COMMISSION BANCAIRE DE CENTRAL AFRICA

COBAC REGULATION R-2001/03 ON RISK DIVISION FOR CREDIT INSTITUTIONS

The Banking Commission of Central Africa,

Having regard to the Convention of October 16, 1990 establishing a Banking Commission of Central Africa;

Having regard to Article 9, paragraph 1 of the Annex to the Convention of October 16, 1990;

Having regard to Articles 31, 32, and 34 of the Convention governing the Monetary Union of Central Africa;

Having regard to COBAC Regulation R-93/04 on risk division.

DECIDES:

Article 1 - Every credit institution is required, under the conditions set out in this Regulation, to permanently comply with:

• a maximum ratio of 45% between the total risks incurred due to its operations with a single beneficiary and the amount of its net own funds;
• a maximum ratio of 800% between the sum of large risks incurred and the amount of its net own funds. By large risk is meant the total risks incurred due to operations with a single beneficiary when this total exceeds 15% of the net own funds of said institution.

For the application of this Regulation, risks are understood to be asset and off-balance sheet items when these items are subject to counterparty default risk.

The calculation elements for the ratios mentioned in the previous article are extracted from the individual or consolidated accounting of the concerned credit institution.

By credit institution, one must understand banks and financial institutions authorized by COBAC, with the exception of credit institutions of a special character which are subject to specific provisions.

By State, one must understand the central administration.

Article 2 - Net own funds are determined in accordance with Regulation R-93/02 modified by COBAC Regulation R-2001/01.

Article 3 - For the application of this Regulation, natural or legal persons who are linked in such a way that financial difficulties encountered by one will very likely lead to serious repayment difficulties for the other or all others are considered as a single beneficiary. Such links are presumed to exist between two or more natural or legal persons in any of the following cases:

1° one of them exercises, directly or indirectly, exclusive or joint control power over the others;

2° they are subsidiaries of the same parent company;

3° they are subject to common de facto management;

4° each of the persons is a local authority or a public establishment and one depends financially on the other;

5° one of them holds a participation greater than 10% in the other and they are linked by cross-guarantee contracts or maintain predominant business relations (subcontracting, franchising...).

However, the Banking Commission may authorize an institution not to consider as a single beneficiary the persons referred to in 1°, 2°, 3°, 4°, and 5° of the previous paragraph if the institution provides proof that these persons are sufficiently independent of each other so that it can be estimated, given the necessary prudence, that the financial problems encountered by one of these persons will not lead to repayment difficulties for the others.

Article 4 - The risks incurred, possibly reduced by impairment provisions, include:

• customer loans distributed;

• leasing and hire-purchase operations;

• subscribed public and private securities;

• claims on correspondents;

• off-balance sheet commitments given on customer order;

• off-balance sheet commitments given on correspondent order.

Guarantee deposits of any nature and formal guarantees issued by a State member of the CEMAC or by a credit institution authorized by COBAC or by any other banking supervision body recognized by the Basel Committee for a duration at least equal to that of the risks they cover may also be deducted from these risks.

When a risk is only partially covered by such guarantees, the uncovered portion remains subject to the weighting rate applicable to the original risk.

The General Secretariat of the Banking Commission may oppose the application of a given weighting to a risk if it considers that the fixed conditions are not met satisfactorily.

Article 5 - The following weighting rates apply to asset and off-balance sheet items. For loans benefiting from a classification agreement from the BEAC, the quotas related to these risks are reduced by half.

Weighting Rate: 100%

• Claims of any nature on public or private customers, with the exception of documentary discounting, export credits linked to basic products, advances on stocks, commercial discounting, credits guaranteed by a firm first or second rank mortgage on real estate, and advances on pledged public contracts.
• Other equity participations in public or private companies.
• Acceptances subscribed on customer order.
• Guarantees for repayment of customer credits financed by other credit institutions.
• Other confirmed credit facilities on customer order.
• Direct loans to States of the CEMAC Zone not meeting any convergence criteria or only one criterion other than the non-accumulation of domestic and external arrears.
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on credit institutions authorized by COBAC in critical financial situation (rating 4).
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on external correspondents whose rating by an international standing rating agency is comparable to rating 4 of the COBAC rating scale.

Weighting Rate: 75%

• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on other external correspondents not benefiting from a rating by an international standing rating agency.
• Non-performing claims and doubtful off-balance sheet commitments on correspondents.
• Credits guaranteed by a firm first or second rank mortgage on real estate.
• Direct credits on States of the CEMAC Zone meeting two criteria or only the criterion of non-accumulation of domestic and external arrears.
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on credit institutions authorized by COBAC in fragile financial situation (rating 3).
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on external correspondents whose rating by an international standing rating agency is comparable to rating 3 of the COBAC rating scale.

Weighting Rate: 50%

• Advances on stocks to private and public customers.
• Advances on pledged public contracts.
• Commercial discounting to private and public customers.
• Confirmed documentary credit facilities.
• Confirmation of documentary credits opened by other credit institutions.
• Financial balance of leasing and hire-purchase operations.
• Direct credits on States of the CEMAC Zone meeting three convergence criteria or two criteria including the non-accumulation of domestic and external arrears.
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on credit institutions authorized by COBAC in good financial situation (rating 2).
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on external correspondents whose rating by an international standing rating agency is comparable to rating 2 of the COBAC rating scale.
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on external correspondents not benefiting from a rating by an international standing rating agency but whose supervisory bodies have signed cooperation agreements with COBAC, provided that COBAC does not hold unfavorable information.

Weighting Rate: 20%

• Documentary discounting.
• Export credits linked to basic products.
• Direct credits on States of the CEMAC Zone meeting three convergence criteria including the non-accumulation of domestic and external arrears.
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on credit institutions authorized by COBAC in solid financial situation (rating 1).
• Claims of any nature and off-balance sheet commitments, with the exception of guarantees and avals, on external correspondents whose rating by an international standing rating agency is comparable to rating 1 of the COBAC rating scale.
• Guarantees and avals on correspondent order.
• Guarantees and avals on customer order.
• Other signature commitments.

Weighting Rate: 0%

• Asset and off-balance sheet items other than those mentioned above.
• Securities issued by the BEAC.
• Direct loans to States of the CEMAC Zone meeting the four convergence criteria.
• Secured claims on the State to the extent that the securitization mechanism allows securing the repayment of the debt.
• Loans and securities with mandatory subscription.

Article 6 - Equity participations in credit institutions that are subject to deduction from the institution's own funds must not be taken into account.

Article 7 - As an exception, for certain very high-standing and nationally important companies that offer a solid financial surface but do not benefit from a BEAC classification agreement, or for certain companies whose weight in the national economy is particularly high, the quotas related to their risks may be reduced by half.

The list of high-standing and nationally important companies or those whose weight in the national economy is particularly high is established each year by the Banking Commission on the motivated proposal of the APEC and made public.

Credit institutions eligible for these quotas must be rated 1, 2, or 3.

Article 8 - The risks defined in Article 4 are subject to internal management and surveillance which must be organized, notably by setting limits on delegation of loan or commitment decision-making powers, such that the maximum amount of the ratios provided for in Article 1 is permanently respected.

However, credit institutions have a period of two years, from the date of entry into force of this Regulation, to comply with the respect of the individual limit of commitments to the State.

Credit institutions must implement all necessary means for exhaustive centralization of commitments, particularly those granted to beneficiaries linked within the meaning of Article 3.

Furthermore, institutions must be able to provide information on risk concentration by sector of activity.

The General Secretariat of the Banking Commission may request that a report on the means implemented be communicated to it.

Article 9 - For the application of Article 1, subject institutions send monthly declarations to the General Secretariat of the Banking Commission conforming to the model defined by instruction.

Article 10 - In the event of non-compliance with the standards set out in Article 1 of this Regulation, the Banking Commission may issue an injunction to the effect of taking, within a determined deadline, all corrective measures likely to bring the concerned institution into conformity with these standards.

If a credit institution has not complied with an injunction or has not taken into account a warning or has seriously violated the regulation, the Banking Commission may impose one or more disciplinary sanctions provided for in Article 13 of the Annex to the Convention of October 16, 1990.

Article 11 - The Banking Commission may authorize a credit institution to temporarily derogate from the provisions of this Regulation by setting a deadline to regularize its situation.

Article 12 - These provisions, which enter into force on January 1, 2002, apply to the institutions covered by the Convention of October 16, 1990 establishing a Banking Commission of Central Africa.

Article 13 - For credit institutions, until the adoption by the Basel Committee of the new weighting system and the publication of the rating attributed by COBAC, the following transitional provisions apply:

• CEMAC, UMOA, or OECD credit institutions benefit from a weighting rate of 20%.
• Other credit institutions are weighted at 100%.

Article 14 - The aforementioned COBAC Regulation R-93/04 is repealed.

Article 15 - The Secretary General of the Banking Commission is charged with the execution of this Regulation.

Done in Yaoundé, on 7 [1A] 2001

For the Banking Commission, The President,

Jean-Félix MAMALEPOT