Regulatory Alerts2020-09-21
Instruction No. 15/2020 of September 22
The Bank of Angola mandates commercial banks to convert foreign currency housing loans for individual clients without local income into national currency, establishing fixed exchange rates, variable interest rate indexing to LUIBOR, and extended loan terms. Banks must contact clients, retain written consent, prohibit restructuring and conversion fees, and apply margin-free exchange rates while adjusting interest rates or installments to reduce default risk for clients with debt service ratios exceeding 40% and 60%. The converted loan values are purchased by the central bank with a D+1 value date, and banks must report sales electronically within specified deadlines under the instruction's validity period ending December 30, 2020.
INSTRUCTION NO. 15/2020 of September 22 SUBJECT: FINANCIAL SYSTEM
- Conversion of Foreign Currency Housing Loans Granted to Individuals Whereas the Notice No. 11/2014 of December 17, issued by the Bank of Angola, prohibited the granting of foreign currency loans with the exception of loans to exporters and the State, considering the high intrinsic risk in loans contracted in a currency different from borrowers' income; Whereas, likewise, the evolution of exchange rates in recent years and the reduced availability of foreign currency have resulted in a significant increase in clients' debt service ratio and consequently an aggravation of default risk on these loans; The Bank of Angola considers it appropriate to establish conditions to facilitate the conversion into national currency of foreign currency loans contracted for primary housing by individual clients without income or resources in that currency; Pursuant to the combined provisions of Article 40 and paragraph 1 of Article 51, both of Law No. 16/10 of July 15 - Bank of Angola Law, I DETERMINE:
- Object 1.1. This Instruction establishes the terms and conditions that Banking Financial Institutions, hereinafter abbreviated as Banks, must comply with when converting their clients' foreign currency loans into national currency. 1.2. This Instruction also establishes the terms and conditions for the sale of foreign currency by the Bank of Angola to Banks, to cover the exchange position resulting from said conversion.
CONTINUATION OF INSTRUCTION NO. 15/2020 Page 2 of 6 2. Scope This Instruction applies to individual clients with foreign currency loans for primary housing, who as of the effective date of this Instruction do not hold income or resources in that currency and wish to convert said loans into national currency. 3. Conversion of Loans 3.1. Considering this Instruction, Banks must: a) Contact all their covered clients to determine whether they wish to convert their foreign currency loans into national currency; b) In accordance with the preceding paragraph, retain written proof of contact with the client, as well as their response; c) Consider the conversion of foreign currency loans, regardless of the level of provisions recorded in that currency for each loan. 3.2. As information to guide the client's decision, Banks must present the terms and conditions applicable to the national currency loan, including a financial plan simulation that must include, at minimum, the following assumptions: a) Exchange Rate - reference exchange rate published by the Bank of Angola on the day of simulation, with no margin applied to this rate; b) Interest Rate - for loans with variable interest rates, LUIBOR must be applied as the index corresponding to the interest payment period; c) Term - when necessary, consider extending the term to reduce the installment value and align it with clients' financial capacity; regarding the loan term, compliance must be observed with Presidential Decree No. 259/11 of September 30, and it may not exceed 30 years from the initial grant date.
CONTINUATION OF INSTRUCTION NO. 15/2020 Page 3 of 6 3.3. Banks must consider, when necessary, taking into account the client's financial capacity and, in addition to term extension, other measures including interest rate and fee reductions to lower the debt service ratio, particularly in cases where it exceeds 40% (forty percent), thereby reducing default risk. 3.4. In cases where the debt service ratio exceeds 60% (sixty percent), Banks must, in addition to the measures mentioned above, consider other alternatives such as reducing installment values during an initial period to lower default risk. 3.5. The client must be informed that the exchange rate and interest rate in the financial plan simulation may change depending on fluctuations between the simulation date and contract signing; Banks must use their best efforts to formalize the conversion in the shortest possible time after client confirmation, considering the validity period of this Instruction. 3.6. The following are prohibited: a) Charging restructuring fees, early repayment fees on foreign currency loans, or conversion fees for loans into national currency; b) Adding any margin to the reference exchange rate published by the Bank of Angola in force at the date of conversion formalization. 3.7. Banks must comply with Instruction No. 4/2019 of April 26 regarding associated sales. 4. Formalization of Conversion Following agreement on the terms and conditions of the conversion process with their clients, within the timeframes established in Instruction No. 07/2020 of April 20 on Loan Granting, Commercial Banks must: a) Execute contracts with clients, utilizing their exchange position to cover the net value of provisions established in foreign currency;
CONTINUATION OF INSTRUCTION NO. 15/2020 Page 4 of 6 b) Ensure the registration of contract amendments in the mortgage and perform all necessary acts to legalize the contract; c) Convert provisions established in foreign currency into national currency at the time of loan registration in their books. 5. Eligible Value for Foreign Currency Purchase from the Bank of Angola The eligible value for foreign currency purchase is the loan value, net of: a) Any partial deductions made using provisions established in foreign currency; b) Provisions established in foreign currency; c) Foreign currency made available by the borrower. 6. Sale of Foreign Currency by the Bank of Angola 6.1. Banks must inform the Bank of Angola on the day each loan conversion is formalized and the national currency contract is executed, regarding the value of foreign currency sold to the client for loan conversion, considering the provisions of number 5 of this Instruction. 6.2. The information to be provided to the Bank of Angola is in the Annex of this Instruction and must be sent via email to DMA@BNA.AO. 6.3. The Bank of Angola sells, with value date D+1, the values requested by Banks. 6.4. Values purchased from the Bank of Angola cannot be used for other purposes except to replenish the foreign currency sold to clients for converting notified loans. 7. Doubts and Omissions Doubts and omissions arising from the interpretation of this Instruction are clarified by the Bank of Angola.
CONTINUATION OF INSTRUCTION NO. 15/2020 Page 5 of 6 8. Sanctions Non-compliance with the provisions of this Instruction subjects Banks to penalties, in accordance with Law No. 12/2015 of June 17, the Basic Law of Financial Institutions. 9. Validity Period 9.1. This Instruction remains in force until December 30, 2020, and may be extended by the Bank of Angola if justified. 9.2. The Bank of Angola will inform Banks in a timely manner if the extension decision is taken. 10. Entry into Force This Instruction enters into force the day following its publication. PUBLISHED. Luanda, September 22, 2020.
GOVERNOR JOSÉ DE LIMA MASSANO