INSTRUCTION N° 003/97-CSBF OF 02 JUNE 1997 ON CAPITAL MODIFICATIONS OF CREDIT INSTITUTIONS, OTHER ELEMENTS CONSIDERED FOR APPROVAL, AND CONDITIONS FOR APPOINTMENT OF MANAGEMENT AND STATUTORY AUDITORS

Follow us on: The Banking and Financial Supervision Commission (CSBF) of the Republic of Madagascar,

Having regard to Law No. 95-030 of 22 February 1996 on the activity and supervision of credit institutions, particularly its Articles 23, 24, 25, 41 point 1, 49 and 56,

Having regard to Instruction No. 003/94-CCBEF of 29 December 1994 on the division of risks of credit institutions,

D E C I D E

Article 1.

Capital modifications of credit institutions, other elements taken into account during approval, the appointment of responsible managers within the meaning of Article 23 of the aforementioned Law No. 95-030, hereinafter referred to as "the banking law", and the statutory auditors of these institutions are subject to the provisions of this Instruction.

The provisions relating to statutory auditors are applicable to bodies that may serve in their place pursuant to specific legal provisions.

Chapter I. - Conditions for acquiring or extending participation in the capital of credit institutions

Article 2.

Pursuant to the provisions of Article 56 of the banking law, any person or group of persons acting together must obtain prior authorization from the Banking and Financial Supervision Commission before carrying out any operation aimed at acquiring, extending, or disposing of participations in credit institutions.

By application of point 1 of Article 41 and the last paragraph of Article 56 of the banking law, prior authorization from the Commission is required for the aforementioned operations having the effect:

– of increasing the participation of the same natural person to more than 20% of the share capital,

– of crossing, in either direction, the thresholds of 33%, 50% and 66% in the distribution of capital or voting rights in a subject institution.

Furthermore, any transaction resulting in allowing a person or several persons acting together to acquire one-tenth of the capital or voting rights in a subject institution must be notified to the General Secretariat of the CSBF at least one month before its implementation.

In case of failure to comply with the obligations prescribed above, the exercise of voting rights and dividend rights attached to the shares or partnership interests in question are suspended until the situation is regularized, in accordance with the provisions of Article 56 of the banking law.

Article 3.

Persons who have concluded an agreement to acquire or dispose of capital shares or voting rights or to exercise rights to implement a common policy vis-à-vis the subject institution are considered as a group of persons or shareholders acting together. Such an agreement is presumed to exist:

– between a company, the chairman of its board of directors and its general managers or members of its executive board or managers;

– between persons linked within the meaning of Article 7 of the aforementioned Instruction No. 003/94-CCBEF.

The participation in the capital and the share in voting rights of the person or group of persons acting together and subject to the obligations defined in Article 2 is determined taking into account participations and voting rights:

– held for their own account by other persons;

– held by a third party or third parties with whom these persons act;

– which they or one of the persons mentioned above is entitled to acquire at their sole initiative pursuant to an agreement.

Article 4.

Credit institutions are required to inform the General Secretariat of the CSBF of the crossing by their partners or shareholders of the thresholds mentioned in Article 2, paragraphs 1 and 2, within one month from the implementation of this operation.

Article 5.

Credit institutions are required to transmit to the General Secretariat of the CSBF each year, within six months following the closing of the financial year,

– the list of their partners or shareholders, with the indication of each person's share in the capital and voting rights as well as persons acting together within the meaning of Article 3,

– financial information on each person holding at least 10% of the partnership shares and voting rights, on all their partners when these institutions are constituted as general partnerships, and on each limited partner in the case of a limited partnership, with the exception of shareholders or partners themselves subject to the provisions of this regulation.

The aforementioned financial information includes for each partner or shareholder:

– if it is a legal entity, the certified social accounting documents, where applicable consolidated, of the last closed financial year and their annex notes, or any official document serving in their place, as well as any other information relating to facts likely to significantly affect its financial situation;

– if it is a natural person: all useful information relating to their active and passive financial situation.

Article 6.

As necessary, the General Secretariat of the CSBF may request any subject institution to communicate to it, within the deadline it sets, the financial information stipulated in Article 5 and relating to:

– partners or shareholders holding less than 10% of its capital;

– where applicable, persons under whose effective control the legal entities present in its capital are placed.

Chapter II. - Modifications of the situation of an institution

Article 7.

Prior authorization from the CSBF is required for modifications of the situation of a credit institution concerning:

– the legal form;

– the type of activity for which the institution was approved;

– the composition of the board of partners in a general partnership;

– the identity of the limited partner(s) in a limited partnership;

– the amount of capital of fixed-capital companies in the case of a reduction;

– the rules for calculating voting rights;

– any change in the composition of the network affiliated to a central body.

Article 8.

The following must be declared to the General Secretariat of the CSBF within one month from the decision:

1°) modifications relating to:

– the amount of capital of fixed-capital companies in the case of an increase;

– the composition of boards of directors or supervisory boards;

– the address of the registered office;

– the corporate and commercial name of these institutions;

2°) the conclusion or modification of any agreement between partners or shareholders relating to the elements referred to in Articles 7 and 9 of this regulation.

Chapter III. - Appointment and Termination of Functions of Managers and Statutory Auditors of Credit Institutions

Article 9.

Pursuant to Article 25 of the banking law, the appointment of any new person called upon, under Article 23 of the aforementioned law, to ensure the effective determination of the direction of activities of a credit institution must be notified to the General Secretariat of the CSBF at least one month before its entry into effect. The notification, carried out by the institution in question, is accompanied by the following documents:

1°) a document attesting to this appointment,

2°) a detailed description of the functions (hierarchical and functional powers, status vis-à-vis different decision-making bodies...),

3°) a letter signed by the interested party following the model defined in Annex 1 to which are attached the information specified in Annex 2.

Article 10.

The information required under Article 9 must appear in the files sent to the General Secretariat of the Commission in support of applications for approval as a credit institution.

For institutions affiliated to a central body, the notification is carried out for the managers of the central body and for those of each of the affiliated institutions.

Institutions approved on the date of this Instruction will communicate to the General Secretariat of the CSBF within one month from this date the documents stipulated in 1°) and 2°) of Article 9.

Article 11.

The General Secretariat of the CSBF verifies whether the powers conferred on persons designated as responsible managers satisfy the conditions set by Article 23 of the banking law. If this is not the case, the institution is informed and takes the required measures without delay.

The provisions of the previous paragraph apply to any modifications made to the powers of responsible managers, which must be immediately notified to the General Secretariat of the Commission.

Article 12.

Under Article 24 of the banking law, the intervention of a single statutory auditor is required for credit institutions whose total balance sheet is less than 500 billion Malagasy francs.

For other institutions, any external firm also mandated to audit general accounts may serve as a second statutory auditor, subject to the agreement of the General Secretary of the Commission, requested by a reasoned application containing the documents and information prescribed in Article 13 below. The provisions of this Instruction relating to statutory auditors then apply to these firms.

Institutions approved on the date of this Instruction where the intervention of two auditors is required have a period of eighteen months to comply with this obligation.

Article 13.

Pursuant to Article 25 of the banking law, the appointment of statutory auditors of credit institutions must be notified to the General Secretariat of the CSBF at least one month before its entry into effect. The notification, carried out by the institution, includes the following documents:

1°) a copy of the appointment decision,

2°) a copy of the draft contract defining the conditions and modalities of their services.

For institutions affiliated to a central body, the notification is carried out for the central body and for each of the affiliated institutions.

Within the same deadline, the statutory auditors thus designated communicate to the General Secretariat of the CSBF the information specified in Annex 3 unless they already exercise this mandate in another approved institution.

Article 14.

The information stated in Article 13 is communicated in the same forms to the General Secretariat of the Commission in support of applications for approval as a credit institution.

For institutions approved on the date of this Instruction, this information will be communicated in the same forms to the General Secretariat of the CSBF within two months from the date of this Instruction.

Subject institutions immediately notify the General Secretariat of the Commission of amendments relating to the service contract of their statutory auditors. These auditors send to the General Secretariat, before the end of the first civil quarter, an update of the information stipulated in Annex 3.

Article 15.

Credit institutions must immediately declare, by a reasoned letter, to the General Secretariat of the CSBF the termination of functions of their responsible managers and their statutory auditors.

Chapter IV. - Final Provisions

Article 16.

Applications for prior authorization under Articles 2 and 7 are addressed to the General Secretariat of the CSBF no later than three months before the date planned for the implementation of the operation. The Commission rules within a period of two months from the date of receipt of the application; the absence of objection upon expiration of this period constitutes authorization.

The applications must include all elements of appreciation suitable to enlighten the Commission on the causes, objectives, and impacts of the envisaged modification. In particular, applications relating to the acquisition or extension of participations are formed by letter conforming to Annex 2 of Instruction No. 002/97-CSBF on the approval of credit institutions and must include the information prescribed in Annex 2 bis of said Instruction.

Article 17.

Credit institutions that have not complied within the prescribed deadlines with the obligations set by Articles 5, 6, 8, 10 paragraph 3, 11 and 14 paragraphs 2 and 3 will be subject to the penalties stipulated by Article 52 of the banking law.

Credit institutions for which the obligations stipulated by Articles 2, 4, 7, 9, 13 and 15 have not been satisfied or which do not satisfy the obligations mentioned in the previous paragraph expose themselves to disciplinary and/or financial sanctions provided for by Article 49 of the banking law.

ANNEXES:

ANNEX I _ Instruction No. 003-97-CSBF

ANNEX II_ Instruction No. 003-97-CSBF

ANNEX III _ Instruction No. 003-97-CSBF

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