Circular to Banks and Financial Institutions No. 2016-03 of July 29, 2016

Tunis, July 29, 2016 Circular to Banks and Financial Institutions No. 2016-03

The Governor of the Central Bank of Tunisia, Having regard to Law No. 2016-35 of April 25, 2016 on the statutes of the Central Bank of Tunisia; Having regard to Law No. 2016-48 of July 11, 2016 on banks and financial institutions; Having regard to Law No. 2009-64 of August 12, 2009 promulgating the code for financial services to non-residents; Having regard to Circular No. 91-24 of December 17, 1991 to credit institutions on division, risk coverage and monitoring of commitments as amended by subsequent texts; Having regard to Circular No. 93-08 of July 30, 1993 to banks and financial institutions on the preparation of periodic accounting statements and documents communicated to the Central Bank of Tunisia; Having regard to Circular No. 2012-05 of April 17, 2012 to credit institutions on the communication of a quarterly statement of income; Having regard to Note No. 93-23 of July 30, 1993 to banks and financial institutions on the terms of reference for audit of accounts; Having regard to the opinion of the compliance control committee provided for in Article 42 of Law No. 2016-35 of April 25, 2016 dated July 27, 2016; Having regard to the deliberation of the Board of Directors of the Central Bank of Tunisia dated July 27, 2016; Decides:

Article 1: It is added to Article 3 of Circular No. 91-24 of December 17, 1991 on division, risk coverage and monitoring of commitments a second paragraph stipulating the following: Article 3 second paragraph (new): This limit is set at 75% and 25% of the net equity of the bank or financial institution respectively from end-2017 and from end-2018.

Article 2: The provisions of Article 4 of Circular No. 91-24 of December 17, 1991 on division, risk coverage and monitoring of commitments are repealed and replaced by the following provisions: Article 4 (new): Banks and financial institutions must permanently maintain a solvency ratio not less than 10%, calculated as the ratio between net equity and incurred risks, measured by the sum of the following aggregates:

• The amount of weighted credit risks, calculated by multiplying net on-balance-sheet and off-balance-sheet items by the risk weights set out in Article 6 of this circular;
• The amount of operational risks, determined by multiplying by 12.5 the capital requirement for these risks calculated in accordance with Articles 13 (new) and 14 (new) of this circular. The basic net equity as defined in Article 5 below must permanently be not less than 7% of the sum of incurred risks measured in accordance with the first paragraph of this article.

Article 3: The title of Chapter 7 of Circular No. 91-24 of December 17, 1991 on division, risk coverage and monitoring of commitments is modified and Articles 13 and 14 are added as follows: « Chapter 7 (new): ON OPERATIONAL RISK Article 13 (new): The capital requirement for operational risk is equal to 15% of the average net banking income calculated over the last three financial years. When, for a given financial year, net banking income is zero or negative, it is not taken into account in the three-year average. The average net banking income is the sum of strictly positive net banking incomes, divided by the number of financial years for which net banking income is strictly positive. Article 14 (new): For the calculation of net banking income, banks and financial institutions shall refer to the annex to Circular No. 2012-05 of April 17, 2012 on the communication of a quarterly statement of income. »

Article 4: The fifth and eighth bullet points of the balance sheet commitments section weighted at 100% in Article 6 of Circular No. 91-24 of December 17, 1991 on division, risk coverage and monitoring of commitments are modified as follows:

• Equity securities other than those held in other banks and financial institutions;
• Participatory loans, partnership shares and associated current accounts other than those held in other banks and financial institutions.

Article 5: Annex 13 to Circular No. 93-08 of July 30, 1993 on the elements for calculating the solvency ratio is repealed and replaced by the annex to this circular.

Article 6: The provisions of Article 16 of Circular No. 91-24 of December 17, 1991 on division, risk coverage and monitoring of commitments are repealed and replaced by the following provisions: Article 16 (new): The impact on the financial position and results of events occurring after the closing date must be treated by banks and financial institutions in accordance with applicable accounting standards. Without prejudice to the first paragraph, amounts recovered after the closing date in respect of facilities granted to customers must in no case affect the classification of assets and provisions made in accordance with this circular.

Article 7: Without prejudice to the effective dates set out in Article 1, the provisions of this circular enter into force as from August 8, 2016, except for the provisions of Articles 2 and 3 which enter into force as from December 30, 2016.

THE GOVERNOR, Chedly AYARI

ANNEX 13 (new) to Circular No. 93-08 of July 30, 1993: "ELEMENTS FOR CALCULATING THE SOLVENCY RATIO" DETERMINATION OF INCURRED RISKS AGGREGATE 1: CREDIT RISK (in thousands of dinars)

CATEGORIES OF COMMITMENTS	Gross Commitments (1)	State Deposits (2)	Affected Financial Assets (3)	Net Commitments (4)=(1)-(2)-(3)	Weight (5)	INCURRED RISKS (6)=(5)*(4)
A- RISKS ON CUSTOMERS
I- BALANCE SHEET COMMITMENTS

1. Customer credits||||||

• Discount portfolio excluding housing loans | 100% ||||| |
• Syndicated loans to customers other than governments and banks | 100% ||||| |
• Customer current accounts (debits) | 100% ||||| |
• Credits on special resources | 100% ||||| |
• Unpaid claims | 100% ||||| |
• Arrangements, reschedulings and consolidations | 100% ||||| |
• Immobilized, doubtful or disputed claims | 100% ||||| |

2. Credits to staff other than housing loans | 100% ||||| |
3. Housing loans (a) | 50% ||||| |
4. Claims on regional or local administrations | 20% ||||| |
5. Leasing operations||||||

• Real estate leasing | 50% ||||| |
• Movable property leasing | 100% ||||| |

6. Equity securities other than those held in other credit institutions | 100% ||||| |
7. Trading and investment securities | 100% ||||| |
8. Bonds | 100% ||||| |
9. Participatory loans, partnership shares and associated current accounts other than those held in other credit institutions | 100% ||||| | Received guarantees (a) Refers to loans granted to customers and staff as provided for in Article 35 ter of Circular No. 87-47 of December 23, 1987 on the procedures for granting, monitoring and refinancing loans.

II- OFF-BALANCE SHEET COMMITMENTS||

1. Signature commitments in favor of or on behalf of customers||||||

• Acceptances payable related to foreign trade financing | 100% ||||| |
• Opening of irrevocable documentary credits | 100% ||||| |
• Guaranteed obligations | 100% ||||| |
• Notified but unused credits||||||
• Aval or substitute treasury bill line | 50% ||||| |
• Others | 100% ||||| |
• Guarantees for repayment of loans granted by banks to customers | 100% ||||| |
• Unpaid participations | 100% ||||| |
• Documentary credits opened or confirmed without the goods subject to said credits serving as collateral | 50% ||||| |
• Public contract guarantees (b) The public contract guarantees weighted at 50% | 50% ||||| | Public contract guarantees weighted at 100% | 100% ||||| |
• Customs guarantees | 50% ||||| |
• Documentary credits opened or confirmed when the goods subject to said credits serve as collateral | 20% ||||| |

2. Other signature commitments in favor of or on behalf of customers | 100% ||||| | Received guarantees

B- RISKS ON BANKS AND FINANCIAL ORGANISATIONS ESTABLISHED ABROAD|| I- BALANCE SHEET COMMITMENTS|||||

1. Facilities to these banks or organizations with a remaining maturity of more than one year||||||

• Term deposits | 100% ||||| |
• Syndicated loans | 100% ||||| |
• Other facilities | 100% ||||| |

2. Trading and investment securities | 100% ||||| |
3. Bonds with a remaining maturity of more than one year | 100% ||||| |
4. Facilities to these banks with a remaining maturity of one year or less||||||

• Current accounts | 20% ||||| |
• Demand and term placements | 20% ||||| |
• Syndicated loans | 20% ||||| |
• Other facilities | 20% ||||| |

5. Bonds with a remaining maturity of one year or less | 20% ||||| | Received guarantees

II- OFF-BALANCE SHEET COMMITMENTS|||||

1. Signature commitments in favor of these banks or organizations maturing within the next 12 months | 20% ||||| |
2. Counter-guarantees received from these banks or organizations | 20% ||||| |
3. Other signature commitments in favor of these banks or organizations | 100% ||||| |

C- RISKS ON BANKS AND FINANCIAL ORGANISATIONS ESTABLISHED IN TUNISIA|| I- BALANCE SHEET COMMITMENTS|||||

1. Facilities to these banks and financial organizations||||||

• Money market loans | 20% ||||| |
• Current accounts | 20% ||||| |
• Demand and term placements | 20% ||||| |
• Syndicated loans | 20% ||||| |
• Other facilities | 20% ||||| |

2. Trading and investment securities | 100% ||||| |
3. Bonds | 20% ||||| | Received guarantees

II- OFF-BALANCE SHEET COMMITMENTS|||||

1. Signature commitments in favor of these banks or financial organizations | 20% ||||| |
2. Counter-guarantees received from these banks or financial organizations | 20% ||||| |

D- OTHER BALANCE SHEET COMMITMENTS|||||

1. Syndicated loans granted to foreign governments | 20% ||||| |

2. Collection portfolio net of due accounts | 20% ||||| |

3. Net fixed assets (after depreciation) | 100% ||||| |
4. Other asset items||||||

• Headquarters, branches & agencies | 100% ||||| |
• Various debtors net of staff loans | 100% ||||| |
• Clearing and regularization accounts net | 100% ||||| | TOTAL INCURRED RISKS (CREDIT) (A+B+C+D) (E1) Received guarantees

AGGREGATE 2: OPERATIONAL RISK (amount in thousands of dinars) (b) as defined by Articles 13 (new) and 14 (new) of Circular No. 91-24 on Division, Risk Coverage and Monitoring of Commitments.

CATEGORIES	Amounts
1- Net banking income (year N) (b)
2- Net banking income (year N-1) (b)
3- Net banking income (year N-2) (b)
A- Average of strictly positive net banking incomes (b)
B- Capital requirement for operational risk (B) = (A)*15%
TOTAL INCURRED RISKS (OPERATIONAL) (E2) = (B)*12.5	(E2)

CATEGORIES	Amounts
E1- CREDIT RISK
E2- OPERATIONAL RISK
E- TOTAL INCURRED RISKS (E1 + E2)

• CALCULATION OF NET EQUITY (amount in thousands of dinars) | CATEGORIES | Amounts | |---|---| I- BASIC NET EQUITY ||

1. Social capital or endowment | |
2. Reserves (excluding revaluation reserves) | |
3. Social fund constituted by allocation of results | |
4. Undistributed results of the financial year or determined at interim dates | | G- Element to be deducted ||
5. Repurchase by the credit institution of its own securities | |
6. Net non-values (after depreciation) | | H- BASIC NET EQUITY (F-G) ||
7. Participations and any claims assimilable to equity held in other credit institutions | |
8. Brought forward debit balance | |
9. Pending loss results awaiting approval | | I- Supplementary equity of first tier ||
10. Revaluation reserves | |
11. Non-refundable subsidies | |
12. Collective provisions as per Article 10 bis (*) | |
13. Unrealized capital gains on investment securities with a 55% haircut | | J- Supplementary equity of second tier (*) within the limit of 1.25 percentage points of incurred risks || (1) J = maximum 50% of H | | K = maximum 100% of H | |
14. Participatory loans meeting conditions set out in point 5 b) of Article 5 (new) of Circular No. 91-24 | |
15. Convertible bonds meeting conditions set out in point 5 b) of Article 5 (new) of Circular No. 91-24 | |
16. Associated current accounts meeting conditions set out in point 5 b) of Article 5 (new) of Circular No. 91-24 | |
17. Securities and loans meeting conditions set out in point 5 b) of Article 5 (new) of Circular No. 91-24 | | II- SUPPLEMENTARY EQUITY || K- SUPPLEMENTARY EQUITY (I+J) (1) | |

SOLVENCY RATIO (amount in thousands of dinars)

CATEGORIES	AMOUNT
(N) TIER 1 RATIO ( H/(E+F))*100 (in %)
Tunis, [seal and authorized signature]	MONTANT
(M) SOLVENCY RATIO ( L/(E+F))*100 (in %)
H- BASIC NET EQUITY
K- SUPPLEMENTARY EQUITY
L- NET EQUITY (H+K)
CATEGORIES	AMOUNT
---	---
L- NET EQUITY
E-TOTAL INCURRED RISKS (E1 + E2)
F- 300% of excesses recorded against the standards set out in Articles 1, 2 and 3 of Circular No. 91-24
CATEGORIES