Guideline No. 02/2022 of March 29 – Prudential Limits on Large Exposures and Bank Financial Institutions' Participation in Non-Financial Companies

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GUIDELINE NO. 02/2022 of March 29 SUBJECT: FINANCIAL SYSTEM

• Prudential Limits on Large Exposures
• Participation of Bank Financial Institutions in the Capital of Non-Financial Companies Whereas it is necessary to establish prudential limits on large exposures, as well as the holding of participations in non-financial companies by Bank Financial Institutions, as set out in Guideline No. 08/2021 of July 5, on Prudential Requirements. In accordance with the provisions of Article 166 of Law No. 14/21 of May 19, the General Regime for Financial Institutions Law, combined with paragraphs d) and f) of paragraph 1 of Article 31 and paragraph 1 of Article 98, both of Law No. 24/21 of October 18, the Banco Nacional de Angola Law. HEREBY DETERMINES:

1. Subject This Guideline establishes the limits on large exposures, as well as the participation of Bank Financial Institutions in the capital of non-financial companies, in accordance with Guideline No. 08/2021 of July 5, on Prudential Requirements.
2. Scope This Guideline applies to Bank Financial Institutions under the supervision of the Banco Nacional de Angola, hereinafter abbreviated as Financial Institutions.

CONTINUED GUIDELINE NO. 02/2022 Page 2 of 26 3. Definitions Without prejudice to the definitions established in Law No. 14/21 of May 19, the General Regime for Financial Institutions Law, for the purposes of this Guideline, it is understood that: 3.1. Indirect Holding of Quotas or Shares: A person, whether natural or legal, is considered to indirectly hold quotas or shares in a company when these are attributable to them according to the criteria fixed in paragraph 2 of Article 8 of Guideline No. 10/21 of July 14, on the Corporate Governance Code for Financial Institutions. 3.2. Exposures: The assets and off-balance sheet elements listed in Annex III to this Guideline. 4. General Requirements 4.1. Institutions must calculate the limits on large exposures and the participation of Bank Financial Institutions in the capital of non-financial companies, as provided for in Annexes I and II of this Guideline, respectively. 4.2. The limits fixed in this Guideline do not apply to exposures or components of exposures arising from assets directly deducted from own funds or other reductions of own funds related to the asset element. 4.3. Excesses beyond the limits provided in this Guideline are subject to own fund requirements, as provided for in Annexes I and II of this Guideline. 5. Policies and Processes 5.1. Institutions must adopt operational procedures associated with solid, effective, and complete internal control policies and processes for identifying all risk concentration situations, as well as for controlling the limits referred to in this Guideline.

CONTINUED GUIDELINE NO. 02/2022 Page 3 of 26 5.2. For the purposes of large exposure calculations, institutions may consider direct risk or guarantor risk, provided they apply consistent and uniform methodologies throughout the operation's duration. 5.3. For the purposes of the preceding sub-point, sellers of protection in credit derivative contracts are equated to guarantors. 5.4. For exposures assumed towards collective investment schemes and securitization operations, institutions must consider directly and underlying risks of the exposure and their economic reality in an articulated manner. 6. Concentration Risk Management 6.1. Without prejudice to the limits referred to in this Guideline, institutions must identify, assess, monitor, control, and report on concentration risk, particularly in situations of tension that may occur in financial markets, namely: a) Activity sectors of borrowers and guarantors; b) Guarantors for operations, in case they opt not to consider direct risk; c) Counterparties in financial derivative operations, notably those traded in over-the-counter markets; d) Countries of allocation for operations; e) Suppliers of goods and services; and, f) Technology dependence inherent to information systems. 6.2. The Banco Nacional de Angola may determine adjustments to exposures on the matters referred to in the preceding paragraph, whenever it considers them necessary for good concentration risk management.

CONTINUED GUIDELINE NO. 02/2022 Page 4 of 26 7. Information Reporting 7.1. Institutions must report to the Banco Nacional de Angola information on large exposures and holdings in non-financial companies, as provided for in Article 35 of Guideline No. 08/2021 of July 5, on Prudential Requirements, quarterly, on an individual and consolidated basis, through the forms and filling notes provided for in Annexes IV and V of this Guideline. 7.2. For the purposes of the preceding paragraph, in the case of a financial group, the parent company must report information according to the consolidation perimeter provided for in Article 5 of Guideline No. 08/2021 of July 5, on Prudential Requirements. 7.3. Institutions must ensure that the data reported in the tables attached to this Guideline are properly documented. 8. Transitional Provisions 8.1. Institutions must comply with this Guideline from December 31, 2023, for exposures to the Angolan State expressed in foreign currency. 8.2. Institutions must report to the Banco Nacional de Angola the information required in Article 35 of Guideline No. 08/2021 of July 5, on Prudential Requirements, individually on a monthly basis, and consolidated on a quarterly basis, until December 2023. 8.3. Without prejudice to the preceding paragraph, institutions must report the information required in Article 35 of Guideline No. 08/2021 of July 5, on Prudential Requirements, individually and consolidated, quarterly, from March 2024. 9. Sanctions Non-compliance with the rules established in this Guideline constitutes an offense punishable under Law No. 14/21 of May 19, the General Regime for Financial Institutions Law.

CONTINUED GUIDELINE NO. 02/2022 Page 5 of 26 10. Doubts and Omissions Doubts and omissions resulting from the interpretation and application of this Guideline are resolved by the Banco Nacional de Angola. 11. Repeal All regulations contrary to this Guideline are hereby repealed, notably Guideline No. 21/2021 of October 27, on Prudential Limits on Large Exposures. 12. Entry into Force This Guideline enters into force on the date of its publication. PUBLISHED. Luanda, March 29, 2022. THE GOVERNOR JOSÉ DE LIMA MASSANO

CONTINUED GUIDELINE NO. 02/2022 Page 6 of 26 ANNEX I Prudential Limits on Large Exposures

1. Institutions must not assume large exposures towards a counterparty or a group of interconnected counterparties, the value of which exceeds 25% (twenty-five percent) of their Tier 1 own funds.
2. Whenever large exposures concern holders of qualified participations or the group of interconnected counterparties includes the same shareholders, the limit is reduced to 10% (ten percent) of Tier 1 own funds, except if the large exposure is towards an institution.
3. The sum of the 20 (twenty) largest large exposure positions must not exceed 300% (three hundred percent) of Tier 1 own funds.
4. For the purpose of calculating large exposures, institutions must consider the exemptions and deductions provided for in paragraphs 13 to 17 of this Annex.
5. The limits established in paragraphs 1 to 3 of this Annex apply equally on a consolidated basis.
6. Whenever institutions exceed assumed exposures or there is probability of exceeding the limits established in paragraphs 1 to 3 of this Annex, they must immediately communicate the exposure values to the Banco Nacional de Angola.
7. For the purposes of the preceding paragraph, institutions must submit an action plan within 1 (one) month, providing for their regularization within 6 (six) months.
8. In the event of excess assumed exposures, this excess must be framed in the calculation of Own Funds Ratios, being included in Risk-Weighted Assets (RWAs) and weighted at 1250% (one thousand two hundred and fifty percent). The corresponding own fund requirement value is obtained by multiplying RWAs by 8% (eight percent).

CONTINUED GUIDELINE NO. 02/2022 Page 7 of 26 Exposure Categories in Risk 9. Exposures must be considered at the following values: a) Assets at their accounting book value, according to the Chart of Accounts for Bank Financial Institutions (PCIFB), with the exception of exposures belonging to the trading book; b) The trading book at the excess of long positions over short positions; c) High, medium, medium/low, and low off-balance sheet elements listed in Table 2 of Annex III to this Guideline, at their nominal value; and, d) Off-balance sheet elements relating to financial derivative instruments, referred to in Annex III to this Guideline, at the value resulting from multiplying their notional values by the percentages in Table 1. Table 1

Residual Maturity	Contracts on Interest Rates	Contracts on Exchange Rates and Gold	Contracts on Equity Securities	Contracts on Precious Metals (excluding Gold)	Contracts on Commodities (excluding Precious Metals)
≤ 1 year	0.0%	1.0%	6.0%	7.0%	10.0%
Between 1 and 5 years (inclusive)	0.5%	5.0%	8.0%	7.0%	12.0%

5 years | 1.5% | 7.5% | 10.0% | 8.0% | 15.0%

10. Exposures arising from the following are not considered for calculating large exposure limits: a) Foreign exchange operations during the normal settlement period according to commercial practices for each currency; b) Securities purchase or sale operations, during the normal settlement period according to commercial practices, up to 5 (five) business days counted from the payment or delivery date of the securities; c) Fund transfers, including payment services, clearing and settlement in any currency, as well as clearing, settlement, and custody services for financial instruments on behalf of counterparties in operations; and, d) Firm commitment operations, up to 5 (five) business days counted from the date the institution received the previously subscribed assets. Associated Guarantees
11. Real and personal guarantees received by institutions that meet the criteria established in Annex IV of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk, are eligible as mitigants of large exposures.
12. The guarantees referred to in the preceding paragraph may be considered within the exemptions provided for in paragraph 13 or deductions according to paragraphs 14 to 17, all of this Annex. Exemptions
13. The following exposures are exempt from the large exposure limits stipulated in paragraphs 1 to 3 of this Annex: a) Towards the Banco Nacional de Angola; b) Fully linked to a guarantee, eligible under Annex IV of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk, granted by the Banco Nacional de Angola;

CONTINUED GUIDELINE NO. 02/2022 Page 8 of 26 c) Towards central administrations, central banks, international organizations, or multilateral development banks to which a 0% risk weight would be applied if they were not guaranteed, according to Annex I of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk; d) Fully linked to a guarantee, eligible under Annex IV of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk, granted by central administrations, central banks, international organizations, or multilateral development banks to which a 0% weight would be applied according to Annex I of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk; e) Assumed by an institution towards companies in a domination or group relationship with it, provided they are included in the consolidation perimeter for prudential purposes, as provided for in Article 5 of Guideline No. 08/2021 of July 5, on Prudential Requirements or equivalent norms in force in a foreign country; f) Guaranteed by cash deposits, constituted in the lending institution or in an institution with which it is in a domination or group relationship. g) Fully linked to liabilities subject to compensation agreements. h) Secured by deposit certificates, issued by the lending institution or by an institution with which it is in a domination or group relationship, provided they are deposited in these entities.

CONTINUED GUIDELINE NO. 02/2022 Page 9 of 26 i) Arising from unused revocable credit lines, provided the contract stipulates that the lines can only be used on condition that they do not exceed the limits provided for in paragraphs 1 to 3 of this Annex. j) Arising from contributions on deposit guarantee schemes, if the institutions that integrate them have a legal or contractual obligation to finance them. Partial Deductions from Exposures 14. 80% (eighty percent) of the value of exposures towards or linked to guarantees from local or regional administrations, to which a 20% risk weight would be applied according to Annex I of Guideline No. 15/2021 of October 27, on the calculation and regulatory own fund requirement for credit risk and counterparty credit risk, must be deducted. 15. 50% (fifty percent) of the value of exposures classified as low and medium/low risk in Table 2 of Annex III to this Guideline must be deducted. 16. Up to 50% (fifty percent) of the market value of real estate property may be deducted from the exposure value or any part thereof fully guaranteed by residential real estate, if the following conditions are cumulatively met: a) The Banco Nacional de Angola has not assigned a risk weight exceeding 35% (thirty-five percent) for risky positions or any parts thereof guaranteed by residential real estate; b) The exposure or part thereof is fully guaranteed by: i. Mortgages on residential real estate, or ii. A residential property in a leasing operation under which the lessor retains full ownership of the property and the lessee has not yet exercised their purchase option.

CONTINUED GUIDELINE NO. 02/2022 Page 10 of 26 17. Up to 50% (fifty percent) of the market value of real estate property may be deducted from the exposure value or any part thereof fully guaranteed by commercial real estate, if the following conditions are cumulatively met: a) The Banco Nacional de Angola has not assigned a risk weight exceeding 50% (fifty percent) for risky positions or parts thereof guaranteed by commercial real estate; b) The risky position is fully guaranteed by: i. Mortgages on offices or other commercial facilities, or ii. Offices or other commercial facilities and risky positions related to real estate leasing operations; c) The value of the real estate property does not significantly depend on the borrower's credit quality; d) Commercial real estate properties are completely constructed.

CONTINUED GUIDELINE NO. 02/2022 Page 11 of 26 ANNEX II Limits on Holdings in Non-Financial Companies

1. Institutions may not hold, directly or indirectly, quotas or shares of a non-financial company or a group of interconnected non-financial companies whose amount exceeds 15% (fifteen percent) of the participating institution's regulatory own funds.
2. The total amount of quotas or shares held, directly and indirectly, in non-financial companies must not exceed 40% (forty percent) of the participating institution's regulatory own funds.
3. Institutions may not hold for a period exceeding 3 (three) years, consecutive or interpolated, directly or indirectly, shares or quotas whose amount exceeds 25% (twenty-five percent) of the capital of a non-financial company.
4. The following are not considered for calculating the limits defined in this Annex: a) Non-financial companies that carry out activities which the Banco Nacional de Angola considers, following prior request by institutions, to be any of the following: i. A direct extension of banking activity; ii. Auxiliary services to banking activity; iii. Leasing, factoring, investment fund management, IT service management, or any other similar activity. b) The holding of shares arising from firm commitment operations, up to 5 (five) business days counted from the date the institution received the previously subscribed assets.
5. The limits defined in this Guideline do not apply to social participation management companies subject to supervision by the Banco Nacional de Angola.
6. The limits established in paragraphs 1 to 3 of this Annex apply equally on a consolidated basis.

CONTINUED GUIDELINE NO. 02/2022 Page 12 of 26 7. Whenever holdings of quotas or shares in non-financial companies exceed or are likely to exceed the limits established in paragraphs 1 to 3 of this Annex, institutions must immediately communicate the holding values to the Banco Nacional de Angola. 8. For the purposes of the preceding paragraph, institutions must submit an action plan within 1 (one) month, providing for their regularization within 6 (six) months. 9. In the event of excess assumed holdings, this excess must be framed in the calculation of Own Funds Ratios, being included in Risk-Weighted Assets (RWAs) and weighted at 1250% (one thousand two hundred and fifty percent). The corresponding own fund requirement value is obtained by multiplying RWAs by 8% (eight percent).

CONTINUED GUIDELINE NO. 02/2022 Page 13 of 26 ANNEX III Assets and Off-Balance Sheet Elements to be Considered for “Prudential Limits on Large Exposures” The following assets present in the Chart of Accounts for Bank Financial Institutions (PCIFB) listed in Table 1 and off-balance sheet elements present in Table 2, both of this annex, must be considered. Table 1 – Assets

PCIFB Account	Asset Class
1.10	Cash and balances
1.20	Investments in central banks and other Credit Institutions
1.30	Bonds and securities
1.40	Hedging derivatives with positive fair value
1.50	Credits in the payment system
1.60	Foreign exchange operations
1.70	Customer credits
1.80	Other assets
1.90.10	Investments in subsidiaries, associates, and joint ventures

CONTINUED GUIDELINE NO. 02/2022 Page 14 of 26 Table 2 – Off-Balance Sheet Elements

Risk Level	Instrument Type	PCIFB Account	Off-Balance Class
High	• Guarantees with the nature of credit substitutes
• Acceptances
• Endorsements of bills where no other Institution's signature appears
• Irrevocable stand-by letters of credit with the nature of credit substitutes
• Sale of assets with repurchase agreement
• Unpaid portion of shares and other partially paid securities
• Forward deposits (forward depositis)
• Purchase of assets on credit/term
• Transactions with recourse	9.10.20	Liability towards Third Parties
Medium	• Indemnities and guarantees that do not have the nature of credit substitutes
• Unused credit lines with an initial maturity exceeding one year
• Irrevocable stand-by letters of credit that do not have the nature of credit substitutes
• Documentary credits, issued and confirmed, except medium/low risk ones	9.10.30.20	Bonds and securities subscribed for primary placement
Medium / Low	• Unused credit lines with an initial maturity of one year or less and irrevocable
• Documentary credits where shipping documents serve as guarantee and other potential automatic settlement transactions	9.10.40	Reference value of financial derivative instruments
Low	• Unused credit lines that can be unconditionally cancelled at any time without prior notice or that provide for automatic cancellation due to deterioration of the borrower's credit situation	9.10.60	Foreign exchange operations
Medium	• Note issuance facilities (NIF), revolving underwriting facilities (RUF) and other similar instruments	N/A
High	• Credit derivatives	N/A
N/A	• Interest rate swaps in the same currency
• Variable interest rate swaps of different nature (“base swaps”)
• Forward contracts on interest rates
• Interest rate futures
• Acquired options on interest rates
• Interest rate swaps in different currencies or gold
• Futures on currencies or gold
• Acquired options on currencies or gold
• All of the above relating to other reference elements or indices related to equity securities, precious metals, and commodities	N/A
N/A	• Forward contracts on currencies or gold	9.10.60	Foreign exchange operations

CONTINUED GUIDELINE NO. 02/2022 Page 15 of 26 ANNEX IV Filling Notes for the “Prudential Limits on Large Exposures and Holdings in Non-Financial Companies” Form

1. The reporting of the “Prudential limits on large exposures and holdings in non-financial companies” form regarding Annex V of this Guideline must be carried out in accordance with the instructions set forth in this Annex.
2. When filling out the form, it is necessary to consider the rubrics of the Chart of Accounts for Bank Financial Institutions (PCIFB).
3. When filling out the form, all exposures must be considered, with those denominated in foreign currency converted into Kwanzas at the Banco Nacional de Angola reference exchange rate for reassessment.

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