Notice No. 12/2014 of 17 December on the Establishment of Provisions

Published in the Official Gazette, First Series, No. 221, of 17 December

NOTICE No. 12/2014

SUBJECT: ESTABLISHMENT OF PROVISIONS

Whereas it is necessary to review the provisioning practices and policies that must be adopted by financial institutions subject to the supervision of the Bank of Angola;

Considering the importance of the adequate framework for provisions for prudential purposes, taking into account the development of the Angolan financial system;

Therefore, and in the exercise of the combined provisions of item e) of Article 77 of Law No. 13/05 of 30 September - Law of Financial Institutions, and Article 51 of Law No. 16/10 of 15 July - Law of the Bank of Angola.

I DETERMINE:

Article 1 (Object) This Notice regulates the process of establishing provisions by financial institutions.

Article 2 (Scope) 1 - The provisions contained in this Notice apply to financial institutions under the supervision of the Bank of Angola, under the terms and conditions provided for in the Law of Financial Institutions, hereinafter abbreviated as institutions.

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2 - The institutions referred to in the previous paragraph must implement the rules defined in this Notice from 1 January 2016.

Article 3 (Definitions) Without prejudice to the definitions established in the Law of Financial Institutions and the Chart of Accounts Manual for Financial Institutions (CONTIF), for the purposes of this Notice, the following are understood:

1. Parent Company: a legal entity that exercises a relationship of control or group relative to another legal entity, designated as a subsidiary, when one of the following situations occurs: a) Institutions authorized by the Bank of Angola; b) Management companies of shareholdings subject to the supervision of the Bank of Angola as provided for in the Law of Financial Institutions.

2. Public Entities: Institutional sector composed of the following subcategories: a) Central Administrations: Governments and Central Banks when recognized by their respective Governments; b) Other Administrations: Regional administrations or local authorities of a sovereign State; c) Public Sector Entities: Non-commercial administrative bodies owned by central administrations or other administrations, or entities that, in the opinion of the Bank of Angola, exercise the same responsibilities as other administrations, or non-commercial companies owned by central administrations that have specific guarantee agreements, which may include bodies with administrative authority under public supervision.

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3. Financial Group: a set of resident and non-resident companies that have the nature of banking and non-banking financial institutions, with the exception of financial institutions linked to insurance and social security activities, in which there is a relationship of control by a parent company supervised by the Bank of Angola over the other companies included.

4. Market: any secondary, liquid, transparent, and regularly functioning market, with quotations or reference prices known by its participants. Organized markets, where transactions are carried out in a structured manner and according to precise rules, constituted, maintained, and developed by financial intermediaries who recurrently announce buying and selling prices.

5. Risk Position: exposure related to an asset, an off-balance sheet item, or a financial derivative instrument, plus profits of any nature not received that are reflected accounting-wise as amounts receivable, regardless of whether they are due or overdue, in accordance with the criteria of the Chart of Accounts Manual for Financial Institutions.

6. Provision: amount constituted by institutions to cover potential losses in risk positions.

7. Credit Restructuring: extension, renewal, refinancing, renegotiation of credits, or any procedure that alters partially or fully any conditions originally agreed in the contract.

8. Relationship of Control or Group: "relationship of control" as defined in the Law of Financial Institutions.

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9. Overdue Amounts: payments of principal or interest of a credit operation or other financial applications not fulfilled on the contractually agreed dates.

Article 4 (Establishment of Provisions) Institutions must establish provisions for risk positions in accordance with the methodologies for establishing provisions established in specific regulations.

Article 5 (Risk Mitigants)

1. Real and personal guarantees received by institutions that meet the eligibility criteria established in Notice No. 10/2014, of 3 December, on characteristics and requirements of received guarantees, are eligible as risk mitigants in the establishment of provisions.

2. The guarantees referred to in the previous paragraph may be considered for purposes of reducing provisioning, in order to allow the application of more favorable risk weights.

Article 6 (Exemptions) Certain risk positions classified with risk level A, which meet the characteristics set out in Notice No. 11/2014, of 3 December, on specific requirements for credit operations, are exempt from the establishment of provisions.

Article 7 (Subsidiaries) For the purpose of the country risk weight of the risk position, the Bank of Angola may establish, on a case-by-case basis, that subsidiaries majority-owned and/or where there is a relationship of control are considered resident in the country or territory where the parent company is headquartered, and that branches are resident in the country or territory where the headquarters of the respective financial institution is located.

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Article 8 (Application Base)

1. Institutions must apply the provisions contained in this Notice to their activity on an individual basis.

2. Without prejudice to the provisions of the previous paragraph, institutions and management companies of shareholdings that are parent companies of financial groups as provided for in Notice No. 3/2013, of 22 April, on prudential consolidation, must apply the provisions contained in this Notice to the activity of the financial group they are part of on a consolidated basis, ensuring for this purpose the coherence and alignment of provisioning methodologies.

Article 9 (Provisioning in Case of Credit Restructuring)

1. For the purposes of calculating provisions, in the event of a credit restructuring process, the counting periods of days of delay in the overdue credit situation are only interrupted if the following circumstances are met: a) The current contractual conditions are fully fulfilled until the restructuring, notably regarding the payment of interest, principal installments, and other overdue charges; b) The amount of the restructured credit is not greater than or equal to the global exposure amount at the date immediately preceding the moment of restructuring, considering the debt capital, interest, and guarantees; c) The amount of the restructured credit cannot be used to pay any amounts of overdue credit.

Article 10 (Additional Provisions) The Bank of Angola may require the reinforcement of provisions established in accordance with the provisions of this Notice whenever it considers that circumstances justify it.

Article 11 (Sanctions) Non-compliance with the mandatory norms established in this Notice constitutes an offense punishable under the terms of the Law of Financial Institutions.

Article 12 (Doubts and Omissions) Doubts and omissions arising in the interpretation and application of this Notice are resolved by the Bank of Angola.

Article 13 (Revocation) Until 31 December 2015, the provisions of Article No. 13 of Notice No. 3/2012 of 28 March remain in force.

Article 14 (Entry into Force) This Notice enters into force on 01 January 2015.

PUBLISH.

Luanda, 10 December 2014.

THE GOVERNOR

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JOSÉ DE LIMA MASSANO