Circular No. 06/EFI/2020 of 16 November - Program for the Gradual Reduction of Subordinated Loans, Redeemable Preference Shares and Other Instruments in Own Funds

Bank of Mozambique
Administration

CIRCULAR NO. 06/EFI/2020
Maputo, 16 November 2020

SUBJECT: PROGRAM FOR THE GRADUAL REDUCTION OF SUBORDINATED LOANS, REDEEMABLE PREFERENCE SHARES AND OTHER INSTRUMENTS IN OWN FUNDS

Article 15 of Notice No. 8/GBM/2017 of 2 June, which approves the Regulation on Own Funds of Credit Institutions, provides that the Bank of Mozambique shall establish, for the last 5 years of the life of subordinated loans, fixed-date redeemable preference shares and other instruments, a program for the gradual reduction of the amounts that may be included in the borrowing institution's own funds.

In exercise of that power, the Bank of Mozambique informs that:

1. The amount of subordinated loans, fixed-date redeemable preference shares and other instruments to be considered for the purposes in question must be reduced at a rate of 20% per year, over the 5 years preceding their respective repayment.

2. The reduction referred to in item 1 shall apply with reference to the last day of each of the last 5 years of the life of the subordinated loan, fixed-date redeemable preference shares and other instruments.

3. In cases where the years preceding repayment are fewer than 10, the annual reduction amount shall be adjusted to the equivalent percentage.

4. The borrowing institution may benefit from the option to repay the installments of the subordinated loan, fixed-date redeemable preference shares and other instruments that no longer qualify for inclusion in the calculation of own funds, provided that the Bank of Mozambique, considering the institution's own funds structure and its solvency outlook, declares no objection to such repayment.

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Bank of Mozambique
Administration

5. To benefit from the option referred to in the preceding item, the interested institution must submit, from the beginning of the period referred to in item 1, a non-objection request, regarding which the Bank of Mozambique may adopt one of the following positions:

   a) Object to the repayment, on the grounds that the funds may be required to ensure the institution's compliance with its obligations. In this case, the institution may resubmit, in subsequent years, the request regarding the accumulated amount eligible for repayment at the end of each year;

   b) Not object to the repayment, for each of the five years, if it considers that the own funds structure is sufficiently adequate, both at the time of the decision and, foreseeably, in future terms;

   c) Not object to the repayment at the end of the first year, but condition the decision regarding the remaining years on the submission of an annual request, on the grounds that it is not sufficiently demonstrated that, in the future, the loan installments will not be required to ensure the institution's compliance with its obligations.

6. If the contract clauses provide that the loan will be repaid in installments staggered over time, on fixed dates not dependent on the exercise of an early repayment option (call option) or any other right that allows the borrowing institution to repay the loan early, each of these installments must be considered independently for the purposes of the gradual reduction program in the last 5 years, in accordance with item 1, and the provisions of item 4 shall apply to each of these installments.

7. This Circular enters into force immediately.

8. Any doubts arising from the interpretation and application of this Circular shall be clarified by the Prudential Supervision Department.

BANK OF MOZAMBIQUE
Stability Division
Gertrudes Toyela
Administrator

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