Instruction No. 01_GR_2018 on Minimum Capital and Net Own Funds Calculation Rules for Credit Institutions

Islamic Republic of Mauritania The Governor [Contact Details Block] BANQUE CENTRALE DE MAURITANIA Nouakchott, March 27, 2018 INSTRUCTION NO. 01_GR_2018 ON MINIMUM CAPITAL AND THE CALCULATION RULES FOR NET OWN FUNDS OF CREDIT INSTITUTIONS

THE GOVERNOR OF THE CENTRAL BANK OF MAURITANIA, • Having regard to Law No. 73-118 of May 30, 1973 establishing the Central Bank of Mauritania; • Having regard to Ordinance No. 004/2007 of January 12, 2007 establishing the Statute of the Central Bank of Mauritania; • Having regard to the Monetary Policy Council resolutions dated February 3, 2017; • Having regard to Decree No. 003/2015 of January 9, 2015 appointing the Governor of the Central Bank of Mauritania; DECIDES:

Article 1: This instruction aims to set the minimum capital that credit institutions must permanently maintain, define the calculation methods for net own funds that credit institutions must consider under instructions referencing the concept of own funds, as well as the minimum own fund requirements that credit institutions are obliged to observe.

I. MINIMUM CAPITAL Article 2: Mauritanian law credit institutions must hold a fully paid minimum capital of at least: one billion ouguiyas (1,000,000,000 UM) for banks; one hundred million ouguiyas (100,000,000 UM) for financial institutions. Existing licensed credit institutions have a two (2)-year period to comply with this requirement.

Article 3: The conditions for establishing the required minimum capital under Article 2 are defined by the regulations governing the licensing of banks and financial institutions.

Article 4: Credit institutions must continuously demonstrate that the difference between their effective assets and liabilities owed to third parties is at least equal to the minimum capital required under Article 2. Effective assets are assets adjusted for depreciation of securities and non-performing assets. In practice, this obligation is deemed fulfilled and the minimum capital considered represented if the amount of net basic own funds as defined in Article 6 of this instruction is at least equal to the required minimum capital amount.

II. OWN FUNDS Article 5: Net own funds consist of the sum of: net basic own funds as defined in Articles 6 and 8; supplementary own funds, as defined in Article 10.

Article 6: Net basic own funds include gross basic own funds as defined in paragraph a) after deduction of the elements defined in paragraph b). a) Gross basic own funds comprise: share capital; capital premiums; reserves, excluding revaluation reserves; retained earnings (credit balance); net profit under the conditions set out in Article 7; other instruments issued and fully paid by the institution, meeting the inclusion criteria defined in Annex 1-1, subject to prior approval of the Central Bank, as well as premiums linked to these instruments. b) Deductible elements: unpaid share capital; retained earnings (debit balance); current year loss pending approval or allocation; interim loss as of June 30; excess of expenses over income; any provision requested by the Central Bank but not yet established; treasury shares held; intangible assets, including setup costs and leasehold rights; participations in credit institutions, insurance and reinsurance companies taking the form of basic own fund instruments, according to Article 12 and Circular Letter No. 004/2016; balance sheet and off-balance sheet commitments of any nature such as loans, overdrafts, securities, guarantees, and sureties granted to related parties of the credit institution according to Instruction No. 08/GR/2012 regulating relations between credit institutions and related parties, and Circular Letter No. 004/2016; any excess amount of deductions to be made on supplementary own funds as provided in Article 10.

Article 7: Credit institutions may, with prior approval of the Central Bank, include net profit before allocation in their basic own funds if it has been verified by the institution's statutory auditors, supported by evidence required by the Central Bank, and if the amount of dividends to be deducted has been determined upon proposal or formal decision by the governing body.

Article 8: Net basic own funds may include instruments issued by the institution that meet the inclusion criteria defined in Annex 1-2, as well as premiums linked to their issuance. Their inclusion in basic own funds is subject to prior approval by the Central Bank and capped at 20% of net basic own funds as defined in Article 6. When any condition set out in Annex 1-2 is no longer met, the instruments and associated premiums are no longer considered eligible for basic own funds.

Article 9: Any credit institution that fails to meet the minimum capital representation or the own fund requirement standard under the solvency ratio instruction is prohibited from making any form of dividend distribution or remuneration to shareholders, directly or indirectly.

Article 10: Fully paid instruments issued by the institution, meeting the inclusion criteria set out in Annex 1-3, as well as premiums linked to their issuance, may be admitted as gross supplementary own funds, subject to prior approval by the Central Bank. When any of these conditions is no longer met, the instruments and associated premiums are no longer considered eligible for supplementary own funds calculation. Net supplementary own funds correspond to gross supplementary own funds after deducting participations in credit institutions, insurance and reinsurance companies taking the form of instruments that would be eligible for inclusion in the institution's gross supplementary own funds if it had issued them itself. Any excess amount of deductions to be made on gross supplementary own funds must be deducted from basic own funds.

Article 11: Equity elements such as general provisions not allocated, received public or private non-refundable subsidies, guarantee funds, and non-refundable public funds allocated to credit operations guarantees may be included in basic or supplementary own funds provided they meet the eligibility conditions defined in Annexes 1-1, 1-2, or 1-3, subject to prior approval by the Central Bank. Revaluation reserves and revaluation differences are not taken into account.

Article 12: For the purposes of this instruction, participations in credit institutions, insurance and reinsurance companies include any instrument, regardless of its legal nature, participating in their own funds. Deductions must be applied on a component-by-component basis: participations in basic own funds must be deducted from basic own funds; participations in supplementary own funds must be deducted from supplementary own funds.

Article 13: The Central Bank may, by circular, require credit institutions to make other deductions, based on the operations performed or accounting procedures used by the credit institutions.

III. MINIMUM OWN FUND REQUIREMENTS Article 14: At all times, the institution must maintain a minimum coverage of risk-weighted exposures, established according to Instruction No. 05/GR/92, by own funds as follows: net basic own funds, as defined in Articles 6 and 8 of this instruction, must represent at least 7.5% of risk-weighted exposures; net own funds, as defined in Article 5 of this instruction, must represent at least 10% of risk-weighted exposures.

Article 15: In addition to the minimum own fund requirements set out in Article 14, institutions must establish a conservation buffer consisting of basic own funds as defined in Article 6, representing 2.5% of risk-weighted exposures. Institutions failing to comply with this provision upon its entry into force must take necessary measures by issuing eligible instruments or retaining profitable results. Until the conservation buffer is fully established or reconstituted, profit distribution is capped according to the conservation buffer level, under the following rules:

Conservation Buffer Level (% of risk-weighted exposures)	Profit Retention Rate (% of profits)
< 0.5%	100%
> 0.5% to 1.0%	80%
> 1.0% to 1.5%	60%
> 1.5% to 2.0%	40%
> 2.5%	0%

Distributed amounts are considered as: dividends, share buybacks, and remuneration of all kinds paid on other basic own fund elements. Payments that do not reduce ordinary shares and similar instruments, such as dividend distributions in shares, are not considered distributed amounts. Profits include all remuneration payable to holders of basic own fund instruments. They are calculated after deducting corporate income tax.

Article 16: Credit institutions must establish a countercyclical own fund buffer consisting of basic own funds as defined in Article 6, with a rate ranging between 0% and 2.5% of net risk-weighted exposures. The Central Bank sets this rate considering the macro-financial environment, particularly the risk of excessive credit growth. Central Bank decisions regarding the countercyclical buffer are communicated by circular. The cumulative amount of the conservation buffer under Article 15 and the countercyclical buffer constitutes the minimum own fund conservation ratio.

Article 17: Institutions identified as systemically important for the banking sector must establish a specific own fund buffer, consisting of basic own funds as defined in Article 6, in addition to the minimum own fund requirements and the conservation buffer. The Central Bank defines by circular the criteria for identifying systemically important institutions and the methods for measuring the required buffer.

IV. MISCELLANEOUS Article 18: The concept of net own funds used in applying Central Bank instructions is defined in this instruction. This concept of net own funds repeals and replaces all provisions concerning the definition and calculation methods of own funds under the Central Bank's current regulatory texts.

Article 19: The net own funds calculation form included in Annex II forms an integral part of this instruction.

Article 20: This instruction, effective upon signature, replaces and annuls Instruction No. 09/GR/2012 of March 1, 2012, as well as any other prior contrary provisions.

The Governor Abdel Aziz DAHI

Annex 1-1 to the Instruction Eligibility Criteria for Basic Own Funds Defined in Article 6 Pursuant to Article 8 of the instruction, other basic own fund instruments referred to in the last paragraph of Article 6(a) must each meet the following criteria: • They must constitute the most subordinated claim upon liquidation of the institution, granting a right to residual assets proportional to the issued capital share after repayment of all senior claims; • Their duration is indefinite. They cannot be repaid outside the institution's liquidation. Upon issuance, no statutory or contractual clause may authorize their buyback, repayment, or cancellation; • Their remuneration is not mandatory and can only be paid from distributable profits. Remuneration is in no way linked to the amount paid at issuance and is subject to neither a floor nor a contractual ceiling, except for the limit on distributable profits; • Their remuneration is paid only after all other legal and contractual obligations are met, including payments of any kind on own fund instruments provided for in Article 8 and supplementary instruments; • They absorb losses as soon as they occur to ensure business continuity, pari passu with other elements included in basic own funds defined in Article 6; • Their capital is fully paid in cash at issuance. The institution cannot directly or indirectly finance their acquisition, under penalty of disciplinary and criminal sanctions; • Their capital is neither secured nor guaranteed by the issuer or a linked entity, and contains no clause allowing their rank to be enhanced in the repayment order of claims; • Their issuance is carried out with the approval of the general meeting of shareholders.

Annex 1-2 to the Instruction Eligibility Criteria for Basic Own Funds Defined in Article 8 Basic own fund instruments referred to in Article 8 must meet each of the following criteria: • Their contract includes a capital and interest subordination clause, which upon liquidation allows repayment only after all other claims, except for own funds defined in Article 6; • Their capital is fully paid in cash at issuance. The institution cannot directly or indirectly finance their acquisition, under penalty of disciplinary and criminal sanctions; • Their capital is neither secured nor guaranteed by the issuer or a linked entity; • They contain no clause allowing their rank to be enhanced in the repayment order of claims; • Their duration is indefinite; • They contain no remuneration step-up clause or other redemption incentives; • Any early redemption option initiated by the issuer can only be exercised with prior Central Bank approval and after a five (5)-year period following issuance. It can only be exercised if the instruments are replaced by other own fund instruments of at least equivalent quality, or if own funds remain above regulatory requirements after redemption; • Their principal repayment (total or partial) cannot occur without prior Central Bank approval; • Their remuneration can be cancelled by the institution at any time without restriction other than paying dividends to ordinary shareholders, and without constituting a default event. Cancelled amounts are retained by the institution; • Their remuneration must be an element of distributable profits, as defined by this instruction; • Their remuneration must not be linked to the institution's credit risk profile, particularly its credit rating; • Their eventual classification as a debt instrument, according to current accounting rules, must not hinder their loss absorption capacity either by conversion into ordinary shares, write-down of principal, or partial/total cancellation of remuneration; • Their acquisition cannot be carried out by the institution itself or a related party; • Their contract cannot contain clauses hindering potential recapitalization of the institution, particularly those requiring the issuer to indemnify investors if a new instrument is issued at a lower price.

Annex 1-3 to the Instruction Eligibility Criteria for Supplementary Own Funds Supplementary own fund instruments referred to in Article 10 must meet each of the following criteria: • Their contracts include a capital and interest subordination clause allowing, upon liquidation of the credit institution, repayment to the holder or lender after all other creditors, except holders of instruments eligible for basic own funds; • Their capital is fully paid in cash at issuance. The institution cannot directly or indirectly finance their acquisition, under penalty of disciplinary and criminal sanctions; • The paid capital is neither secured nor guaranteed by the issuer or a linked entity, and contains no device enhancing the rank of claims relative to depositors and unsecured creditors; • The instruments have an initial duration of at least five (5) years. During the last five years of their life, the amount retained in supplementary own funds is cumulatively reduced by 20% per year. They contain no remuneration step-up or other redemption incentives; • Any early redemption option initiated by the issuer can only be exercised with prior Central Bank approval and after a five-year period following issuance. It can only be exercised if the instrument is replaced by another own fund instrument of at least equivalent quality, or if own funds remain above regulatory requirements after redemption; • The holder of an instrument cannot demand that scheduled payments, particularly interest or capital repayment, be made early, except upon liquidation; • The remuneration and repayment of the instruments must not be linked to the credit institution's risk profile, particularly its credit rating; • The instruments cannot be acquired by the institution or a related party.

Annex II to the Instruction NET OWN FUNDS CALCULATION (In thousands of ouguiyas) Name of credit institution: [Code BeM]

I - BASIC OWN FUNDS (BOF)

• Share capital
• Capital premiums
• Reserves (excluding revaluation reserves)
• Retained earnings (credit balance)
• Net accounting profit excluding dividends (1)
• Other eligible instruments issued by the institution and linked premiums (1) A - Basic own funds defined in Article 6
• Eligible instruments issued by the institution and linked premiums (1) B - Basic own funds defined in Article 8 (2)
• Unpaid share capital
• Retained earnings (debit balance)
• Current year loss pending approval or allocation
• Interim loss as of June 30
• Excess of expenses over income
• Provisions requested by the Central Bank
• Treasury shares
• Intangible assets
• Participations (of BOF nature) in credit institutions, insurance and reinsurance companies
• Deductible commitments to related parties
• Unapplied deductions on supplementary own funds If E < F deduct F - E C - Elements to be deducted from basic own funds D - NET BASIC OWN FUNDS (D = A + B - C)

II - SUPPLEMENTARY OWN FUNDS (SOF)

• Eligible instruments issued by the institution and linked premiums (1) E - Gross supplementary own funds Participations (of SOF nature) in credit institutions, insurance and reinsurance companies F - Elements to be deducted from supplementary own funds G - NET SUPPLEMENTARY OWN FUNDS If E ≥ F retain G = E - F If E < F retain G = 0

III - NET OWN FUNDS (H = D + G) (1) Subject to Central Bank approval (2) Capped at 20% of line A amount