Regulation (NAP) – Intervention in Financial Institutions

Central Bank of São Tomé and Príncipe PERMANENT APPLICATION REGULATION (NAP) CODE: RD 09 | PROPOSER(S): DSB 01/01/2010 | ENTRY INTO FORCE: 31/12/2009 | DATE OF ISSUE: 20/12/2009 | DOC NO.: 1/5 Reviewed; Revocation Data: Subject: Intervention in Financial Institutions

The Central Bank of São Tomé and Príncipe, exercising the powers established by Article 38(d) and Article 8(d) and (f) of its Organic Law, taking into account the provisions of Articles 43 to 52 of the Financial Institutions Act; Considering that it is the Central Bank's responsibility to regulate the procedures applicable during the intervention process; Determines the following:

Article 1. Grounds for Intervention

1. The Central Bank may decree intervention in a financial institution authorized to operate in São Tomé and Príncipe if it finds that: a) The financial institution is insolvent; or b) There are sufficient reasons to expect that it will become insolvent within the next 90 (ninety) days.
2. The objective of intervention is to restore the normal situation, or, if impossible, to propose the bankruptcy of the financial institution.

Article 2. On Insolvency

1. For the purpose of this regulation, a financial institution is considered insolvent if: a) The institution fails to honor its obligations, in whole or in part, on their due dates or by the dates they should have been fulfilled; b) The value of the financial institution's liabilities exceeds the value of its assets; or c) The institution's qualified own funds are lower than the minimum required relative to risk-weighted assets, or lower than the minimum capital established in the institution's operating authorization, and have not been regularized within the timeframe set by the Banking Supervision Directorate.
2. The values of assets, liabilities, qualified own funds, and risk-weighted assets shall be calculated in accordance with the valuation criteria and procedures defined by Central Bank regulations.
3. To determine the value of assets and liabilities for a future date, reasonably anticipated future revenues and expenses shall be taken into account.

Article 3. Decree of Intervention

1. Intervention shall be decreed by an act of the Central Bank's Board of Directors.
2. The intervention act shall indicate: a) the grounds for intervention; b) the name of the appointed receiver (intervenor); c) the duration period of the intervention; d) the eventual non-claimability of customer deposits or investments, if necessary; e) the suspension of the institution's administrators and the freeze on their personal assets.
3. For purposes of the suspension mentioned above, administrators are members of the institution's Board of Directors and directors with executive and representation functions.
4. The appointment of the receiver shall suspend, until the end of the intervention, the mandates of the administrators, who may only resume their respective positions if not deemed ineligible to exercise them.
5. The freeze on administrators' personal assets aims to guarantee the payment of potential losses caused to the institution or third parties.
6. The Central Bank shall notify the President of the Institution's Board of Directors and the President of the Executive Committee, informing them of the Central Bank's decision, the grounds for the act, the receiver's powers, and the intervention period.
7. The Central Bank shall publish a public clarification notice informing of the act deciding on the institution's intervention, the person appointed to be responsible for the institution from that date, and the objectives of the intervention.

Article 4. On the Receiver

1. The receiver shall be a private sector individual or a Central Bank employee who meets the qualifications required for a financial institution administrator.
2. The Central Bank may dismiss or replace the receiver for justified reasons.
3. The receiver's remuneration shall be established by the Central Bank, considering market conditions for financial institution administrators, and must include incentives for achieving adequate recovery objectives for the financial institution.
4. The receiver's remuneration and that of technicians or consultants hired by them, the reimbursement of expenses incurred by them regarding the intervention process, and expenses incurred by the Central Bank shall be paid using the assets of the intervened institution.

Article 5. Notification and Registration of Intervention

1. The receiver, within two days after appointment, shall: a) Post a notice in the financial institution's premises, informing about the intervention, the start date of the intervention, and specifying that: i. Authorizations for any persons to assume financial obligations on behalf of the institution are cancelled; ii. Persons who held authorizations to give instructions on behalf of the institution regarding payments, transfer of institutional assets, or assets administered by it, cease to hold such authorizations; iii. The probable duration of the intervention. b) Publish the same notice in available media, including major circulation newspapers, at least once a week for four weeks; c) Complete necessary registrations with competent authorities, such as registries, notaries, and courts; d) Notify in writing employees, shareholders, correspondents, depositors, creditors, and suppliers; e) Send copies of the notices and registrations to the Central Bank within two days of each event.

Article 6. Powers and Responsibilities of the Receiver

1. The receiver appointed by the Central Bank has broad management powers, may adopt any measure aimed at normalizing the institution's situation within the competence of the Board of Directors or Executive Management, including determining the closure of branches and dismissing employees deemed unqualified or unnecessary for their functions.
2. The receiver shall have unrestricted access and control over all the institution's branches and departments, accounting books and other records, and any other institutional assets.
3. The receiver has the same rights and privileges as an institution administrator, as well as the same responsibilities, and is subject to the same rules, limitations, penalties, and conditions.
4. The receiver, immediately upon appointment, must adopt measures to protect the institution's assets, especially to prevent theft or any other improper action, and may adopt any of the following actions (without limitation): cancel authorizations for persons to assume financial responsibilities on behalf of the institution, issue new authorizations when appropriate for a limited number of trusted employees, and notify affected third parties of such decisions.
5. The receiver must administer the institution by establishing the best conditions for asset preservation and deposit payments, in the interest of depositors and other creditors, and must carry out other responsibilities eventually specified in the appointment act.
6. If deemed necessary for the perfect recovery of the institution, and if the Central Bank has not done so in the act decreeing intervention, the receiver may, after prior consultation with the Central Bank, at any time, declare deposits and investments made by the public with the institution non-claimable, in whole or in part, for a maximum period of 1 (one) year, provided that adequate measures are taken to maintain approximately, in the receiver's opinion, the real value of these deposits and investments.
7. Within one month of taking office, the receiver must present a complete inventory of the institution's assets and properties and send a copy to the Central Bank.
8. The receiver must prepare, within 60 (sixty) days of taking office, a new balance sheet for the institution, based on determining the real values of the institution's assets and recognizing all its obligations, and present a report on the institution's financial conditions and the possibility of restoring a healthy and sustainable situation, attaching documents evaluating assets and liabilities, asset recovery status, cost of asset preservation, and liability payment status.
9. The report must include an assessment of the probable realization value of assets in case of institution liquidation.

Article 7. Recovery Program

1. Along with the balance sheet and financial conditions report mentioned in the previous Article, the receiver must submit a recovery program for the institution for Central Bank approval, administer the program's execution, and report to the Central Bank and the Institution's Supervisory Board on the results achieved by the program, at least every three months.
2. The recovery program, when relevant, must analyze the costs and benefits associated with: a) The institution's return to a viable, secure, and healthy situation, complying with the Financial Institutions Act and prudential regulations, through execution of the recovery program; b) The voluntary liquidation of the institution; c) The revocation of operating authorization and the request for a competent declaration of bankruptcy.
3. The receiver or the Central Bank may hear controlling shareholders regarding the recovery program and its execution.

Article 8. Liquidity Support

1. During the intervention period, the Central Bank may provide financial support to the institution, under specified conditions, aiming to cover temporary liquidity shortages.
2. Resources made available by the Central Bank during the intervention period shall have priority over other liabilities of the institution, which will follow the classification established in specific legislation.

Article 9. Termination of Intervention

1. Intervention shall subsist only as long as the imbalance situation that determined it persists and will be considered lifted after the expiration of the period set by the Central Bank, if not extended.
2. If the Central Bank, based on information and reports from the receiver, considers that the institution is financially recovered, has returned to acceptable conditions, meets prudential norms established by law or Central Bank regulations, and that the circumstances giving rise to intervention no longer persist, allowing it to operate normally, the intervention shall be lifted and the institution may resume its activities under the control of its statutory bodies.
3. It is for the Central Bank to decide whether members of the Board of Directors and Executive Management may return to their functions or must be replaced.
4. If during or at the end of the intervention, the Central Bank considers that reorganizing the institution will be more costly than liquidating it, it shall request a declaration of bankruptcy from the competent judicial body and propose to the judge the name of the liquidator to be appointed.
5. Intervention shall be lifted according to paragraphs 1 and 2 of this Article only after the institution has paid or formally agreed in writing with the Central Bank for the payment of resources advanced for liquidity support, as per Article 7 above.
6. The receiver shall submit to the Central Bank a final report of its activities in executing assigned responsibilities, in accordance with the appointment act and this Permanent Application Regulation.

Article 10. Final Provisions

1. This NAP enters into force in accordance with legal terms.

Central Bank of São Tomé and Príncipe, December 31, 2009.