return. Such accruals were recorded in the related consolidated statements of income.

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g.3) Debt securities and certificates of participation in financial trusts:

i. Debt securities: they were valued as provided by Central Bank Communiqué “A” 4414, at their cost value, increased exponentially by their internal rate of return, translated into pesos according to the method described in Note 4.5.a), as the case may be.

ii. Certificates of participation: they were stated at cost or face value increased as the case may be, by interest accrued until the last respective day, translated into Argentine pesos according to the method described in Note 4.5.a), as appropriate.

The values recorded, net of allowances, do not exceed the recoverable values from the respective trusts.

g.4) Unlisted corporate bonds purchased:

They were valued by the accrual method based on their internal rate of return, as provided by Central Bank Communiqué “A” 4414 as supplemented. Such accruals were recorded in the related consolidated statements of income.

g.5) Non subordinated corporate bonds issued:

They were valued at the amount due for principal and interest accrued, translated into pesos pursuant to the method described in Note 4.5.a). Such accruals were recorded in the related consolidated statements of income.

g.6) Receivables from forward transactions without delivery of underlying assets:

They were valued at the amounts outstanding originated in forward transactions of foreign currency payables in pesos without delivery of the underlying asset. Such amounts arise from the difference between quoted price of transactions on the last respective business day and the related future price agreed.

h) Receivables from financial leases:

They were valued at the net investment in the lease less unearned income and calculated in accordance with the conditions agreed upon in the respective agreements, by applying the interest rate imputed therein.

The effective financial lease agreements do not represent significant amounts with respect to the total financing granted by the Bank. Additionally, their characteristics are among the usual ones for this kind of transactions, and there are no differentiating issues of any kind compared with the transactions agreed on the Argentine financial market. These transactions are distributed among the Bank’s customers, and there are no pre-established contingent installments or automatic renewal clauses.

i) Investments in other companies:

i.1) In non-controlled financial institutions (less than 50% ownership interest), supplementary and authorized activities:

i. In pesos: they were valued at acquisition cost, plus the nominal value of share-dividends received, restated as explained in Note 4.3, as the case may be.

ii. In foreign currency: they were valued at the acquisition cost in foreign currency, plus the nominal value of share-dividends received, translated into pesos in accordance with the criterion stated in Note 4.5.a).

Such net values do not exceed the values calculated by the equity method on the basis of the latest financial statements published by the companies.

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i.2) In other non-controlled companies: they were valued at acquisition cost, plus the nominal value of share-dividends received, restated as described in Note 4.3., as the case may be, net of allowances for impairment in value. Such net values do not exceed the values calculated by the equity method on the basis of the latest financial statements published by the companies.

j) Bank premises and equipment, other assets and intangible assets:

They were valued at their acquisition cost, restated as explained in Note 4.3., less the related accumulated depreciation and amortization calculated based on their estimated useful life using the straight line method.

k) Valuation of derivatives:

k.1) Forward transactions without delivery of underlying asset: they were valued at the quoted price of each transaction, as of the last respective business day. Differences in quoted prices were recorded in the related consolidated statements of income.

k.2) Put options taken and call option sold: valued at the agreed-upon exercise price.

In all cases, see also Note 33.1.

l) Severance payments:

The Bank charges these payments directly to expenses.

m) Provisions included in liabilities:

The Bank carries certain contingent liabilities related to current or future claims, lawsuits and other proceedings, including those related to labor and other obligations. Liabilities are recorded when it is probable that future costs will be incurred and whenever such costs may be reasonably estimated.

n) Subordinated corporate bonds:

They were valued at the amount due for principal and interest accrued, translated into pesos pursuant to the method described in Note 4.5.a). Such accruals were recorded in the related consolidated statements of income.

o) Shareholders’ equity accounts:

o.1) They are restated as explained in Note 4.3., except for the “Capital stock” account which has been kept at its original value. The adjustment resulting from its restatement as explained in such note was included in the “Adjustments to shareholders’ equity” account.

o.2) Special reserve for subordinated corporate bonds: related to the reserve created for paying the financial services of the subordinated corporate bonds issued by the Bank (see Note 11.a.1)). This reserve is reversed on a monthly basis as the related interests are recorded in the consolidated statements of income.

p) Consolidated Statements of income accounts:

p.1) The accounts comprising monetary transactions (financial income (expense), service-charge income (expense), provision for loan losses, administrative expenses, among others) were computed at their historical amounts on a monthly accrual basis.

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p.2) The accounts reflecting the effects on income from the sale, retirement or consumption of non monetary assets were computed on the basis of the amounts of such assets, which were restated as mentioned in Note 4.3.

q) Consolidated Statements of cash flows and cash equivalents:

The Bank considers “cash and cash equivalents” to include the following accounts: Cash and investments which mature less than three months from their date of acquisition. Below is a breakdown of the reconciliation of the “cash and cash equivalents” item on the consolidated statement of cash flows with the related consolidated balance sheet accounts as of December 31, 2016, 2015 and 2014:

	2016		2015		2014
Cash		36,089,156		19,402,821		15,434,202
Government and private securities
Holdings booked at market value		538,936		997,435		769,679
Instruments issued by the Central Bank of Argentina		3,189,994		2,018,994		1,809,774
Other receivables from financial intermediation
Other receivables covered by debtors classification standards		—		253,727		179,650
Cash and cash equivalents		39,818,086		22,672,977		18,193,305

5. INCOME TAX AND MINIMUM PRESUMED INCOME TAX (TOMPI)

The Bank calculates income tax by applying the effective 35% rate to the estimated taxable income for each fiscal year, without considering the effect of temporary differences between book and taxable income.

In 1998, Law No. 25,063 established minimum presumed income tax for a ten-year term. At present, after subsequent extensions and considering what is established by Law No. 27,260, such tax is effective for the fiscal years ended up December 31, 2018. This tax is supplementary to income tax, while the latter is levied on the taxable income for the year, minimum presumed income tax is a minimum levy assessment by applying 1% over 20% of certain assets as provided by the law for financial institutions. Therefore, the Bank’s tax obligation for each year will be equal to the higher of these taxes. However, if minimum presumed income tax exceeds income tax in a given tax year, such excess may be computed as a payment on account of any income tax in excess of minimum presumed income tax that may occur in any of the following ten years, once accumulated net operating losses (NOLs) have been used.

As of December 31, 2016, 2015 and 2014, the Bank estimated an income tax charge of 3,477,377, 2,485,663 and 1,962,186, respectively, included in Other Liabilities – Other, hence no minimum presumed income tax should be assessed for fiscal years ended on such dates.

Additionally, as of December 31, 2016, the Bank made income tax prepayments for 1,726,542 for the 2016 fiscal year, which will be applied to the tax amount assessed in the 2016 tax return.

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6. DIFFERENCES BETWEEN CENTRAL BANK RULES AND ARGENTINE PROFESSIONAL ACCOUNTING STANDARDS EFFECTIVE IN THE CITY OF BUENOS AIRES

Argentine professional accounting standards effective in the City of Buenos Aires differ, in certain valuation aspects, from the accounting standards established by Central Bank of Argentina. The main items with differences in valuation matters as of December 31, 2016, 2015 and 2014 are as follows:

	Adjustments under professional accounting standards to equity
Item	2016			2015			2014
Government securities and assistance to the government sector (a)
Holdings of government securities booked at amortized cost		5,309			(26,399	)		(21,420	)
Instruments issued by the Central Bank booked at amortized cost		6,580			4,058			2,381
Guaranteed loans – Presidential Decree No. 1387/01		11,824			95,083			15,155
Business Combinations (b)
Acquisition of Nuevo Banco Bisel SA		(66,716	)		(73,544	)		(83,157	)
Other		(45,415	)		(48,846	)		(53,359	)
Deferred assets - Income tax (c)		137,346			93,593			243,854
Liabilities – Provisions (d)		—			(10,477	)		(81,534	)
Total		48,928			33,468			21,920

In addition, income would have increased by around 15,460, 11,548 and 100,610 for the fiscal years ended December 31, 2016, 2015 and 2014, respectively.

a) Holdings of government securities, instruments issued by the Central Bank and credit assistance to the nonfinancial government sector: these holdings and financing are valued based on the specific regulations and standards issued by the Argentine government and the Central Bank, which set forth, among other issues, the use of present values, technical values and offset accounts, as explained in Notes 4.5.b.2), 4.5.b.4) and 4.5.c). Pursuant to the argentine professional accounting standards effective in the City of Buenos Aires, the securities, instruments and assistance mentioned in those notes should be stated at their market and/or present values, as the case may be. In addition, current Central Bank regulations establish that financing to the nonfinancial government sector is not subject to loan-loss provisioning, whereas the argentine professional accounting standards effective in the City of Buenos Aires require that assets in general to be compared with their recoverable value every time financial statements are prepared.

b) Business combinations: under the standards set forth by Central Bank, business acquisitions are recorded according to the book values of the acquired company and, if the purchase price exceeds the book value, the excess amount is recorded in the acquiring company’s books as a positive goodwill. On the other hand, if the purchase price is lower than book value, the difference is recorded in the acquiring company’s books as a negative goodwill. If the goodwill is positive, Central Bank standards establish that such goodwill should be amortized under the straight-line method based on an estimated useful life of ten years. If the goodwill is negative, Central Bank Communiqué “A” 3984 establishes specific amortization methods; the maximum amortization allowed per year is 20%.

According to the argentine professional accounting standards effective in the City of Buenos Aires, business combinations are recorded based on the market values of the acquired company’s identifiable net assets and the difference between the purchase price and the identifiable net asset measurement value is recorded as either a positive or a negative goodwill, as the case may be. If a positive goodwill is recognized, this goodwill will be amortized systematically over the estimated useful life, unless it has an indefinite useful life considering the estimates made by the Bank’s Management, in which case it shall not be amortized, but compared with its recoverable value as of each year-end. If a negative goodwill is recognized due to expected losses or future expenses of the acquired entity and which should not have been recorded as liabilities as of the acquisition date, it will either be charged to the consolidated statement of income according to the change in specific circumstances that gave rise to it or systematically, taking into account an average weighted useful life of the acquired entity’s assets subject to depreciation and amortization.

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c) Income tax: the Bank and its subsidiaries determine income tax applying the effective rate to the estimated taxable income, without considering the effect of the temporary differences between book and taxable income. According to the argentine professional accounting standards effective in the City of Buenos Aires, income tax should be booked following the deferred tax method, according to which (i) in addition to the current tax payable, either an asset (if certain conditions are met) or a liability is recognized for deferred taxes related to the tax effect of the temporary differences between the book and tax valuation of assets and liabilities, and (ii) a tax expense (income) is recognized in relation to the portion involving the current tax expense (income) as well as the one involving the deferred tax expense (income), resulting from the creation and reversal of the abovementioned temporary differences in the year. Under argentine professional accounting standards effective in the City of Buenos Aires, a deferred tax asset is recognized when there are unused NOLs or tax credits that can be deducted from future taxable income, provided they are likely.

d) Liabilities: Provisions: as of December 31, 2015 and 2014, there were certain items that according to Central Bank rules were booked when paid, but according to Argentine professional accounting standards effective in the City of Buenos Aires, the Bank should have been booked a liability. In addition, the Bank had booked certain provisions that should not have been booked under the Argentine professional accounting standards effective in the City of Buenos Aires, in view of their probability of occurrence.

7. IMPLEMENTATION PLAN TOWARDS INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

On February 12, 2014 the Central Bank, through Communiqué “A” 5541 established the general guidelines towards conversion to the IFRS issued by the International Accounting Standards Board (IASB) for preparing financial statements of the entities under its supervision, for the annual fiscal years beginning on January 1, 2018 as well as those of interim-periods.

According to such conversion process, on March 27, 2015, the Bank presented to the Central Bank, their own implementation plan together with the appointment of a person in charge, according to Central Bank Communiqué “A” 5635, which was considered and approved by the Board of Directors on March 10, 2015. Additionally, on September 30, 2015, March 31, 2016 and September 30, 2016, the Bank presented to the Central Bank the implementation plan update.

As of the date of issuance of these consolidated financial statements, the Bank is implementing the abovementioned IFRS conversion process.

8. RESTRICTED ASSETS

As of December 31, 2016, and 2015, the following Bank’s assets are restricted:

Item	2016		2015
Government and private securities
•   Federal Government bond in pesos at Badlar private + 200 basis points, maturing in 2017 and used as security in favor of SEDESA (1).		99,886		97,292
•   Discount bonds in pesos regulated by Argentinean legislation, maturing 2033 securing a competitiveness program of regional economies - BID loan No. 3174/OC-AR.		36,015		—
•   Discount securities in pesos regulated by Argentinean legislation, maturing 2033 securing a BID loan of San Juan Provincial Government No. 2763/OC-AR.		23,770		9,414
•   Secured Bonds under Presidential Decree No. 1579/02 as security for a loan received from Banco de Inversión y Comercio Exterior SA (Bice).		23,600		32,606
•   Federal Government bond in pesos at Badlar private + 200 basis points, maturing in 2017, for the minimum amount required to perform as an Agent in the new categories provided by CNV General Resolution No. 622/2013.		12,036		15,528

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Item (contd.)	2016		2015
•   Discount bonds in pesos regulated by Argentinean legislation, maturing 2033 securing sectorial receivables of San Juan Province. Financing funds of productive investments.		11,885		—
•   Secured bonds in pesos under Presidential Decree N° 1579/2002, maturing in 2018, for the minimum amount required to perform as an Agent in the new categories provided by CNV General Resolution No. 622/2013.		5,126		5,613
•   Federal secured bonds maturing 2048 for the minimum amount required to perform as an Agent in the new categories provided by CNV General Resolution No. 622/2013		3,987		3,352
•   Central Bank of Argentina Internal Bills in pesos, maturing in 2016 securing the operation through negotiation secured transaction Segment as the main counterparty of the MAE.		2,810		20,662
•   Discount bonds regulated by Argentinean legislation, maturing 2033 and Federal Government bond in pesos at Badlar Private + 300 basis points, maturing in 2015 for the performance of forward foreign currency trading transactions, respectively.		1,286		33,651
•   Discount bonds in pesos regulated by Argentinean legislation, maturing 2033 securing the role of custodian of Sustainability Guarantee Fund investments.		—		308,570
•   Federal Government bond in pesos at Badlar private + 250 basis points, maturing in 2019, securing the role of custodian of Sustainability Guarantee Fund investments.		—		103,524
•   Other government and private securities.		1,524		1,129
Subtotal government and private securities		221,925		631,341
Loans
•   Guaranteed Loans under Presidential Decree No. 1387/01 – Global 17 at a variable rate provided as guarantee in favor of the Central Bank in relation to the auctions of advances intended for the production sector under the Bicentennial Production Financing Program.		—		64,619
Subtotal Loans		—		64,619
Other receivables from financial intermediation
•   Special guarantee checking accounts opened in Central Bank for transactions related to the electronic clearing houses and similar entities.		2,093,960		1,541,363
•   Interests resulting in contributions made in the Bank’s capacity by contributory partner of the following venture funds: (2)
-   Risk Fund of Garantizar SGR (mutual guarantee association), with an original contribution of 60,000 made on December 28, 2016.		60,000		—
-   Risk Fund of Los Grobo SGR (mutual guarantee association), with an original contribution of 20,000 made on December 28, 2016.		20,000		—
-   Risk Fund of Los Grobo SGR (mutual guarantee association), with an original contribution of 10,000 made on December 30, 2015.		10,000		10,000
-   Risk Fund of Intergarantías SGR, with an original contribution of 7,000 made on December 28, 2015		7,000		7,000
-   Risk Fund of Los Grobo SGR (mutual guarantee association), with an original contribution of 30,000 made on December 23, 2014		—		30,000
-   Risk Fund of Garantizar SGR, with an original contribution of 20,000 made on December 22, 2014		—		20,000
-   Risk Fund of Intergarantías SGR, with an original contribution of 7,000 made on December 22, 2014		—		7,000

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BANCO MACRO SA AND SUBSIDIARIES

Item (cont.)	2016		2015
•   Share of interest of the mutual fund Pionero Renta for the minimum amount required to perform as an Agent in the new categories provided by CNV General Resolution No. 622/2013.		9,586		9,386
Subtotal Other receivables from financial intermediation		2,200,546		1,624,749
Other receivables
•   Security deposits related to credit card transactions.		352,373		255,957
•   Deposits mainly provided in guarantee for the credit card transaction and related to court deposits and MAEClear transactions.		35,702		21,327
•   Security deposits related to transactions of forward transactions without delivery of underlying assets.		2,500		111,743
•   Sundry receivables includes an item related to the attachment ordered in the context of a claim initiated by the City of Buenos Aires tax authorities on turnover tax differences.		827		827
•   Other guarantee security.		3,705		3,746
Subtotal Other receivables		395,107		393,600
Investments in other companies
•   Other		1,453		1,453
Subtotal Investments in other companies		1,453		1,453
Other assets
•   Building related to call option sold (see Note 33.1.(b)).		101,749		103,531
Subtotal other assets		101,749		103,531
Total		2,920,780		2,819,293

(1) As replacement for the preferred shares of former Nuevo Banco Bisel SA to secure to SEDESA the price payment and the fulfillment of all the obligations assumed in the purchase and sale agreement dated May 28, 2007, maturing on August 11, 2021.

(2) In order to keep tax benefits related to these contributions, they must be maintained between two and three years from the date they were made.

9. TRANSACTIONS WITH RELATED PARTIES

Banco Macro SA’s receivables / payables and income (loss) from transactions performed with subsidiaries and related parties are as follows. As mentioned in Note 4.1., transactions with subsidiaries were eliminated in the consolidation process:

	Banco del Tucumán SA		Macro Bank Limited		Macro Securities SA		Other subsidiaries and related parties (1)		Total 2016		Total 2015
ASSETS
Cash		—		11,269		—		—		11,269		9,246
Loans		—		—		—		922,015		922,015		471,807
Other receivables from financial intermediation		—		—		—		51,565		51,565		6,414
Receivables from financial leases		—		—		7,857		1,168		9,025		10,178
Other receivables		—		—		—		13		13		—
Items pending allocation		47		—		—		—		47		—
Total assets		47		11,269		7,857		974,761		993,934		497,645

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BANCO MACRO SA AND SUBSIDIARIES

	Banco del Tucumán SA		Macro Bank Limited		Macro Securities SA		Other subsidiaries and related parties (1)		Total 2016		Total 2015
LIABILITIES
Deposits		—		17		127,836		1,786,570		1,914,423		1,309,610
Other liabilities from financial intermediation		—		61,215		—		76,424		137,639		82,558
Other liabilities		—		196		—		144		340		1,552
Subordinated corporate bonds		—		—		—		213,681		213,681		—
Total liabilities		—		61,428		127,836		2,076,819		2,266,083		1,393,720
MEMORANDUM ACCOUNTS
Debit balance accounts - Control		—		—		—		3,675,866		3,675,866		2,089,274
Credit balance accounts - Contingent		—		—		885		23,101		23,986		130,955
Credit balance accounts - Derivatives (2)		—		—		—		—		—		393,836

	Banco del Tucumán SA			Macro Bank Limited			Macro Securities SA			Other subsidiaries and related parties (1)			Total 2016			Total 2015			Total 2014
INCOME (LOSS)
Financial income		612			—			3,658			29,448			33,718			34,008			27,910
Financial expense		(22,454	)		(86	)		—			(49,400	)		(71,940	)		(132,755	)		(36,271	)
Service-charge income		16			2			719			10,454			11,191			6,684			5,824
Service-charge expense		—			—			(141	)		(22,243	)		(22,384	)		(178	)		(1,701	)
Administrative expenses		(9	)		—			—			(5,263	)		(5,272	)		(12	)		(12	)
Other income		17,220			—			—			—			17,220			13,189			11,384
Other expense		—			—			(151	)		—			(151	)		—			—
Total income / (loss)		(4,615	)		(84	)		4,085			(37,004	)		(37,618	)		(79,064	)		7,134

(1) Related to receivables from and payables to other related parties to the Bank for transactions performed in the normal course of business, under normal market conditions, in terms of interest rates and prices, as well as guarantees required. Additionally, as of December 31, 2016 and 2015, balances for transactions between Macro Group companies amounted to 1,005 and 578, respectively. Net income from those transactions for the fiscal years ended December 31, 2016, 2015 and 2014 amount to 2, 4 and 8, respectively. Both balances and income were eliminated in the consolidation process.

(2) The Bank has recorded foreign currency trading transactions without delivery of the underlying asset and involving related parties, in its memorandum accounts. According to the Bank’s policy, they are matched in terms of amounts and maturity with transactions carried out with third parties who are not related parties. As of December 31, 2015 and 2014, the net intermediation income from such transactions generated (loss) / earnings for the year of around (30,142) and 14,116, respectively.

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BANCO MACRO SA AND SUBSIDIARIES

Additionally, the ANSES -National Social Security Administration (as manager of the “Fondo de Garantía de Sustentabilidad” or Sustainability Guarantee Fund), held 31.50% and 29.25% of votes. In accordance with FASB ASC 850, the Sustainability Guarantee Fund is considered other related party.

Thus, as of December 31, 2015 the Bank recorded on demand deposits made by ANSES (as manager of the Sustainability Guarantee Fund), for an amount of 2,105,955. In addition, the Bank recorded interest for such time deposits in “Financial Expense” for an amount of 108,442 for the year ended December 31, 2014. Additionally, as of December 31, 2015, the Bank recorded an amount of 173,556,927 in “Checks and securities in custody” under Memorandum accounts.

In addition, as of December 31, 2016 and 2015, there are other transactions with related parties due to work in process over buildings, for an amount of 29,378 and 24,545, respectively.

10. CAPITAL STOCK

As of December 31, 2016, 2015 and 2014, the legal capital structure is as follows:

SHARES					CAPITAL STOCK
Class	Stock number		Votes per share		Issued and outstanding		In treasury		Pending issuance		Paid-in
Registered Class A shares of common stock		11,235,670		5		11,236		—		—		11,236
Registered Class B shares of common stock		573,327,358		1		573,249		—		—		573,249
Total 2014		584,563,028				584,563						584,563
Total 2015		584,563,028				584,563		—		—		584,563
Total 2016		584,563,028				584,563		—		—		584,563
As of December 31, 2016:
Registered Class A shares of common stock		11,235,670		5		11,236		—		—		11,236
Registered Class B shares of common stock		573,327,358		1		573,327		—		—		573,327
Total 2016		584,563,028				584,563		—		—		584,563

The Board of Directors Meeting held on March 30, 2017, resolved to convene a Shareholder’s Meeting for April 28, 2017 to discuss, among other matters, a capital increase through the issuance of up to 74,000,000 of Class B shares of the Bank.

11. CORPORATE BONDS ISSUANCE

The amounts recorded in the consolidated financial statements related to corporate bonds are as follows:

						As of December, 31
Class	Original face value			Residual face value as of 12/31/2016		2016		2015
Subordinated - Class 1		USD 150,000,000	a.1)				—		1,957,618
Non-subordinated - Class 2		USD 150,000,000	a.2)		USD 102,665,000		1,684,893		1,432,672
Subordinated Resettable - Class A		USD 400,000,000	a.3)		USD 400,000,000		6,407,840		—
Total							8,092,733		3,390,290

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BANCO MACRO SA AND SUBSIDIARIES

Maturities of the corporate bonds as of December 31, 2016, are as follows:

Fiscal Year	Amounts
2017		1,752,653
2026		6,340,080
Total		8,092,733

On September 1, 2006, June 4, 2007, April 26, 2011 and April 23, 2015 the general regular shareholders’ meeting approved the creation, and subsequent extension, of a Global Program for the Issuance of Simple Corporate Bonds in a short, medium or long term, either subordinated or non-subordinated, with or without guarantee, in accordance with the provisions of Law No. 23,576, as amended by Law No. 23,962, and further applicable regulations, up to a maximum amount outstanding at any time during the term of the program of USD 1,000,000,000 (one billion US dollars), or an equal amount in other currencies, under which it was possible to issue different classes and/or series of corporate bonds denominated in US dollars or other currencies and reissue the successive classes or series to be amortized.

a.1) On December 18, 2006, under the abovementioned Global Program, Banco Macro SA issued the 1st series of Class 1 subordinated Notes for a face value of USD 150,000,000 (US dollars one hundred and fifty million). On December 18, 2016, the Bank performed the full redemption of principal and accrued interest pending payment as of that date. The main characteristics of this issuance were:

• Computable to the Bank’s required minimum capital (computable equity), as established by Communiqué “A” 4576.

• A 30-year term, with full amortization upon maturity (December 18, 2036), with full redemption option in 10 years since the issuance date.

• Interest payments were made with a semiannual frequency (June 18 and December 18, every year).

• During the first 10 years, the interest rate was a fixed one (9.75%), and would have been a variable one for the remaining years (six-month LIBOR, plus 7.11%).

• They did not include covenants that change the subordination order.

• No interest on the Notes was neither fall due and payable if: (i) payments of such interest was the distributable amount, as defined in the pricing supplement dated November 23, 2006; (ii) there was a general prohibition by the Central Bank; (iii) the Bank was subject to the provisions of Articles 34 or 35 bis, Financial Institutions Law; (iv) the Bank was receiving financial assistance from Central Bank for illiquidity under Article 17 of Central Bank Charter; (v) the Bank was not in compliance with or has failed to comply in a timely basis with reporting obligations to the Central Bank; and/or (vi) the Bank was not in compliance with minimum capital requirements (both on an individual and consolidated basis levels) or with minimum cash reserves (on average).

• Unpaid interest was not cumulative.

• They have authorizations both for their public offering and their listing on domestic or foreign stock exchanges or markets.

• In no case, the payment of financial services exceeded net unappropriated retained earnings as per the consolidated financial statements for the last fiscal year, with an external auditor’s report, which should have been appropriated to a reserve created to such end, as established by Communiqué “A” 4576.

The Bank used the funds derived from such issuance to grant loans.

a.2) On January 29, 2007, Banco Macro SA issued the 1st series of Class 2 non-subordinated simple corporate bonds at a fixed rate of 8.5% p.a., not convertible into shares, fully amortizable upon maturity (February 1, 2017) for a face value of USD 150,000,000 (one hundred and fifty million US dollars), under the terms and conditions set forth in the price supplement dated January 10, 2007. Interest was paid semiannually on February 1 and August 1 of every year.

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BANCO MACRO SA AND SUBSIDIARIES

Additionally, the Bank had the option to redeem such issuance, either fully or partially, at any time and from time to time. The Bank used the funds derived from such issuance to grant loans and were cancelled at maturity.

On February 1, 2017, the Bank paid the total amount of principal and accrued interest pending payment as of that date.

On August 16, 2007, the Securities and Exchange Commission (SEC) authorized the abovementioned exchange offers mentioned in a.1) and a.2).

Additionally, on April 26, 2016, the general regular shareholders’ meeting approved the creation of a Global Program for the Issuance of Medium-Term Debt Securities, in accordance with the provisions of Law No. 23,576, as amended and further applicable regulations, up to a maximum amount outstanding at any time during the term of the program of USD 1,000,000,000 (one billion US dollars), or an equal amount in other currencies, under which it will be possible to issue simple corporate bonds, not convertible into shares in one or more classes.

a.3) On November 4, 2016, under the abovementioned Global Program, Banco Macro SA issued Subordinated Resettable Corporate Bonds, Class A, at a fixed rate of 6.750% p.a. until reset date, fully amortizable upon maturity (November 4, 2026) for a face value of USD 400,000,000 (four hundred million US dollars), under the terms and conditions set forth in the pricing supplement dated October 21, 2016. Interest is paid semiannually on May 4 and November 4 of every year and the reset date will be November 4, 2021. Since reset date, these Corporate Bonds will accrue a benchmark reset rate plus 546.3 basis point, according terms and conditions described in the program abovementioned.    

In addition, the Bank has the option to fully redeem the issuance as the reset date and under the conditions established in the pricing supplement after that date. The Bank has the intention to use the funds derived from such issuance to refinance certain outstanding debt, to make loans in accordance with Central Bank guidelines and for general working capital in Argentina.

Moreover, the Board of Directors Meeting held on March 30, 2017, resolved to convene a Shareholder’s Meeting for April 28, 2017, to discuss among other matters, the increase of the maximum amount of the abovementioned Global Program from USD 1,000,000,000 to USD 1,500,000,000. As a result of such increase, the Bank expects to access on a more frequent basis than in the past the domestic and international capital markets with debt issues the proceeds of which will be used to fund the expected growth in its lending activities and for other general corporate purposes.

12. ITEMS IN CUSTODY

12.1. Portfolio Management

Item	Managed portfolio as of
	2016		2015
•  On March 1, 1996, former Banco de Salta SA (which was absorbed by the Bank) and the Salta Provincial Government entered into an Agreement to Manage the Loan Portfolio of Banco Provincial de Salta (in liquidation) related to the nonfinancial private sector,		13,976		13,976
•  On August 11, 1998, former Banco de Jujuy SA (which was absorbed by the Bank) and the Jujuy Provincial Government entered into an agreement to manage the loan portfolio of the former Banco de la Provincia de Jujuy and to provide a monthly report on the tasks performed,		39,917		40,389
•  On June 30, 2006, the Bank and Macro Fiducia SA entered into a management and custody agreement regarding the “RETUC 1” trust loan portfolio,		55,207		55,712
•  On July 31, 2006, Banco del Tucumán SA and Macro Fiducia SA entered into a management and custody agreement regarding the “Gas Tucumán I” trust loan portfolio,		11,463		21,173
•  On December 31, 2008, Banco del Tucumán S.A. and Macro Fiducia S.A. entered into a management and custody agreement regarding the “BATUC 1” trust loan portfolio,		15,280		15,329

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Item (contd.)	Managed portfolio as of
	2016		2015
•  On November 22, 2012 and 2013, November 26, 2014, November 30, 2015 and November 30, 2016, the Bank (trustor) and Macro Fiducia SA (trustee), created the financial trusts Fideicomiso Financiero Privado “SECANE I”, “SECANE II”, “SECANE III”, “SECANE IV” and “SECANE V”, respectively; in the trusts agreement the trustor assumes the role of collection agent, administration and custodian,		777,429		612,457
•  On November 30, 2016, Banco del Tucumán SA and Macro Fiducia SA entered into a management and custody agreement regarding the “SECANE V” trust loan portfolio,		33,685		—
•  On April 6, 2001, through Provincial Decree No. 806, the Ministry of the Treasury of the Province of Salta approved an extension to the “Contract for the service of collecting, processing and arranging information, managing the loan portfolio and performing collection procedures related to the receivables of the IPDUV (Provincial Institute of Urban and Housing Development)” entered into on March 27, 2001, between such Agency and Banco Macro SA,		—		89,380
•  Other portfolios managed		293,639		292,655
Total		1,240,596		1,141,071

12.2. Mutual Funds

As of December 31, 2016, the Bank, in its capacity as Depository Company, held in custody the shares of interest subscribed by third parties and assets from the following mutual funds:

Fund	Shares of interest		Equity		Assets (a)
Pionero Pesos		568,764,819		1,667,177		1,234,037
Pionero Renta Ahorro		1,965,815,083		10,349,659		10,493,894
Pionero F F		52,912,915		228,445		229,349
Pionero Renta		71,455,139		871,490		926,467
Pionero Acciones		5,000,760		60,245		62,955
Pionero Renta Dólares		6,027		29		—
Pionero Empresas FCI Abierto PYMES		139,619,609		275,783		271,201
Pionero Consumo		78,677		152		128
Pionero Renta Ahorro Plus		503,175,871		624,899		626,370
Pionero Renta Mixta I		500,973		660		616
Pionero Renta Mixta II		189,219,935		198,600		198,710
Pionero Ahorro Dólares		28,637,714		458,559		258,914
Pionero Renta Global – Clase B		50,000		50		—
Pionero Renta Fija Dólares – Clase B		100,000		1,585		—
Argenfunds Renta Pesos		330,285,004		585,271		636,820
Argenfunds Renta Argentina		57,554,892		105,303		104,718
Argenfunds		451,674,447		1,238,135		1,295,040
Argenfunds Renta Privada FCI		127,680,157		325,263		327,114
Argenfunds Abierto Pymes		53,291,681		34,042		33,813
Argenfunds Renta Total		1,106,407		1,144		1,131
Argenfunds Renta Flexible		33,648,124		35,711		35,839
Argenfunds Renta Dinámica		1,000,000		1,046		1,042
Argenfunds Renta Mixta		398,218		403		397
Argenfunds Renta Global		60,875,364		61,724		61,727
Argenfunds Renta Balanceada		398,200		403		397
				17,125,778		16,800,679

(a) “Memorandum accounts – Debit-balance accounts – Control – Other” includes mainly items in custody. Consequently, this account includes the above mentioned amounts related to the mutual funds’ investment portfolios.

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13. BANK DEPOSITS GUARANTEE INSURANCE SYSTEM

Law No. 24,485, and Presidential Decree No. 540/1995, provided for the organization of a Bank Deposit Guarantee Insurance System, characterized as being limited, mandatory and for valuable consideration, designed to provide coverage for risks inherent in bank deposits subsidiarily and supplementary to the bank deposit privileges and protection offered by the system created by Financial Institutions Law. Such law also provided for the organization of Sedesa to manage the Deposit Guarantee Fund. Such company was organized in August 1995. The Bank holds an 8.3440% equity interest therein, according to the percentages set forth in Central Bank Communiqué “B” 11491 of March 1, 2017.

This system shall cover the deposits up to the amount of 450 in Argentine pesos and foreign currency with the participating institutions as checking accounts, savings accounts, certificates of deposit or any other modes determined by the Central Bank, as long as the requirements under Presidential Decree No. 540/1995 and any others established by the enforcement agency are fulfilled. On the other hand, Central Bank established that the deposits made by other financial institutions, those made by persons related to the Bank, and deposits of securities, among others, must be excluded from the deposit guarantee system.

14. TRUST AGREEMENTS

The Bank is related to different types of trusts. The different trust agreements are disclosed below, according to the Bank’s business purpose:

14.1. Interest in trusts for investment purposes.

As of December 31, 2016 and 2015, the Bank holds (i) investments in certificates of participation amounted to 0 and 10,302 (net of allowances), respectively, and (ii) debt securities amounted to 730,672 and 195,556, respectively (see Note 25).

Debt securities include mainly prepayments towards the placement price of trust securities of the financial trusts under public offerings, made by the Bank through underwriting agreements (Consubond, Mila, Secubono, Accicom, PVCred, Credicuotas Consumo, Credimas, Carfacil and Naldo Lombardi). The assets managed for these trusts are mainly related to securitizations of consumer loans. Trust securities are placed once the public offering is authorized by the CNV. Upon expiry of the placement period, once all trust securities have been placed on the market, the Bank recovers the disbursements made, plus an agreed-upon compensation (“underwriting Price”). If after making the best efforts, such trust securities cannot be placed, the Bank (“Underwriter”) will retain the securities subject to underwriting.

According to the latest accounting information available as of the date of issuance of these consolidated financial statements, the corpus assets of the trusts, exceed the carrying amount in the related proportions.

14.2. Trusts created using financial assets transferred by the Bank

The Bank transferred financial assets (loans) to trusts for the purpose of issuing and selling securities for which collection is guaranteed by the cash flow resulting from such assets or group of assets. This way, the funds that were originally used to finance the loans are obtained earlier.

As of December 31, 2016 and 2015, the managed assets through trustees amounted to 59,128 and 35,521, respectively.

14.3. Trusts guaranteeing loans granted by the Bank

As it is common in the Argentine banking market, the Bank requires, in some cases, that the debtors present certain assets or entitlements to receive assets in a trust as a guarantee for the loans granted. This way, the risk of losses is minimized and access to the security is guaranteed in case of the debtor’s noncompliance.

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Trusts usually act as conduits to collect cash from the debtor’s flow of operations and send it to the bank for the payment of the debtor’s loans and thus ensure compliance with the obligations assumed by the trustor and guaranteed through the trust.

Additionally, other guarantee trusts manage specific assets, mainly real property.

Provided there is no noncompliance or delays by debtor in the obligations assumed with the beneficiary, the Trustee shall not execute the guaranty and all excess amounts as to the value of the obligations are reimbursed by the Trustee to the debtor.

As of December 31, 2016 and 2015, the managed assets amounted to 451,569 and 176,113, respectively.

14.4. Normal trust activities (The Bank acts as trustee)

The Bank performs management duties in relation to the corpus assets directly according to the agreements, performing only trustee duties and has no other interests in the trust.

In no case shall the Trustee be liable with its own assets or for any obligation deriving from the performance as trustee. Such obligations do not imply any type of indebtedness or commitment for the trustee and they will be fulfilled only through trust assets. In addition, the trustee will not encumber the corpus assets or dispose of them beyond the limits established in the related trust agreements. The fees earned by the Bank from its role as trustee are calculated according to the terms and conditions of the agreements.

Trusts usually manage funds derived from the activities performed by trustors for the following main purposes:

(a) Guaranteeing, in favor of the beneficiary, the existence of the resources required to finance and/or pay certain obligations, such as the payment of amortization installments regarding work or service certificates, and the payment of invoices and fees stipulated in the related agreements.

(b) Promoting the production development of the private economic sector at a provincial level.

(c) Being a party to public work concession agreements granting road exploitation, management, keeping and maintenance.

As of December 31, 2016, and 2015, the managed assets amounted to 2,117,959 and 1,180,773, respectively.

15. INFORMATION REQUIRED BY CENTRAL BANK AND CNV

15.1 Compliance with requirements to act in the capacity of agents belonging to different categories of agents defined by the CNV.

Considering Banco Macro SA’s current operations, and according to the different categories of agents established by CNV General Resolution 622, the Bank is registered with this agency as an agent for the custody of collective investment products of mutual funds (AC PIC FCI), comprehensive clearing and settlement agent and trading agent (ALyC y AN - integral), and financial trustee Agent categories (FF).

Additionally, the Bank’s shareholders´ equity exceeds the minimum amount required by this regulation, amounting to 31,000, as well as the minimum offsetting required of 11,000, paid-in with government securities as described in Note 8.

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15.2 Documentation in custody.

As a general policy, the Bank delivers for custody to third parties, the documentary support of its aged accounting and management operations, i.e those whose date is prior to the last fiscal year-end, except for the inventory book, in which aging is deemed to include those with a date prior to the two fiscal years ended. In compliance with CNV General Resolution No. 629 requirements, the Bank has kept (i) the inventory books for fiscal years ended through December 31, 2014 included, and (ii) certain documentation supporting the economic transactions for fiscal years ended through December 31, 2015, included, under the custody of the following companies: AdeA Administradora de Archivos SA (warehouse located at Ruta 36, km 31.5, Florencio Varela, Province of Buenos Aires) and ADDOC Administración de Documentos SA (warehouse located at avenida Circunvalación, between puente San Carlos and puente 60 cuadras, Province of Cordoba and avenida Luis Lagomarsino 1750, formerly Ruta 8 Km 51.2, Pilar, Province of Buenos Aires).

15.3 Minimum cash requirement under Central Bank rules: the items computed by the Bank to constitute the minimum cash requirement effective for December 2016 are listed below, indicating the balances as of month-end of the related accounts:

Item	12/31/2016
Cash
Amounts in Central Bank accounts		28,482,100
Other receivables from financial intermediation
Special guarantee accounts with the Central Bank		2,093,960
Total		30,576,060

15.4 Minimum capital requirement under Central Bank rules: as the table disclosed, the minimum capital requirements measured on an consolidated basis, effective for December 2016, along with its computable capital as of the end of that month:

Item	12/31/2016
Minimum capital requirement		10,269,813
Computable capital		27,791,929
Excess amount		17,522,116

15.5 Financial statements publication: under Communiqué “A” 760, the Central Bank prior intervention is not required for the publication of these consolidated financial statements.

15.6 Breakdown of the items included in “other”:

	12/31/2016		12/31/2015
15.6.1       Loans – Other
Other loans		7,619,840		6,342,367
Export financing and prefinancing		2,846,002		736,209
		10,465,842		7,078,576
15.6.2       Other receivables from financial intermediation – Other not  covered by debtor classification standards
Debt securities issued by financial trusts (a)		730,672		195,556
Certificates of participation in financial trusts (a)		224,043		234,345
Other		165,041		174,443
(a)    See also Notes 14 and 25.		1,119,756		604,344

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	12/31/2016		12/31/2015
15.6.3       Other receivables – Other
Sundry receivables		619,982		422,246
Security deposits		394,280		392,773
Advanced prepayments		192,863		105,313
Tax prepayments		—		2,554
Other		74,104		60,554
		1,281,229		983,440
15.6.4       Other liabilities from financial intermediation – Other
Purchase financing payables		3,172,673		2,042,345
Miscellaneous not subject to minimum cash requirements		993,058		740,988
Other withholdings and additional withholdings		948,911		836,574
Collections and other transactions on account and behalf of others		624,834		665,973
Other payment orders pending settlement		598,398		368,318
Miscellaneous subject to minimum cash requirements		331,700		83,429
Retirement pension payment orders pending settlement		108,961		56,001
Sociedad Seguro de Depósitos (SEDESA) – Purchase of preferred shares of former Nuevo Banco Bisel S.A. (See Note 8.)		98,082		94,300
Other		218,757		134,633
		7,095,374		5,022,561
15.6.5       Other liabilities – Other
Taxes payable (net of prepayments)		2,417,267		1,346,612
Salaries and payroll taxes payable		506,586		363,818
Miscellaneous payables		361,813		195,850
Withholdings on salaries		98,248		72,027
Prepayment for the sale of assets		2,842		2,873
Other		131		47,304
		3,386,887		2,028,484
15.6.6       Memorandum accounts – Debit-balance account – Control –  Other
Securities in custody – Other		51,936,124		30,966,946
Checks and securities not yet collected		6,948,439		5,016,972
Checks and securities to be debited		1,403,297		1,074,444
Managed portfolios (see Note 12.1.)		1,240,596		1,141,071
Checks and securities to be collected		449,692		354,655
Checks and securities in custody – ANSES		—		173,556,927
		61,978,148		212,111,015
15.6.7       Financial Income – Interest in other loans
Personal loans		10,345,342		7,318,466
Other		1,852,247		1,493,301
		12,197,589		8,811,767
15.6.8       Financial expense – Other
Turnover tax and municipal assessments		2,219,055		1,396,656
Premiums on repurchase agreements with the financial sector		50,828		8,004
		2,269,883		1,404,660

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	12/31/2016		12/31/2015
15.6.9       Service-charge income – Other
Debit and credit card income		2,256,372		1,628,556
Rental of safe deposit boxes		119,859		95,553
Service commissions – Joint ventures (see Note 3.5.)		110,812		87,795
Other		560,535		497,576
		3,047,578		2,309,480
15.6.10     Service-charge expense – Other
Debit and credit card expenses		1,295,397		773,910
Turnover tax and municipal assessments		427,521		307,636
Commissions paid to lending agents		255,758		209,297
Other		94,355		13,402
		2,073,031		1,304,245
15.6.11     Other income – Other
Other adjustments and interest on other receivables		99,749		43,239
Gain on sale of bank premises and equipment, and other assets		8,802		6,544
Other		132,599		101,068
		241,150		150,851
15.6.12     Other expense – Other
Donations		77,590		48,672
Corporate Bonds placement cost		45,948		85
Municipal assessment		17,978		4,536
Turnover tax		16,158		9,098
Portfolio transactions				84,591
Other		104,823		91,672
		262,497		238,654

16. RESTRICTION ON EARNINGS DISTRIBUTION

a) According to Central Bank regulations, 20% of income for the year plus/minus prior-year adjustments and less accumulated losses as for the prior year-end, if any, should be allocated to the Legal Reserve. Consequently, the upcoming Shareholders’ Meeting on April 28, 2017, has to apply 1,308,460 out of “Unappropriated retained earnings” to increase such legal reserve.

b) Under Law No. 25,063, dividends to be distributed in cash or in kind in excess of taxable income accumulated as of the end of the fiscal year immediately preceding the payment or distribution date shall be subject to a 35% income tax withholding as a single and definitive payment. For this purpose, income to be considered in each year will result from adding dividends or earnings from other corporations not computed in the calculation of those earnings in the same tax period(s) to the earnings determined under application of Income Tax Law, and deducting the tax paid for the tax period(s) in which the earnings, or the related proportional amount, being distributed were generated.

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c) Through Communiqué “A” 6013, the Central Bank establishes the general procedure to distribute earnings. According to that procedure, earnings may only be distributed previously express authorization of the Central Bank, and only if the following circumstances are met like not records of financial assistance from the Central Bank due to illiquidity or shortages in payments of minimum capital or minimum cash requirement deficiencies, there are no certain sanctions established by regulators entities and weighted to be significant, and/or no corrective measures have been applied, among other previous conditions listed in the abovementioned communiqué.

Therefore, earnings may only be distributed to the extent that income was booked, after deducting, on a nonaccounting basis, from unappropriated retained earnings and the voluntary reserve for future distribution of earnings, the amounts of the legal, statutory and/or voluntary reserves which are mandatory, the positive net difference between the book value and market value or present value reported by the Central Bank, as the case may be, of government debt securities and/or monetary regulation instruments issued by the Central Bank not valued at market value and the amounts recognized in the bank assets due to court cases related to deposits, among other items.

As of December 31, 2016, an adjustment to Unappropriated retained earnings has to be performed as a result of the positive difference arised from the book and the market values of unlisted government securities for an amount of 20,197.

Finally, the proposed earning distribution will be affected if it is not maintained a required margin of capital, which for companies like Banco Macro SA, considered systematically important, is equal to 3.5% of risk-weighted assets is kept. This is apart from the minimum capital required by regulations, to be integrated by of level-1 ordinary capital (COn1), net of deductible items (CDCOn1).

d) Under CNV General Resolution No. 593, the Shareholders’ Meeting in charge of analyzing the annual financial statements will be required to establish a specific use for the Bank’s retained earnings, whether through the actual distribution of dividends, the capitalization thereof through the delivery of bonus shares, the creation of voluntary reserves additional to the legal reserve or a combination of any of these applications.

In addition, the Regular Shareholders´ Meeting held on April 23, 2015, among other issues, decided to distribute cash dividends up to the amount of 596,254. On February 24, 2016 the Central Bank notified to the Bank the authorization, to distribute dividends, for an amount of 227,708, related to fiscal year 2014, which were paid on March 29, 2016.

On March 8, 2017, The Board of Directors resolved to propose to the Shareholders’ Meeting a cash dividends distribution amounted to 701,476 for the fiscal year ended December 31, 2016. Such dividends are pending approval from the Central Bank and the Shareholders’ Meeting as of the date of issuance of these consolidated financial statements.

17. TAX AND OTHER CLAIMS

17.1. The AFIP (Federal Public Revenue Agency) and provincial tax authorities have reviewed the tax returns filed by the Bank related to income tax, minimum presumed income tax and other taxes (mainly turnover tax).

The most significant ongoing claims arising from the previous paragraph are detailed below

a) Afip challenged the income tax returns filed by the former Banco Bansud SA (for the fiscal years since June 30, 1995, through June 30, 1999, and of the irregular six-month period ended December 31, 1999) and by the former Banco Macro SA (for the fiscal years ended since December 31, 1998, through December 31, 2000).

The matter under discussion that has not been resolved as yet and on which the regulatory agency bases its position is the impossibility of deducting credits that have collateral security, an issue that has been addressed by the Federal Administrative Tax Court and CSJN in similar cases, which have issued resolutions that are favorable to the Bank’s position.

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b) City of Buenos Aires tax authorities attributed a turnover tax difference to Banco Macro SA for fiscal period 2002, in relation to the treatment of the compensation bond, over which a precautionary measure was issued in 2009 in favor of the Bank by the Federal Court of First Instance in Countentios and Administrative No. 6, which was confirmed by the Courtroom IV of the CNACAF.

c) City of Buenos Aires tax authorities attributed a turnover tax difference to former Banco Privado de Inversiones for fiscal periods 2002 and 2003. On October 19, 2015, Courtroom II of the Administrative and Tax Contentious Court of Appeals confirmed the trial court decision as it agreed with the Bank in that the “compensation bond” is not subject to turnover tax. On December 21, 2015, the Bank was notified that the Buenos Aires City Government filed an action for declaration of unconstitutionality with the Buenos Aires City Highest Court, which is pending resolution. In 2009, the Buenos Aires City Government filed a collection claim and obtained an attachment for 827 (see also Note 8).

Additionally, there are other appeals filed with the Tax Court, which are not relevant.

17.2. Moreover, as a result of a lawsuit filed in 2007 by consumers’ association “ADECUA” claiming about various aspects related to the collection of the “life insurance” charge for products marketed by former Banco Privado de Inversiones SA, on November 29, 2010, the parties reached a settlement agreement, approved by the Federal Commercial Court in and for the City of Buenos Aires No. 3, clerk’s office No. 5, and complied with by the Bank.

However, on March 22, 2013, the judge hearing the case ordered to adjust the performance of the agreement, as regards the reimbursement of the funds to the customers from whom the charge had been collected, a resolution which was appealed by the Bank.

On April 24, 2014, the Court of Appeals dismissed the appeals filed and changed what was resolved in First Instance, ordered the Agreement nullity, to continue with the proceeding and to allow the Bank to answer the complaint. Such resolution was appealed by the Bank. The file is in the CSJN, pending resolution.

Additionally, there are other claims filed by consumers’ associations against the Bank, related to collection of certain financial fees and certain withholdings made by the Bank to individuals as a withholding Agent, related to stamp tax imposed by the City of Buenos Aires.

The Bank’s Management and its tax and legal advisors believe there are no additional significant effects to those already recognized in the books that may result from the final outcome of such claims.

18. RISK MANAGEMENT POLICIES

Within the framework of the Corporate Governance policy, the Board of Directors of the Bank approved the creation of a Risk Management Committee and appointed a Comprehensive Risk Manager.

Its duties includes ensuring that an independent risk management be established, providing policies, procedures and measurement methodologies to identify, measure and monitor the risk for which it is responsible, as well as the responsibilities in the process of each level in the organization.

The risk management process includes the establishment of the exposure limits for each risk by the Board of Directors, a follow-up of the exposure to each limit by the persons in charge, the preparation of regular reports for the Comprehensive Risk Management Committee, a follow-up on the alerts and the implementation of action plans regarding the alerts and the guidelines for the development of stress tests.

The system is supplemented with policies and procedures specific to each risk (financial, credit, operational, counterparty credit, country risk, securitization, reputational, compliance, strategic risks, among others).

In addition, the Credit Risk Management area is in charge of interpreting, executing and guaranteeing the application of the General Credit Policy approved by the Board of Directors, pursuant to the internal and external standards and regulations on the matter. Credit Risk Management reports functionally to the General Manager.

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Comprehensive Risk Management

The Comprehensive Risk Management area is formed by Compliance Management and Risk Management, which is in charge of the Financial Risk, Credit Risk, Operational Risk and Technological Risk sectors.

The main procedures devised by Risk Management are:

• Stress tests

The stress test process includes documenting and formalizing the program as well as the persons in charge of carrying it out, the frequency of testing and the validation of the system. It also contemplates the Contingency Plan based on the test results. The Risk Management Committee leads and coordinates this application.

• Economic capital calculation

The Risk Management Department estimates economic capital for each of the individual risks (market, liquidity, interest rate, credit, counterparty credit, concentration, operational, securitization, strategic and reputational) determined for the Bank on a consolidated basis, with its subsidiaries, with the same scope as the regulation. The methods used for subsidiaries are exactly the same.

The process of assessing the sufficiency of economical capital is including in the Corporate Governance and Risk Management culture of the Bank and its subsidiaries.

Economic capital is quantified as a result of the application of a formal procedure, both currently and prospectively, and is a tool used in the day-to-day management of risks, in preparing the Business Plan and the Stress Tests.

The methods used to measure the economic capital of each risk were documented and approved by Management, pursuant to the internal rules on Corporate Governance and Risk Management.

The results should be used to support decision-making, including the strategic decisions adopted by the Board and Senior Management. This way, they will be able to:

• Estimate the level and the trend of the relevant risks and their effect on the capital requirements;

• Evaluate the fairness of the basic assumptions used in the capital measurement system and the sensitivity of the results to changes in those assumptions;

• Determine if the Bank has adequate regulatory capital to cover the different risks and meets the capital adequacy goals that were established;

• Consider the future capital requirements based on the risk profile and, depending on that, introduce any relevant adjustment to the strategic;

The fundamental elements of the capital assessment include:

• Policies and procedures that ensure the risk management process;

• A process that links economic capital and the risk level;

• A process that establishes capital adequacy goals based on risk, considering the strategic approach and the business plan;

• An internal control process, to ensure comprehensive risk management.

Below is an outline of the most significant risks managed by the Bank:

• Financial risk

Financial risk is understood to be the group comprising Liquidity, Market and Interest Rate risks, which, independently or in an interrelated manner, can affect the Bank’s liquidity and solvency.

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Definitions

Liquidity Risk is mainly understood to be the funding liquidity risk, defined as that in which Grupo Macro is unable to efficiently meet cash flows that are both expected and unexpected, current and noncurrent and with guarantees, without hindering daily operations or the financial situation. Market Liquidity Risk is understood to be the risk that the Bank may not be able to offset or unwind a position at market price.

Market Risk is defined as the possibility of suffering losses in on-and off-balance sheet positions as a result of adverse fluctuations in the market price for various assets.

Interest Rate Risk is defined as the possibility that there may be changes in the Bank’s financial situation as a result of fluctuations in the interest rates, which may have adverse effects on the Bank’s net financial income and financial value.

Process

The Bank has strategies, policies and limits defined for each exposure which have been approved by the Board of Directors within the framework of Market, Liquidity and Interest Rate Risk management. These are also applicable to the subsidiaries in a consolidated framework. This process is reviewed periodically by the Risk Management Committee in accordance with the guidelines set forth by the Central Bank´s Guidelines for Risk Management at Financial Institutions and the adjustments or amendments approved by the Board of Directors.

The purpose of the Financial Risk Policy is to ensure that the Risk Management Committee and Senior Management have the proper procedures, tools and information enabling them to measure, administrate and control risks it comprises.

The Risk heads will report, to the Assets and Liabilities (CAP) and the Risk Management Committees on a regular basis on the financial risk exposure and the effects that may be caused in the Bank´s financial margin. A set of predetermined reports is prepared enabling a clear comparison between the existing exposure and the policy on limits.

The CAP is in charge of setting out the Bank’s financial strategy, analyzing the markets and establishing the policies on assets and liabilities, considering, market, liquidity, interest rate and currency risks.

The Financial Risk area uses the following instruments in preparing its reports: sensitivity analysis, stress tests, index curves and other simulations. The adoption of measures regarding the detected departures based on the information provided is left to Senior Management’s discretion, for which it must take into consideration several factors such as the market conditions or the complexity and variety of transactions, considering the defined action plans. The Risk Management Committee learns about these situations and the plans implemented, analyzing the impact on risk exposure. As a result, it may require an explanation about the case from Senior Management or, based on its survey, recommend adjustments to the policies, procedures and limits to the Board of Directors.

The goal set by the Board of Directors is to maintain an adequate degree of liquidity through the prudent management of assets and liabilities, in regard to both the cash flow as well as the concentration thereof.

The administration of liquidity is supported by an adequate planning process that considers the current and future cash needs, as well as possible changes in economic, political, regulatory and other conditions.

This makes it necessary to identify forecast and possible cash outflows, as well as alternative strategies to handle assets and liabilities in critical situations.

The reports prepared contemplate the following aspects: changes in yield curves; a mismatch of assets and liabilities in relation to currency, rates, terms and based on their volatility and speed of realization; changes, rates and volatility of term deposits, and the participation of institutional investors; liquidity and interest rate risk; established limits and issuance of warnings.

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The Bank evaluates the Liquidity Risk situation through different tools, some of which include:

• Cash Flow at Risk (CFAR): calculated as the difference between the liquidity gap obtained in the medium or expected scenario and the one resulting from the critical scenario. The liquidity level in the medium scenario is obtained as a result of the arithmetic median of the simulated liquidity scenarios, while the critical scenario is obtained applying the associated percentile to the confidence level for such set of simulations;

• Stress tests: used to quantify the impact as a result of illiquidity scenarios in case of a different shock of the risk factors involved;

• Liquidity Coverage Ratio (LCR): indicator that seeks to capture liquidity coverage on those outflows of funds that occur within the following 30 days. Through different weighting factors established by Basel, the indicator captures the outflows in systemic stress situations.

Market Risk is measured by computing the VAR (value at risk), which consists in the maximum expected loss for a trading portfolio over a certain period of time and with a 99% confidence level.

As regards the interest rate risk, the Economic Value Methodology (EVM), is used to measure the risks of assets and liabilities sensitive to the interest rate. Through stochastic processes, different interest rate trajectories are measured, for which purpose different economic values of the Bank will be obtained. The VAR is the difference between the expected economic value (“medium value”) and the economic value for a certain confidence level and holding period resulting from the simulations.

There are Contingency Plans which are assessed and reviewed on a regular basis by the Risk Management Committee.

Credit risk

The Credit Risk Area reporting to the Comprehensive Risk Management area participates in the development of the individual stress test program for credit risk and comprehensive stress tests, cooperates in defining scenarios and follows up results. It also participates in the design and implementation of contingency plans for credit risk purposes.

It is in charge of reviewing and adapting methodology and the economic capital calculation model for credit risk purposes through the capital adequacy assessment process, which with different stages of development and implementation, form part of the Action Plan that is implemented by the Bank to adjust the Basel principles and best practices for risk management to local regulations (Communiqués “A” 5394 and “A” 5398).

This area is in charge of proposing and monitoring the internal limits of tolerance to credit risk, as well as defining indicators, specifying their calculation method and expressing the grounds used for alert and cap selection. One of the most noteworthy is an automated tool to calculate key indicators, for which alert values and limits have been determined, which are used for monitoring the business progress according to the risk appetite defined by the Board. The results produced by this tool are included in a report on the credit risk tolerance limits, which is submitted to the Comprehensive Risk Management Committee for its consideration and to adopt corrective measures where necessary.

Securitization risk

The Bank and its subsidiaries do not any assume significant risks involving securitization activities. This operation consists mainly in financing, such as prepayments of prices and underwriting in the placement of debt securities of Corporate Banking customers, loans to trusts which are given the same treatment as legal entities and potentially securitizing the proprietary portfolio.

Holding debt securities or certificates of participation in trust generally creates exposure related mainly to credit risk and interest rate risk, just as in a traditional credit transaction. Therefore, they are included in the assessment and administration of each one of the risks involved.

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Operational and Technological Risk

The Bank adopted the definition of Operational risk under the Basel II Accord and the definition established by the Central Bank through its Communiqué “A” 5398, which consists in the risk of suffering losses due to the lack of adjustment or defects in the internal processes, systems or persons, or due to external events.

This definition includes legal risk but excludes strategic and reputation risk.

The Bank has policies, procedures and structure, and appointed a Head of Operational Risk. The Operational Risk Committee’s main mission is to secure an Operational Risk Management plan which includes policies, programs, measurements and competencies for identifying, assessing and managing risks, with the purpose of assisting Area Managers and the Bank’s Board of Directors, in an environment of rapidly changing and significant risks.

In this context, the Evolutionary Comprehensive Operational Risk Management Model was developed, which involves the identification, measurement, management and monitoring of operational risks. A training plan was designed to begin conveying the concepts inherent to Operational Risk and the cultural change that this generates, and an implementation plan of the model was put into practice to achieve full implementation of all of its stages.

A quantitative approach is used to measure operational risk and technological risk, which includes the following:

• assessing all relevant processes;

• integrating the operational and technological risk assessment models;

• applying risk impact and frequency evaluation matrices for the assessment of processes and subprocesses;

• the quantitative assessment of the risks, identifying action plans and proposals for improving the critical processes, all in full compliance with the objectives set forth;

• the procedure to gather information on events and losses, the purpose of which is to reduce incidents and loss amounts, thus incorporating a quantitative assessment into the risk management model, by registering risk events and losses in a centralized database;

• the IT tool put into practice to manage operational risk, used to manage identified risks and calculate the different indicators so as to have an information system providing an overall view of the results of the different practices and tools involved in operational risk management; and

• the methodology through which the IT areas identify, assess and control the risks related to the Bank’s information assets and to specific events, creating information that is later taken into account in decision-making processes.

As regards Risk Management related to the IT and information systems, the Bank has contingency and business continuity plans in place to minimize the risks that could affect the Bank’s continuity of operations.

The Bank has an incentives system to manage operational risk in such a way that it would encourage involvement and risk assessment. The risk assessment policy has also been reinforced for new products and in modifications to existing products.

In addition, the implementation of improvements on the different functions of the risk management system also continued.

Credit Risk Management

The Credit Risk Management is in charge of ensuring a proper identification, assessment, control, follow-up and mitigation of credit risk.

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Credit risk results from the possibility of loss derived from customers or counter-parties from fully or partially breaching financial obligations they have undertaken with the Bank.

The Bank has counter-party and credit risk policies and strategies the purpose of which is to ensure that risks fall within a risk tolerance level decided by the Board of Directors and Central Bank and other oversight agency regulations.

It has the proper structure, procedures and different tools (information systems, rating and monitoring systems, measurement models, recovery policies) which enable it to handle risk effectively.

Loans are granted under specific policies and procedures for Corporate Banking clients and Consumer Banking customers, who in turn are differentiated depending on the segment they belong (Salary plan -Public or Private Payroll, and Retired Pensioner or Open Market).

Credit risk assessment for Consumer Banking portfolio includes the use of Risk Applications that use the screening and scoring methods related to an arrears level. There is also a centralized mass rating process for customers (which allows branches to provide assistance within the predetermined margins) and Pre-Credit Rating Models for the assessment of Prospects in Campaigns.

Loans to Commercial Banking portfolio are handled by Credit Committee formed by officials from the business and risk areas, at different levels, with powers to operate within them. Specialized risk analysts prepare a risk report for each customers (or group of companies), that supports the credit decisions made by Committee members. There are also decentralized commercial portfolio assessment methods for corporates, including screening and scoring parameters that speed up the process for the approval of predetermined products and small amounts. For the authorization transactions involving small amounts, transitory transactions and/or transactions with self-liquidating collaterals, special credit powers have been granted to higher ranking officials, based on their knowledge and experience. At any rate, the use of these powers is also associated to the outcome of an objective assessment, avoiding any discretion in the credit approvals.

Once the credit limits have been approved, the Credit Administration and Transactions Department controls the formalities and settlement of the transactions and every month it reviews the classification of debtors and the debtors’ guarantees, assessing the sufficiency of the provisions according to the standards established by the Central Bank.

In order to manage credit risk, assessment or score models are used (for admission, behavior and collections) for Retail Banking and Company Rating Models at different stages of the credit cycle, allocating an internal risk rating to customers, according to which the assigned credit limits are managed and according to which the portfolio is monitored. These tools are supplemented with the Expected Loss and Provision Models prepared by Management.

The Credit recovery Management, in turn, is in charge of the efforts involving the recovery of nonperforming loans, seeking to include such actions with the other risk instances, which increases the efficiency of collection processes and provides information on the recovery actions outcomes, so as to adjust the origination and expected loss models.

19. CORPORATE GOVERNANCE TRANSPARENCY POLICY

As a financial institution, Banco Macro SA’s business activity is governed by Financial Institutions Law No. 21526, as supplemented, and the regulations issued by the Central Bank. Moreover, the Bank adheres to bank practices laid out in Central Bank Communiqué “A” 5201 – Guidelines for Corporate Governance in Financial Institutions, as supplemented.

The Bank publicly trades its shares on the BCBA and, thus, it is subject to the regulations issued by the CNV.

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Through General Resolution No. 622/13, the CNV defined the minimum contents of the Corporate Governance Code, adding notions of good corporate governance to corporate management as guidelines or recommendations that seek to provide transparency thereto. The CNV does not require that the recommendations be implemented, although it does require that the Bank explain the reasons why it decided not to adopt the good practices described in such resolution by publishing a document called Information Report on Corporate Governance together with the letter to the shareholders for the fiscal year; the report is available on the website and that of such enforcement agency.

This regulation reinforces the notions contained in Capital Markets Law and its administrative order, establishing principles such as “full disclosure”, “transparency”, “efficiency”, “public investor protection”, “equal footing between investors” and “protection of the stability of financial institutions and financial intermediaries”.

Moreover, as the Bank publicly offers its shares on the NYSE, qualifying as a foreign private issuer, it is required to comply with certain corporate governance standards as established in section 303A of the NYSE’s Listed Company Manual, as amended.

The main guidelines under Central Bank Communiqué “A” 5293, as supplemented, are as follows:

• Ownership structure

As of December 31, 2016, the Bank’s shareholders are:

Full name / Corporate name	Percentage of capital stock		Percentage of votes
Brito Jorge Horacio		19.30		21.33
Carballo Delfín Jorge Ezequiel		19.11		20.85
ANSES FGS under Law No. 26,425		31.50		29.25
Grouped shareholders (Argentine stock exchanges)		5.85		6.06
Grouped shareholders (foreign stock exchanges)		24.24		22.51

• Board and Senior Management

The Bank’s Board of Directors is currently made up of thirteen regular members. Members are renewed by thirds and the appointed Directors remain in office for three fiscal years. During this fiscal year, in particular, due to the reorganization of the Board, some of them have been elected for shorter periods. Directors are elected and proposed by the Shareholders’ Meeting. Once they are elected, the Central Bank is in charge of confirming their appointment, expressly authorizing them to take over their positions, under the terms of qualification and experience, assessment contained in regulations CREFI 2, Creation, Operation and Expansion and XV Authorities of Financial institutions.

Directors should be morally suitable, experienced, knowledgeable in the banking business and meet the requirements established in the effective regulations.

Compliance with these requirements is assessed when the Shareholders’ Meeting makes the proposal for appointing the directors and on a regular basis during their term of office.

Currently, six directors are independent, according to the guidelines set by CNV regulations and the provisions of the revised text of the Central Bank´s Guidelines for Guidelines for Corporate Governance in Financial Institutions.

Senior Management is directed by a General Manager appointed by the Board and is formed by ten managers that report directly to the General Manager as well as to managers from three staff areas that report directly to the Board.

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• Committees

The bylaws establish that the Board of Directors may create the committees it may deem convenient for the Bank´s activities, and appoint its members. The following committees currently operate in the Bank:

Committee	Roles
Audit Committee	They are established in Capital Markets Law and its administrative order.
Internal Audit Committee	Overseeing the proper operation of the internal control systems defined at the Bank through a periodic assessment thereof and contributing to improving the effectiveness of internal controls.
Comprehensive Risk Management Committee	Monitoring Senior Management’s activities involving the management of credit, market, liquidity, operational, compliance and reputation risks, among others. It advises the Board of Directors on the Bank’s risks.
Assets and Liabilities Committee	Setting out the Bank’s financial strategy, analyzing the markets and establishing the policies on assets and liabilities, management of market, liquidity, interest rate and currency risks.
IT Committee	Overseeing the proper operation of the information technology environment and contributing to improving the effectiveness thereof.
Receivables Committee	Approving credit transactions based on credit capacity.
Legal Recovery department	Incumbent in defining payment arrangements exceeding the predetermined parameters, as well as reclassifying portfolio to be subject to legal proceedings or accounting retirements.
Personnel Incentives Committee	Ensuring the financial incentives for personnel system is consistent with the culture, the objectives, the business in the long term, the strategy and the control environment of the Bank.
Ethics and Compliance Committee	Ensuring the Bank has the proper means with which to promote correct decision-making and compliance with internal and external regulations.
Corporate Governance and Appointments Committee	The Committee’s duties include those related to the process of renewing and replacing Senior Management members and the succession plans. It is also in charge of applying the Corporate Governance Code at the Bank and at its subsidiaries.
Anti-money Laundering Committee	Planning and coordinating compliance with the policies established by the Board of Directors on the matter.

Branches

The Bank has a broad network of branches (444) throughout Argentina.

Subsidiaries

The Bank carries out certain transactions through its subsidiaries, which are identified in Note 4.1. (see also Note 9).

Business lines

The Bank’s business lines and transactions with trusts are mentioned in Notes 1. and 14., respectively.

• Incentive practices

The Bank has a personnel incentives system based on the identification of the officers’ “outstanding performance”, which is understood to be their contribution in connection with the obtained results and their manner of conducting management.

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The Personnel Incentives Committee is in charge of ensuring the financial incentives for personnel system to be consistent with the culture, the objectives, the business in the long term, the strategy and the control environment of the Bank, and the prudent assumption of risks. The Incentives Committee is the body responsible for approving the Compensation Policy (salary and variable incentives), as well as any reviews it may require.

The Incentives System in place is based on assessing personal competence and performance associated with the compliance of non-related organizational objectives to be compensated based on extraordinary profit targets or direct financial achievement. The system is also adjusted according to the objective premise of generating sustained revenues (on a sustainable basis), thus, when establishing the total amount of compensation with regard to income (loss) for the year, extraordinary income, if any, is not taken into account. The system only provides for compensation in cash.

The Compensation Policy also includes a specific chapter regarding how remuneration is set and adjusted. In this case, the idea is to compensate personnel by ensuring performance recognition, internal equity, external competitiveness, productivity, efficiency and added value, finding an appropriate point of equilibrium with the business’s economic capacity and consistency in the long term.

The following aspects are taken into consideration:

• the complexity of the positions, their contribution to the organization’s strategy and the professional development attained by the employee;

• employees with enhanced performance in achieving their objectives and assuming greater responsibilities; and

• levels of remuneration that are competitive in comparison to market levels.

• Codes of ethics and conduct

The Bank adheres to the best practices and requires that all its employees act according to the highest standards of personal and professional integrity in all aspects of their activities.

In addition, compliance with its Code of Conduct and other policies and procedures governing employee conduct is considered to be essential. Moreover, the Code of Ethics for directors and officers is supplemental to the Bank’s Code of Conduct.

Grupo Macro’s Linea Ética was implemented for Banco Macro and its major subsidiaries. It is run by an independent third party, which ensures the three guiding principles for this type of reporting channels: anonymity, confidentiality and transparency. Reports could be channeled through different means, such us, telephone, website, e-mail, fax and in person. More information can be found on website www.macro.com.ar and in the Linea Ética y Transparencia.

• Role of financial agent

The Bank is a financial agent for the Provinces of Misiones, Salta and Jujuy. In addition, the subsidiary Banco del Tucumán SA is a financial agent for the Province of Tucumán and the Municipality of San Miguel de Tucumán. See also Notes 3.1. through 3.4.

• Transactions with related parties – Policy on conflict of interest

As an authorized financial institution, Banco Macro S.A. complies with the provisions and reporting requirements established in Financial and Foreign Exchange Institutions Law No. 21,526 and the regulations issued by the regulatory agency (Central Bank).

As established by the legislation (Argentine General Business Associations Law No. 19,550), specific applicable regulations (Capital Market Law and its administrative order), professional accounting standards (Technical Resolution No. 21) and best practice recommendations, the Bank reports on the transactions with related parties in the notes to the consolidated financial statements. Such transactions are carried out under usual market conditions. See also Note 9.

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Under current Argentine legislation, directors are required to perform their duties with the loyalty and diligence of a prudent business man. Directors are jointly and severally liable before the Bank, the shareholders and third parties for a poor performance of duties and infringements to the law, bylaws and regulations, as the case may be, and are responsible for repairing the damages caused by fraud, abuse of authority or negligence.

The loyal duties of a director are considered to include: (i) the ban from using corporate assets and the confidential information to which he/she may have access for personal purposes; (ii) the ban from taking advantage or, due to errors or omissions, allowing a third party to take advantage of the Bank’s business opportunities, (iii) the obligation of acting as director only for the purposes established in the law, the Bank’s bylaws or the intention of the shareholders or the Board of Directors; and (iv) the obligation of taking extreme care so that the acts conducted by the Board of Directors have no direct or indirect effects against the Bank’s interest.

A director should notify the Board of Directors and the Audit Committee about any conflict of interest there may be in a transaction proposal and should refrain from voting on the matter.

• Public information

The information related to corporate governance at the Bank is included within the transparency policy contained in such precepts and, hence, is available to interested members of the public on the website www.macro.com.ar (“Conocenos – Relaciones con Inversores”, “About us – Relationship with Investors) and, additionally, some guidelines are disclosed in other notes and exhibits to these consolidated financial statements. Moreover, the Bank’s public information is disclosed on the websites of the Central Bank (www.bcra.gob.ar) and the CNV (www.cnv.gob.ar).

Moreover, the Bank publishes the Market Discipline Report, pursuant to the guidelines established by the Central Bank, for such disclosure system, according to the criteria set forth by the Basel Committee on Banking Supervision, which is available on the Bank’s website.

20. SUMMARY JUDGEMENTS AND PENALTIES APPLIED BY CERTAIN REGULATORS AGAINST BANCO MACRO S.A AND BANCO DEL TUCUMÁN S.A.

The Central Bank Communiqué “A” 5689, as supplemented, requires banks to disclose in their financial statements certain information regarding summaries and penalties received from certain regulators, regardless of the amounts involved and the final conclusions of each cause. The information required as of December 31, 2016 is disclosed below:

20.1. Summary Judgements initiated by the Central Bank:

Criminal Foreign Exchange Regime Summary: No. 3078 dated 06/24/2008.

Reason: Infringement of article No. 8 of the Criminal Foreign Exchange Law (“CFEL”), for irregularities in exchange operations of US dollars (sale) by the financial intermediary as provided by Central Bank Communiqué “B” 7174.

Responsible: Banco del Tucumán SA, manager and officers in charge of Operations, Treasurer, Cashiers (Francisco Carlos Bustamante, Juan Ramón Lemoine, Héctor Gaspar Taranto, Héctor Arnaldo Brito, Ana Carolina De Genova Palomar, Jorge Marcelo Albertinetti, Sergio Fabián Intile, Lorena Natalia Frías and Carla Andrea Rocha).

Status: On 12/29/2011, Federal Court No. 1 of Tucumán decided to declare the criminal action to be extinguished for being barred by the statute of limitations based on the facts. On 02/01/2012, this resolution was appealed by the Federal Prosecutor´s Office No. 1 of Tucumán. On 07/31/2013 the Court of Appeals confirmed that resolution and subsequently, the case was filed to the Criminal Appeals Court, Courtroom I, due to an appeal filed by the prosecutor. On May 26, of the current year Courtroom I sustained the criminal appeal, and revoked the issued resolution, therefore a new resolution must be issued following the guidelines of the decision. The facts that gave rise to the Criminal Foreign Exchange Regime Summary, would be barred by the statute of limitations.

Criminal Foreign Exchange Regime Summary: No. 4674 dated 04/14/2011.

Reason: Supposed infringement of article No. 1 incs. e) and f) and No. 2 inc f) of the Criminal Foreign Exchange Law (“CFEL”), in an exchange operation transaction with a suspended customer with no Central Bank authorization.

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Responsible: Banco Macro SA, as the follow-on of Nuevo Banco Bisel SA and Branch Manager (Mariano Raúl Misino and Roberto David Luna).

Status: On 05/31/2011 the Bank filed its defense, offering evidence and requesting an acquittal. On 08/03/2011 and 08/05/2011, defense brief were filed on behalf of the natural persons subject to summary proceedings, in line with the filing made by Banco Macro. The Central Bank ordered that the proceeding be filed with the Criminal Office of the Federal Court No. 3 of the Judicial Department in Córdoba which and they are being heard under No. FCB (federal Córdoba Justice) 3612/2014. In December 2016, the Bank made a voluntary filing requesting to be acquitted since on the grounds that the criminal action has become statute-barred. As of the date, this filing is pending resolution.

Criminal Foreign Exchange Regime Summary: No. 5645 dated 01/07/2014.

Reason: Supposed infringement of article No. 1 incs. e) and f) y No. 2 inc f) of the CFEL, for foreign exchange transactions with no Central Bank authorization.

Responsible: Banco Macro S.A and Responsible for Foreign Trade and Foreign Exchange (Susana Lerman, José Luis Vejo, Jorge Francisco Scarinci and Horacio Ricardo Javier Sistac).

Status: On 02/28/2014, the Bank and the natural persons subject to summary proceeding filed their defense, offering evidence and requesting an acquittal. The Central Bank ordered that the proceedings be filed with a criminal court and, therefore, they were presented to the Economic Criminal Trial Court in and for the City of Buenos Aires No. 11, Clerk’s Office No. 22, under case file No. 1282/2015. On 06/02/2016 the legal protection was appealed, argumenting the legitimacy of Central Bank Communiqué “A” 5899 and the modifications produced through the use of these rules in the treatment of financial debts. On 10/20/2016 was decided, based on retroactivity of the most benign criminal legislation, to dismiss Banco Macro SA, Susana Lerman, Jose Luis Vejo, Jorge Francisco Scarinci and Horacio Javier Sistac. As of the date, this summary is ended.

Criminal Foreign Exchange Regime Summary: No. 6545 dated 09/03/2015.

Reason: Supposed infringement of article No. 1 incs e) and f) of CFEL and Central Bank Communiqué “A” 5264, as supplemented, for foreign exchange transactions with a customer without the documentation to support the genuineness of the transaction.

Responsible: Banco Macro S.A and Responsible for Foreign Trade and Foreign Exchange (Susana Lerman, José Luis Vejo, Jorge Francisco Scarinci and Horacio Ricardo Javier Sistac, Carlos Daniel Gomez and Oscar Luis Romero).

Status: On 11/11/2015, the Bank and the natural persons subject to summary proceeding filed their defense, offering evidence and requesting an acquittal. In addition, by Resolution dated 05/23/2016, the Central Bank decided not to admit statute-barred of the criminal foreign exchange action, appealed by the responsible. On 05/31/2016, an annulment petition with a subsidiary appeal was filed against the Central Bank´s Resolution. On 07/11/2016, the Central Bank decided not to admit the annulment petition. Against such resolution, on 07/15/2016, the Bank filed a brief to the proper Economic Criminal Trial Court related to actions provided by Art. 9 of the CFEL, whereby it formulates the right to reissue the proposition based on that the criminal foreign exchange infraction has become statute-barred. On 08/09/2016, the Bank submitted a closing argument brief as a result of that the probatory period was ended and on 08/18/2016 a new brief was filed, requesting the use of retrospective application of the most benign foreign exchange rule. As of the date, it is pending resolution by the Central Bank.

Financial summary: No. 1496 dated 02/24/2016

Reason: Deficiencies on supervision on a consolidated basis, exercised by the Bank over its subsidiaries, related to Anti-money laundering procedures.

Responsible: Banco Macro SA and Banco Macro SA Directors (Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Jorge Pablo Brito, Marcos Brito, Juan Pablo Brito Devoto, Luis Carlos Cerolini, Carlos Enrique Videla, Alejandro Macfarlane, Guillermo Eduardo Stanley, Constanza Brito and Emanuel Antonio Alvarez Agis).

Status: In process at the Central Bank. On 04/07/2016, the Bank filed its defense and offered evidence. On 05/18/2016, representing Delfín Ezequiel Carballo, the exception for lack of passive legitimation was requested. As of the date, the request is pending resolution.

20.2. Penalties imposed by the Central Bank:

Financial summary: No. 1227 dated 04/10/2008.

Reason: Supposed infringement of Communiqué “A” 2241; CREFI-2; Chapter IV, Section 4, point 4.1. and 4.2., involving two capital contributions to its subsidiary Sudbank and Trust Company Ltd. (currently Macro Bank Limited) with no previous Limited) with no previous Central Bank authorization. Original penalty amount: 2,625, current penalty amount: 1,400

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Responsible: Banco Macro SA Directors (Jorge Horacio Brito; Delfín Jorge Ezequiel Carballo; Juan Pablo Brito Devoto; Luis Carlos Cerolini; Carlos Enrique Videla; Fernando Andrés Sansuste, Enrique Jaratz and Jorge Pablo Brito).

Status: On 11/05/2013 the fine was debited from Banco Macro´s account 00285 at the Central Bank. On 11/20/2013 a direct appeal was filed against Resolution No. 723 issued by SEFyC (Argentine regulatory agency of financial and foreign exchange institutions), on 10/10/2013, representing the Bank and the natural persons subject to the summary proceeding, before the Federal Court of Appeals in Contentious and Administrative Matters in the City of Buenos Aires (CNACAF). As a result of the appeal, on 04/14/2015, the Bank was notified about the resolution that reduced the amount of the fine. On 04/29/2015 the Central Bank filed a federal extraordinary appeal to CNACAF. On 10/06/2015, the expiration of this extraordinary request was requested, based on the lack of procedural initiative by the Central Bank; in the alternative, notice of the extraordinary appeal filed was answered. On 10/26/2016, notice was served regarding the request made to the Central Bank. On 11/24/2015, Courtroom IV declared the nullity of the extraordinary instance, with charges due to the Central Bank. On 10/05/2016 the Central Bank refunded the excess related to the original penalty with a deposit on the Bank´s account 00285 in Central Bank. The amount totaled 1,575. On 10/05/2016, a file was presented to Central Bank, challenging the settlement made.

Financial summary: No. 1349 dated 09/07/2012.

Reason: Alleged infringement of Central Bank Communiqué “A” 3054, OPRAC 1-476, Exhibit, Section 2, point 2.1. and Section 3, point 3.1.2.; and Communiqué “A” 4798, OPRAC 1-613, Exhibit; Section 4, point 4.1., in relation to financing to the nonfinancial public sector, due to the acquisition of guarantee loans without Central Bank authorization. Penalty amount: 1,440.

Responsible: Banco del Tucumán SA, and Directors (Jorge Horacio Brito, Luis Carlos Cerolini, Delfín Jorge Ezequiel Carballo, Jorge Pablo Brito, Claudio Alejandro Cerezo and Waldo Camilo López).

Status: On 03/12/2014 the Central Bank issued Resolution No. 149/14 and imposed a fine. On 03/19/2014 the fine was debited from Banco del Tucumán SA account No. 00060 at the Central Bank. On 04/08/2014, a direct appeal was filed against the Resolution of the SEFyC, on behalf of Banco del Tucumán SA and the natural persons subject to the summary proceedings before CNACAF, which confirmed the Resolution No. 149/14. On 11/14/2014 an extraordinary federal appeal was filed in view of the arbitrariness of the judgment of the CNACAF decision. On 02/18/2015 at the Courtroom III of the Federal Court of Appeals (CNAF) dismissed the extraordinary appeal filed by Banco del Tucumán SA bearing court fees. On 02/26/2015 a remedy of complaint for extraordinary appeal denied was filed. As of the date, it is pending resolution.

Financial summary: No. 1380 dated 03/11/2013.

Reason: Supposed excess in the assets used for guarantee purpose which should have been used for related statutory operation ratios; infringement to fulfill with the limitations of deposits increase, lack of veracity in book records, neglect to present the corresponding accounting disclosure of such excess and infringement according to Central Bank requirements. Penalty amount: 2,000

Responsible: Former Banco Privado de Inversiones SA, Directors, Statutory Audit Committee and Corporate Service Manager (Alejandro Manuel Estrada, Raúl Fernández, Alejandro Carlos Estrada, Eduardo Guillermo Castro, Jorge Norberto Cerrotta, Armando Rogelio Pomar, Carlos Soulé and Baruki Luis Alberto Gonzalez).

Status: On 06/12/2015 the Central Bank passed Sentence No. 527, imposing fines to those responsible, subject to the devolutive effect of the direct appeal. On 06/25/2015 the fine was paid. On 07/10/2015 a direct appeal was filed against such resolution to CNACAF. On December 2015, the penalty amount was recovered by the Entity as a result of the guarantee provided by the sellers at the moment of acquisition of the shares of former BPI SA. On September 2015, the appeals were presented at the Courtroom II of CNACAF. On 05/10/2016 the Courtroom II of CNACAF confirmed the fines imposed by the Central Bank. As a result, the bank filed a federal extraordinary appeal, which was dismissed by the Courtroom II of CNACAF on 08/02/2016. On 08/16/2016, representing the Bank and Mr Carlos Soulé and as a consequence of the denial of a federal extraordinary appeal, a complaint appeal was filed which, as of the date, is in process.

Financial summary: No. 1401 dated 08/14/2013.

Reason: due to alleged infringement of financing to the non-financial public sector, for temporary overdrafts through checking accounts of the Municipality of Córdoba and Reconquista. Penalty amount: 2,400.

Responsible: Banco Macro SA and Directors (Jorge Horacio Brito, Jorge Pablo Brito and Marcos Brito).

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Status: On 03/02/2015 the Central Bank passed Resolution No. 183/15 imposing fines to the Bank, which were debited from the Bank´s account 00285 on 03/12/2015. On 03/30/2015 a direct appeal was filed against such resolution to CNACAF. On April 2015 the appeal was presented at the Courtroom IV of the Federal Contentious Administrative Court of Appeals under No. 19,971/2015. On 06/23/2015 the Court informed BCRA about the appeal presented by Banco Macro. On 07/13/2016 the Courtroom IV of CNACAF sustained the appeal filed by the bank and annulled the resolution imposed. The Central Bank filed a federal extraordinary appeal, which was answered by the Bank on 08/29/2016. On 09/06/2016 the Courtroom IV of CNACAF dismissed the extraordinary appeal. On 09/14/2016 the Central Bank formulated the complaint appeal to CSJN, which is pending resolution.

• Ended summary

Summary proceeding No. 1394 on financial matters dated 08/01/2013, due to alleged infringement in the late filing of the documentation related to the appointment of authorities was finalized thought Central Bank Resolution No. 272 dated 03/27/2015, which confirmed the penalty.

20.3. Penalties imposed by the Financial Information Unit (UIF).

File: No. 62/2009 dated 01/16/2009.

Reason: Purchase of foreign currency from April 2006 through August 2007. Penalty amount: 718

Responsible: Banco Macro SA and officers in charge of Anti-money laundering regulation compliance (Juan Pablo Brito Devoto and Luis Carlos Cerolini).

Status: UIF passed Resolution No. 72/2011 on 06/09/2011, imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the Courtroom III resolved (i) related to transactions performed between 10/11/2006 to 08/22/2007, decided that at the time of the file, the UIF punitive authority has become statute-barred, annulling UIF resolution No. 72/2001, (ii) related to transactions performed since 03/05/2007 and between 04/17/2007 to 08/22/2007, decided to refer proceedings to UIF, for a new resolution and readjusting the fines imposed in the same resolution against the Bank and Messrs Juan Pablo Brito Devoto and Luis Carlos Cerolini. As a consequence and pursuant to the abovementioned, the Courtroom III decided to partially sustained the appeals and annulled the penalty imposed, ordering the UIF to readjust the penalties. Charges are distributed to each part. Such sentence was appealed by the Bank and UIF with a federal extraordinary appeal and as of the date, such appeals are pending resolution. The Court partially sustained the direct appeal filed by the Bank, and as of the date a federal extraordinary appeal filed by the Bank and UIF is in due legal process and pending resolution.

File: No. 62/2009 (extension) dated 06/09/2011.

Reason: Extension of the summary issued by Resolution 72/2011 for transaction performed from 04/03/2006 through 10/11/2006. Penalty amount: 538.

Responsible: Banco Macro SA and officers in charge of Anti-money laundering regulation compliance (Fernando Andrés Sansuste).

Status: UIF passed Resolution No. 04/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the Court annulled the resolution that imposed the fine. The UIF filed a federal extraordinary remedy against the ruling that was entered, the notice of which was replied by the Bank on 12/28/2016. On 02/02/2017, the Court decided to dismiss the extraordinary appeal filed by UIF. UIF filed a complaint appeal to CSJN, which it is pending resolution.

File: No. 6338/2011 dated 11/23/2011.

Reason: Purchase of foreign currency. Penalty amount: 2,136

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance. (1)

Status: UIF passed Resolution No. 110/2014 imposing fines to those responsible. An appeal was presented at CNACAF. The Bank has appealed the penalty imposed via a direct appeal and which is being heard under CNACAF No.16,411/14. On 09/16/2016 the mentioned Courtroom decided (i) to annul UIF resolution No. 110/2014 and (ii) to declare extinguished UIF´s sanctioning authority over these acts. Against such resolution, the UIF filed a federal extraordinary appeal. On 10/20/2016 the Bank replied the extraordinary appeal which was granted on 11/17/2016. As of the date, is in process to CSJN.

File: No. 6420/2011 dated 11/23/2011.

Reason: Purchase of foreign currency. Penalty amount: 822.

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Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance. (1)

Status: UIF passed Resolution No. 124/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 04/21/2015 the Court rejected the appeal presented and confirmed UIF resolution No. 124/2014. On 05/08/2015, an extraordinary appeal was presented to the Argentine Supreme Court (CSJN). On 06/09/2015 the Court denied the extraordinary appeal presented, with cost. On 06/17/2015 a complaint appeal was presented to CSJN, as denial of extraordinary appeal. On 09/04/2016, the file was sent to the Attorney General’s Office to issue its resolution prior to the Argentine Supreme Court’s decision. As of the date, the file is waiting for the corresponding sentence.

File: No. 6407/2011 dated 11/23/2011.

Reason: Purchase of foreign currency. Penalty amount: 802.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance. (1)

Status: UIF passed Resolution No. 132/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the Court annulled the resolution that imposed the fine. The UIF filed a federal extraordinary remedy against the ruling that was entered, the notice of which was replied by the Bank on 12/28/2016. On 02/02/2017, the Court decided to dismiss the extraordinary appeal filed by UIF. UIF filed a complaint appeal to CSJN, which it is pending resolution.

File: No. 6612/2011 dated 12/28/2011.

Reason: Purchase of foreign currency. Penalty amount: 688.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance. (1)

Status: UIF passed Resolution No. 53/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the court annulled the resolution that imposed the fines. The UIF filed a federal extraordinary remedy against the ruling that was entered, the notice of which was replied by the Bank on 12/28/2016. On 02/02/2017, the Court dicided to dismiss the extraordinary appeal filed by UIF. UIF filed a complaint appeal to CSJN, which it is pending resolution.

File: No. 6614/2011 dated 12/28/2011.

Reason: Purchase of foreign currency. Penalty amount: 843.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance. (1)

Status: UIF passed Resolution No. 6/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the court annulled the resolution that imposed the fine. The UIF filed a federal extraordinary remedy against the ruling that was entered, the notice of which was replied by the Bank on 12/28/2016. On 02/02/2017, the Court decided to dismiss the extraordinary appeal filed by UIF. UIF filed a complaint appeal to CSJN, which it is pending resolution.

File: No. 160/2012 dated 05/10/2012.

Reason: Purchase of foreign currency. Penalty amount: 376.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance (Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Juan Pablo Brito Devoto, Jorge Pablo Brito, Luis Carlos Cerolini, Roberto Julio Eilbaum, Alejandro Macfarlane, Carlos Enrique Videla, Guillermo Eduardo Stanley and Constanza Brito).

Status: UIF passed Resolution No. 160/2015 imposing fines to those responsible. An appeal was presented at CNACAF. On 04/07/2016, the fines imposed by the UIF were revoked, based on that they have become statute-barried. Against such resolution, UIF filed an extraordinary appeal, which was denied through a resolution dated on 07/12/2016. On 08/04/2016, UIF filed a complaint appeal to CSJN. As of the date, the file is in process in CSJN, to resolve the complaint appeal filed by UIF.

File: No. 517/2012 dated 06/27/2012.

Reason: Purchase of foreign currency. Penalty amount: 1,857.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance (Luis Carlos Cerolini – as Compliance Officer and Director – and Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Fernando Andrés Sansuste, Juan Pablo Brito Devoto, Jorge Pablo Brito, Roberto Julio Eilbaum, Alejandro Macfarlane, Carlos Enrique Videla, Guillermo Eduardo Stanley and Constanza Brito – as Directors of Banco Macro SA).

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Status: UIF passed Resolution No. 500/2014 imposing fines to those responsible. An appeal was presented at CNACAF. On 10/31/2016 the court annulled the resolution that imposed the fine. The UIF filed a federal extraordinary remedy against the ruling that was entered, the notice of which was replied by the Bank on 12/28/2016. On 02/02/2017, the Court decided to dismiss the extraordinary appeal filed by UIF. UIF filed a complaint appeal to CSJN, which it is pending resolution.

File: No.248/2014 (UIF note presidency 245/2013 11/26/2013) dated 07/30/2014

Reason: Alleged failure to prepare certain reports on suspicious transactions regarding alleged cases of noncompliance in certain customer files. Penalty amount: 330.

Responsible: Banco Macro SA, Directors and officers in charge of Anti-money laundering regulation compliance (Luis Carlos Cerolini – as Compliance Officer and Director – and Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Juan Pablo Brito Devoto, Jorge Pablo Brito, Alejandro Macfarlane, Carlos Enrique Videla, Guillermo Eduardo Stanley, Constanza Brito, Emanuel Antoni Alvarez Agis, Marcos Brito and Rafael Magnanini – as Directors of Banco Macro SA).

Status: After being notified about the commencement of the summary proceedings, on 05/08/2015, the Bank filed its defense, offering evidence and requesting an acquittal. On 12/26/2016 the UIF issued Resolution 164/16, imposing a fine on the persons subject to the summary proceedings. On 12/29/2016, the Bank was notified about the Resolution, which allowed bringing a direct appeal before the CNACAF by 03/15/2017. On 01/30/2017, the fine was paid. On 03/13/2017, a direct remedy was filed against such resolution, which has been lodging of the Courtroom III of CNACAF. As of the date, the file is pending resolution.

(1) Fernando Andrés Sansuste, Juan Pablo Brito Devoto y Luis Carlos Cerolini – as Compliance Officer and Director – and Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Jorge Pablo Brito, Roberto Julio Eilbaum, Alejandro Macfarlane, Carlos Enrique Videla, Guillermo Eduardo Stanley and Constanza Brito – as Directors of Banco Macro SA.

• Ended summaries

The fines imposed through files No. 6406/2011 dated on 11/23/2011, transactions involving the purchase of foreign currency for an amount of 677 and No. 6491/2011 dated on 12/07/2011, transactions involving deposit in checking account at Banco Suquía SA for an amount of 791, were completed in the Bank´s favor, through the dismissal of both motions by the CSJN on 04/05/2016.

On April 2016, as a consequence of Central Bank Communiqué “A” 5940, the penalty amount related to UIF files No. 6406/2011 and 6491/2011 were derecognized against “prior years adjustment”.

The fine imposed thought file No. 6504/2011 dated 12/07/2011, transactions involving the purchase of foreign currency for an amount of 1,504, was completed in the Bank´s favor, through the dismissal of both motion by CSJN on 12/12/2016.

Although, penalties do not involve material amounts, as of the date of issuance of these consolidated financial statements, the total amount of monetary penalties received, pending to be paid for been appealed or about to be appealed, amounted to 9,110, which was recorded on Provisions according to Communiqués “A” 5689 and “A” 5940 of Central Bank, as supplemented.

Additionally, there are pending summaries at CNV, as described below:

File: No.1480/2011 (CNV Resolution No. 17,529 dated 09/26/2014).

Reason: alleged infringement with the obligation to inform a “Significant Event”.

Responsible: Banco Macro SA, Directors, Statutory Audit Committee members and person in charge of Market relations (Jorge Horacio Brito, Delfín Jorge Ezequiel Carballo, Juan Pablo Brito Devoto, Jorge Pablo Brito, Luis Carlos Cerolini, Roberto Julio Eilbaum, Alejandro Macfarlane, Carlos Enrique Videla, Guillermo Eduardo Stanley, Constanza Brito, Daniel Hugo Violatti, Ladislao Szekely, Santiago Marcelo Maidana and Herman Fernando Aner).

Status: On 10/28/2014, the bank and the natural persons subject to summary proceedings, filed its defense, offering evidence and requesting an acquittal. On 08/03/2015, the evidence period was ended and on 08/19/2015, the closing argument brief was submitted.

The Bank Management and its legal advisors consider no further significant accounting effects than could arise from the effect of the above mentioned situations.

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21. BALANCES IN FOREIGN CURRENCY

The balances of assets and liabilities denominated in foreign currency are as follows:

	As of December 31,
	2016		2015
ASSETS
Cash		21,394,875		10,102,645
Government and private securities		1,636,378		4,051,366
Loans		10,088,318		1,797,220
Other receivables from financial intermediation		524,146		539,707
Investments in other companies		1,325		1,089
Other receivables		340,150		174,348
Items pending allocation		4,618		4,776
Total		33,989,810		16,671,151
LIABILITIES
Deposits		23,299,432		10,475,281
Other liabilities from financial intermediation		2,827,425		2,361,244
Other liabilities		1,695		14,516
Subordinated Corporate Bonds		6,407,840		1,957,618
Items pending allocation		137		273
Total		32,536,529		14,808,932

22. INTEREST-BEARING DEPOSITS WITH OTHER BANKS

“Cash” includes interest-bearing deposits in foreign banks totaling 648,060 and 1,271,350 as of December 31, 2016 and 2015, respectively.

Those interest-bearing deposits in foreign banks yielded a nominal annual interest rate of approximately 0.1114% and 0.0913% as of December 31, 2016 and 2015, respectively.

In 2016 and 2015 the deposits with the Central Bank and other Banks did not bear any interest.

23. GOVERNMENT AND PRIVATE SECURITIES

	As of December 31,
	2016		2015
GOVERNMENT SECURITIES
Government securities at market value
In pesos:
Discount bonds at 5.83% – Maturity: 2033		1,422,251		1,597,140
Consolidation bonds – 8° Serie		214,751		119,119
Federal government bonds at Badlar + 2% – Maturity: 03-28-2017		142,097		484,928
Secured bonds under Presidential Decree 1579/02 at 2% – Maturity: 02-04-2018		65,962		94,259
Federal government bonds at variable rate – Maturity: 2017		54,281		—
Federal government bonds at Badlar Private + 250 basis point – Maturity: 2019		30,221		47,577
Consolidation bonds – 6° Serie at 2% – Maturity: 2024		23,303		4,937
Federal government bonds adjusted by CER – Maturity: 07-22-2021		7,394		—
Federal government treasury bonds at fixed rate – Maturity: 09-19-2018		5,100		—
Par bonds at variable rate – Maturity: 2038		3,157		—
Other		1,761		900,290
Subtotal Government securities at market value – In pesos		1,970,278		3,248,250
In foreign currency:
US Treasury Bill – Maturity: 01-12-2017		427,916		—
Federal government bonds at 8.75% – Maturity: 2024		289,758		215,298
US Treasury Bill – Maturity: 01-05-2017		110,949		—
Federal government bonds in US dollars at 7% – Maturity: 2017		5,791		45
Federal government bonds in US dollars at 0.75% – Maturity: 09-21-2017		2,466		—
Province of Córdoba debt securities is US dollars at 12% – Maturity: 2017		1,071		1,723
Federal government bonds in US dollars at 7.5% – Maturity: 2026		852		—
Federal government bonds in US dollars at 0.75% – Maturity: 02-22-2017		809		—
Federal government bonds in US dollars at 2.4% – Maturity: 2016		384		—
Federal government bonds in US dollars at 8% – Maturity: 2020		337		—
Other		227		1,489,974
Subtotal Government securities at market value – In foreign currency		840,560		1,707,040
Subtotal Government securities at market value		2,810,838		4,955,290

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	As of December 31
	2016		2015
GOVERNMENT SECURITIES
Government securities at amortized cost
In pesos:
Province of Buenos Aires debt securities Serie 1, Class 2 – Maturity: 12-06-2019		338,086		—
Province of Neuquén Treasury Bills Class 2 Serie II – Maturity: 06-06-2018		145,006		—
Federal government bonds at Badlar Private + 250 basis point – Maturity: 2019		106,508		115,302
Province of Rio Negro Treasury Bills Class 1 Serie VI – Maturity: 03-15-2017		95,439		—
Province of Neuquén Treasury Bills – Maturity: 09-09-2020		71,202		—
Municipality of Córdoba City Treasury Bills Serie 23 – Maturity: 03-30-2017		9,880		—
Municipality of Córdoba City Treasury Bills Serie 21 – Maturity: 03-21-2017		7,399		—
Province of Tucumán bonds – 1° Serie – Maturity: 2018		1,370		2,398
Province of Chubut treasury bills Class 16 – Maturity: 11-26-2016		—		400,682
Province of Neuquén Treasury Bills Class 1 Serie III – Maturity: 11-23-2017		—		130,764
Other		—		142,453
Subtotal Government securities at amortized cost – In pesos		774,890		791,599
In foreign currency:
Treasury Bills in US dollars – Maturity: 03-20-2017		787,649
Treasury Bills in US dollars – Maturity: 07-03-2017		7,112
Treasury Bills in US dollars – Maturity: 02-20-2017		1,057		—
Argentine saving bond for the economy development in US dollars at 4% – Maturity: 07-27-2016		—		196,411
Deposit certificates of investment		—		17,681
Subtotal Government securities at amortized cost – In foreign currency		795,818		214,092
Subtotal Government securities at amortized cost		1,570,708		1,005,691
Instruments issued by the Central Bank of Argentina
In pesos:
Listed Central Bank of Argentina bills and notes (Lebacs)		964,212		5,066,846
Unlisted Central Bank of Argentina bills and notes (Lebacs)		14,181,042		1,105,912
Subtotal instruments issued by Central Bank of Argentina – In pesos		15,145,254		6,172,758
In foreign currency:
Unlisted Central Bank of Argentina bills and notes (Lebacs)		—		2,130,234
Subtotal instruments issued by Central Bank of Argentina – In foreign currency		—		2,130,234
Subtotal instruments issued by Central Bank of Argentina		15,145,254		8,302,992
Total government securities (1)		19,526,800		14,263,973
PRIVATE SECURITIES
Investments in listed private securities – Shares
In pesos:
Siderar SAIC		106,938		218,781
Petrolera Pampa SA		90,261		276,211
Aluar Aluminio Argentino SAIC		78,791		195,354
YPF SA		25,190		196,423
Molinos Río de la Plata SA		18,289		20,419
Telecom Argentina Stet-France Telecom SA		—		156,951
Petrobras Energía SA		—		45,674
Cresud SAIC		—		13,015
IRSA Inversiones y Presentación SA		—		2,833
Alto Palermo SA (Apsa)		—		1,738
Subtotal investment in listed private securities – Shares - In pesos		319,469		1,127,399
Total Investment in listed private securities - Shares		319,469		1,127,399
Total private securities		319,469		1,127,399
Total government and private securities		19,846,269		15,391,372

(1) As of December 31, 2016 and 2015, includes government securities under reverse repurchase agreements for an amount of 19,335 and 3,450, respectively.

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	Maturing
	Within 1 year		After 1 year but within 5 years		After 5 years but within 10 years		After 10 years		Without due date		Total
	Book value
GOVERNMENT SECURITIES
Government securities at market value
In pesos:		255,643		208,526		507,060		998,733		316		1,970,278
Discount bonds at 5.83% – Maturity: 2033		—		—		426,675		995,576		—		1,422,251
Consolidation bonds – 8° Serie		—		141,736		73,015		—		—		214,751
Federal government bonds at Badlar + 2% – Maturity: 3-28-2017		142,097		—		—		—		—		142,097
Secured bonds under Presidential Decree 1579/02 at 2% – Maturity: 02-04-2018		55,887		10,075		—		—		—		65,962
Federal government bonds at variable rate – Maturity: 2017		54,281		—		—		—		—		54,281
Federal government bonds at Badlar Private + 250 basis point – Maturity: 2019		—		30,221		—		—		—		30,221
Consolidation bonds – 6° Serie at 2% – Maturity: 2024		3,197		12,786		7,320		—		—		23,303
Federal government bonds adjustable by CER – Maturity: 07-22-2021		—		7,394		—		—		—		7,394
Federal government treasury bonds at fixed rate – Maturity: 09-19-2018		—		5,100		—		—		—		5,100
Par bonds at variable rate – Maturity: 2038				—		—		3,157		—		3,157
Other		181		1,214		50		—		316		1,761
In foreign currency:		549,204		145,542		145,795		15		4		840,560
US Treasury Bill – Maturity: 01-12-2017		427,916		—		—		—		—		427,916
Federal government bonds at 8.75% – Maturity: 2024		—		144,821		144,937		—		—		289,758
US Treasury Bill – Maturity: 01-05-2017		110,949		—		—		—		—		110,949
Federal government bonds in US dollars at 7% – Maturity: 2017		5,791		—		—		—		—		5,791
Federal government bonds in US dollars at 0.75% – Maturity: 09-21-2017		2,466		—		—		—		—		2,466
Province of Córdoba debt securities is US dollars at 12% – Maturity: 2017		1,071		—		—		—		—		1,071
Federal government bonds in US dollars at 7.5% – Maturity: 2026		—		—		852		—		—		852
Federal government bonds in US dollars at 0.75% – Maturity: 02-22-2017		809		—		—		—		—		809
Federal government bonds in US dollars at 2.4% – Maturity: 2016		—		384		—		—		—		384
Federal government bonds in US dollars at 8% – Maturity: 2020		—		337		—		—		—		337
Other		202		—		6		15		4		227
Government securities at amortized cost
In pesos:		113,879		661,011		—		—		—		774,890
Province of Buenos Aires debt securities Serie 1, Class 2 – Maturity: 12-06-2019		—		338,086		—		—		—		338,086
Province of Neuquén Treasury Bills Class 2 Serie II – Maturity: 06-06-2018		—		145,006		—		—		—		145,006
Federal government bonds at Badlar Private + 250 basis point – Maturity: 2019		—		106,508		—		—		—		106,508
Province of Rio Negro Treasury Bills Class 1 Serie IV – Maturity: 03-15-2017		95,439		—		—		—		—		95,439
Province of Neuquén Treasury Bills – Maturity: 09-09-2020		—		71,202		—		—		—		71,202
Municipality of Córdoba City Treasury Bills Serie 23 – Maturity: 03-30-2017		9,880		—		—		—		—		9,880
Municipality of Córdoba City Treasury Bills Serie 21 – Maturity: 03-21-2017		7,399		—		—		—		—		7,399
Province of Tucumán bonds – 1° Serie – Maturity: 2018		1,161		209		—		—		—		1,370
In foreign currency:		795,818		—		—		—		—		795,818
Treasury Bills in US dollars – Maturity: 03-20-2017		787,649		—		—		—		—		787,649
Treasury Bills in US dollars – Maturity: 07-03-2017		7,112		—		—		—		—		7,112
Treasury Bills in US dollars – Maturity: 02-22-2017		1,057		—		—		—		—		1,057

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	Maturing
	Within 1 year		After 1 year but within 5 years		After 5 years but within 10 years		After 10 years		Without due date		Total
	Book value
GOVERNMENT SECURITIES (contd.)
Instruments issued by the Central Bank of Argentina
In pesos:		15,145,254		—		—		—		—		15,145,254
Listed Central Bank of Argentina bills and notes (Lebacs)		964,212		—		—		—		—		964,212
Unlisted Central Bank of Argentina bills and notes (Lebacs)		14,181,042		—		—		—		—		14,181,042
Total Government securities		16,859,798		1,015,079		652,855		998,748		320		19,526,800
PRIVATE SECURITIES
Investments in listed private securities – Shares
In pesos:		—		—		—		—		319,469		319,469
Siderar SAIC		—		—		—		—		106,938		106,938
Petrolera Pampa SA		—		—		—		—		90,261		90,261
Aluar Aluminio Argentino SAIC		—		—		—		—		78,791		78,791
YPF SA		—		—		—		—		25,190		25,190
Molinos Río de la Plata SA		—		—		—		—		18,289		18,289
Total private securities		—		—		—		—		319,469		319,469
Total government and private securities		16,859,798		1,015,079		652,855		998,748		319,789		19,846,269

24. LOANS

Description of certain categories of loans in the accompanying Balance Sheets include:

a. Non-financial government sector: loans to the government sector, excluding government owned financial institutions.

b. Financial sector: mainly, refers to short-term loans to financial institutions.

c. Non-financial private sector and foreign residents: loans given to the private sector (excluding financial institutions) and residents outside Argentina.

The classification of the loan portfolio in this regard was as follows:

	As of December 31,
Description	2016			2015
Non-financial government sector		1,532,532			748,067
Financial sector		1,730,620			227,390
Non-financial private sector and foreign residents
Commercial
- With Senior “A” guarantees		2,506,658			2,437,891
- With Senior “B” guarantees		5,188,140			4,331,975
- Without Senior guarantees		22,409,087			12,736,246
Consumer
- With Senior “A” guarantees		777,808			559,995
- With Senior “B” guarantees		2,518,556			2,302,121
- Without Senior guarantees		53,140,111			40,484,694
Less: Allowance		(1,830,505	)		(1,495,964	)
Total loans, net of allowances		87,973,007			62,332,415

Senior “A” guarantees consist mainly of cash guarantees, gold guarantees, warrants over primary products and other forms of self-liquidating collateral.

Senior “B” guarantees generally consist of mortgages and other forms of collateral pledged to secure the loan amount.

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“Without senior guarantees” consist, in general, of unsecured third-party guarantees.

A breakdown of total loans by geographical location of borrowers is as follows:

Geographical location	2016			2015
Argentina		89,785,892			63,810,233
Costa Rica		16,223			13,311
Uruguay		643			4,156
Spain		240			523
Brazil		228			52
United States of America		95			49
Panama		70			9
Canada		55			—
Mexico		19			—
Colombia		16			—
France		13			13
United Kingdom		8			—
Netherlands		7			21
Chile		3			7
Italy		—			4
Australia		—			1
Less: Allowance		(1,830,505	)		(1,495,964	)
Total loans, net of allowances		87,973,007			62,332,415

A breakdown of total loans by sector activity classified according to the principal business of the borrowers is as follows:

Economic Activity	2016			2015
Retail loans		41,740,476			31,867,480
Retail and consumer products		9,160,153			5,485,954
Agricultural livestock- Forestry-Fishing- Mining - Hunting		8,814,256			6,625,416
Foodstuff and beverages		5,624,698			3,245,347
Construction		3,093,077			3,164,972
Financial Services		2,731,216			688,377
Governmental services		2,613,850			1,666,133
Manufacturing and wholesale		2,590,603			1,692,774
Other services		2,587,890			2,547,403
Transportation, storage and communications		2,064,160			1,668,776
Real estate, business and leases		1,572,538			1,098,488
Chemicals		1,531,698			1,113,050
Electricity, oil, water		977,057			452,372
Hotels and restaurants		213,517			173,591
Other		4,488,323			2,338,246
Total loans		89,803,512			63,828,379
Less: Allowance		(1,830,505	)		(1,495,964	)
Total loans, net of Allowance		87,973,007			62,332,415

25. OTHER RECEIVABLES AND PAYABLES FROM FINANCIAL INTERMEDIATION

The breakdown of Other receivables from financial intermediation by guarantee type is as follows:

Description	As of December 31,
	2016			2015
Without preferred guarantees		5,553,872			3,538,281
Allowances		(240,265	)		(243,028	)
		5,313,607			3,295,253

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BANCO MACRO SA AND SUBSIDIARIES

The breakdown of private securities recorded in Other receivables from financial intermediation is as follows:

Description	As of December 31,
	2016		2015
Corporate bonds — Unlisted (1)		486,144		603,567
Certificates of participation in financial trusts — Unlisted (1)		224,043		234,345
Debt securities in financial trusts — Unlisted		730,672		195,556
Total investments in unlisted private securities		1,440,859		1,033,468

(1) As of December 31, 2016 and 2015, the Bank booked allowances for impairment in value amounting to 235,341 and 237,191, respectively (see also Note 28).

As of December 31, 2016, maturities for the private securities disclosed above are as follows:

	Within 1 year		After 1 year but within 5 years		Without due date			Total
Corporate bonds —Unlisted		103,664		375,980		6,500	(1)		486,144
Certificates of participation in financial trusts —Unlisted		—		—		224,043	(1)		224,043
Debt securities in financial trusts —Unlisted		699,833		30,839		—			730,672
Total investments in unlisted private securities		803,497		406,819		230,543			1,440,859

(1) As of December 31, 2016, this amount was included in the Bank allowances for impairment.

The Bank enters into spot and forward transactions related to government securities and foreign currencies. The Bank recognizes cash, security or currency amount to be exchanged in the future as a receivable and payable at the original transaction date. The assets and liabilities related to such transactions are as follows:

	As of December 31,
Description	2016		2015
Amounts receivable from spot and forward sales pending settlement
Receivable from spot sales of government and private securities pending settlement		191,582		183,329
Receivables from spot sales of foreign currency pending settlement		86,387		707
Receivables from repo transactions of government securities		19,138		3,160
		297,107		187,196
Securities and foreign currency receivable from spot and forward purchases pending settlement
Forward purchases of securities under repo transactions		1,200,994		2,047
Spot purchases of government and private securities pending settlement		50,966		64,837
Spot purchases of foreign currency pending settlement		7,071		52,868
		1,259,031		119,752

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	As of December 31,
Description	2016		2015
Amounts payable for spot and forward purchases pending settlement
Payables for forward purchases of securities under repo transactions		1,096,380		1,974
Payables for spot purchases of government securities pending settlement		50,555		64,978
Payables for spot purchases of foreign currency pending settlement		7,136		52,747
Other payables for spot purchase pending settlement		156,625		160,159
		1,310,696		279,858
Securities and foreign currency to be delivered under spot and forward sales pending settlement
Spot sales of foreign currency pending settlement		86,312		848
Spot sales of government and private securities pending settlement		50,875		38,448
Forward sales of government securities under repo transactions		19,349		3,456
		156,536		42,752

These instruments consist of foreign currency and securities contracts (spot and forward purchases and sales), whose valuation method is disclosed in Note 4.5.g). The fair value of these instruments were:

	End-of-year fair value
Description	2016		2015
Assets		1,259,068		119,752
Liabilities		156,536		42,752

Premiums on these instruments have been included in the “Financial income” and “Financial expense” captions of the consolidated statements of income of each year.

26. BANK PREMISES AND EQUIPMENT AND OTHER ASSETS

26.1 Premises and Equipment

The major categories of the Bank’s premises and equipment, and related accumulated depreciation are presented in the following table:

	As of December, 31
Description	Estimated useful life (years)		2016			2015
Buildings		50		1,035,300			866,459
Furniture and facilities		10		322,117			237,056
Machinery and equipment		5		820,551			639,006
Vehicles		5		97,580			85,199
Accumulated depreciation				(815,456	)		(646,761	)
Total				1,460,092			1,180,959

Depreciation expense was 205,122, 170,613 and 130,678 as of December 31, 2016, 2015 and 2014, respectively.

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26.2 Other assets

Other assets consisted of the following as of December 31, 2016 and 2015:

	As of December, 31
Description	Estimated useful life (years)		2016			2015
Works in progress (1)		—		1,217,784			756,855
Works of art		—		10,786			3,204
Prepayments for the purchase of assets		—		163,581			153,921
Foreclosed assets		50		113,244			113,604
Stationery and office supplies		—		39,621			31,961
Other assets (2)		50		453,664			361,127
Accumulated depreciation				(17,934	)		(15,517	)
Total				1,980,746			1,405,155

(1) As of December 31, 2016 and 2015, it includes 1,158,310 and 704,601, respectively, related to a new corporate building tower that is being constructed by the Bank. See also Note 35.16.

(2) Mainly includes improvements to properties leased by the Bank to be used in the normal course of business.

Depreciation expense was 5,264, 3,748 and 3,196 as of December 31, 2016, 2015 and 2014, respectively.

26.3. Operating Leases

As of December 31, 2016, the Bank’s branch network includes certain branches that were located in properties leased to the Bank (some of which are renewable for periods between 2 and 10 years).

The estimated future lease payments in connection with these properties are as follows:

Fiscal year end	Amounts
2017		134,520
2018		88,618
2019		63,463
2020		39,551
2021		17,550
2022 and after		1,228
Total		344,930

As of December 31, 2016, 2015 and 2014, rental expenses amounted to 197,095, 137,288 and 110,875, respectively. As of such dates, there are no contractual obligations with separate amounts of minimum rentals, contingent rentals, and sublease rental income.

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27. INTANGIBLE ASSETS

27.1 Goodwill:

As of December 31, 2016 and 2015 goodwill breakdown is as follows:

	As of December 31,
Description	Estimated useful life (years)		2016		2015
Goodwill for the purchase of Banco del Tucumán S.A., net of accumulated amortization of 18,241 as of December 31, 2016 (a)		10		1		603
Goodwill for the purchase of Nuevo Banco Bisel S.A., net of accumulated amortization of 66,042 as of December 31, 2016 (b)		10		—		3,852
Goodwill for the purchase of Banco Privado de Inversiones S.A., net of accumulated amortization of 35,597 as of December 31, 2016 (c)		10		20,608		26,229
Total				20,609		30,684

(a) On May 5, 2006, Banco Macro acquired 75% of the capital stock of Banco del Tucumán SA in the amount of 45,961. The assets transferred amounted to 700,612 and the liabilities assumed amounted to 660,547.

Additionally, from September through December 2006, Banco Macro SA acquired 4.84% of the capital stock of Banco del Tucumán SA.

Finally, on November 28, 2006, the General Regular and Special Shareholder’s Meeting of Banco del Tucumán SA approved a capital increase of 21,980, establishing an additional paid-in capital of 26,171. During January 2007, Banco Macro SA subscribed the total increase, thus increasing its overall interest in Banco del Tucumán SA to 89.93%.

Under Central Bank rules, as a result of the acquisition, the Bank booked a positive goodwill amounting to 18,242, which is amortized over ten years and no impairment is required.

(b) On August 11, 2006, the Bank acquired 92.73% of the capital stock of Nuevo Banco Bisel SA in the amount of 19,509. The assets transferred amounted to 1,824,644 and the liabilities assumed amounted to 1,804,534.

Under Central Bank rules, as a result of the acquisition, the Bank booked a positive goodwill amounting to 66,042, which is amortized over ten years and no impairment is required.

(c) On September 22, 2010, the Bank acquired 100% of the capital stock of Banco Privado de Inversiones SA in the amount of USD 23.3 million, out of which, USD 10.4 million was related to an escrowed amount, as provided in the purchase agreement. The assets transferred amounted to 403,686 and the liabilities assumed amounted to 368,034.

Under Central Bank rules, as a result of the acquisition, the Bank booked a positive goodwill amounting to 56,205, which is amortized over ten years and no impairment is required.

Amortization expense on goodwill was 10,076, 14,052 and 14,052 as of December 31, 2016, 2015 and 2014, respectively.

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27.2. Organization and development costs:

As of December 31, 2016 and 2015, the organization and development costs breakdown is as follows:

	As of December 31,
Description	Estimated useful life (years)		2016		2015
Cost from information technology projects (a)		5		573,165		392,058
Organizational cost (b)		5		—		4,899
Other capitalized cost (c)		5		70,298		67,458
Total				643,463		464,415

(a) Under Central Bank rules, the Bank records as expense software cost relating to preliminary application development and post-implementation stages of software development.

(b) Under Central Bank rules, the Bank records cost inherent to the set up and organization of the Bank.

(c) Under Central Bank rules, the Bank records cost inherent to the improvements in building leased.

Amortization expense was 197,052, 150,619 and 122,704 as of December 31, 2016, 2015 and 2014, respectively, which was recorded in Administrative expenses and Other expenses.

Intangible assets changed as follows during fiscal years ended December 31, 2016, 2015 and 2014:

	Fiscal year ended December 31,
	2016			2015			2014
Balance at the beginning of the fiscal year		495,099			409,150			343,979
Additions		376,577			250,752			202,029
Decreases		(476	)		(132	)		(102	)
Amortization expense (1)		(207,128	)		(164,671	)		(136,756	)
Balance at the end of the fiscal year		664,072			495,099			409,150

(1) See Note 31.

28. ALLOWANCES AND PROVISIONS

The Bank had recorded allowances and provisions for:

Loans: recorded in compliance with the provision of Communiqué “A” 2950, as supplemented, of the Central Bank, taking into account Note 4.5.f).

Other receivables from financial intermediation: recorded in compliance with the provision of Communication “A” 2950, as supplemented, of the Central Bank, taking into account Notes 4.5.f) and 4.5.g.3).

Receivables from financial leases: recorded in compliance with the provision of Communiqué “A” 2950, as supplemented, of the Central Bank, taking into account Note 4.5.f).

Investment in other companies: recorded to cover possible impairment risk arising from investments in other companies.

Other receivables: recorded to cover collectibility risks of other receivables.

Contingent commitments: recorded under Central Bank’s rules to cover contingent losses related to loan commitments. These amounts have been accrued in accordance with Central Bank’s rules, which are similar to FASB ASC 450 “Contingencies”.

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Other loss contingencies: mainly includes labor litigation and customer and other third-party claims. The amounts have been accrued in accordance with Central Bank’s rules, which are similar to FASB ASC 450 “Contingencies”.

Difference from court deposit dollarization: recorded under Central Bank’s rules to cover the difference from court deposit dollarization.

The followings are the changes in the Bank’s allowances and provisions:

	As of December 31, 2016
	Balance at the beginning of the fiscal year		Increase		Reversals			Charge off			Balance at the end of the fiscal year
Allowances
- Loans		1,495,964		1,223,678		(64,796	)		(824,341	)		1,830,505
- Other receivables from financial intermediation		243,028		7,604		(4,755	)		(5,612	)		240,265
- Receivables from financial leases		5,352		32		(1,391	)		—			3,993
- Investment in other companies		1,595		30		(19	)		(20	)		1,586
- Other receivables		4,596		277		(80	)		(645	)		4,148
Total of allowances		1,750,535		1,231,621		(71,041	)		(830,618	)		2,080,497
Provisions
- Contingent commitments		6,590		547		(7,137	)		—			—
- Other loss contingencies		196,506		192,061		(2	)		(117,526	)		271,039
- Difference from court deposit dollarization		44,645		10,213		—			—			54,858
- Administrative, disciplinary and criminal sanctions		10,284		330		(1,504	)		—			9,110
Total of provisions		258,025		203,151		(8,643	)		(117,526	)		335,007
	As of December 31, 2015
	Balance at the beginning of the fiscal year		Increase		Reversals			Charge off			Balance at the end of the fiscal year
Allowances
- Loans		1,186,044		1,057,228		(11,967	)		(735,341	)		1,495,964
- Other receivables from financial intermediation		235,755		14,568		(2,424	)		(4,871	)		243,028
- Receivables from financial leases		4,459		952		(25	)		(34	)		5,352
- Investment in other companies		1,506		252		—			(163	)		1,595
- Other receivables		5,383		2,133		(160	)		(2,760	)		4,596
Total of allowances		1,433,147		1,075,133		(14,576	)		(743,169	)		1,750,535
Provisions
- Contingent commitments		2,264		4,339		(13	)		—			6,590
- Other loss contingencies		138,604		163,448		(4	)		(105,542	)		196,506
- Difference from court deposit dollarization		31,055		16,235		(2,645	)		—			44,645
- Administrative, disciplinary and criminal sanctions		—		14,152		—			(3,868	)		10,284
Total of provisions		171,923		198,174		(2,662	)		(109,410	)		258,025
	As of December 31, 2014
	Balance at the beginning of the fiscal year		Increase		Reversals			Charge off			Balance at the end of the fiscal year
Allowances
- Loans		1,006,495		757,445		(14,713	)		(563,183	)		1,186,044
- Other receivables from financial intermediation		232,290		8,495		(989	)		(4,041	)		235,755
- Receivables from financial leases		5,015		1,076		(694	)		(938	)		4,459
- Investment in other companies		1,330		306		(130	)		—			1,506
- Other receivables		6,929		1,145		(2,254	)		(437	)		5,383
Total of allowances		1,252,059		768,467		(18,780	)		(568,599	)		1,433,147
Provisions
- Contingent commitments		4,806		12		(2,554	)		—			2,264
- Other loss contingencies		131,274		34,292		(2,167	)		(24,795	)		138,604
- Difference from court deposit dollarization		23,301		8,018		(231	)		(33	)		31,055
Total of provisions		159,381		42,322		(4,952	)		(24,828	)		171,923

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Under Central Bank rules allowances for loan losses includes allowances for “loans”, “other receivables for financial intermediation” and “receivables from financial leases”.

29. DEPOSITS AND OTHER LIABILITIES FROM FINANCIAL INTERMEDIATION

29.1 Deposits

The aggregate amount of time deposits and investment accounts exceeding Ps.100 (thousands) or more as of December 31, 2016 and 2015 is 46,151,663 and 32,927,711, respectively.

29.2. Central Bank of Argentina

The Bank borrowed funds under various credit facilities from the Central Bank for specific purposes, as follows:

	As of December 31, 2016							As of December 31, 2015
	Principal		Interest and CER adjustments		Rate			Principal		Interest and CER adjustments		Rate
Short–term liabilities		8,296		2		0.02	%		12,660		46		4.28	%
Long–term liabilities		104		1		1.92	%		208		3		2.00	%
Total		8,400		3					12,868		49

Accrued interest is included in the “Central Bank of Argentina” under the “Other Liabilities from Financial Intermediation” in the accompanying Consolidated Balance Sheets. Amounts are unsecured.

29.3. International banks and institutions

The Bank borrowed funds under various credit facilities from International banks and institutions for specific purposes, as follows:

	As of December 31, 2016							As of December 31, 2015
	Principal		Interest		Rate			Principal		Interest		Rate
Short–term liabilities		128,912		1,004		3.93	%		97,789		809		4.91	%
Total		128,912		1,004					97,789		809

Accrued interest is included in the “Accrued interest, adjustments, foreign exchange and quoted price differences payable” under the “Other Liabilities from Financial Intermediation” in the accompanying Consolidated Balance Sheets. Amounts are unsecured.

29.4. Financing received from Argentine financial institutions

The Bank borrowed funds under various credit facilities from the Argentine financial institutions for specific purposes, as follows:

	As of December 31, 2016							As of December 31, 2015
	Principal		Interest		Rate			Principal		Interest		Rate
Short–term liabilities		101,085		17,178		24.60	%		49,926		11,718		13.41	%
Long–term liabilities		19,483		3,050		14.93	%		9,180		13,560		7.78	%
Total		120,568		20,228					59,106		25,278

Interest includes accrued interest rate and CER adjustments. These amounts are recorded in “Accrued interest payables” under the Financing received from Argentine financial institutions and “Accrued interest, adjustments, foreign exchange and quoted price differences payables” under the “Other liabilities from financial intermediation” in the accompanying consolidated balance sheets. Except for the liability assumed with BICE (see Note 8), amounts are unsecured.

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Maturities of the long-term liabilities in the table above for each of the following periods are as follows:

Periods	As of December 31, 2016
2018		9,753
2019		4,260
2020		4,260
2021		4,260
		22,533

29.5. Other

The rest of liabilities included in “Other liabilities from financial intermediation” are liabilities assumed for the Bank, mainly related to operating banking activities.

	As of December 31, 2016							As of December 31, 2015
	Principal		Interest		Rate			Principal		Interest		Rate
Short–term liabilities (1)		6,971,882		352		0.01	%		4,926,449		—		0.00	%
Long–term liabilities (2)		123,492		1,537		6.39	%		96,112		1,500		4.12	%
Total		7,095,374		1,889					5,022,561		1,500

(1) Includes mainly pending settlement transactions and payment accounts.

(2) Includes the liability assumed with SEDESA related to the acquisition of preferred shares of former Nuevo Banco Bisel S.A. in the amount of 98,082 and and 94,300 as of December 31, 2016 and 2015, respectively (see Note 15.6.4).

Additionally, the Bank has other liabilities related to corporate bonds and forward transactions (see Notes 11 and 25, respectively).

Accrued interest is included in the “Accrued interest, adjustments, foreign exchange and quoted price differences payable” under the “Other Liabilities from Financial Intermediation” in the accompanying Consolidated Balance Sheets. Amounts are unsecured.

30. EMPLOYEE BENEFIT PLANS

The Bank does not maintain pension plans for its personnel. The Bank is required to pay employer contributions, determined on the basis of total monthly payroll.

These expenses aggregated 812,669, 598,425 and 449,962 for the fiscal years ended December 31, 2016, 2015 and 2014, respectively, and are included in the “Administrative expenses—Personnel expenses” account.

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31. CONSOLIDATED INCOME STATEMENTS AND BALANCE SHEET

The presentation of consolidated financial statements under Central Bank’s rules differs significantly from the format required by the US SEC under Rules 9-03 and 9-04 of Regulation S-X (“Article 9”). The following consolidated financial statements were restated into constant pesos, as explained in Note 4.3. These consolidated financial statements were prepared using the measurement methods provided by Central Bank, but under US SEC requirements:

Consolidated Statements of Income	2016			2015			2014
Interest and fees on loans		22,165,892			15,412,945			11,696,696
Interest on bearing deposits with other banks		1,199			155			127
Interest on other receivables from financial intermediation		190,241			109,151			260,977
Interest on securities and foreign exchange purchased under resale agreements		128,401			128,562			126,755
Securities gains, net		6,084,836			3,930,377			1,862,495
Other interest income		182,953			116,040			100,536
Total interest income		28,753,522			19,697,230			14,047,586
Interest on deposits		10,373,571			6,774,958			5,188,797
Interest on securities and foreign exchange purchased under resale agreements		50,828			8,136			9,249
Interest on short-term borrowings		165,261			25,368			30,473
Interest on long-term debt		277,045			219,232			193,554
Total interest expense		10,866,705			7,027,694			5,422,073
Net interest income		17,886,817			12,669,536			8,625,513
Provision for loan losses, net (1)		(855,653	)		(729,124	)		(546,651	)
Net interest income after provision for loan losses		17,031,164			11,940,412			8,078,862
Service charges on deposit accounts and other fees		4,597,495			3,561,203			2,798,967
Credit-card service charges and fees		1,918,548			1,399,351			1,004,636
Other commissions		156,080			115,093			93,768
Foreign currency exchange trading income		134,803			100,581			67,123
Income from equity in other companies		93,671			78,602			85,310
Foreign exchange, net		516,894			653,120			827,599
Other		1,057,393			838,208			611,690
Total non-interest income		8,474,884			6,746,158			5,489,093
Commissions		530,808			410,588			288,053
Salaries and payroll taxes		6,021,630			4,310,559			3,180,761
Outside consultants and services		275,408			211,178			176,010
Depreciation of bank premises and equipment		207,817			173,611			132,376
Rent		195,387			135,970			110,274
Stationery and supplies		38,031			34,427			25,936
Electric power and communications		281,860			171,791			145,378
Advertising and publicity		197,505			143,883			128,387
Taxes		3,190,991			2,132,398			1,707,731
Directors’ and Statutory Audits’ fee		314,522			233,030			163,378
Insurance		38,394			27,159			22,646
Security services		410,036			313,309			249,176
Maintenance, conservation and repair expenses		429,656			321,287			255,965
Amortization of organization and development costs (2)		196,717			150,437			122,704
Amortization of goodwill (2)		10,076			14,052			14,052
Provision for losses on other receivables and other allowances (3)		203,256			185,714			42,731
Other		2,891,153			2,186,266			1,337,188
Total non-interest expense		15,433,247			11,155,659			8,102,746
Income before income tax expense		10,072,801			7,530,911			5,465,209
Income tax expense		3,477,377			2,485,663			1,962,186
Income from continuing operations		6,595,424			5,045,248			3,503,023
Net income		6,595,424			5,045,248			3,503,023
Net income attributable to the noncontrolling interest		54,592			35,359			23,492
Net income attributable to the controlling interest		6,540,832			5,009,889			3,479,531
Earnings per common share attributable to controlling interest – stated in pesos (4)		11.19			8.57			5.95

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(1) Mainly includes allowances for loan losses and allowances for Receivables from financial leases, net of those related to Recovered loans.

(2) See Notes 27 and 35.5.

(3) Mainly includes provisions for losses, and other receivables and expenses related to contingent liabilities for probable claims, lawsuit and other proceedings, including those related to labor.

(4) An earnings per common share was computed by dividing net income by the weighted average number of outstanding common shares.

Central Bank rules also require certain classifications of assets and liabilities, which are different from those required by Article 9. The following table discloses the Bank’s consolidated balance sheets as of December 31, 2016, and 2015, as if the Bank followed the balance sheet disclosure requirements under Article 9:

	2016			2015
ASSETS
Cash and due from banks		34,704,194			17,304,712
Interest-bearing deposits in other banks		648,060			1,271,350
Federal Funds sold and securities purchased under resale agreements of similar arrangements		19,138			5,207
Trading account assets		3,483,687			6,211,975
Investment securities available for sale		18,236,193			10,148,716
Loans		90,855,522			64,359,734
Allowance for loan losses		(1,834,498	)		(1,501,316	)
Premises and equipment		3,425,762			2,584,715
Due from customers on acceptances		513,301			1,364,407
Other assets (1)		4,707,566			3,737,931
Total assets		154,758,925			105,487,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits		79,099,693			55,877,265
Non interest-bearing deposits		32,122,007			19,828,730
Federal Funds purchased and securities sold under repurchase agreements		1,096,394			4,027
Other short-term borrowings		8,913,605			5,148,402
Long-term borrowings		147,666			1,504,230
Contingent liabilities		335,007			258,025
Income tax payables		1,747,547			932,005
Other liabilities		2,087,168			2,606,867
Bank acceptances outstanding		513,301			1,364,407
Subordinated corporate bonds		6,407,840			1,957,618
Total liabilities		132,470,228			89,481,576
Common stocks		584,563			584,563
Retained appropriated earnings		14,384,820			9,754,020
Retained unappropriated earnings		6,732,505			5,134,957
Other shareholders’ equity		404,010			404,010
Noncontrolling interests		182,799			128,305
Total shareholders’ equity		22,288,697			16,005,855
Total liabilities and shareholders’ equity		154,758,925			105,487,431

(1) As of December 31, 2016 and 2015, includes long-term investment for an amount of 11,352 and 10,909, respectively.

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32. OPERATIONS BY GEOGRAPHICAL LOCATION

The principal financial information, classified by country of office where transactions originate, is shown below:

	As of December 31,
	2016		2015		2014
Total revenues		37,502,469		26,633,657		19,689,640
Argentina		37,300,606		26,378,784		19,573,045
Bahamas		201,863		254,873		116,595
Net income		6,540,832		5,009,889		3,479,531
Argentina		6,367,452		4,790,561		3,382,597
Bahamas		173,380		219,328		96,934
Total assets		154,998,960		104,951,959		74,995,634
Argentina		153,533,604		102,093,543		73,269,854
Bahamas		1,465,356		2,858,416		1,725,780

33. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank enters into various transactions involving off-balance-sheet financial instruments. These instruments could be used to meet the risk management, trading and financing needs of customers or for the Bank’s proprietary trading and asset and liability management purposes, and could be subject to varying degrees of credit and market risk. Credit risk and market risk associated with on- and off-balance-sheet financial instruments are monitored on an aggregate basis.

The Bank uses the same credit policies in determining whether to enter or extend call and put option contracts, commitments, conditional obligations and guarantees as it does for granting loans.

33.1. Derivatives

In the normal course of business, the Bank enters into a variety of transactions principally in the foreign exchange and stock markets. Most counterparts in the derivative transactions are banks and other financial institutions.

These instruments include:

• Options: they confer the right to the buyer, but no obligation, to receive or pay a specific quantity of an asset or financial instrument for a specified price at or before a specified date. Options may be traded on a stock exchange or under OTC (Over-the-Counter) agreements.

• Forwards and Futures: they are agreements to deliver or take delivery at a specified rate, price or index applied against the underlying asset or financial instrument, at a specific date. Futures are exchange traded at standardized amounts of the underlying asset or financial instrument. Forwards contracts are OTC agreements and are principally dealt in by the Bank in securities/foreign exchange as forward agreements.

Pursuant to Central Bank’s rules, forward transactions with delivery of underlying assets, must be recorded under “Other receivables from financial intermediations” and “Other liabilities from financial intermediations” in the accompanying consolidated balance sheets and they were valued as mentioned in Note 4.5.g) (accrual method).

The notional contractual amount of these instruments represents the volume of outstanding transactions and does not represent the potential gain or loss associated with the market or credit risk of such transactions. The market risk of derivatives arises from the potential for changes in value due to fluctuations in market prices.

The credit risk of derivatives arises from the potential of the counterparty to default on its contractual obligations. The effect of such a default varies as the market value of derivative contracts changes. Credit exposure exists at a particular point in time when a derivative has a positive market value. The Bank attempts to limit its credit risk by dealing with creditworthy counterparts and obtaining collateral, where appropriate.

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The following table shows, the notional value of options and outstanding forward contracts recorded in memorandum accounts as of December 31, 2016 and 2015:

	As of December 31,
	2016		2015
Forward sales of foreign exchange without delivery of underlying asset (a)		192,469		3,298,973
Forward purchases of foreign exchange without delivery of underlying asset (a)		135,597		3,253,734
Call options sold (b)		167,721		138,521
Put options taken (c)		—		11,821

(a) It is related to negotiation transactions of forward foreign currency exchange rates, carried out through MAE and “over the counter”. For transactions carried out through MAE, the differences of such trading transactions are settled on a daily basis based on the prices agreed upon and their quoted price upon maturity while “over the counter” transactions are settled upon maturity. In both cases, the underlying asset is not delivered or received.

(b) It is related to a call option sold to a Bank’s customer on a building received by the Bank as payment of loans granted by it. The initial price was set at 104,135, and will accrue interest at a corrected Badlar rate, re-calculated on a monthly basis, plus 200 basis points and the option’s exercise period is from July 24, 2014, through July 31, 2016, both dates included. As of the date of issuance of these consolidated financial statements, the holder has notified its intention to acquire the building according to the terms and conditions of the option, still pending the transaction instrumentation.

(c) It is related to a put option taken with a Bank’s customer of a property received by the Bank as payment of loans granted by it for an amount of USD 908,975 and USD 1,024,250, respectively, and the option’s exercise period is from September 24, 2015, through September 23, 2016, both dates included. As of the date of the issuance of these consolidated financial statements, the Bank has exercised the option, still pending the transaction instrumentation.

Net income (loss) resulting from these transactions and repo and reverse repo, for the fiscal years ended December 31, 2016, 2015 and 2014, amount to income (loss) and are included in the “Financial Income - Other”:

Transactions	2016			2015			2014
Premiums on reverse repurchase agreements		128,401			128,562			126,469
Premiums on repurchase agreements		(50,828	)		(8,137	)		(9,249	)
Interest rate swaps		—			—			2,491
Forwards of foreign currency		46,572			48,901			143,459
Total		124,145			169,326			263,170

33.2. Credit-related financial instruments

The Bank’s exposure to credit loss in the event of the counterparts’ failure to fulfill the commitments to extending credit, guarantees granted and foreign trade acceptances is represented by the contractual notional amount of those investments.

Commitments to extend credit are agreements to lend to a customer at a future date, subject to compliance with contractual terms. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent actual future cash requirements for the Bank. The Bank evaluates each customer’s creditworthiness on a case-by-case basis.

Foreign trade acceptances represent Bank customers’ liabilities on outstanding drafts or bills of exchange that have been accepted by the Bank and the Bank’s liability to remit payment upon the presentation of the accepted drafts or bills of exchange.

The credit risk involved in foreign trade acceptances and guarantees granted is essentially the same as that involved in extending loan facilities to customers. In order to grant guarantees to its customers, the Bank may require counter guarantees.

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A summary of credit exposure related to these items is shown below (*):

	As of December 31,
	2016		2015
Other covered by debtors classification standards		354,315		1,227,180
Other guarantees provided covered by debtors classification standards		287,497		163,905
Other guarantees provided not covered by debtors classification standards		158,986		137,227
Other not covered by debtors classification standards		100,938		12,668

(*) Most of this amount as of December 31, 2016 and 2015, have a remaining maturity of less than one year.

The Bank accounts for checks drawn thereon and on other banks, as well as other items in process of collection, such as notes, bills and miscellaneous items, in memorandum accounts until the related item clears or is accepted. In Management’s opinion, no significant risk of loss exists on these clearing transactions. The amounts of clearing items in collection process are as follows:

	As of December 31,
	2016		2015
Checks drawn on the Bank pending clearing		1,852,989		1,429,098
Checks drawn on other Banks		1,134,949		613,495

33.3 Trust activities

See Note 14.

34. BUSINESS SEGMENT CONSOLIDATED INFORMATION

FASB ASC 280 “Segment reporting” requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Management has determined that the Bank has one reportable segment related to banking activities.

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35. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CENTRAL BANK RULES AND UNITED STATES ACCOUNTING PRINCIPLES

The following is a description of the significant differences between Central Bank rules followed in the preparation of the Bank’s financial statements and those applicable in the United States under generally accepted accounting principles (US GAAP). “FASB ASC” shall refer to Financial Accounting Standards Board Accounting Standards Codification.

In 2016 the Bank adopted the following Accounting Standards Update (ASU):

• 2014-16 – Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). According with this ASU, all entities are required to use what is called the “whole instrument approach” to determine the nature of a host contract in a hybrid financial instrument issued in the form of a share. There was no effect on the accompanying consolidated financial statements for the adoption of this statement.

• 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The amendments in this Update eliminate the concept of extraordinary item. There was no effect on the accompanying consolidated financial statements for the adoption of this statement.

• 2015-02 – Consolidation (Topic 810), Amendments to the Consolidation Analysis. This new ASU affects the consolidation evaluation for reporting organizations. The main provisions are: (i) eliminates the presumption that a general partner should consolidate a limited partnership and eliminates the consolidation model specific to limited partnership; (ii) clarifies when fees paid to a decision maker should be a factor to include in the consolidation of variable interest entities (VIEs); (iii) amends the guidance for assessing how relationships of related parties affect the consolidation analysis of VIEs; (iv) reduces the number of VIE consolidation models from two to one by eliminating the indefinite deferral for certain investment funds and; (v) scopes certain money market funds out of the consolidation guidance. There was no effect on the accompanying consolidated financial statements for the adoption of this statement.

• 2015-05 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computer Agreement. The amendments in this Update provide guidance to customer about whether a cloud computing arrangement includes a software license. There was no effect on the accompanying consolidated financial statements for the adoption of this statement.

• 2015-10 and 2016-19 Technical correction improvements. The amendments in this Update cover a wide range of Topics in the Codification. The reason for each amendment is provided before each amendment for clarity and ease of understanding. The amendments generally fall into one of the followings types of amendments: (i) Amendments Related to Differences between Original Guidance and the Codification, (ii) Guidance Clarification and Reference Corrections; (iii) Simplification and (iv) Minor Improvements. There was no effect on the accompanying consolidated financial statements for the adoption of these statements.

• 2015-16 – Business Combination (Topic 805), Simplifying the Accounting for Measurement-Period Adjustment. The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. There was no effect on the accompanying consolidated financial statements for the adoption of this statement.

35.1. Income taxes

As explained in Note 5, Central Bank rules do not require the recognition of deferred tax assets and liabilities and, therefore, income tax is recognized on the basis of amounts due in accordance with Argentine tax regulations and no deferred tax and liabilities are recognized.

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For purposes of US GAAP reporting, the Bank applies FASB ASC 740 “Income Taxes”. Under this method, income tax is recognized based on the liability method whereby deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax basis of assets and liabilities at each reporting date. FASB ASC 740 requires that an allowance for deferred tax assets be provided to the extent that it is more likely than not that they will not be realized, based on the weight of available evidence. In order to determine the amount of the valuation allowance required, in accordance with FAS ASC 740-10-30-16 through 30-25, the Bank evaluates for each consolidated entity all available evidence, both positive and negative and the future realization of the tax benefit in a relatively short period of time, considering future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards and tax-planning strategies.

FASB ASC 740 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

There were no unrecognized tax benefits as of December 31, 2016, 2015 and 2014.

The Bank and its subsidiaries located in Argentina, file income tax returns in such country. The Bank is subject to Argentina income tax examination for calendar fiscal years ending 2011 through 2016 (in addition see Note 17).

Deferred tax assets and liabilities (including those related to business combinations mentioned in Note 35.7.a) and b)) are summarized as follows:

	As of December 31,
Description	2016			2015
Deferred tax assets:
Loans (mainly allowances for loan losses)		389,853			360,724
Vacation accrual		122,401			93,937
Allowance for loss contingencies		117,253			86,931
Net operating loss carry forwards		11			34
Other		34,028			16,355
Total deferred tax assets		663,546			557,981
Deferred tax liabilities:
Intangible assets		(233,406	)		(173,053	)
Property, equipment and other assets		(89,443	)		(36,992	)
Foreign exchange difference		(70,126	)		(31,922	)
Government and private securities		(50,627	)		(28,415	)
Other		(15,644	)		(42,486	)
Total deferred tax liabilities		(459,246	)		(312,868	)
Net Deferred tax asset before allowance		204,300			245,113
Allowance for deferred tax assets		(11,651	)		(62,352	)
Net deferred tax assets under US GAAP		192,649			182,761

As of December 31, 2016, the consolidated net operating loss carry forwards of 30 are as follows:

Expiration year	Amount
2017		30
		30

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The change in the net deferred tax assets for the fiscal years presented is summarized as follows:

	As of December 31,
	2016			2015			2014
Net deferred tax assets at the beginning of the year		182,761			355,867			229,571
Net amount recorded in comprehensive income		(57,171	)		(70,925	)		(31,375	)
Net deferred tax income for the year		67,059			(102,181	)		157,671
Net deferred tax assets at the end of the year		192,649			182,761			355,867

The following table accounts for the difference between the actual tax provision under Central Bank regulations and the total income tax expense in accordance with US GAAP:

	Year ended December 31,
Description	2016			2015		2014
Income tax in accordance with Central Bank regulations		3,477,377			2,485,663		1,962,186
Net deferred tax income		(67,059	)		102,181		(157,671	)
Total income tax expense in accordance with US GAAP		3,410,318			2,587,844		1,804,515

The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory income tax rate in Argentina to income before income tax in accordance with US GAAP:

	Year ended December 31,
Description	2016			2015			2014
Pre-tax income in accordance with US GAAP		10,047,326			7,534,988			5,377,448
Statutory income tax rate		35	%		35	%		35	%
Tax on net income at statutory rate		3,516,564			2,637,246			1,882,107
Permanent differences at the statutory rate:
- Variation of allowances for deferred tax assets		(50,701	)		3,493			(9,694	)
- Income not subject to income tax		(55,545	)		(52,895	)		(67,898	)
Income tax in accordance with US GAAP		3,410,318			2,587,844			1,804,515

In Note 35.7 the abovementioned adjustments were split considering business combinations or other adjustments.

Had US GAAP been applied, the Bank’s assets would increase by 197,357, 190,243 and 366,107 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 64,285 and 154,891 for the years ended December 31, 2016 and 2014, respectively, and would decrease by 104,939 for the year ended December 31, 2015.

Besides the adjustment abovementioned, the Bank’s assets related to income tax acquired in business combination transactions would decrease by 4,708, 7,482 and 10,240 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 2,774, 2,758 and 2,780, for the years ended December 31, 2016, 2015 and 2014, respectively. Such adjustments are included in Note 35.7 a) and b).

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35.2. Exposure to the Argentine Public Sector and Private Securities

a) Loans—Non-financial federal government sector

As of December 2016, 2015 and 2014, the Bank has guaranteed loans acquired mainly through business combinations (maturing around 2017) which were valued according to Central Bank Communiqués “A” 4898 and 5180, amounting to 717,549, 465,193 and 407,677, respectively (see Note 4.5.c)).

Under US GAAP, the difference between the cost of each acquired purchased credit impaired loan and its expected future cash flows is accounted for in accordance with FASB ASC 310-30 “Loans and debts acquired with deteriorated credit quality”. In accordance with this rule, the Bank should continue to estimate the cash flows expected to be collected over the life of the loan.

The effects of the adjustments required to state such amounts in accordance with US GAAP would decrease assets by 25,632, 148,237 and 200,250 as of December 31, 2016, 2015 and 2014, respectively.

On the other hand, income would increase by 122,605 and 52,013 for the years ended December 31, 2016 and 2015, respectively, and would decrease by 42,036 for the year ended December 31, 2014.

Taking into account the terms of loans to the non-financial federal government sector acquired with deteriorated credit quality and considering that, historically, the government has not prepaid them, the Bank does not expect prepayments to occur and, therefore, has concluded that such prepayments need not be considered in the determination of cash flows expected to be collected.

The following table presents the outstanding balance of loans to the non-financial federal government sector acquired with deteriorated credit quality and related carrying amount under US GAAP at the beginning and end of each year:

	Outstanding balance (*) Year ended December 31,				Carrying amount Year ended December 31,
	2016		2015		2016		2015
Beginning of the year		465,193		407,677		316,956		207,427
End of year		717,549		465,193		691,917		316,956

(*) It includes the undiscounted sum of all amounts, including principal, interest, fees and CER adjustments under the loans owed at the reporting date.

The following table reconciles the amounts of accretable yield of loans to the non-financial federal government sector acquired with deteriorated credit quality at the beginning and end of each year:

	Year ended December 31,
	2016			2015			2014
Accretable yield at the beginning		275,447			124,596			70,306
Accretion		(407,144	)		(135,005	)		(80,875	)
Disposals		—			(313	)		—
Reclassification from nonaccretable yield		780,171			286,169			135,165
Accretable yield at the end		648,474			275,447			124,596

During 2016, 2015 and 2014, the Bank has not acquired loans or debt securities with deteriorated credit quality. In addition, the Bank applies the income recognition model required by FASB ASC 310-30.

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As of December 31, 2016, 2015 and 2014, the Bank has not booked allowances for the non-financial federal government sector acquired with deteriorated credit quality.

b) Government and private securities

b.1) Available for sale securities

Under US GAAP, securities for which the Bank’s management has the intention and the ability to hold them for an indefinite period of time, but not necessarily to maturity, are classified as “available for sale securities”. They are carried at fair value with the unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320 “Investment – Debt and Equity Securities”.

b.2) Trading securities

Under US GAAP, securities maintained for intermediation are classified as “trading securities” because they are bought mainly with the intent to buy and sell in the short term as part of the Bank’s trading or intermediation activities. They are carried at fair value considering their active market, with changes in fair value recorded in the consolidated statement of income.

Under Central Bank rules, Government and private securities were valued as explained in Note 4.5.b). The effects of the adjustments required to state these securities in accordance with US GAAP would increase assets by 5,496 as of December 31, 2016, and would decrease assets by 26,196 and 21,263 as of December 31, 2015 and 2014, respectively.

On the other hand, net income, excluding OCI effects, would increase by 13,297 and 3 for the years ended December 31, 2016 and 2014, respectively, and would decrease by 29,277 for the year ended December 31, 2015.

c) Instruments issued by Central Bank of Argentina

As of December 31, 2016, 2015 and 2014, the Bank had instruments issued by Central Bank of Argentina. Under Central Bank rules, these securities were valued at the quoted price of each security or at the cost value increased by their internal rate of return, as mentioned in Note 4.5.b.3), and b.4).

Under US GAAP, considering what is mentioned in Note 35.2.b.1), these securities should be considered as “available for sale” and carried at fair value, with unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320.

The effects of the adjustments required to state such amounts in accordance with US GAAP would increase assets by 6,686, 4,064 and 2,374 as of December 31, 2016, 2015 and 2014, respectively.

On the other hand, net income, excluding OCI effects, would decrease by 22,149 for the year ended December 31, 2016, and would increase by 12,252 and 7,242 for the years ended December 31, 2015 and 2014, respectively.

d) Securities in financial trust and others

As of December 31, 2016, 2015 and 2014, the Bank had securities in financial trust and others. Under Central Bank rules, these securities were valued at the cost value increased by their internal rate of return, as mentioned in Note 4.5.g.3) and 4.5.g.4).

Under US GAAP, considering what is mentioned in Note 35.2.b.1), these securities should be considered as “available for sale” and carried at fair value, with unrealized gains and losses reported as net of income tax within the shareholders’ equity accounts in accordance with FASB ASC 320.

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The effects of the adjustments required to state such amounts in accordance with US GAAP would increase assets by 7,525, 35,775 and 30,884 as of December 31, 2016, 2015 and 2014, respectively.

On the other hand, net income, excluding OCI effects, would decrease by 15,287 and 10,418 for the years ended December 31, 2016 and 2014, respectively, and would increase by 16,527 for the year ended December 31, 2015.

The following table presents the carrying amount under Central Bank rules and fair value of public and private securities, excluding the effects of securities affected to repurchase and reverse repurchase agreements:

	As for December 31,
	2016				2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Trading
Government securities		2,999,923		2,999,923		4,927,816		4,921,775
Private securities		483,764		483,764		1,301,840		1,301,840
Total trading securities		3,483,687		3,483,687		6,229,656		6,223,615
Available for sale
Government securities		1,744,290		1,749,786		1,031,766		1,011,611
Instruments issued by Central Bank of Argentina		15,964,250		15,970,936		8,302,992		8,307,056
Securities in financial trust and other		527,653		535,178		796,277		832,052
Total available for sale securities		18,236,193		18,255,900		10,131,035		10,150,719
Total		21,719,880		21,739,587		16,360,691		16,374,334

The carrying amount under Central Bank rules, amortized cost, net unrealized gains and the fair value of securities classified as available for sale (see Note 31) mentioned in items b.1), c) and d) as of December 31, 2016 and 2015, are as follows:

	As of December 31, 2016
	Carrying Amount		Amortized Cost		Net Unrealized Gains/(Loss)		Fair Value
- Government securities		1,744,290		1,732,788		16,998		1,749,786
- Instruments issued by Central Bank of Argentina		15,964,250		15,961,739		9,197		15,970,936
-Securities in financial trust and other		527,653		534,026		1,152		535,178
Total		18,236,193		18,228,553		27,347		18,255,900

	As of December 31, 2015
	Carrying Amount		Amortized Cost		Net Unrealized Gains/(Loss)			Fair Value
- Government securities		1,031,766		1,013,008		(1,397	)		1,011,611
- Instruments issued by Central Bank of Argentina		8,302,992		8,322,630		(15,574	)		8,307,056
-Securities in financial trust and other		796,277		817,937		14,115			832,052
Total		10,131,035		10,153,575		(2,856	)		10,150,719

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The proceeds from sales of available for sale securities and the gross realized gains that have been included in earnings as a result of those sales, for the years ended December 31, 2016, 2015 and 2014 are as follows:

	Proceeds from sales As of December 31,
Available for sale securities	2016 (*)		2015 (*)		2014 (*)
- Government securities		1,140,567		302,169		725,206
- Instruments issued by Central Bank of Argentina		34,284,669		15,549,001		9,076,881
-Securities in financial trust and other		3,215,170		1,117,304		154,123
		38,640,406		16,968,474		9,956,210

(*) As of December 31, 2016, 2015 and 2014, realized gains as a result of those sales amounted to 1,232,830, 651,133 and 678,827, respectively.

The amount of the unrealized gain or loss on available for sale securities, before tax, that have been included in accumulated other comprehensive income (see Note 35.20) is as follows:

Securities	2015			Increase		Decrease			2016
- Government securities		(1,397	)		39,444		(21,049	)		16,998
- Instruments issued by Central Bank of Argentina		(15,574	)		33,563		(8,792	)		9,197
-Securities in financial trust and other		14,115			11,683		(24,646	)		1,152
Total		(2,856	)		84,690		(54,487	)		27,347
Securities	2014			Increase		Decrease			2015
- Government securities		(25,741	)		39,877		(15,533	)		(1,397	)
- Instruments issued by Central Bank of Argentina		(5,012	)		16,987		(27,549	)		(15,574	)
-Securities in financial trust and other		25,751			29,844		(41,480	)		14,115
Total		(5,002	)		86,708		(84,562	)		(2,856	)
Securities	2013			Increase		Decrease			2014
- Government securities		(5,614	)		8,590		(28,717	)		(25,741	)
- Instruments issued by Central Bank of Argentina		(103	)		5,874		(10,783	)		(5,012	)
-Securities in financial trust and other		(1,283	)		44,681		(17,647	)		25,751
Total		(7,000	)		59,145		(57,147	)		(5,002	)

The maturities of available for sale securities as of December 31, 2016 are as follows:

	For the year ended December 31, 2016
Securities	Within 1 year		After 1 year but within 5 years		After 5 year but within 10 years		Total
- Government securities		966,173		745,871		37,742		1,749,786
- Instruments issued by Central Bank of Argentina		15,970,936		—		—		15,970,936
-Securities in financial trust and other		117,710		417,468		—		535,178
Total		17,054,819		1,163,339		37,742		18,255,900

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The portion of trading gains and losses for the period that relates to trading securities still held as of December 31, 2016, 2015 and 2014 are as follows:

	Gains/(loss) as of December 31,
Trading Securities	2016		2015		2014
Government securities		109,413		753,163		6,087
Private securities		47,273		233,404		(209,100	)
		156,686		986,567		(203,013	)

The following table, presents the gross unrealized losses and fair value of securities classified as available for sale by length of time for each category of securities that have been in a continuous loss position:

	Less than 12 months					12 months or more					Total
	Gross Unrealized losses			Fair Value		Gross Unrealized losses			Fair Value		Gross Unrealized losses			Fair Value
December 31, 2016
Government securities		(11,508	)		423,308		—			—		(11,508	)		423,308
Instruments issued by Central Bank of Argentina		(2,588	)		4,795,727		—			—		(2,588	)		4,795,727
Securities in financial trust and other		(4,994	)		137,015		(991	)		43,895		(5,985	)		180,910
Total		(19,090	)		5,356,050		(991	)		43,895		(20,081	)		5,399,945
	Less than 12 months					12 months or more					Total
	Gross Unrealized losses			Fair Value		Gross Unrealized losses			Fair Value		Gross Unrealized losses			Fair Value
December 31, 2015
Government securities		(13,896	)		575,135		(1,060	)		35,144		(14,956	)		610,279
Instruments issued by Central Bank of Argentina		(21,778	)		4,398,035		—			—		(21,778	)		4,398,035
Securities in financial trust and other		(3,433	)		189,823		(461	)		18,488		(3,894	)		208,311
Total		(39,107	)		5,162,993		(1,521	)		53,632		(40,628	)		5,216,625

For purposes of determining whether the decline in fair value for these categories of securities qualifies as “other than temporary impairment,” the Bank has considered the following factors:

• The decline in fair value is not believed to be attributable to credit quality. It solely derives from adverse interest rate fluctuations of observable inputs of similar instruments according to their fair value hierarchy.

• Future principal payments are expected to be sufficient to recover the current amortized cost of these investments.

• The Bank has the intention to hold these securities at least until their fair value recover to a level that exceeds their amortized cost.

• The extent to which the fair value has been less than the amortized cost is not relevant for these categories of securities.

The Bank has concluded that the decline in fair value for these securities does not qualify as “other than temporary impairment.”

The Bank notes that the specific identification method was used in order to determine the cost of securities sold.

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35.3. Loan origination fees

The Bank recognizes fees on consumer loans, such as credit cards, mortgage, pledged and personal loans, stand by letters of credit and guarantees issued, when collected and charges direct origination costs when incurred. Pursuant to Central Bank Communiqué “A” 5460, the Central Bank has established certain regulatory limits on fees applicable to consumer financing, mainly personal and pledge loans.

In accordance with US GAAP under FASB ASC 310-20 “Nonrefundable Fees and Other Costs”, loan origination fees and certain direct loan origination costs should be recognized over the life of the related loan as an adjustment of yield or by straight-line method, as appropriate.

The effects of the adjustments required to state such amounts in accordance with US GAAP, would decrease assets by 110,485, 38,045 and 91,290 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would decrease by 72,440 for the year ended December 31, 2016 and would increase by 53,245 and 20,555 for the years ended December 31, 2015 and 2014, respectively.

35.4. Allowance for loan losses

According to FASB ASC 310 “Receivables”, loans are measured at their amortized cost using effective interest rate, after deduction of any allowance for loan losses.

The loan loss reserve represents the estimate of probable losses in the loan portfolio. Determining the loan loss reserve requires significant management judgments and estimates including, among others, identifying impaired loans, determining customers’ ability to pay and estimating the fair value of underlying collateral or the expected future cash flows to be received. Actual events will likely differ from the estimates and assumptions used in determining the loan loss reserve. Additional loan loss reserve could be required in the future.

The loan loss reserve is maintained in accordance with Central Bank rules. This results from evaluating the degree of debtors’ compliance and the guarantees (see Note 24.) and collateral supporting the respective transactions.

Increases in the reserve are based on the deterioration of the quality of existing loans, while decreases in the reserve are based on regulations requiring the charge off of non-performing loans classified as “non-recoverable”. The Bank charges-off non-performing loans on the month following the date on which such loans are classified as “irrecoverable without preferred guarantees” and fully provisioned.

In the case of the consumer portfolio, the charge-off takes place when the loan is approximately 270 days past due. For the commercial portfolio, the situation depends on the individual evaluation of the credit risk. All charged-off loans are registered in off balance sheet accounts while the Bank continues its collection efforts. Under US GAAP, the irrecoverable loans should be charged-off when the Bank abandons with its collection efforts.

In addition, under Central Bank rules, the Bank records recoveries on previously charged-off loans directly to income and records the amount of charged-off loans in excess of amounts specifically allocated as a direct charge to the consolidated statement of income. The Bank does not partially charge off troubled loans until final disposition of the loan, rather, the allowance is maintained on a loan-by-loan basis for its estimated settlement value.

The Bank’s consumer portfolio consists principally of personal loans and credit card loans. Personal loans include mainly financing granted to clients under the “Plan Sueldo” payroll services. Clients enrolled in this type of services receive their wages directly through their accounts at the Bank. Payments on such loans are debited directly from the clients’ wages on the due date. The most significant factors affecting the Bank’s consumer portfolio’s credit risk are employment rates and real wages.

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The Bank’s commercial portfolio is currently diversified among clients of different size (small, medium-sized businesses and corporations) and who are active in different economic sectors (mainly the agricultural, food, services and construction sectors - see Note 24 to the consolidated financial statements). The risks associated with this portfolio are principally related to the specific economic performance of each individual client and to economic factors, such as the price and demand of products and services and competitiveness, among others.

The Bank implements monitoring, control and risk-management systems to maintain the credit risk of its loan portfolios at adequate levels.

Under Central Bank rules, a minimum loan loss reserve is calculated primarily based upon the classification of commercial loan borrowers and upon delinquency aging (or the number of days the loan is past due) for consumer and housing loan borrowers. Although the Bank is required to follow the methodology and guidelines for determining the minimum loan loss reserve, as set forth by the Central Bank, the Bank is allowed to establish additional loan loss reserve.

For commercial loans, the Bank is required to classify all commercial loan borrowers. In order to classify them, the Bank must consider different parameters related to each of those customers.

Pursuant to Central Bank regulations, commercial loans are classified as follows:

Classification	Criteria
In 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, among others requirements.
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 Bank.
Irrecoverable according to Central Bank 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, and/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.

For consumer loan portfolio, the Bank classifies loans based upon delinquency aging, consistent with the requirements of the Central Bank. Minimum loss percentages required by the Central Bank are also applied to the totals in each loan classification.

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Under the Central Bank regulations, 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 31 and 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 Rules	Same criteria as for commercial loans in the Irrecoverable according to Central Bank Rules.

In addition, under Central Bank rules, based on the overall risk of the portfolio, the Bank records additional loan loss reserves in excess of the minimum required and changes the loan classification as the case may be.

Under US GAAP, a portion of the total allowance typically consists of amounts that are used, for example, to cover loans that are analyzed on a “pool” or homogeneous basis and to supplement specific allowances in recognition of the uncertainties inherent in point estimates.

The Bank’s accounting for its loan loss reserve under Central Bank rules differs in some respects with practices of US-based banks, as discussed below.

For the foreclosed assets maintained by the Bank, see Note 35.15.

a) Recoveries and write-offs

Under Central Bank rules, recoveries are recorded in a separate income line item under Other Income. Write-offs are recorded directly in the income statement. Under US GAAP, all the changes related to allowances would be recorded in the same line item.

b) Credit Card Loans

The Bank establishes its reserve for credit card loans based on the past due status of the loan. All loans without preferred guarantees greater than 180 days have been reserved at least at 50% in accordance with the Central Bank rules.

Under US GAAP, the Bank adopted a policy to fully provision loans which are 180 days past due.

Had US GAAP been applied, the Bank’s assets would decrease by 42,238, 33,876 and 25,664 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would decrease by 8,362, 8,212 and 8,699 for the years ended December 31, 2016, 2015 and 2014, respectively.

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c) Impairment allowances (individual and collective)—Non Financial Private Sector and residents abroad

FASB ASC 310 “Receivables”, requires a creditor to measure impairment of a loan based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. This Statement is applicable to all loans (including those restructured in a troubled debt restructuring involving amendment of terms), except large groups of smaller-balance homogenous loans, not considered troubled debt restructuring, that are collectively evaluated for impairment. Loans are considered impaired when, based on Management’s evaluation, a borrower will not be able to fulfill its obligation under the original loan terms.

The following table discloses the amounts under US GAAP of specific loans considered impaired in accordance with FASB ASC 310 as of December 31, 2016 and 2015:

	Recorded investment		Unpaid principal balance		Related allowance		Average Recorded Investment		Interest Income recognized
2016
With no related allowance recorded
Commercial
Mortgage and pledge loans		19,089		18,976		—		3,803		—
Other loans		22,806		22,801		—		23,082		694
Consumer
Documents		2,584		2,504		—		2,631		866
Mortgage and pledge loans		2,342		2,222		—		2,312		288
Personal loans		104,490		101,953		—		101,664		34,047
Other loans		6,966		6,740		—		6,853		1,804
Total		158,277		155,196		—		140,345		37,699
With an allowance recorded
Commercial
Overdrafts		25,314		25,314		12,657		17,980		1
Documents		2,793		2,660		1,396		2,773		—
Mortgage and pledge loans		50,467		49,586		12,384		38,816		6,169
Credit card		113		113		59		111		—
Other loans		94,398		94,065		27,302		94,914		13,260
Consumer
Documents		5,339		5,231		1,820		5,001		884
Mortgage and pledge loans		10,454		10,103		3,760		9,681		1,831
Personal loans		106,868		105,229		29,018		102,702		24,636
Other loans		19,615		19,300		6,772		17,489		2,454
Total		315,361		311,601		95,168		289,467		49,235
Total Commercial		214,980		213,515		53,798		181,479		20,124
Total Consumer		258,658		253,282		41,370		248,333		66,810

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	Recorded investment		Unpaid principal balance		Related allowance		Average Recorded Investment		Interest Income recognized
2015
With no related allowance recorded
Commercial
Mortgage and pledge loans		8,381		8,190		—		9,245		1,242
Other loans		625		623		—		625		2
Consumer
Documents		2,155		2,090		—		1,999		672
Mortgage and pledge loans		1,353		1,308		—		1,364		143
Personal loans		85,526		83,308		—		83,250		29,216
Other loans		8,219		7,989		—		7,985		1,673
Total		106,259		103,508		—		104,468		32,948
With an allowance recorded
Commercial
Overdrafts		15,404		15,404		9,211		11,063		—
Documents		56,000		51,326		15,758		56,730		—
Mortgage and pledge loans		136,120		123,680		66,931		135,298		11,514
Credit card		6,469		6,469		3,254		6,468		—
Other loans		182,243		180,467		101,479		153,622		15,824
Consumer
Documents		3,666		3,581		1,282		3,691		797
Mortgage and pledge loans		10,679		9,998		3,733		10,936		1,379
Personal loans		96,016		94,304		23,444		96,059		23,414
Other loans		13,228		12,899		4,210		13,206		2,059
Total		519,825		498,128		229,302		487,073		54,987
Total Commercial		405,242		386,159		196,633		373,051		28,582
Total Consumer		220,842		215,477		32,669		218,490		59,353

The Bank recognizes interest income on impaired loans on a cash basis method.

In addition, the Bank has performed a migration analysis based on uncollectability following the FASB ASC 450 “Contingencies”.

The collective impairment allowance is calculated on a portfolio basis using statistical models.

The collective impairment allowance has two components.

The first component is an allowance amount representing the incurred losses on the portfolio of smaller balance homogeneous loans, which are loans to individuals and small business customers of the consumer business portfolio. The loans are grouped according to similar credit risk characteristics and the allowance for each group is determined using statistical models based on historical experience.

The second component represents an estimate of incurred losses inherent in the group of loans that have not yet been individually identified as impaired or measured as part of the smaller-balance homogeneous loans. We use historical loss experience for these estimates. This historical loss experience is adjusted on the basis of actual observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from period to period (e.g., changes in unemployment rates, macroeconomic conditions and other factors that are indicative of incurred losses in the group and their magnitude).

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For consumer loans, upon a TDR modification (see item below c.1) Trouble Debt Restructuring), in accordance with ASC 310-10, the Bank measures impairment of the consumer portfolio based on a present value of expected future cash flows methodology considering all available evidence using the effective interest rate. The amount of the required allowance for loan losses is equal to the excess of the recorded investment over the loan’s impaired value.

In general, commercial loans that are subject to a TDR modification will have been identified as impaired prior to the modification and accounted for under a present value of expected future cash flows methodology. Accordingly, upon a TDR modification, the allowance methodology remains unchanged.

When a TDR loan defaults, the methodology that the Bank uses in order to determine the allowance for loan losses is similar to the one used for TDR modifications, for both portfolio segments.

Had US GAAP been applied, the Bank’s assets would increase by 75,249 and 3,772 as of December 31, 2016 and 2014, respectively, and would decrease by 17,124 as of December 2015. In addition, income would increase by 92,373 and 933 for the years ended December 31, 2016 and 2014, respectively, and would decrease by 20,896 for the year ended December 31 2015.

c.1) Troubled debt restructuring

A restructured loan is considered a TDR if the debtor is experiencing financial difficulties and the Bank grants a concession to the debtor that would not otherwise be considered. Concessions granted could include but it not necessary limited to: reduction in interest rate to rates that are considered below market, extension of repayment schedules and maturity dates beyond original contractual terms.

Loans considered TDR during 2016, 2015 and 2014 were as follows:

	2016
	Number of contracts		Pre-modification outstanding recorded investment		Post-modification Outstanding recorded investment		Accruing TDR loans		Non- accruing TDR loans
Commercial
Mortgage and pledge		6		55,802		37,887		37,887		—
Others		3		33,358		41,853		41,853		—
Consumer
Documents		147		6,199		6,570		5,544		1,026
Mortgage and pledge		13		3,055		4,104		3,428		676
Personal loans		4,260		111,181		127,798		109,973		17,825
Others loans		265		18,531		18,841		15,912		2,929
Total		4,694		228,126		237,053		214,597		22,456

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	2015
	Number of contracts		Pre-modification outstanding recorded investment		Post-modification Outstanding recorded investment		Accruing TDR loans		Non- accruing TDR loans
Commercial
Mortgage and pledge		3		6,937		7,680		7,680		—
Others		1		25,770		31,125		31,125		—
Consumer
Documents		158		4,202		4,779		4,379		400
Mortgage and pledge		20		6,192		5,694		4,269		1,425
Personal loans		4,406		92,856		103,589		85,007		18,582
Others loans		300		12,791		14,244		12,686		1,558
Total		4,888		148,748		167,111		145,146		21,965

	2014
	Number of contracts		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Accruing TDR loans		Non- accruing TDR loans
Commercial
Mortgage and pledge		2		1,123		1,422		1,422		—
Consumer
Documents		185		4,882		5,289		4,411		878
Mortgage and pledge		19		5,219		5,093		3,703		1,390
Personal loans		5,177		91,709		100,517		70,040		30,477
Others loans		328		11,082		12,290		10,189		2,101
Total		5,711		114,015		124,611		89,765		34,846

We consider that a TDR has subsequently defaulted if the borrower has failed to make payments of either principal, interest or both for a period of 90 days or more. Loans considered TDR within the previous 12 months that have defaulted during the years ended December 31, 2016, 2015 and 2014 were as follows:

	2016
	Number of contracts		Recorded investment
Consumer
Documents		4		59
Mortgage and pledge		2		1,129
Personal loans		174		3,372
Others loans		16		884
Total		196		5,444

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	2015
	Number of contracts		Recorded investment
Commercial
Mortgage and pledge		1		1,164
Consumer
Documents		13		252
Mortgage and pledge		2		1,663
Personal loans		177		2,703
Others loans		17		317
Total		210		6,099

	2014
	Number of contracts		Recorded investment
Consumer
Documents		3		42
Mortgage and pledge		1		136
Personal loans		167		2,002
Others loans		18		840
Total		189		3,020

c.2) Allowances - Roll forward

Under US GAAP, the activity in the allowance for loan losses for the years ended December 31, 2016 and 2015 respectively, is as follows:

	Commercial			Consumer			Total
2016
Beginning balance		443,166			1,133,399			1,576,565
Provision for possible loan losses		180,352			954,375			1,134,727
Charge-off		(233,501	)		(590,840	)		(824,341	)
Recoveries		(64,000	)		(2,187	)		(66,187	)
Ending balance		326,017			1,494,747			1,820,764
Period end allocated to:
Allowances individually evaluated for impairment		53,798			41,370			95,168
Allowances collectively evaluated for impairment		272,219			1,453,377			1,725,596
Ending balance		326,017			1,494,747			1,820,764

	Commercial			Consumer			Total
2015
Beginning balance		371,868			862,605			1,234,473
Provision for possible loan losses		198,344			891,115			1,089,459
Charge-off		(116,635	)		(618,740	)		(735,375	)
Recoveries		(10,411	)		(1,581	)		(11,992	)
Ending balance		443,166			1,133,399			1,576,565
Period end allocated to:
Allowances individually evaluated for impairment		196,633			32,669			229,302
Allowances collectively evaluated for impairment		246,533			1,100,730			1,347,263
Ending balance		443,166			1,133,399			1,576,565

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Impaired loans individually evaluated for impairment for commercial portfolio amounts to 214,980 and 405,242 for the years ended December 31, 2016 and 2015. In addition, non impaired loans collectively evaluated for impairment for commercial portfolio amounts to 34,040,337 and 20,477,049 for the years ended December 31, 2016 and 2015.

Loans individually evaluated for impairment for consumer portfolio amounts to 258,658 and 220,842 for the years ended December 31, 2016 and 2015. In addition, loans collectively evaluated for impairment for consumer portfolio amounts to 56,227,797 and 43,218,996 for the years ended December 31, 2016 and 2015.

d) Interest recognition – non-accrual loans

The method applied to recognize income on loans is described in Note 4.5.d). Additionally, the accrual of interest is discontinued generally when the related loan is non-performing and the collection of interest and principal is in doubt generally after 90 days of being past due. Accrued interest remains on the Bank´s books and is considered a part of the loan balance when determining the reserve for credit losses.

Under US GAAP the accrual of interest is typically discontinued when Management has serious doubts about further collectability of principal or interest, usually after 90 days, even though the loan is currently performing. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses.

Had US GAAP been applied, the Bank’s assets would decrease by 19,277, 24,249 and 22,078 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 4,972 for the year ended December 31, 2016 and would decrease by 2,171 and 9,087 for the years ended December 31, 2015 and 2014, respectively.

The following table represents the amounts of non-accruals, segregated by class of loans, including the amount of TDR loans, as of December 31, 2016 and 2015, respectively:

	2016				2015
	Non- accruing loans		Non- accruing TDR loans		Non- accruing loans		Non- accruing TDR loans
Commercial
Overdrafts		25,101		—		15,401		—
Documents		1,033		—		56,000		—
Mortgage and pledge loans		27,293		809		118,411		10,747
Credit card		110		—		6,430		—
Other loans		99,025		50,039		154,136		31,536
Consumer
Overdrafts		25,219		—		18,288		—
Documents		8,461		3,297		7,942		2,292
Mortgage and pledge loans		42,492		8,761		30,147		7,447
Personal loans		500,070		61,843		342,973		50,918
Credit Card		130,115		—		69,533		—
Other loans		32,641		14,545		25,421		9,622
Total		891,560		139,294		844,682		112,562

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An aging analysis of past due loans, segregated by class of loans, as of December 31, 2016 and 2015 were as follows:

	30-59 Days past due		60-89 Days past due		Greater Than 90 days		Total Past Due		Current		Total Loans
2016
Commercial
Overdrafts		2,433		9,437		1,168		13,038		8,236,642		8,249,680
Documents		80,991		—		2,521		83,512		8,011,389		8,094,901
Mortgage and pledge loans		21,414		19,248		48,441		89,103		4,032,723		4,121,826
Credit card		—		—		2,877		2,877		508,444		511,321
Other loans		709,656		1,029		56,829		767,514		12,510,075		13,277,589
Consumer
Overdrafts		17,425		5,824		24,441		47,690		816,319		864,009
Documents		2,782		770		7,025		10,577		2,967,992		2,978,569
Mortgage and pledge loans		13,214		3,005		27,041		43,260		2,318,460		2,361,720
Personal loans		157,491		101,225		262,630		521,346		29,778,652		30,299,998
Credit card		106,578		42,898		138,308		287,784		18,052,491		18,340,275
Other loans		10,697		10,987		19,672		41,356		1,600,528		1,641,884
Total		1,122,681		194,423		590,953		1,908,057		88,833,715		90,741,772

	30-59 Days past due		60-89 Days past due		Greater Than 90 days		Total Past Due		Current		Total Loans
2015
Commercial
Overdrafts		49,816		14,459		34,748		99,023		4,114,024		4,213,047
Documents		29,575		58,029		52,935		140,539		4,563,976		4,704,515
Mortgage and pledge loans		88,551		21,326		130,731		240,608		3,325,071		3,565,679
Credit card		201		6,633		6,430		13,264		643,800		657,064
Other loans		146,413		103,655		96,913		346,981		7,395,005		7,741,986
Consumer
Overdrafts		14,959		4,757		17,916		37,632		587,320		624,952
Documents		1,532		1,393		5,935		8,860		1,702,048		1,710,908
Mortgage and pledge loans		10,559		4,242		19,236		34,037		2,171,002		2,205,039
Personal loans		127,021		79,529		191,412		397,962		23,297,454		23,695,416
Credit card		56,370		30,494		74,479		161,343		13,974,811		14,136,154
Other loans		11,070		4,508		13,950		29,528		1,037,841		1,067,369
Total		536,067		329,025		644,685		1,509,777		62,812,352		64,322,129

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The following table shows the loans balances categorized by credit quality indicators for the years ended December 31, 2016 and 2015 (figures include the effects of the adjustment mentioned in Note 35.3.):

	2016
	In normal situation/ performing		Subject to special monitoring / Under negotiation or refinancing agreement/ Low risk		Troubled / Medium risk		With high risk or insolvency / High Risk		Irrecoverable (1)		Irrecoverable according to Central Bank rules
Commercial
Overdraft		8,224,221		144		—		25,314		1		—
Documents		8,092,108		—		—		2,793		—		—
Mortgage and pledge		4,049,033		11,751		—		60,180		862		—
Credit Card		511,207		—		—		110		4		—
Others loans		13,162,851		15,714		50,039		48,983		2		—
Consumer
Overdraft		826,045		11,493		11,595		10,845		4,029		2
Documents		2,953,449		8,868		7,247		6,844		2,161		—
Mortgage and pledge		2,307,393		16,880		6,506		15,682		15,259		—
Personal loans		29,450,800		336,231		283,485		181,634		47,785		63
Credit Card		17,960,043		158,664		120,713		84,232		16,478		145
Others loans		1,589,040		19,950		10,752		16,286		5,856		—
Total		89,126,190		579,695		490,337		452,903		92,437		210

	2015
	In normal situation/ performing		Subject to special monitoring / Under negotiation or refinancing agreement/ Low risk		Troubled / Medium risk		With high risk or insolvency / High Risk		Irrecoverable (1)		Irrecoverable according to Central Bank rules
Commercial
Overdraft		4,194,065		3,578		5		12,378		3,021		—
Documents		4,648,515		—		—		56,000		—		—
Mortgage and pledge		3,431,338		—		5,946		86,332		42,063		—
Credit Card		650,448		147		—		6,430		39		—
Others loans		7,535,249		27,649		34,999		86,980		57,109		—
Consumer
Overdraft		597,082		8,281		6,792		8,942		3,759		96
Documents		1,693,316		7,686		1,217		7,243		1,446		—
Mortgage and pledge		2,160,291		14,593		9,141		9,985		11,029		—
Personal loans		23,033,222		283,568		188,611		147,265		42,589		161
Credit Card		13,883,168		118,320		57,516		61,005		15,941		204
Others		1,024,834		14,300		8,521		12,316		7,398		—
Total		62,851,528		478,122		312,748		494,876		184,394		461

(1) In the case of the consumer portfolio, the charge-off takes place when the loan is approximately 270 days past due. For the commercial portfolio, the situation depends on the individual evaluation of the credit risk. All charged-off loans are registered in off balance sheet accounts while the Bank continues its collection efforts. Under US GAAP, the irrecoverable loans should be charged-off when the Bank abandons with its collection efforts. Accordingly, amounts shown as Loans under Central Bank rules are higher than under US GAAP.

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e) Off balance sheet credit exposures

In the normal course of business, the Bank enters into transactions involving off balance sheet financial instruments to handle risk management and meet trading and financing needs of its customers and for the Bank’s own trading and assets and liabilities management purposes.

In determining whether to enter into transactions involving off balance sheet financial instruments, the Bank follows the credit policies it uses to grant loans.

The management of the Bank believes that the outstanding off balance sheet items do not represent an unusual credit risk.

The Bank’s exposure to credit loss in the event of the counterparties’ failure to fulfill their commitments to extend credit or their obligations under guarantees granted and foreign trade acceptances is represented by the contractual notional amount of these instruments. See Note 35.12.

The process to determine allowances for off balance sheet credit exposures is similar to the methodology used for loans. The provision charged to expense is determined by management based upon client classification, actual loss experience, current and expected economic conditions, delinquency aging and evaluation of probable losses in the current credit portfolio. Any probable loss amounts are recognized as allowances in the consolidated balance sheet.

35.5. Intangible assets

a) Software costs

Under Central Bank Rules, the Bank capitalized software costs relating to preliminary, application development and post–implementation stages of software development. Central Bank rules permit the capitalization of certain costs that are not eligible for capitalization under FASB ASC 350-40 “Internal - Use Software”.

The effects of adjustments required to state such amounts in accordance with US GAAP, would decrease assets by 7,027, 7,698 and 9,136 as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by 671, 1,438 and 3,039 for the years ended December 31, 2016, 2015 and 2014, respectively.

b) Organizational costs

Under Central Bank Rules, the Bank capitalized inherent cost of set up and organization of the Bank.

Applying US GAAP and in accordance with FASB ASC 720-15 “Start Up Costs” also effected in other adjustments relative to capitalized organizational costs resulting in a decrease to the Bank’s assets of 4,898 as of December 31, 2014. In addition income would increase by 4,898 for the year ended December 31, 2015, and would decrease by 2,312 for the year ended December 31, 2014.

35.6. Vacation accrual

The cost of vacations earned by employees is generally recorded by the Bank when paid. US GAAP requires that this expense be recorded on an accrual basis as the vacations are earned.

Had US GAAP been applied, the Bank’s liabilities would increase by 349,716, 268,392 and 202,917 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would decrease by 81,324, 65,475 and 50,642 for the years ended December 31, 2016, 2015 and 2014, respectively.

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35.7. Business Combinations

The Bank has effected several business combinations in the past few years. The Bank is presenting separately the US GAAP adjustments related to deferred income taxes, loans and securities valuation and the other effects of purchase accounting by business combination related to Banco del Tucumán S.A., which have not been legally merged into the Bank. The qualitative description of the adjustments related to business combinations were disclosed above, as the case may be. The details of these effects are described in this footnote.

a) Acquisition of controlling interest in Banco del Tucumán SA

On May 5, 2006, the Bank acquired 75% of the capital stock of Banco del Tucumán SA at a cash purchase price of 45,961. Subsequently, in 2006 and 2007 the Bank acquired the 4.84% and 10.09% additional interest of Banco del Tucumán SA for cash payments of 2,907 and 9,709, respectively.

Under Central Bank rules, business combinations and step acquisitions are accounted for the carryover book value of the acquired company. Additionally, at the acquisition date, the Bank recognized the difference between the book value of the net equity acquired and the purchase price as a positive goodwill. Such goodwill is being amortized under the straight line method over 10 years.

Under US GAAP, FASB ASC 805 “Business Combination” required the acquisition of the controlling interest of Banco del Tucumán SA to be accounted for as a business combination applying the purchase method. The additional interest acquired was accounted for as a step acquisition applying the purchase method.

For US GAAP purposes, Banco Macro SA has allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, and the excess of the fair value of the acquired net assets over the cost has resulted in a negative goodwill.

The effects of adjustments required to state such amounts in accordance with US GAAP would decrease assets by 3,684, 4,469 and 6,518 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 785, 2,049 and 1,997 for the years ended December 31, 2016, 2015 and 2014, respectively.

b) Acquisition and Merger of Banco Privado de Inversiones SA

On September 20, 2010, the Bank acquired 100% of the common shares of Banco Privado de Inversiones SA at a cash purchase price of USD 23.3 million.

Under Central Bank Rules, business combinations is accounted for by the carryover book value of the acquired company and goodwill is recognized based on the difference of the book value of the net assets acquired and the purchase price (including contingent consideration). Under US GAAP FASB ASC 805 requires the acquisition of controlling interest of Banco Privado de Inversiones SA to be accounted for as a business combination applying the purchase method. Consequently, the Bank has allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, and the excess of the fair value of the acquired net asset over the cost was resulted in a gain.

Had US GAAP been applied, the effects on the Bank’s net assets, to account under US GAAP have resulted in a decrease by 11,028, 11,398 and 11,767 as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by 370, 369 and 837 for the years ended December 31, 2016, 2015 and 2014, respectively.

Additionally, on December 23, 2013, the Board of Directors of the Central Bank authorized Banco Privado de Inversiones SA to merge with and into Banco Macro SA and on January 23, 2014, the CNV gave its approval.

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In consequence, on December 27, 2013, Banco Macro SA carried out the legal merger of Banco Privado de Inversiones SA. with and into the former.

c) Other

In past years, the Bank consummated other business combinations which also generated similar adjustments. Had US GAAP been applied, other adjustments relative to these other business combination would decrease the Bank’s assets by 11,897, 13,470 and 19,461 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 1,573, 5,991 and 7,078 for the years ended December 31, 2016, 2015 and 2014, respectively.

35.8. Reporting on Comprehensive Income (loss)

FASB ASC 220 “Comprehensive Income” requires entities to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity.

This statement requires that comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements with an aggregate amount of comprehensive income (loss) reported in that same financial statement. The adoption of this accounting disclosure is shown in Note 35.20. In the Bank’s case, comprehensive income is affected by cumulative translation adjustments related to the foreign subsidiaries and unrealized gains and losses of available for sale securities, net of income taxes.

35.9. Restatement of financial statements in constant pesos

Pursuant to Central Bank rules, the Bank’s financial statements recognize the effects of inflation as described in Note 4.3.

As allowed by the SEC, since the Banking financial statements are restated applying a methodology that comprehensively addresses the accounting for inflation, the effects of general price-level changes recognized in the Bank’s financial statements do not need to be eliminated in reconciling to US GAAP.

35.10. Accounting for derivative instruments and hedging activities

Pursuant to Central Bank rules, the Bank’s derivatives are recorded as described in Notes 4.5.g) and 4.5.k). See Note 33.1.

FASB ASC 815 “Derivatives and Hedging” establishes accounting and reporting standards for derivative instruments, including certain ones embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Bank had no embedded derivatives and does not apply hedge accounting in accordance with FASB ASC 815.

Under US GAAP, FASB ASC 815 also requires disclosures with the intent to provide users of the financial statements with more information about Derivative Instruments and Hedging Activities.

In the Foreign Exchange contracts the Bank mainly operates as an intermediary between parties. The Bank performs these transactions in MAE, as well as private contracts. These derivatives are settled daily (those perform in MAE) or at maturity (private contracts).

The credit risk of derivatives arises from the potential of a counterparty to default on its contractual obligations. The effect of such a default varies as the market value of derivative contracts changes. Credit exposure exists at a particular point in time when a derivative has a positive market value.

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The tables below disclose the requirement of FASB ASC 815:

	As of December 31,
	2016				2015
Derivatives not designated as hedging instruments under FASB ASC 815	Balance sheet location (1)		Fair value		Balance sheet location (1)		Fair value
Assets derivatives
Foreign exchange contracts		Other receivables from financial intermediation		855		Other receivables from financial intermediation		—
Total assets derivatives				855
Liability derivatives
Foreign exchange contracts		Other liabilities from financial intermediation		—		Other liabilities from financial intermediation		526,629
Total liability derivatives				—				526,629
			As of December 31,
			2016		2015		2014
Derivatives not designated as hedging instruments under FASB ASC 815	Location of gain or (loss) recognized in income on derivatives (1)		Amount of gain or (loss) recognized in income on derivatives		Amount of gain or (loss) recognized in income on derivatives		Amount of gain or (loss) recognized in income on derivatives
Interest rate contracts		Financial income- Other / (Financial expense-Other)		—		—		2,491
Foreign exchange contracts		Financial income- Other		46,572		48,901		143,459
Total				46,572		48,901		145,950

(1) According to Central Bank rules.

Had US GAAP been applied, the Bank’s liabilities would decrease by 35,494 as of December 31, 2015. In addition income would decrease by 35,494 and 1,717 for the years ended December 31, 2016 and 2014, respectively, and would increase by 35,494 for the year ended December 31, 2015.

35.11. Foreign currency translation

The financial statements of the subsidiary Macro Bank Limited were translated under Central Bank rules as described in Note 4.1. US GAAP foreign currency translation requirements are covered by FASB ASC 830-20 “Foreign Currency Matters” and differ from Central Bank rules in the translation of the income statement accounts, which under US GAAP should have been translated at the average exchange rate other than at the year-end exchange rate, and resulting differences in translation adjustments between assets and liabilities and components of shareholders’ equity are recognized as other comprehensive income.

Had US GAAP been applied, the Bank’s net income would decrease by 133,143, 200,498 and 87,646 for the years ended December 31, 2016, 2015 and 2014, respectively, and these resulting differences recognized as other comprehensive income.

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35.12. Accounting for guarantees

The Bank issues financial guarantees, which are obligations to pay to a third party when a customer fails to repay its obligation.

Under Central Bank rules, guarantees issued are recognized as liabilities when it is probable that the obligation undertaken by the guarantor will be performed.

Under US GAAP, FASB ASC 460 “Guarantees” requires that at inception of a guarantee, a guarantor recognize a liability for the fair value of the obligation undertaken in issuing the guarantee. Such liability at inception is deemed to be the fee received by the Bank with an offsetting entry equal to the consideration received. Subsequent reduction of liability is based on an amortization method as the Bank is decreasing its risk.

Had US GAAP been applied, no differences would have existed in the Bank records, besides the adjustment mentioned in Note 35.3.

35.13. Earning Per Share

The Bank holds, and has held, a capital structure with only common stock outstanding.

Central Bank rules do not require the disclosure of earnings per share or dividends per share.

Under US GAAP, FASB ASC 260 “Earning Per Share”, it is required to present basic per-share amounts (basic EPS) which is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share (diluted EPS) measure the performance if the potential common shares that were dilutive had been issued. Potential common shares are securities that do not have a current right to participate fully in earnings but could do so in the future. No potential common shares exist, and therefore basic and diluted EPS are the same.

The following table sets forth the computation of basic EPS:

	2016		2015		2014
Numerator:
Net income attributable to the controlling interest under US GAAP		6,578,911		4,909,845		3,547,509
Denominator:
Common stock outstanding for the fiscal year (1)		584,563,028		584,563,028		584,563,028
Weighted-average common shares outstanding for the year		584,563,028		584,563,028		584,537,430
Basic EPS attributable to controlling interest under US GAAP – stated in pesos		11.25		8.40		6.07

(1) See Note 10.

On August 17, 2016, the Bank paid 643,019 in cash dividends, related to 2015 earnings. Dividend per share amounted Ps.1.10. The upcoming Regular and Special Shareholder´s Meeting of Banco Macro SA on April 28, 2017 has to approve, among other issues, the distribution of cash dividends for an amount up to 701,476. In addition, the upcoming Regular and Special Shareholder´s Meeting of Banco del Tucumán SA on April 25, 2017 has to approve, among other issues, the distribution cash dividends for an amount of 923,160. In addition see Note 16.

In addition, the abovementioned upcoming Shareholders Meeting, shall discuss a capital increase of up to 74,000,000 Class B shares. See also Note 10.

35.14. Corporate Bonds

As mentioned in Note 11., on December 18, 2006, the Bank issued the 1st series of Class 1 subordinated Corporate Bonds for a face value of USD 150,000,000. On December 18, 2016, the Bank performed the full redemption of principal and accrued interest pending payment as of that date

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On January 29, 2007, the Bank issued the 1st series of Class 2 nonsubordinated Corporate Bonds for a face value of USD 150,000,000. On February 1, 2017, the Bank paid the total amount of the principal and accrued interest pending payment as of that date.

On November 4, 2016, the Bank issued Class A Subordinated Resettable Corporate Bonds for a face value of USD 400,000,000.

In the issuance of these bonds, the Bank incurred direct incremental costs (mainly underwriting and legal fees).

Under Central Bank rules, the Bank has recognized as expenses these costs when they were incurred and the interest has accrued according to the contract terms of the bonds in the period in which it was generated.

Under US GAAP, the Bank recognizes direct incremental costs and interest based on the effective interest method over the life of the bond.

Had US GAAP been applied, the Bank’s assets would increase by 31,560, 85,893 and 38,625 as of December 31, 2016, 2015 and 2014, respectively. In addition income would decrease by 54,333 for the year ended December 31, 2016 and would increase by 47,268 and 33,252 for the years ended December 31, 2015 and 2014, respectively.

35.15. Foreclosed assets

As mentioned in Note 26.2, the Bank has real foreclosed assets and buildings not affected by banking activities. Under Central Bank rules, these assets are carried at cost adjusted by depreciation over the life of the assets (see Note 4.5.j)).

Under US GAAP, in accordance with FASB ASC 360 “Property, Plant and Equipment”, such assets classified as held for sale shall be measured at the lower of its carrying amount or fair value less cost to sell. If the asset is newly acquired the carrying amount of the asset shall be established based on its fair value less cost to sell at the acquisition date. A long-lived asset shall not be depreciated while it is classified as held for sale.

As of December 31, 2016 and 2015 the Bank has foreclosed assets amounted to 113,244 and 113,604, respectively.

Had US GAAP been applied, the Bank’s assets would increase by 17,934, 15,517 and 12,845 as of December 31, 2016, 2015 and 2014, respectively. In addition income would increase by 2,417 and 2,672 for the years ended December 31, 2016 and 2015, respectively, and would decrease by 1,312 for the year ended December 31, 2014.

35.16. Capitalization of interest cost

The Bank is constructing a new corporate building tower located in the City of Buenos Aires. The Bank will centralize its office in this new corporate tower. The construction works are expected to be completed in the following years.

Under Central Bank rules, is not allowed to capitalized interest cost from borrowings. Under US GAAP, in accordance with FASB ASC 835-20 “Capitalization of Interest Cost”, if an asset requires a period of time in which to carry out the activities necessary to bring it to the condition and location necessary for its intended use, the interest cost incurred during that period as a result of expenditures for the asset is a part of historical cost of acquiring the asset.

Had US GAAP been applied, the Bank’s assets would increase by 254,412, 112,804 and 37,763 as of December 31, 2016, 2015 and 2014, respectively. In addition, income would increase by 141,608, 75,041 and 28,348 for the years ended December 31, 2016, 2015 and 2014, respectively.

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35.17 Contingencies

In accordance with Central Bank rules, certain items were booked when paid and certain other items were booked as liability to cover contingent losses, independently the probability of occurrence.

Under US GAAP, in accordance with FASB ASC 450 “Contingencies”, the Bank should recognize a liability to cover contingent losses in view of their probability of occurrence.

The effects of adjustments required to state such amounts in accordance with US GAAP would increase the Bank´s liabilities by 19,258 and 43,420 as of December 31, 2015 and 2014, respectively. In addition, income would increase by 19,258, 24,162 and 25,597 for the years ended December 31, 2016, 2015 and 2014, respectively. See also Note 20.

35.18. Noncontrolling Interest in Subsidiaries

Central Bank rules require to record noncontrolling interests as a component of the liabilities. FASB ASC 810 requires to record such interests as shareholders’ equity.

Had US GAAP been applied, the Bank’s shareholder’s equity would increase by 182,799, 128,305 and 93,001 as of December 2016, 2015 and 2014, respectively. In addition income would increase by 54,494, 35,304 and 23,499 for the years ended December 31, 2016, 2015 and 2014, respectively.

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35.19. Set forth below are the significant adjustments to consolidated net income and shareholders’ equity which would be required if US GAAP instead of Central Bank rules had been applied:

	Increase / (decrease)
	Consolidated Net Income Years ended December 31,
	Ref.		2016			2015			2014
Net income in accordance with Central Bank rules				6,540,832			5,009,889			3,479,531
Income taxes
Deferred taxes, net of allowances		35.1		64,285			(104,939	)		154,891
Exposure to the Argentine public sector and private securities
Loans – Non-financial federal government sector		35.2.a)		122,605			52,013			(42,036	)
Government and private securities		35.2.b)		13,297			(29,277	)		3
Instruments issued by Central Bank of Argentina		35.2.c)		(22,149	)		12,252			7,242
Securities in financial trust and other		35.2.d)		(15,287	)		16,527			(10,418	)
Loan origination fees		35.3		(72,440	)		53,245			20,555
Allowance for loan losses
Credit Card Loans		35.4.b)		(8,362	)		(8,212	)		(8,699	)
Impairment allowances (individual and collective) – Non Financial Private Sector and residents abroad		35.4.c)		92,373			(20,896	)		933
Interest recognition – non accrual loans		35.4.d)		4,972			(2,171	)		(9,087	)
Intangible assets
Software costs		35.5.a)		671			1,438			3,039
Organizational costs		35.5.b)		—			4,898			(2,312	)
Vacation accrual		35.6		(81,324	)		(65,475	)		(50,642	)
Business combination
Acquisition of Banco de Tucumán S.A.		35.7.a)		785			2,049			1,997
Acquisition and Merger of Banco Privado de Inversiones S.A.		35.7.b)		370			369			837
Other		35.7.c)		1,573			5,991			7,078
Derivative instruments		35.10		(35,494	)		35,494			(1,717	)
Foreign currency translation		35.11		(133,143	)		(200,498	)		(87,646	)
Corporate bonds		35.14		(54,333	)		47,268			33,252
Foreclosed assets		35.15		2,417			2,672			(1,312	)
Capitalization of interest cost		35.16		141,608			75,041			28,348
Contingencies		35.17		19,258			24,162			25,597
Noncontrolling interest in subsidiaries		35.18		54,494			35,304			23,499
Net income in accordance with US GAAP				6,637,008			4,947,144			3,572,933
Less: Net income attributable to the noncontrolling interest				58,097			37,299			25,424
Net income attributable to the controlling interest in accordance with US GAAP				6,578,911			4,909,845			3,547,509

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	Increase / (decrease)
	Consolidated Net Income Years ended December 31,
	2016		2015		2014
Net income in accordance with US GAAP		6,637,008		4,947,144		3,572,933
Other comprehensive income, net of tax:		106,175		131,719		58,269
Total comprehensive income, net in accordance with US GAAP		6,743,183		5,078,863		3,631,202
Less: Comprehensive income attributable to noncontrolling interest		58,966		37,210		25,431
Comprehensive income attributable to controlling interest		6,684,217		5,041,653		3,605,771
Total earning per share attributable to controlling interest in accordance with US GAAP – stated in pesos		11.25		8.40		6.07
Weighted average number of shares outstanding (in thousands)		584,563		584,563		584,537

	Increase / (decrease)
	Consolidated Shareholders’ Equity as of December 31,
	Ref.		2016			2015			2014
Shareholders’ equity in accordance with Central Bank rules				22,105,898			15,877,550			11,491,817
Income taxes
Deferred taxes, net of allowances		35.1		197,357			190,243			366,107
Exposure to the Argentine public sector and private securities
Loans – Non-financial federal government sector		35.2.a)		(25,632	)		(148,237	)		(200,250	)
Government and private securities		35.2.b)		5,496			(26,196	)		(21,263	)
Instruments issued by Central Bank of Argentina		35.2.c)		6,686			4,064			2,374
Securities in financial trust and others		35.2.d)		7,525			35,775			30,884
Loan origination fees		35.3		(110,485	)		(38,045	)		(91,290	)
Allowance for loan losses
Credit Card Loans		35.4.b)		(42,238	)		(33,876	)		(25,664	)
Impairment allowances (individual and collective) – Non Financial Private Sector and residents abroad		35.4.c)		75,249			(17,124	)		3,772
Interest recognition – non accrual loans		35.4.d)		(19,277	)		(24,249	)		(22,078	)
Intangible assets
Software costs		35.5.a)		(7,027	)		(7,698	)		(9,136	)
Organizational costs		35.5.b)		—			—			(4,898	)
Vacation accrual		35.6		(349,716	)		(268,392	)		(202,917	)
Business combination
Acquisition of Banco de Tucumán SA		35.7.a)		(3,684	)		(4,469	)		(6,518	)
Acquisition and Merger of Banco Privado de Inversiones SA		35.7.b)		(11,028	)		(11,398	)		(11,767	)
Other		35.7.c)		(11,897	)		(13,470	)		(19,461	)
Derivative instruments		35.10		—			35,494			—
Corporate bonds		35.14		31,560			85,893			38,625
Foreclosed assets		35.15		17,934			15,517			12,845

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	Increase / (decrease)
	Consolidated Shareholders’ Equity as of December 31,
	Ref.		2016			2015			2014
Capitalization of interest cost		35.16		254,412			112,804			37,763
Contingencies		35.17		—			(19,258	)		(43,420	)
Noncontrolling interests in subsidiaries		35.18		182,799			128,305			93,001
Banco Macro S.A. Shareholders´ equity in accordance with US GAAP (1)				22,303,932			15,873,233			11,418,526
Noncontrolling interests (2)				(190,875	)		(132,778	)		(95,479	)
Shareholders’ equity attributable to the controlling interest in accordance with US GAAP				22,133,057			15,740,455			11,323,047

(1) Includes the effects of other comprehensive income.

(2) Includes the amount mentioned in Note 35.18 and the effect of adjustments mentioned above.

35.20. Set forth below are the accumulated other comprehensive income (loss) balances, as of December 31, 2016, 2015 and 2014 – net of related income tax effects:

	Foreign Currency Items (1)			Unrealized Gains/ (losses) on securities (2)			Accumulated Other Comprehensive Income / (Loss) (3)
Balances as of December 31, 2013		81,422			(4,551	)		76,871
Other comprehensive income before reclassification (4)		87,646			59,145			146,791
Amounts reclassified from accumulated other comprehensive income (5)		—			(57,147	)		(57,147	)
Tax effects		(30,675	)		(700	)		(31,375	)
Balances as of December 31, 2014		138,393			(3,253	)		135,140
Other comprehensive income before reclassification (4)		200,498			86,708			287,206
Amounts reclassified from accumulated other comprehensive income (5)		—			(84,562	)		(84,562	)
Tax effects		(70,174	)		(751	)		(70,925	)
Balances as of December 31, 2015		268,717			(1,858	)		266,859
Other comprehensive income before reclassification (4)		133,143			84,600			217,833
Amounts reclassified from accumulated other comprehensive income (5)		—			(54,487	)		(54,487	)
Tax effects		(46,600	)		(10,571	)		(57,171	)
Balances as of December 31, 2016		355,260			17,774			373,034

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(1) See Note 35.11.

(2) See Note 35.2.

(3) Includes amounts attributable to the non controlling interest for 869, (89) and 7 for the years ended December 31, 2016, 2015 and 2014, respectively.

(4) Includes the unrealized gains or losses that had been included in Other Comprehensive Income before they were realized.

(5) Includes gains or losses that were realized and included in net income of the current period. Under US GAAP, those amounts would be included under “security gain, net” on the consolidated statement of income.

35.21. Statement of Cash Flows

According to FASB ASC 230 “Statement of Cash Flow”, a statement of cash flows for a period shall report net cash provided or used by operating, investing, and financing activities and the net effect of those flows on cash and cash equivalents during the period in a manner that reconciles beginning and ending cash and cash equivalents.

The statement of cash flows under Central Bank rules differs from the statement of cash flows under US GAAP (see additionally Note 4.5.q).

In accordance with Central Bank Communiqué “A” 4667, cash equivalents include all high liquidity investments with original maturities of three months or less.

Under US GAAP rules, in accordance with FASB ASC 230-10, certain securities did not meet the requirements to be classified as cash equivalents, and instead, are classified as available for sale.

The Bank’s transactions that did not provide an actual movement of funds in each year (non cash transactions) were eliminated from the respective cash changes. As of December 31, 2016, 2015 and 2014, the main non cash transactions, based on their book values under Central Bank rules, were generated by transactions with government securities exchanging non cash assets or liabilities for other non cash assets or liabilities (among other, redemption in kind of financial trusts, forwards, unsettled spot and repurchase contracts to buy or sell foreign currencies, listed Government and other securities at future dates and exchanged non cash assets or liabilities for other non cash assets or liabilities, and exchange agreements (mentioned in Note 35.2.a)) with a book value of (1,080,493), 101,987 and 814,477, respectively.

The statement of cash flows under US GAAP based on Central Bank figures is shown below:

	Year ended December 31,
	2016			2015			2014
Causes of changes in cash and cash equivalents
Cash provided by (used in) operating activities
Interest received on loans, leases and investments		35,498,415			15,865,329			14,112,308
Fees and commissions received		7,942,217			6,114,393			4,652,186
Purchases and sales of trading securities		2,998,989			(609,566	)		(3,077,897	)
Other sources of cash		255,330			395,222			105,944
Less:
Interest paid		(12,212,172	)		(8,690,640	)		(6,507,313	)
Fees and commissions paid		(2,572,351	)		(1,689,901	)		(1,174,403	)
Cash paid to suppliers and employees		(9,282,454	)		(6,780,651	)		(5,091,123	)
Increase in intangible assets		(383,295	)		(256,297	)		(206,865	)
(Increase) / Decrease in other receivables from financial intermediation and other assets		(1,330,731	)		(1,106,655	)		173,783
Payment of income tax / minimum presumed income tax		(2,545,339	)		(2,330,121	)		(1,623,725	)
Other		—			—			(405,499	)
Net cash provided by operating activities		18,368,609			911,113			957,396

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	Year ended December 31,
	2016			2015			2014
Plus:
Cash provided by (used in) investing activities
Available for sale
- Purchases of investment securities		(195,316,357	)		(49,964,053	)		(34,007,787	)
- Proceeds from sales and maturities of investment securities		179,288,895			49,656,926			29,750,123
Increase in loans and leases, net		(26,315,921	)		(19,282,249	)		(5,454,747	)
Proceeds from sales of Bank premises and equipment		5,199			5,808			5,178
Purchases of Bank premises and equipment		(405,619	)		(388,022	)		(266,359	)
Net cash used in investing activities		(42,743,803	)		(19,971,590	)		(9,973,592	)
Cash provided by (used in) financing activities
Increase in deposits, net		36,494,496			20,395,781			10,503,539
Increase in long term borrowings		3,466,900			210,395			184,624
Decrease in long term borrowings		(93,469	)		(392,478	)		(657,368	)
Increase in other short term liabilities, net		2,923,097			2,270,200			1,460,447
Cash dividends paid		(962,631	)		—			(598,486	)
Net cash provided by financing activities		41,828,393			22,483,898			10,892,756
Increase in cash and cash equivalents		17,453,199			3,423,421			1,876,560
Cash at the beginning of fiscal year (1)		17,899,055			14,475,634			12,599,074
Cash at the end of fiscal year (1)		35,352,254			17,899,055			14,475,634

(1) Includes interest bearing deposits.

Set forth below is the reconciliation of net income as per Central Bank rules to net cash flows from operating activities, as required by FASB ASC 230:

	Year ended December 31,
	2016			2015			2014
Net income for the fiscal year		6,540,832			5,009,889			3,479,531
Adjustments to reconcile net income to net cash from operating activities:
Amortization and depreciation		417,771			338,914			269,799
Provision for loan losses, net of reversals		1,197,952			1,047,037			683,934
Net loss / (income) from government and private securities		7,363,828			(4,904,035	)		(4,662,378	)
Foreign exchange differences		2,712,137			510,039			1,070,000
Equity gain of unconsolidated subsidiaries		(44,462	)		(33,692	)		(49,635	)
Increase from intangible assets		(383,295	)		(256,297	)		(206,865	)
Non-computable VAT credit		132,531			87,947			85,965
Increase in taxes payable		932,038			155,542			338,461
(Increase) / Decrease in other receivables from financial intermediation and other assets		(1,330,731	)		(1,106,655	)		173,783
Net Decrease / (Increase) in interest receivable and payable and other accrued income and expenses		292,365			(509,612	)		(69,635	)
Non controlling interest in subsidiaries		54,592			35,359			23,492
Net Decrease / (Increase) in other sources of cash		483,051			536,677			(179,056	)
Net cash provided by operating activities		18,368,609			911,113			957,396

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35.22. Fair value Measurement Disclosures

FASB ASC 820 “Fair Value Measurement” defines fair value, establishes a consistent framework for measuring fair value, and enhances disclosures about fair value measurements. Effective January 1, 2012, the Bank adopted the accounting guidance under FASB ASC 820 that requires additional disclosures including, among other things, (1) the amounts and reasons for certain significant transfers, (2) information about transfers between Level 1 and Level 2 of the fair value hierarchy, (3) information about the sensitivity of a fair value measurement categorized within Level 3 of the fair value hierarchy to changes in unobservable inputs and any interrelationships between those unobservable inputs and (4) the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position, but for which the fair value of such items is required to be disclosed. The following information incorporates these disclosure requirements.

Fair Value Measurements

FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, FASB ASC 820 has established a hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market that Banco Macro SA has the ability to access.

Level 2: Other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following:

a) Quoted prices for similar assets or liabilities in active markets;

b) Quoted prices for identical or similar assets or liabilities in less-active markets;

c) Pricing models whose inputs are observable for substantially the full term of the asset or liability; and

d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Description of the measurement processes

The Bank uses fair value to measure certain assets and liabilities on a recurring basis when fair value is the primary measure for accounting. This is done primarily for government and private securities (debt instruments issued by National Government and Central Bank, debt securities issued by Trusts, shares, corporate bonds and other) classified as available for sale or trading account and derivatives (forward transactions without delivery of underlying assets).

As of December 31, 2016, 2015 and 2014, the Bank has no assets measured at fair value on a nonrecurring basis.

The Bank identified and categorized different assets and liabilities measured at fair value in accordance with the requirements of FASB ASC 820.

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The Bank has categorized within Level 1, operations that were valued at market price according to trading on its main market, at the fair value at the closing of the fiscal year. According to the Level 1 category, assets and liabilities traded on active markets were analyzed in order to identify and recognize Level 1 type of instruments that are traded on active market.

The Bank has categorized within Level 2, operations that do not meet the requirements of the standard to be considered within Level 1 and whose fair value can be calculated from observable market information, assets and liabilities associated with similar or comparable instruments. Most fair value estimations were made using the “income approach”, converting future amounts (cash flows or income or expenses) to a single current (that is, discounted) amount, considering an effective interest rate developed on the basis of the “yield curve” methodology taking observable inputs of similar instruments. There are also certain assets and liabilities included in this level for which we used the less active market approach to value them (identified identical instruments traded that have a “less active market” and took as inputs observable value trade on its main market at the measurement date). In addition, certain assets have projected flows of principal and interest, using the interest rate agreed on the date of issue, and then discounting these cash flows at the market rate for each asset or liability under analysis, obtaining thus the fair value of each investments. When these methods are used, the fair value measurement reflects current market expectations about those future amounts.

The Bank has categorized within Level 3, those assets and liabilities that do not have similar or identical assets traded in the market. In order to measure these instruments at fair value, we used the “income approach”, estimating the fair values based on their own assumptions, which were developed based on similar assumptions to those used by who would use any market participant. For this approach, we used discounted cash flow methodology.

The Bank has not changed the methods and assumptions used to estimate the fair value of financial instruments at the closing date of these consolidated financial statements.

In addition, the Bank’s valuation policies and procedures for Level 3 instruments (in the case of the Bank mainly, debt securities like Securities in financial trust) are under the direction of the accounting and financial management. The Management of the Bank is in charge of developing, reviewing, approving and monitoring the key model inputs, critical valuation assumptions and proposed discount rates utilized for the valuation of Level 3 instruments. In addition, the Management is also in charge of monitoring the changes in fair values of Level 3 instruments from period to period.

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Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 and 2015 are as follows:

	December 31, 2016
DESCRIPTION	Total		Level 1		Level 2			Level 3
ASSETS
Government and private securities
Trading
- Government securities		2,999,919		2,833,399		166,520			—
- Equity securities		319,469		301,180		18,289			—
Available for sale
- Government securities		1,749,786		—		1,749,786			—
- Instruments issued by Central Bank		15,970,936		944,877		15,026,059	(*)		—
Other receivables from financial intermediation
Trading
- Mutual funds		164,295		164,295		—			—
Available for sale
- Unlisted Corporate Bonds		478,437		148,668		329,769			—
- Securities in financial trusts		56,741		—		—			56,741
Receivables from spot transactions		58,037		52,032		6,005			—
Other receivables in securities		4		—		4			—
Derivative instruments		855		—		855			—
Total Assets		21,798,479		4,444,451		17,297,287			56,741
LIABILITIES
Other liabilities from financial intermediation
Payables from spot transactions		137,201		129,902		7,299			—
Total Liabilities		137,201		129,902		7,299			—

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	December 31, 2015
DESCRIPTION	Total		Level 1		Level 2			Level 3
ASSETS
Government and private securities
Trading
- Government securities		4,921,771		4,908,235		13,536			—
- Equity securities		1,127,399		1,112,646		14,753			—
Available for sale
- Government securities		1,011,611		32,606		979,005			—
- Instruments issued by Central Bank		8,307,056		5,066,846		3,240,210	(*)		—
Other receivables from financial intermediation
Trading
- Mutual funds		174,441		174,441		—			—
Available for sale
- Unlisted Corporate Bonds		609,387		149,886		459,501			—
- Securities in financial trusts		130,594		—		—			130,594
Receivables from spot transactions		117,705		90,033		27,672			—
Other receivables in securities		4		—		4			—
Total Asset		16,399,968		11,534,693		4,734,681			130,594
LIABILITIES
Other liabilities from financial intermediation
Payables from spot transactions		39,302		39,302		—			—
Derivative instruments		526,629		—		526,629			—
Total liabilities		565,931		39,302		526,629			—

(*) It includes instruments issued by Central Bank of Argentina with, most of them, less than one year maturity.

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The following is the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods:

	Fair value measurements using significant unobservable inputs (Level 3) December 31, 2016
Description	Securities in financial trusts			Total
Beginning balance		130,594			130,594
Transfer into Level 3		—			—
Transfer out of Level 3		—			—
Total gains or losses
- Included in earnings (or changes in net assets)		(18,168	)		(18,168	)
- Included in other comprehensive income		(4,265	)		(4,265	)
Purchases, issuances, sales, and settlements
- Purchases		—			—
- Issuances		—			—
- Sales		—			—
- Settlements		(51,420	)		(51,420	)
Ending balance		56,741			56,741

	Fair value measurements using significant unobservable inputs (Level 3) December 31, 2015
Description	Securities in financial trusts			Total
Beginning balance		142,243			142,243
Transfer into Level 3		—			—
Transfer out of Level 3		—			—
Total gains or losses
- Included in earnings (or changes in net assets)		(59,204	)		(59,204	)
- Included in other comprehensive income		4,519			4,519
Purchases, issuances, sales, and settlements
- Purchases		45,879			45,879
- Issuances		—			—
- Sales		—			—
- Settlements		(2,843	)		(2,843	)
Ending balance		130,594			130,594

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Quantitative information about Level 3 Fair Value Measurements

The following table provides quantitative information about the valuation techniques and significant unobservable inputs used in the valuation of substantially all of our Level 3 assets and liabilities measured at fair value on a recurring basis for which we use an internal model.

	December 31, 2016
Description	Fair value		Valuation Technique	Unobservable Input	Range (weighted average)
Securities in financial trusts		56,741	Income Approach (discounted cash flow)	Discount rate in pesos Discount rate in foreign currency	24.36% - 24.36% (24.36%) 5.12% - 5.12% (5.12%)
	December 31, 2015
Description	Fair value		Valuation Technique	Unobservable Input	Range (weighted average)
Securities in financial trusts		130,594	Income Approach (discounted cash flow)	Discount rate in pesos Discount rate in foreign currency	25% - 34% (33%) 12% - 12% (12%)

The decision to classify an instrument within Level 3 is based on the significance of the unobservable inputs to the overall fair value measurement Level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated with external sources) in addition to the unobservable components.

Changes in Fair Value Levels

The Bank monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2, and Level 3 accordingly. Observable market data includes but is not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data.

Changes in availability of observable market data, which also may result in changing the valuation technique used, are generally the cause of transfers between Level 1, 2 or 3.

As of December 31, 2016 and 2015, the Bank has not made significant transfers in and out of Level 1, Level 2, and Level 3.

Fair Value Option

FASB ASC 825 “Financial Instruments” allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings. The option may be applied instrument by instrument, but is on an irrevocable basis. As of December 31, 2016, 2015 and 2014, the Bank did not elect to apply the fair value option.

Fair Value Disclosures

FASB ASC 825 requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate fair value.

A significant portion of the Bank’s assets and liabilities are in short-term financial instruments, with a remaining maturity of less than one year, and/or with variable rates. These short-term and variable-rate financial instruments are considered to have a fair value equivalent to their carrying value at the balance sheet date.

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The following methods and assumptions were used to estimate the fair value for financial instruments with remaining maturity over a short term period and with fixed-rates, and financial instruments not included in Fair Value Measurement section:

• Loans and assets subject to financial leases: fair value is estimated, mainly, by discounting future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings and for the same remaining maturities, considering the contractual terms in effect as of December 31, 2016 and 2015. Loans and assets subject to financial leases are not normally purchased and sold by the Bank, and there are no active trading markets for most of this portfolio. Accordingly, the Banks estimates are categorized in Level 3 of the Fair Value Hierarchy.

• Deposits: the Bank’s deposits as of December 31, 2016 and 2015, that have a remaining maturity of under a short period were considered to have a fair value equivalent to their carrying value at the balance sheet date while for those that have a remaining maturity over a short period (investments accounts and time deposits), the fair value was taken to be equal to the present value of future cash flows discounted at the average year-end observable market interest rates for similar deposits. In consequence, Demand Deposits are categorized in Level 1 and Time Deposits are categorized in Level 2 of the Fair Value Hierarchy.

• Other liabilities from financial intermediation (except Nonsubordinated corporate bonds) and Other liabilities: fair value for long-term loans is estimated by discounting future cash flows using current rates at which liabilities were received while fair value for short-term loans was considered to be equivalent to their carrying value at the balance sheet. Other liabilities from financial intermediation and Other liabilities are categorized in Level 2 of the Fair Value Hierarchy.

• Subordinated and Nonsubordinated corporate bonds: as of December 31, 2016 and 2015, fair value was taken to be equal to the present value of future cash flows discounted at the average year end market interest rates for securities of similar interest rate, credit risk and duration. These instruments are categorized in Level 2 of the Fair Value Hierarchy.

• Off-Balance sheet: commitments to extending credit, standby letters of credit, guarantees granted and foreign trade acceptances: it is estimated that the differential, if any, between the fees the Bank charged for these transactions and the fair value would not give rise to a material variance.

The following is a summary of carrying amounts under Central Bank rules and estimated fair values of financial instruments as of December 31, 2016 and 2015:

	As of December 31,
	2016										2015
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount		Estimated Fair Value
FINANCIAL ASSETS
Cash		36,089,156		36,089,156		—		—		36,089,156		19,402,821		19,402,821
Government and private securities		19,846,269		3,716,793		16,141,621		—		19,858,414		15,391,372		15,369,240
Loans		87,973,007		—		—		86,651,207		86,651,207		62,332,415		58,928,302
Other receivables from financial intermediation		5,313,607		3,125,028		2,076,625		66,588		5,268,241		3,295,253		3,311,640
Receivables to financial leases		370,152		—		—		320,762		320,762		433,932		356,512
Other receivables		1,277,081		1,277,081		—		—		1,277,081		978,881		978,879
		150,869,272		44,208,058		18,218,246		87,038,557		149,464,861		101,834,674		98,347,394

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	As of December 31,
	2016										2015
	Carrying Amount		Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount		Estimated Fair Value
FINANCIAL LIABILITIES
Deposits		111,939,740		58,849,969		53,175,424		—		112,025,393		76,521,598		76,541,573
Other liabilities from financial intermediation		10,528,503		8,624,012		1,845,518		—		10,469,530		7,537,365		7,596,316
Other Liabilities		3,482,907		—		3,482,907		—		3,482,907		2,650,459		2,650,459
Subordinated Corporate Bonds		6,407,840		—		6,025,359		—		6,025,359		1,957,618		2,115,720
		132,358,990		67,473,981		64,529,208		—		132,003,189		88,667,040		88,904,068

These fair value disclosures represent the Bank’s best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.

Further, because of the characteristics of all nonfinancial instruments, there were no disclosures required regarding such assets. Therefore, the fair value amounts shown in the schedule do not, by themselves, represent the underlying value of the Bank as a whole.

35.23. Joint venture

As mentioned in Note 3.5., the Bank participates in certain joint ventures. Under Central Bank rules these interests are consolidated through the proportional consolidation method.

Under US GAAP, that method of consolidation is not appropriate for such investments and they are accounted for using equity method.

Therefore, had US GAAP been applied as of December 31, 2016 and 2015, “Other assets” would have increased by 56,001 and 35,102, respectively, with an offsetting decrease in various assets and liabilities accounts. Additionally, as of December 31, 2016 and 2015, income from equity in other companies would have increased by 49,209 and 44,910, respectively, with an offsetting decrease in various income and expense accounts, with no net effect in net income or equity.

35.24. Items in process of collection

The Bank does not give accounting recognition to checks drawn against the Bank or other Banks or other items to be collected, until such time as the related item clears or is accepted. Such items are recorded by the Bank in Memorandum accounts. US banks, however, account for such items through balance sheet clearing accounts at the time the items are presented for collection.

Had US GAAP been applied, both the Bank’s assets and liabilities would decrease by approximately 718,040 and 815,603 as of December 31, 2016 and 2015, respectively.

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35.25. Acceptances

Foreign trade acceptances are not recorded on the balance sheet by the Bank. In accordance with Regulation S-X, acceptances and related customer liabilities should be recorded on the balance sheet. Adjustment required to state balance sheets in accordance with Regulation S-X would be to increase assets (due from customers on acceptances) and increase liabilities (bank acceptances outstanding) by 513,301 and 1,364,407 as of December 31, 2016 and 2015, respectively.

35.26. Repurchase agreements

The Bank entered into Repo and Reverse Repo agreements of financial instruments as disclosed in Note 25.

In accordance with Central Bank Rules, the Bank derecognizes the securities transferred under the repurchase agreement and records an asset related to the future repurchase of these securities. Contemporaneously, the Bank records a liability related to the cash received in the transaction. As mentioned in Notes 4.5.g.1) and g.2), the asset related to securities to be repurchased is measured as the same criteria as the transferred securities.

Similar treatment applies to reverse repo agreements.

Under US GAAP, FASB ASC 860 “Transfers and Servicing”, these transactions have not qualified as sales and therefore these transactions are recorded as secured financings.

Had US GAAP been applied, the Bank’s assets and liabilities would have decreased approximately by 19,335 and 1,403 as of December 31, 2016 and 2015, respectively.

In addition, the measurement adjustments of those securities are included in Note 35.2.

35.27. Variable Interest Entities (VIE) and other trusts

As mentioned in Note 14., Banco Macro S.A. is involved in several trust agreements.

Under Central Bank Rules, the Bank is not required to consolidate these trusts (see Note 4.5.g.3).

Under US GAAP, FASB ASC 810 “Consolidation” addresses consolidation of variable interest entities, as defined in the rules, which have certain characteristics.

The methodology for evaluating trust and transactions under the VIE requirements includes the following two steps:

• Determine whether the entity meets the criteria to qualify as a VIE and;

• Determine whether the Bank is the primary beneficiary of a VIE.

In performing the first step the significant factors and judgments that were considered in making the determination as to whether an entity is a VIE includes:

• The design of the entity, including the nature of its risks and the purpose for which the entity was created, to determine the variability that the entity was designed to create and distribute to its interest holders;

• The nature of the involvement with the entity;

• Whether control of the entity may be achieved through arrangements that do not involve voting equity;

• Whether there is sufficient equity investment at risk to finance the activities of the entity and;

• Whether parties other than the equity holders have the obligation to absorb expected losses or the right to received residual returns.

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For each VIE identified, the Bank performs the second step and evaluates whether it is the primary beneficiary of the VIE by considering the following significant factors and criteria:

• Whether the Bank has the power to direct the activities that most significantly impact the VIE’s economic performance and;

• Whether the Bank absorb the majority of the VIE’s expected losses or the Bank receive a majority of the VIE’s expected residual returns.

As of December 31, 2016 and 2015, none of the trusts were considered a variable interest entity.

In addition, the others trusts mentioned in Note 14.1 were not considered VIE and were classified as investment securities available for sale under FASB ASC 320. See Note 35.2.d).

35.28. New Accounting pronouncements (US GAAP)

a) Revenue from Contracts with Customer – ASU 2014-09 (Topic 606). Revenue from Contracts with Customer

In May 2014, FASB issued ASU 09 “Revenue from Contracts with Customers”. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgments and make more estimates. The original guidance has been amended through subsequent accounting standard updates. During 2016, the following updates amended the original guidance:

In April 2016, FASB issued ASU 10 “Revenue from Contracts with Customer – Identifying Performance Obligations and Licensing”. The amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance.

Also, in May 2016, FASB issued ASU 12 “Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients”. The amendments in this update, address to certain issued identified by TGR in the guidance of assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and the Bank plans to adopt this standard on the effective date. The bank has been assessing this ASU and the preliminary findings is that the new pronouncement will not have a significant impact on the consolidated financial statements as the majority of our business transactions will not be subject to this pronouncement.

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b) Financial Instruments – Overall – ASU 2016-01 (Subtopic 825-10). Recognition of Financial Assets and Financial Liabilities.

In January 2016, FASB issued ASU 16 “Recognition of Financial Assets and Financial Liabilities”. The main provisions of this ASU are as follows: (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value, (iii) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and (v) requires an entity to present separately in other comprehensive income (OCI) the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

Amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The bank is continuing to evaluate the potential effects of this new standard on our consolidated financial statements.

c) Leases – ASU 2016-02 (Topic 842).

In February 2016, FASB issued ASU 02 “Leases”. The core principle of this amendment is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. However, some changes to the lessor accounting guidance were made to align both of the following: (i) the lessor accounting guidance with specific changes made to the lessee accounting guidance (for example, certain glossary terms); (ii) Key aspects of the lessor accounting model with the revenue recognition guidance in Topic 606.

Amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and the Bank plans to adopt this standard on the effective date. The bank is currently assessing the potential impact of this guidance, which will apply primarily to operating leases.

d) Derivatives and Hedging – ASU 2016-05 (Topic 815). Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.

In March 2016, FASB issued ASU 05 “Derivatives and Hedging”. The amendments in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met.

Amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Bank does not expect significant impact from the adoption of this statement.

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e) Derivatives and Hedging – ASU 2016-06 (Topic 815). Contingent Put and Call Options in Debt Instruments.

In March 2016, FASB issued ASU 06 “Derivatives and Hedging. Contingent Put and Call Options in Debt Instruments”. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence.

Amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Bank does not expect significant impact from the adoption of this statement.

f) Investments – Equity Method and Joint Ventures – ASU 2016-07 (Topic 323). Simplifying the Transition to the Equity Method of Accounting.

In March 2016, FASB issued ASU 07, “Investments – Equity Method and Joint Ventures”. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, no retroactive adjustment of the investment is required. Also, when an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.

Amendments in this Update are effective for fiscal years, and interim periods within fiscal those years, beginning after December 15, 2016. The Bank does not expect significant impact from the adoption of this statement.

g) Financial Instruments – Credit Losses – ASU 2016-13 (Topic 326). Measurement of Credit Losses on Financial Instruments

In June 2016, FASB issued ASU 13 “Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instrument”. The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The ASU requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans (including TDR Loans), held-to-maturity debt securities, off-balance sheet credit exposures and certain other financial assets measured at amortized cost. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Bank is currently evaluating the potential impact of this ASU on its Consolidated Financial Statements.

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h) Statement of Cash Flow – ASU 2016-15 (Topic 230). Classification of Certain Cash Receipts and Cash Payments.

In August 2016, FASB issued ASU 15 “Statement of Cash Flow – Classification of Certain Cash Receipts and Cash Payments”. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in how certain cash receipt and cash payments are presented and classified in the Statement of Cash Flow under Topic 230. The eight specific cash flow issues are as follows: (i) Debt Prepayment or Debt Extinguishment Costs; (ii) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (iii) Contingent Consideration Payments Made after a Business Combination; (iv) Proceeds from the Settlement of Insurance Claims; (v) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; (vi) Distributions Received from Equity Method Investees; (vii) Beneficial Interests in Securitization Transactions and (viii) Separately Identifiable Cash Flows and Application of the Predominance Principle.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Bank does not expect significant impact from the adoption of this statement.

i) Income Taxes – ASU 2016-16 (Topic 740). Intra-Entity Transfers of Assets Other Than Inventory.

In October 2016, FASB issued ASU 16, “Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory”. With the amendments of this update, an entity should recognize the tax income consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than an inventory.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Bank does not expect significant impact from the adoption of this statement.

j) Consolidation – ASU 2016-17 (Topic 810). Interest Held through Related Parties That are under Common Control.

In October 2016, FASB issued ASU 17 “Consolidation – Interest Held through Related Parties That are under Common Control”. Under this amendment, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Bank does not expect significant impact from the adoption of this statement.

k) Statement of Cash Flow – ASU 2016-18 (Topic 230). Restricted Cash.

In November 2016, FASB issued ASU 18 “Statement of Cash Flow – Restricted Cash”. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Bank does not expect significant impact from the adoption of this statement.

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l) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer – ASU 2016-20.

In December 2016, FASB issue ASU 20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer”. The amendments in this Update are related to an ongoing project on the FASB agenda about Technical Corrections and Improvements to clarify the Codification or to correct unintended application of guidance, that are not expected to have a significant effect on current accounting practice or create a significant administrative cost for most entities. The amendments in this Update are of a similar nature to the items typically addressed in the Technical Corrections and Improvements project.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Bank does not expect significant impact from the adoption of this statement.

m) Business Combination (Topic 805) – Clarifying the Definition of a Business.

In January 2017, FASB issued ASU 01 “Business Combination – Clarifying the Definition of a Business”. The amendments in this Update provide a more robust framework to use in determining when a set of assets and activities is a business.

Amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Bank does not expect significant impact from the adoption of this statement.

n) Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323). Amendments to SEC Paragraphs Pursuant to Staff Announcement at the September 22, 2016 and November 17, 2016 EITF Meetings.

In January 2017, FASB issued ASU 03 “Accounting Changes and Error Corrections and Investments – Equity Method and Joint Ventures” related to Sec Staff Announcements. The SEC Observer made the following SEC Staff Announcement, “Disclosure of the Impact That Recently Issued Accounting Standards Will Have on the Financial Statements of a Registrant When Such Standards Are Adopted in a Future Period”. This announcement applies to Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. Also, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed.

Amendments in this Update are effective when the respective ASU are adopted. The Bank does not expect significant impact from the adoption of this statement.

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