Regulation (NAP) – Investment Banks Regulation

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Banco Central de S. T. P. N A P PERMANENT APPLICATION NORM CODE RD 09 PROPOSER(S) ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE D.S. 01/07/2004 05/07/2004 06/2004 1/5 Subject: Operating Rules for Investment Banks.

The BCSTP, in the exercise of powers and duties granted by Articles 8(c) and 38 of its Organic Law, and Articles 2, 7, and 8 of the Financial Institutions Act, determines: Art. 1. Investment Banks are financial institutions authorized to operate in accordance with Article 3(1)(c) of the Financial Institutions Act. Art. 2. Investment Banks may carry out the following operations:

1. Passive operations, or resource mobilization: a) Time deposits for periods exceeding one year, with fixed interest rates or floating interest rates for over two years; b) Loans contracted abroad; c) Loans contracted domestically; and d) Placement of bonds with minimum maturity periods of one year.
2. Active operations, or application of own and third-party funds: a) Loans granted for fixed capital financing; b) Loans granted for working capital financing, including for product production and export financing; c) Financial leasing; d) Acquisition of shares, bonds, and any other securities authorized by specific law or the Central Bank, for investment or resale in the capital market; e) Assignment of positions in loans obtained abroad for a period of not less than two years and authorized by the Central Bank; and f) Provision of guarantees for loans domestically or from abroad, in this case authorized by the Central Bank.

Reviewed/Granted: Revocation Data:

Banco Central de S. T. P. N A P PERMANENT APPLICATION NORM CODE RD 09 PROPOSER(S) ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE D.S. 01/07/2004 05/07/2004 06/2004 2/5 3. Special operations, complementary to active and passive operations, covering: a) Distribution or placement of private securities in the market, according to specific law; b) Management of client securities portfolios and investment consulting; c) Management of joint investment funds; and d) Subscription of shares and bonds, subject to formalities established by law or Central Bank regulation, intended for distribution or placement in the capital market. Art. 3.

1. To enhance their operations, investment banks must maintain specialized technical services in: a) Analysis of feasibility studies and assessment of technical, economic, and financial aspects; b) Auditing and financial analysis; c) Supervision of project execution; and e) Securities and securities market operations.
2. The services provided in this article are maintained directly by the bank or through contracts with specialized companies and consultants. Art. 4.
3. Investment banks may grant all types of credit, medium and long term, for fixed capital financing, relating to projects promoted by the private sector, for the acquisition, construction, or assembly of facilities, equipment, or vehicles that form part of fixed assets, and for rationalization, improvement, or modernization of production or administrative techniques.
4. Investment banks are prohibited from financing land plots, and the construction of real estate for resale or development.
5. Project analysis must demonstrate market existence, technical feasibility of the production process and factor availability, venture profitability, financing scheme viability, security of other expected resource availability, and the investor's capacity to service financing obligations, including interest and principal.

Reviewed/Granted: Revocation Data:

Banco Central de S. T. P. N A P PERMANENT APPLICATION NORM CODE RD 09 PROPOSER(S) ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE D.S. 01/07/2004 05/07/2004 06/2004 3/5 4. Loans must have a minimum duration of one year, with grace and amortization periods compatible with investor liquidity and real guarantees. Credit must be complementary to the investor's own resources. Art. 5.

1. Working capital financing operations have a minimum duration of one year and a maximum of five years.
2. The rules mentioned in points 3 and 4 of the preceding article apply to working capital financing operations.
3. Investment banks may finance working capital operations without real guarantees, up to 50% of total own funds, provided they are supported by other adequate guarantees. Art. 6.
4. Investment banks may operate in all types of share or bond subscriptions intended for market placement, according to prevailing legal provisions.
5. Subscribed securities and values must be placed within a maximum period of 180 days. Art. 7.
6. Investment banks, with prior authorization from the Central Bank, may contract loans abroad, with minimum terms of two years, subsequently assigning them to the national business sector.
7. The assignment must obligate the assignee to settle the obligation with foreign currency liquidity or the corresponding exchange rate value.
8. Loans obtained abroad are exempt from minimum cash reserves. Art. 8. Investment banks may not benefit from liquidity loans or financial assistance from the Central Bank.

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Banco Central de S. T. P. N A P PERMANENT APPLICATION NORM CODE RD 09 PROPOSER(S) ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE D.S. 01/07/2004 05/07/2004 06/2004 4/5

1. Investment banks may hold public deposits in accounts that do not earn interest or are not checkable, with the objective of investing them in securities, market instruments, active operations, or service provision.
2. If such resources are not invested within fifteen days, they will be held by the Central Bank until their application. Art. 10. Investment banks may accept time deposits exceeding one year, issuing the respective certificate. Art. 11.
3. Investment banks may manage joint investment funds, applying capital to diversified portfolios of securities or market instruments.
4. The fund's investment portfolio must comply with the following diversification requirements: a) Investment per entity must not exceed 10% of portfolio investments, nor more than 20% of the entity's voting capital; b) The average investment per entity must not exceed 5% of the total value of portfolio investments; c) Investment by sector or type of activity must not exceed 20% of total investments.
5. The bank charges a fee for fund management and may not charge the fund with costs arising from its own failures or negligence.

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Banco Central de S. T. P. N A P PERMANENT APPLICATION NORM CODE RD 09 PROPOSER(S) ENTRY INTO FORCE DATE OF ISSUE DOC NO. PAGE D.S. 01/07/2004 05/07/2004 06/2004 5/5 Art. 12.

1. "Financial leasing" is understood as the operation in which the investment bank acquires a fixed asset and leases it to a client for a specified term, minimum of 3 years, in exchange for monthly or quarterly remuneration. At the end of the contract, the lessee is obligated to acquire the asset at a residual value or reimburse the bank for said amount.
2. In financial leasing operations, contracts are considered credit operations. Leased assets must be registered in off-balance sheet accounts. Art. 13. The regulations, Instructions, and Permanent Application Norms currently in force, issued by the Central Bank for Financial Institutions and/or Credit Institutions, also apply to Investment Banks. Banco Central of São Tomé and Príncipe, July 05, 2004.

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