Notice No. 6/GBM/2016 of November 16 - Regulation on the Calculation and Establishment of Mandatory Reserves

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Banco de Moçambique Governor

NOTICE NO. 6/GBM/2016 Maputo, November 16, 2016

SUBJECT: REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

Given the need to strengthen the countercyclical stance of monetary policy in light of atypical behavior in key macroeconomic indicators, particularly inflation and the exchange rate, the Bank of Mozambique, pursuant to Article 27 of Law No. 1/92 of January 3 (Organic Law of the Bank), determines:

1. The Regulation on the Calculation and Establishment of Mandatory Reserves, attached hereto, is approved and forms an integral part of this Notice.

2. This Notice takes effect from the mandatory reserves establishment period, which begins on November 22, 2016.

3. Notice No. 02/GBM/2016 of August 19 is revoked.

Any doubts arising from the interpretation and application of this Notice shall be submitted to the Markets and Reserves Management Department of the Bank of Mozambique.

[Signature] Rogério Lucas Zandamela Governor

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Banco de Moçambique Governor

REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

CHAPTER I OBJECT AND SCOPE

Article 1 Object

This Regulation establishes the rules for calculating and establishing mandatory reserves.

Article 2 Scope of Application

1. This Regulation applies to all credit institutions provided for in Law No. 15/99 of November 1, as amended by Law No. 9/2004 of July 21 (Credit Institutions and Financial Companies Law), holding liabilities referred to in Article 4 of this Regulation and monetary assets with the Bank of Mozambique.

2. Credit institutions not authorized to receive public deposits are exempt from the provisions of the preceding paragraph.

CHAPTER II CALCULATION AND ESTABLISHMENT

Article 3 Currencies of Establishment

Mandatory reserves shall be established:

a) In meticais, for deposits denominated in national currency; and

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Banco de Moçambique Governor

b) In US dollars, for deposits denominated in foreign currency.

Article 4 Liabilities Subject to Levy

1. The following liabilities constitute the levy base for Mandatory Reserves, as detailed in the attached Mandatory Reserve Calculation Schedules forming part of this Regulation:

a) Resident deposits; b) Non-resident deposits; and c) State deposits.

2. The liabilities referred to in the preceding paragraph must be segregated by national and foreign currency.

Article 5 Calculation of the Levy Base

1. The levy base for mandatory reserves is calculated from the simple arithmetic mean of the daily balances of the liabilities referred to in the preceding article, verified over the calculation period.

2. The calculation periods for the levy base are, each month:

a) 1st Period - from the 1st to the 15th; and b) 2nd Period - from the 16th to the last day of each month.

3. For calculation purposes, deposits denominated in other foreign currencies are converted daily into their US dollar equivalent using the prevailing valuation exchange rate.

4. The US dollar value of the deposits referred to in the preceding paragraph is calculated using the following conversion factor:

$$F_{USD} = \frac{Taxa_{ME}}{Taxa_{USD}}$$

5. In the formula above:

a) $F_{USD}$ is the conversion factor to the US dollar; b) $Taxa_{ME}$ is the daily valuation exchange rate of the foreign currency to be converted; and c) $Taxa_{USD}$ is the daily valuation exchange rate of the US dollar.

Article 6 Levy Rate

1. The levy base referred to in the preceding article is subject to a minimum daily rate of 15.50%.

2. The minimum rate mentioned in the preceding paragraph applies to both national and foreign currency levy bases.

Article 7 Establishment Period

1. The mandatory reserve establishment periods are as follows:

a) 1st Period - from the 7th to the 21st; and b) 2nd Period - from the 22nd to the 6th of the following month.

2. The mandatory reserves for the 1st establishment period correspond to the 2nd calculation period, and vice versa.

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Banco de Moçambique Governor

Article 8 Form of Establishment

1. National currency mandatory reserves may be established in at least one of the following forms:

a) Cash; b) Checks drawn by the institution itself on other national credit institutions; c) Account-to-account transfer; d) Other financial assets eligible for the clearing system, excluding foreign currency deposits of credit institutions with the Bank of Mozambique; and e) Cash held in the institution's branches in rural areas, as defined by the Bank of Mozambique.

2. Foreign currency mandatory reserves may be established in at least one of the following forms:

a) Funding of the US dollar current deposit account with the Bank of Mozambique via account-to-account transfer from banks within the country; and b) Funding of the US dollar current deposit account via transfer from the institution's nostro account to the Bank of Mozambique's nostro account.

Article 9 Establishment Methodology

1. The daily balances of current deposits, in national currency and US dollars, held by credit institutions with the Bank of Mozambique must not be lower, each day, than the mandatory reserve amounts resulting from multiplying the levy base by the rate referred to in Article 6.

2. Daily excesses of free reserves exceeding 1% of foreign currency mandatory reserves are not permitted.

3. The provision in the preceding paragraph does not apply when the mandatory reserve establishment period begins on a non-business day, in which cases institutions are:

a) Authorized to maintain free reserve excesses on the business day and subsequent non-business days immediately preceding the start of their respective establishment period, in case of an increase in the levy base;

b) Authorized to maintain free reserve excesses from the start of the establishment period until the business day immediately preceding the first business day, in case of a decrease in the levy base.

4. A free reserve excess is defined as the portion of each bank's daily US dollar account balance that exceeds 1% of the mandatory reserves calculated for the relevant establishment period.

CHAPTER III SANCTIONS

Article 10 Penalization of Irregularities

1. Without prejudice to applicable legislation, the following irregularities are subject to monetary penalties:

a) Deficit in mandatory reserves;

b) Excess of free foreign currency reserves; and

c) Delay in submitting information to the Bank of Mozambique regarding the levy base.

2. The penalty for a daily mandatory reserve deficit calculated at the end of each day is determined using the following formulas:

a) Penalty = 10,000.00 MT + [(SD + CX - (r x BI)) x TJ] / 365 days, for national currency mandatory reserve deficits; and

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Banco de Moçambique Governor

b) Penalty = 10,000.00 MT + [(SD - (r x BI)) x TJ] / 365 days, for foreign currency mandatory reserve deficits.

3. In the formulas above:

a) SD is the daily accounting balance of national currency or US dollar current deposit accounts held by credit institutions with the Bank of Mozambique, obtained from statements issued by the Maputo Branch.

b) CX is the daily value of national currency cash held by credit institutions, as defined in Article 8(1)(e), obtained from information submitted to the Markets and Reserves Management Department.

c) r is the mandatory reserve coefficient, per Article 6.

d) BI is the levy base for mandatory reserves, per Article 5.

e) T is the penalty rate for mandatory reserve deficits.

4. The penalty rate for mandatory reserve deficits corresponds to:

a) The highest and most recent active interest rate in national currency operations practiced by the defaulting credit institution, plus one percentage point, for national currency liabilities.

b) The highest and most recent active interest rate in US dollar operations practiced by the defaulting credit institution, plus one percentage point, for foreign currency liabilities.

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Banco de Moçambique Governor

5. The penalty for daily excesses of free foreign currency reserves calculated at the end of each day is determined using:

Penalty = 10,000.00 MT + (ER x t / 365 days)

6. In the formula above:

a) ER is the daily free reserve excess exceeding 1% of foreign currency mandatory reserves; and

b) t is the highest and most recent passive interest rate in US dollar operations practiced by the defaulting credit institution, plus one percentage point.

7. In cases of unavailability of information on active or passive interest rates practiced by the defaulting institution, the highest and most recent average rate for active or passive operations practiced by the Banking System, plus one percentage point, shall apply.

8. Penalty values for mandatory reserve deficits or foreign currency free reserve excesses shall be converted into meticais using the prevailing valuation exchange rate on the date of the infraction.

9. The penalty for delayed submission of information referred to in Article 14 is 10,000.00 Mt (ten thousand meticais) per business day of delay.

Article 11 Payment of Penalty

The Bank of Mozambique debits the national currency current deposit account of the defaulting credit institution for the penalty amounts calculated in accordance with the preceding article.

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Banco de Moçambique Governor

Article 12 Escalation of Penalty

The penalty rates provided for in Article 10(4) are subject to an escalation of ten percentage points whenever, during a specific establishment period, an institution incurs deficits or excesses of free reserves for two or more days, consecutive or not.

Article 13 Account Blocking

1. If an institution incurs a deficit in two of four consecutive mandatory reserve establishment periods (consecutive or not) for three or more days, the Bank of Mozambique shall block the free movement account balance.

2. Only credit movements are permitted in the blocked account, without prejudice to additional measures provided for in the Interbank Clearing and Settlement Regulations.

3. The institution is notified of the account block with a minimum advance of four days from the effective date.

4. The institution whose account is blocked must, upon receiving notification:

a) Immediately instruct the opening of a new account for clearing and other operations with the Bank of Mozambique Maputo Branch.

b) Fund the blocked account to comply with mandatory reserves.

5. The Bank of Mozambique reserves the right to transfer necessary balances from the new account to the blocked account for compliance with mandatory reserves.

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Banco de Moçambique Governor

6. As long as deficits persist in the blocked account, a penalty is applied to daily deficits based on the rate provided in Article 9.

7. Within a period of no less than four mandatory reserve establishment periods, the Bank of Mozambique may instruct the lifting of the account block.

CHAPTER IV FINAL PROVISIONS

Article 14 Submission of Information

1. Credit institutions covered by this Regulation must submit to the Bank of Mozambique, referencing the levy base calculation period indicated in Article 5(2), the information contained in the attached Mandatory Reserve Calculation Schedules, which form an integral part of this Notice.

2. The Schedules referred to above must be received by the Bank of Mozambique by the third business day following the end of the relevant calculation period, and may be corrected until the last business day preceding the start of their respective establishment period.

3. Late submission of schedules is an indispensable condition for accepting schedules for subsequent periods.

4. Any correction to the levy base occurring during the establishment period that implies an increase or decrease shall not be considered for reducing already calculated penalties, but must only be assumed to increase the mentioned penalty values.

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Banco de Moçambique Governor

5. Credit institutions are required to retain, for a period of five years, all documents enabling them to substantiate the information contained in the Schedules referred to in paragraph 1.

Article 15 Exemption Period

1. All credit institutions enjoy an exemption in establishing mandatory reserves for a maximum period of three months, starting from the date they commence operations.

2. If an institution wishes to join the Interbank Markets before the end of the period mentioned in paragraph 1, it must waive the remaining exemption period to comply with Article 3(a) of Notice No. 05/GBM/13 of September 18, Regulation on the Market Operations System.

3. The exemption mentioned in paragraph 1 is automatic, and its terms are formally communicated by the Regulation and Licensing Department of the Bank of Mozambique.

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ANNEX 1: CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR DEPOSITS IN METICAIS

CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR NATIONAL CURRENCY DEPOSITS

Institution Name: Calculation Period: Establishment Period:

Values in Currency Units

DESCRIPTION	t	Dat+1	Dat+2	Dat+...	Dat+n	SIMPLE AVERAGE	MR
A. RESIDENT DEPOSITS
Current Deposits	4000010	4000020	4000030	4000040	4000050	4000060
Notice Deposits	4000011	4000021	4000031	4000041	4000051	4000061
Time Deposits	4000012	4000022	4000032	4000042	4000052	4000062
Other Deposits	4000018	4000028	4000038	4000048	4000058	4000068
Mandatory Deposits	400007
B. NON-RESIDENT DEPOSITS
Current Deposits	4001010	4001021
Notice Deposits	4001011	4001022
Time Deposits	4001012	4001023
Other Deposits	4001013	4001024
Mandatory Deposits	400103
C. STATE DEPOSITS
Current Deposits	4000001	4000001	4000020
Notice Deposits	4000001	4000001	4000021
Time Deposits	4000001	4000001	4000022
Other Deposits	4000001	4000001	4000028
TOTAL

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ANNEX 2: CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

Institution Name: Calculation Period: Establishment Period:

Values in Currency Units

DATES							DAILY BALANCES
Valuation Exchange Rate	USD	ZAR	EUR	GBP	t	Day+1	Day+2	Day+...	Day+n
A. RESIDENT DEPOSITS
Current Deposits	USD, ZAR, EUR, GBP	4000110	4000120	4000130	4000140	4000150	4000160
Total USD + USD Equivalent of Other Currencies
Notice Deposits	USD, ZAR, EUR, GBP	4000111	4000121	4000131	4000141	4000151	4000161
Total USD + USD Equivalent of Other Currencies
Time Deposits	USD, ZAR, EUR, GBP	4000112	4000122	4000132	4000142	4000152	4000162
Total USD + USD Equivalent of Other Currencies

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ANNEX 2 (CONTINUED): CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

Institution Name: Calculation Period: Establishment Period:

Values in Currency Units

Other Deposits	USD, ZAR, EUR, GBP	4000118	4000128	4000138	4000148	4000158	4000168
Total USD + USD Equivalent of Other Currencies
Mandatory Deposits	400017
Total USD + USD Equivalent of Other Currencies
B. NON-RESIDENT DEPOSITS
Current Deposits	USD, ZAR, EUR, GBP	4001110	4001120
Total USD + USD Equivalent of Other Currencies
Notice Deposits	USD, ZAR, EUR, GBP	4001111	4001121
Total USD + USD Equivalent of Other Currencies
Time Deposits	USD, ZAR, EUR, GBP	4001112	4001122
Total USD + USD Equivalent of Other Currencies
Other Deposits	USD, ZAR, EUR, GBP	4001113	4001123
Total USD + USD Equivalent of Other Currencies
Mandatory Deposits	400113
Total USD + USD Equivalent of Other Currencies

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ANNEX 2 (CONTINUED): CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

CALCULATION SCHEDULE FOR MANDATORY RESERVES FOR FOREIGN CURRENCY DEPOSITS

Institution Name: Calculation Period: Establishment Period:

Values in Currency Units

C. STATE DEPOSITS
Current Deposits	USD, ZAR, EUR, GBP	40001000	40001010	40001020
Total USD + USD Equivalent of Other Currencies
Notice Deposits	USD, ZAR, EUR, GBP	40001001	40001011	40001021
Total USD + USD Equivalent of Other Currencies
Time Deposits	USD, ZAR, EUR, GBP	40001002	40001012	40001022
Total USD + USD Equivalent of Other Currencies
Other Deposits	USD, ZAR, EUR, GBP	40001008	40001018	40001028
Total USD + USD Equivalent of Other Currencies
TOTAL

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