BCEAO Opinion No. 001-03-2020 on Revised Implementation Modalities for Classification Agreements for Non-Financial Enterprises

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BCEAO
CENTRAL BANK OF THE STATES OF WEST AFRICA

The Governor

OPINION NO. 001-03-2020 ON THE REVISION OF IMPLEMENTATION MODALITIES FOR THE CLASSIFICATION AGREEMENTS MECHANISM FOR NON-FINANCIAL ENTERPRISES

The Council of Ministers of the West African Monetary Union (WAMU) adopted, during its session on September 19, 2002, the rules for implementing the Classification Agreements mechanism. This Mechanism, which serves as a tool for assessing the portfolio quality of WAMU credit institutions, remains in force.

To facilitate its implementation, the Central Bank has decided to revise the modalities for issuing classification agreements benefiting non-financial enterprises¹, excluding those eligible for the Small and Medium Enterprises/Industries (SME/SMI) Financing Support Mechanism in WAMU.

The BCEAO has established an evaluation of the credit quality of non-financial enterprises, based on financial information collected from the tax authorities of Union countries. The creditworthiness of a non-financial enterprise is assessed based on four (4) decision ratios relating respectively to overall liquidity, repayment capacity, profitability, and financial autonomy. The calculation modalities for these ratios, evaluated based on the last three years, are set out in the procedure attached to this Opinion.

For newly established enterprises, the procedure for issuing classification agreements remains unchanged.

The assessment of the credit quality of non-financial enterprises also takes into account other criteria, notably incidents recorded in information centers.

Based on all these criteria, the Central Bank assigns to non-financial enterprises with declared commitments at the Risk Center a rating valid for a maximum of one year. This rating may be revised during the year, based on any new information deemed relevant by the BCEAO. The rating grid, organized into five risk levels (A, B, C, D, E), is presented in the procedure attached to this Opinion.

Enterprises with the highest credit quality benefit from a classification agreement issued by the Central Bank.

The institution holding a refinancing-eligible instrument is required to declare to the Central Bank, as soon as it becomes aware, any event likely to affect the credit quality of the concerned enterprise for the purpose of updating its rating.

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¹ An enterprise subject to the general accounting framework in WAMU member states for preparing its financial statements, excluding enterprises subject to a specific framework.

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

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The list of non-financial enterprises benefiting from a classification agreement is made available to credit institutions for consultation via a secure transmission channel.

Based on this list, institutions may submit to the Central Bank a request to register instruments representing claims onto the list of refinancing-eligible collateral.

Institutions must keep available at all times a copy of the registration request files for control purposes by the Banking Commission.

This Opinion, including its annex which forms an integral part thereof, repeals and replaces all prior provisions dealing with the same subject matter. It is notified to all WAMU credit institutions and published wherever necessary.

Done at Dakar, on March 25, 2020

[Signature]

The Governor