Notice No. 21/2020 of 16 October

PUBLISHED IN THE OFFICIAL GAZETTE, 1ST SERIES, NO. 170, OF 26 OCTOBER NOTICE NO. 21/2020 of 16 October SUBJECT: FINANCIAL SYSTEM

• Deferral of Impairment Recognition for Public Debt Securities of the Republic of Angola recorded in the Balance Sheets of Banking Financial Institutions

Whereas the Banco Nacional de Angola determined the adoption of international accounting and financial reporting standards by Banking Financial Institutions, particularly the implementation of IFRS 9 since December 2018, which established a more prospective method for recognizing expected losses in their balance sheets, and further defined through Instruction No. 12/2019 of 28 August, combined with Directive No. 13/DSB/DRO/2019 of 27 December, the criteria to be observed in determining impairment losses for public debt securities;

Whereas, equally, the worsening of macroeconomic prospects resulting from the COVID-19 pandemic increased credit risk and, consequently, the unexpected increase in impairments to be recorded by Banking Financial Institutions;

There is an urgent need to implement transitional measures for the recognition of these impairments, so that they do not cause a sudden decrease in the Regulatory Own Funds of Banking Financial Institutions, with negative effects on the financial system and on national economic financing;

Under the combined provisions of paragraphs d) and e) of paragraph 1 of Article 21, and paragraph 1 of Article 51, both of Law No. 16/10 of 15 July - Banco Nacional de Angola Act.

I DETERMINE: Article 1. (Object)

1. This Notice establishes the terms and conditions to be observed for the deferral of recognition of impairments established and recorded by banking financial institutions regarding public debt securities of the Republic of Angola, for the purpose of calculating Regulatory Own Funds (ROF).
2. For the purposes of the preceding paragraph, the deferral subject to this Notice applies only to any adjustments that may be made for calculating Regulatory Own Funds.

Article 2. (Scope) This Notice applies to banking financial institutions that conduct credit activities, under the terms and conditions provided in the Framework Law of Financial Institutions, hereinafter abbreviated as Institutions.

Article 3. (Deferral of the Impact of Impairment Losses on the Portfolio of Public Debt Securities)

1. Institutions may defer the impact of impairment losses on their portfolio of public debt securities of the Republic of Angola in calculating Regulatory Own Funds for the current 2020 financial year, due to a significant and extraordinary increase in credit risk for these securities resulting from the impact of COVID-19.
2. For the purposes of the preceding paragraph, prior authorization from the Banco Nacional de Angola is required for deferring the impact of impairment losses on the portfolio of public debt securities of the Republic of Angola.
3. Institutions opting for deferring the impact of impairment losses must submit to the Banco Nacional de Angola, by 31 December 2020, a detailed action plan quantifying the impacts and describing the measures they intend to implement to comply with this Notice, including how the institution will cover capital shortfalls and the deferral period.
4. If, within the maximum granted period, deferring impairments proves insufficient to prevent the institution from incurring capital shortfalls and/or non-compliance with the Regulatory Solvency Ratio (RSR) from implementation throughout its duration, the aforementioned action plan must provide full coverage of the Institution's capital shortfalls, applying in this regard the provisions regarding the mandatory compliance with the minimum value of Regulatory Own Funds and the Regulatory Solvency Ratio in force at any given time.
5. Institutions must ensure that the treatment of deferred tax assets potentially recorded due to the differentiated treatment of impairment losses for these securities for accounting and fiscal purposes does not result in double counting of the benefit when calculating ROF, and in such cases must apply necessary adjustments to eliminate this duplication.

Article 4. (Conditions for Deferred Recognition of Impairments)

1. Institutions may defer the recognition of impairment losses if, upon immediate full recognition of these impairments, the Regulatory Solvency Ratio (RSR) remains: a) Below 10%; b) Above 10%, but at a sufficiently low level that limits the Institution's capacity to finance the economy.
2. If, during the permitted deferral period, institutions whose Regulatory Solvency Ratio reaches a sufficiently high value making deferred recognition unnecessary, may opt to discontinue this practice, provided they notify the Banco Nacional de Angola.
3. Institutions may not reapply the deferral of recognition of the impairments referred to in this Notice at a later date after deciding to discontinue deferral, as per the preceding paragraph.

Article 5. (Impact on ROF of Deferring Recognition of Additional Impairments) The non-deferred portion of the impairment calculated in accordance with Article 7 of this Notice is considered an element to be deducted from Regulatory Own Funds throughout the deferral period, cumulatively, as provided in Article 5 of Notice No. 02/2016 of 15 June.

Article 6. (Deferral Period for Impact) For the purposes of the preceding article, the maximum deferral period for the impact of impairment losses on the credit portfolio in public debt securities of the Republic of Angola is 3 (three) years, counting from the date of authorization.

Article 7. (Linear Method) Institutions must defer the impact of impairment losses on the credit portfolio in public debt securities of the Republic of Angola using the linear method.

Article 8. (Information Disclosure) Institutions must disclose to information users, through their annual financial statements, the amount of Regulatory Own Funds before and after deferring the impact of impairment losses on the portfolio of public debt securities of the Republic of Angola.

Article 9. (Sanctions) Violation of the provisions contained in this Notice constitutes an offense provided for and punishable under Law No. 12/15 of 17 June, the Framework Law of Financial Institutions.

Article 10. (Regulation) The Banco Nacional de Angola may establish additional requirements or issue technical instructions it deems necessary for implementing the provisions of this Notice.

Article 11. (Doubts and Omissions) Doubts and omissions resulting from the interpretation and application of this Notice are resolved by the Banco Nacional de Angola.

Article 12. (Entry into Force) This Notice enters into force on the date of its publication.

PUBLISHED. Luanda, 16 October 2020. THE GOVERNOR JOSÉ DE LIMA MASSANO