Regulatory Alerts2022-03-04
Circular to Banks and Financial Institutions No. 2022-02 of March 4, 2022
The Central Bank of Tunisia issued Circular No. 2022-02 to mandate banks and financial institutions to establish collective provisions against latent risks on current (class 0) and specifically monitored (class 1) commitments by charging against results. The circular replaces Article 10 bis of Circular No. 91-24 and requires institutions to apply a standardized methodology that calculates average migration rates, applies sector-specific adjustment and provisioning multipliers, and ensures annual review and auditor validation. Effective from publication for the 2021 financial year onward, the framework standardizes risk coverage calculations while allowing financial institutions to request lower rates based on a reasoned report and prior regulatory approval.
1 Tunis, March 4, 2022
CIRCULAR TO BANKS AND FINANCIAL INSTITUTIONS NO. 2022-02 Subject: Division, Risk Coverage, and Monitoring of Commitments.
The Governor of the Central Bank of Tunisia, Having regard to Law No. 2016-35 of April 25, 2016, establishing the status of the Central Bank of Tunisia, Having regard to Law No. 2016-48 of July 11, 2016, relating to banks and financial institutions, particularly Article 66 thereof, Having regard to Circular to Banks and Financial Institutions No. 91-24 of December 17, 1991, relating to division, risk coverage, and monitoring of commitments, as amended and supplemented by subsequent texts, particularly Circular No. 2021-01 of January 11, 2021, Having regard to Circular No. 2006-19 of November 28, 2006, relating to internal control, Having regard to Circular No. 2017-06 of July 31, 2017, relating to accounting, prudential, and statistical reporting to the Central Bank of Tunisia, Having regard to Circular No. 2021-05 of August 19, 2021, relating to the governance framework for banks and financial institutions, Having regard to the opinion of the Compliance Control Committee No. 2022-02 of February 28, 2022, as provided for in Article 42 of Law No. 2016-35 of April 25, 2016 establishing the status of the Central Bank of Tunisia.
Decides: Article 1 - The provisions of Article 10 bis of the aforementioned Circular No. 91-24 are repealed and replaced as follows:
2 Article 10 bis (new) - Banks and financial institutions must set up general provisions, known as "collective provisions", by charging against results, to cover latent risks on current commitments (class 0) and commitments requiring specific monitoring (class 1) as defined in Article 8 of Circular No. 91-24. Banks and financial institutions must, for the valuation of these provisions, apply the methodology issued by the Central Bank of Tunisia attached to this circular. The amount of collective provisions must be reviewed at each annual accounts closing date. Any reversal of the collective provisions amount must be justified by improved risk parameters and discussed in advance with the Central Bank of Tunisia. The auditors of banks and financial institutions must express their opinion on the adequacy of collective provisions to the nature of latent risks linked to current commitments (class 0) and those requiring specific monitoring (class 1).
Article 2 - This circular enters into force from its publication date, and its provisions apply to the 2021 financial year and subsequent years.
THE GOVERNOR, Marouane EL ABASSI
3 Annex III to Circular No. 91-24 of December 17, 1991 Methodology for Determining Collective Provisions
This methodology is based on the following steps: I. Determination of the Target Population Direct gross commitments and by endorsement to clients, excluding banking and financial institutions, classified 0 and 1 at the end of the reference year designated "Nr".
II. Grouping Commitments 0 and 1 into Homogeneous Groups The commitments of the target population are grouped by client segment and activity sector. • Commitments to private sector professionals
- Agriculture
- Mechanical and electrical industries
- Olive oil processors (Oléifacteurs)
- Agro-food industries
- Pharmaceutical industries
- Other industries
- Construction and public works (BTP)
- Tourism
- Travel agencies
- Car rental agencies
- Real estate development
- Olive oil exporters
- Commerce
- Health
- Telecommunications and ICT
- Other services • Public counterparties
- Public enterprises operating in competitive sectors
- Other public bodies • Individuals
- Private sector individuals: Housing loans
- Private sector individuals: Consumer credit
- Public sector individuals: Housing loans
- Public sector individuals: Consumer credit
4 Banks and financial institutions must ensure, within the framework of this grouping, the homogeneity of the groups.
III. Determination for Each Counterparty Group Designated "gi" of an Estimated Average Migration Rate Over a 5-Year History (Excluding Year 2020 and the Reference Year) TMgi(N) = [Additional Risk of Group i in Year (N)] / [Commitments 0 and 1 of Group i in Year (N-1)] × 100 TMMgi = Σ TMgi(N) / n (from N=1 to n)
Where:
- TMgi(N): Migration rate of year N for counterparty group i.
- Additional risk of group i: Commitments 0 and 1 of year (N-1) for group i that became classified as 2-3-4 at the end of year (N).
- The TMgi(N) must be adjusted to eliminate exceptional effects that may cause bias.
- TMMgi: Average migration rate of counterparty group i.
- n: Number of years retained in the TMMgi calculation.
IV. Increase of Historical Migration Rates The historical migration rates for counterparty group "gi" are increased by the following "Δgi" rates:
| Counterparty Group | Δgi |
|---|---|
| Private Sector Professionals | |
| Agriculture | 5.00% |
| Mechanical and electrical industries | 4.00% |
| Olive oil processors (Oléifacteurs) | 1.25% |
| Agro-food industries | 1.25% |
| Pharmaceutical industries | 1.00% |
| Other industries | 3.50% |
| Construction and public works (BTP) | 5.00% |
| Tourism | 9.00% |
| Travel agencies | 7.75% |
| Car rental agencies | 7.50% |
| Real estate development | 5.00% |
| Olive oil exporters | 1.00% |
V. Application of Standard Provisioning Rates "TPgi" The standard provisioning rates "TPgi" are as follows:
| Counterparty Group | TPgi (Increase Rate) |
|---|---|
| Commerce | 1.50% |
| Health | 1.00% |
| Telecommunications and ICT | 1.00% |
| Other services | 2.75% |
Public Counterparties Public enterprises operating in competitive sectors | 5.00% Other public bodies | 1.50%
Individuals Private sector individuals: Housing loans | 1.50% Private sector individuals: Consumer credit | 2.00% Public sector individuals: Housing loans | 1.00% Public sector individuals: Consumer credit | 1.50%
| Counterparty Group | TPgi (Provisioning Rate) |
|---|---|
| Private Sector Professionals | |
| Agriculture | 30% |
| Mechanical and electrical industries | 30% |
| Olive oil processors (Oléifacteurs) | 30% |
| Agro-food industries | 30% |
| Pharmaceutical industries | 30% |
| Other industries | 30% |
| Construction and public works (BTP) | 30% |
| Tourism | 30% |
| Travel agencies | 30% |
| Car rental agencies | 30% |
| Real estate development | 25% |
| Olive oil exporters | 30% |
| Commerce | 30% |
| Health | 30% |
| Telecommunications and ICT | 30% |
| Other services | 30% |
Public Counterparties Public enterprises operating in competitive sectors | 30% Other public bodies | 30%
Individuals Private sector individuals: Housing loans | 15% Private sector individuals: Consumer credit | 30% Public sector individuals: Housing loans | 15% Public sector individuals: Consumer credit | 30%
6 The increase rates "Δgi" and standard provisioning rates "TPgi" must be applied by banks. Financial institutions may, subject to prior approval from the Central Bank of Tunisia and based on a reasoned report, adopt increase rates "Δgi" and/or provisioning rates "TPgi" lower than those indicated above.
VI. Calculation of the Amount of Collective Provisions "PC" on Commitments 0 and 1 Collective provision for group i: PCgi = Engts 0 et 1 gi × (TMMgi + Δgi) × TPgi Global collective provision: Sum of collective provisions by group: Σ PCgi (from i=1 to n)
The amount of collective provisions must be reviewed at each annual accounts closing date. The target population and TMMgi must be recalculated annually within the framework of rolling series.