Instruction No. 09/2019 of August 27

INSTRUCTION NO. 09/2019 of August 27

SUBJECT: FINANCIAL SYSTEM

• Disclosures of Financial Instruments

Considering the entry into force on January 1, 2018, of International Financial Reporting Standard 9 – Financial Instruments (IFRS 9), which replaces International Accounting Standard 39 – Financial Instruments: Recognition and Measurement, it is necessary to update Guidance Note No. 06/2016 of August 8 regarding financial instrument disclosures.

Considering that this Instruction does not intend to make any interpretations of International Accounting Standards/International Financial Reporting Standards, as these are developed exclusively by the IFRS Interpretations Committee and issued by the International Accounting Standards Board (IASB).

Pursuant to the combined provisions of Article 21 and Article 51, both of Law No. 16/10 of July 15 – the Central Bank of Angola Act, and Article 93 of Law No. 12/15 of June 17 – the Framework Law for Financial Institutions.

I DETERMINE:

1. Subject Matter
   This Instruction establishes the procedures that Banking Financial Institutions must follow when preparing disclosures on financial instruments, as provided by International Financial Reporting Standard 7 – Financial Instruments: Disclosures (IFRS 7), hereinafter abbreviated as IFRS 7, as amended by International Financial Reporting Standard 9 – Financial Instruments (IFRS 9), hereinafter abbreviated as IFRS 9.

2. Scope
   This Instruction applies to Banking Financial Institutions under the supervision of the Central Bank of Angola, as provided in and subject to the Framework Law for Financial Institutions, hereinafter abbreviated as Institutions.

3. Definitions
   Without prejudice to the definitions established in the Framework Law for Financial Institutions, for the purposes of this Instruction, the following terms are understood as:
   3.1 Fair Value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, not related to each other, at the measurement date.
   3.2 Other Price Risks: the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices other than those associated with interest rate risk or foreign exchange risk, whether these changes are caused by factors specific to the individual financial instrument or its issuer, or by factors that affect all similar financial instruments traded in the market.
   3.3 Effective Interest Rate: the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortized cost of a financial liability.
   3.4 Impaired Credit: corresponds to the following categories:
   a) Credit with capital or interest installments overdue for more than 90 (ninety) days; and, b) Credit with capital or interest installments overdue for less than 90 (ninety) days, but over which there is evidence justifying its classification as "impaired credit", notably bankruptcy, debtor liquidation, among others.
   3.5 Credit Losses: the difference between all contractual cash flows due to an Institution according to what is contractually established and all cash flows that the Institution expects to receive, discounted at (i) the original effective interest rate, or (ii) the credit-adjusted effective interest rate for financial assets acquired or originated with credit impairment.
   3.6 Expected Credit Losses: the weighted average of credit losses, using as weights the respective risks of occurrence of a default.
   3.7 Expected Credit Losses within a 12-Month Period: the portion of expected credit losses over the instrument's life that represents expected credit losses resulting from default events on a financial instrument that are possible within 12 (twelve) months from the reporting date.
   3.8 Foreign Exchange Risk: the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in exchange rates.
   3.9 Credit Risk: the risk that a participant in a financial instrument will fail to meet its obligations, thereby causing a financial loss for the other participant.
   3.10 Liquidity Risk: the risk that an entity will encounter difficulties in meeting obligations associated with financial liabilities settled by delivering cash or another financial asset.
   3.11 Market Risk: the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk encompasses three types of risk: interest rate risk, foreign exchange risk, and other price risks.
   3.12 Interest Rate Risk: the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates.

4. Application
   Institutions must apply this Instruction to all types of financial instruments, except:
   a) Interests in subsidiaries, associates, and joint ventures that are accounted for in accordance with IFRS 10 – Consolidated Financial Statements, IAS 27 – Separate Financial Statements, or IAS 28 – Investments in Associates and Joint Ventures. However, in some situations, IFRS 10, IAS 27, or IAS 28 require or allow Institutions to account for these interests in accordance with IFRS 9. In such cases, Institutions must apply the requirements of IFRS 7 and, for those measured at fair value, the requirements of IFRS 13 – Fair Value Measurement. Institutions must also apply IFRS 7 to all derivatives associated with interests in subsidiaries, associates, or joint ventures, unless the derivatives meet the definition of equity instruments presented in International Accounting Standard 32 – Financial Instruments: Presentation, hereinafter abbreviated as IAS 32; b) Rights and obligations of employers arising from employee benefit plans, to which IAS 19 – Employee Benefits applies; c) Insurance contracts, as defined in IFRS 4 – Insurance Contracts. However, IFRS 7 applies to derivatives embedded in insurance contracts whenever IFRS 9 requires the Institution to account for them separately. Additionally, an issuer must apply IFRS 7 to financial guarantee contracts if it applies IFRS 9 in the recognition and measurement of contracts, provided that the issuer decides, according to paragraph 4(d) of IFRS 4, to apply this Standard to their recognition and measurement; d) Financial instruments, contracts, and obligations under share-based payment transactions to which IFRS 2 – Share-based Payment applies, with the exception of contracts within IFRS 9; e) Instruments that must be classified as equity instruments, in accordance with the definition of equity instruments presented in IAS 32.

5. Classes of Financial Instruments
   Whenever disclosures are required by class of financial instrument, Institutions must group financial instruments into classes that are appropriate to the nature of the information disclosed and take into account the characteristics of those financial instruments.

6. Disclosures
   6.1 For the purposes of this Instruction, Institutions must disclose:
   a) Regarding the balance sheet, sufficient information to enable users of the financial statements to assess the relevance of financial instruments for the Institutions' financial position and performance; b) Regarding the statement of profit or loss and other comprehensive income, information concerning revenues, expenses, gains, or losses from financial instruments; c) Other relevant information related to accounting policies, hedge accounting, and fair value; d) Information that enables users of their financial statements to assess the nature and extent of risks inherent in the financial instruments to which Institutions are exposed at the reporting date. These risks include, among others, credit risk, liquidity risk, and market risk.
   6.2 Without prejudice to the disclosure requirements established by IFRS 7, Institutions must disclose the information required by the disclosure models presented in Annex I of this Instruction.
   6.3 Although Annex I of this Instruction does not include disclosure models regarding transferred financial assets that have not been derecognized in the balance sheet, if Institutions hold such assets, they must observe the requirements established in IFRS 7.
   6.4 For the purposes of point 2 of this section, Institutions must consider the filling instructions presented in Annex II of this Instruction.
   6.5 Institutions must disclose the information required by this Instruction, without prejudice to the disclosure requirements established by Guidance Note No. 12/2019 regarding impairment losses for the credit portfolio.

7. Initial Application of IFRS 9
   7.1 In the reporting period that includes the initial application date of IFRS 9, Institutions must disclose the following information regarding each class of financial assets and financial liabilities at the initial application date:
   a) The initial measurement category and carrying amount determined in accordance with IAS 39; b) The new measurement category and carrying amount determined in accordance with IFRS 9; c) The amount of any financial assets and financial liabilities in the Balance Sheet previously designated as measured at fair value through profit or loss, but no longer so designated, distinguishing between those whose reclassification is imposed by IFRS 9 and those that Institutions opt to reclassify at the initial application date.
   7.2 In the reporting period that includes the initial application date of IFRS 9, Institutions must disclose qualitative information to enable users of the financial statements to understand:
   a) How the classification requirements of IFRS 9 were applied to financial assets whose classification was altered as a result of applying that standard; and b) The reasons for any designation (or its opposite) of financial assets or financial liabilities as measured at fair value through profit or loss at the initial application date.
   7.3 Institutions must disclose changes in the classification of financial assets and financial liabilities at the initial application date of IFRS 9, indicating separately:
   a) Changes in carrying amounts based on their measurement categories in accordance with IAS 39 (i.e., not resulting from a change in the measurement attribute upon transition to IFRS 9); and b) Changes in carrying amounts resulting from a change in the measurement attribute upon transition to IFRS 9.
   7.4 Institutions must disclose the following information regarding financial assets and financial liabilities that have been reclassified to be measured at amortized cost and, in the case of financial assets, that have been reclassified by exiting the fair value through profit or loss category to be measured at fair value through other comprehensive income, as a result of the transition to IFRS 9:
   a) The fair value of financial assets or financial liabilities at the end of the reporting period; and b) The gain or loss in fair value that would have been recognized in profit or loss or other comprehensive income during the reporting period if the financial assets or financial liabilities had not been reclassified.
   7.5 Institutions must disclose the following information regarding financial assets and financial liabilities that have been reclassified by exiting the fair value through profit or loss category due to the transition to IFRS 9:
   a) The effective interest rate determined at the initial application date; and b) Interest income or expenses recognized.
   7.6 If an Institution treats the fair value of a financial asset or financial liability as the new gross carrying amount at the initial application date of IFRS 9, the disclosures provided in point 7.5 must be made for each reporting period until the derecognition of the respective financial asset or liability.
   7.7 Without prejudice to the foregoing, the disclosures referred to in points 7.3, 7.4, and 7.5 of this section do not need to be made after the annual reporting period in which the Institution initially applies the classification and measurement requirements for financial assets of IFRS 9.
   7.8 When an entity presents the disclosures established in points 7.3, 7.4, and 7.5 of this section with reference to the initial application date of IFRS 9, it must present detailed reconciliations between:
   a) The measurement categories presented in accordance with IAS 39 and IFRS 9; and b) The classes of financial instruments.
   7.9 Institutions must disclose information that allows the reconciliation of final impairment deductions in accordance with IAS 39 and provisions in accordance with International Accounting Standard 37 – Provisions, Contingent Liabilities and Contingent Assets, for initial losses determined in accordance with IFRS 9. For financial assets, these disclosures must be provided by measurement categories of related financial assets according to IAS 39 and IFRS 9, and must separately indicate the effect of changes in the measurement category on the loss provision at that date.

8. Transitional Provision
   Institutions must comply with the provisions of this Instruction within 180 (one hundred and eighty) days after its publication.

9. Final Provisions
   9.1 This Instruction does not dispense with consulting International Accounting Standards/International Financial Reporting Standards, hereinafter abbreviated as IAS/IFRS.
   9.2 Whenever there are discrepancies between this Instruction and the IAS/IFRS, standards issued by the IASB shall prevail.

10. Doubts and Omissions
    Doubts and omissions arising in the interpretation and application of this Instruction shall be resolved by the Central Bank of Angola.

11. Repeal
    All regulations contrary to the provisions of this Instruction are hereby repealed, notably Guidance Note No. 06/2016 of August 8.

12. Entry into Force
    This Instruction enters into force on the date of its publication.

PUBLISH.
Luanda, August 27, 2019.

THE GOVERNOR
JOSÉ DE LIMA MASSANO

ANNEX I

Table I
Carrying amount of financial instruments
(Values expressed in thousands of Kwanzas)

Year n	Measured at Fair Value	Measured at Amortized Cost	Measured at Historical Cost	Impairment	Net Value
Assets (Include line items for financial assets that are applicable)	-	-	-	-	-
Total	-	-	-	-	-
Liabilities (Include line items for financial liabilities that are applicable)	-	-	-	-	-
Total	-	-	-	-	-

Year n-1 (Same structure as above)

Table II
Reclassification of financial assets
(Values expressed in thousands of Kwanzas)

Year n	Effective interest rate at reclassification date	Estimated amounts of expected recoverable cash flows at reclassification date	Carrying amount at reclassification date	Fair value on Dec 31, Year n	Carrying amount at reclassification date (Year n-1)	Carrying amount on Dec 31, Year n-1	Fair value on Dec 31, Year n-1
Financial assets reclassified in Year n-3 (Include applicable line items)	-	-	-	-	-	-	-
Financial assets reclassified in Year n-2 (Include applicable line items)	-	-	-	-	-	-	-
Financial assets reclassified in Year n-1 (Include applicable line items)	-	-	-	-	-	-	-
Financial assets reclassified in Year n (Include applicable line items)	-	-	-	-	-	-	-
Total	-	-	-	-	-	-	-

Table III
Gains/(losses) associated with changes in fair value not recognized in profit or loss and other gains/(losses) recognized in profit or loss or other comprehensive income (Values expressed in thousands of Kwanzas)

Year n	Gains/(losses) associated with changes in fair value not recognized in profit or loss	Other gains/(losses) recognized in Profit or Loss	Other gains/(losses) recognized in Other Comprehensive Income
(Include applicable line items for financial assets)	-	-	-
Total	-	-	-

Year n-1 (Same structure)

Table IV
Compensated financial assets and liabilities
(Values expressed in thousands of Kwanzas)

Year n	Gross amount of financial assets	Gross amount of compensated financial liabilities in balance sheet	Net amount of financial assets presented in balance sheet
Assets (Include applicable line items)	-	-	-
Total	-	-	-

Year n (Liabilities)

Gross amount of financial liabilities	Gross amount of compensated financial assets in balance sheet	Net amount of financial liabilities presented in balance sheet
Liabilities (Include applicable line items)	-	-	-
Total	-	-	-

Year n-1 (Same structure for Assets and Liabilities)

Table V
Related but uncollateralized financial assets and liabilities in financial statements (Values expressed in thousands of Kwanzas)

Year n	Financial assets presented in financial statements	Related amounts not offset in financial statements	Net Value	Counterparty	Financial instruments	Cash collateral received as guarantee
Financial Institutions	-	-	-	-	-
Administrative Public Sector	-	-	-	-	-
Business Public Sector	-	-	-	-	-
Other Financial Intermediaries	-	-	-	-	-
Companies	-	-	-	-	-
Individuals	-	-	-	-	-
Total	-	-	-	-	-

Year n (Liabilities)
| Financial liabilities presented in financial statements | Related amounts not offset in financial statements | Net Value | Counterparty | Financial instruments | Cash collateral received as guarantee |
|---|---|---|---|---|---|---|
| Financial Institutions | - | - | - | - | - |
| Other Financial Intermediaries | - | - | - | - | - |
| Insurance Companies and Pension Funds | - | - | - | - | - |
| Companies | - | - | - | - | - |
| Individuals | - | - | - | - | - |
| Total | - | - | - | - | - |

Year n-1 (Same structure for Assets and Liabilities)

Table VI
Movement in impairment losses
(Values expressed in thousands of Kwanzas)

Year n-1	Increase	Reductions/Reversals	Utilizations	Foreign exchange differences and others	Year n-1 Balance (Dec 31)	Increase	Reductions/Reversals	Utilizations	Foreign exchange differences and others	Year n Balance (Dec 31)
Impairment in [include applicable line items]	-	-	-	-	-	-	-	-	-	-
Total	-	-	-	-	-	-	-	-	-	-

Table VII
Net gains or net losses on financial instruments¹ (Values expressed in thousands of Kwanzas)

Year n	Through Profit or Loss - Gains	Through Profit or Loss - Losses	Net (P&L)	Through Other Comprehensive Income - Gains	Through Other Comprehensive Income - Losses	Net (OCI)
Assets (Include applicable line items)	-	-	-	-	-	-
Total (Assets)	-	-	-	-	-	-
Liabilities (Include applicable line items)	-	-	-	-	-	-
Total (Liabilities)	-	-	-	-	-	-
Off-balance sheet items (Include applicable off-balance sheet elements)	-	-	-	-	-	-
Total (Off-balance)	-	-	-	-	-	-

Year n-1 (Same structure)
¹ Institutions must disclose how net gains or net losses on each category of financial instruments were determined. As an example, they must disclose whether these net gains or net losses on items at fair value through profit or loss include interest income or dividends.