Regulation (NAP) - Standard on Bank Overdraft

Central Bank of S. T. P.	N A P <br> PERMANENT APPLICATION STANDARD	CODE <br> SB 08
PROPOSER(S)	EFFECTIVE DATE	ISSUANCE DATE
P.S.B.S.	25/08/2015	25/08/2015

Subject: Standard on Bank Overdraft

Whereas Bank Overdraft is a very short-term credit facility designed to meet specific capital needs, made available in the customer's current account;

Whereas Banking Institutions, when making overdraft available in the customer's current account, must comply with Articles 27 and 30 of Law 09/92 – Financial Institutions Act – in conjunction with Article 40 of the same legal instrument;

It being necessary for the Financial System Regulatory Authority to issue a regulatory standard on said banking product, thereby complementing existing legal provisions and promoting compliance, ensuring its effectiveness and the subsequent return of granted capital;

In these terms, the Central Bank of São Tomé and Príncipe, exercising its powers under letters d) and f) of paragraph 2 of Article 8 of Law No. 8/92 – Organic Law of the Central Bank of São Tomé and Príncipe – and Article 30 of Law No. 9/92, both published in Supplement No. 16 of the Official Gazette on August 3, 1992, determines the following:

Article 1. Subject Matter

This standard establishes the rules for granting and managing Bank Overdraft by banking institutions authorized to operate in São Tomé and Príncipe.

Article 2. Definition

1. For the purposes of this standard, Bank Overdraft is considered a very short-term credit facility through which the bank allows the customer to withdraw funds or make payments from their current account, in an amount exceeding the account balance.
2. Bank Overdraft may be granted in the following forms: a) Overdraft Facility; b) Unformalized Overdraft.

Reviewed by	Revocation Data:

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Central Bank of S. T. P.	N A P <br> PERMANENT APPLICATION STANDARD	CODE <br> SB 08
PROPOSER(S)	EFFECTIVE DATE	ISSUANCE DATE
P.S.B.S.	25/08/2015	25/08/2015

Article 3. Overdraft Facility

1. Bank overdraft facilities must be subject to a contract between the bank and the beneficiary customer.
2. The bank overdraft contract must expressly specify: a) The limit of funds allowed for the customer to draw in excess of the balance of their respective current account; b) The interest rate applicable to overdraft amounts; c) The repayment conditions for the overdraft amount; d) The contract term, which may not exceed 180 (one hundred and eighty) days, and may be renewed upon payment of due interest; e) The guarantees provided; f) Applicable commissions or expenses.
3. The contract must be signed by the bank and the beneficiary customer and must be an independent document, exclusive for this purpose, not allowing another instrument to be used for this end.

Article 4. Unformalized Overdrafts

1. Banks may authorize, at their own initiative and risk, an overdraft withdrawal in a current account, without due contractual formalization or in excess of the maximum limit of an agreed overdraft facility.
2. Unlike an overdraft facility, these operations do not constitute a credit contract, so the institution decides whether to authorize the overdraft or not.
3. The conditions applicable to overdraft withdrawals under this article must be included in the associated account opening contract, namely the interest rate, terms, and applicable charges.

Reviewed by	Revocation Data:

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Central Bank of S. T. P.	N A P <br> PERMANENT APPLICATION STANDARD	CODE <br> SB 08
PROPOSER(S)	EFFECTIVE DATE	ISSUANCE DATE
P.S.B.S.	25/08/2015	25/08/2015

Article 5. Overdraft Policy

1. The bank's Board of Directors is responsible for defining the policies and limits applicable to granting overdraft facilities and withdrawals, ensuring that all management is aware of decisions and complies with them.
2. Failure to comply with the preceding paragraph is considered a serious offense, punishable under the Standard on Supervisory Action and Application of Penalties.

Article 6. Credit Classification

1. Overdraft facilities in current accounts must be evaluated and classified according to credit risks and categories established by the Standard on Asset Classification and Provisions.
2. For the purpose of the preceding paragraph, terms are counted from the date on which the principal or contracted periodic interest must be paid.
3. Overdraft withdrawals not consolidated in a credit facility may remain in a normal account for no more than 30 (thirty) days, counted from the date of the first overdraft in the current account.
4. Upon expiration of the aforementioned term, overdraft credit must be immediately transferred to the doubtful credit category (risk category IV) and carry a specific provision of 50% of the amount due.
5. After 180 (one hundred and eighty) days have elapsed, overdraft credit must be classified as a loss (risk category V), and a specific provision of 100% of its value must be established.
6. If justified, the bank may classify the overdraft as a loss immediately upon expiration of the 30 (thirty) day term provided in paragraph 3.

Reviewed by	Revocation Data:

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Central Bank of S. T. P.	N A P <br> PERMANENT APPLICATION STANDARD	CODE <br> SB 08
PROPOSER(S)	EFFECTIVE DATE	ISSUANCE DATE
P.S.B.S.	25/08/2015	25/08/2015

Article 7. Supplementary Regime

The basic credit granting standards established by the Central Bank apply supplementarily to aspects not regulated by this standard.

Article 8. Entry into Force

This standard enters into force immediately, with a 90 (ninety) day period granted for banks to carry out the due formalization of existing overdraft facilities and credit risk classification in accordance with the above provisions.

Article 9. Revoking Standard

All prior provisions contrary to the spirit of this standard are revoked, namely letters a) and b) of Article 2 of Regulation No. 10 of the Central Bank of São Tomé and Príncipe.

Central Bank of São Tomé and Príncipe, in São Tomé, August 25, 2015.

Reviewed by	Revocation Data: