Notice No. 03/GBM/2019, January 29 - Intraday Credit Regulation

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--- Banco de Moçambique --- Governador

Notice No. 03/GBM/2019 Maputo, January 29, 2019

Subject: Intraday Credit Regulation

Given the need to establish rules governing the granting of intraday credit, with the objective of minimizing participants' exposure in the payment system to liquidity and credit risks, and ensuring efficient financial settlement of participants' obligations, the Bank of Mozambique, exercising its powers under Article 22 combined with paragraph b) of Article 41 of Law No. 1/92, dated January 3 – Organic Law of the Bank of Mozambique, determines:

1. The Intraday Credit Regulation, attached hereto, is approved and forms an integral part of this Notice.

2. This Notice enters into force on the date of its publication.

3. Any doubts arising from the interpretation and application of this Notice shall be submitted to the Payment Systems Department of the Bank of Mozambique.

[Assinatura] Rogério Lucas Zandamela Governador

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--- Banco de Moçambique --- Governador

INTRADAY CREDIT REGULATION

CHAPTER I General Provisions

Article 1 (Object)

This Regulation establishes the rules governing intraday credit lending operations by the Bank of Mozambique and repayment by credit institutions.

Article 2 (Scope)

This Regulation applies to credit institutions that hold a deposit account at the Bank of Mozambique and settle their obligations through payment subsystems.

Article 3 (Definitions)

For the purposes of this Regulation, the following terms are defined as:

a) "Intraday credit" – loan granted by the Bank of Mozambique to a participating credit institution in the National Payments System, against the delivery of collateral, with repayment occurring on the same business day, up to the cutoff time for settlement of obligations in payment subsystems;

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--- Banco de Moçambique --- Governador

b) "Overnight credit" – loan granted by the Bank of Mozambique to participating credit institutions in payment subsystems, with a maturity of one business day, resulting from the non-repayment of Intraday Credit;

c) "Waiting queue" – ordering mechanism by which payment instructions are held pending acceptance for settlement, due to insufficient funds in the ordering participant's settlement account.

d) "Collateral" – financial assets established by the Interbank Money Market Regulation, approved by Notice No. 10/GBM/2013, of September 18, amended by Notice No. 8/GBM/2015, of December 31, and the Regulation on Fixed Income Securities Repurchase and Resale Operations, approved by Notice No. 7/GBM/2015, of December 31.

CHAPTER II Access, Form of Granting and Repayment of Intraday Credit

Article 4 (Currency Denomination)

Intraday credit is granted in meticais, within the deposit account of the requesting credit institution.

Article 5 (Access Conditions)

1. Intraday credit is granted to the credit institution that:

a) holds financial obligations in the payment system that remain unsettled due to lack or insufficiency of funds in its deposit account at the Bank of Mozambique; b) provides collateral that reverts to the benefit of the Bank of Mozambique upon granting of intraday credit.

2. The provision in paragraph a) above does not apply for the purposes of settling overnight credit.

Article 6 (Form of Granting)

1. Intraday credit is granted through the Bank of Mozambique's collateral purchase operation with resale agreement and liquidity provision, in an amount equivalent to the delivered collateral.
2. The granting of intraday credit may be automatic or upon request by the credit institution, and is fully secured by collateral providing coverage.
3. In cases where the value of collateral is lower than the requested or necessary intraday credit amount, the Bank of Mozambique reduces the credit amount to correspond to the presented or available collateral.

Article 7 (Limit)

Credit institutions covered by this Regulation may contract intraday credit up to the limit of their collateral portfolio.

Article 8 (Collateral)

1. For the purposes of Article 6(1), the purchase price of collateral is equal to the sale price, with no interest charged by the Bank of Mozambique.
2. The purchase price referred to above is obtained by discounting securities at an additional rate of two point five percentage points (2.5 pp) relative to the collateral rate published by the Bank of Mozambique for securities traded in the Interbank Money Market.
3. Upon purchase of collateral by the Bank of Mozambique, their nominal value is considered.

Article 9 (Repayment of Intraday Credit)

1. Intraday credit granted under Article 6 must be repaid on the same day, up to the cutoff time for settlement of obligations by participants in payment subsystems.
2. Upon repayment of intraday credit, the Bank of Mozambique resells the collateral delivered by the requesting credit institution.

Article 10 (Conversion of Intraday Credit to Overnight Credit)

If repayment of the intraday credit value is impossible, it is converted into overnight credit.

Article 11 (Conversion of Overnight Credit to Bank of Mozambique's Definitive Purchase)

If overnight credit is not repaid on the business day immediately following the granting of intraday credit, the assets taken as collateral revert automatically and definitively to the Bank of Mozambique, in the form of a definitive purchase of collateral by the Bank of Mozambique, at a price equivalent to their repurchase value, as per the following article.

Article 12 (Applicable Rates and Prices in Case of Non-Repayment of Intraday and Overnight Credit)

1. In the event of non-repayment of intraday credit, the Bank of Mozambique converts it to overnight credit and applies the following rates:

a) five percentage points (5 pp) added to the Permanent Liquidity Lending Facility rate, if the institution registers one repayment default within twelve months; b) an aggravation of two point five percentage points (2.5 pp) on the rate set in the previous paragraph, if the institution registers repayment default at least twice within twelve months.

2. In the event of non-repayment of overnight credit, the reversion of collateral to the Bank of Mozambique, in the form of definitive purchase, takes as its definitive purchase price the same that was in effect upon granting overnight credit.

3. The calculation formulas for purchase and resale prices, both for cases activating overnight credit operations and for definitive purchase, are those provided in the Regulation on Fixed Income Securities Repurchase and Resale Operations, approved by Notice No. 7/GBM/2015, of December 31.

Article 13 (Suspension of Access to Credit)

The Bank of Mozambique suspends access to intraday credit whenever any of the following situations occur:

a) Closure of the credit institution's deposit account at the Bank of Mozambique; b) The credit institution ceases to participate in payment subsystems; c) Revocation of the authorization granted to the credit institution.

CHAPTER III Final Provisions

Article 14 (Sanctioning Regime)

Violation of the provisions of this Regulation constitutes a regulatory offense punishable under Law No. 2/2008, dated February 27 – National Payments System Law.