Instruction No. 028-11-2016 on Accounting for Received Commissions and Marginal Transaction Costs

The Governor of the Central Bank of West African States (BCEAO), Having regard to the Treaty of the West African Monetary Union (UMOA) dated January 20, 2007, particularly Article 34; Having regard to the Statutes of the Central Bank of West African States (BCEAO), annexed to the UMOA Treaty dated January 20, 2007, particularly Articles 30, 31, 32, 33 and 34; Having regard to the Uniform Act on banking regulation, particularly Articles 50, 51, 52, 53 and 54; Having regard to Decision No. 357-11-2016 of November 15, 2016 establishing the Revised UMOA Banking Chart of Accounts and its related annex, particularly Articles 78 and 95, HEREBY DECIDES:

Chapter 1: General Provisions

Article 1 In application of the provisions of the Revised UMOA Banking Chart of Accounts, banks and financial institutions with a banking character, hereinafter referred to as subject institutions, record in their accounts, under the conditions provided by this Instruction, received commissions and marginal transaction costs incurred upon granting or acquiring a credit facility.

Article 2 For the purposes of this Instruction, the following terms mean: 1°) Commissions: amounts received as remuneration for services rendered; Avenue Abdoulaye FADIGA BP 3108 – Dakar - Sénégal Tél. : (221) 33 839 05 00 / Fax : (221) 33 823 93 35 www.bceao.int INSTRUCTION NO. 028 - 11 - 2016 ON ACCOUNTING FOR RECEIVED COMMISSIONS AND MARGINAL TRANSACTION COSTS IN CONNECTION WITH THE GRANTING OR ACQUISITION OF A FINANCIAL CREDIT FACILITY The Governor

2°) Marginal transaction costs: costs that would not have been incurred if the subject institution had not granted or acquired the credit exposure; 3°) Effective interest rate: the discount rate that equates the sum of cash outflows and inflows regarding the granting or acquisition of a credit with the present value of contractual cash flows to be received from the counterparty over the effective life of that exposure. It is determined at inception, i.e., upon granting or acquiring the credit.

Article 3 Marginal transaction costs include in particular: – specific remuneration paid to employees acting as sales agents; – fees and commissions paid to banking transaction intermediaries; – advisory fees.

Article 4 Marginal transaction costs do not include internal administrative costs and, in particular, fixed internal costs related to the salaries of the staff of the institution granting the credit, head office expenses, and the financing cost of the credit granted by the subject institution. Furthermore, marginal transaction costs borne by the institution and recharged identically, as well as commissions received in respect of such recharge, are excluded from the spreading mechanism prescribed in Article 7 of this Instruction and recorded directly in the income statement.

Article 5 The following are excluded from the scope of this Instruction: – received commissions and marginal costs that constitute remuneration, or expenses associated with providing the client with an additional service exceeding services essential to establishing and managing the financing transaction; – fees recovered by the subject institution from the borrowing client on behalf of a third party.

Article 6 The following cash outflows and inflows are included in determining the effective interest rate: – commissions received by the subject institution as creditor; – marginal transaction costs incurred by the subject institution as creditor.

Chapter 2: Accounting Principles

Article 7 Received commissions and marginal transaction costs are spread over the effective life of the credit according to the actuarial method or the alternative method, set out respectively in Articles 8 and 9 below. The method used must be applied uniformly and consistently, in accordance with the principle of consistency of methods. Any modification constitutes a change of method and must be justified.

Article 8 The actuarial method consists of spreading received commissions and marginal transaction costs at the effective interest rate over the effective life of the credit.

Article 9 The alternative method consists of spreading received commissions and marginal transaction costs over the effective life of the credit, either linearly or in proportion to the outstanding capital.

Chapter 3: Rules Applicable in Case of Modification of Contractual Conditions or Transfer of Credit Exposures

Article 10 In the event of commercial renegotiation of the contractual conditions of the credit exposure, whether at the level of the exposure rate or its term, a new exposure is deemed to have arisen. Consequently, the remaining portion of received commissions and marginal transaction costs to be spread is recorded in the income statement on the date of such renegotiation, regardless of the method used by the subject institution. In the event of renegotiation of the contractual conditions of the credit exposure due to the debtor's financial situation: – commissions and marginal transaction costs continue to be spread based on the new schedule, according to the original effective rate, if the subject institution uses the actuarial method; – a new commission spreading plan is determined based on the new contractual schedule resulting from restructuring, if the subject institution uses the alternative method.

Article 11 In the event of a transfer of a credit exposure, the remaining received commissions and marginal transaction costs to be spread are recorded in the income statement on the date of transfer.

Chapter 4: Rules Regarding Presentation in the Income Statement and Balance Sheet

Article 12 Received commissions and marginal transaction costs that are subject to spreading are: – integrated into the relevant credit exposure at the balance sheet level; – presented as net interest income in the net banking product.

Article 13 The subject institution indicates, in the notes to the financial statements, the method used for accounting for received commissions and marginal transaction costs.

Chapter 5: Final Provisions

Article 14 This Instruction repeals and replaces all prior provisions dealing with the same subject matter. It enters into force on January 1, 2018 and will be published where necessary. Done at Dakar, November 15, 2016 Tiémoko Meyliet KONE