COBAC Regulation R-93/02 on Net Own Funds of Credit Institutions

COBAC REGULATION R-93/02 ON NET OWN FUNDS OF CREDIT INSTITUTIONS The Central African Banking Commission, Having regard to the Convention of 16 October 1990 establishing a Central African Banking Commission; Having regard to Article 9, paragraph I of the annex to the Convention of 16 October 1990; HAS DECIDED:

Article 1 Net own funds consist of the sum of basic own funds and assimilated resources as defined in Articles 2 and 3, from which the claims and participations referred to in Article 5 are deducted. When own funds calculation must be performed on a consolidated basis, the rules set forth in Article 5 apply.

Article 2 Basic own funds consist of the sum of the items listed in point (a), less the items listed in point (b). a) The following are included: - share capital, - share premiums, - reserves, - retained earnings (credit balance), - equipment grants and other grants, public or private, definitively acquired. - financing and guarantee funds, consisting of own resources derived from the allocation of profits, external donations, or parafiscal taxes. - provisions for general banking risks, excluding any provision allocated to covering defined, probable, or certain expenses or risks. - the result of the last closed financial year, approved by competent bodies and certified by statutory auditors pending its allocation, reduced by anticipated dividend distributions.

Basic own funds may additionally include profits determined at interim dates, provided that: - they are calculated after accounting for all expenses related to the period and allocations to amortization and provision accounts; - they are calculated net of anticipated taxes; - and they are certified by statutory auditors.

In addition to the share capital of credit institutions established as commercial companies, amounts that serve as or are assimilated to share capital under applicable legislation are considered as capital in the accounting of institutions governed by a special status, notably definitively acquired allocations or fixed or variable capital represented by effectively paid-up partnership shares or cooperative investment certificates. b) The following are deducted: - the unpaid portion of share capital, - treasury shares held, valued at their book value, - retained earnings (debit balance), - intangible assets, including establishment costs and goodwill, - pending losses, - where applicable, deficit results determined at interim dates, - dividends to be distributed, - supplementary provisions to be established for asset depreciation or non-recovery risks, or for various expenses and losses.

Article 3 Assimilated resources included in own funds comprise: a) Revaluation reserves, subject to certification by statutory auditors. b) Items meeting the following conditions:

• they may be freely used by the regulated institution to cover risks normally associated with banking activities, when losses or unrealized losses have not yet been identified;
• they are recorded in the institution's accounts;
• their amount is verified by statutory auditors. The latent reserve arising in the financial accounting of credit lease or hire purchase operations may notably be included among these items. c) Funds originating from partners' accounts, loans, or the issuance of securities, meeting the following conditions:
• they may only be repaid at the borrower's initiative and with prior approval of the Secretary General of the Banking Commission;
• the issuance or loan contract grants the regulated institution the option to defer interest payments;
• the lender's claims on the regulated institution are subordinated to those of all other creditors.
• the issuance or loan contract provides that the debt and unpaid interest are capable of absorbing losses, enabling the regulated institution to continue its operations.
• only actually received amounts are taken into account. d) Funds originating from the issuance of securities or subordinated loans that, without meeting the conditions listed in point (b), meet the following: The initial contract duration must be at least five years; if no maturity is fixed, the debt may only be repaid upon giving a five-year notice, unless it has ceased to be considered own funds with prior approval of the Secretary General of the Banking Commission;
• prior approval of the Secretary General of the Banking Commission is formally required to proceed with early repayment;
• the loan contract does not contain a clause stipulating that, in circumstances other than the liquidation of the regulated institution, the debt must be repaid before the agreed maturity;
• in the event of liquidation of the regulated institution, these securities or loans may only be repaid after settlement of all other debts existing at the date of liquidation or contracted for its needs. Only actually received amounts are taken into account. Furthermore, the amount eligible for inclusion in own funds is progressively reduced over the last five years prior to maturity, according to a pre-established schedule.

Article 4 Assimilated resources may be included in the own funds calculation only up to the amount of basic own funds.

Article 5 Participating securities in credit institutions - regulated or foreign - as well as participatory and subordinated loans granted to said institutions under the conditions set out in points (c) and (d) of Article 3, are deducted from the amount of own funds and assimilated resources.

Article 6 Regulated institutions declare the composition of their own funds to the Banking Commission according to the model established by instruction. The Secretary General of the Banking Commission may object to the inclusion of certain items if he considers that the conditions listed in Articles 2 and 3 are not satisfactorily met.

Article 7 The Banking Commission may temporarily authorize a regulated institution to exceed, under exceptional circumstances, the limits set in Article 4, granting it a deadline to regularize its situation.

Article 8 The President of the Banking Commission specifies by instruction the equivalences between the line items in currently valid periodic documents and the elements defined in this regulation.

Article 9 This regulation, which enters into force on 1 July 1993, applies to credit institutions covered by the Convention of 16 October 1990 establishing a Central African Banking Commission.

Article 10 The Secretary General of the Banking Commission is responsible for the execution of this regulation.

For the Banking Commission, The President, Jean-Félix MAMALEPOT