Regulatory Alerts2022-01-01
On the Reclassification of Distressed Loans and Their Provisioning
The Central Bank of Djibouti mandates that any loan with at least one unpaid installment exceeding 30 days must be reclassified as a distressed loan and provisioned quarterly based on the severity of the delay. Specifically, institutions must set provisions at 20%, 50%, or 100% for payment delays of 31–90, 91–180, and 181–360 days respectively, while claims overdue beyond 360 days are written off but tracked off-balance sheet for recovery, with overdrafts subject to 75% or 100% provisions at 30 and 90 days past due. Upon reclassification, interest recognition ceases and is monitored off-balance sheet, with any subsequent recoveries recorded as exceptional income, and the directive takes effect immediately upon signature.
CENTRAL BANK OF DJIBOUTI
INSTRUCTION No. 2022-09/IMF
ON THE RECLASSIFICATION OF DISTRESSED LOANS AND THEIR PROVISIONING
The Governor of the Central Bank of Djibouti,
Having regard to Law No. 118/AN/11/6ème L of January 22, 2011, amending the statutes of the Central Bank of Djibouti;
Having regard to Law No. 179/AN/07/5ème L of May 16, 2007, regulating microfinance activities on the territory of the Republic of Djibouti;
Having regard to Law No. 117/AN/11/6ème L of May 25, 2011, regulating financial cooperatives;
Having regard to the Commercial Code, Book 3 on Company Law;
Having regard to Law No. 119/AN/11/6ème L of January 22, 2011, on the establishment and supervision of credit institutions and financial auxiliaries;
Having regard to Decree No. 2018-171/PRE of May 8, 2018, appointing the Governor of the Central Bank of Djibouti.
Orders:
Article 1: Distressed loans are loans where at least one installment has been unpaid for more than 30 days. Consequently, the entire outstanding balance, whether due or not, must be reclassified into this category.
Article 2: Distressed loans must be subject to provisions to be established quarterly. The provision amount is determined based on observed payment delays, in accordance with the following modalities:
- Loans with at least one unpaid installment of 31 to 90 days: the provision amount shall be 20% of the outstanding balance;
- Loans with at least one unpaid installment of 91 to 180 days: the provision amount shall be 50% of the outstanding balance;
- Loans with at least one unpaid installment of 181 to 360 days: the provision shall amount to 100% of the outstanding balance;
- Loans with at least one unpaid installment of more than 360 days: the claim is considered uncollectible, and after reversing the initially established provisions, it is written off from the portfolio. This claim must, however, be subject to off-balance sheet tracking and recovery efforts.
Any unrepaid overdraft 30 days past due must be subject to a provision equal to 75% of the amount due, and if unrepaid 90 days past due, the claim is considered uncollectible and the provision shall be 100%.
Article 3: The outstanding balance equals the loan balance, minus deposits provided as collateral to the institution by the borrower and/or guarantor.
Article 4: Interest ceases to be recognized when a loan is reclassified as "distressed claims". Off-balance sheet tracking of these interests is nevertheless maintained.
Article 5: When a subsequent regularization occurs in the repayment of written-off loans (over 360 days overdue), received interest is recognized as exceptional income.
Article 6: This instruction enters into force as of its signature.
Done in Djibouti, March 14, 2022
The Governor
[Signature and seal of the Central Bank of Djibouti]