REPUBLIC OF GUINEA

CENTRAL BANK

Conakry, June 29, 2018

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BCRG INSTRUCTION NO. I/DGSIF/DSIMF/004/2018

ON PRUDENTIAL STANDARDS APPLICABLE TO ELECTRONIC MONEY INSTITUTIONS (EMIs)

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The Governor

Pursuant to Ordinance No. D/2009/046/CNDD of February 7, 2009, establishing the Statute of the Central Bank of the Republic of Guinea; Pursuant to Decree No. D/2010/010/PRG/SGG of December 27, 2010, appointing the Governor of the Central Bank of the Republic of Guinea; Pursuant to Law No. L/2017/031/AN of July 4, 2017 on Inclusive Financial Institutions in the Republic of Guinea, particularly Article 73.

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DECIDES

Article 1: Object and Application

This Instruction applies to EMIs. It aims to define the prudential ratios and indicators that must be observed to ensure prudent management of their activities.

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Chapter 1: Prudential Ratios

Article 2:

EMIs shall apply the following prudential ratios, which constitute minimums to be maintained at all times.

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Article 3: Definition of Net Equity

Equity consists of basic equity (A) and supplementary equity (B).

A / Basic equity (A) consists of the following elements:

• Liability provisions / general banking risk funds (50)
• Fixed paid-up capital or whose repayment may be blocked (572)
• Retained earnings (52)
• Discretionary reserves (54)
• Legal reserves (55)
• Indivisible endowment fund, with reserve characteristics (56)
• 15% of the profits from the last closed fiscal year, certified by the statutory auditor, pending allocation by the General Assembly (59)

Deductions from basic equity:

• Retained earnings when they are in deficit,
• Intangible fixed assets (42)
• Treasury shares held, valued at their book value,
• Any participation in another regulated financial institution (credit institution, IFI, insurance company, deposit and resolution guarantee fund, or other (401)
• Unapproved current year deficit (59),
• Dividends payable (353)
• Supplementary provisions to be set up for asset depreciation or non-recovery risk, or for various charges and losses.

B / Supplementary equity (B) consists of the following elements:

• Revaluation reserves certified by the statutory auditor
• Blocked shareholder accounts (343),
  • At term, for a duration of five years or more,
  • Indeterminate term, repayable only at the initiative of the borrower.

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• Amortizable investment subsidies at the rate of financed fixed assets (51)
• Subordinated securities and loans with a definite term meeting the following conditions (53):
  • The initial contract duration is at least five years;
  • Prior approval from the BCRG is formally required to proceed with early repayment;
  • The debt is subordinated in principal and interest; upon liquidation of the EMI, these securities or loans may only be repaid after settlement of all other existing debts as of the liquidation date or contracted for its needs;
  • Interest payments may be suspended by the EMI in case of losses;
  • The contract does not contain a clause stipulating that, in circumstances other than EMI liquidation, the debt must be repaid before the agreed maturity;
  • Only actually received amounts are taken into account.

A discount of 20% per year is applied to the amount that may be included in supplementary equity over the last five years remaining until maturity.

• Subordinated securities and loans with an indefinite term meeting the following conditions (53):
  • The funds are repayable at the exclusive initiative of the borrower
  • Prior approval from the BCRG is formally required to proceed with early repayment;
  • The debt is subordinated in principal and interest; upon liquidation of the EMI, these securities or loans may only be repaid after settlement of all other debts

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existing as of the liquidation date or contracted for its needs;

• Interest payments may be suspended by the EMI in case of losses;
• The contract does not contain a clause stipulating that, in circumstances other than EMI liquidation, the debt must be repaid before the agreed maturity;
• Only actually received amounts are taken into account.

Deductions from supplementary equity:

• Subordinated securities and debts held in other financial institutions (403)
• Blocked shareholder current accounts in other financial institutions (403)

Supplementary equity is included in the calculation of net equity up to a limit of 50% of basic equity.

EMIs declare the composition of their equity to the BCRG according to the model defined by a BCRG circular letter.

The BCRG may object to the inclusion of certain elements if it considers that the conditions listed in this article are not satisfactorily met.

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SECTION 1: SOLVENCY

Article 4: Capitalization ratio (C01-E)

EMIs shall comply with the following solvency ratio:

Net equity / unweighted net assets ≥ 3%

In the denominator, include

• Unweighted net assets and
• Signed commitments given (at 100%)

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Article 5: Foreign Exchange Net Position Limitation Ratio (C04)

EMIs authorized to conduct foreign currency transactions shall comply with the following foreign exchange position coverage ratio:

Σ FOREIGN EXCHANGE NET POSITIONS ACROSS ALL CURRENCIES / NET EQUITY ≤ 5%

A position is considered long when foreign currency assets exceed foreign currency liabilities.

A position is considered short when foreign currency liabilities exceed foreign currency assets.

The numerator of the ratio is the net foreign exchange position determined by the difference between foreign currency assets and liabilities.

Assets consist of balance sheet items denominated in foreign currencies, excluding tangible, intangible, and financial fixed assets.

Liabilities include:

• Balance sheet items denominated in foreign currencies;
• Off-balance sheet items denominated in foreign currencies consisting exclusively of securities accounts, foreign currency transactions, and financial derivative instruments.

The denominator of the ratio consists of net equity.

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SECTION 2: ASSET QUALITY

Article 6: Investment Ratio (A01-E)

EMIs invest the entire counterparty value of issued electronic money in the following regulated investments:

• Demand accounts at one or more banks in Guinea,
• Accounts at the BCRG,
• Treasury bills of the Guinean State

The ratio is calculated as follows:

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Σ INVESTMENTS / Σ ISSUED ELECTRONIC MONEY ≥ 100%

In the numerator, include:

• All deposits in dedicated bank accounts,
• All deposits at the BCRG,
• Treasury bills of the Guinean State

Article 7: Protection of Funds Received from Electronic Money Holders

The funds representing the counterparty value of issued electronic money must meet the following requirements:

• Be domiciled, without delay, in accounts exclusively dedicated to this purpose at multiple banks;
• Be distinctly identified in the accounting records of both the issuing institution and the domiciliary bank;
• Be subject to daily reconciliation by both the issuing institution and the domiciliary bank with the outstanding balance of issued electronic money.

The funds referred to in paragraph 1 above are used solely for the repayment in Guinean francs of electronic money holders or for regulated investments.

They are not used to finance the operating needs of the issuing institution.

Electronic money compensation is carried out through a payment system authorized by the BCRG.

Article 8: Risk Diversification on Investments (A02-E)

Financial investments representing the counterparty value of issued electronic money are divided as follows:

Σ DEPOSITS IN A CREDIT INSTITUTION OR TREASURY BILLS / TOTAL INVESTMENTS ≤ 25%

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Assets are valued at the lower of acquisition cost or market value.

Article 9: Limitation of Non-Financial Institution Participations (A13)

EMIs limit their non-financial participations as follows:

Σ PARTICIPATION SECURITIES / EQUITY ≤ 25%

In the numerator, include

• Account 402: Other participation securities

In the denominator, include net equity.

Article 10: Diversification Ratio (A14)

EMIs limit their non-banking revenues as follows:

Σ NON-BANKING REVENUES / TOTAL REVENUES ≤ 5%

In the numerator, include:

• Account 715: Miscellaneous revenues (non-financial)

In the denominator, include total revenues as indicated in the income statement.

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SECTION 3: PRUDENTIAL RATIO RELATED TO MANAGEMENT

Article 11: Risks on Statutory Officers, Directors, Managers and Employees (MSADS)

EMIs' exposures to their shareholders and directors, managers, and staff are subject to the following ratio:

Σ MSADS EXPOSURES / NET EQUITY ≤ 5%

In the numerator,

• Exposures are considered as cash and signed credits granted by EMIs on:
  • Its shareholders regarding a joint-stock company,

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• Its statutory officers,

• Its managers and staff,

• The following accounting items are included:

  • Account 321 advances to staff
  • Account 342 shareholder current accounts, if negative
  • All other credits (notably through regulated agreements appearing in class 3) and signed commitments on MSADS
  • Excluding credits to shareholder and manager legal entities, approved as credit institutions (banks)

The indirect exposures referred to above are exposures held by legal or natural persons over whom a shareholder, associate, director, or manager of the institution exercises significant influence.

Article 12:

EMIs shall submit to the BCRG the named list and individual balances of the aforementioned beneficiaries, following the declaration form models defined by BCRG Instruction.

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SECTION 4: ASSET AND LIABILITY MANAGEMENT

Article 13: One-Month Liquidity

The one-month available assets of EMIs must cover their one-month due liabilities at all times, according to the following formula:

AVAILABLE ASSETS / DUE LIABILITIES ≥ 100%

In the numerator, include the following accounts and sub-accounts:

• 10 cash and ordinary (demand) accounts
• 1111 Central bank TCT
• 1121 Banks and IFIs at TCT
• 1131 Other placements within the financial sector TCT
• 118 accrued receivables (accrued but unpaid interest)
• 128 accrued receivables (accrued but unpaid interest)
• 321 advances to staff

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In the denominator, include the following accounts and sub-accounts:

• 1611: central bank, very short term
• 1621: banks and IFIs, very short term
• 168: attached debts
• 178: attached debts
• 241: 100% of demand and electronic money customer accounts
• 2421: 100% of passbook accounts (mobilizable within 1 month)
• 248: attached debts (interest payable at VST)
• 342: Shareholder current accounts
• 351: Tax and social debts
• 352: Staff debts
• 353: Dividends payable

Article 14: Immediate Liquidity

Any EMI must maintain, in the form of liquid assets, an amount corresponding to 20% of demand deposits received from its customers, according to the following formula:

CASH ON HAND (0 DAYS) / Σ ELECTRONIC MONEY ACCOUNTS ≥ 35%

In the numerator, include

• Class 10: Cash and ordinary (demand) accounts, excluding accrued receivables

In the denominator, include

• Account 244: electronic money accounts

Article 15: Coverage of Fixed Assets by Equity

EMIs must cover their fixed assets with equity as follows:

FIXED ASSETS / NET EQUITY ≤ 50%

In the numerator, include:

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• Account 402 Other participation securities
• Account 404 Other fixed securities outside financial institutions
• Account 41: Deposits and guarantees (long term)
• Account 43: Tangible fixed assets
• Account 44: Work in progress fixed assets

In the denominator, include net equity.

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Chapter 2: Prudential Indicators

Article 16: Calculation and Transmission of Prudential Indicators

EMIs shall periodically calculate and transmit the following prudential indicators, which serve as targets to be achieved for optimal management.

Article 17: Operating Ratio

Operating Ratio	General Expenses (GE) / Net Financial Revenues (NFR)
Numerator	General Expenses (GE)
Denominator	Net Financial Revenues (NFR)

Article 18: Return on Assets (ROA)

Return on Assets	Operating Result excluding subsidies (OR) / Average asset amount for the period
Numerator	OR (see "Return on Equity")
Denominator	Average asset amount

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Article 19: Return on Equity (ROE)

Return on Equity	Operating Result excluding subsidies (OR) / Average equity amount for the period
Numerator	OR = Operating Revenues excluding subsidies (OR) - Operating Expenses (OE)
	OR = Total revenues except operating subsidies and exceptional revenues
	OE = Total expenses except exceptional charges, prior year losses, and taxes on surpluses
Denominator	Average equity over the period

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Chapter 3: Miscellaneous and Final Provisions

Article 20:

This Instruction shall enter into force upon its publication.

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[Seal of the Central Bank of Guinea]

Dr. Louncény Nabé