BCEAO Instruction No. 030-11-2016 on the Accounting Treatment of Asset Transfers

The Governor of the Central Bank of West African States (BCEAO),

Having regard to the Treaty of the West African Monetary Union (UMOA) of January 20, 2007, particularly Article 34;

Having regard to the Statutes of the Central Bank of West African States (BCEAO), annexed to the UMOA Treaty of January 20, 2007, particularly Articles 30, 31, 32, 33 and 34;

Having regard to Regulation No. 06/2013/CM/UEMOA of June 28, 2013 on treasury bills and bonds issued via auction or syndication with the assistance of the UMOA-Titres Agency, particularly Articles 4, 9, 10, 14, 29 and 30;

Having regard to Regulation No. 07/2013/CM/UEMOA of June 28, 2013 on stock loan transactions in the UMOA;

Having regard to Regulation No. 02/2010/CM/UEMOA of March 30, 2010 on credit securitization funds and securitization operations in the UMOA;

Having regard to the Uniform Act on banking regulation, particularly Articles 50, 51, 52, 53 and 54;

Having regard to Decision No. 397/12/2010 of December 6, 2010 by the BCEAO Monetary Policy Committee establishing rules, instruments and procedures for implementing the monetary and credit policy of the BCEAO;

Having regard to Decision No. 24/2013/CPM/BCEAO of December 9, 2013 amending and complementing Decision No. 397/12/2010 of December 6, 2010 by the BCEAO Monetary Policy Committee establishing rules, instruments and procedures for implementing the monetary and credit policy of the BCEAO;

Having regard to Decision No. 357-11-2016 of November 15, 2016 establishing the Revised UMOA Banking Accounting Plan and its related annex, particularly Articles 75, 78, 81, 84, 91 and 95;

Having regard to Instruction No. 011-09-2015 of September 11, 2015 on auction sales procedures for treasury bills and bonds issued via auction with the assistance of the UMOA-Titres Agency,

Abdoulaye FADIGA Avenue BP 3108 – Dakar - Senegal Tel.: (221) 33 839 05 00 / Fax: (221) 33 823 93 35 www.bceao.int

INSTRUCTION NO. 030 - 11 - 2016 ON THE ACCOUNTING TREATMENT OF ASSET TRANSFERS The Governor

2 DECIDES

Chapter 1: General Provisions Article 1 Pursuant to the provisions of the Revised UMOA Banking Accounting Plan, banks and banking-character financial institutions, hereinafter referred to as subject institutions, record in their accounts, under the conditions set out in this instruction, transfer operations they carry out on asset items.

Article 2 An asset transfer is the operation by which the holder of an asset, the transferor, transfers to a third party, the transferee, temporarily or permanently, gratuitously or for value, all or part of its rights over that asset.

Article 3 The transfer operations covered by this instruction are perfect transfers, firm transfers, stock loan transactions, repurchase agreements with redemption options (rémérés), securitization operations and stock loans, as defined in the provisions of Chapters 2 to 6 below.

Article 4 The asset items concerned are, on the one hand, claims accounted for in the balance sheet of the subject institution in the form of interbank facilities and credits granted to customers, and, on the other hand, marketable assets including securities, treasury bills and bonds or other negotiable credit instruments.

Chapter 2: Accounting Treatment of Perfect and Firm Transfers Article 5 For the purposes of this instruction, perfect transfers consist of asset transfers carried out without any commitment or option to repurchase or buy back by the transferor institution, and without any guarantee against debtor default risk provided by the transferor institution or by enterprises fully consolidated within the same consolidation scope as defined in the Instruction on financial statements under a consolidated form.

Article 6 Asset items subject to a perfect transfer cease to appear in the balance sheet of the transferor institution and are recorded on the assets side of the transferee. Upon completion of a perfect transfer, the transferor institution records the gain or loss arising from the transfer, respectively in accounts named gains on asset transfers or losses on asset transfers. This gain or loss equals the difference between the selling price and the net book value of the transferred asset.

3 Article 7 Transferred assets that are accompanied by a guarantee against primary debtor default risk provided by the transferor institution or by enterprises fully consolidated within the same consolidation scope, as defined in the Instruction on financial statements under a consolidated form, remain on the balance sheet of the transferor institution and do not appear on the assets side of the transferee institution. The operation is classified as a firm transfer. The transferor institution records on the liabilities side the amount received, representing its debt to the transferee. The latter records on the assets side the amount paid, representing its claim against the transferor.

Chapter 3: Accounting Treatment of Stock Loan Transactions (Pensions Livrées) Article 8 For the purposes of this instruction, stock loan transactions (pensions livrées) consist of operations whereby the transferor transfers full ownership to the transferee, for an agreed price, of securities, instruments or effects, with the transferor and transferee respectively and irrevocably committing, the former to repurchase the securities, instruments or effects, and the latter to return them, for an agreed price and date. These operations are carried out in accordance with the prevailing regulations on this matter in the UMOA.

Article 9 Asset items placed under a stock loan transaction remain on the balance sheet of the transferor, which records on the liabilities side the amount received, representing its debt to the transferee. Asset items received under a stock loan transaction are not recorded on the balance sheet of the transferee. The latter records on the assets side the amount paid, equal to the acquisition price and representing its claim against the transferor.

Article 10 The transferor and transferee individually identify, in their respective accounts, the debts and claims related to stock loan transactions. Each party accounts for margins, late interest, termination balances and other fees, commissions and penalties potentially arising from stock loan transactions, in accordance with prevailing regulations. Furthermore, the transferor identifies, in its accounts, assets transferred under stock loan transactions.

Article 11 At the accounting closing, the transferor evaluates its debt to the transferee and the concerned assets according to the rules applicable to their category. It accounts, where applicable, for accrued coupons as well as asset impairments and records accrued interest on the debt. The transferee evaluates its claim against the transferor, records accrued interest but does not record any asset impairment. The transferor indicates in the notes to the financial statements, the amount of assets given under stock loan transactions, broken down by the nature of the concerned assets.

Article 12 When the operation involves supplementary cash deliveries, these amounts are recorded in miscellaneous debtor or creditor accounts. Interest is recorded in interest income or expense accounts. If the operation involves supplementary securities deliveries, received securities are recorded off-balance sheet.

Article 13 When the transferee gives under a stock loan transaction asset items it itself received under a stock loan transaction, the operation is analyzed by it as a placement under a stock loan transaction.

Article 14 The transferee that transfers assets it itself received under a stock loan transaction records on the liabilities side of its balance sheet the amount of this transfer, representing its asset debt. This debt is evaluated at each accounting closing at the fair value of the assets. The difference from the amount recorded in accounts is recognized in results.

Article 15 The transferee that lends securities it received under a stock loan transaction accounts for the operation in accordance with the provisions of Chapter 6 relating to stock loans.

Article 16 At the maturity of the stock loan transaction, the entries prescribed in Article 8 of this chapter are reversed and interest is recorded by both parties.

Chapter 4: Accounting Treatment of Repurchase Agreements (Rémérés) Article 17 For the purposes of this instruction, repurchase agreements (rémérés) consist of transfers accompanied by an agreement whereby the transferor institution retains the option to repurchase transferred asset items, at an agreed price, for a specified duration or on a specified date.

Article 18 Transferred asset items cease to appear in the balance sheet of the transferor and are recorded on the assets side of the transferee institution's balance sheet. The transferor institution records in the income statement the gain or loss arising from the transfer, equal to the difference between the selling price and the net book value of the transferred asset items. The transferor institution and the transferee institution record off-balance sheet an amount equal to the agreed price, excluding interest or compensation, in case of exercise of the repurchase option.

Article 19 At the accounting closing, if there is a high probability of exercising the repurchase option, the accounting treatment is established as follows:

• the transferor institution neutralizes, by crediting or debiting a regularization account, the gain or loss arising from the transfer and continues to evaluate transferred asset items according to the rules specific to each of the concerned categories;
• the transferor institution records in the income statement, prorata temporis, remuneration due to the transferee and products receivable on transferred items respectively among interest expenses and interest income;
• the transferee institution records in the income statement, prorata temporis, remuneration receivable from the transferor among interest income. It does not provide for impairment of concerned asset items and does not record possible accrued coupons on these assets. A high probability of exercising the repurchase option is presumed when, for similar operations, there is a customary practice of asset recovery by subject institutions.

Article 20 In case of repurchase, by the transferor institution, of transferred items, the transfer entries and acquisition entries referred to in Article 18 of this chapter are reversed. The transferee institution records in the income statement the gain or loss arising from the resale. The transferor accounts for asset items at the agreed repurchase price.

Article 21 If the repurchase option can be considered as likely to be exercised, by virtue of clauses provided from the outset in the transfer agreement, the transfer operation is then subject to the provisions relating to stock loan transactions.

Chapter 5: Accounting Treatment of Securitization Operations Article 22 For the purposes of this instruction, securitization operations consist of operations whereby a Credit Securitization Fund (FCTC) acquires from a subject institution, either directly or through another authorized body for this purpose, claims as well as related security interests, guarantees and accessories, by financing this acquisition through the issuance of negotiable instruments representing said claims, the subscription and holding of which are open to qualified investors or the public. These operations are carried out in accordance with prevailing regulations on this matter in the UMOA.

Article 23 Transferred claims cease to appear on the assets side of the balance sheet of the transferor institution, which records in the income statement the gain or loss arising from the transfer and corresponding to the difference between the selling price and the book value of transferred claims. Fees such as legal, rating, listing or underwriting commissions, borne by the transferor in connection with a securitization operation, are recorded as expenses. The transferor institution includes in the notes to its published annual accounts, individual and, where applicable, consolidated in accordance with the provisions of the instruction on establishing financial statements under a consolidated form, clear and quantified information relating to the securitization operation.

Article 24 Guarantees of any nature provided by the transferor institution to protect holders of units in securitization bodies against debtor default risks on transferred claims, are accounted for under the conditions described in Articles 25 to 28 of this chapter.

Article 25 An institution that transfers to a securitization body an amount of claims whose value exceeds the amount of units issued by the fund, records on its assets side, among distributed credits, a claim whose book value equals the fraction of transfer value corresponding to the additional transferred claims. This claim is evaluated at its present value. Without prejudice to impairments accounted for regarding debtor default risk in accordance with Article 29 of this chapter, the positive difference between the book value of this claim and its present value is subject to a provision for impairment accounts. The negative difference is not taken into account.

Article 26 When the institution subscribes or acquires as guarantee specific units issued by the fund, or more generally financial instruments issued to primarily support debtor default risks, it accounts for them among investment securities as defined by the instruction on accounting and evaluation of securities belonging to credit institutions. These units or financial instruments bearing first losses are evaluated at their present value. Without prejudice to impairments accounted for regarding debtor default risk in accordance with Article 29 of this Chapter, the positive difference between the acquisition price of these units and their present value is subject to a provision for impairment accounts. The negative difference is not taken into account. Furthermore, when these units or financial instruments bearing first losses are likely to be transferred on the secondary market, the possible difference between their net book value and their probable negotiation value is subject to a provision for impairment accounts.

Article 27 The transferor institution that provides its guarantee by signature to a securitization body against debtor default risks must record off-balance sheet a customer guarantee commitment or credit institution guarantee commitment, depending on the category of beneficiaries of claims subject to securitization.

Article 28 When the transferor institution establishes with the securitization body a cash guarantee deposit intended to support losses resulting from debtor default, it accounts for the corresponding amount on its balance sheet assets side as a claim against the securitization body, provided that any residual amount of this deposit is attributed to the subject institution upon liquidation of the securitization body. This guarantee deposit is evaluated at its present value. Without prejudice to impairments accounted for regarding debtor default risk in accordance with Article 29 of this Chapter, the positive difference between the amount of this guarantee deposit and its present value is subject to a provision for impairment accounts.

Article 29 At each accounting closing, the guaranteeing institution records a provision up to the debtor default risk evaluated at that date. Its amount is determined based on defaults observed until the closing date and their foreseeable evolution. The guaranteeing institution specifies in the notes to its published annual accounts, the nature and amount: – of guarantees provided under this framework, particularly those aimed at protecting holders of units in the securitization body against debtor default risks on transferred claims; – of covered risks; – of provisions or impairments possibly accounted for.

Article 30 A securitization operation of claims initially held by a subject institution transferred to another subject institution, hereinafter referred to as the borrowing subject institution, belonging to the same group, as defined in the Instruction on financial statements under a consolidated form, is accounted for under the following conditions: – transferred claims cease to appear on the assets side of the balance sheet of the transferor; – the borrowing subject institution shows on the liabilities side of its balance sheet, under the heading titled other debts represented by a title, the debt it owes to holders of units in the securitization body.

Chapter 6: Accounting Treatment of Stock Loans (Prêts de Titres) Article 31 A stock loan is a consumption loan in accordance with prevailing regulations on this matter in the UMOA. The loan entails the transfer of ownership of securities to the borrower, who may lend them, place them under a stock loan transaction or sell them.

Article 32 Securities cease to appear on the balance sheet of the lending institution, which records on the assets side, in a stock loan account, a claim representing the book value of lent securities. The book value takes into account impairment, where applicable. The borrowing institution records on the assets side securities in a stock borrowing account among transaction securities, and on the liabilities side the security debt to the lending institution. These entries are made at the market price on the borrowing date.

Article 33 At each accounting closing, the lending institution and the borrowing institution carry out the following duties: 1°) the lending institution:

• evaluates securities according to rules applicable to the category of securities subject to loan;
• records, where applicable, impairments;
• records prorata temporis remuneration of the loan. 2°) the borrowing institution:
• evaluates security debt at market price according to rules applicable to transaction securities;
• accounts for prorata temporis remuneration of the borrowing.

Article 34 At maturity, entries are reversed and interest is recorded. For the borrower, securities are deemed returned at the value for which the debt representing the restitution obligation appears on the balance sheet.

Chapter 7: Final Provisions Article 35 This instruction repeals and replaces all prior provisions dealing with the same subject. It enters into force on January 1, 2018 and will be published wherever necessary. Made in Dakar, on November 15, 2016 Tiémoko Meyliet KONE