Notice No. 05/2011 of June 29 – Prudential Rules for Credit Cooperatives

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BANCO NACIONAL DE ANGOLA AVISO N.º 05/2011 de 29 de Junho

PRUDENTIAL RULES APPLICABLE TO CREDIT COOPERATIVES

Considering the need to establish rules regarding the maintenance of adequate solvency levels for Credit Cooperatives;

Considering further the need to harmonize existing norms in the Angolan financial system with international standards;

In accordance with Article 107 of Law No. 13/05 of September 30, the Financial Institutions Act, combined with Article 41(1) of Presidential Decree No. 22/11 of January 19, it is the responsibility of the Bank of Angola to safeguard the solvency and liquidity of non-bank financial institutions, as well as to establish prudential limits on operations that credit cooperatives are authorized to conduct;

In the exercise of the competence attributed by Article 1(1)(f) of Law No. 16/10 of July 15 – the Bank of Angola Act.

I HEREBY DETERMINE:

Article 1 (Minimum Regulatory Solvency Ratio)

Authorized credit cooperatives operating under the Bank of Angola (BNA) must maintain a capital level compatible with the nature and scale of their operations, as well as inherent risks, maintaining the Regulatory Solvency Ratio (RSR) at or above 12%.

Article 2 (General Formula for Calculating the Regulatory Solvency Ratio)

1. The Regulatory Solvency Ratio (RSR) corresponds to the relationship between Regulatory Own Funds (ROF) and the value of assets exposed to risks inherent in operations conducted by credit cooperatives.

2. For calculation purposes, risk values are segregated according to exposure, following the formula:

RSR = (Regulatory Own Funds / Risk-Weighted Assets) * 100

Where:

RSR = Regulatory Solvency Ratio.

Regulatory Own Funds (ROF) = Base Own Funds (Level 1) + Supplementary Own Funds (Level 2).

Risk-Weighted Assets = Asset and off-balance sheet values exposed to credit risk, weighted by their respective risks.

Minimum Regulatory Solvency Ratio = limit set at 12% to determine the minimum necessary value of Regulatory Own Funds relative to the amount of assets exposed to risks inherent in operations conducted.

Article 3 (Elements for Calculating Regulatory Own Funds)

1. Base Own Funds (Level 1) consist of the algebraic sum of elements referred to in 1.1, minus those referred to in 1.2:

1.1 - Elements to aggregate: a) paid-up share capital; b) retained earnings from previous financial years; c) legal, mutualism, statutory, and other reserves from undistributed results, or established for capital increases; d) net result of the current financial year.

1.2 - Elements to deduct: a) loans granted with capital nature; b) value of shareholdings; c) other net intangible assets after amortization; d) other values as determined by the Bank of Angola.

2. Supplementary Own Funds (Level 2) consist of the algebraic sum of: a) social fund; b) other funds; c) fixed asset revaluation reserves; d) other values authorized by the Bank of Angola.

Article 4 (Eligibility of Supplementary Own Funds to Form ROF)

Supplementary Own Funds may correspond to a maximum of 100% of the value of Base Own Funds, net of deductions provided in Article 3(1.2), and must satisfy the other conditions set forth in this Notice.

Article 5. (Compatibility with Asset Risk Levels)

Credit cooperatives, regardless of minimum capital and minimum own funds, are required to maintain the value of their own funds compatible with the risk level of their asset structure, which must be weighted in accordance with a Credit Risk Weighting Schedule to be established by specific regulation.

Article 6. (Credit Operations)

All credit operations conducted by credit cooperatives with their members must be carried out exclusively in national currency.

Article 7. (Limits on Investments)

Credit cooperatives must observe the following limits:

a) 15% of Regulatory Own Funds in investments in securities issued by the same company, affiliated companies, and their subsidiaries;

b) 25% of Regulatory Own Funds in credit operations and guarantee grants to a single member;

Article 8. (Classification and Provisioning of Credits)

1. Credit cooperatives must classify granted credits and provided guarantees, creating respective provisions based on the assumed risk level, according to the table below:

RISK	LEVEL	PROVISION
Null (matured 0 to 7 days)	A	0%
Very Low (matured 8 to 15 days)	B	1%
Low (matured 15 to 30 days)	C	3%
Moderate (matured 30 to 45 days)	D	10%
High (matured 45 to 75 days)	E	20%
Very High (matured 75 to 90 days)	F	50%
Loss (matured over 90 days)	G	100%

2. For provision calculation, accounting balances of credits are considered.

3. The Bank of Angola may, upon finding inadequate credit methodology or high overall portfolio risk, determine additional provisions beyond the levels established in this article.

4. Credit cooperatives must write off credits classified as Risk Level “E” that have been in arrears for more than 360 days, with a minimum monthly frequency.

Article 9. (Accounting)

1. Credit cooperatives must record their operations in accordance with the currently effective Financial Institutions Chart of Accounts, adopting line items that address these operations, according to the format specified in Annex I to this instrument.

Article 10. (Information Reporting)

1. Credit cooperatives, under this instrument, must submit trial balances to the Bank of Angola quarterly, according to the format specified in Annex I.

2. The annex referred to in the preceding paragraph may be amended via a Bank of Angola Instruction.

3. For the purposes of the preceding paragraph, reference dates are March 31, June 30, September 30, and December 31, with information to be submitted by the 8th day of the following month in XML format via the Financial Institutions Supervision System (SSIF).

4. Credit cooperatives must annually publish, by April 30 of the following year, the balance sheet and income statement for each financial year in an easily accessible publication medium to their shareholders/members and clients, as well as submit the said information to the Bank of Angola by that date.

5. Credit cooperatives must appoint a qualified liaison to respond to potential inquiries regarding information reported to the Bank of Angola.

6. Credit cooperatives must ensure permanent availability of the designated liaison, mandatorily appointing one (1) substitute, definitive or temporary, in case of the liaison's impediment.

Article 11. (External Audit)

1. Credit cooperatives must subject their financial statements to annual external audit, conducted by one (1) independent auditor.

2. The independent auditor must report to the Financial Institutions Supervision of the Bank of Angola, the work performed and its results, as well as infringements and facts that may affect the continuity of the credit cooperative's activities.

3. For the purposes of this article, the independent auditor may be a duly authorized audit firm or a certified accountant registered with the competent authority.

Article 12. (Entry into Force)

This Notice enters into force 30 days after its publication date.

PUBLISHED

Luanda, June 29, 2011

THE GOVERNOR JOSÉ DE LIMA MASSANO