CENTRAL BANK OF THE COMOROS

REGULATION No. 005/2015/BCC/DSBR

RELATING TO THE CLASSIFICATION AND PROVISIONING OF CREDIT INSTITUTIONS' CLAIMS, IN APPLICATION OF LAW 13-003/AU.

Having regard to Law No. 80-08 of June 26, 1980, relating to currency and the role of the Central Bank of the Comoros in the control of banks and financial establishments, credit, and foreign exchange, specifically Article 7;

Having regard to Law No. 13-003/AU of June 12, 2013, regulating the activities of Financial Institutions, specifically Articles 26, 29, 46, and 103;

Having regard to Law No. 12-008/AU of June 28, 2012, combating money laundering and the financing of terrorism;

Having regard to Law No. 12-011/AU of June 28, 2012, regulating and organizing credit leasing;

THE GOVERNOR OF THE CENTRAL BANK OF THE COMOROS

Sets the rules for the classification and provisioning of claims of credit institutions as defined in Article 3 of Law 13-003/AU.

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Article 1

For the purposes of this Regulation, "claims" refers to all commitments recorded on and off the balance sheet held by a credit institution against a counterparty, notably in the form of:

• cash credits or account advances, regardless of their nature, form, and term;
• movable or immovable credit leasing;
• irrevocable signature commitments (such as guarantees, avals, financing commitments, etc.) made in favor of the counterparty;
• debt securities issued by the counterparty and held by the credit institution;
• interbank claims or debt securities.

Claims consist of due capital, outstanding capital, accrued interest recorded, accrued but unpaid interest, and off-balance sheet commitments.

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Article 2

Credit institutions must distinguish in their accounting their outstanding claims as performing, non-performing, doubtful, and doubtful/uncollectible. The classification of claims into appropriate categories is performed independently of the guarantees covering them.

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Article 3

Performing claims are those where the full repayment of principal and/or interest is effected in accordance with contractual provisions and which are held against counterparties whose ability to honor all their current and future commitments raises no cause for concern (solid financial situation, quality shareholding, satisfactory situation and prospects of the business sector, etc.) from the credit institution's perspective.

Discounted and unpaid values (commercial bills, mobilization of claims on foreign entities, etc.), accepted by the drawee and whose successful completion raises no cause for concern, are also considered performing claims.

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Article 4

All commitments recorded on and off the balance sheet listed below held by a credit institution against a counterparty are considered:

1. Non-performing claims when one or more installments are unpaid, in whole or in part, for a period of less than 90 days after the contractual due date;
2. Doubtful claims when one or more installments are unpaid, in whole or in part, for a period greater than 90 days after the contractual due date;
3. Doubtful/uncollectible claims when one or more installments are unpaid, in whole or in part, for a period greater than 360 days (1 year) after the contractual due date;

The claims referred to in paragraphs 1 to 3 above are:

4. Credit outstanding with or without an amortization plan and which have not been subject to a prolongation or renewal of conditions, but where one or more installments are unpaid, in whole or in part; overdrafts exceeding authorized credit limits (in terms of validity period and amount) in the form of overdrafts or current account advances; and debited balances of frozen current accounts, where the clearance period is calculated according to the formula (debit balance x 90) / sum of credit movements recorded during said quarter.

A current account is considered frozen when, operating in a debit situation, it has not recorded, during a quarter, deposits covering at least the interest and commissions due for said quarter.

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Article 5

The classification as doubtful outstanding can be abandoned when the risk on the counterparty as per paragraph 6 of Article 4 is definitively lifted and when payments have resumed regularly for amounts corresponding to the original contractual installments. In this case, the claim is reclassified as performing outstanding.

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Article 6

The classification of a claim into the doubtful category entails, by contagion, notwithstanding the existence of guarantees or sureties, an identical classification in this category of all claims held against the concerned counterparty and persons linked to it, as defined in the regulation on the division of risks and large exposures.

The classification of doubtful outstanding into doubtful/uncollectible does not necessarily entail by contagion the classification into this latter category of other doubtful outstanding and commitments related to the concerned counterparty.

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Article 7

A credit institution may agree on new repayment modalities with a counterparty.

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Article 8

Rescheduling or restructuring of the claim may occur subject to a decision by the competent body of the credit institution, when the restructuring operation is justified by considerations related to the financial situation of the counterparty or difficulties at the level of its business sector.

Rescheduled or restructured claims must remain in the category where they were located before the rescheduling or restructuring during an observation period of 90 days. They are reclassified into:

• the performing claims category, when repayment is effected, during the observation period, in accordance with the new agreed provisions;
• the risk category of lower quality than the original one before the rescheduling or restructuring, when they record a payment incident during the observation period.

Upon the restructuring of a credit, any waiver of principal or interest, due or accrued, must be accounted for as losses.

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Article 9

The Central Bank may require the reclassification, into a lower category, of credit outstanding by disbursement and/or by signature granted to a given counterparty and the establishment of appropriate provisions, when it deems necessary.

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Article 10

Credit institutions must establish provisions covering the total outstanding of these doubtful and doubtful/uncollectible claims.

The probable loss on a credit outstanding, doubtful and doubtful/uncollectible, is accounted for on the balance sheet by means of a depreciation recorded as a deduction from this outstanding. The probable loss related to an off-balance sheet commitment downgraded to doubtful must be taken into account via provisions appearing on the liability side of the balance sheet.

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Article 11

Provisions established relating to rescheduled or restructured claims can only be reversed when these claims are reclassified into the performing claims category, in accordance with the provisions of the preceding Article 10.

Reversals of provisions on doubtful claims written off must be motivated and approved by the statutory auditors, with an obligation to inform the Central Bank at the end of each year and before the approval of accounts by the corporate bodies.

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Article 12

Provisions established by credit institutions must cover their doubtful and doubtful/uncollectible claims to the extent of the minimum levels set below:

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Minimum Provisioning Rates

Claim Category	Minimum Provisioning Rate
Doubtful claims between 90 and 180 days	10%
Doubtful claims between 180 and 360 days	40%
Doubtful/uncollectible claims between 360 and 720 days	50%
Doubtful/uncollectible claims between 720 and 1080 days	80%
Doubtful/uncollectible claims greater than 1080 days	100%

These provisioning rates may be adjusted by credit institutions or by the Central Bank based on the risk analysis of each facility.

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Article 13

The calculation of provisions is performed based on the total of outstanding for each category of claims, minus eligible guarantees listed below, within the limits of the quotas set below:

Guarantees deductible at 100% of their value:

• Pledge of securities issued by the State and guarantees received from the State;
• Pledge of debt securities issued by the Central Bank;
• Pledge of deposits and/or time accounts constituted with the credit institution, denominated in the same currency as the claims they guarantee;
• Pledge of deposit certificates or similar securities issued by the credit institution and deposited with itself;

Guarantees deductible at 80% of their value:

• Pledge of deposits and time accounts constituted with the credit institution, denominated in a currency other than that of the claims they guarantee;
• Bank counter-guarantees emanating from international cooperation financial institutions or regional development Banks;
• Subject to the acceptance of the Central Bank, first-demand bank counter-guarantees emanating from a credit institution authorized in the Union of the Comoros or a foreign credit institution.

Guarantees deductible at 65% of their value:

• Market value of gold deposited as collateral;
• Guarantees given by financial intermediaries.

Guarantees deductible at 30% of their value:

• First-rank mortgages on land free of any occupation;
• First-rank mortgages on residential property to be occupied or rented by the counterparty;
• First-rank mortgages on property intended entirely for productive activities;
• Guarantees received from territorial administrations and Comorian local authorities.

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Article 14

To be eligible and deductible, the guarantees provided for in Article 13 of this Regulation must:

• Be formalized in writing established and registered in compliance with current legal and regulatory provisions;
• Have a maturity at least equal to that of the covered credit;
• Be mobilizable under the conditions provided by legislation;
• Be valued by an expert appraisal;

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Article 15

Unpaid interest on doubtful claims cannot be accounted for among revenues unless they are actually collected.

When they are credited to the income account, they must be provisioned to the extent necessary.

If a global provision is made covering capital, accrued interest, and unpaid interest, the latter must be at least equal to the interest included in the income account.

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Article 16

Credit institutions must remove from their balance sheet fully provisioned doubtful/uncollectible claims which are considered uncollectible. However, they must ensure off-balance sheet monitoring of these claims.

The removal of these claims from the balance sheet is performed under the following conditions:

• For doubtful/uncollectible claims less than or equal to one hundred million Comorian francs (100 million KMF), the removal from the balance sheet occurs one year at the latest after their inscription in the doubtful/uncollectible claims category.
• For doubtful/uncollectible claims greater than or equal to one hundred million Comorian francs (100 million KMF), the removal from the balance sheet occurs two years at the latest after their inscription in the doubtful/uncollectible claims category.

Prior approval of the Central Bank is required for any write-off of claims held against counterparties related to the credit institution.

Credit institutions annually submit to the Central Bank a report detailing the evolution of claims removed from the balance sheet and the status of their recovery, as well as that of definitively abandoned claims.

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Article 17

For files classified as doubtful and provisioned before the entry into force of this Regulation, credit institutions have a period of 3 years to comply with the provisions of this Regulation.

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Article 18

Credit institutions must declare to the Central Bank semi-annually the total outstanding of their rescheduled, restructured, doubtful, and doubtful/uncollectible claims, as well as the related provisions, according to the models in the annex.

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Article 19

This Regulation repeals and replaces Instruction No. 014/2004/COB.

It enters into force as of its date of signature.

Moroni, January 28, 2015

Mzé Abdou Mohamed Chanfiou

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Place de France. BP 405 MORONI
TEL : (269) 773 18 14 - (269) 773 10 02 – FAX : (269) 773 03 49
E-mail : secretariat@banque-comores.km
Site : www.banque-comores.km

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DECLARATIVE STATEMENT OF CREDIT INSTITUTIONS' CLAIMS

(Semi-annual Declaration)
(Article 18 of Regulation No. 005 /2015/BCC/DSBR)

Declaring Institution :	Situation as of :

Classifications	Number of Files	Outstanding Due (Capital + Unpaid Interest + Accrued Unpaid Interest)	Provisions	Total Value of Taken Guarantees
RESCHEDULED CLAIMS
RESTRUCTURED CLAIMS
DOUBTFUL CLAIMS (90 - 180)
DOUBTFUL CLAIMS (180 - 360)
DOUBTFUL CLAIMS (360 - 720)
DOUBTFUL CLAIMS (720 - 1080)

DATE AND VISA