Regulatory Alerts2021-11-22
Directive No. 13/DSB/DRO of 2021
The National Bank of Angola’s Banking Supervision and Financial System Regulation Departments issue this Directive to standardize the credit ratings of eligible external agencies—Fitch Ratings, Moody’s Investor Services, and S&P Global Ratings Limited—and map them to six prudential credit quality grades. It establishes Annex I, which defines the reference meaning of each rating category based on financial obligation capacity and credit risk exposure, and Annex II, which provides the precise mapping between each agency’s rating scales (long-term, short-term, insurers, derivatives, and medium-sized enterprises) and the designated credit quality grades. The Directive resolves interpretative doubts within the Bank, enters into force upon publication, and directly governs regulatory capital calculations for credit risk and counterparty credit risk under Instruction No. 15/21.
GOVERNOR DIRECTIVE NO. 13/DSB/DRO/2021
Whereas it is necessary to standardize the credit ratings established by eligible external rating agencies and their respective credit quality grades for prudential purposes; Pursuant to the combined provisions of paragraphs d) and f) of paragraph 1 of Article 31, and paragraph f) of paragraph 1 of Article 54, both of Law No. 24/21 of October 18, the Law of the National Bank of Angola, and Article 166 of Law No. 14/21 of May 19, the General Regime for Financial Institutions Law; This Directive serves to establish the following:
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The eligible external rating agencies for the purposes of paragraph b) of paragraph 1 of Annex V of Instruction No. 15/21 on the Calculation and Requirement of Regulatory Capital for Credit Risk and Counterparty Credit Risk are as follows: a) Fitch Ratings; b) Moody’s Investor Services; and c) S&P Global Ratings Limited.
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For the purposes of the preceding paragraph, the reference meaning of a rating category corresponding to each credit quality grade is set out in Annex I of this Directive, which forms an integral part.
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The mapping between the credit ratings of each eligible external rating agency and their respective credit quality grades, as referred to in paragraph 3 of Annex V of Instruction No. 15/21 on the Calculation and Requirement of Regulatory Capital for Credit Risk and Counterparty Credit Risk, is set out in Annex II of this Directive.
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Doubts and omissions arising from the interpretation and application of this Directive shall be resolved by the National Bank of Angola.
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This Directive enters into force on the date of its publication.
Luanda, November 22, 2021. DEPARTMENT OF BANKING SUPERVISION _____________________________ Elavoko do Rosário Chaves João -Director- DEPARTMENT OF REGULATION AND ORGANIZATION OF THE FINANCIAL SYSTEM _____________________________________ Carla Marisa Madeira Gomes -Director-
CONTINUATION OF DIRECTIVE NO. 13/DSB/DRO/2021 Page 3 of 5 ANNEX I Reference Meaning of Rating Categories for Credit Quality Grades
| Credit Quality Grade | Meaning of the Rating Category |
|---|---|
| 1 | The rated entity has an extremely strong capacity to meet its financial obligations, subject to very low credit risk. |
| 2 | The rated entity has a strong capacity to meet its financial obligations, subject to low credit risk, but is slightly more sensitive to adverse effects of changes in circumstances and economic conditions than entities rated with credit quality grade 1. |
| 3 | The rated entity has a sufficient capacity to meet its financial obligations, subject to moderate credit risk. However, adverse changes in circumstances or economic conditions are more likely to reduce the rated entity's capacity to honor its financial obligations. |
| 4 | The rated entity has the capacity to meet its financial obligations, but is subject to substantial credit risk. It faces significant uncertainties and is vulnerable to adverse commercial, financial, or economic conditions, which may lead to an inability to meet its financial obligations. |
CONTINUATION OF DIRECTIVE NO. 13/DSB/DRO/2021 Page 4 of 5
| Credit Quality Grade | Meaning of the Rating Category |
|---|---|
| 5 | The rated entity has the capacity to meet its financial obligations, but is subject to high credit risk. Adverse commercial, financial, or economic conditions may affect its capacity or ability to meet its financial obligations. |
| 6 | The rated entity is in a vulnerable or highly vulnerable situation and is subject to extremely high credit risk, possibly being in default or near default. The fulfillment of its financial obligations depends on favorable commercial, financial, and economic conditions. |
CONTINUATION OF DIRECTIVE NO. 13/DSB/DRO/2021 Page 5 of 5 ANNEX II Mapping Between Credit Ratings Established by Eligible External Rating Agencies and Credit Quality Grades
| Credit Quality Grade 1 2 3 4 5 6 | Fitch Ratings |
|---|---|
| Long-Term Issuer Default Rating Scale | AAA, AA A BBB BB B CCC, CC, C, RD, D |
| Corporate Financing Obligations – Long-Term Rating Scale | AAA, AA A BBB BB B CCC, CC, C |
| International Financial Strength Rating Scale for Insurers – Long-Term | AAA, AA A BBB BB B CCC, CC, C |
| Derivatives Counterparties Rating Scale | AAA der, AA der A der BBB der BB der B der CCC der, CC der, C der |
| Short-Term Rating Scale | F1+ F1 F2, F3 B, C, RD, D |
| Financial Strength Rating Scale for Insurers – Short-Term | F1+ F1 F2, F3 B, C |
| Moody’s Investor Services | Global Long-Term Rating Scale Aaa, Aa A Baa Ba B Caa, Ca, C |
| Global Short-Term Rating Scale P-1 P-2 P-3 NP | |
| S&P Global Ratings Limited | Long-Term Issuer Credit Rating Scale AAA, AA A BBB BB B CCC, CC, C, D |
| Long-Term Issue Credit Rating Scale AAA, AA A BBB BB B CCC, CC, C, D | |
| Financial Strength Rating Scale for Insurers AAA, AA A BBB BB B CCC, CC, SD/D, R | |
| Medium-Sized Enterprises Rating Scale MM1 MM2 MM3, MM4 MM5, MM6 MM7, MM8, MMD | |
| Short-Term Issuer Credit Rating Scale A-1+ A-1 A-2, A-3 B, C, R, SD/D | |
| Short-Term Issue Credit Rating Scale A-1+ A-1 A-2, A-3 B, C, D |
CONTINUATION OF DIRECTIVE NO. 13/DSB/DRO/2021 Page 6 of 5