Instruction No. 11/2019, dated August 28

INSTRUCTION NO. 11/2019 dated August 28
SUBJECT: FINANCIAL SYSTEM
− Treatment of Credit Losses in the Loan Portfolio Whereas International Financial Reporting Standard 9 – Financial Instruments, which replaces International Accounting Standard 39 – Financial Instruments: Recognition and Measurement, entered into force on January 1, 2018; Whereas it is necessary to revise Instruction No. 11/2016, dated August 8, regarding the treatment of credit losses in the loan portfolio; Pursuant to the combined provisions of Article 21 and Article 51, both of Law No. 16/10 dated July 15 – the Law of the National Bank of Angola, and Article 93 of Law No. 12/15 dated June 17 – the Framework Law for Financial Institutions; I HEREBY DETERMINE:

1. Objective
   This Instruction establishes the procedures that Banking Financial Institutions must follow in the accounting and prudential treatment of credit losses on loans granted to customers.
2. Scope
   This Instruction applies to Banking Financial Institutions, under the terms and conditions set forth in the Framework Law for Financial Institutions, hereinafter abbreviated as Institutions.

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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. Credit loss: the difference between all contractual cash flows due to an Institution according to contractual agreements 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 in a credit-impaired state.
3.2. Expected credit losses: the weighted average of credit losses, using their respective probabilities of default as weights.
3.3. Provision for losses corresponds to:
a) The provision for expected credit losses on financial assets measured at amortized cost, lease receivables, and contract assets; b) The cumulative impairment for financial assets measured at fair value through other comprehensive income; c) The provision for expected credit losses on loan commitments and financial guarantee contracts.
3.4. Recoverable amount or Fair value: the present value of estimated future cash flows from credit exposure, discounted at (i) the original effective interest rate, or (ii) the credit-adjusted effective interest rate for financial assets acquired or originated in a credit-impaired state.
3.5. 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.

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3.6. Credit-adjusted effective interest rate: the rate that discounts estimated future cash payments or receipts over the expected life of the financial instrument to the amortized cost of a financial asset acquired or originated in a credit-impaired state.
4. Accounting Treatment
For the purposes of measuring credit losses in the loan portfolio, Institutions must consider the provisions set forth in Instruction No. 08/2019 regarding impairment losses for the loan portfolio and the requirements set forth in International Financial Reporting Standard 9 – Financial Instruments, hereinafter abbreviated as IFRS 9.
5. Prudential Treatment
For the purposes of calculating Regulatory Capital, Institutions must consider the higher amount of credit losses in the loan portfolio resulting from:
a) The application of the standard methodology, as defined in Instruction No. 09/15, dated June 4, regarding methodologies for establishing provisions; and, b) The application of impairment requirements, as defined in Instruction No. 08/2019 regarding impairment losses for the loan portfolio and the requirements set forth in IFRS 9.
6. Transitional Provision
Institutions must comply with the provisions of this Instruction within 180 (one hundred and eighty) days following its publication.
7. Sanctions
Non-compliance with the provisions established in this Instruction constitutes an offense punishable under the Framework Law for Financial Institutions.
8. Doubts and Omissions
Any doubts or omissions arising from the interpretation and application of this Instruction shall be resolved by the National Bank of Angola.

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9. Revocation
Instruction No. 11/2016, dated August 8, and all regulations contrary to the provisions of this Instruction are hereby revoked.
10. Entry into Force
This Instruction enters into force on the date of its publication.
PUBLISHED.
Luanda, August 28, 2019.
THE GOVERNOR
JOSÉ DE LIMA MASSANO