Instruction No. 07/2023 of 14 July: Financial System - Calculation and Regulatory Capital Requirement for Credit Risk and Counterparty Credit Risk and Corresponding Periodic Reporting

Continuation of Instruction No. 07/2023 Page 1 of 78 INSTRUCTION NO. 07/2023 Of 14 July SUBJECT: FINANCIAL SYSTEM

• Calculation and Regulatory Capital Requirement for Credit Risk and Counterparty Credit Risk and Corresponding Periodic Reporting

Whereas it is necessary to regulate the technical specifics regarding the regulatory capital requirement for credit risk and counterparty credit risk provided for in Notice No. 08/21 of 05 July on Prudential Requirements; Pursuant to the combined provisions of paragraphs d) and f) of paragraph 1 of Article 31.º and paragraph c) of paragraph 1 of Article 54.º, both of Law No. 24/21 of 18 October, Law of the National Bank of Angola, and Article 198.º of Law No. 14/21 of 19 May, Law on the General Regime of Financial Institutions. I HEREBY DETERMINE:

1. Subject Matter This Instruction establishes the requirements that Banking Financial Institutions must consider in calculating capital requirements for credit risk and counterparty credit risk, as well as periodic reporting, in accordance with Notice No. 08/21 of 05 July on Prudential Requirements.

Continuation of Instruction No. 07/2023 Page 2 of 78 2. Scope This Instruction applies to Banking Financial Institutions under the supervision of the National Bank of Angola, as provided for in Law No. 14/21 of 19 May, Law on the General Regime of Financial Institutions.

3. Definitions Without prejudice to the definitions established in Law No. 14/21 of 19 May, Law on the General Regime of Financial Institutions, for the purposes of this Instruction, the following shall be understood: 3.1. Netting Agreements: any written bilateral agreement between an Institution and a counterparty that creates a single legal obligation covering all bilateral agreements and transactions included therein. 3.2. External Rating Agency: entity that conducts external credit risk assessments, at the request of the named entity or on its own initiative. 3.3. Credit Risk Assessment: a forward-looking opinion on the overall credit quality or of a specific issuance by a borrower, focusing on the analysis of the borrower's capacity and willingness to meet its financial obligations at maturity. 3.4. Novation Agreement: a bilateral agreement between an Institution and a counterparty, under which reciprocal rights and obligations are automatically offset, such that in each novation a single net amount is fixed, giving rise to a new single legally binding contract that extinguishes the previous contracts. 3.5. Minimum Lease Payments: payments during the lease term that are or may be required to be made by the lessee, excluding contingent rent, costs related to services and taxes paid by the lessor and subsequently reimbursed to it, together with: a) For the lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or

Continuation of Instruction No. 07/2023 Page 3 of 78 b) For the lessor, any residual value guaranteed to the lessor by: i. The lessee; ii. A party related to the lessee; or, iii. An unrelated third party that is financially capable of fulfilling the obligations under the guarantee. 3.6. Items in Course of Collection: cash in the form of cheques or other instruments in the process of clearing.

4. Regulatory Capital Requirement for Credit Risk and Counterparty Risk 4.1. Institutions must calculate the regulatory capital requirement for credit risk and counterparty risk, as provided for in Article 30.º of Notice No. 08/21 of 05 July on Prudential Requirements, in accordance with the annexes to this Instruction. 4.2. For the purposes of calculating off-balance sheet positions, the instruments described in Annex II must be considered, and particularly for financial derivative instruments, counterparty credit risk must be considered, in accordance with Annex III, both of this Instruction. 4.3. Without prejudice to the preceding paragraph, the calculation of risk positions and the amount of risk-weighted positions must consider credit risk reduction, in accordance with Annex IV, as well as the use of credit ratings, in accordance with Annex V, both of this Instruction.

5. Reporting 5.1. Institutions must report the information required in Article 30.º of Notice No. 08/21 of 05 July on Prudential Requirements, on an individual and consolidated basis, quarterly, using the forms and filling notes attached to this Instruction.

Continuation of Instruction No. 07/2023 Page 4 of 78 5.2. For the purposes of the preceding paragraph, in the case of a financial group, the parent company must report the information, according to the consolidation perimeter provided for in Article 5.º of Notice No. 08/21 of 05 July on Prudential Requirements. 5.3. Institutions that, due to the nature of their activity, do not have information to report to the National Bank of Angola, must declare this fact using the forms attached to this Instruction. 5.4. Institutions must ensure that the data reported in the tables attached to this Instruction are properly documented.

6. Sanctions Non-compliance with the mandatory rules established in this Instruction constitutes an offense punishable under Law No. 14/21 of 19 May, Law on the General Regime of Financial Institutions.

7. Transitional Provisions 7.1. Institutions must comply with the provisions of this Instruction from 31 December 2021. 7.2. For the purposes of Annex I of this Instruction, risk positions on the central administration, notably the Angolan State and the National Bank of Angola, that are not denominated and funded in national currency, may be weighted at 20% (twenty percent) until December 2022, 50% (fifty percent) until December 2023, 75% (seventy-five percent) until December 2024, and must be in compliance with this Instruction from 01 January 2025. 7.3. For the purposes of subpoint 5.1 of this Instruction, Institutions must provide the information required in Article 30.º of Notice No. 08/21 of 05 July on Prudential Requirements, on an individual basis, monthly, and on a consolidated basis, quarterly, until August 2022.

Continuation of Instruction No. 07/2023 Page 5 of 78 7.4. Institutions must provide the information required in Article 30.º of Notice No. 08/21 of 05 July on Prudential Requirements, on an individual and consolidated basis, quarterly, from September 2022.

8. Doubts and Omissions Doubts and omissions resulting from the interpretation and application of this Instruction are resolved by the National Bank of Angola.

9. Repeal All regulations contrary to the provisions of this Instruction are hereby repealed, notably Instruction No. 15/2021 of 27 October on Calculation and Regulatory Capital Requirement for Credit Risk and Counterparty Credit Risk and Corresponding Periodic Reporting.

10. Entry into Force This Instruction enters into force on the date of its publication.

PUBLISH Luanda, 14 July 2023 THE GOVERNOR MANUEL ANTÓNIO TIAGO DIAS

CONTINUATION OF INSTRUCTION NO. 07/2023 Page 6 of 78 ANNEX I Calculation of the Risk-Weighted Amount

1. The regulatory capital requirement to cover credit risk must be 8% (eight percent) of the risk-weighted amount.
2. The risk-weighted amount must be calculated based on the weighting factors established in paragraph 7 of this Annex, multiplied by the value of risk positions, as defined in paragraph 5 of this Annex.
3. For the purposes of the preceding paragraph, the application of weighting factors is based on the risk class to which the risk position is assigned, in accordance with paragraph 6 of this Annex, and its credit quality, determined by reference to credit ratings from external rating agencies in accordance with Annex V of this Instruction.
4. Whenever a risk position is subject to credit protection, the applicable risk weight for that element may be modified in accordance with Annex IV of this Instruction.
5. The value of risk positions must be determined as follows: a) For asset risk positions, the value of the risk position corresponds to its book value in the balance sheet according to the Chart of Accounts for Banking Financial Institutions (PCIFB); b) Without prejudice to the provision in paragraph c) of this number, for off-balance sheet exposures, the risk position consists of the value resulting from multiplying its notional value by the following factors, according to the list in Table 1 of Annex II of this Instruction: i. 100% (one hundred percent) for high-risk elements; ii. 50% (fifty percent) for medium-risk; iii. 20% (twenty percent) for medium/low-risk; and

Continuation of Instruction No. 07/2023 Page 7 of 78 iv. 0% (zero percent) for low-risk; c) The value of the risk position of a derivative instrument included in the list of Table 2 of Annex II of this Instruction must be determined in accordance with the method described in paragraphs 5 to 7 of Annex III of this Instruction, with the effect of novation agreements and other netting agreements taken into account in the application of those methods, in accordance with paragraphs 8 to 10 of Annex III of this Instruction; d) For the purposes of the preceding paragraphs, assets directly deducted from capital, impairments, and other capital reductions related to the risk position element are excluded. e) Whenever a risk position is subject to credit risk reduction, the value of the risk position may be modified in accordance with Annex IV of this Instruction.

Identification of Risk Classes 6. Institutions must use the following risk classes to classify their risk positions: a) Public Entities This class is composed of the following subcategories: i. Central Administrations: include Governments and Central Banks when recognized by their respective Government; ii. Other Administrations:

1. Regional administrations or local authorities of a sovereign State;
2. Churches and religious communities, which take the form of a public law legal entity and have the right to levy taxes, are treated as other administrations. iii. Public Sector Entities:

Continuation of Instruction No. 07/2023 Page 8 of 78

1. Administrative bodies that are owned by central administrations or other administrations, or entities that, in the opinion of the National Bank of Angola, perform the same responsibilities as other administrations;
2. Non-commercial enterprises owned by central administrations that have specific guarantee agreements, which may include bodies with administrative authority under public supervision;
3. Non-profit legal entities of public or private law, resident or non-resident, are treated as public sector entities;
4. Enterprises majority-owned by the Angolan State. b) Organizations This class is composed of the following subcategories: i. International Organizations: include supranational bodies established by two or more sovereign States whose purpose is to mobilize financial assistance for the benefit of their members; ii. Multilateral Development Banks: include organizations, composed exclusively or mainly of sovereign States, that provide financial assistance and professional advice with the objective of promoting economic or social development activities in recipient countries. c) Institutions This class is composed of public or private law entities, resident or non-resident, with the nature of Financial Institutions as described in the terms and conditions provided for in the Law on the General Regime of Financial Activity and Institutions, with the exception of Financial Institutions linked to insurance activity.

Continuation of Instruction No. 07/2023 Page 9 of 78 d) Corporates This class is composed of private law entities, resident and non-resident, that carry out non-financial or non-insurance activity. e) Retail Portfolio i. The retail portfolio includes risk positions on individuals, or on small or medium-sized enterprises, which must cumulatively meet the following conditions:

1. The risk position must arise from credits and revocable credit lines (including credit cards and bank overdrafts), or individual credits (including auto credit and consumer credit), or credit lines and commitments with small or medium-sized enterprises.
2. The risk position must be one of a significant number of other risk positions, all with similar characteristics, such that when considering the risk associated with that position, it is significantly diversified.
3. The total amount due to the institution, considering its maturing and overdue values, towards the counterparty or group of interconnected counterparties, must not exceed the value of 700,000,000.00 AKZ (seven hundred million Kwanzas). ii. Lease transactions, excluding their respective residual value, contracted with individuals or with small or medium-sized enterprises, may be included in the retail portfolio. iii. Securities traded on the stock exchange are specifically excluded from this category. Mortgage credit is excluded as it is treated in a specific risk class. f) Risk Positions Secured by Real Estate This class is composed of risk positions secured, fully or partially, by real estate intended for the borrower's residence or leased by them, or by multi-purpose real estate intended for offices or commerce.

Continuation of Instruction No. 07/2023 Page 10 of 78 g) Overdue Elements i. Unsecured portion of any risk position that the institution considers that there is a reduced probability of the debtor fully meeting its obligations or whose maturity date occurred more than 90 (ninety) days ago and whose overdue value is above a limit of 15,000.00 AKZ (fifteen thousand Kwanzas), net of impairments and any values deducted from the book value; ii. The limit defined in the preceding point may be adjusted to the institution's reality whenever it can demonstrate to the National Bank of Angola that another value is more appropriate; iii. For the purposes of defining the secured portion of the risk position, risk reduction techniques eligible under Annex IV of this Instruction are permitted. h) Mortgage Bonds or Public Sector Bonds i. Mortgage bonds consist of bonds secured by mortgages, where the guarantee respects the conditions set out in Annex IV of this Instruction; ii. Public sector bonds consist of bonds secured by central administrations and other administrations, where the guarantee respects the conditions set out in Annex IV of this Instruction. i) Other Elements The remaining balance sheet and off-balance sheet exposures must be incorporated into this risk class.

ii) Risk Weights 7. Institutions must apply the following risk weights to their risk positions according to the classes to which they are associated, as provided for in the preceding paragraph:

Continuation of Instruction No. 07/2023 Page 11 of 78 a) Public Entities i. Central Administrations

1. A weight of 0% (zero percent) must be applied to risk positions, denominated and funded in national currency, on the central administration of Angola and the National Bank of Angola.
2. To risk positions on other central administrations for which a credit risk assessment has been established by an external rating agency, a risk weight must be applied in accordance with Table 01 of this Annex.

Table 01

Credit Quality Grade	1	2	3	4	5	6
Risk Weight	0%	20%	50%	100%	100%	150%

3. If the provisions in paragraphs 1 to 2 do not apply, a weight of 100% (one hundred percent) must be applied to risk positions on central administrations.
4. When the competent authorities of a third country, with regulation and supervision equivalent to those applied by the National Bank of Angola, assign a risk weight lower than indicated in paragraphs 2 to 3 to risk positions on their central administration or central bank, denominated and funded in their national currency, institutions may apply the same weight to those risk positions, except when the National Bank of Angola determines a more restrictive risk weight.

Continuation of Instruction No. 07/2023 Page 12 of 78 ii. Other Administrations

1. Risk positions on regional administrations or local authorities may be treated as positions on central administrations when there is no difference in their risk due to the existence of specific powers of regional administrations or local authorities regarding tax collection and/or institutional agreements that reduce their default risk.
2. For the purposes of the preceding paragraph, the National Bank of Angola maintains a publicly available database of all regional administrations or local authorities considered as risk positions on central administrations.
3. When the competent authorities of a third country, with regulation and supervision equivalent to those applied by the National Bank of Angola, treat risk positions on their regional administrations or local authorities as risk positions on their respective central administration, institutions may apply the central administration weight to risk positions on other regional administrations or local authorities.
4. To risk positions on other administrations of Angola, that are not referred to in paragraphs 1 or 3 and that are denominated and funded in national currency, a weight of 20% is applied.
5. If the provisions in paragraphs 1 to 4 do not apply, risk positions on other administrations are treated as positions on Institutions. iii. Public Sector Entities
6. To risk positions on public sector entities, for which no credit assessment has been established by a recognized external rating agency, a risk weight must be applied according to the credit quality grade assigned to risk positions on the central administration of the jurisdiction where the public sector entity is established, in accordance with Table 02.

Continuation of Instruction No. 07/2023 Page 13 of 78 Table 02

Credit Quality Grade of Central Administration	1	2	3	4	5	6
Risk Weight	20%	50%	100%	100%	100%	150%

2. For risk positions on public sector entities, for which no credit assessment has been established for the public sector entity and the central administration is not rated, a risk weight of 100% (one hundred percent) is applied.
3. Risk positions on public sector entities for which a credit assessment has been established by an external rating agency are treated as positions on institutions.
4. In exceptional cases, risk positions on public sector entities may be treated as risk positions on the central administration whenever, upon request by Institutions, the National Bank of Angola considers that there are no differences in the risk of these types of positions, as a result of an appropriate guarantee provided by the central administration.
5. When the competent authorities of a third country, with regulation and supervision equivalent to those applied by the National Bank of Angola, treat risk positions on public sector entities as risk positions on their respective central administration, Institutions may apply the

Continuation of Instruction No. 07/2023 Page 14 of 78 central administration weight to risk positions on public sector entities. b) Organizations i. a weight of 0% (zero percent) must be applied to risk positions on international organizations and multilateral development banks mentioned in Annex VI of this Instruction. ii. if the provision in the preceding point does not apply, risk positions on multilateral development banks are treated as positions on Institutions. iii. if the provision in point i. of this paragraph does not apply, risk positions on international organizations are treated as positions on Corporates. c) Institutions i. to risk positions on institutions, for which a credit risk assessment has been established by an external rating agency, a weight must be applied in accordance with Table 03.

Table 03

Credit Quality Grade	1	2	3	4	5	6
Risk Weight	20%	50%	50%	100%	100%	150%

ii. if the provision in the preceding point does not apply, to risk positions on Institutions a weight of 100% (one hundred percent) must be applied. iii. if the risk weight assigned to risk positions on the central administration of the country where the institution is established differs from that presented in points i. or ii. of this paragraph, as applicable, the higher of the weights must always be assigned.

Continuation of Instruction No. 07/2023 Page 15 of 78 iv. to risk positions on Institutions with an initial maturity not exceeding 3 (three) months, for which a short-term credit risk assessment has been established by an external rating agency, a weight must be applied in accordance with Table 04.

Table 04

Credit Quality Grade	1	2	3	4	5	6
Risk Weight	20%	20%	20%	50%	50%	150%

v. whenever the assessment mentioned in the preceding point is not available, a weight of 20% (twenty percent) must be applied. d) Corporates i. to risk positions on corporates, for which a credit risk assessment has been established by an external rating agency, a weight must be applied in accordance with Table 05.

Table 05

Credit Quality Grade	1	2	3	4	5	6
Risk Weight	20%	50%	100%	100%	150%	150%

ii. if the provision in the preceding point does not apply, to risk positions on corporates a weight of 100% (one hundred percent) must be applied. iii. if the risk weight assigned to risk positions on the central administration of the country where the company is established differs