Instruction No. 001/98-CSBF of September 23, 1998 on Foreign Exchange Positions of Credit Institutions

INSTRUCTION NO. 001/98-CSBF OF SEPTEMBER 23, 1998 ON FOREIGN EXCHANGE POSITIONS OF CREDIT INSTITUTIONS

The Banking and Financial Supervision Commission (CSBF) of the Republic of MADAGASCAR, Having regard to Law No. 95-030 of February 22, 1996 on the activity and supervision of credit institutions, Pursuant to the provisions of Article 41 of the aforementioned Law No. 95-030, which empower the CSBF to establish management standards that credit institutions must comply with in order to ensure their liquidity, solvency, and the balance of their financial structure, HEREBY DECIDES

Article 1. - Credit institutions operating in Madagascar that regularly conduct foreign currency transactions must maintain:

• a system ensuring the permanent immediate recording of their foreign currency transactions, the calculation of the results of these transactions, and the determination of their overall and per-currency foreign exchange positions;
• a permanent management, monitoring, and control system for the risks incurred from these transactions, including in particular the setting by the Board of Directors or the General Management (which must report to the Board of Directors) of foreign exchange position limits, within the framework of Article 2, and the implementation of appropriate procedures to ensure compliance with these limits.

Article 2. - Subject institutions are permanently required to maintain a maximum ratio of 20 percent between the cumulative amount of their foreign exchange positions in various foreign currencies and the amount of their available equity.
The daily monitoring statements for this limit and supporting transaction documents shall be retained by the subject institutions until the close of the following fiscal year.

Article 3. - The cumulative amount of foreign exchange positions equals the sum of long and short positions across various currencies.
For the purposes of this Instruction, a foreign exchange position is classified as long when assets plus receivables in currencies exceed liabilities plus payables in currencies; it is classified as short otherwise.

Article 4. - Available equity is determined in accordance with Instruction No. 008/CR/94 of May 11, 1994.

Article 5. - Foreign exchange positions are determined from the following elements, extracted from accounting records:

• asset and liability items denominated in foreign currencies, including accrued interest to be paid or received, whether due or not;
• spot foreign exchange transactions within the standard settlement period and forward foreign exchange transactions, recorded off-balance sheet, as well as accrued interest to be paid or received, whether due or not, related to these transactions.
  The above elements for which the foreign exchange risk is not borne by the subject institutions are recorded off-balance sheet. They are excluded from position calculations.

Article 6. - For the application of this Instruction, a declaration, prepared on the date of the periodic accounting statement closing and attached thereto, is submitted to the General Secretariat of the CSBF according to the model annexed below.
This declaration must be submitted:

• by all institutions required to produce monthly statements to the General Secretariat of the Commission;
• by other institutions whenever:
  • their foreign currency assets, plus currencies receivable under unsettled spot transactions or forward transactions;
  • or their foreign currency liabilities, plus currencies payable under unsettled spot transactions or forward transactions;
    represent more than 10 percent of the total amount of the accounting statement submitted to the General Secretariat of the Commission.
    For institutions affiliated with a central body, declarations prepared by these institutions as applicable are transmitted to the General Secretariat through the central body, along with periodic accounting statements.

Article 7. - In case of breach of the standard set forth in Article 2 of this Instruction, and without prejudice to sanctions under the jurisdiction of the Central Bank and other administrative and judicial authorities, the concerned institution shall take appropriate measures to rectify its situation, as applicable upon a Commission injunction issued under Article 47 of Law No. 95-030 and within the time limit that may be granted, and shall notify the General Secretariat of the CSBF.
An institution that has seriously violated the regulation, failed to comply with the CSBF injunction, or proven unable to rectify its situation, shall be subject to penalties and sanctions provided for in Articles 49 and 52 of Law No. 95-030.

Article 8. - This Instruction shall enter into force upon its notification to the Professional Association of Credit Institutions. The limit set forth in Article 2 shall apply as of October 15, 1998.
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Done at Antananarivo, on September 28, 1998.
For the Banking and Financial Supervision Commission, The President, GASTON RAVELOJAONA.