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2016-08-08

Instruction No. 11/2016 of August 8, 2016

The Bank of Angola issued Instruction No. 11/2016 to clarify accounting and prudential principles for handling credit impairment losses. The directive mandates that financial institutions apply IAS 39 and Instruction No. 05/16 for loss measurement, with a transition period allowing the use of standard provisioning methodologies until November 30, 2017. For regulatory capital calculations, institutions must recognize the higher of the impairment losses or standard provisioning amounts starting from December 1, 2017.

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INSTRUCTION NO. 11/2016 of August 8 SUBJECT: TREATMENT OF LOSSES IN THE CREDIT PORTFOLIO

Considering that the Bank of Angola published Notice No. 12/2014 of December 17, regarding the establishment of provisions, Instruction No. 9/2015 of June 4, regarding methodologies for the establishment of provisions, Notice No. 06/2016 of June 22, regarding the full adoption of International Accounting Standards/International Financial Reporting Standards, hereinafter abbreviated as IAS/IFRS, and Instruction No. 05/16, regarding impairment losses for the credit portfolio;

There being a need to clarify a set of principles for the accounting and prudential treatment of impairment losses in the credit portfolio granted to clients, taking into account, in particular, the provisions established in Notice No. 06/2016 of June 22;

In these terms and under the combined provisions of Article 21 and Article 51, both of Law No. 16/10 of July 15 – Law of the Bank of Angola, and of Article 93 of Law No. 12/15 of June 17 – Law of the Bases of Financial Institutions.

I DETERMINE:

  1. Object The present Instruction establishes the procedures that Banking Financial Institutions must observe in the accounting and prudential treatment of losses in the credit portfolio granted to clients.

CONTINUATION OF INSTRUCTION NO. 11/2016 Page 2 of 4

  1. Scope This Instruction applies to Banking Financial Institutions, under the terms and conditions provided for in the Law of the Bases of Financial Institutions, hereinafter designated as Institutions.

  2. Definitions Without prejudice to the definitions established in the Law of the Bases of Financial Institutions, for the purposes of this Instruction, the following are understood:

3.1 Impairment loss: the amount by which the carrying amount of an asset exceeds its recoverable amount.

3.2 Risk position: exposure related to an asset, an off-balance sheet item, or a financial derivative instrument, plus income of any nature not received that are reflected accounting-wise as amounts receivable, regardless of whether they are due or overdue, in accordance with the criteria of the Chart of Accounts Manual for Financial Institutions.

3.3 Provision: amount constituted by Institutions with a view to facing potential losses in risk positions.

3.4 Recoverable amount or Recoverable Value: present value of estimated future cash flows of the credit exposure, discounted at the original effective interest rate, or considering the original spread, in the case of fixed or variable interest rate operations, respectively.

3.5 Effective interest rate: the rate that exactly discounts estimated future cash payments or receipts during the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.

  1. Accounting Treatment

4.1 Institutions that comply with at least one of the criteria provided for in number 2 of Article 5 of Notice No. 06/2016 must, for the purposes of measuring losses in the credit portfolio, consider the established in Instruction No. 05/16, regarding impairment losses for the credit portfolio, and the requirements provided for in International Accounting Standard 39 - Financial Instruments: Recognition and Measurement, hereinafter abbreviated as IAS 39, from the 2016 financial year, inclusive.

4.2 Institutions that do not meet the conditions provided for in number 2 of Article 5 of Notice No. 06/2016 of June 22, but that adopt IAS/IFRS in the 2016 financial year, must comply with the provisions of the previous point of this number.

4.3 Institutions that do not meet the conditions provided for in points 4.1 or 4.2 of this number must, for the purposes of measuring losses in the credit portfolio, consider the standard methodology established in Notice No. 12/2014 of December 17, regarding the establishment of provisions, and in Instruction No. 9/2015 of June 4, of the Bank of Angola, regarding methodologies for the establishment of provisions, until November 30, 2017. From December 1, 2017, Institutions must consider the established in Instruction No. 05/16, regarding impairment losses for the credit portfolio, and the requirements provided for in IAS 39.

CONTINUATION OF INSTRUCTION NO. 11/2016 Page 3 of 4

  1. Prudential Treatment

5.1 For the purposes of calculating Regulatory Own Funds, Institutions that comply with at least one of the criteria provided for in number 2 of Article 5 of Notice No. 06/2016 must, from the 2016 financial year, inclusive, consider the higher amount of losses in the credit portfolio resulting from:

a) the application of the standard methodology, as defined in Instruction No. 9/2015 of June 4, of the Bank of Angola, regarding methodologies for the establishment of provisions;

b) the application of the impairment requirements, as defined in Instruction No. 05/16, regarding impairment losses for the credit portfolio, and the requirements provided for in IAS 39.

5.2 Institutions that do not meet the conditions provided for in the previous point of this number, but that opt for the adoption of IAS/IFRS in the 2016 financial year, must comply with the provisions of point 5.1 of this Instruction.

Institutions that do not meet the conditions provided for in points 5.1 or 5.2 of this Instruction must, for the purposes of calculating Regulatory Own Funds, consider the standard methodology established in Notice No. 12/2014 of December 17, regarding the establishment of provisions, and in Instruction No. 9/2015 of June 4, of the Bank of Angola, regarding methodologies for the establishment of provisions, until November 30, 2017. From December 1, 2017, Institutions must consider the higher amount of losses in the credit portfolio resulting from:

a) the application of the standard methodology, as defined in Instruction No. 9/2015 of June 4, of the Bank of Angola, regarding methodologies for the establishment of provisions;

b) the application of the impairment requirements, as defined in Instruction No. 05/16, regarding impairment losses for the credit portfolio, and the requirements provided for in IAS 39.

  1. Doubts and Omissions Doubts and omissions resulting from the interpretation and application of this Instruction will be resolved by the Department of Regulation and Organization of the Financial System of the Bank of Angola.

  2. Entry into Force This Instruction enters into force on the date of its publication.

PUBLISH Luanda, on August 8, 2016

THE GOVERNOR VALTER FILIPE DUARTE DA SILVA

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