Circular on the Method for Determining Contributions to the Deposit Guarantee Fund

Year 2017 / Number 01

(Consolidated text as of 30/09/2017 – Update I)

Central Bank of the Republic of San Marino Circular No. 2017-01 – Method for Determining Contributions to the Deposit Guarantee Fund (Update I)

INDEX

1. DEFINITIONS ...........................................................................................................................................................3
2. PRELIMINARY REMARKS ................................................................................................................................................................3
3. DETERMINATION OF CONTRIBUTION ...............................................................................................4 3.1 Contribution Rate .............................................................................................................................................................................. 4 3.2 Protected Deposits ....................................................................................................................................................................................... 4 3.3 Corrective Factor for Aggregate Risk Profile ...................................................................................................................... 5 3.4 Correction Coefficient ...................................................................................................................................................................... 5
4. DETERMINATION OF ANNUAL CONTRIBUTION FLOW ..........................................................5
5. MANAGEMENT INDICATORS AND DETERMINATION OF AGGREGATE RISK PROFILE ...............6 5.1. Solvency .................................................................................................................................................................................................. 7 5.2 Financial Leverage ........................................................................................................................................................................................ 7 5.3 Quality of Credit Assets ................................................................................................................................................................... 7 5.4 Liquidity ..................................................................................................................................................................................................... 7 5.5 Profitability ................................................................................................................................................................................................. 8
6. ENTRY INTO FORCE ............................................................................................................................................8 ATTACHMENT: REPORTING MODEL FOR DETECTING THE CONTRIBUTION BASE ...............9

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Central Bank of the Republic of San Marino Circular No. 2017-01 – Method for Determining Contributions to the Deposit Guarantee Fund (Update I)

1. DEFINITIONS

1. For the purposes of this Circular, the expressions used shall be understood with the following meanings:

a) "contribution": the amount of the ordinary contribution stock to the Deposit Guarantee Fund borne by each participating entity;

b) "annual contribution flow": the amount of the ordinary contribution flow requested annually from each participating entity, also for the progressive achievement of the target level within the initial period, determined as the difference (only in positive terms) between the contribution detected for the reference year and that detected for the previous year;

c) "Fund": the Deposit Guarantee Fund established in the Republic of San Marino;

d) "target level": financial resources available by the Deposit Guarantee Fund at least equal to 0.8% of the total protected deposits resulting from the last annual detection or the lower level possibly established pursuant to Article III.II.1, paragraph 9 of BCSM Regulation No. 2016-01, which the Fund itself is required to reach by July 3, 2024;

e) "Management Body": an internal body of the Central Bank that, as the designated authority, is responsible for the management of the Deposit Guarantee Fund, pursuant to Articles II.II.3 and II.II.4 of BCSM Regulation No. 2016-01;

f) "initial period": the period starting from the first year of payment to the Deposit Guarantee Fund by participating entities (2017) and ending with the last year of payment useful for reaching the target level (2024);

g) "participating entities": San Marino banks and branches of EU and non-EU banks that adhere to the Deposit Guarantee Fund pursuant to Article II.I.2 of BCSM Regulation No. 2016-01.

2. Unless otherwise specified, for the purposes of this Circular, the definitions contained in Law No. 165 of November 17, 2005, BCSM Regulation No. 2007-07, and BCSM Regulation No. 2016-01 apply.

3. In the subsequent articles of this Circular, words that refer to the definitions in paragraph 1 are printed in UPPERCASE.

2. PRELIMINARY REMARKS

1. This Circular is implementational with respect to BCSM Regulation No. 2016-01 and gives effect to what is provided in Article IV.I.1 of the same Regulation, defining the methods for determining the risk profile and the contribution base, for the calculation of CONTRIBUTION shares borne by each PARTICIPATING ENTITY.

2. BCSM Regulation 2016-01 is in turn implementational of Article 100 of Law No. 165 of November 17, 2005, Delegated Decree No. 111 of July 22, 2011, as amended by Article 56 of Law No. 189 of December 22, 2015, and simultaneously transposes the provisions regarding Directive 2014/49/EU of April 16, 2014.

3. This Circular, in conformity with what is provided by Article 38, paragraph 5 of Law No. 165 of November 17, 2005, the implementational BCSM Regulation No. 2006-02, and Article IV.I.1 of BCSM Regulation No. 2016-01, has been subject to public consultation.

3. DETERMINATION OF CONTRIBUTION

1. The CONTRIBUTION to the FUND by individual PARTICIPATING ENTITIES is determined using the following formula:

C_i,T = α_T * DP_i,31.12.T-1 * γ_i,31.12.T-1 * μ_T

where:

C_i,T = CONTRIBUTION referred to year "T" borne by PARTICIPATING ENTITY "i"; α_T = contribution rate referred to year "T"; DP_i,31.12.T-1 = protected deposits of PARTICIPATING ENTITY "i" referred to December 31 of year "T-1"; γ_i,31.12.T-1 = corrective factor for the aggregate risk profile of PARTICIPATING ENTITY "i" referred to December 31 of year "T-1"; μ_T = correction coefficient relative to year "T".

2. The MANAGEMENT BODY transmits to the PARTICIPATING ENTITIES the communication referred to in Article III.II.4, paragraph 4 of BCSM Regulation No. 2016-01 by August 31 of each year.

3.1 Contribution Rate

1. The contribution rate (α_T) is established by the MANAGEMENT BODY and may be varied annually by the same BODY, providing information to the PARTICIPATING ENTITIES by July 31 of each year with a specific communication.

2. In particular, during the INITIAL PERIOD, this determination is made taking into account the TARGET LEVEL and the number of years remaining at the end of the same INITIAL PERIOD, proceeding with increments distributed gradually over time and considering the financial resources already available to the FUND.

3.2 Protected Deposits

1. The protected deposits of each PARTICIPATING ENTITY (DP_i,31.12.T-1), expressed in euros and referred to December 31 of year "T-1" relative to year "T" of determination of the CONTRIBUTION, are detected by each PARTICIPATING ENTITY in conformity with what is provided by BCSM Regulation No. 2016-01, particularly in Articles III.I.2, III.I.3, and III.I.4, using the reporting schema for the contribution base attached to this Circular.

2. The reporting schema referred to in the previous paragraph may be modified, after communication to the PARTICIPATING ENTITIES, by publishing the updated version in the reserved area of the Central Bank's website, where detailed instructions for completing the schema will also be made available.

3.3 Corrective Factor for Aggregate Risk Profile

1. The corrective factor for the aggregate risk profile (γ_i,31.12.T-1) of each PARTICIPATING ENTITY is determined based on individual risk management indicators of the ENTITY itself, referred to December 31 of year "T-1", relative to year "T" of determination of the CONTRIBUTION.

2. The application of this corrective factor to the protected deposits of each PARTICIPATING ENTITY allows taking into account, in the determination of CONTRIBUTIONS to the FUND, the risk profile of the ENTITY as well as the amount of its protected deposits.

3. The corrective factor assumes a value within the interval 0.50-1.50 and is determined based on the calculation methods defined in the subsequent paragraph 5.

3.4 Correction Coefficient

1. The correction coefficient (μ_T) relative to year "T" is determined as the ratio between the total amount of CONTRIBUTIONS referred to the same year "T" of all PARTICIPATING ENTITIES not corrected for the risk corrective factor (γ_i,31.12.T-1), i.e., determined by applying to the protected deposits (DP_i,31.12.T-1) only the contribution rate (α_T), and the total amount of the same CONTRIBUTIONS corrected for this risk factor.

2. This coefficient ensures that the application of the corrective factor for the risk profile to the protected deposits of each PARTICIPATING ENTITY results solely in an internal redistribution of CONTRIBUTIONS among the same PARTICIPATING ENTITIES, thus leaving the total amount unchanged.

4. DETERMINATION OF ANNUAL CONTRIBUTION FLOW

1. The ANNUAL CONTRIBUTION FLOW to the FUND by individual PARTICIPATING ENTITIES is determined by applying the following formula:

ΔC_i,T = C_i,T - C_i,T-1

where:

ΔC_i,T = ANNUAL CONTRIBUTION FLOW referred to year "T" borne by PARTICIPATING ENTITY "i"; C_i,T = CONTRIBUTION referred to year "T" borne by PARTICIPATING ENTITY "i"; C_i,T-1 = CONTRIBUTION referred to year "T-1" borne by PARTICIPATING ENTITY "i".

2. If the ANNUAL CONTRIBUTION FLOW to the FUND is negative, the annual CONTRIBUTION is not requested. In such circumstances, the return of financial resources by the FUND to the PARTICIPATING ENTITIES is not provided for.

5. MANAGEMENT INDICATORS AND DETERMINATION OF AGGREGATE RISK PROFILE

1. The corrective factor for the aggregate risk profile (γ_i,31.12.T-1) of each PARTICIPATING ENTITY is determined based on the following risk management indicators, referred to December 31 of year "T-1", relative to year "T" of determination of the CONTRIBUTION, and detected from supervisory statistical reports:

a) Solvency; b) Financial Leverage; c) Quality of Credit Assets; d) Liquidity; e) Profitability.

2. The aggregated corrective factor is calculated by weighting the individual risk management indicators of each PARTICIPATING ENTITY with the percentages reported below, as resulting from the normalization process described in the subsequent paragraph 3:

a) Solvency = 25%; b) Financial Leverage = 10%; c) Quality of Credit Assets = 25%; d) Liquidity = 25%; e) Profitability = 15%.

3. For the purposes of the weighting referred to in the previous paragraph 2, the individual risk management indicators are subject to a normalization process. In particular, each indicator for each PARTICIPATING ENTITY is redetermined within the variation interval referred to in the previous sub-paragraph 3.3, paragraph 3, taking into account the width of the actual variation interval of each individual indicator among the PARTICIPATING ENTITIES and the relative position of the actual indicator of each PARTICIPATING ENTITY compared to those of other PARTICIPATING ENTITIES. Regarding each indicator, the PARTICIPATING ENTITY with the best indicator will therefore be repositioned at the lower limit of the variation interval referred to in the previous sub-paragraph 3.3, paragraph 3, the one with the worst indicator at the upper limit of the same variation interval, and all remaining ENTITIES, maintaining their relative proportions, within the extremes of the interval.

4. The aggregated corrective factor (γ_i,31.12.T-1) of each PARTICIPATING ENTITY is therefore determined based on the following formula:

γ_i,31.12.T-1 = Σ (w_j * I_j,i)

where:

γ_i,31.12.T-1 = aggregated corrective factor relative to PARTICIPATING ENTITY "i"; w_j = weighting attributed to the normalized individual risk management indicator "j"; I_j,i = normalized risk management indicator "j" relative to PARTICIPATING ENTITY "i".

5.1. Solvency

1. The solvency management indicator is represented by the solvency coefficient referred to in Article VII.III.2 of BCSM Regulation No. 2007-07 and is therefore calculated with the following formula:

Solvency Coefficient = PV / RWA

where:

PV = supervisory capital; RWA = total risk-weighted assets.

5.2 Financial Leverage

1. The financial leverage management indicator is determined by applying the following formula:

Financial Leverage = PN / TA

where:

PN = net equity resulting from the annual financial statement; TA = total assets resulting from the annual financial statement.

5.3 Quality of Credit Assets

1. The management indicator for the quality of credit assets, which includes credits to customers and to banks, is calculated by applying the following formula:

Quality of Credit Assets = NPL(n) / TL(n)

where:

NPL(n) = total non-performing loans at net value after write-downs; TL(n) = total credits at net value after write-downs.

5.4 Liquidity

1. The liquidity management indicator is calculated by applying the following formula:

Liquidity = LP_7 / RD_7

where:

LP_7 = 7-day liquidity position updated to the last available supervisory report as of July 31; RD_7 = savings collection repayable within 7 days.

5.5 Profitability

1. The profitability management indicator is calculated by determining the return on asset indicator based on the following formula:

ROA = U / TA

where:

ROA = return on asset; U = net profit (or loss) resulting from the annual financial statement; TA = total assets resulting from the average of the last two annual financial statements.

6. ENTRY INTO FORCE

1. This Circular enters into force on March 1, 2017.

2. PARTICIPATING ENTITIES are therefore required, pursuant to what is provided in Article IV.II.1 of BCSM Regulation No. 2016-01, to send to the Supervision Department of the Central Bank the first report of the contribution base by March 31, 2017, with a reference date of December 31, 2016.

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Central Bank of the Republic of San Marino Circular No. 2017-01 – Method for Determining Contributions to the Deposit Guarantee Fund (Update I)

ATTACHMENT: REPORTING MODEL FOR DETECTING THE CONTRIBUTION BASE

A. Protected Deposits

Number	Amount	Number	Amount
3002A010000	-	3002A010A00	-
3002A010A05	-

Bank: Reference Date:

Item	DESCRIPTION
Natural Persons
Depositors - of which Eligible Deposits
- of which Protected Deposits (<=100,000 euros)
Non-Natural Persons	Total Amount
Savings Collection