Instruction No. 03/2024 on Reporting Rules for Recovery Plans of Banking Financial Institutions

INSTRUCTION NO. 03/2024 of March 6
SUBJECT: FINANCIAL SYSTEM

• Reporting Rules for Recovery Plans of Banking Financial Institutions

Given the need to establish the reporting rules for recovery plans that Banking Financial Institutions must observe in their preparation, as established in Chapter II of Article 3 of Notice No. 01/24, dated February 21, regarding the Recovery Plans of Banking Financial Institutions; Under the combined provisions of Article 217 of Law No. 14/21, dated May 19, the General Regime of Financial Institutions Law, with subparagraph f) of paragraph 1 of Article 31 and paragraph 1 of Article 98, both of Law No. 24/21, dated October 18, the National Bank of Angola Law. I DETERMINE:

1. Object
   This Instruction establishes the reporting rules for recovery plans that Banking Financial Institutions must observe in their preparation.

2. Scope
   This Instruction applies to Banking Financial Institutions under the supervision of the National Bank of Angola, as provided for in paragraph 2 of Article 7 of Law No. 14/21, dated May 19, the General Regime of Financial Institutions Law.

3. Reporting of Recovery Plans
   Banking Financial Institutions must report their recovery plans to the National Bank of Angola, in physical format and to the electronic address dsb@bna.ao.

4. Recovery Plans of Banking Financial Institutions
   4.1. Recovery plans are prepared and approved by the administrative body of Banking Financial Institutions, considering various adverse macroeconomic and financial stress scenarios, appropriate to each Institution's specific conditions, namely systemic events and specific stress situations.
   4.2. Recovery plans must contain the following structure:
   a) Executive summary; b) Strategic analysis; c) Governance and supervision structure; d) Recovery strategies and indicators; e) Scenario analysis; f) Communication plan; and, g) Preparatory measures.
   4.3. Banking Financial Institutions must ensure that the level of detail and depth of analysis in the recovery plan is proportional to the following elements:
   a) Size, nature and business structure; b) Complexity and substitutability of the Institution's activities, including the scale of international operations; and, c) Degree of intra-group, external and systemic dependence, interconnectedness with the economy and essential components of the financial system.
   4.4. Banking Financial Institutions must ensure that the recovery planning process considers risk appetite, strategic planning, risk management structures of Banking Financial Institutions and is an integral part of risk management.
   4.5. In preparing the recovery plan, Banking Financial Institutions must take into account the recovery plans developed by their subsidiaries and/or branches, where applicable, as well as the recovery plans of the entire group developed by the parent company.
   4.6. The content of recovery plans may not be disclosed to any natural or legal person, including the shareholders of the Banking Financial Institution, even if it is a listed company, except for persons involved in its preparation and approval.

5. Executive Summary
   5.1. The executive summary must contain, at minimum, the following elements:
   a) Assessment of the overall recovery capacity of the Banking Financial Institution; b) Description of all material changes made to the governance structure of the Banking Financial Institution, where applicable; and, c) Assessment of the interconnections between recovery plans prepared by the Banking Financial Institution and its subsidiaries and branches, including the extent to which the plans would affect the overall recovery capacity of the financial system.
   5.2. Banking Financial Institutions must also outline the main conclusions and connections existing among all components of the recovery plan, including:
   a) Mapping of main business lines, critical functions and shared critical services; b) Overview of recovery indicators and governance structures that ensure an effective and efficient recovery planning process, highlighting the main considerations for calibrating recovery indicators, defining prudential limits and interconnections with existing governance and risk management structure; c) Overview of the set of actionable and viable recovery options, including a brief assessment of the likely effectiveness of each recovery option, highlighting financial impact and potential impediments; d) Exhaustive approach to severe stress scenarios, including the impact and viability of the selected recovery strategy for each scenario; e) Description of the communication plan to support effective implementation of the recovery plan, taking into account potential reputation risks that may undermine public confidence in the Banking Financial Institution; and, f) Assessment of selected preparatory measures to improve the probability of successful implementation of each recovery strategy.

6. Strategic Analysis
   6.1. The strategic analysis must provide detailed information on the structure, strategy, business model, financial situation of the Banking Financial Institution, risk profile, intra-group, external and systemic dependencies.
   6.2. The strategic analysis must comprise indicators and other quantitative and qualitative information with the following objectives:
   a) To allow adequate monitoring of incurred risks; b) To reflect the magnitude and speed of change in the economic-financial and liquidity situation of the Banking Financial Institution; c) To allow timely adoption of recovery strategies; d) To consider the horizon necessary for recovery strategies to take effect; and, e) To consider the business model, nature, complexity and risk profile of the Banking Financial Institution.
   6.3. The strategic analysis must establish critical levels for the set of most relevant indicators, aiming to monitor risks and eventual execution of the recovery plan.
   6.4. The strategic analysis must provide, at minimum, monitoring of the following elements:
   a) Indicators demonstrating actual or potential deterioration in the Banking Financial Institution's capacity to meet its capital needs; and, b) Indicators demonstrating actual or potential deterioration in the Banking Financial Institution's capacity to meet its liquidity and financing needs.

7. Stress Scenario Analysis
   7.1. Stress scenarios must be comprehensive and encompass events that may threaten business continuity and the viability of the Banking Financial Institution.
   7.2. Stress scenarios must encompass, at minimum, hypotheses of asset devaluation, reduced capacity to attract deposits, deterioration in earnings generation capacity, deterioration in liquidity position, or arising from systemic or idiosyncratic instabilities of national or external origin.
   7.3. Stress scenarios must include the hypothesis of unviability of the Banking Financial Institution's business model, aiming to test the adequacy of critical levels defined in the strategic analysis, and the viability and effectiveness of recovery strategies.
   7.4. Without prejudice to the foregoing, additional scenarios may be determined for inclusion in the recovery plan and stress tests conducted considering these scenarios.

8. Recovery Strategies
   8.1. The recovery plan must include the assumptions referred to in Article 6 of Notice No. 01/24, dated February 21, regarding Recovery Plans of Banking Financial Institutions.
   8.2. Without prejudice to the foregoing, the recovery plan must evidence the time necessary for recovery strategies to take effect, expected costs and benefits.

9. Recovery Plan Indicator Framework
   9.1. Banking Financial Institutions must include quantitative and qualitative indicators in recovery plans, containing, at minimum, the following categories:
   a) Capital indicators; b) Liquidity indicators; c) Profitability indicators; and, d) Asset quality indicators.
   9.2. Whenever it is justified that indicators are not relevant to the legal structure, risk profile, size or complexity, Banking Financial Institutions must also include in the recovery plan the following elements:
   a) Market indicators; b) Macroeconomic indicators; and, c) Specific recovery indicators.
   9.3. The recovery plan indicator framework must:
   a) Be adapted to the business model and strategy of the Banking Financial Institution and adequate to its risk profile; b) Identify main vulnerabilities most likely to impact the financial situation of the Banking Financial Institution, which force a decision regarding activation of the recovery plan; c) Be adequate to the size and complexity of each Banking Financial Institution, with the number of indicators being sufficient to alert Banking Financial Institutions about deterioration in their situation across various areas; d) Be properly focused and feasible to be monitored by Banking Financial Institutions; e) Be capable of defining the situation in which the Banking Financial Institution decides to adopt a measure referred to in the recovery plan; f) Be aligned with the overall risk management framework, indicators of the liquidity or capital emergency plan and operational continuity plan; g) Be integrated into the governance of Banking Financial Institutions, covered by decision procedures and notifications to upper levels of the hierarchical chain; and, h) Include prospective indicators.
   9.4. In defining quantitative indicators of the recovery plan, the Banking Financial Institution must consider using a progressive measurement method, so as to inform the administrative body that those may be reached.
   9.5. For purposes of the foregoing, Banking Financial Institutions must submit to the National Bank of Angola a justification of how the calibration of recovery plan indicators was determined, as well as demonstrate that exceeding prudential limits will be detected in a timely manner.
   9.6. The information management systems of Banking Financial Institutions must ensure easy and frequent monitoring of recovery plan indicators and allow timely submission to the National Bank of Angola, whenever requested.
   9.7. For purposes of the foregoing, monitoring of recovery plan indicators must be carried out continuously, so as to enable Banking Financial Institutions to adopt timely measures to restore their financial situation after suffering significant deterioration.
   9.8. Banking Financial Institutions must reevaluate recovery plan indicators whenever necessary and, at minimum, once a year.

10. Communication Plan
    10.1. Banking Financial Institutions must have a communication plan, which aims to contribute to the effectiveness of strategies provided in the recovery plan.
    10.2. The communication plan must consider the relevance, adequacy and timeliness of communication with stakeholders throughout the recovery plan execution process.

11. Preparatory Measures
    11.1. The recovery plan must identify potential barriers to the effectiveness of recovery strategies and risks associated with their execution.
    11.2. Banking Financial Institutions must indicate, in the recovery plan submitted to the National Bank of Angola, actions to be executed to eliminate or mitigate barriers and risks.

12. Governance and Supervision Structure
    12.1. The recovery plan must describe the governance mechanisms necessary for its execution.
    12.2. The preparation and revision of the recovery plan must be integrated into information management, risk management, crisis management and capital processes, as well as contingency and capital plans of the Banking Financial Institution.
    12.3. Without prejudice to the foregoing, the National Bank of Angola may determine that the preparation and revision process of a Banking Financial Institution's recovery plan be subject to evaluation by an independent auditor, through the preparation of a specific report.
    12.4. The recovery plan must be submitted to review by an institutional unit independent of the areas responsible for its preparation.
    12.5. The review referred to in the foregoing must:
    a) Involve assessment of critical functions and essential services, adequacy and robustness regarding strategic analysis and stress scenarios, mapping of preparatory measures to recovery strategy effectiveness, governance and other criteria and procedures associated with plan operationalization; and, b) Be carried out at least every three years, or whenever there is a relevant change in the economic and financial scenario, operating strategies, business model, organizational structure or processes linked to critical functions and essential services.
    12.6. The recovery plan must be approved and revised by the administrative body of the Banking Financial Institution annually, or whenever there is a relevant change in the economic-financial scenario, operating strategies, business model, organizational structure or processes linked to critical functions and essential services.
    12.7. The administrative body must:
    a) Ensure timely identification of those responsible for executing the recovery plan; b) Have comprehensive and integrated understanding of critical functions and essential services, indicators and other information in the monitoring program, stress scenarios, recovery strategies, barriers and associated risks, ensuring compatibility with the Banking Financial Institution's strategic planning; and, c) Ensure preparation of viable and effective recovery strategies, including those involving other companies within the economic group.
    12.8. The administrative body of the Banking Financial Institution is responsible for adopting strategies provided in the recovery plan.
    12.9. The specific responsibilities of each member of the administrative body of the Banking Financial Institution and those responsible for preparation must be detailed in the recovery plan.

13. Sanctions
    Non-compliance with the provisions of this Instruction constitutes an offense punishable under Law No. 14/21, dated May 19, the General Regime of Financial Institutions Law.

14. Doubts and Omissions
    Doubts and omissions resulting from the interpretation and application of this Instruction are resolved by the National Bank of Angola.

15. Entry into Force
    This Instruction enters into force on the date of its publication.

PUBLISH
Luanda, March 6, 2024.
THE GOVERNOR
MANUEL ANTÓNIO TIAGO DIAS