Notice No. 01/GBM/2016, of June 4 - Amendment to the Regulation on the Calculation and Establishment of Mandatory Reserves

Bank of Mozambique Governor

AVISO N.º 01/GBM/2016 Maputo, June 1, 2016

SUBJECT: REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

In order to adjust the rules for calculating and establishing mandatory reserves to the country's current macroeconomic situation and emerging international market challenges, the Bank of Mozambique, pursuant to Article 27 of Law No. 1/92 of January 3 (Organic Law of the Bank), determines:

1. The Regulation on the Calculation and Establishment of Mandatory Reserves, attached hereto, is approved, forming an integral part of this Notice.

2. This Notice takes effect from the mandatory reserve establishment period, which begins on June 7, 2016.

3. Notice No. 12/GBM/2015 of December 7 is revoked.

Any doubts arising from the interpretation and application of this Notice shall be submitted to the Markets and Reserve Management Department of the Bank of Mozambique.

(Signature) Ernesto Gouveia Gove Governor

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Bank of Mozambique Governor

REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

CHAPTER I SUBJECT MATTER AND SCOPE

Article 1 Subject Matter

This Regulation establishes the rules for calculating and establishing mandatory reserves.

Article 2 Scope of Application

1. This Regulation applies to all credit institutions provided for in Law No. 15/99 of November 1, as amended by Law No. 9/2004 of July 21 (Law on Credit Institutions and Financial Companies), holding liabilities referred to in Article 4 of this Regulation and monetary assets with the Bank of Mozambique.

2. Credit institutions not authorized to accept public deposits are exempt from the provisions of the preceding paragraph.

CHAPTER II CALCULATION AND ESTABLISHMENT

Article 3 Currencies for Establishment

Mandatory reserves are established:

a) In meticais, for deposits denominated in national currency; and b) In US dollars, for deposits denominated in foreign currency.

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Bank of Mozambique Governor

Article 4 Liabilities Subject to Levy

1. The following liabilities constitute the levy base for Mandatory Reserves, as detailed in the attached Mandatory Reserve Calculation Schedules, which form an integral part of this Regulation:

a) Resident deposits; b) Non-resident deposits; and c) Government deposits.

2. The liabilities referred to in the preceding paragraph must be segregated by national and foreign currency.

Article 5 Calculation of the Levy Base

1. The levy base for mandatory reserves is calculated from the simple arithmetic mean of the balances of the liabilities referred to in the preceding article, observed over the calculation period.

2. The calculation periods for the levy base are, each month:

a) 1st Period - from the 1st to the 15th; and b) 2nd Period - from the 16th to the last day of each month.

3. For the purpose of calculating the levy base, deposits denominated in other foreign currencies are converted daily into their US dollar equivalent, using the prevailing valuation exchange rate.

4. The US dollar value of the deposits referred to in the preceding paragraph is calculated by applying the following conversion factor:

$F_{USD} = \frac{Taxa_{ME}}{Taxa_{USD}}$

5. In the formula above:

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Bank of Mozambique Governor

a) $F_{USD}$ is the conversion factor to the US dollar; b) $Taxa_{ME}$ is the daily valuation exchange rate of the foreign currency to be converted; and c) $Taxa_{USD}$ is the daily valuation exchange rate of the US dollar.

Article 6 Levy Rate

The levy base referred to in the preceding article is subject to daily minimum rates, fixed at:

a) 10.50%, for the levy base in national currency. b) 15.00%, for the levy base in foreign currency.

Article 7 Establishment Period

1. The mandatory reserve establishment periods are as follows:

a) 1st Period - from the 7th to the 21st; and b) 2nd Period - from the 22nd to the 6th of the following month.

2. The mandatory reserves of the 1st establishment period correspond to the 2nd calculation period, and vice versa.

Article 8 Form of Establishment

1. Mandatory reserves in national currency may be established in at least one of the following forms:

a) Cash; b) Checks drawn by the institution itself on other national credit institutions; c) Account-to-account transfer; d) Other financial assets eligible for the clearing system, excluding foreign currency deposits of credit institutions with the Bank of Mozambique; and

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Bank of Mozambique Governor

e) Cash held in the institution's branches located in rural areas, as defined by the Bank of Mozambique.

2. Mandatory reserves in foreign currency may be established in at least one of the following forms:

a) US dollar current deposits of credit institutions with the Bank of Mozambique; b) Funding of the US dollar current deposit account at the Bank of Mozambique via account-to-account transfer from domestic banks; and c) Funding of the US dollar current deposit account via transfer from the institution's nostro account to the Bank of Mozambique's nosso account.

Article 9 Establishment Methodology

1. The daily balances of current deposits, in national currency and US dollars, of credit institutions with the Bank of Mozambique must not be lower each day than the mandatory reserve amounts resulting from multiplying the levy base by the rates fixed in Article 6 of this Regulation.

2. Daily excesses of free reserves exceeding 1% of mandatory foreign currency reserves are not permitted.

3. A free reserve excess is considered the portion of each bank's daily US dollar account balance that exceeds 1% of the mandatory reserves calculated for the corresponding establishment period.

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Bank of Mozambique Governor

CHAPTER III PENALTIES

Article 10 Penalties for Irregularities

1. Without prejudice to applicable legislation, the following irregularities are subject to monetary penalties:

a) Deficit in mandatory reserves; b) Excess of free foreign currency reserves; and c) Delay in submitting information to the Bank of Mozambique regarding the levy base.

2. The penalty for the daily end-of-day mandatory reserve deficit is determined based on the following formulas:

a) Penalty = [(SD+CX - (r x BI)) x T]/365 days, for the deficit in national currency mandatory reserves; and b) Penalty = [(SD - (r x BI)) x T]/365 days, for the deficit in foreign currency mandatory reserves.

3. In the formulas above:

a) SD is the daily accounting balance of national currency or US dollar current deposit accounts of credit institutions with the Bank of Mozambique, obtained from statements issued by the Maputo Branch of the Bank of Mozambique.

b) CX is the value of national currency cash held daily in vaults by credit institutions, as provided for in Article 8(1)(e), obtained from information submitted by the Markets and Reserve Management Department.

c) r is the daily minimum levy rate for mandatory reserves, per Article 6.

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Bank of Mozambique Governor

d) BI is the mandatory reserve levy base, per Article 5.

e) T is the penalty rate for mandatory reserve deficits.

4. The penalty rate for mandatory reserve deficits referred to in the preceding paragraph corresponds to:

a) The highest and most recent active interest rate, in national currency, charged by the defaulting credit institution, plus one percentage point, for national currency liabilities.

b) The highest and most recent active interest rate, in US dollars, charged by the defaulting credit institution, plus one percentage point, for foreign currency liabilities.

5. The penalty for daily end-of-day free foreign currency reserve excesses is determined based on the following formula:

Penalty = ER x t/365 days

6. In the formula above:

a) ER is the daily free reserve excess, exceeding 1% of mandatory foreign currency reserves; and b) t is the highest and most recent passive interest rate, in US dollars, charged by the defaulting credit institution, plus one percentage point.

7. The penalty values due for mandatory reserve deficits or free foreign currency reserve excesses shall be converted into meticais using the prevailing valuation exchange rate on the date of the infraction.

8. The penalty for delayed submission of information referred to in Article 14 is 10,000.00 Mt (ten thousand meticais) for each business day of delay.

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Bank of Mozambique Governor

Article 11 Payment of Penalties

The Bank of Mozambique debits the national currency current deposit account of the defaulting credit institution for the penalty amounts calculated in accordance with the preceding article.

Article 12 Escalation of Penalties

The penalty rates specified in Article 10(4) are escalated by ten percentage points whenever, during a given establishment period, an institution incurs deficits or free reserve excesses for two or more days (consecutive or not).

Article 13 Account Blocking

1. If, over four consecutive mandatory reserve establishment periods, an institution incurs a deficit in two of those periods (consecutive or not) for three or more days, the Bank of Mozambique will block the free movement account balance.

2. Only credit movements are permitted in the blocked account, without prejudice to any additional measures provided for in the Interbank Clearing and Settlement Regulations.

3. The institution is notified of the account block with a minimum advance notice of four days from the effective date.

4. The institution whose account is blocked must, upon receiving the notification:

a) Immediately instruct the opening of a new account for clearing and other operations at the Maputo Branch of the Bank of Mozambique.

b) Fund the blocked account to comply with mandatory reserves.

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Bank of Mozambique Governor

5. The Bank of Mozambique reserves the right to transfer from the new account to the blocked account the balances necessary for the institution to comply with Mandatory Reserves.

6. As long as deficits persist in the blocked account, a penalty is applied to daily deficits based on the rate specified in Article 9 of this Regulation.

7. Within no less than four mandatory reserve establishment periods, the Bank of Mozambique may instruct the lifting of the account block.

CHAPTER IV FINAL PROVISIONS

Article 14 Submission of Information

1. Credit institutions covered by this Regulation must submit to the Bank of Mozambique, referencing the levy base calculation period indicated in Article 5(2), the information contained in the attached Mandatory Reserve Calculation Schedules, which form an integral part of this Notice.

2. The Calculation Schedules referred to in the preceding paragraph must be received at the Bank of Mozambique by the third business day following the end of the corresponding calculation period, and may be corrected until the last business day prior to the start of their respective establishment period.

3. Late submission of schedules is an indispensable condition for accepting schedules for subsequent periods.

4. Any correction occurring during the establishment period to which the information refers, and which implies a reduction of the levy base, is not considered for penalty calculation purposes; prior information prevails in such cases.

5. Credit institutions are required to retain for five years all documents enabling them to substantiate the information contained in the Schedules referred to in paragraph 1 of this Article.

Article 15 Exemption Period

1. All credit institutions enjoy an exemption from establishing mandatory reserves for a maximum period of three months, starting from the date they commence operations.

2. If the institution wishes to join the Interbank Markets before the end of the period referred to in paragraph 1, it must waive the remaining exemption period to comply with Article 3(a) of Notice No. 05/GBM/13 of September 18, Regulation on the Market Operations System.

3. The exemption referred to in paragraph 1 is automatic, and its terms are formally communicated by the Regulation and Licensing Department of the Bank of Mozambique.

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