Instruction No. 2013-02 on the Liquidity Ratio

BANQUE CENTRALE DE DJIBOUTI INSTRUCTION NO. 2013-02 ON THE LIQUIDITY RATIO

The Acting Governor of the Central Bank of Djibouti, Having regard to Law No. 2011-81/AN/11ème L of January 22, 2011, amending the statutes of the Central Bank of Djibouti; Having regard to Law No. 2011-9/AN/11ème L of January 22, 2011, on the establishment and supervision of credit institutions and financial auxiliaries; Having regard to Decree No. 2013-009/PRE of January 29, 2013, appointing the Acting Governor of the Central Bank of Djibouti; Having regard to Instruction No. 2011-01 (Article 15) on the internal control of credit institutions.

Decrees as follows:

Article 1: Banking institutions referred to in Article 3 of Law No. 2011-9/AN/11ème L of January 22, 2011, are required to comply with management rules designed to guarantee their liquidity through the calculation of a liquidity ratio.

Article 2: This ratio serves the need for an institution to prevent the risk of being unable to meet its commitments or to unwind or offset a position due to market conditions, within a specified timeframe and at a reasonable cost.

Article 3: The calculation components of this ratio, defined across all currencies in the following Articles 4 and 5, are extracted from the accounting records of the respective headquarters and branches of the institutions subject to this instruction.

Article 4: The numerator of the liquidity ratio comprises:

1. The cash balance, as defined in Article 6 of this regulation, when the institution is a lender;
2. 75% of credit facilities with a remaining maturity of up to one month, taking the form of customer credits, credit-leasing operations, hire-purchase agreements, and simple leases;
3. 70% of bonds and other fixed-income securities listed on a regulated official market, subject to the approval of the Central Bank of Djibouti for their inclusion;
4. 50% of customer current accounts (debit);
5. 50% of shares and assimilated securities, provided they are listed on a regulated official market and subject to the approval of the Central Bank of Djibouti for their inclusion;
6. When acting as a lender, the balance of collection accounts;
7. Where applicable, the excess of refinancing agreements with a minimum validity of six months received from licensed credit institutions in the Republic of Djibouti or conducting banking operations abroad, over refinancing agreements granted to institutions of the same nature, when these agreements are contracted with institutions belonging to the same group as the subject institution;
8. Where applicable, and up to a maximum of 25% of the denominator amount as defined in Article 5, the excess of refinancing agreements with a minimum validity of six months received from licensed credit institutions in the Republic of Djibouti or conducting banking operations abroad, over refinancing agreements granted to institutions of the same nature, when these agreements are contracted with institutions not belonging to the same group as the subject institution.

To be eligible under paragraphs 7 and 8 of this Article, contracts relating to refinancing lines in favor of the institution must include clauses allowing for early termination during the contractual validity period and availability upon first demand. They must be strictly communicated to the Central Bank of Djibouti accompanying the submission of the liquidity report. The Central Bank of Djibouti may refuse to include them.

Article 5: The denominator of the liquidity ratio comprises:

1. The cash balance, as defined in Article 6 of this regulation, when the institution is a borrower;
2. 70% of term accounts, treasury bills, education savings plans, and guarantee deposits with a remaining maturity of up to one month;
3. 30% of the cumulative balances of term accounts and treasury bills with a remaining maturity exceeding one month;
4. 30% of corporate current accounts (credit);
5. 20% of retail current accounts (credit);
6. Subordinated and redeemable bond loans due within one month;
7. When acting as a borrower, the balance of collection accounts;
8. 5% of the following off-balance-sheet commitments:
   • Guarantees, avals, endorsements, and other guarantees in favor of or on behalf of credit institutions and other companies conducting banking operations abroad as their regular business;
   • Commitments in favor of or on behalf of customers.
9. Where applicable, the excess of refinancing agreements granted to licensed credit institutions in the Republic of Djibouti or conducting banking operations abroad, over refinancing agreements with a minimum validity of six months received from institutions of the same nature, when these agreements are contracted with institutions belonging to the same group as the subject institution;
10. Where applicable, the excess of refinancing agreements granted to licensed credit institutions in the Republic of Djibouti or conducting banking operations abroad, over refinancing agreements with a minimum validity of six months received from institutions of the same nature, when these agreements are contracted with institutions not belonging to the same group as the subject institution.

To be eligible under paragraphs 9 and 10 of this Article, contracts relating to refinancing lines in favor of the institution must include clauses allowing for early termination during the contractual validity period and availability upon first demand. They must be strictly communicated to the Central Bank of Djibouti accompanying the submission of the liquidity report. The Central Bank of Djibouti may refuse to include them. In such cases, they must be excluded from the calculation of the next liquidity ratio.

Article 6: The cash balance equals the difference between debit balances and credit balances:

1. Balances considered as debits under this Article include:
   • Cash holdings;
   • Current debit accounts;
   • Overnight loans;
   • Other loans with a remaining maturity of up to one month from the Central Bank, the Public Treasury, credit institutions, and other companies conducting banking operations abroad as their regular business.
2. Balances considered as credits under this Article include:
   • Overnight borrowings;
   • Other borrowings with a remaining maturity of up to one month from the Central Bank, the Public Treasury, credit institutions, and other companies conducting banking operations abroad as their regular business.
3. The cash balance is termed a "lender" when the total of balances referred to in Article 6, paragraph 1, exceeds the total of balances referred to in Article 6, paragraph 2. Otherwise, the cash balance is considered a "borrower".

Article 7: Subject institutions must, at all times, present a liquidity ratio of at least 100%.

Article 8: At the end of each quarter, subject institutions are required to produce the elements to be retained for determining the liquidity ratio. A standard model is attached as an annex.

Article 9: Upon submission of a detailed file, the Central Bank of Djibouti may authorize an institution to temporarily derogate from the provisions of this instruction, and impose a non-renewable deadline for it to restore its position.

Article 10: The provisions of this regulation shall enter into force on September 30, 2013.

Annex (Confidential): LIQUIDITY RATIO CALCULATION ELEMENTS LIQUIDITIES (NUMERATOR) | EXIGIBILITIES (DENOMINATOR) 1° Lender cash balance: D-C | 100% 2° Granted facilities (including credit-leasing, hire-purchase) with remaining maturity ≤ 1 month. | 75% 3° Bonds and other fixed-income securities. | 70% 4° Shares and assimilated securities. | 50% 5° Customer current accounts (debit). | 50% 6° Balance of collection accounts (lender). | 100% 7° Excess of refinancing agreements received from licensed credit institutions in Djibouti (intra-group) > 6 months. | 100% 8° Excess of refinancing agreements received from licensed credit institutions in Djibouti (outside group) > 6 months. | 100% 9° Excess of refinancing agreements granted to licensed credit institutions in Djibouti (same group) > 6 months. | 100% 10° Excess of refinancing agreements granted to licensed credit institutions in Djibouti (outside group) > 6 months. | 100% Total (A) | Total (B)

II - CASH BALANCE Lender Balances: 1° Cash holdings. (100%) 2° Current debit accounts with the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) 3° Overnight loans from the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) 4° Other loans ≤ 1 month from the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) Total (C) | 100%

Borrower Balances: 1° Current credit accounts with the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) 2° Overnight borrowings from the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) 3° Other borrowings < 1 month from the Central Bank, Public Treasury, credit institutions in Djibouti and abroad. (100%) Total (D) | 100%

III - LIQUIDITY RATIO AT THE END OF THE MONTH LIQUIDITIES (A) / EXIGIBILITIES (B) = COEFFICIENT

Source: Central Bank of Djibouti