INSTRUCTION NO. 2011-05

ON THE COMPOSITION OF OWN FUNDS OF CREDIT INSTITUTIONS

The Governor of the Central Bank of Djibouti,

Having regard to Law No. 118/AN/11/6th L of January 22, 2011, amending the statutes of the Central Bank of Djibouti;

Having regard to Law No. 119/AN/11/6th L of January 22, 2011, on the constitution and supervision of credit institutions and financial auxiliaries;

Having regard to Decree No. 2011-10/PRE of January 24, 2011, appointing the Governor of the Central Bank of Djibouti.

Hereby orders:

Article 1: Determination of Own Funds

The own funds of credit institutions, referred to in Article 3 of Law No. 119/AN/11/6th L of January 22, 2011, cited above, hereinafter referred to as regulated institutions, are constituted by the sum of the following elements:

1. Positive elements to be included:

   • Basic own funds, defined in Article 2 below;
   • Complementary own funds, defined in Article 3 below, within the limits set out in Article 4.

2. Negative elements to be deducted:

   • Participations and subordinated claims on financial institutions, referred to in Article 1 of the banking law, under the conditions established in Article 5 below.

Article 2: Composition of Basic Own Funds

Basic own funds are constituted by the sum of the elements listed below in the first paragraph of this Article, less the elements enumerated in the second paragraph of this Article.

1. Elements included in basic own funds:

   • Paid-up capital or sums representing it;
   • Reserves other than the revaluation reserve;
   • Retained earnings (credit balance);
   • Share premiums or merger premiums;
   • Results of previous periods net of dividends to be distributed;
   • Unallocated funds, provided as coverage for general banking risks;
   • Interim profits, provided they have been determined after accounting for all charges related to the period, provisions for depreciation, provisions, and value adjustments, whether calculated net of foreseeable tax and advance dividend payments or dividend forecasts, and verified by statutory auditors.

2. Elements to be deducted from basic own funds:

   • The unpaid portion of capital;
   • Retained earnings (debit balance);
   • Intangible assets, including start-up costs;
   • Interim deficit results;
   • Uncollectible claims not provided for.

Article 3: Composition of Complementary Own Funds

Complementary own funds encompass:

1. Reserves and revaluation differences;

2. Other stable elements other than reserves and provisions with the character of reserves (non-refundable subsidies, etc.), meeting the following conditions:

   • Can be freely used to cover normal banking risks;
   • Appear in the accounts of the regulated institution;
   • Have been verified by statutory auditors.

3. Funds arising from the issuance of securities, notably those with indefinite duration, as well as those arising from loans, which meet the following conditions:

   • They can only be repaid at the initiative of the borrower and with the prior agreement of the Central Bank of Djibouti;
   • The issuance or loan contract gives the regulated institution the option to defer interest payments;

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• The lender's claims on the regulated institution are subordinated to those of all other creditors;
• The issuance or loan contract provides that the debt and unpaid interest allow for the absorption of losses, enabling the regulated institution to continue its activity.

4. Funds arising from the issuance of securities or subordinated loans which, without satisfying the conditions listed in Article 3, paragraph 3, meet the following ones:

   • If the contract provides a fixed maturity date for repayment, the initial term must be at least five years; if no maturity is set, the debt can only be repayable upon giving five years' notice, unless it has ceased to be considered own funds or the prior agreement of the Central Bank of Djibouti is formally required to proceed with early repayment. The Central Bank of Djibouti may authorize the early repayment of these funds provided that the request was made at the initiative of the issuer and that the solvency of the latter is not affected;
   • The loan contract does not contain a clause providing that, under circumstances other than the liquidation of the regulated institution, the debt must be repaid before the agreed maturity;
   • In the event of liquidation of the regulated institution, these securities or loans can only be repaid after settlement of all other debts existing on the date of liquidation or contracted for the needs thereof.

5. The inclusion in complementary own funds of participatory securities and subordinated loans referred to in paragraphs 3 and 4 above is subject to the prior agreement of the Central Bank of Djibouti and, in any case, limited to the amount of funds actually received. Furthermore, the amount that can be included in the calculation of own funds is progressively reduced over the last five years remaining until maturity.

Article 4: Capping of Complementary Own Funds

Complementary own funds can only be included in the calculation of own funds up to the amount of basic own funds defined in Article 2 above.

Furthermore, those complementary own funds possessing the character of securities or subordinated loans referred to in Article 3, paragraph 4 above, cannot be included for a total amount exceeding 50% of the total basic own funds.

Article 5: Deduction of Participations and Subordinated Claims in Financial Institutions

The participations and subordinated claims defined respectively in Article 1, paragraph 2 and Article 3, paragraphs 3 and 4 are deducted from the sum of elements referred to in Articles 2 and 3 when they concern financial institutions, defined in Article 1 of Law No. 119/AN/11/6th L cited above, and when the participation exceeds 10% of the capital of the institution in which it is held or if it confers significant influence over it.

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Article 6: Loans to Shareholders and Directors

The Central Bank of Djibouti reserves the right to require an establishment to deduct from the own funds defined in Articles 2 and 3, asset items and off-balance sheet commitments granted to its directors and principal shareholders. By director, one should understand any person entrusted with management or administrative powers, as well as their permanent representatives, spouses, ascendants, and descendants in the first degree, as well as any person entrusted with management or administrative powers in a legal entity that exercises exclusive or joint control over the regulated institution, directly or indirectly. By shareholder, one understands any natural or legal person holding, directly or indirectly, at least 5% of voting rights.

It proceeds, under the conditions provided for in Article 11, to rectify the calculation of own funds, particularly when the facilities granted to the aforementioned natural or legal persons do not correspond to the debtor's repayment capacity, the actual needs of the activity, the requirements of sound risk diversification, or when these facilities are granted under conditions compromising their profitability for the bank.

Article 7: Institutions Required to Calculate Own Funds on a Consolidated Basis

1. Credit institutions holding participations in financial institutions must prepare consolidated accounts and calculate their own funds on a consolidated basis.

2. When the regulated institution calculates its own funds on a consolidated basis, the elements detailed in Articles 1 to 5 are retained for their consolidated amounts. Basic own funds are then increased or decreased as appropriate, according to consolidation differences, whether they are credit or debit balances.

Article 8: Extraction of Accounting Elements for Own Funds Calculation

The elements included in the calculation of own funds are extracted from the individual or consolidated accounts of the regulated institutions.

Article 9: Possibility of Temporary Derogation Granted by the Central Bank of Djibouti

In exceptional circumstances that it remains free to assess, the Central Bank of Djibouti may temporarily authorize a regulated institution to exceed the limits set in Article 4, and impose a maximum deadline to regularize its situation.

Article 10: Transmission of Form No. 2011-05 Declaring the Composition of Own Funds

1. Credit institutions must transmit to the Central Bank of Djibouti, on reporting dates of March 31, June 30, September 30, and December 31, the form appearing in the annex.

2. This form is sent to the Central Bank of Djibouti no later than the 20th day of the month following the reporting date. In the case where this day is a holiday, the form must be transmitted no later than the first business day following.

3. The form appearing in the annex must be transmitted, both in the form of a paper form, signed by one of the responsible directors of the credit institution, and in an Excel file format sent by electronic message, according to the procedures fixed by the circular of the Central Bank of Djibouti regarding the procedures for production and transmission of accounting and prudential statements.

Article 11: Power of the Central Bank of Djibouti to Correct the Declaration Statement of the Composition of Own Funds

The Central Bank of Djibouti may modify the consideration of certain elements, if it judges that the conditions provided for by this instruction are not met satisfactorily.

Article 12: Entry into Force of the Instruction

This instruction of the Central Bank of Djibouti takes effect on its date of publication.

Article 13: Repeal of Instruction No. 2/BND/96

The instruction of the Central Bank of Djibouti No. 2/BND/96 concerning the definition of net own funds of credit institutions is repealed.

Done in Djibouti, on December 15, 2011

The Governor

CENTRAL BANK OF DJIBOUTI

INSTRUCTION NO. 2011-05 ON OWN FUNDS

Name of Credit Institution: .................................................................... Bank Code: .................................................................... Reporting Date: ....................................................................

Submission Characteristics	Part to be filled by the institution	Part reserved for the Central Bank of Djibouti
Name of institution
Name of signatory of the statement
Functions of signatory
Reporting date of the statement
Statement version number
• 1st version
• Corrected version
Date of signature of the statement
Date of receipt
Existence of file submission
Date and form of file sending	Email of

NET OWN FUNDS (Instruction No. 2011-05)

(In millions of DJF)

ELEMENTS TO DEDUCT	T	CONSTITUTIVE ELEMENTS	T
BASIC OWN FUNDS (B)		BASIC OWN FUNDS (A)
Treasury shares held.		Paid-up capital
Retained earnings (debit)		Permanent contributions and grants
Uncollectible claims not provided for		Stable reserves and provisions (except Revaluation Reserve)
Interim losses		Retained earnings (credit)
Intangible assets		Share premiums or merger premiums
		Net result of previous period, after distribution
		General Banking Risk Fund
		Interim net profit
Net Basic Own Funds (A-B) > 0		Absence of Basic Own Funds (A-B) < 0
		COMPLEMENTARY OWN FUNDS (C)
		Participatory securities and subordinated loans > 5 years (1)
		Reserves and revaluation differences
		Other elements covering banking risks
		Complementary Own Funds (2)
Participatory securities and subordinated loans > 5 years on influenced credit institutions (D)
Total elements to deduct (B+D)		Total constitutive elements (A+C)
NET OWN FUNDS (A+C) - (B+D) > 0		ABSENCE OF NET OWN FUNDS (A+C) - (B+D) < 0

(1) within the limit of 50% of Basic Own Funds, i.e., < (A-B) x 50% (2) within the limit of 100% of Basic Own Funds, i.e., < (A-B) x 100%