Instruction No. 04-2019 of April 26

INSTRUCTION NO. 04-2019 of April 26
SUBJECT: FINANCIAL SYSTEM

• Credit Granting
  Given the need to promote responsible credit granting, it is essential to establish guidelines on (i) terms and conditions of credit contracts and (ii) procedures for assessing customer solvency, which must be considered by Banking Financial Institutions, hereinafter referred to as Banks; Under the combined provisions of paragraphs 2, 3 and 4 of Article 73 of Law No. 12/15, dated June 17 – Framework Law for Financial Institutions, and of paragraph f) of Article 21 and Article 51, both of Law No. 16/10, dated July 15 – Law of the National Bank of Angola. I DETERMINE:

1. Terms and Conditions of Credit Contracts
   1.1 Interest Rates
   a) Banks must apply differentiated interest rates to their customers, defined according to the specific risk classification of each operation, determined based on, among other factors, the risk level assigned to each customer, product characteristics, and provided guarantees. b) In determining the risk attributable to the customer, Banks must consider their solvency in accordance with paragraph 2 of this Instruction. c) In cases of credit with variable interest rates, Banks must preferably use the index generally used for credit contracts in the relevant currency, possibly adding or subtracting a margin from this index, depending on the risk level associated with each operation, determined based on the factors referred to in paragraph a) of point 1.1 of this Instruction. d) For credits denominated in national currency with variable interest rates, Banks must preferably apply LUIBOR as the index. e) The term of the index must correspond to the interest payment period.

1.2 Maturity
a) Housing credit contracts must not have terms exceeding 30 (thirty) years, in accordance with Presidential Decree No. 259/11 of September 30, Regulation on Housing Credit. b) Personal credit contracts to individuals must not have a term exceeding 5 (five) years, counted from the date of their granting.

1.3 Loan-to-Value (LTV)
The ratio between the total amount of credit contracts secured by a specific property and the lower of the acquisition price or the appraised value of the property provided as collateral for housing credit at the time of credit granting must not exceed:
a) 90% (ninety percent) for primary and permanent housing; b) 80% (eighty percent) for other purposes that are not primary and permanent housing; c) 100% (one hundred percent) for acquisition of properties held by Banks themselves; d) 100% (one hundred percent) in the case of real estate finance lease contracts.

1.4 Debt Burden Ratio
The total amount of a particular customer's monthly loan installments, including the installment from the loan they intend to contract and installments for other existing credits, must not exceed 40% (forty percent) of their net income, in accordance with current legislation.

1.5 Credits Indexed to a Foreign Currency
a) Credit with capital indexed to a foreign currency is not permitted. b) Banks may grant credit denominated in foreign currency to exporting customers with revenues in that currency, in accordance with current regulations.

1.6 Associated Sales
a) Banks must not make the granting or renegotiation of credit conditional on the purchase of other products or services. b) Banks may propose the optional acquisition of other financial products or services as consideration to reduce the costs of the credit contract being negotiated. c) In case of a proposal for optional acquisition of other financial products or services together with the credit, the Bank must inform the customer through the Financial Product Information Sheet (FTI) regarding:
i. The financial products and services associated with the credit operation;
ii. The benefits resulting from that joint purchase (product basket) and the impact of any changes to the composition of the basket, particularly on interest rates, spread, commissions, expenses, and other costs, as well as on the conditions for application, maintenance, and review of the product.

1.7 Adequacy of Limits
a) The limits introduced by this Instruction correspond to global maximums, and the maximum values for each customer must be determined through solvency assessment and particular circumstances applicable to each. b) The approval of credit granting or increase in existing credit must only occur when the customer's solvency assessment indicates the feasibility of fulfilling the credit contract obligations under the proposed terms.

2. Assessment of Customer Solvency
   In compliance with Article 6 (Solvency Assessment) of Notice 14/2016 of September 7, 2016, Banks must assess customer solvency based on complete, updated, and reliable information, supported by documents proving its truthfulness and currency. They must refuse credit granting or increase in the absence of such information and documentation.

2.1 Individual Customers
2.1.1 In assessing customer solvency, Banks must consider the current context, as well as future circumstances that may adversely impact the customer's financial capacity, along with their attitude and behavior regarding other assumed obligations. They must analyze, among others, the following elements and circumstances:
a) Nature, amount, and characteristics of the requested credit operation; b) Customer's age and professional status; c) Income earned by the customer; d) Customer's regular expenses, including charges for credit obligations already assumed and to be assumed; e) Increases in installment values resulting from interest rate variations in variable or mixed-rate credit contracts (credit contracts providing for a fixed-rate period followed by a variable-rate period) and, when credit is indexed to the exchange rate, resulting from exchange rate variations; f) Customer's banking indebtedness value and their behavior regarding fulfilling obligations in other credit operations, based on information from the Credit Information and Risk Center (CIRC); g) History of returned checks; h) Customer's overall financial situation, including their assets.

2.1.2 In assessing customer income, the Bank must consider:
a) Generally, only regular income (namely salaries, remuneration for services provided, or social benefits); b) The income earned over at least the six months prior to the moment of solvency assessment, generally not assuming a future increase in this income; c) The potential future reduction of the customer's earned income, if the credit contract extends beyond the end of the customer's employment or service contract, or beyond the legally prescribed retirement age.

2.1.3 In assessing customer expenses, the Bank must consider:
a) A reasonable and prudent amount allocated to their regular personal and family expenses, generally not assuming a future reduction in these expenses; b) Charges associated with fulfilling obligations arising from the credit contract under analysis and those assumed under other credit contracts, covering their total charges and not only commitments with the Bank itself; c) Potential expense increases resulting from charges to be borne for fulfilling credit contracts when substituting the principal debtor, acting as guarantor or endorser.

2.1.4 In assessing the impacts resulting from interest rate increases or, for exchange-rate-indexed credit, exchange rate alterations, Banks must:
a) For variable or mixed interest rate credit contracts, regardless of purpose, assess the impact of an increase in the applicable index by at least:
i. 2 (two) percentage points, if the credit contract has a duration of less than 5 (five) years; and
ii. 3 (three) percentage points, if the credit contract has a duration exceeding 5 (five) years;
b) For mixed interest rate contracts, the terms apply after the fixed interest rate period expires; c) For credit indexed to a foreign currency, also assess the impact of national currency depreciation of at least 5% (five percent) on credit installments.

2.2 Corporate Customers
In assessing customer solvency, Banks must consider the current context, as well as future circumstances that may adversely impact the customer's financial capacity. When relevant, particularly for micro, small, and medium enterprises (MSMEs), they must also consider the attitude and behavior of their managers and shareholders/partners regarding obligations assumed by the company or in their personal capacity. They must evaluate, among others, the following elements and circumstances:
a) Nature, amount, and characteristics of the requested credit operation; b) Corporate information, including legal type, identification of shareholders/partners, administrators, or managers, as applicable; c) Information on persons exercising greater influence in management and their suitability/competence; d) Complete financial information, including financial statements, Industrial Tax Form 1, and/or project feasibility study, as applicable; e) Identification of external factors impacting the company, including suppliers of raw materials/products and customers purchasing their products and services; f) Increases in installment values resulting from interest rate variations in variable or mixed-rate credit contracts (providing for a fixed-rate period followed by a variable-rate period) and, when credit is in foreign currency for an exporter, resulting from exchange rate variations; g) Company's banking indebtedness value and their behavior regarding fulfilling obligations in other credit operations, based on CIRC information, as well as the behavior of their shareholders/partners and administrators/managers, as applicable; h) History of returned checks.

3. Customer Monitoring and Restructuring
   3.1 Complementing Article 14 (Credit Restructuring) of Notice 14/2016 of September 7, 2016, Banks must ensure regular customer monitoring, for example through tracking current account movements, to timely detect financial difficulties or other circumstances that may increase default risk and take appropriate measures to prevent or resolve the situation.
   3.2 Whenever credit contract obligations are breached, Banks must promptly contact the customer to determine the reasons for the default.
   3.3 Banks must evaluate the possibility of restructuring obligations of customers with financial difficulties, based on a solvency assessment appropriate to the situation and considering the limits set in paragraph 1 of this Instruction established by law. If feasible, they must present the customer with one or more regularization proposals suited to their financial situation.
   3.4 The restructuring of a credit granted in national currency with capital indexed to a foreign currency must necessarily result in the conversion of that credit into an operation denominated in national currency without any capital indexing.
   3.5 Whenever contractual changes result from customer financial difficulties, Banks must not increase credit charges by raising interest rates or charging commissions or expenses related to the credit restructuring.

4. Sanctions
   Failure to comply with the obligations set forth in this Instruction constitutes an offense punishable under the Framework Law for Financial Institutions.

5. Doubts and Omissions
   Doubts and omissions resulting from the interpretation and application of this Instruction are resolved by the National Bank of Angola.

6. Entry into Force
   This Instruction enters into force 30 (thirty) days after the date of its publication.
   PUBLISHED.
   Luanda, April 26, 2019.
   THE GOVERNOR
   JOSÉ DE LIMA MASSANO