INSTRUCTION NO. 001/2000-CSBF ON AVAILABLE OWN FUNDS OF CREDIT INSTITUTIONS

INSTRUCTION NO. 001/2000-CSBF ON AVAILABLE OWN FUNDS OF CREDIT INSTITUTIONS

The Banking and Financial Supervision Commission (CSBF) of the Republic of Madagascar, Having regard to Law No. 95-030 of February 22, 1996, concerning the activity and supervision of credit institutions, particularly Articles 22 regarding the representation of minimum capital for credit institutions, and Article 41 regarding management standards and prudential rules that these institutions must comply with to ensure their liquidity, solvency, and financial structure balance, D E C I D E S

ARTICLE 1. The Available Own Funds serving as the reference basis for calculating the various ratios established by the Commission under the management standards and prudential rules imposed on credit institutions consist of the sum: • of own funds defined in Article 2, • and funds assimilated to own funds defined in Article 3, within the limit set forth in Article 4, • subject to the deduction of claims and participations referred to in Article 5.

ARTICLE 2. Own funds consist of the sum of the elements listed in Point a), minus the elements listed in Point b). a) The following are included: • capital and funds assimilated to it, • capital premiums, • reserves, other than revaluation reserves for non-depreciable assets, • carried forward credit balance, • provisions with a reserve character. Excluded are any provisions allocated to cover identified, probable, or certain expenses or risks, and regulated provisions corresponding to the revaluation difference for deprecable assets, • the result of the last closed financial year, pending its allocation.

Capital is considered to include, in addition to the social capital of credit institutions established as commercial companies, amounts that substitute for or are assimilated to it, in accordance with current legislation, particularly: • permanently acquired endowments, • other non-refundable and unallocated funds received from natural or legal persons holding shares in the institution, particularly social shares, membership rights, and periodic contributions from members of mutual financial institutions, or from public or private lenders, namely permanently acquired donations received from them.

b) The following are deducted: • the amount of called but unpaid capital and the amount of uncalled capital, • treasury shares held and other elements with a own-funds character issued by the institution and held by it, at their net book value, • carried forward balance when it is a debit, • intangible fixed assets, including goodwill, • establishment costs, • expenses to be allocated over several financial years under the Accounting Plan, unless expressly agreed by the CSBF Secretary General, • pending losses, • dividends, rebates, or bonuses on social shares provided for in the result of the last closed financial year, • where applicable, supplementary provisions to be set aside for probable or certain risks, identified notably during the annual audit of accounts and portfolio or by the CSBF following an investigation.

The repayment of social shares may only be carried out if the credit institution's situation regarding prudential standards permits it.

ARTICLE 3. Funds assimilated to own funds include: a) Revaluation results recorded in reserves and provisions, subject to their certification by statutory auditors or equivalent bodies; b) Elements meeting the following conditions: • they can be freely used by the regulated institution to cover risks normally associated with banking activities, when losses or depreciation have not yet been identified; • they are recorded in the institution's accounts; • their amount is verified by statutory auditors or equivalent bodies.

The following may notably be included among these elements: • equipment subsidies received, • donations from public or private lenders, whose final allocation to the beneficiary institution remains conditional but whose potential withdrawal is subject to compliance with prudential standards, • fully mutualized guarantee funds under the Accounting Plan, namely guarantee funds held by an institution and intended to cover all risks incurred on its balance sheet and off-balance sheet operations, c) Funds from shareholders' accounts, loans, or the issuance of securities, which meet all of the following conditions: • they can only be repaid at the borrower's initiative and with prior agreement from the CSBF Secretary General, • they cannot be offset against the institution's assets and claims vis-à-vis the lender, • they are freely available to the institution, without being allocated by the lender to finance and/or guarantee specific operations, • the issuance or loan contract grants the regulated institution the option to defer interest payments, • the lender's claims against the regulated institution are subordinated to those of all other creditors, • the issuance or loan contract provides that unpaid debt and interest can absorb losses, enabling the regulated institution to continue its operations.

Only actually received amounts are taken into account. d) Funds from shareholders' accounts, loans, or the issuance of securities that meet all of the following conditions, within the limit set forth in paragraph 2 of Article 4: • they are freely available to the institution, without being allocated by the lender to finance and/or guarantee specific operations, • they cannot be offset against the institution's assets and claims vis-à-vis the lender, • in the event of liquidation of the regulated institution, these securities or loans can only be repaid after settlement of all other debts existing at the date of liquidation or contracted for its needs; • funds must be made available to the institution for a minimum duration of five years without being callable before this term. If no maturity is set, the debt can only be repaid upon five years' prior notice, unless it ceases to be considered own funds or prior CSBF agreement is formally required for early repayment. The CSBF Secretary General may authorize early repayment provided the request was made at the issuer's initiative and the regulated institution's solvency is not affected; • the loan contract does not contain a clause stipulating that, in circumstances other than liquidation of the regulated institution, the debt must be repaid before the agreed maturity.

Only actually received amounts are taken into account. Furthermore, the amount eligible for inclusion in funds assimilated to own funds, subject to the limit set forth in Article 4, is reduced by one-fifth per year from the fifth year preceding the closest final maturity, in case the termination clause provides for an early termination option.

ARTICLE 4. Funds assimilated to own funds under Article 3 may not be included in available own funds beyond the amount of own funds defined in Article 2. Funds eligible for inclusion in funds assimilated to own funds under point d) of Article 3 may not be included beyond a limit of 50 percent of the own funds defined in Article 2.

ARTICLE 5. Participation securities in regulated credit institutions, as well as funds made available to them and included in their own funds under points c) and d) of Article 3, are deducted from the amount of own and assimilated funds. The same regime applies to participations held in foreign credit institutions and assets held in these institutions under one of the forms referred to in points c) and d) of Article 3, unless the concerned institution demonstrates that these elements are not included in the beneficiary's own funds by the banking supervision authority.

ARTICLE 6. For the application of Article 22 of Law No. 95-030, available own funds must at all times be at least equal to the minimum capital imposed on the institution.

ARTICLE 7. Regulated institutions declare the composition of their own funds to the CSBF General Secretariat according to the model set forth in the annex. For institutions affiliated with a central body, the declaration is made (i) for the central body insofar as it has financial activity and (ii) on a consolidated basis for groups of institutions within the same network, namely institutions linked by mechanisms leading to collective coverage of individual defaults. A declaration is made for each affiliated institution not linked by financial solidarity. Furthermore, networks provide the CSBF once a year with significant financial data for each institution. Consolidated own funds are determined by deducting from the total of individual own funds of institutions included in the consolidation scope, funds originating from other institutions within this scope, except for permanent endowments recorded as expenses by the provider. The central body organizes the preparation of the declarations provided in the preceding paragraph and ensures their transmission to the CSBF General Secretariat.

ARTICLE 8. Declarations are prepared based on figures finalized at the end of each financial year and, exceptionally for the first time, based on accounts finalized as of December 30, 1999. They are submitted to the CSBF General Secretariat attached to end-of-year accounting documents. A special declaration must be made in case of modification of the capital amount or in case of an event that increases or decreases available own funds by 10 percent or more. Mutual financial institutions are exempt from establishing said declaration. For newly regulated credit institutions pending approval and already in operation, the first declaration must be made within one month from the date of approval. For institutions to be approved, the first declaration must be made within one month following the date of commencement of operations. This declaration must be accompanied by the opening balance sheet prepared according to the model provided by the Accounting Plan. Attached to these declarations are all supporting documents and appreciation elements useful regarding the elements selected under points b), c), and d) of Article 3, notably the instruments governing the operation of guarantee funds included under point b) and the agreements for making available funds included under points c) and d).

ARTICLE 9. The Commission may oppose by reasoned decision the inclusion of certain elements in own funds or assimilated funds if it considers that their characteristics or determination conditions do not allow for inclusion. The concerned institution is notified of the Commission's referral by the CSBF Secretary General. Until the Commission rules, the elements in question may not be included in available own funds.

ARTICLE 10. This Instruction, which repeals Central Bank Instruction No. 008/CR/94 of May 11, 1994, concerning available own funds of banks and financial institutions, enters into force upon its notification to the Professional Association of Credit Institutions. Done in Antananarivo, on February 1, 2000 For the Banking and Financial Supervision Commission, THE PRESIDENT, Gaston RAVELOJAONA.