Notice No. 08/GBM/2019 of June 17 - Regulation on the Calculation and Establishment of Mandatory Reserves

Bank of Mozambique Governor

NOTICE NO. 08/GBM/2019

Maputo, June 17, 2019

SUBJECT: REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

The most recent evolution of monetary and financial aggregates necessitates an update to the methodology for establishing mandatory reserves, in order to confer greater flexibility to the liquidity management of covered credit institutions.

In these terms, the Bank of Mozambique, pursuant to the provisions of paragraphs 1 and 2 of Article 27 of Law No. 1/92, of January 3 – the Organic Law of the Bank, determines:

1. The Regulation on the Calculation and Establishment of Mandatory Reserves, attached hereto, is hereby approved and constitutes an integral part of this Notice.

2. This Notice enters into force on the date of its publication.

3. Notice No. 12/GBM/2017, of June 9, is hereby revoked.

Any doubts arising from the interpretation and application of this Notice shall be submitted to the Markets and Reserve Management Department of the Bank of Mozambique.

[Signature] Rogério Lucas Zandamela Governor

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REGULATION ON THE CALCULATION AND ESTABLISHMENT OF MANDATORY RESERVES

CHAPTER I OBJECT AND SCOPE

Article 1 Object

This Regulation establishes the norms for the calculation and establishment of mandatory reserves.

Article 2 Scope of Application

1. This Regulation applies to all credit institutions provided for in Law No. 15/99, of November 1, as amended by Law No. 9/2004, of July 21 (Law on Credit Institutions and Financial Companies), holding liabilities referred to in Article 4 of this Regulation and monetary assets with the Bank of Mozambique.

2. The provisions of the preceding paragraph do not apply to credit institutions not authorized to receive deposits.

CHAPTER II CALCULATION AND ESTABLISHMENT

Article 3 Currencies for Establishment

Mandatory reserves shall be established:

a) In Meticais, for deposits denominated in national currency; and

b) In US dollars, for deposits denominated in foreign currency.

Article 4 Liabilities Subject to Levy

1. The following liabilities constitute the levy base for mandatory reserves, as detailed in the Mandatory Reserve Calculation Maps attached to this Regulation:

a) Deposits from Residents;

b) Deposits from Non-Residents; and

c) State Deposits.

2. The liabilities referred to in the preceding paragraph must be segregated by national currency and foreign currency.

Article 5 Calculation of the Levy Base

1. The levy base for mandatory reserves is calculated from the simple arithmetic mean of the daily balances of the liabilities referred to in the preceding article, observed over the calculation period.

2. The calculation period for the levy base begins on the 1st and ends on the last day of each month.

3. For the purpose of calculating the levy base, deposits denominated in other foreign currencies are converted daily into their US dollar equivalent, using the applicable reference exchange rate.

4. The value, in US dollars, of the deposits referred to in the preceding paragraph is calculated by applying the following conversion factor:

$$F_{USD} = \frac{Taxa_{ME}}{Taxa_{USD}}$$

5. In the formula provided in the preceding paragraph:

a) $F_{USD}$ – is the conversion factor to the US dollar;

b) $Taxa_{ME}$ – is the reference (daily) exchange rate of the foreign currency to be converted; and

c) $Taxa_{USD}$ – is the reference (daily) exchange rate of the US dollar.

Article 6 Levy Rate

The Bank of Mozambique fixes by Circular the mandatory reserve coefficient applicable to the levy base referred to in the preceding article.

Article 7 Establishment Period

1. The establishment period for mandatory reserves begins on the 7th of each month and ends on the 6th of the following month.

2. The mandatory reserves for each establishment period correspond to the immediately preceding calculation period.

Article 8 Form of Establishment

1. Mandatory reserves in national currency must be established in at least one of the following forms:

a) Cash;

b) Checks drawn by the institution itself on other domestic credit institutions;

c) Account-to-account transfer;

d) Other financial assets eligible for inclusion in the clearing system, excluding demand deposits in foreign currency of credit institutions held with the Bank of Mozambique; and

e) Cash held in the institution's branches in rural areas, as defined by the Bank of Mozambique.

2. Mandatory reserves in foreign currency must be established in at least one of the following forms:

a) Crediting the US dollar demand deposit account held with the Bank of Mozambique, via account-to-account transfer from banks within the country; and

b) Crediting the US dollar demand deposit account, via transfer from the institution's nostro account to the Bank of Mozambique's nostro account.

3. In cases where the implementation of the preceding paragraph is impossible, the Bank of Mozambique may, upon a duly justified request from the institution, authorize other forms of establishing mandatory reserves.

Article 9 Establishment Methodology

1. Mandatory reserves in national currency and US dollars are established on an average basis.

2. For the purpose of complying with mandatory reserves on an average basis, the following formula is applied:

$$Saldo Médio = \frac{\Sigma SD}{N}$$

3. In the formula referred to in the preceding paragraph:

a) $\Sigma SD$ – is the sum of the daily accounting balances of demand deposits in national or foreign currency, of credit institutions held with the Bank of Mozambique, calculated for the mandatory reserve establishment period, based on statements issued by the Bank of Mozambique Branches.

b) $N$ – is the number of days comprising the mandatory reserve establishment period.

4. The daily average value obtained in accordance with the provisions of paragraph 2 of this article must not be less than the amount of mandatory reserves resulting from multiplying the rate referred to in Article 6 by the levy base calculated in accordance with the terms described in Article 5, both of this Regulation.

CHAPTER III SANCTIONS

Article 10 Penalization of Irregularities

1. Without prejudice to the provisions of applicable legislation, the following irregularities are subject to monetary penalties:

a) Mandatory reserve deficit;

b) Delay in submitting to the Bank of Mozambique information regarding the levy base.

2. The penalty for the mandatory reserve deficit determined at the end of each establishment period takes a monetary form and is determined based on the following formula:

$$Penalização = 10.000,00 MT \times N + \left| \frac{(SM - r \times BI) \times T \times N}{36500} \right|$$

3. In the formula provided in the preceding paragraph:

a) $N$ – is the number of days of the establishment period to which the mandatory reserves relate.

b) $SM$ – is the average of the accounting balances of national currency demand deposit accounts of credit institutions held with the Bank of Mozambique, calculated for the respective establishment period, as indicated in paragraph 2 of Article 9 of this Regulation, based on statements issued by the Bank of Mozambique Branches.

c) $r$ – is the mandatory reserve rate.

d) $BI$ – is the mandatory reserve levy base.

e) $T$ – is the penalty rate for mandatory reserve deficit.

4. The penalty rate for mandatory reserve deficit, referred to in the preceding paragraph, corresponds to:

a) The prevailing Prime Rate interest rate at the end of the establishment period, plus two percentage points, in the case of a national currency deficit.

b) The highest and most recent US dollar active operations interest rate practiced by the infringing credit institution, plus two percentage points, in the case of a foreign currency deficit.

5. The penalty due for the delay in submitting the mandatory reserve calculation maps in national and foreign currency is fixed at 10,000.00 MT per map and per business day of delay.

6. In cases of unavailability of information on the active operations interest rates practiced by the infringing institution, the most recent average interest rate of active operations practiced by the banking system, plus two percentage points, shall be applied for the purposes of the penalty referred to in this article.

7. The penalty values due for mandatory reserve deficits in foreign currency are converted into Meticais using the reference rate in effect on the date of the offense.

Article 11 Payment of the Penalty

The Bank of Mozambique debits the national currency demand deposit account of the infringing credit institution for the value of the penalties determined in accordance with the preceding article.

Article 12 Aggravation of the Penalty

If an institution incurs a deficit in two out of three mandatory reserve establishment periods, whether consecutive or not, the penalty rate T defined in Article 10 is aggravated by ten percentage points.

Article 13 Account Blocking

1. If an institution incurs a deficit in two consecutive mandatory reserve establishment periods, the Bank of Mozambique automatically blocks the balance of the free movement account.

2. Only credit movements are permitted in the blocked account, without prejudice to any additional measures provided for in the Interbank Clearing and Settlement Regulations.

3. The institution is notified of the account block with a minimum advance of four days from the date of its effective implementation.

4. The institution whose account is blocked is obliged, upon receipt of the notification, to:

a) Immediately instruct the opening of a new account for clearing and other types of operations, with the Maputo Branch of the Bank of Mozambique.

b) Provision the blocked account for the purpose of complying with mandatory reserves.

5. The Bank of Mozambique reserves the right to transfer from the new account to the blocked account the balances necessary for the institution to comply with mandatory reserves.

6. While deficits persist in the blocked account, the penalty on periodic deficits is applied based on the rate provided for in Article 12 of this Regulation.

7. Within a period of no less than two mandatory reserve establishment periods, the Bank of Mozambique may instruct the lifting of the account block.

CHAPTER IV FINAL PROVISIONS

Article 14 Submission of Information

1. Credit institutions covered by this Regulation must submit to the Bank of Mozambique, referencing the levy base calculation period indicated in paragraph 2 of Article 5, the information contained in the Mandatory Reserve Calculation Maps attached, which form an integral part of this Regulation.

2. The Mandatory Reserve Calculation Maps referred to in the preceding paragraph must be received by the Bank of Mozambique by the third business day following the end of the calculation period to which they refer, and may be rectified until the last business day preceding the start of their respective establishment period.

3. Late submission of maps is an indispensable condition for the acceptance of maps relating to subsequent periods.

4. Any rectification occurring regarding the levy base information that implies a reduction of the deficit determined at the end of the establishment period is not considered for the purpose of reducing the calculated penalty value; the prior information prevails for these cases.

5. Credit institutions are obliged to retain, for a period of five years, all documents enabling them to prove the information contained in the Maps referred to in paragraph 1 of this article.

Article 15 Exemption Period

1. All credit institutions enjoy an exemption in the establishment of mandatory reserves for a maximum period of three months, counted from the date of commencement of their activity.

2. Should the institution wish to join the interbank markets before the expiration of the period referred to in the preceding paragraph, it must waive the enjoyment of the remaining exemption period, in order to comply with the provisions of paragraph a) of Article 3 of Notice No. 05/GBM/13, of September 18, Regulation of the Market Operations System.

3. The exemption referred to in paragraph 1 of this article is automatic, and its terms are formally communicated by the Regulation and Licensing Department of the Bank of Mozambique.

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(Note: Pages 12 to 15 contain the annexes with the calculation map models, which consist of technical financial reporting tables.)