Instruction No. 003/94/CCBEF of December 29, 1994 on the Division of Risks for Banks and Financial Institutions

INSTRUCTION NO. 003/94/CCBEF OF DECEMBER 29, 1994 ON THE DIVISION OF RISKS FOR BANKS AND FINANCIAL INSTITUTIONS

The Commission for the Control of Banks and Financial Institutions (CCBEF) of the Republic of MADAGASCAR,

In application of Article 65 of Ordinance No. 88-005 of April 18, 1988, which empowers the CCBEF to set management standards that banks and financial institutions must respect in order, inter alia, to guarantee their liquidity, solvency, and financial structure balance, and in complement to Article 51 of the aforementioned Ordinance, Decides:

Article 1: Banks and financial institutions licensed to conduct banking operations in Madagascar are permanently required to maintain a maximum ratio, known as the risk division ratio, between the amount of risks incurred due to their operations with a single beneficiary and the amount of their available own funds.
The provisions of this instruction do not apply to operations conducted with the State and with banks and financial institutions licensed in Madagascar.

Article 2: Available own funds are determined in accordance with Central Bank Instruction No. 008/CR/94 of May 11, 1994.
Credit institutions are defined by Article 3 of CCBEF Instruction No. 002/94.

Article 3: Risks incurred, which constitute the denominator of the ratio, include:
a) for risks on clients:
distributed credits, credit-leasing and hire-purchase operations, investment and holding securities, commitments by guarantee; b) for risks on credit institutions:
claims and commitments by guarantee on these institutions, without taking into account claims and commitments excluded from the risk coverage ratio base under Article 3 of CCBEF Instruction No. 002/94.

Article 4: Supplementary provisions to be set aside, charged against available own funds in accordance with Central Bank Instruction No. 008/CR/94, are deducted from incurred risks.
Also deducted from the risk base, provided their maturity is at least equal to that of the commitments they cover:
funds allocated as security for commitments (blocked deposits and provisions, subordinated borrowings), guarantees issued by the Malagasy State or authorized public bodies, with the express approval of the CCBEF, counter-guarantees received from other credit institutions, notably those acting as "guarantee funds". This deduction is made up to the risk actually covered, i.e., within the limits of the linked balances.

Article 5: The risks defined in Article 3, net of the elements referred to in Article 4, are retained at the following rates:
20%: commitments by guarantee except for counter-guarantees on credits distributed by other institutions; 50%: financing credits for agricultural campaigns; 75%: commitments secured by a first-ranking real security, duly formalized, provided the balance after applying the weighting is not less than 75% of the probable realization value of the guarantees; credit-leasing and hire-purchase operations; 100%: other risks recorded in Article 3.

Article 6: Calculation elements are specified in the annex to this instruction. In case of unavailability of data admitted for risk base calculation, the calculation will be performed under the most unfavorable assumption.

Article 7: For the application of this instruction, groups of persons whose interests are closely linked within the meaning of Article 53 of Ordinance No. 88-005 are considered a single beneficiary.
Natural or legal persons meeting any of the following conditions are also considered a single beneficiary:
the same group holds either the majority of voting rights, or the power to appoint the majority of members of administrative, management, or supervisory bodies, or the largest participation without other shareholders or partners each holding more than 5% of the capital, or dominant influence pursuant to a management contract, statutory clauses, or in fact; one exercises joint control over the other, directly or indirectly; this is presumed when a company's capital is held by a limited number of partners and shareholders who jointly appoint management bodies for a common policy; they maintain predominant business relations (subcontracting, franchising, ...). When the subject institution can prove that risks taken on the natural or legal persons referred to in the first and second paragraphs of this article are sufficiently independent of each other, it may choose not to consider them a single beneficiary. However, the CCBEF may, when it considers that prudential rules require it, consider a set of clients as a single beneficiary if the links between these clients appear to justify this.

Article 8: Subject institutions must be able to justify at all times that the total amount of risks incurred on a single beneficiary does not exceed 70% of their available own funds. This limit, immediately applicable, is reduced to 55% as of September 1, 1995, and to 40% as of September 1, 1996.
Institutions in excess must regularize their situation before April 1, 1995.

Article 9: For the application of Article 8 above, subject institutions submit monthly to the General Secretariat of the CCBEF, which may request communication of calculation bases, a statement of their risks exceeding 15% of their available own funds, prepared in accordance with the model attached to this instruction and annexed to the monthly accounting statement.

Article 10: In case of breach of the standard set in Article 8, the institution concerned takes, where applicable upon injunction by the Commission under Article 72 of Ordinance No. 88-005 and within the time limit that may be granted, appropriate measures to regularize its situation, and informs the General Secretariat of the CCBEF.
An institution that has seriously infringed the regulation, or failed to comply with the CCBEF's injunction, or proved unable to regularize its situation, is subject to disciplinary sanctions provided for in Article 74 of Ordinance No. 88-005.

Article 11: The CCBEF may authorize a subject institution to temporarily derogate from the provisions of this instruction, granting it a time limit to regularize its situation.

Article 12: These provisions enter into force immediately. The first declarations prescribed in Article 9 will be based on balances as of December 31, 1994.
Done in Antananarivo, on December 29, 1994.
For the Commission for the Control of Banks and Financial Institutions, The President, Raoul RAVELOMANANA.

Annex to CCBEF Instruction No. 003/94

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CALCULATION ELEMENTS FOR THE DIVISION OF RISKS (CCBEF INSTRUCTION NO. 003/94)

RISKS ON CREDIT INSTITUTIONS (M FMG)
BENEFICIARY: 1

Rubrics of the accounting plan	Title	Amount
121, 122 or 123	Current accounts
133, 134 or 135	Loans and placements at sight
(171, 172)-(191,192)	Loans and placements at term
(36 - 396)	Disputed, doubtful, contentious claims
(40 - 490)	Investment securities
(412, 413) - prov.	Holding and subsidiary securities
9241	Subordinated loans
................................... ........... ................................... ...........	Subtotal a
To be deducted:	.Counter-guarantees received on loans to financial institutions<br>.Supplementary provisions to be set aside deducted from AOF
................................... ........... ................................... ...........	Subtotal b
A = a - b ..................... .................................................................. ................... .................................................................. ................... ............................ .. ..	913,914,919 ,952<br>Commitments by guarantee on the institution c
9251	To be deducted: guarantees received related to the above commitments d
B = c - d ..	Risk R = A + B/5 1 on CCBEF approval 2 extracts

RISKS ON CLIENTS (M FMG)
BENEFICIARY: 2

Rubrics of the accounting plan	Title	Amount
200 to 2072, 209	Client credits (excluding agricultural campaign financing)
26	Immobilized claims
(27 - 291)	Doubtful and disputed claims net of provisions
(28 - 292)	Contentious claims net of provisions
(36 - 396)	Investment securities net of provision
(40 - 490)	Holding and subsidiary securities net of provision
(412, 413) - prov.	Subordinated loans net of provisions
934 - 212 ,5411 ,542 1 92312,962	Guarantees for repayment of credits distributed by other establishments
.......................................................... .......... .......................... ................................................... . ......................... ......................... ......................... .................................................. ........................................ ....... a	To be deducted:<br>. Supplementary provisions to be set aside deducted from AOF<br>. Blocked deposits, subordinated borrowings allocated as security for commitments included in A<br>. Counter-guarantees received on commitments included in A
......................................... ....... ......................................... ....... b	A = a - b 44 202 Credit-leasing or hire-purchase operations Client credits secured by a first-ranking real security duly formalized ......................................... ....... B ......................... ......................... 2002 ,2072 92312, 962 Agricultural campaign credits c To be deducted: . guarantees received from other institutions, the State or authorized public bodies .......................... d C = c - d 931,932,935, 95 92512, 962 Commitments by guarantee other than counter-guarantees on distributed credits e To be deducted: guarantees received related to the above commitments f D = e - f ........................ .........................
Risks R = A + (B x 0,75) + C/2 + D/5 1 on CCBEF approval 2 extracts

DECLARANT : _____________________ 3
STATEMENT OF CONTROL FOR THE DIVISION OF RISKS AT I (CCBEF INSTRUCTION NO. 003/94)

1. AVAILABLE OWN FUNDS (MFMG without decimals)
   (following the most recent declaration submitted to the General Secretariat/CCBEF under Central Bank Instruction No. 008/CR/94) AOF = _______________________ 4 15% AOF = _____________________ 5 2°) RISKS EXCEEDING 15% OF AVAILABLE OWN FUNDS (MFMG without decimals)
   | Beneficiaries | Risks retained at 100% | Risks retained at 75% | Risks retained at 50% | Risks retained at 20% | A+ B+ C+D |
   |---|---|---|---|---|---|
   | Credit institutions | | | | | |
   | Clients | | | | | |
   | Total | | | | | % AOF |
   A Encours75% = B Encours50% = C Encours20% = D SIGNATURE(S) OF AUTHORIZED PERSON(S) AND SEAL