CENTRAL AFRICAN BANKING COMMISSION

COBAC REGULATION R-2010/01 ON THE RISK COVERAGE OF CREDIT INSTITUTIONS

The Central African Banking Commission,

Having regard to the Convention of 16 October 1990 establishing a Central African Banking Commission (COBAC);

Having regard to the Convention of 17 January 1992 on harmonizing banking regulation in Central African States;

Having regard to COBAC Regulation R-2001/02 on risk coverage for credit institutions, as amended by COBAC Regulation R-2003/06;

Having regard to COBAC Regulation R-2003/03 on the accounting and prudential treatment of securities transactions carried out by credit institutions, as amended by COBAC Regulation R-2009/01;

Having regard to the minutes of the Banking Commission meetings held in Libreville and Douala on 26 November 2008 and 30 June 2009 respectively;

DECIDES:

Article 1- Subject credit institutions are required, under the conditions set out in this Regulation, to permanently maintain a risk coverage ratio, defined as the ratio between their net equity and the total credit risks incurred from their operations, of at least 8%. The calculation elements for this ratio are extracted from the individual or consolidated accounting of the relevant credit institution.

For the purposes of this Regulation, the following terms apply:

• State: the central public administration and public bodies as defined in Annex 1 "Identification Attributes" of the Accounting Plan for credit institutions;

• Credit institutions: banks and financial establishments authorized according to the provisions in force in their host country and subject to the supervision of the regulatory authority of their jurisdiction of establishment;

• Subject credit institutions: credit institutions subject to the supervision of COBAC;

• Multilateral Development Bank: a multinational public institution whose mission is to finance the development activities of a country or group of countries;

• Multilateral Guarantee Body: a multinational public institution that provides financing guarantees to credit institutions;

• Public financing or guarantee body: an entity dependent on a national government whose mission is to provide loans, refinancing lines, or guarantees;

• Risks: asset and off-balance sheet items when these items are subject to counterparty default risk;

• CEMAC: Central African Economic and Monetary Community;

• UMOA: West African Monetary Union;

• OECD: Organisation for Economic Co-operation and Development.

Article 2- Net equity is determined in accordance with COBAC Regulation R-93/02, as amended by COBAC Regulation R-2001/01.

Article 3- Incurred risks, possibly reduced by impairment provisions, include:

• customer loans distributed;
• hire-purchase and lease with purchase option transactions;
• subscribed public and private securities;
• claims on correspondent institutions;
• off-balance sheet commitments issued on behalf of customers;
• off-balance sheet commitments issued on behalf of correspondents.

Also deductible from these risks are deposits of any nature and formal guarantees issued by a CEMAC member State, or by a credit institution authorized by COBAC, or by any other banking supervision body recognized by the Basel Committee for a duration at least equal to that of the risks they cover.

When such a deduction is made, the relevant risks are allocated to the guarantor. The applicable weighting rate is obtained by comparing the rate induced by the nature of the facility covered by the guarantee and the rate resulting from the guarantor's credit quality, as set out in Article 4 of this Regulation. The lower of the two rates is applied.

When a risk is only partially covered by such guarantees, the uncovered portion retains the weighting rate applicable to the original risk.

The General Secretariat of the Banking Commission may object to a given weighting being applied to a risk if it considers that the stipulated conditions are not satisfactorily met.

Article 4- The following weighting rates apply to asset and off-balance sheet items. For loans benefiting from a BEAC classification agreement, the proportions related to these risks are reduced by half.

a) Weighting rate: 100%

• Claims of any nature on public or private customers, excluding documentary discounting, export credits linked to commodities, stock advances, commercial discounting, loans secured by a firm first or second rank mortgage on real estate, and advances against pledged public contracts.
• Other equity participations in public or private companies.
• Acceptances issued on behalf of customers.
• Repayment guarantees for customer loans financed by other credit institutions.
• Other confirmed credit facilities issued on behalf of customers.
• Claims of any nature and off-balance sheet commitments, excluding guarantees and avals, on credit institutions other than those referred to in paragraph d) of this article.
• Claims of any nature and off-balance sheet commitments, excluding guarantees and avals, on public financing or guarantee bodies other than those referred to in paragraphs d) and h) of this article.
• Non-performing claims and doubtful off-balance sheet commitments on correspondents.

b) Weighting rate: 75%

• Loans secured by a firm first or second rank mortgage on real estate.

c) Weighting rate: 50%

• Stock advances to private and public customers.
• Advances against pledged public contracts.
• Commercial discounting for private and public customers.
• Confirmed documentary credit facilities.
• Confirmation of documentary credits opened by other credit institutions.
• Financial outstanding amounts of hire-purchase and lease with purchase option transactions.

d) Weighting rate: 20%

• Documentary discounting.
• Export credits linked to commodities.
• Claims of any nature and off-balance sheet commitments on credit institutions of CEMAC, UMOA or OECD, as well as on credit institutions whose headquarters are located in countries and territories whose banking supervision authorities have signed cooperation agreements with COBAC or belong to the same supervisory group as it.
• Claims of any nature and off-balance sheet commitments on Multilateral Development Banks and multilateral guarantee bodies established in CEMAC, UMOA and OECD other than those referred to in paragraph e) of this article.
• Claims of any nature and off-balance sheet commitments on public financing or guarantee bodies established in the OECD.
• Guarantees and avals on behalf of correspondents.
• Guarantees and avals on behalf of customers.
• Other signed commitments.

e) Weighting rate: 0%

• Asset and off-balance sheet items other than those mentioned above.

• Securities issued by the BEAC.

• Secured claims on the State to the extent that the securitization mechanism ensures debt repayment.

• Loans and securities with mandatory subscription.

• Claims of any nature and off-balance sheet commitments on Multilateral Development Banks and multilateral guarantee bodies meeting Basel Committee criteria to be weighted at 0%.

• Claims of any nature and off-balance sheet commitments on public financing or guarantee bodies listed in a list established and regularly updated by COBAC.

f) Commitments on CEMAC and UMOA States are weighted according to their compliance with the convergence criteria of multilateral surveillance. The applicable weighting rate is obtained by summing the relative weights of each convergence criterion not met by the concerned State. The relative weight of each criterion is defined as follows:

Criteria	Relative Weight
Basic budget balance relative to nominal GDP (met if ≥ 0)	20 %
Domestic and external debt outstanding / GDP (met if ≤ 70%)	10 %
Average annual inflation rate in % (met if ≤ 3%)	5 %
Accumulation of domestic and external payment arrears in XAF (met if = 0)	65 %

The COBAC Secretary General communicates to the Professional Associations of Credit Institutions before 30 June each year, the status of compliance with convergence criteria from the latest Franc Zone convergence report and the resulting weighting rates by State. These rates are valid for one year.

g) Claims of any nature and off-balance sheet commitments on Multilateral Development Banks and multilateral guarantee bodies other than those referred to in paragraphs d) and e) of this article are weighted according to the rate granted by the Banking Commission, upon request by the relevant subject credit institution.

h) Claims of any nature and off-balance sheet commitments on public financing or guarantee bodies established in CEMAC and UMOA are weighted according to the rate attributed to the State where their headquarters are located.

Article 5- Equity participations in credit institutions that are deducted from the equity of the concerned institution are not taken into account in calculating the risk coverage standard.

Public securities registered as trading securities in the asset items of subject credit institutions are excluded from determining the risk coverage standard for a period of six (06) months from their registration in the accounting of said institutions, corresponding to the maximum holding period for these securities in this category.

Article 6- For the application of Article 1, subject credit institutions submit periodic declarations to the General Secretariat of the Banking Commission in accordance with the model defined by instruction.

Article 7- In case of non-compliance with the standard set out in Article 1, the Banking Commission may issue an injunction requiring, inter alia, the concerned institution to take within a specified timeframe all corrective measures necessary to bring it into compliance with this standard. The institution is prohibited from distributing dividends during this period.

When a credit institution reports a negative net position, it must promptly submit to the Banking Commission, under the control of auditors, a financial restructuring plan. All dividend distributions are prohibited during the implementation of the plan.

If a credit institution fails to comply with an injunction, ignores a warning, or seriously breaches the regulation, the Banking Commission may impose one or more disciplinary sanctions provided for in Article 15 of the Annex to the Convention of 16 October 1990.

Article 8- The Banking Commission may authorize a credit institution to temporarily derogate from the provisions, except for that referred to in paragraph 2 of Article 8, of this Regulation by granting it a timeframe to regularize its situation.

Article 9- The aforementioned COBAC Regulation R-2001/02 is repealed.

Article 10- The Secretary General of the Banking Commission is responsible for the implementation of this Regulation.

Issued in Yaoundé on

For the Banking Commission, The President,

Lucas ABAGA NCHAMA