Localisation: Instruction No. 106 on Capital Requirements for Credit Institutions

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These thresholds must be respected on an individual basis and, where applicable, on a consolidated basis.
The basic own funds, category 1 own funds, and net own funds taken into account for the application of this Instruction are those defined as such by the Instruction on the composition of net own funds of credit institutions.

Article 2:
The weighted risks of credit institutions are the sum of:

1. risk-weighted assets as defined in Title 1 of this Instruction;
2. capital requirements related to operational risk, as defined in Title 2 of this Instruction, multiplied by 12.5;
3. capital requirements related to exchange rate risk, as defined in Title 3 of this Instruction, multiplied by 12.5.

Article 1:
Credit institutions must hold basic own funds, category 1 own funds, and category 2 own funds enabling them to permanently meet the following minimum requirements:

• basic own funds must represent at least 6.5% of the credit institution's weighted risks;
• category 1 own funds must represent at least 8% of the credit institution's weighted risks;
• net own funds must represent at least 10% of the credit institution's weighted risks.

Vu,
Vu,
Vu,
THE GOVERNOR, having regard to Law L/2017/017/AN of June 8, 2017, repealing Law L/2016/064/AN of November 9, 2016, and amending Law L/2014/016 of July 2, 2014 on the status of the Central Bank of the Republic of Guinea; having regard to Law L/2013/060/CNT of August 12, 2013 on Banking Regulation; having regard to Decree D/2021/0145/PRG/CNRD of December 25, 2021 on the appointment of the Governor of the Central Bank; having regard to Instruction No. 104/DGSIF/DSB/2022 of November 2, 2022 on the composition of net own funds of credit institutions;

DECIDES:
Instruction No. 106/DGSIF/DSB/2022 of [Date]/2022 on the calculation of capital requirements applicable to credit institutions Conakry, [Date], 2022.
[Seal of the Central Bank of the Republic of Guinea]

Article 6:
Risk-weighted assets are calculated by applying differentiated weightings according to the following exposure categories:

• Sovereigns, central government bodies, and international organizations;
• Public bodies outside central administration;
• Multilateral development banks;
• Credit institutions;
• Enterprises and specialized financing;
• Retail clientele;
• Loans secured by residential real estate.
  On a consolidated basis, the counter-cyclical buffer requirement is calculated taking into account the active counter-cyclical buffers in each jurisdiction where the credit institution operates.

Article 5:
The BCRG may require systemic credit institutions to establish a specific buffer, known as the systemic buffer, whose level is determined based on their systemic importance. The list of concerned institutions and the required systemic buffer levels are published by the BCRG.

Title 1: Risk-Weighted Assets
Credit institutions must establish a counter-cyclical buffer to account for the prevailing macro-financial environment in the Republic of Guinea, particularly when the BCRG considers that a period of excessive credit growth could lead to an excessive accumulation of risks across the financial system. This buffer, with a maximum level set at 2.5% of weighted risks, must be represented by basic own funds. Its rate is fixed by Circular Letter from the BCRG Governor. Credit institutions must also permanently maintain a conservation buffer to enable them to withstand periods of stress. This conservation buffer equals 2.5% of the credit institution's weighted risks and must be represented by basic own funds. Credit institutions must replenish the conservation buffer as soon as possible when the 2.5% threshold is no longer met. Pending this, distributions of profits or reserves are prohibited unless specially authorized by the Central Bank of the Republic of Guinea (BCRG).

Article 4:
(Referenced within Article 2)

Chapter I: Exposures to Sovereigns, Central Government Bodies, International Organizations, Public Bodies Outside Central Administration, and Multilateral Development Banks
Article 9:
Sovereign-related exposures group loans granted to the Guinean State and its subdivisions (Public Treasury, ministries, and central services), to third countries including their subdivisions, and to central banks. Exposures to the Guinean State and its subdivisions, as well as to the Central Bank of the Republic of Guinea, are weighted at 0% when loans are granted in Guinean francs. When these exposures are granted in a currency other than the Guinean franc, the applicable weighting is derived from the ratings assigned to the Guinean State by a recognized External Credit Assessment Institution (ECAI) or from the consensus rating of Export Credit Agencies (ECAs). The BCRG may authorize a credit institution to use an internal model to calculate its credit risk exposure. The necessary conditions for obtaining this authorization and the related calculation methods are specified by a BCRG Instruction. Weightings applied to on-balance sheet and off-balance sheet exposures are determined:

• using standard coefficients when the counterparty is not rated by an External Credit Assessment Institution (ECAI);
• based on grids taking into account the credit quality of the counterparty when it is rated or classified by Export Credit Agencies (ECAs).
  These weightings are described in Articles 9 to 34 below. They apply:
• on-balance sheet: to the net value of exposures, after deducting specific provisions;
• off-balance sheet: on commitments, after applying conversion factors mentioned in Article 34, taking into account risk mitigation techniques under Articles 35 to 37.
  Risk-weighted assets of the credit institution consist of the sum of weighted amounts for each exposure category listed above.

Article 8:

• Loans secured by commercial real estate;
• Non-performing loans (NPLs);
• Other assets;
• Off-balance sheet commitments.

Article 7:
[Continuation of exposure categories]

Article 11:
Exposures to public bodies outside central administration group exposures to decentralized administrations (governorates, prefectures, sub-prefectures) and decentralized entities (urban municipalities, regional municipalities, and various local administration bodies). Exposures to public bodies outside central administration also include exposures to various public entities, the list of which is maintained and published by the BCRG. Exposures to public bodies outside central administration are weighted at 20% when denominated and financed in Guinean francs. Otherwise, they are weighted according to the credit quality of these counterparties based on the grid below.

Article 10:
Exposures to the Bank for International Settlements, the International Monetary Fund, the United Nations and its Specialized Agencies, the European Union and its subdivisions, the European Central Bank, the Economic Community of West African States (ECOWAS), the African Union, the Arab Monetary Fund, and the Arab Maghreb Union are weighted at 0%.

Tableau 1: Sovereign Exposure Weighting Grid (States and Central Banks) External Rating: AAA to AA- | A+ to A- | BBB+ to BB+ | B- to Inferior | Non-rated Weighting: 0% | 20% | 50% | 100% | 150%

When a state is not rated by a recognized ECAI in the Republic of Guinea, credit institutions may weight sovereign exposures using consensus risk classifications established by ECAs and available on the OECD website. They must use the latest update of said assessment.

Tableau 2: Consensus Rating Grid Established by ECAs External Rating: AAA to AA- | A+ to A- | BBB+ to BB+ | B- to Inferior | Non-rated Weighting: 0% | 20% | 50% | 100% | 150%

The correspondence table of ratings from different recognized ECAIs in the Republic of Guinea is attached as Annex No. 1 to this Instruction.

Article 14:
When credit institutions benefiting from the loan are rated by a recognized ECAI, exposures are weighted according to the grid below:
[Grid matches Table 1]
The BCRG maintains and publishes a list of Multilateral Development Banks not previously listed. Exposures to these banks benefit from a 0% weighting when denominated and financed in Guinean francs.
Exposures to other multilateral development banks are weighted according to the grid below, based on their credit quality.

Tableau 3: Weighting Grid for Exposures to Other Public Bodies Outside Central Administration [Grid matches Table 1]

Tableau 4: Weighting Grid for Exposures to Other Multilateral Development Banks [Grid matches Table 1]

Article 12:
Exposures to the following Multilateral Development Banks are weighted at 0%: African Development Bank, Asian Development Bank, Asian Infrastructure Investment Bank, Caribbean Development Bank, Council of Europe Development Bank, European Investment Bank, European Bank for Reconstruction and Development, Inter-American Development Bank, Islamic Development Bank, World Bank Group (Multilateral Investment Guarantee Agency, International Association for Development, International Bank for Reconstruction and Development, International Finance Corporation), Nordic Investment Fund, European Investment Facility, International Financing Facility for Vaccination.

Article 17:
Counterparties assigned to Class A have sufficient financial capacity to honor their financial obligations within the stipulated timeframes, independently of economic conditions and the business environment. They meet minimum regulatory capital and solvency requirements, including buffers specified in Articles 3 to 5 of this Instruction. Counterparties assigned to Class B present a high risk, for example if their repayment capacity depends on the stability or favorability of economic conditions or the business climate. They must meet, excluding buffers, minimum solvency requirements and other specified standards. Counterparties assigned to Class C present a high credit risk with substantial default risk and restricted safety margins. Also assigned to Class C are counterparties that do not meet the assignment criteria for Classes A or B, as well as those whose statutory auditors (CAC) have issued an adverse opinion or expressed substantial doubts regarding the counterparty's ability to continue its operations.

Tableau 6: Weighting Grid for Exposures to Unrated Credit Institutions Risk Class: Class A | Class B | Class C (standard) Weighting: 40% | 75% | 150% Short-term exposure weighting: 20% | 50% | 100%

When the beneficiary credit institution is not rated by a recognized ECAI, the declaring credit institution evaluates the credit quality of its counterparty and assigns exposures to three risk classes (A, B, or C) defined in Article 17 of this Instruction. It applies the weightings shown in the following table.

Article 16:
When using the weighting grid mentioned in Article 14, credit institutions must first verify that external ratings appropriately and prudently reflect the solvency of the concerned counterparties. If this analysis concludes that risk characteristics are less favorable than implied by the external rating, the credit institution must use a weighting coefficient at least in the upper bracket of the standard weighting mentioned in Article 14.

Article 15:
[Short-term exposure weights as per Table 5]

Chapter III: Exposures to Enterprises and Specialized Financing
Article 18:
Specialized financing exposures present at least one of the following characteristics:

• they are not related to the real estate sector and meet the definition of object financing, project financing, or commodity product financing;
• the counterparty is generally an entity specifically created to finance and/or manage tangible assets;
• the borrowing entity has few or no other significant assets or activities, and thus little or no own capacity to repay its debt outside the income generated by the financed asset; the main source of repayment is therefore the revenue generated by the financed asset, not the borrowing entity's own capacity; and,
• financing terms confer a substantial degree of control to the lender over the financed asset and its generated revenue.
  As an exception, exposures to small and medium-sized enterprises (turnover less than 20,000,000,000 Guinean francs) not meeting the inclusion criteria for the retail clientele category are assigned a weighting of 85%.

Article 19:
The enterprise category comprises capital companies, associations, partnerships, sole proprietorships, trusts, funds, and other entities not assignable to another category, particularly the retail clientele category. Exposures to enterprises are weighted according to the following grid.

Tableau 7: Weighting Grid for Enterprise Exposures [Grid matches Table 1]

Chapter IV: Exposures to Retail Clientele
Article 22:
Retail clientele exposures include loans, overdrafts and renewable credit lines, term loans, and hire-purchase agreements excluding mortgage loans to individuals, as well as financing for small and medium-sized enterprises. To be assigned to retail clientele, aggregated exposures on the same counterparty must not exceed a ceiling of 3,500,000,000 Guinean francs, and no aggregated exposure may exceed 0.2% of total retail clientele exposures. Retail clientele exposures benefit from a weighting of 75%. However, debtors whose monthly installments have been fully paid on time over the preceding twelve months and who have used no overdraft facility during this period are assigned a weighting of 45%. Exposures to natural persons not meeting all criteria stated in the first paragraph of this article are weighted at 100%. Exposures to small and medium-sized enterprises not meeting all criteria stated in the first paragraph are weighted according to Article 18 of this Instruction.

Article 23:
Project financing involves loans where the lender primarily relies on revenues generated by a project as both a source of loan repayment and security covering the loan. This type of financing generally funds large projects, such as power plants, chemical factories, mines, transport infrastructure, environmental works, media, and telecommunications. It may also finance the construction of new equipment or refinance existing installations, with or without improvements. When financing receives a specific external rating from a recognized ECAI, the weightings in Table No. 7 above are used. In the absence of a specific external rating for object financing, a weighting of 130% is applied before project commissioning and 100% after commissioning. Commodity product financing involves short-term loans to finance reserves, stocks, or receivables related to commodities traded on organized markets (e.g., crude oil, metals, or agricultural products), in which the loan will be repaid by sales proceeds, with the borrower having no own capacity to effect this repayment. When financing receives a specific external rating from a recognized ECAI, the weightings in Table No. 7 above are used. In the absence of a specific external rating for object financing, a weighting of 100% is applied. Asset-backed financing covers the acquisition of tangible assets (ships, aircraft, rolling stock, etc.) whose operation generates cash flows enabling loan repayment. When financing receives a specific external rating from a recognized ECAI, the weightings in Table No. 7 above are used. In the absence of a specific external rating for object financing, a weighting of 100% is applied.

Article 21:
Exposures secured by commercial-use property are assigned the counterparty's weighting when the loan-to-current-value ratio exceeds 60%; otherwise, the credit institution retains the lower value between 60% and the counterparty's weighting.

Tableau 8: Weighting Grid for Residential Real Estate Exposures Dependent on Generated Income Loan-to-Current-Value Ratio: ≤50% | >50% & ≤60% | >60% & ≤80% | >80% & ≤90% | >90% & ≤100% | >100% Weighting: 60% | 70% | 80% | 90% | 100% | 150%

Article 27:
Exposures financing residential-use property where repayment is strongly dependent on revenues generated by the property, such as in rental investments, are weighted according to the loan-to-value ratio of the financed property. This corresponds to the ratio between the remaining loan amount and the property's value, assessed at loan origination and updated in case of exceptional events causing depreciation. These weightings are assigned according to the grid below:

Article 26:
For residential-use property where repayments are not strongly dependent on generated revenues, a weighting of 40% is applied to the fraction of exposure representing half (50%) of the property's value. The weighting that would have benefited the counterparty in the absence of real estate collateral is then applied to the residual exposure fraction.

Article 25:
An exposure may be considered secured by real estate when:

• the credit institution holds a sole first-ranking mortgage on the property and this mortgage is duly registered;
• the real estate property is completed. An exception is granted for properties under construction intended as the debtor's primary residence;
• no contractual restriction limits the credit institution's right to realize the property within a reasonable timeframe in case of borrower default;
• loan origination relies on a lending policy considering the borrower's repayment capacity (principal and interest) relative to resources and other charges, or when loan repayment depends on rental income, the amount of collected rents and occupancy rate;
• the real estate property undergoes prudent valuation by an independent expert, and if an exceptional event causes permanent depreciation, its value is adjusted in the credit institution's files and information system;
• all information necessary for loan file processing and monitoring is attested by documents in the loan file.