Circular Letter No. 01/DMA/2020: Explanatory Note on Foreign Exchange Position

CONTINUATION OF CIRCULAR LETTER NO. 01/DMA/2020 page 1 of 4 CIRCULAR LETTER NO. 01/DMA/2020 SUBJECT: Explanatory Note on Foreign Exchange Position Whereas the Central Bank of Angola has observed that several banking financial institutions have not complied with the prevailing foreign exchange position limits, and there is a need to clarify the concept, calculation method, and consequences of non-compliance with these limits established through Notice No. 14/2019 and Directive No. 07/DSB/DRO/DMA/2018 of January 2, 2019, the Central Bank of Angola clarifies the following:

1. Foreign Exchange Position Concept
   The foreign exchange position is based on the concept of foreign currency liquidity, aiming to ensure that banking financial institutions:
   a) Maintain sufficient liquidity to meet foreign currency commitment maturities and withdrawal/transfer requests from clients with foreign currency deposits, and therefore the short foreign exchange position is limited to 2.5% of regulatory own funds (ROF); b) Not accumulate foreign currency liquidity in their balance sheets, keeping it in deposits with other banking financial institutions abroad, which is not available to meet economic needs, and therefore the long foreign exchange position is limited to 2.5% of ROF; and c) Provide liquidity to the interbank foreign exchange market, thereby contributing to the creation of an efficient market.

CONTINUATION OF CIRCULAR LETTER NO. 01/DMA/2020 page 2 of 4
2. Foreign Exchange Position Calculation
2.1. The foreign exchange position is calculated daily, at the end of the day, and banking financial institutions must comply with the limits established by the Central Bank of Angola whenever the calculation is performed.
2.2. The foreign exchange position reflects the difference between foreign currency liabilities and net foreign currency assets, thereby excluding off-balance sheet items.
2.3. It is important to highlight that:
a) Only foreign currency impairments and other provisions must be deducted from foreign currency assets; and b) Client operations reported in the requirement statements and issued letters of credit should not be considered in the foreign exchange position calculation.
3. Foreign Exchange Position Management
3.1. Regulations stipulate that whenever a long foreign exchange position is determined, banking financial institutions must immediately sell the excess in the interbank foreign exchange market through the FXGO platform, or, if sale in that market is not possible, must sell directly to the Central Bank of Angola. This sale must be executed before reporting the Foreign Exchange Position Statement, to ensure its inclusion in the calculation and compliance with the daily foreign exchange position limit upon reporting.
3.2. This provision implies that foreign currency not sold by the time of the foreign exchange position calculation must be sold as stated in the previous paragraph, thereby prohibiting sales to clients, even if they are on a waiting list for foreign exchange operations.
3.3. Thus, banking financial institutions that close the day with a long foreign exchange position above the established limit, regardless of the value of their clients' pending foreign exchange operations, must immediately place that value for sale on the FXGO platform.

CONTINUATION OF CIRCULAR LETTER NO. 01/DMA/2020 page 3 of 4
3.4. Banking financial institutions with short foreign exchange positions that do not meet the established limit must, immediately after calculating the position, seek to purchase foreign currency in the interbank foreign exchange market through the FXGO platform, in order to restore their foreign exchange position within regulatory limits.
3.5. If the short foreign exchange position excess persists, in addition to the previous measure, banking financial institutions must submit a recovery plan for their foreign exchange position to the Central Bank of Angola.
3.6. Banking financial institutions must ensure rigorous management of their foreign exchange position to comply with the limits established by the Central Bank of Angola, and for this purpose must implement procedures that (among others):
a) Process their clients' operations within the timeframes established in regulations; and b) Ensure the acceptance of foreign exchange operations requiring future payments, such as letters of credit, within the capacity provided by their foreign exchange position.
4. Consequences of Non-Compliance with Foreign Exchange Position Limits
4.1. The consequences of non-compliance with foreign exchange position limits are:
a) Recording of a short foreign exchange position below the limit: prohibition on conducting foreign currency sales to their clients until the foreign exchange position is restored within said limit; b) Recording of a long foreign exchange position above the limit: prohibition on purchasing foreign currency on the FXGO platform and in auctions until the foreign exchange position is restored within said limit. Any other value purchased from their clients must, immediately, be sold for client operations, in the interbank market or to the Central Bank of Angola, so as not to record an increase in the long foreign exchange position at the end of the day; and

CONTINUATION OF CIRCULAR LETTER NO. 01/DMA/2020 page 4 of 4 c) Recording a short or long foreign exchange position outside the established daily limits subjects banking financial institutions to sanctions for each day of non-compliance, in accordance with Law No. 12/15 of June 17, the Basic Law of Financial Institutions.
5. This Circular Letter applies to the following banking financial institutions:
Banco Bic, Banco Caixa Geral Angola, Banco de Fomento Angola, Banco Millennium Atlântico, Banco Angolano de Investimentos, Banco de Comércio e Indústria, Banco de Poupança e Crédito, Banco Comercial Angolano, Banco Económico, Banco de Negócios Internacional, Banco de Investimento Rural, Banco Keve, Banco Sol, Banco Bai Micro-finanças, Banco VTB África, Banco Yetu, Finibanco Angola, Banco Valor, Banco Comercial do Huambo, Banco Kwanza Investimento, Banco de Desenvolvimento de Angola, Standard Bank Angola, Banco Prestígio, Standard Chartered Bank de Angola, Banco de Crédito do Sul and Banco da China Limitada – Branch in Luanda.
6. This Circular Letter enters into force on the date of its publication.
Luanda, June 9, 2020.
ASSETS MARKETS DEPARTMENT