Regulation 012 on the Implementation of the Effective Global Rate for Credit Operations by Credit Institutions

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CENTRAL BANK OF THE COMOROS

REGULATION No. 012 /2015/BCC/DSBR

RELATING TO THE IMPLEMENTATION OF AN EFFECTIVE GLOBAL RATE FOR CREDIT OPERATIONS BY CREDIT INSTITUTIONS

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Having regard to the statutes of the Central Bank of the Comoros;

Having regard to the Banking Law No. 13-003-AU of June 12, 2013, particularly Articles 10, 56, 57, and 103;

Considering the role of the Central Bank in promoting the fluidity and transparency of banking and financial operations,

Considering that the Central Bank must ensure that a consumer, to whom a credit institution makes a credit offer, has access to sufficient information to allow them to have a clear view of the terms of the proposed credit, particularly its granting conditions and its real cost,

THE GOVERNOR OF THE CENTRAL BANK OF THE COMOROS

Sets the rules relating to the Effective Global Rate (TEG) defined in Article 57 of the aforementioned Law 13-003/AU.

Article 1: Obligation to Calculate the TEG

Credit institutions are obligated to calculate an Effective Global Rate (TEG), which must represent the real cost of the credit.

This obligation concerns all types of borrowers and all types of credit operations as defined in Article 10 of the Banking Law No. 13-003-AU.

It therefore also concerns credit-leasing and rental operations with or without an option to purchase.

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Article 2: Definition of the TEG

The effective global rate (TEG) is the annual rate, calculated in arrears, expressed per hundred monetary units according to the equivalence method defined by the formula appearing in Annex 1 of this Regulation, which measures the real cost of a credit.

It is the actuarial rate (i.e., "equivalent rate"), based on 365 days, which ensures, for a given credit, according to the compound interest method, equality between, on the one hand, the credited sums and, on the other hand, all payments due by the borrower for the repayment of the capital and the payment of the total cost of the credit.

Article 3: Elements Entering into the Calculation of the TEG

For the determination of the TEG of a credit, all fees, commissions, or remuneration of any nature, direct or indirect, must be considered, whether these elements are deducted from the nominal amount of the credit upon its establishment or are payable periodically, at each repayment installment.

These elements must include those paid or due to intermediaries involved in any way in the granting of the credit, even if these fees, commissions, or remuneration correspond to actual out-of-pocket expenses.

They may concern in particular:

• file opening fees for the credit,
• intermediary fees, commissions paid for a credit broker,
• costs of establishing guarantees (mortgage, privilege of creditor of funds, guarantee, pledge,...),
• notarial deed fees,
• mandatory insurance premiums,
• commissions,
• ancillary fees, the amount of which must not exceed 10% of the total of fees and commissions.

However, the cost of optional services (e.g., optional insurance on consumer credits) and taxes on credit operations are not to be integrated into the TEG calculation.

Article 4: Mandatory Disclosures in Credit Offers, Credit Contracts, and Advertisements

The TEG itself, which must include at least two decimal places, as well as all elements of the calculation of this TEG, as defined in Article 3 of this Regulation, must appear in detail on preliminary credit offers as well as on credit contracts.

This obligation applies to all preliminary credit offers as well as to credit contracts that will be established from the date of entry into force of this Regulation.

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Any promotion or advertisement concerning a credit offer must imperatively mention the corresponding TEG.

Article 5: TEG Calculation Methods

The calculation of the TEG is based on the assumption that the credit contract will remain valid for the agreed duration and that the creditor and the borrower will fulfill their obligations according to the conditions and within the timeframes specified in the credit contract.

If a credit contract has a variable rate, the effective global rate is calculated based on the assumption that the interest rate as well as fees and commissions will remain fixed relative to the initial level and will apply until the end of the credit contract.

TEGs concerning debtor accounts (overdrafts) must be calculated based on the amount of the authorized limit and a theoretical duration of three months.

For the sake of simplification, if a credit contract opens the possibility of successive partial disbursements, its TEG must be calculated based on the amount of the total contractual commitment of the credit institution, and not based on partial disbursements.

Article 6: Non-compliance with the Provisions of this Regulation

Non-observance of the provisions of this Regulation (absence of TEG calculation, absence of information to the borrower on the TEG, erroneous calculation of a TEG) will result in disciplinary sanctions as provided for in Articles 64 to 66 of Law No. 13-003-AU.

Article 7: Dispute of the TEG Calculation

The borrower has the possibility to contest the calculation of the TEG (or to have its absence confirmed) with a credit institution during the entire duration of the credit.

Any omission in the TEG calculation generates a forfeiture of the right to interest for the entire loan. The borrower thus has the right to demand the repayment of interest from the beginning of the relevant credit. They are then only required to repay the capital according to the scheduled repayment plan.

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Article 8: Declaration Obligation and Maximum Rate

Credit institutions must provide the Central Bank, no later than the 20th following the end of the quarter, a statement whose model is reproduced in Annex 2 of this Regulation.

After observation and analysis of these statements for a significant period, the Central Bank will set an usury rate for credit operations.

Pending the determination of the usury rate, the range of debtor rates (currently [7% - 14%]) will be maintained.

Article 9: Entry into Force

This Regulation enters into force on April 1, 2015.

Moroni, on

Mzé Abdou Mohamed Chanfiou

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ANNEX 1

Basic Equation Expressing the Equivalence of Credits

The formula, also referred to as the compound interest equation or the discounted cash flow formula (or discounting formula), is presented as follows.

The formula has been simplified by considering a single disbursement of the credit.

Discounted Cash Flow Formula

$$A_0 - \sum F_s = \sum_{p=1}^{p=n} \frac{Ap}{(1 + i)^{tp}}$$

• i: the annual effective global rate (to be determined)
• A0: the credit amount,
• Fs: Fees or commission paid upon the disbursement of the credit
• p: the ordinal number of a repayment installment,
• n: the ordinal number of the last installment,
• Ap: the amount of installment number p, including insurance premiums and all other fees included in each repayment installment,
• tp: the time interval between the disbursement and installment number p.

This equation represents the equality between the disbursement of funds¹ (net of "flat" fees) and all repayments or expenses, discounted to the date of disbursement.

In its general form, time intervals must be expressed in years and fractions of years, specifying that a year counts 365 days (or 366 for leap years).

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¹ If a credit contract opens the possibility of successive partial disbursements: based on the total contractual commitment, in accordance with the provisions of Article 5 of this Regulation.

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Example

Credit Amount: 5,000,000 FC Annual Nominal Rate: 10% Total "flat" fees (= paid upon disbursement of the credit): 50,000 FC Insurance Rate: 0.3% per year Disbursement on January 1st Repayments of 439,828 FC all-inclusive on the 1st of each month in 12 monthly installments.

The equation can be written as:

$$5 000 000 - 50 000 = \frac{439 828}{(1 + i)^{31/365}} + \frac{439 828}{(1 + i)^{59/365}} + \frac{439 828}{(1 + i)^{90/365}} + ... + \frac{439 828}{(1 + i)^{334/365}} + \frac{439 828}{(1 + i)^{365/365}}$$

The time coefficient of the first monthly installment, on February 1st, will be 31 days divided by 365, then 59/365 for that of March 1st. And so on, until the last one with 365/365.

By resolving the equation, we obtain a TEG i = 12.01%.

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ANNEX 2

QUARTERLY DECLARATION OF CREDITS ESTABLISHED ON: Model of Quarterly Declaration

Name of the institution:	Types of credits	Number of files opened	Total amount of credits granted	Average nominal rate	Total File Fees	Total Commissions	Total Intermediary Fees	Total Guarantee Establishment Fees	Total Notarial Deed Fees	Total Mandatory Insurances	Total Ancillary Fees	Average Effective Global Rate (TEG)
Economic Agents
Individuals	Debtor Accounts
	Short-term credits (<1 year)
	Medium-term credits (1 to 5 years)
	including real estate credits
	Long-term credits (>5 years)
	including real estate credits
Companies	Debtor Accounts
	Commercial Receivables
	Short-term credits (<1 year)
	Medium-term credits (1 to 5 years)
	including real estate credits
	Long-term credits (>5 years)

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