COMMISSION BANCAIRE DE CENTRAL AFRICA

COBAC REGULATION R-2010/02 ON RISK DIVISION FOR CREDIT INSTITUTIONS

The Banking Commission of Central Africa,

Having regard to the Convention of 16 October 1990 establishing the Banking Commission of Central Africa (COBAC);

Having regard to the Convention of 17 January 1992 on the harmonization of banking regulation in the States of Central Africa;

Having regard to COBAC Regulation R-2001/03 on the risk division of credit institutions, as amended by COBAC Regulation R-2003/07;

Having regard to COBAC Regulation R-2003/03 on the accounting and prudential treatment of securities transactions carried out by credit institutions, as amended by COBAC Regulation R-2009/01;

Having regard to the minutes of the meetings of the Banking Commission held in Libreville and Douala on 26 November 2008 and 30 June 2009 respectively;

DECIDES:

Article 1-

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

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

The elements for calculating the ratios mentioned in the preceding paragraph are extracted from the individual or consolidated accounts of the concerned credit institution.

For the application of this Regulation, the following terms are understood as:

• State: the central public administration and public bodies as defined in Annex 1 “Identification Attributes” of the Chart of Accounts for credit institutions;
• Credit institutions: banks and financial establishments authorized in accordance with the provisions in force in their host country and subject to the control of the regulatory authority of their jurisdiction of establishment;
• Subject credit institutions: credit institutions subject to the control of COBAC;
• Multilateral Development Bank: a multinational public establishment whose mission is the financing of development activities in a country or group of countries;
• Multilateral guarantee organization: a multinational public establishment that provides financing guarantees to credit institutions;
• Public financing or guarantee organization: an organization dependent on a national government whose mission is to grant credits, refinancing lines, or guarantees;
• Risks: asset and off-balance sheet items when these items are subject to counterparty default risk;
• CEMAC: Economic and Monetary Community of Central Africa;
• UMOA: West African Monetary Union;
• OECD: Organisation for Economic Co-operation and Development.

Article 2-

Net own funds are determined in accordance with COBAC Regulation R-93/02 as amended 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 would 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 exceeding 10% in the other and they are linked by cross-guarantee contracts or maintain predominant business relations between them (subcontracting, franchise, etc.).

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 preceding paragraph if the institution provides proof that these persons are sufficiently independent of each other so that, given the necessary prudence, it can be estimated 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;
• lease 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 member state of 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 such a deduction is made, the concerned risks are transferred to the issuer of the guarantee. The applicable weighting rate is obtained by comparing the rate induced by the nature of the support covered by the guarantee and the rate resulting from the quality of the guarantor's signature, as fixed in Article 5 of this Regulation. The lower of the two rates is retained.

When a risk is only partially covered by such guarantees, the uncovered portion remains subject to the weighting rate associated with 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 conditions set are not met satisfactorily.

Article 5-

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

a) Weighting rate: 100%

• Claims of any nature on public or private customers, except documentary discounting, export credits linked to base 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 opened on customer order.
• Claims of any nature and off-balance sheet commitments, except cautions and avals, on credit institutions other than those referred to in paragraph d) of this article.
• Claims of any nature and off-balance sheet commitments, except cautions and avals, on public financing or guarantee organizations other than those referred to in paragraphs d) and h) of this article.
• Non-performing claims and doubtful off-balance sheet commitments on correspondents.

b) Weighting rate: 75%

• Credits guaranteed by a firm first or second rank mortgage on real estate.

c) 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 lease and hire-purchase operations.

d) Weighting rate: 20%

• Documentary discounting.
• Export credits linked to base products.
• Claims of any nature and off-balance sheet commitments on Credit Institutions of CEMAC, UMOA, or OECD, as well as on Credit Institutions whose headquarters are located in countries and territories whose banking supervision authorities have signed cooperation agreements with COBAC or belong to the same group of supervisors as COBAC.
• Claims of any nature and off-balance sheet commitments on Multilateral Development Banks and Multilateral Guarantee Organizations established in CEMAC, UMOA, and OECD other than those referred to in paragraph e) of this article.
• Claims of any nature and off-balance sheet commitments on public financing or guarantee organizations established in OECD other than those referred to in paragraph e) of this article.
• Cautions and avals on correspondent order.
• Cautions and avals on customer order.
• Other signature commitments.

e) Weighting rate: 0%

• Asset and off-balance sheet items other than those mentioned above.
• Securities issued by BEAC.
• Secured claims on the State to the extent that the securitization mechanism allows securing the repayment of debt.
• Loans and securities with mandatory subscription.
• Claims of any nature and off-balance sheet commitments on Multilateral Development Banks and Multilateral Guarantee Organizations meeting the Basel Committee criteria to be weighted at 0%.

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 rating 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 a motivated proposal from 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 monitoring, which must be organized, notably by setting limits to delegation of loan decision-making or commitment powers, so that the maximum amount of ratios provided for in Article 1 is permanently respected.

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

Subject credit institutions must be able to provide information on risk concentration by sector of activity.

The General Secretariat of the Banking Commission may request a report on the means implemented to comply with the provisions of the preceding paragraphs of this article.

Article 9-

For the application of Article 1, subject credit institutions submit periodic declarations to the General Secretariat of the Banking Commission in accordance with the model defined by instruction.

Article 10-

In the event of non-compliance with the standard set in Article 1 of this Regulation, the Banking Commission may issue an injunction to take, within a specified period, all corrective measures necessary to bring the concerned institution into compliance with this standard. The institution is prohibited from making any dividend distribution during this period.

When a Credit Institution presents a negative net equity situation, it is required to promptly present, under the control of the statutory auditors, a financial restructuring plan to the Banking Commission. Any dividend distribution is prohibited during the implementation of the plan.

If a Credit Institution has not complied with an injunction or has ignored a warning or has seriously violated the regulation, the Banking Commission may impose one or more disciplinary sanctions provided for in Article 15 of the Annex to the Convention of 16 October 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 9-

The aforementioned COBAC Regulation R-2001/03 is repealed.

Article 10-

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

Done in Yaoundé, on 27 June 2006

For the Banking Commission, The President,

Lucas ABAGA NCHAMA