Instruction No. 104/DGSIF/DSB/2022 on the Composition of Net Own Funds of Credit Institutions

[Logo: BCRG CENTRAL BANK OF THE REPUBLIC OF GUINEA]

Conakry, November 2, 2022

Instruction No. 104/DGSIF/DSB/2022 of November 2, 2022 on the Composition of Net Own Funds of Credit Institutions

THE GOVERNOR,

Whereas, Law L/2017/017/AN of June 8, 2017, repealing Law L/2016/064/AN of November 9, 2016, itself amending Law L/2014/016/2014 of July 2, 2014 establishing the statute of the Central Bank of the Republic of Guinea;

Whereas, Law L/2013/060/CNT of August 12, 2013 on Banking Regulation;

Whereas, Decree D/2021/0145/PRG/CNRD of December 25, 2021 appointing the Governor of the Central Bank;

DECIDES

Article 1:
The net own funds of credit institutions, referred to in Article 55 of Law L/2013/060/CNT of August 12, 2013, shall consist of Category 1 own funds and Category 2 own funds.

Article 2:
Category 1 own funds shall consist of Base own funds and Additional own funds.

Article 3:
The elements to be included in Base own funds are:

1. shares making up the capital that meet the inclusion criteria defined in Annex 1;
2. capital premiums (issuance or merger);
3. reserves other than the revaluation reserve;
4. retained earnings (credit balance);
5. general banking risk reserves;
6. the unallocated and undistributed net profit of the preceding financial year. It is taken into account after certification by the statutory auditors (CAC) and after the board of directors has formally proposed its allocation. It excludes dividends decided by the general meeting but not yet paid, as well as foreseeable dividends resulting from the board of directors' allocation proposals or the credit institution's past policy assessed over the last three financial years.

Items 3 to 6 are only taken into account in Base own funds if they are immediately usable and unrestricted by the credit institution to cover risks or losses as soon as they arise.

For the purposes of consolidated own funds analysis, credit institutions are authorized to include in their Base own funds minority interests corresponding to ordinary shares, or equivalent instruments, issued by the credit institution's consolidated subsidiaries and held by third parties, provided they meet the criteria mentioned in Annex 2.

Article 4:
The elements to be deducted from Base own funds are:

1. treasury shares held, valued at their book value;
2. retained earnings (debit balance);
3. pending losses awaiting approval or allocation;
4. interim deficit results;
5. net intangible assets after amortization and provisions, including establishment costs or goodwill;
6. provisions required by the BCRG and not yet established;
7. participations in the form of Base own funds in credit institutions or financial institutions;
8. the amount of elements to be deducted from Additional Tier 1 own fund elements that exceeds Additional Tier 1 own funds;
9. any excess of provisions, calculated according to the rules set by the instruction on the downgrading and provisioning of non-performing loans, over expected credit losses calculated according to the IFRS 9 international accounting standard;
10. the excess of participations in companies not falling under the categories of credit institutions or financial institutions, over the limits specified by the Decision on the acquisition or holding of participations by credit institutions in existing or newly created companies;
11. the excess of loans granted to shareholders, directors, executives, and related parties of the credit institution, calculated in accordance with the provisions of the relevant Instruction.

Article 5:
The elements to be included in Additional own funds are:

1. capital instruments issued by the credit institution that meet the inclusion criteria defined in Annex 3;
2. premiums (issuance or merger) related to the instruments referred to in the preceding paragraph.

For the purposes of consolidated own funds analysis, credit institutions are authorized to include in their Additional own funds minority interests corresponding to Additional own fund instruments issued by the credit institution's consolidated subsidiaries and held by third parties, provided they meet the criteria mentioned in Annex 2.

Article 6:
The elements to be deducted from Additional own funds are:

1. Additional own fund instruments held, valued at their book value;
2. participations in the form of Additional own funds in credit institutions or financial institutions;
3. the amount of elements to be deducted from Category 2 own fund elements that exceeds Category 2 own funds.

Article 7:
The elements to be included in Category 2 own funds are:

1. capital instruments issued by the credit institution that meet the inclusion criteria defined in Annex 4;
2. premiums (issuance or merger) related to the instruments referred to in the preceding paragraph.

For the purposes of consolidated own funds analysis, credit institutions are authorized to include in their Category 2 own funds minority interests corresponding to Category 2 own fund instruments issued by the credit institution's consolidated subsidiaries and held by third parties, provided they meet the criteria mentioned in Annex 2.

Article 8:
The elements to be deducted from Category 2 own funds are:

1. held Category 2 own fund instruments, valued at their book value;
2. participations in the form of Category 2 own funds in credit institutions or financial institutions.

Article 9:
Subject institutions must submit to the Central Bank of the Republic of Guinea, for approval, the issuance or loan contracts relating to the instruments they intend to include in their net own funds.

Article 10:
When the criteria set out in Annexes 1, 3, and 4 are no longer met for a Base own fund instrument, an Additional own fund instrument, or a Category 2 own fund instrument, that instrument and its corresponding premiums are no longer eligible as own fund instruments.

Article 11:
The Central Bank of the Republic of Guinea may oppose the inclusion of certain elements if it considers that the conditions listed in the various articles of this Instruction are not satisfactorily met.

Article 12:
Subject institutions shall declare the composition of their net own funds to the Central Bank of the Republic of Guinea quarterly, using the standard forms reproduced in Annexes 5 and 6 of this Instruction, at the end of the months of March, June, September, and December.

Article 13:
This Instruction, which repeals any prior contrary provisions, notably Instruction No. I/2002/135//DGI/DB, shall take effect from its date of signature and shall be published wherever necessary.

Done in Conakry, on November 2, 2022
[Signature and seal]
The Governor
Dr. Karamo KABA

ANNEX 1 RELATING TO THE CRITERIA FOR INCLUSION IN BASE OWN FUNDS

Financial instruments are considered Base own fund instruments subject to compliance with the following criteria:

1. The instruments are directly issued by the credit institution following prior approval by its General Meeting. The instruments are fully paid up in cash.
2. The duration of the instruments is indefinite.
3. The principal of the instruments cannot be reduced or repaid, except in the event of the credit institution's liquidation or discretely with the prior approval of the Central Bank of the Republic of Guinea.
4. The credit institution does not give any reason to expect, at the time of issuance, that the instrument will be repurchased, redeemed, or cancelled, and the statutory or contractual provisions do not include any clause that could give rise to such an expectation.
5. The instruments rank below all other claims in the event of the credit institution's liquidation.
6. The instruments do not benefit from security or guarantees from the issuer or a related entity (the credit institution or its subsidiaries, the parent company of the credit institution or its subsidiaries, or any company having close links with the aforementioned entities).
7. The instruments are not subject to any contractual or other arrangement enhancing the ranking of claims.
8. The instruments allow absorbing the first and proportionally largest share of losses as soon as they occur to ensure business continuity, pari passu with other elements included in Base own funds.
9. The instruments give their owner a claim on the residual assets of the credit institution, which in the event of liquidation and after payment of all senior claims, is proportional to the amount of instruments issued. The amount of said claim is neither fixed nor subject to a cap.
10. The purchase of the instruments is not financed directly or indirectly by the credit institution.
11. Distributions in the form of dividends or otherwise are only made once all legal and contractual obligations have been met and payments on senior own fund instruments have been made.
12. Distributions can only come from distributable elements. The level of distributions is not linked to the price at which the instruments were acquired at issuance.
13. The provisions governing the instruments do not provide for:
    a) preferential rights for dividend payments; b) a cap or other restrictions on the maximum amount of distributions; c) an obligation for the credit institution to make distributions to its holders. Non-payment of dividends does not constitute a default event.
14. The paid-up capital is accounted for as own funds (and not as a liability) in accordance with current accounting standards. It appears clearly and separately on the bank's balance sheet.

ANNEX 2 RELATING TO THE CRITERIA FOR TAKING INTO ACCOUNT MINORITY INTERESTS

Minority interests arising from the issuance of shares by a fully consolidated subsidiary of the credit institution may only be integrated into the institution's Base own funds subject to compliance with the following criteria:

1. The instruments, if issued by the consolidating credit institution, would be included in its Base own funds.
2. The subsidiary that issued these instruments is itself a bank.
3. The amount included in consolidated Base own funds corresponds to minority interests meeting the two aforementioned criteria, reduced by the surplus of ordinary shares of the subsidiary attributable to its minority shareholders. This surplus is calculated by multiplying the minority interests' share in the subsidiary's capital by the difference between the ordinary shares or equivalents issued by the subsidiary and the Base own fund requirements applicable to it, increased by the own funds conservation buffer.

Additional own fund instruments and Category 2 own fund instruments issued by a fully consolidated subsidiary of the credit institution and acquired by third parties may only be included in these respective own fund categories on the condition that, if they had been issued by the consolidating credit institution, they would meet the inclusion criteria for Additional or Category 2 own funds. The amount that can be included in each of these categories is calculated using a method similar to that referred to in point 3 above, taking into account the minority interests share and the subsidiary's own fund surplus.

ANNEX 3: RELATING TO THE CRITERIA FOR INCLUSION IN ADDITIONAL OWN FUNDS

Instruments considered Additional own fund instruments are those that meet the following conditions and do not form part of Base own funds:

1. The instruments are directly issued by the credit institution and fully paid up in cash.
2. The instruments have an indefinite duration. The provisions governing them do not provide for a maturity date, nor do they provide for coupon stepping or other incentives to redeem them.
3. The instrument may include a redemption option at the issuer's initiative, but it may only be exercised after a minimum of 5 years and with the prior authorization of the Central Bank of the Republic of Guinea. The credit institution must not give the impression that it will exercise its option.
4. The redemption option may only be exercised if the instruments are replaced by other own fund instruments of equal or higher quality and on viable terms, or if own funds are maintained at a level above requirements after exercise of the option.
5. The instruments rank below all other claims, except Base own funds, in the event of the credit institution's liquidation.
6. The instruments do not benefit from security or guarantees from the issuer or a related entity (the credit institution or its subsidiaries, the parent company of the credit institution or its subsidiaries, or any company having close links with the aforementioned entities).
7. The instruments are not subject to any contractual or other arrangement enhancing the ranking of claims.
8. The possible classification as a debt instrument, according to current accounting provisions, must not hinder the loss-absorption capacity of these instruments from a threshold defined by the Central Bank of the Republic of Guinea through:
   a. their conversion into Base own fund instruments; or b. a principal write-down mechanism that charges losses to the instrument. The write-down will have the following effects: i. reduction of the claim represented by the instrument, in the event of liquidation; ii. reduction of the repaid amount, in the event of exercising an option; iii. partial or full reduction of the dividend/coupon payment on the instrument.
9. The instrument may not have been purchased by the credit institution or by a related party (the credit institution or its subsidiaries, a company in which the credit institution holds a participation in the form of direct holding or through a control link of 20% or more of its voting rights or capital). The purchase of the instruments is not financed directly or indirectly by the credit institution.
10. The remuneration of the instruments may be cancelled by the credit institution without any restriction, except regarding payments to holders of Base own fund instruments, and without this constituting a default event. Credit institutions have full discretion over cancelled payments to meet their obligations.
11. The remuneration of the instruments must be an element of distributable profits.
12. The remuneration of the instruments must not be linked to the credit institution's credit risk profile, particularly its credit rating.

ANNEX 4: RELATING TO THE CRITERIA FOR INCLUSION IN CATEGORY 2 OWN FUNDS

Instruments considered Category 2 own fund instruments are those that meet the following conditions and do not form part of Category 1 own funds:

1. The instruments are directly issued by the credit institution and fully paid up in cash.
2. The instrument has an initial duration of at least 5 years. During the five years preceding maturity, the amount retained in Category 2 own funds is reduced cumulatively by 20% per year. The instrument does not include coupon stepping or any other incentive for repurchase.
3. The instrument may include an early redemption option at the issuer's initiative, but it may only be exercised after a minimum of 5 years and with the prior authorization of the Central Bank of the Republic of Guinea. The credit institution must not give the impression that it will exercise its option.
4. The redemption option may only be exercised if the instruments are replaced by other own fund instruments of equal or higher quality and on viable terms, or if own funds are maintained at a level above requirements after exercise of the option.
5. The instruments rank below all other claims, except Category 1 own funds, in the event of the credit institution's liquidation.
6. The instruments do not benefit from security or guarantees from the issuer or a related entity (the credit institution or its subsidiaries, the parent company of the credit institution or its subsidiaries, or any company having close links with the aforementioned entities).
7. The instruments are not subject to any contractual or other arrangement enhancing the ranking of claims.
8. The instrument may not have been purchased by the credit institution or by a related party (the credit institution or its subsidiaries, a company in which the credit institution holds a participation in the form of direct holding or through a control link of 20% or more of its voting rights or capital). The purchase of the instruments is not financed directly or indirectly by the credit institution.
9. The holder of an instrument may not demand that scheduled payments for interest and principal be made in advance, except in the event of liquidation.
10. The remuneration of the instruments must not be linked to the credit institution's credit risk profile, particularly its credit rating.
11. The instruments do not contain clauses aimed at the possible recapitalization of the credit institution, notably those requiring the issuer to compensate investors if a new instrument is issued at a lower price.

ANNEX 5: RELATING TO THE CALCULATION OF NET OWN FUNDS OF CREDIT INSTITUTIONS

Etablissement :	Date d'arrêté :
(In thousands of GNF)
Composition	Code	Montant
BASE OWN FUNDS (CATEGORY 1)
Shares making up capital
Capital premiums
Reserves
Retained earnings (credit balance)
Net profit of preceding financial year
General banking risk reserves
Subtotal		A
TO BE DEDUCTED
Treasury shares held
Retained earnings (debit balance)
Pending losses awaiting approval or allocation
Interim deficit result
Intangible assets
Provisions required by BCRG and not yet established
Participations in the form of Base own funds in credit/financial inst.
Insufficiency of provisioning for expected credit losses
Excess of loans granted to shareholders, directors, executives, and related parties over regulatory limits
Excess of participations in non-financial companies over regulatory limits.
Excess of deductions to be made on Additional own funds compared to available Additional own funds amount
Subtotal		B
BASE OWN FUNDS (CATEGORY 1) (= A-B)		C
ADDITIONAL OWN FUNDS (CATEGORY 1)
Additional own fund instruments
Premiums related to Additional own fund instruments
Subtotal		E
TO BE DEDUCTED
Held Additional own fund instruments
Participations in the form of Additional own funds in credit/financial inst.
Excess of deductions to be made on Category 2 own funds compared to available Category 2 own funds
Subtotal		F
ADDITIONAL OWN FUNDS (CATEGORY 1) (=E-F)		G
CATEGORY 1 OWN FUNDS (= G+C)		H
CATEGORY 2 OWN FUNDS
Category 2 own fund instruments
Premiums related to Category 2 own fund instruments
Subtotal		I
TO BE DEDUCTED
Held Category 2 own fund instruments
Participations in the form of Category 2 own funds in credit/financial inst.
Subtotal		J
CATEGORY 2 OWN FUNDS (=I-J)		K
NET OWN FUNDS (=H+K)

Dr Karamo KABA | Conakry, November 2, 2022

ANNEX 6: RELATING TO THE CALCULATION OF CONSOLIDATED NET OWN FUNDS OF CREDIT INSTITUTIONS

Etablissement :	Date d'arrêté :
(In thousands of GNF)
Composition	Code	Montant
BASE OWN FUNDS (CATEGORY 1)
Shares making up capital
Capital premiums
Reserves
Retained earnings (credit balance)
Net profit of preceding financial year
General banking risk reserves
Minority interests representing Base own funds
Subtotal		A
TO BE DEDUCTED
Treasury shares held
Retained earnings (debit balance)
Pending losses awaiting approval or allocation
Interim deficit result
Intangible assets
Provisions required by BCRG and not yet established
Participations in the form of Base own funds in credit/financial inst.
Insufficiency of provisioning for expected credit losses
Excess of loans granted to shareholders, directors, executives, and related parties over regulatory limits
Excess of participations in non-financial companies over regulatory limits.
Excess of deductions to be made on Additional own funds compared to available Additional own funds amount
Subtotal		B
BASE OWN FUNDS (CATEGORY 1) (= A-B)		C
ADDITIONAL OWN FUNDS (CATEGORY 1)
Additional own fund instruments
Premiums related to Additional own fund instruments
Minority interests representing Additional own funds (Category 1)
Subtotal		E
TO BE DEDUCTED
Held Additional own fund instruments
Participations in the form of Additional own funds in credit/financial inst.
Excess of deductions to be made on Category 2 own funds compared to available Category 2 own funds
Subtotal		F
ADDITIONAL OWN FUNDS (CATEGORY 1) (=E-F)		G
CATEGORY 1 OWN FUNDS (= G+C)		H
CATEGORY 2 OWN FUNDS
Category 2 own fund instruments
Premiums related to Category 2 own fund instruments
Minority interests representing Category 2 own funds
Subtotal		I
TO BE DEDUCTED
Held Category 2 own fund instruments
Participations in the form of Category 2 own funds in credit inst.
Subtotal		J
CATEGORY 2 OWN FUNDS (=I-J)		K
NET OWN FUNDS (=H+K)

Dr Karamo KABA | Conakry, November 2, 2022