Circular to Banks and Financial Institutions No. 2021-01 of January 11, 2021

1 Tunis, January 11, 2021 CIRCULAR TO BANKS AND FINANCIAL INSTITUTIONS No. 2021-01 Subject: Division, risk coverage and monitoring of commitments. The Governor of the Central Bank of Tunisia, Having regard to Law No. 2016-35 of April 25, 2016, establishing the status of the Central Bank of Tunisia, Having regard to Law No. 2016-48 of July 11, 2016, concerning banks and financial institutions, Having regard to Circular No. 91-24 of December 17, 1991 to banks and financial institutions concerning division, risk coverage and monitoring of commitments, as amended and supplemented by subsequent texts, Having regard to Circular No. 2006-19 of November 28, 2006 to banks and financial institutions concerning internal control, Having regard to Circular No. 2011-06 of May 20, 2011 concerning the strengthening of good governance rules in credit institutions, Having regard to Circular No. 2017-06 of July 31, 2017 to banks and financial institutions concerning accounting, prudential and statistical reporting to the Central Bank of Tunisia, Having regard to Opinion No. 2021-01 of the Compliance Control Committee dated January 5, 2021, as provided for in Article 42 of Law No. 2016-35 of April 25, 2016 establishing the status of the Central Bank of Tunisia. Decides:

2 Article 1 - The provisions of Article 10 bis of the aforementioned Circular No. 91-24 are repealed and replaced as follows: Article 10 bis (new): Banks and financial institutions must establish, by charging against results, general provisions known as "collective provisions" to cover latent risks on current commitments (Class 0) and commitments requiring specific monitoring (Class 1), as defined in Article 8 of Circular No. 91-24. Banks and financial institutions must, when evaluating the amount of these provisions, apply the methodology established by the Central Bank of Tunisia attached to this circular. The amount of collective provisions must be reviewed at each annual accounts closing date. Any reversal of the collective provisions amount must be justified by risk parameter improvement factors and discussed in advance with the Central Bank of Tunisia. The statutory auditors of banks and financial institutions must express their opinion on the adequacy of collective provisions to the nature of latent risks associated with current commitments (Class 0) and those requiring specific monitoring (Class 1). Article 2 - The provisions of this circular take effect from the 2020 financial year. THE GOVERNOR, Marouane EL ABASSI

3 Annex III to Circular No. 91-24 of December 17, 1991 Methodology for Determining Collective Provisions This methodology is based on the following steps: I. Determination of the target population: Commitments classified as 0 and 1 at the end of the reference year, designated "Nr". II. Grouping commitments 0 and 1 into homogeneous groups: Commitments from the target population are grouped by customer segment and sector. • Commitments to private sector professionals

• Agriculture
• Mechanical and electrical industries
• Olive oil processors (Oleifactors)
• Agro-food industries
• Pharmaceutical industries
• Other industries
• Construction and public works (BTP)
• Tourism
• Travel agencies
• Car rental agencies
• Real estate development
• Olive oil exporters
• Commerce/Retail
• Health
• Telecommunications and ICT
• Other services • Public counterparties
• Public enterprises operating in competitive sectors
• Other public bodies • Individuals
• Private sector individuals: Housing loans
• Private sector individuals: Consumer credit
• Public sector individuals: Housing loans
• Public sector individuals: Consumer credit Banks and financial institutions must ensure, within the framework of this grouping, the homogeneity of the groups.

4 III. Determination for each counterparty group designated "gi" of an average migration rate observed during the years prior to "Nr" (at least 5 years, excluding the reference year): TMgi(N) = Additional risk of group i in year (N) / Commitments 0 and 1 of group i at the end of year (N-1) × 100 TMMgi = Σ TMgi(N)/n (from N=1 to n) Where:

• TMgi(N): Migration rate of year N for counterparty group i.
• Additional risk of group i: Commitments 0 and 1 from year (N-1) for group i that became classified as 2-3-4 by the end of year (N).
• TMgi(N) must be adjusted to eliminate exceptional effects that may cause bias.
• TMMgi: Average migration rate of counterparty group i.
• n: Number of years retained in the TMMgi calculation. IV. Increase in historical migration rates: The historical migration rates of the counterparty group "gi" are increased by the following "Δgi" rates: Counterparty Group Δgi Private sector professionals Agriculture 4.50% Mechanical and electrical industries 4.00% Olive oil processors 1.25% Agro-food industries 1.25% Pharmaceutical industries 1.00% Other industries 3.25% Construction and public works (BTP) 3.25% Tourism 7.25% Travel agencies 7.75% Car rental agencies 7.50% Real estate development 4.00% Olive oil exporters 1.00% Commerce/Retail 1.00% Health 1.00% Telecommunications and ICT 1.00%

Financial institutions may, with prior approval from the Central Bank of Tunisia and based on a reasoned report, retain increases lower than those indicated above. V. Estimation of the provisioning rate to be applied by counterparty groups "TPgi": Determine the average provisioning rate on additional risk observed during the years prior to year "Nr" (at least 5 years, excluding the reference year) based on the provisioning rates for each counterparty group "TPgi". This calculation is made excluding reserved interest/fees. TPgi(N) = Amount of provisions on the Additional risk of group i in year (N) / Additional risk of group i in year (N) × 100 TPMgi = Σ TPgi(N)/n (from N=1 to n) Where:

• TPgi(N): Provisioning rate of year N for counterparty group i.
• TPMgi: Average provisioning rate of counterparty group i.
• n: Number of years retained in the TPMgi calculation. With reference to the observed TPMgi during previous years, the general management of the bank or financial institution must determine the provision rates to be retained, designated "TPRgi", for calculating collective provisions. These rates must in no case be lower than the following minimum provisioning rates: Other services 2.50% Public counterparties Public enterprises operating in competitive sectors 4.00% Other public bodies 1.00% Individuals Private sector individuals: Housing loans 1.50% Private sector individuals: Consumer credit 1.50% Public sector individuals: Housing loans 1.00% Public sector individuals: Consumer credit 1.00%

5 Counterparty Group TPRgi Private sector professionals Agriculture 20% Mechanical and electrical industries 25% Olive oil processors 35% Agro-food industries 25% Pharmaceutical industries 20% Other industries 25% Construction and public works (BTP) 25% Tourism 25% Travel agencies 25% Car rental agencies 25% Real estate development 20% Olive oil exporters 30% Commerce/Retail 25% Health 20% Telecommunications and ICT 20% Other services 25% Public counterparties Public enterprises operating in competitive sectors 20% Other public bodies 20% Individuals Private sector individuals: Housing loans 10% Private sector individuals: Consumer credit 20% Public sector individuals: Housing loans 10% Public sector individuals: Consumer credit 20%

Financial institutions may, with prior approval from the Central Bank of Tunisia and based on a reasoned report, retain provisioning rates lower than those indicated above. VI. Calculation of the amount of collective provisions "PC" on commitments 0 and 1: Collective provision for group i: PCgi = Commitments 0 and 1 of group i × (TMMgi + Δgi) × TPRgi Global collective provision: Sum of collective provisions by group: Σ PCgi (from i=1 to n) The amount of collective provisions must be reviewed at each annual accounts closing date. The target population, TMMgi and TPMgi must be recalculated annually within the framework of rolling series.

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