REPUBLIC OF GUINEA

CENTRAL BANK

Conakry, June 29, 2018

BCRG INSTRUCTION NO. I/DGSIF/DSIMF / 005 /2018

ON PRUDENTIAL STANDARDS APPLICABLE TO POSTAL FINANCIAL SERVICES (SFP)

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The Governor

In accordance with Ordinance No. D/2009/046/CNDD of February 7, 2009, establishing the Statute of the Central Bank of the Republic of Guinea;
In accordance with Decree No. D/2010/010/PRG/SGG of December 27, 2010, appointing the Governor of the Central Bank of the Republic of Guinea;
In accordance with Law No. L/2017/031/AN of July 4, 2017, on inclusive financial institutions in the Republic of Guinea, particularly Article 73.

DECIDES

Article 1: Object, application

This instruction applies to SFPs. It aims to define the prudential standards and indicators that must be met to ensure prudent management of their activities.

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Chapter 1: Prudential Ratios

Article 2:

SFPs apply the following prudential ratios, which constitute permanent minimum requirements.

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)
• Non-distributable endowment fund, acting as a reserve (56)
• 15% of the profits from the last closed financial year, certified by the statutory auditor, pending allocation by the General Assembly (59)

The following are deducted from basic equity:

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

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

• Revaluation reserves certified by the statutory auditor
• Blocked shareholder accounts (343),
  • Fixed-term, for a duration of five years or more,
  • Indefinite term, repayable only at the borrower's initiative.
• Investment subsidies amortized at the pace of financed fixed assets (51)
• Subordinated fixed-term securities and loans meeting the following conditions (53):
  • The initial contract duration is at least five years;
  • Prior approval from the BCRG is formally required for early repayment;
  • The debt is subordinated in principal and interest; upon SFP liquidation, these securities or loans can only be repaid after settling all other debts existing at the date of liquidation or contracted for its needs;
  • Interest payments may be suspended by SFPs in case of losses;
  • The contract does not contain a clause stipulating that, in circumstances other than SFP liquidation, the debt must be repaid before the agreed maturity;
  • Only actually received amounts are taken into account.
• Subordinated indefinite-term securities and loans meeting the following conditions (53):
  • The funds are repayable at the exclusive initiative of the borrower
  • Prior approval from the BCRG is formally required for early repayment;
  • The debt is subordinated in principal and interest; upon SFP liquidation, these securities or loans can only be repaid after settling all other debts existing at the date of liquidation or contracted for its needs;
  • Interest payments may be suspended by SFPs in case of losses;
  • The contract does not contain a clause stipulating that, in circumstances other than SFP liquidation, the debt must be repaid before the agreed maturity;
  • Only actually received amounts are taken into account.

The following are deducted from supplementary equity:

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

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

SFPs 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-SFP)

SFPs comply with the solvency ratio calculated as follows:

Net equity / unweighted net assets ≥ 3%

Denominator includes:

• Unweighted net assets and
• Given guarantees by endorsement (at 100%)

Article 5: Foreign exchange net position limitation ratio (C04)

SFPs authorized to conduct foreign currency operations 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 foreign currency-denominated asset items, excluding tangible, intangible, and financial fixed assets.
Liabilities include:

• Foreign currency-denominated liability items;
• Foreign currency-denominated off-balance sheet items consisting exclusively of securities commitment accounts, foreign exchange transaction accounts, 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)

SFPs invest the entire counterpart value of issued electronic money in the following regulated investments:

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

The ratio is calculated as follows:
Σ INVESTMENTS / Σ ISSUED ELECTRONIC MONEY ≥ 100%

Numerator includes:

• 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

Funds representing the counterpart value of issued electronic money meet the following requirements:

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

The funds referred to in paragraph 1 above are used solely for reimbursing electronic money holders in Guinean francs or for regulated investments.
They are not used to finance the operating needs of the issuing institution.
Electronic money clearing is carried out in a payment system authorized by the BCRG.

Article 8: Risk division on investments (A02-E)

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

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

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

Article 9: Limitation of non-financial institution participations (A13)

SFPs limit their non-financial participations as follows:

Σ HOLDING SECURITIES / EQUITY ≤ 25%

Numerator includes:

• Account 402: Other holding securities

Denominator includes net equity.

Article 10: Diversification ratio (A14)

SFPs limit their non-banking ancillary products as follows:

Σ NON-BANKING PRODUCTS / TOTAL REVENUE ≤ 5%

Numerator includes:

• Account 715: Miscellaneous products (non-financial)

Denominator includes total revenue as indicated in the income statement.

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SECTION 3: PRUDENTIAL RATIO RELATIVE TO MANAGEMENT

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

SFPs' commitments to their shareholders, directors, managers, and staff are subject to the following ratio:

Σ MSADS COMMITMENTS / NET EQUITY ≤ 5%

Numerator includes:

• Considered commitments are cash and endorsement credits granted by SFPs to:
  • Its shareholders in the case of a joint-stock company,
  • Its corporate officers,
  • Its managers and staff,
• The following accounting items are notably included:
  • Account 321 advances to staff
  • Account 342 current accounts of shareholders, if negative
• All other credits (notably through regulated agreements appearing in class 3) and endorsement commitments regarding MSADS
• Except for credits to corporate shareholders and managers approved as credit institutions (banks)

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

Article 12:

SFPs submit to the BCRG the name list and individual outstanding amounts of the beneficiaries referred to above, 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 SFPs cover, at all times, their one-month due liabilities, according to the following formula:

AVAILABLE ASSETS / DUE LIABILITIES ≥ 100%

Numerator includes the following accounts and sub-accounts:

• 10 cash and ordinary accounts (demand)
• 1111 Central Bank very short term
• 1121 Banks and financial institutions very short term
• 1131 Other investments in the financial sector very short term
• 118 accrued receivables (accrued but unpaid interest)
• 128 accrued receivables (accrued but unpaid interest)
• 321 advances to staff

Denominator includes the following accounts and sub-accounts:

• 1611: central bank, very short term
• 1621: banks and financial institutions, very short term
• 168: accrued liabilities
• 178: accrued liabilities
• 241: 100% of customer demand deposit and electronic money accounts
• 2421: 100% of savings accounts (mobilizable within 1 month)
• 248: accrued liabilities (interest payable very short term)
• 342: Current accounts of shareholders
• 351: tax and social liabilities
• 352: Staff liabilities
• 353: Dividends payable

Article 14: Immediate liquidity

SFPs maintain in liquid form an amount corresponding to 20% of demand deposits received from their clients, according to the following formula:

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

Numerator includes:

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

Denominator includes:

• Account 244: electronic money accounts

Article 15: Coverage of fixed assets by equity

SFPs cover their fixed assets with equity as follows:

FIXED ASSETS / NET EQUITY ≤ 50%

Numerator includes:

• Account 402 Other holding 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

Denominator includes net equity.

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Chapter 2: Prudential Indicators

Article 16: Calculation and transmission of prudential indicators

SFPs calculate and periodically transmit the following prudential indicators, which constitute targets to be achieved for optimal management.

Article 17: Operating Ratio

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

Article 18: ROAA

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

Article 19: ROAE

Return on Equity	Operating Result excluding subsidies (OR) / Average equity amount for the period
Numerator	O R = Operating Revenue excluding subsidies (ORex) - Operating Expenses (OE)
	ORex = Total revenue excluding operating subsidies and exceptional revenue
	OE = Total expenses excluding exceptional charges, prior period 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 enters into force from its date of signature.

Dr Louncény Nabé