Guidelines on Reporting for Loan and Investment Portfolios, Sustainable Funding, and Climate-Related Risk

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Page | 2 Document Type Guidelines Owner / Division Financial Surveillance Division Classification Restricted Effective Date Version 1.0 Approver

Page | 3 Return on Loan and Investment Portfolios, Sustainable Funding, and Climate Related Risk Events & Stress Testing – LISC Return 1.0 Introduction The LISC Return applies to all commercial banks and non-bank credit granting institutions (hereafter referred to as institutions) to report on their credit and investment portfolios, and sustainable funding raised by them as well as climate-related risks events and stress testing. 2.0 Definitions Aside from the definitions provided on the LISC Return, the institutions are to be guided by the below: 2.1 Net Amount Classified means the outstanding balance of a credit less the “net realisable value” of any “eligible collateral”: 2.1.1 Net Realisable Value means the estimated selling price of an asset in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to sell the asset. 2.1.2 Eligible Collateral means the “net realisable” value of the following assets, provided that the institution’s interest therein is fully enforceable – (a) Balances with banks; (b) Debt security, as per the criteria in the Financial Institutions (Credit Classification and Provisioning) Regulations, 2010 as amended; (c) The amount of 50 percent of the net realisable value of other tangible securities as approved by the Central Bank of Seychelles. Examples of tangible securities include land and buildings, motor vehicles and sea vessels. 3.0 Credit Classification Credit facilities are to be classified into one of the five categories: Pass, Special Mention, Substandard, Doubtful or Loss. Classification should be based on criteria prescribed by the Financial Institutions (Credit Classification and Provisioning) Regulations, 2010 as amended.

Page | 4 4.0 Provisioning Requirements All institutions should ensure that an adequate provisioning level is maintained, based on the criteria set out below with respect to specific and general provisions. 4.1 General Provisions A general provision is established against future and as yet, unidentified losses. A general provision shall be established for an amount equivalent to at least one percent of the gross balance of all credits categorised as Pass. No provision is required for credits extended to the Government of Seychelles classified as Pass. When subsequently identified, such losses are charged off against the provision and any recoveries eventually made on the asset are credited back to the provision. 4.2 Specific Provisions This provision is established against presently identified losses or likely losses. The amount of provisions to be made is determined by applying the minimum percentage to the net credit balance, for each classification category: Classification Minimum criteria for classification in each category Minimum percentage of provisions (i) Special Mention A credit which is 30 to 89 days past-due 5% (ii) Substandard A credit which is 90 to 179 days past-due 25% (iii) Doubtful A credit which is 180 to 364 days past-due 50% (iv) Loss A credit which is 365 days past￾due or more 100%

Page | 5 4.3 Write-offs The balance of the credit should be written off against its specific provisions, within twelve months of being classified as “Loss”. If the balance of the credit to be written off exceeds the balance of specific provisions made, then additional reserves should be established to cover the shortfall. This should be done through charges to income or through transfers from the general credit loss reserves account. 5.0 Compilation of LISC Return 5.1 Loan Portfolio and Investment Portfolio 5.1.1 The details should be reported for each borrower or investee at the level of each facility or issue in the case investments. Where the institution has extended several credit facilities to a single borrower, each must be reported in a separate row. Similarly, where the institution is holding charge over more than one collateral for a facility or issue, each collateral must be reported in a separate row. 5.1.2 Investments to be reported in the investment portfolio report include placements with other financial institutions, and investment in debt and equity securities, including preference shares. 5.1.3 Amount of debt outstanding All lending, excluding inter-bank lending (this does not include commercial bank lending to other financial institutions) should be included under this heading. Credits should consist of the principal amount outstanding and accrued interest. However, for credit classified by the reporting institution as Special Mention loans and “Non￾Performing Credits”, accrued interest should not be reported, except in the case whereby credit to the Government of Seychelles and credit guaranteed by the Government of Seychelles which have become Non￾Performing, the interest accrue shall continue to be accrued up to the limit of the guarantee.

Page | 6 5.1.4 Actual provisions held The actual amount of provisions held should include general provisions (for Pass category) and specific provisions (for all other categories). 5.1.5 Height above sea level and distance from the sea Details of height above sea level and the distance from the sea of the activity location and collateral location should be compiled using Seychelles WebGIS (https://webgis.gov.sc/introduction.phtml). 5.1.6 Sustainable Lending Details on the sustainability orientation of the facility or investment to be provided as per the dropdown menu and state the amount of the exposure. 5.2 Sustainable Finance The details required to be included in the Sustainable Finance Return pertain to all forms of funding raised by the institution with a commitment to lend or invest in sustainable economic activity. Examples include funding through blue/green/sustainable deposits, and blue/green/sustainability-linked bonds (debt instruments) to finance environmentally friendly projects such as wind farms, solar energy, water conservation, and sustainability-linked loans, for instance those where interest rate is tied to a company’s performance on sustainability metrics like carbon reduction. 5.3 Climate Related Physical Risk Events 5.3.1 Physical risk events that indirectly impact the institution’s borrower/investee All physical risk events that impact the institution’s borrowers and investees either directly or indirectly should be included. While reporting a physical risk event that indirectly impacted the institution’s borrower/investee, the option ‘other sources of income/repayment’ should be selected from the dropdown menu for the column titled “Impact on”.

Page | 7 5.3.2 Amount of direct and indirect losses These amounts pertain to the actual loss incurred by the borrower/investee and can be more or less than the amount of debt outstanding. 5.3.3 Height above sea level and distance from the sea Details of height above sea level and distance from the sea of the activity location and collateral location, for each activity, should be the same as reported in the loan portfolio or investment portfolio return. 5.3.4 Update on physical risk event of the previous periods The update on physical risk events of the previous periods includes quarters for the previous quarters of the current financial year, and for the three previous financial years. In the first report after commencement, the data for past periods can be left blank. For each subsequent quarter, the update for the physical risk events of the previous quarter should be provided. The data for previous periods should thus be updated for an additional quarter, for each subsequent submission. 5.4 Climate related stress testing 5.4.1 The return on climate related stress testing will be compiled by institutions that conduct stress testing. 5.4.2 Institutions that do not conduct stress testing need to only provide response to the first question in the return – “Does the institution conduct periodic climate risk stress testing?”. 6.0 Submission Requirements All institutions are required to submit to the Financial Surveillance Division, details of its loans and advances and investments as set out in the LISC Return and submit the same within 15 days after the end of each month. The sustainable funding raised, and climate related physical risk events and stress testing and memo items as set out in the LISC Return should be submitted on the last working day of the respective quarter. The LISC Return should be submitted to fsdreturns@cbs.sc.