Circulaire No. 116 on Standards for Coverage of Fixed Assets and Medium/Long-Term Employments

Bank of the Republic of Haiti CIRCULAR No. 116 TO BANKS TO DEVELOPMENT FINANCIAL COMPANIES AND TO LEASING COMPANIES

In application of articles 44, 83, 89 and 161 of the law of May 14, 2012 on banks and other financial institutions, the banks, development financial companies and leasing companies hereinafter referred to as "financial institutions" are required to comply with these standards: (1) regarding the coverage of fixed assets and medium and long-term employments, and (2) on the limits of participations in non-financial companies.

1. Definitions The following definitions apply to this circular: a) Medium and long-term employments: any asset element whose recovery time or realization time is greater than or equal to one (1) year, with the exception of those deducted from regulatory capital in application of the circular on minimum capital requirements regarding risk coverage, and to the extent, for depreciable assets, of the remaining capital due at the end of the next twelve (12) months. These elements include:

1. Net fixed assets after depreciation and provisions, excluding assets given in lease as part of leasing operations, and including fixed assets held through real estate companies holding operating or non-operating fixed assets of the financial institution;
2. Equity holdings, excluding participations deductible from regulatory capital;
3. The portion repayable in more than one year of investment securities, government bonds and state securities held, with the exception of securities negotiable on liquid markets;
4. The portion of non-performing loans, as defined in the circular on loan classification, the establishment of provisions for doubtful debts and the accounting of accrued interest on loans, not covered by provisions;
5. 100% of the residual balance of more than one year of loans classified as current and to be reported;
6. 75% of the residual balance of more than one year of leasing operations;
7. The portion repayable in more than one year of loans to banks and other institutions;
8. All other assets whose recovery cannot be obtained before a period of at least one (1) year.

b) Regulatory capital: the set of elements of basic capital (categories 1a and 1b) and supplementary capital (category 2) as defined by the circular on minimum capital requirements regarding risk coverage.

c) Fixed assets: the set of physical fixed assets (operating and non-operating), tangible and intangible, equity holdings and other financial instruments with a capital nature as defined in the circular on minimum capital requirements regarding risk coverage.

d) Operating fixed assets: the set of assets acquired by the financial institution for the operation of its business.

e) Non-operating fixed assets: the set of assets held by the financial institution and which are not used for the operation of its business. Assets received in lieu of payment are part of non-operating fixed assets.

f) Stable resources: resources constituted by:

1. Regulatory capital;
2. 50% of demand and savings deposits;
3. 100% of time deposits with a residual maturity greater than or equal to one (1) year;
4. 25% of time deposits with a residual maturity of less than one (1) year;
5. The portion of resources obtained from banks and other financial institutions with a residual maturity greater than one (1) year;
6. The balance repayable in more than one (1) year of residual maturity of bond issues and other borrowings;
7. All other resources with a residual maturity greater than one (1) year.

g) Non-financial company: a company whose main activity consists of producing goods and non-financial market services.

2. Coverage ratios of fixed assets and medium and long-term employments Financial institutions are required to comply with the following ratios on an individual and consolidated basis:

a) Fixed asset coverage ratio Fixed assets must not exceed 100% of regulatory capital. Fixed Assets / Regulatory Capital >= 100%

Intangible fixed assets, equity holdings and other financial instruments held by a financial institution and which are deducted from its regulatory capital are not taken into account in the fixed assets for the calculation of the ratio. Assets given in lease as part of leasing operations are also excluded. Fixed assets held by real estate companies over which the financial institution has exclusive or joint control, as defined in the circular on limits governing credit risk concentration, are also included in fixed assets. These real estate companies must primarily engage in an activity consisting of holding fixed assets allocated to the operation of the financial institution or holding non-operating fixed assets on behalf of the financial institution. These fixed assets are taken into account in the ratio calculation at their net book value in the balance sheet of said companies, in full in case of exclusive control and for the share of the financial institution in the company in case of joint control (see example in Annex IV).

b) Coverage ratio of medium and long-term employments A minimum ratio of 75% between stable resources (numerator) and medium and long-term employments (denominator) must be respected at all times. Stable Resources / Medium and Long-Term Employments >= 75%

3. Limits on taking participations in existing or newly created non-financial companies 3.1. The participation of a financial institution in a non-financial company may not exceed 15% of its basic regulatory capital. Participation in a non-financial company < 15% / Regulatory Capital

However, the financial institution's participation must not exceed 25% of the capital of the non-financial company, with the exception of companies operating in the agricultural and agro-industrial sector, sanitation, and health. The above limit applies to all participations held in non-financial companies belonging to the same group as defined in the circular governing credit risk concentration.

3.2. The cumulative participations of a financial institution in non-financial companies may not exceed 45% of its basic regulatory capital. Cumulative participations in non-financial companies < 45% / Basic Regulatory Capital

The participations taken into account for the calculation of the above ratios are capital shares and all other financial instruments with a capital nature held by the financial institution. They are retained at their net book value in its balance sheet. Participations in companies exclusively or jointly controlled by the financial institution and whose activity consists either in holding fixed assets allocated to the operation of the financial institution or in providing services necessary for its operation are excluded. The limits set above are to be observed on an individual and consolidated basis.

3.3. In the context of the application of this section, financial institutions must inform the BRH of any project to take direct or indirect participation in a non-financial company amounting to 5% or more of their regulatory capital. To this end, they must forward to the BRH the following information and documents:

1. A presentation note of the non-financial company and a presentation of the transaction specifying its objective and the interest it represents;
2. The terms of taking participation, notably the acquisition price, the financing of the transaction and the shareholders' agreement, if applicable, as well as the impacts on the financial situation of the requesting institution;
3. A document describing the monitoring system for the activities and risks induced by the participation transaction.

4. Reports Financial institutions must send to the BRH, in electronic form, the following reports, established on an individual basis and, where applicable, on a consolidated basis: . Quarterly fixed asset coverage report (Annex I) Submission deadline: 28 days following the end of the quarter . Quarterly report on coverage of medium and long-term employments (Annex II) Submission deadline: 28 days following the end of the quarter . Semi-annual report on the limit of taking participations in non-financial companies (Annex III) Submission deadline: 28 days following the end of the half-year

5. Availability of information Financial institutions must keep at the disposal of the BRH the information relating to the determination of coverage ratios established under these standards, notably: . Any document allowing the identification of operating and non-operating assets; . Any document allowing the identification of the different participations in the different entities; . Documents relating to assets received in lieu of payment.

6. Sanctions In case of non-compliance with the obligations defined in this circular, financial institutions are subject to the following penalties:

a) Reliability of information In case of unreliable information provided in the reports provided for in section 4, the BRH may, after investigation into the circumstances and nature of the violation, impose a penalty of 10% of the difference between the amounts declared in the reports and the amounts appearing in the accounting books and auxiliary books of the financial institution.

b) Exceeding the fixed asset coverage ratio Any exceedance of the fixed asset coverage ratio entails a penalty corresponding to 1/10 of 1% of the amount of regulatory capital necessary to bring the ratio within the authorized limit. A period of ninety (90) days, from the moment of notification by the BRH, is granted to the financial institution to bring the ratio within the permitted limit.

c) Non-compliance with the required ratio for the coverage of medium and long-term employments Non-compliance with the minimum ratio for the coverage of medium and long-term employments entails a penalty corresponding to 1/10 of 10% of the amount of resources necessary to bring the ratio to the minimum required level. A period of ninety (90) days, from the moment of notification by the BRH, is granted to the institution to bring the ratio to the minimum required level.

d) Availability of information for the BRH Failure to provide the information stated in section 5 of this circular subjects a financial institution to a penalty of fifty thousand gourdes (HTG 50,000.00) per day of infringement. The penalty period extends from the day of the infringement (request for information by the BRH) until the day when the information is made available to BRH agents.

e) Late submission of reports Failure to provide, within the required deadline, the compliance reports provided for in section 4 of this circular subjects the financial institution to a penalty of fifty thousand gourdes (HTG 50,000.00) per day of infringement. The penalty period extends from the day of the infringement until the day when the information is made available to the BRH. Any fine will be deducted from the balance of one of the accounts of any institution liable to the BRH.

7. Transitional provisions Financial institutions holding participations exceeding the limits set in section 3 must take appropriate measures to comply with these limits by September 30, 2021 at the latest.

8. Entry into force This circular enters into force on November 3, 2020.

List of annexes Annex I: Fixed asset coverage report Annex II: Medium and long-term employments report Annex III: Report on the limit of taking participations in non-financial companies Annex IV: Example of calculation of fixed assets in the case of a financial institution controlling real estate companies

ANNEX I Institution Financial: As of: REPORT ON COVERAGE OF FIXED ASSETS Quarterly Report (individual basis / consolidated basis)* (In thousands of gourdes)

• Please strike out the unnecessary mention. Declaration to be established on a consolidated basis for institutions at the head of a group, on an individual basis for other institutions and for subsidiaries of other institutions subject to regulation (cf. section 2 of circular #88-1). ** Amount appearing in the balance sheet transmitted to the BRH on the date of declaration, excluding assets given in lease as part of leasing operations.

Amount 1 Fixed Assets 2 Fixed assets net on balance sheet excluding leasing** 3 Equity holdings and other financial instruments with a capital nature held 4 Fixed assets net held indirectly (§ 2.a of the circular) (A)- Total Fixed Assets 5 Fixed assets deducted from regulatory capital 6 Intangible fixed assets 7 Participations in the form of capital in other regulated establishments (B)- Total Deductions (C)- Net Fixed Assets after deductions = (A)-(B) (D)- Regulatory Capital (Circular 88-1, Annex VI, 1/4, line LL) PRUDENTIAL RATIO (C) / (D)

ANNEX II Institution Financial: As of: REPORT ON COVERAGE OF EMPLOYMENTS MEDIUM AND LONG TERM Quarterly Report (individual basis / consolidated basis)* (In thousands of gourdes)

• Please strike out the unnecessary mention. Declaration to be established on a consolidated basis for institutions at the head of a group, on an individual basis for other institutions and for subsidiaries of other institutions subject to regulation (cf. section 2 of circular #88-1).

Line | Stable Resources | Quota | Amount 1 Regulatory Capital (Circular 88-1, Annex VI, 1/4, line LL) | 100.0% 2 Demand and savings deposits | 50% 3 Time deposits with residual maturity > 1 year | 100% 4 Time deposits with residual maturity < 1 year | 25% 5 Resources from other banks and financial institutions with residual maturity > 1 year | 100% 6 Bond issues and other borrowings - balance repayable in more than one year of residual maturity | 100% 7 Other Resources (to be specified) with residual maturity > 1 year | 100% 8 (A)- Total stable resources 9 Medium and long-term employments 10 Fixed assets net (Annex I, total C) | 100% 11 Equity holdings (line 12 - line 13) 12 Deductible participations from regulatory capital 13 Investment securities, government bonds and state securities (line 14 - line 15 - line 16) | 100% 14 Securities negotiable on a liquid market 15 Other securities - Portion repayable in at least one year 16 Non-performing loans net of provisions for doubtful debts | 100% 17 Current and to-be-reported loans (line 19 - line 20) | 100% 18 Book balance 19 Balance at least one year maturity 20 Leasing operations (line 22 - line 23) | 75% 21 Book balance 22 Balance at least one year maturity 23 Loans to banks and other financial institutions (line 25 - line 26) | 100% 24 Book balance 25 Balance at least one year maturity 26 Other assets (to be specified) with residual maturity > 1 year | 100% 27 (B)- Total Medium and Long-Term Employments 28 Prudential ratio: (A)/(B)

ANNEX III Institution Financial: As of: REPORT ON THE LIMIT OF TAKING PARTICIPATIONS IN NON-FINANCIAL COMPANIES Semi-annual Report (individual basis / consolidated basis)* (In thousands of gourdes)

Designation of the Company | Capital Amount (1) | Net Amount of Participation (2) | % of Basic Capital (2/B) | % of Company Capital (2/1) 1 | | | | 2 | | | | 3 | | | | 4 | | | | (A)- Total Participations (B)- Basic Regulatory Capital (Circular 88-1, Annex VI, 1/4, line GG)

• Please strike out the unnecessary mention. Declaration to be established on a consolidated basis for institutions at the head of a group, on an individual basis for other institutions and for subsidiaries of other institutions subject to regulation (cf. section 2 of circular #88-1).

ANNEX IV Example of calculation of fixed assets in the case of a financial institution controlling real estate companies Financial Institution N Net Fixed Assets 60,000

Real Estate Subsidiary 1 | Real Estate Subsidiary 2 Net Fixed Assets allocated to the operation of the FI | Net Fixed Assets allocated to the operation of the FI | 100 Net Fixed Assets non-operating held on behalf of the FI | 500 | Exclusive control: 70% | Joint control: 50%

Examples Example Subsidiary 1 | Example Subsidiary 2 Net Fixed Assets in the books of the FI | 60,000 | 60,000 Plus Net Fixed Assets held by the subsidiary and allocated to the operation of the FI | 1,000 | 350 (50% of 700) Plus Non-operating fixed assets carried by the subsidiary on behalf of the FI | 500 | 0 Total Fixed Assets for the calculation of the ratio indicated in section 2.a | 61,500 | 60,350