Notice No. 10/2014 on Guarantees for Prudential Purposes

Published in the Official Gazette, First Series, No. 218, of 10 December NOTICE No. 10/2014 SUBJECT: GUARANTEES FOR PRUDENTIAL PURPOSES Considering the importance of the proper framework for received guarantees, for prudential purposes, taking into account the characteristics and nature of the guarantor or provider; Pursuant to the provisions set forth in the Law of the National Bank of Angola and the Law on Financial Institutions; I HEREBY DETERMINE:

Article 1. (Subject Matter) This Notice regulates the characteristics and requirements of the guarantees for which financial institutions are beneficiaries, as well as of their respective guarantors, in order for them to be eligible for prudential purposes.

Article 2. (Scope) This Notice applies to financial institutions under the supervision of the National Bank of Angola, under the terms and conditions provided for in the Law on Financial Institutions, hereinafter briefly referred to as institutions.

CONTINUATION OF NOTICE No. 10/2014 Page 2 of 13 Article 3. (Definitions) Without prejudice to the definitions established in the Law on Financial Institutions, for the purposes of this Notice, the following shall be understood as:

1. Credit Derivative: a financial derivative instrument that results in the transfer of credit risk between the contracting parties.
2. Subsidiary: a legal entity in relation to which another legal entity, designated as the parent company, is in a relationship of control, considering that the subsidiary of a subsidiary is also a subsidiary of the parent company to which both are subject.
3. Guarantor: the natural or legal person who provides a personal guarantee or the holder of the asset pledged as a real guarantee.
4. Personal Guarantee: a commitment undertaken by a third party, the guarantor, regarding the fulfillment of an obligation in the event that it is not fulfilled, whereby the guarantor is bound with their assets to the fulfillment of another's obligation.
5. Real Guarantee: the encumbrance of an asset for the fulfillment of an obligation in the event that it is not fulfilled, which may consist of financial real guarantees, such as cash deposits, and non-financial ones, such as rights over goods.
6. Economic Group: a set of financial, banking or non-banking institutions and non-financial companies, in which there is a relationship of control by a financial institution over the others.

CONTINUATION OF NOTICE No. 10/2014 Page 3 of 13 7. Financial Derivative Instrument: any contract that gives rise to a financial asset of one entity and a financial liability or: equity instrument of another entity and meets the following characteristics: a) Its value changes in response to a change in an interest rate, financial instrument or commodity price, exchange rate, price index, rating or credit index or another variable, designated as the "underlying"; b) No initial investment is required or this investment is not greater than that required for other types of contracts producing similar effects in response to changes in risk factors, and; c) It is settled at a future date; 8. Market: any secondary, liquid, transparent and regularly operating market, with quotes or reference prices known to its participants. Organized markets, where transactions are carried out in a structured manner and according to precise rules, established, maintained and developed by financial intermediaries who recurrently announce bid and ask prices. 9. Related Parties: partners or shareholders with qualifying holdings, entities belonging to the economic group, spouses, descendants or ascendants, of the first and second degree, of members of the management and supervisory bodies of financial institutions. 10. First-Grade Credit Privilege: the preferential right of a creditor relative to all others in the satisfaction of their credit, in the event of enforcement of a real guarantee.

CONTINUATION OF NOTICE No. 10/2014 Page 4 of 13 11. Relationship of Control: as defined in the Law on Financial Institutions. 12. Resident in a Country or Territory: the following shall be considered residents in a given country or territory: a) Natural persons who have their habitual residence in that country; b) Legal entities with their registered office in that country; c) Subsidiaries, branches, agencies or any form of representation in that country of legal entities with their registered office abroad; d) National citizens of that country who are diplomats, consular representatives or equivalent and are exercising functions abroad, as well as members of their respective families, and; e) Natural persons who are nationals of that country whose absence abroad, for a period exceeding 90 (ninety) days and less than one year, originates from study purposes or is determined by the exercise of public functions. 13. Branch: a main establishment, in a country different from the country of origin, of an entity with its registered office abroad, lacking its own legal personality, which directly carries out, in whole or in part, operations inherent to the entity's activity. 14. Security/Instrument: a fungible and freely negotiable financial instrument that confers upon its holders credit, property or capital participation rights, encompassing, in particular, shares, debentures, participation certificates, units in collective investment institutions and associated subscription rights.

CONTINUATION OF NOTICE No. 10/2014 Page 5 of 13 Article 4. (On Guarantees and Guarantors) Institutions must consider the substance, characteristics, enforcement mechanisms and effects of the received guarantees, as well as the characteristics of the guarantors, and verify the absence of privileged creditors limiting their effectiveness.

Article 5. (Effects of Guarantees) Institutions may consider received guarantees as credit risk mitigants in the establishment of provisions, in the calculation of regulatory capital requirements and in concentration limits, under the terms and conditions provided for in regulations issued by the National Bank of Angola.

Article 6. (Accepted Guarantees)

1. To be accepted as credit risk mitigants for prudential purposes, the guarantees received by institutions must possess the following characteristics: a) Be unconditional in the risk protection offered and have their content defined unequivocally; b) Be the subject of a contract or other written document that cannot be cancelled at the initiative of the guarantor while the position or situation covered remains in effect; c) Grant the right to claim against the guarantor or dispose of the assets received as collateral in the event of default, without the need to first pursue the direct debtor; d) Be express and legally binding on the guarantor under all relevant legal systems; e) Be enforceable, considering in their enforcement any inhibitory effects due to capital export restrictions, when located in another country or territory; f) Offer direct protection regarding the risks of the covered position or situation, in particular credit risk, and; g) Have a validity period not shorter than that of the covered position or situation.
2. For the purposes of this Notice, institutions must equate the purchase of protection through credit derivatives, which produce the same economic effects, to a received personal guarantee.

CONTINUATION OF NOTICE No. 10/2014 Page 6 of 13 Article 7. (Accepted Guarantors)

1. For received guarantees to be accepted as credit risk mitigants for prudential purposes, their guarantors must possess the following characteristics: a) Full legal capacity and sufficient powers of representation; b) That their assets and economic activity developed are not located in a country or territory where there are obstacles to the judicial enforcement of guarantees or to capital exports.
2. For prudential purposes, the following entities shall be considered eligible as guarantors: a) Multilateral development banks; b) International organizations; c) Central administrations, central banks, and regional and local administrations of countries or territories not included in group 5 of the list attached to specific regulation issued by the National Bank of Angola; d) Companies provided for in the Commercial Companies Law or those located in countries or territories not included in group 5 of the list attached to specific regulation issued by the National Bank of Angola; e) Collective entities with legal personality, but not in the nature of companies, located in Angola or in countries or territories not included in group 5 of the list attached to specific regulation issued by the National Bank of Angola, and; f) Individuals residing in Angola or in countries and territories not included in group 5 of the list attached to specific regulation issued by the National Bank of Angola.
3. The eligibility of received guarantees, whose guarantors are related parties to the institutions, is subject to the approval of the National Bank of Angola whenever they exceed 10% (ten percent) of regulatory capital.
4. For the purposes of the approval referred to in the preceding paragraph, institutions must submit detailed information regarding the transaction and the guarantee to the National Bank of Angola, which will communicate its decision within 60 (sixty) days.
5. It is the responsibility of the National Bank of Angola, through specific regulation, to establish and keep updated the list of multilateral development banks, international organizations, and the countries and territories mentioned in paragraph 2 of this article.

CONTINUATION OF NOTICE No. 10/2014 Page 7 of 13 Article 8. (Special Residency Regime) Under paragraph (e) of paragraph 1 of Article 6 of this Notice, the National Bank of Angola may establish, on a case-by-case basis, that majority-owned subsidiaries and/or those in which a relationship of control exists shall be considered residents in the country or territory where the parent company is located, and that branches shall be considered residents in the country or territory where the head office of the respective financial institution is located.

CONTINUATION OF NOTICE No. 10/2014 Page 8 of 13 Article 9. (Characteristics of Received Real Guarantees)

1. The following categories of assets shall be eligible as real guarantees: a) Deposits with the institution itself; b) Deposits with other institutions; c) Financial life insurance policies; d) Securities; e) Rights over real estate property; f) Ownership rights over movable property, in particular cars, ships and aircraft; g) Rights over receivables and other amounts due, and; h) Rights over goods.
2. The assets referred to in paragraphs (b) and (c) of paragraph 1 of this article must be available for enforcement without the possibility of opposition by third parties, in particular the depositary financial institution.
3. The assets referred to in paragraph (d) of paragraph 1 of this article: a) Must not: i. Have been issued by the institution itself, or by related parties, or; ii. Represent interests eligible for the regulatory capital of other financial institutions, whether resident or non-resident; b) And must: i. Be available to the institution without the need for judicial proceedings or the possibility of opposition by the entity with which the securities are custodied or by the debtor, and; ii. Be quoted or effectively traded regularly on a market, with the possibility of determining an objective price that serves as a basis for their valuation and consideration as collateral. This condition is not applicable to securities issued by the Angolan State or by the National Bank of Angola.
4. In accordance with sub-paragraph (ii) of paragraph (b) of the preceding paragraph, institutions must: a) Define and formalize criteria, objectives and verifiable standards for the acceptance of securities as collateral, in particular the suitability of management companies and financial intermediaries involved in trading, and the rating of the country or territory where the market is located, and; b) Verify the effective marketability of assets on the market, considering traded volumes and the temporal recurrence of transactions.
5. The rights referred to in paragraph (e) of paragraph 1 of this article must: a) Constitute a right with a first-grade credit privilege over the asset; b) Be subject to physical inspection by the institution; c) Have associated insurance contracts against fire and other relevant casualty risks, and; d) Be evaluated at least every two years by a suitable entity designated for this purpose, whenever the at-risk position represents: i. An amount equal to or greater than 1% (one percent) of the total credit portfolio of the institution or equal to or greater than KZ 100,000,000 (one hundred million Kwanzas); or ii. Credit situations overdue for more than 90 (ninety) days and/or other signs of impairment; or iii. Situations in which changes of another nature are identified in market conditions with a potentially relevant impact on the value of real estate assets and/or on a group or more of real estate assets with similar characteristics. For the purposes of sub-paragraph (i), institutions shall consider as a reference throughout the entirety of a given financial year 1% (one percent) of the total credit portfolio amount of the institution as determined on the closing date of the immediately preceding year.
6. The rights referred to in paragraph (g) of paragraph 1 of this article: a) Must guarantee the possibility of access to the economic benefits of the assets without the possibility of opposition by third parties, and; b) When incorporated into securities, these must comply with the conditions set forth in paragraph 3 of this article.

CONTINUATION OF NOTICE No. 10/2014 Page 9 of 13 CONTINUATION OF NOTICE No. 10/2014 Page 10 of 13 Article 10. (Prioritization Rules) In considering received guarantees, whether real or personal, and their respective guarantors, for prudential purposes, institutions must observe the following prioritization rules: a) Regardless of the outcome of applying the rules regarding the characteristics of the guarantor and the determination of the market value of the pledged asset, no guarantee should receive more favorable treatment than those provided by the central administration of the country where the guarantor resides or where the asset is enforceable; b) If a third party is responsible for its enforcement, in particular another financial institution, the effectiveness of a received real guarantee is limited by the conditions imposed by this third party.

CONTINUATION OF NOTICE No. 10/2014 Page 11 of 13 Article 11. (Sanctions) Failure to comply with the mandatory rules established in this Notice constitutes a regulatory offense punishable under the terms of the Law on Financial Institutions.

Article 12. (Repeal) All provisions contrary to this Notice are hereby repealed.

CONTINUATION OF NOTICE No. 10/2014 Page 12 of 13 Article 13. (Doubts and Omissions) Doubts and omissions arising from the interpretation and application of this Notice shall be resolved by the National Bank of Angola.

Article 14. (Entry into Force) This Notice shall enter into force on 01 January 2015. PUBLISHED, Luanda, on 05 December 2014. THE GOVERNOR JOSÉ DE LIMA MASSANO

CONTINUATION OF NOTICE No. 10/2014 Page 13 of 13