Region

Jurisdiction

Regulator

2022-07-29

Circular No. 03/EFI/2022, of July 29 – Informational Elements of Recovery Plans

The Bank of Mozambique issued Circular No. 03/EFI/2022 to establish mandatory guidelines for financial institutions preparing recovery plans. The circular mandates that these plans follow a standardized structure detailing strategic analysis, non-exhaustive recovery indicators across capital, liquidity, profitability, and asset quality, and comprehensive stress scenario testing. It further requires institutions to document non-exhaustive recovery strategies, their feasibility, implementation timelines, and associated governance and communication protocols to ensure timely correction of financial distress.

Mozambique

Banco de Mocambique

Bank of Mozambique Administration

Circular No. 03/EFI/2022

Maputo, July 29, 2022

SUBJECT: Informational Elements of Recovery Plans

Notice No. 02/GBM/2022, of May 31, establishes the informational elements that recovery plans must contain, as well as the procedures regarding their submission, maintenance, and revision, with the aim of enabling banks to identify, as comprehensively as possible, the measures likely to be implemented to timely correct a situation that compromises or may compromise their financial stability.

Given the need to issue guidelines that must be observed by institutions in preparing their recovery plans, pursuant to Article 17 of Notice No. 02/GBM/2022, of May 31, the Bank of Mozambique instructs:

Without prejudice to the provisions of the aforementioned Notice, the preparation of recovery plans must follow the structure set out in Annexes I, II, and III of this Circular.
Doubts regarding the interpretation and application of this Circular must be submitted to the Macroprudential Analysis Department of the Bank of Mozambique.
This Circular enters into force immediately.

BANK OF MOZAMBIQUE Financial Stability Division Benedita Maria Guimino (Administrator)

Bank of Mozambique Administration

Annex I – Elements of Recovery Plans

Elements of Recovery Plans	Description
1. Strategic Analysis	i. Description of correlated entities; <br> ii. Description of main business lines (Annex II); <br> iii. Mapping of business lines with impact on correlated entities; <br> iv. Identification and description of critical functions (Annex III); <br> v. Description of intra-group dependencies; <br> vi. Description of internal interconnections; <br> vii. Description of external interconnections.
2. Non-Exhaustive and Illustrative List of Recovery Indicators	2.1. Capital <br> Indicators demonstrating the actual or potential deterioration of the institution's ability to meet minimum capital requirements. These indicators must be consistent with the risk and capital management structure and the Internal Capital Adequacy Assessment Process (ICAAP): <br> i. Overall Solvency Ratio; <br> ii. Tier 1 Capital; <br> iii. Leverage Ratio. <br><br> 2.2. Liquidity <br> Indicators pointing to the actual or potential deterioration of the institution's ability to meet its liquidity and funding needs: <br> i. Liquid Assets Ratio; <br> ii. Transformation Ratio; <br> iii. Short-Term Liquidity Coverage Ratio; <br> iv. Liquidity Ratio (LCR); <br> v. Deposit Concentration (top 100 depositors). <br><br> 2.3. Profitability <br> Indicators evidencing the actual or potential variation in results or modifications in the pattern of revenue or expense sources: <br> i. Net Results; <br> ii. Return on Assets; <br> iii. Return on Equity; <br> iv. Financial Margin Ratio; <br> v. Overhead Costs; <br> vi. Operating Costs; <br> vii. Efficiency Ratio. <br><br> 2.4. Asset Quality <br> Indicators reflecting the quality of active operations and their concentration by sector, geography, and counterparties: <br> i. Non-Performing Loans (NPLs) / Total Gross Loans;

Elements of Recovery Plans

Description

1. Strategic Analysis

i. Description of correlated entities; ii. Description of main business lines (Annex II); iii. Mapping of business lines with impact on correlated entities; iv. Identification and description of critical functions (Annex III); v. Description of intra-group dependencies; vi. Description of internal interconnections; vii. Description of external interconnections.

2. Non-Exhaustive and Illustrative List of Recovery Indicators

2.1. Capital Indicators demonstrating the actual or potential deterioration of the institution's ability to meet minimum capital requirements. These indicators must be consistent with the risk and capital management structure and the Internal Capital Adequacy Assessment Process (ICAAP): i. Overall Solvency Ratio; ii. Tier 1 Capital; iii. Leverage Ratio. 2.2. Liquidity Indicators pointing to the actual or potential deterioration of the institution's ability to meet its liquidity and funding needs: i. Liquid Assets Ratio; ii. Transformation Ratio; iii. Short-Term Liquidity Coverage Ratio; iv. Liquidity Ratio (LCR); v. Deposit Concentration (top 100 depositors). 2.3. Profitability Indicators evidencing the actual or potential variation in results or modifications in the pattern of revenue or expense sources: i. Net Results; ii. Return on Assets; iii. Return on Equity; iv. Financial Margin Ratio; v. Overhead Costs; vi. Operating Costs; vii. Efficiency Ratio. 2.4. Asset Quality Indicators reflecting the quality of active operations and their concentration by sector, geography, and counterparties: i. Non-Performing Loans (NPLs) / Total Gross Loans;

Bank of Mozambique Administration

| | ii. Non-Performing Loans (Net of Provisions) / Total Equity; iii. Loans past due up to 90 days ratio; iv. NPL coverage ratio; v. Foreign Currency (FC) Credit / Total Credit; vi. NPLs by Sectoral Concentration; vii. Counterparty Concentration (Individual and/or Group). 2.5. Market Indicators i. Exchange Rate; ii. Prime Rate. 2.6. Macroeconomic Indicators i. Gross Domestic Product Growth; ii. Inflation. 2.7. Specific Recovery Indicators Indicators and other information signaling activities or events that may significantly affect the institution's image and operational or financial continuity, pointing to legal risks, contagion risks, and the effectiveness of internal controls: i. Retained Earnings and Reserves / Total Equity; ii. Liquidity and Funding Sources Concentration; iii. Adverse information regarding the financial position of significant counterparties; iv. Significant threat or damage to the reputation of the entity or group. | | 3. Stress Scenario Analysis | Description of each stress scenario, including: 3.1. Scenario Design i. The type, severity, and time horizon; ii. Logical sequence and time horizon of the event, including detailed description and quantitative parameters; iii. Processes and assumptions underlying the scenario. 3.2. Scenario Analysis 3.2.1. Financial and operational impact of the scenario, such as: i. Recovery indicators affected over time; ii. Transmission channels of scenario risks within the institution. 3.2.2. Analysis of the adequacy of recovery indicators and governance structure, indicating: i. The number and type of recovery indicators and indicators in breach after the stress test; ii. The magnitude and duration of the breach, to assess the time available for executing/implementing the recovery strategy; iii. The escalation and monitoring process. 3.3. Description of the preferred recovery strategy and recovery capacity, including: i. Assumptions underpinning the strategy choice; ii. Financial, strategic, operational, stakeholder, and systemic impacts; iii. Impact on feasibility and time required for implementing the recovery strategy. | | 4. Non-Exhaustive List of Recovery Strategies | 4.1. Recovery Strategies i. Strengthening capital and liquidity position; ii. Asset divestment; |

Bank of Mozambique Administration

| Recovery Strategies | iii. Debt refinancing; iv. Liability restructuring; v. Access to financial support from entities within the same economic group, if applicable; vi. Access to liquidity financial assistance lines, if available, regardless of the source nature; vii. Changes in the corporate or organizational structure, operating strategy, or business model of the institution; viii. Maintenance of third-party service provision necessary for the institution's operational continuity. | | 5. Content of Recovery Strategies | 5.1 Strategy Description i. Description and quantification of strategies; ii. Assumptions made for the strategies; iii. Committees/bodies/personnel responsible for the development, maintenance, implementation, and approval of recovery, including a description of the existing governance structure (e.g., intra-group arrangements); iv. Estimated time for strategy implementation; v. Estimated implementation costs, including potential costs arising from hiring consulting services and business restructuring. 5.2 Impact Analysis i. Analysis of the financial, strategic, operational, stakeholder, and systemic impact and assumptions of the strategy. 5.3 Feasibility Analysis i. Analysis of the strategy's feasibility and assumptions. 5.4 Applicability of Stress Tests i. Analysis of the applicability of recovery strategies across different scenarios and considerations supporting the analysis. 5.5 Process Execution i. Procedures or steps necessary for strategy implementation; ii. Communication plan with stakeholders. |

Bank of Mozambique Administration

Annex II – Information on Strategic Business Models and Lines

Model / Business Line	Description and/or Content
1. Business Model	1.1. Overview of the model and business strategy; <br> 1.2. Operational view of the business.
2. Main Business Lines	2.1. For each business line, where applicable, indicate: <br> i. Relevant information on financial performance (including disaggregation of the income statement, provisions, and impairments); <br> ii. Branch network and clients by region; <br> iii. Interaction and division of responsibilities between business lines and the parent entity; <br> iv. Composition of risk drivers.
3. Business Line Mapping	3.1. Correlated entities; <br> 3.2. Services supporting the business lines.

Bank of Mozambique Administration

Annex III - Information on Critical Functions

A – Information on Critical Functions

Description	Critical Function
1. Description of the Critical Function	Activities, services, or operations whose interruption may lead to the disruption of services essential to the economy or financial stability.
2. Risk Management Practices and Governance Structure	Overview of risk management policies and procedures and the governance structure of the function, highlighting the interaction and division of responsibilities between the parent entity and the service/function provider.
3. Critical Analysis of the Function	Processes and metrics supporting the critical analysis of customer portfolio distribution by segment.
4. Critical Services Shared with Third Parties	Processes and metrics supporting the critical analysis.
5. Function Mapping	Regarding: <br> i. Correlated entities; <br> ii. Main business lines; <br> iii. Critical services shared with third parties.

B – List of Potential Critical Functions

Description	Critical Function
1. List of Potential Critical Functions	a. Deposits; <br> b. Credit; <br> c. Capital market investments; <br> d. Payment systems; <br> e. Treasury; <br> f. Trading; <br> g. Accounting and Reporting; <br> h. Facility Security (Human security, access control, cash handling); <br> i. Human Resources (minimum services); <br> j. Legal and/or Compliance Support; <br> k. Information Technology: <br> i. Data repository and protection; <br> ii. Information Technology (IT) Infrastructure; <br> iii. Software; <br> iv. Licenses and applications and their maintenance; <br> v. Access to external providers; <br> vi. Customer Support; <br> vii. Disaster Recovery.

Description

Critical Function

1. List of Potential Critical Functions

a. Deposits; b. Credit; c. Capital market investments; d. Payment systems; e. Treasury; f. Trading; g. Accounting and Reporting; h. Facility Security (Human security, access control, cash handling); i. Human Resources (minimum services); j. Legal and/or Compliance Support; k. Information Technology: i. Data repository and protection; ii. Information Technology (IT) Infrastructure; iii. Software; iv. Licenses and applications and their maintenance; v. Access to external providers; vi. Customer Support; vii. Disaster Recovery.