Notice No. 03/2012 of March 28 on the Regulation of Credit Granting and Classification by Financial Institutions

Published in the Official Gazette, I Series, No. 60, of March 28

NOTICE No. 03/2012 of March 28

Given the need to regulate the granting and classification of credit operations by financial institutions authorized to operate by the Bank of Angola;

In these terms, and under the combined provisions of letter f) of Article 21 and letter d) of paragraph 1 of Article 51, both of Law No. 16/10, of July 15 - Law of the Bank of Angola, and Articles 74 and 84 of Law No. 13/05, of September 30 - Law of Financial Institutions;

I DETERMINE:

Article 1
(Credit Classification)

1. Financial institutions must classify the credits granted and the guarantees provided, in increasing order of risk, at the following levels:

Risk Level
Null A
Very Low B
Low C
Moderate D
High E
Very High F
Loss G

2. In the individual classification of credit, the characteristics and risks of the operation and the credit borrower must be taken into account, observing at minimum:
   a) the application given to the resources, by type or modality of operation; b) the predominant activity of the debtor; c) the linkage or not to passive operations; d) the credit risk; e) the guarantees received from the debtor; f) the currency, the indexator, and the term of the operation; g) the complete and precise identification of the credit borrower and the economic group to which they belong.

3. The individual classification of credit at the corresponding risk level is the responsibility of the institution holding the credit and must be carried out based on an estimate of probable loss, calculated using consistent and verifiable criteria, as well as supported by internal and external information, including at least the following aspects:
   a) Regarding the debtor and its guarantors:
   i. economic-financial situation;
   ii. management capacity and quality of internal controls;
   iii. history of punctuality and payment delays;
   iv. contingencies;
   v. economic activity sector;
   vi. geographical area of operation;
   vii. credit limit.
   b) Regarding the operation and its guarantees:
   i. nature and purpose of the transaction;
   ii. characteristics of the guarantees, particularly regarding sufficiency and liquidity;
   iii. value.

Article 2
(Credit Operations)

1. Financial institutions are expressly prohibited from carrying out credit operations, by disbursement, in foreign currency, for any terms, for the following purposes:
   a) liquidity financial assistance, including, among others, pledged current accounts; b) auto financing; c) consumer loans; d) micro credit; e) advances to depositors or overdrafts; f) other modalities of financial credit with a short-term nature (less than one year).

2. All credit operations that do not fall under paragraph 1 of this article may be granted in national or foreign currency, observing the characteristics and risks referred to in Article 1 of this Notice and others inherent to the operations themselves.

3. The provisions of paragraph 1 apply to new operations contracted from June 30, 2011, except if:
   a) in the case of products with characteristics of successive renewals, in which financial institutions must finalize their closure by December 31, 2012, or b) they result from processes of restructuring of credit operations contracted until June 30, 2011.

4. The impediment defined in paragraph 1 is not applicable to credit operations granted to the State or to companies with proven revenues and receipts in foreign currency to proceed with their reimbursement.

Article 3
(Advances to Depositors)

Operations of advances to depositors must be considered as credit granted from their contracting, with full observance of the provisions established in this Notice.

Article 4
(Disbursement and Reimbursement)

1. In credit operations, disbursements must be made in the contracted currency.

2. Financial institutions must, in the collection of installments of granted credit, accept funds available in their clients' accounts expressed in any currencies, regardless of the contracted currency.

3. The obligation referred to in the previous paragraph does not apply to credit operations contracted before the entry into force of this regulation.

Article 5
(Registration of Operations)

The registration of credit operations and other internal procedures related to them, as well as financial plans, must be expressed in the contracted currency.

Article 6
(Lower Values)

Credits contracted in national currency with a client, whose total liability is less than Kz 1,000,000.00 (one million kwanzas), may be classified, upon the granting of credit, through the adoption of own evaluation criteria, which take into account the probability of loss, observed that the best classification to be attributed must correspond to the risk of level B.

Article 7
(Classification by Carryover)

Credits granted to the same client or economic group must be classified with reference to those representing the highest risk.

Article 8
(Periodicity of Review)

1. The classification of credit at risk levels must be reviewed every 12 (twelve) months, using the same procedure that determined its initial classification.

2. The classification of all credits in the portfolio or those made with debtors who operate in a certain sector of economic activity or geographical area must be reviewed whenever the administration of the financial institution considers that there is a risk of significant alteration in the economic situation that may affect the risk of its operations.

Article 9
(Review by Delay)

1. Without prejudice to the review described in Article 5, the financial institution must review monthly the classification of each credit based on the delay verified in the payment of a portion of the principal or charges, observing that:
   a) delay greater than 15 (fifteen) and equal to or less than 30 (thirty) days must be classified as risk level B; b) delay greater than 30 (thirty) and equal to or less than 60 (sixty) days must be classified as risk level C; c) delay greater than 60 (sixty) and equal to or less than 90 (ninety) days must be classified as risk level D; d) delay greater than 90 (ninety) and equal to or less than 150 (one hundred and fifty) days must be classified as risk level E; e) delay greater than 150 (one hundred and fifty) and equal to or less than 180 (one hundred and eighty) days must be classified as risk level F; f) delay greater than 180 (one hundred and eighty) days must be classified as risk level G.

2. At the time of the monthly review provided for in the previous paragraph, the reclassification of credit to a lower risk category, due to the reduction of delay, is limited to the level established in the initial classification or resulting from the annual evaluation.

Article 10
(Long-term Credits)

For credits with a term to run greater than 24 (twenty-four) months, double counting of the terms provided for the monthly review verified in the payment of a portion of principal or charges is admitted.

Article 11
(Documentation)

1. Financial institutions must adequately document their policy and procedures for the granting, classification, and recovery of credit.

2. For the purposes of the provision in the previous paragraph, the documentation must evidence, at least:
   a) the operational modalities and the markets in which the institution intends to operate; b) the type and risk levels that the institution is willing to administer; c) the minimum requirements required for the granting of credits; d) the authorization process and the formation of charges to be applied to each operational modality or type of client; e) the administrative and judicial measures to be taken for the recovery of losses.

Article 12
(Reclassification and Additional Provisioning)

1. The Bank of Angola may determine the reclassification of credits that possess risk higher than that of the category in which they are classified, possibly using, for this purpose, the parameters established in paragraph 3 of Article 1, the institution's own criteria, the total charges charged to the debtor relative to the basic rates current in the market, or stricter criteria to be established by banking supervision.

2. The Bank of Angola may determine the constitution of additional provision, even when there is no change in the risk level attributed to the credit, respecting the maximum percentage limits established for each category.

Article 13
(Provision for Doubtful Collection Credits)

1. The provision to cover losses of credits, as well as provided guarantees, must be constituted monthly, and cannot be less than the product resulting from the application of the percentages mentioned below on the accounting value of each credit, thus considered the amount to be received from the credit borrower, plus the revenues and charges of any nature not received, including those resulting from exchange rate variation, if any.

Risk Level Provision
A 0%
B 1%
C 3%
D 10%
E 20%
F 50%
G 100%

2. The maximum provision at each risk level is limited to the percentage established for the next higher risk level.

3. The provision for doubtful collection credits must be constituted on the accounting value of the credits through registration as a debit to the appropriate cost account and as a credit to the corresponding provision account for credits.

4. Monthly, the institution must verify if the provisioned amount meets the minimum provisioning levels provided for in this article. In case of insufficiency, the balance of the provision accounts is adjusted by debiting the expense account. In case of excess, the balance of the provision accounts is adjusted by crediting the revenue account regarding the cancellation of provisions.

Article 14
(Credits Transferred to Loss)

1. The credit classified as risk level G must be transferred to the specific off-balance sheet account, with the corresponding debit in provision, after 6 (six) months have passed since its classification at this risk level, provided it presents a delay greater than 180 days, and transfer is not admitted in a period less than that.

2. The credit transferred to loss must be:
   a) controlled analytically, with identification of the characteristics of the operation, debtor, guarantees, and respective administrative and judicial measures aimed at its recovery; b) remain registered in an off-balance sheet account for a minimum period of 10 (ten) years and while all collection procedures are not exhausted.

Article 15
(Renegotiation of Credits)

1. Renegotiation is considered any procedure that alters partially or entirely any originally contracted payment conditions.

2. The gain eventually obtained at the time of credit renegotiation, calculated by the positive difference between the renegotiation value and the accounting value of the credits, must be appropriated to the result only upon its receipt, through registration in the appropriate account of net credit revenues, according to criteria provided in the renegotiation, or proportionally to the new maturity terms.

3. The loss or discount eventually granted at the time of credit renegotiation, calculated by the positive difference between the accounting value of the credits and the renegotiation value, must be recognized immediately as the cost of the credit.

4. The credit subject to renegotiation must be maintained, at minimum, at the same risk level in which it is classified, and the classification may be reviewed according to paragraph 1 of Article 5.

5. The credit transferred to loss and renegotiated must be registered in the credit account, at the renegotiation value, with the specific provision account as the counterpart, and classified in category G.

6. From the registration referred to in the previous paragraph, revenues must be recognized monthly.

7. At the time of the monthly risk classification review, provided for in paragraph 1 of Article 6, the reclassification of the credit to a lower risk category may be carried out, based on the regularity and relevance of payments made relative to the total amount of the debt.

Article 16
(Credit Recovery)

1. In the case of recovery of the credit transferred to loss, through the giving of assets in payment, the following procedures must be observed:
   a) the value of the asset to be registered must be limited to the amount determined in its evaluation, with the counterpart being the recognition of revenue from the recovery of credits transferred to loss; b) when the evaluation of the assets is higher than the value of the credits, the difference must be registered as an obligation.

2. In the case of recovery of the credit transferred to loss, through cash payment, the value received must have as its counterpart the recognition of the period's revenue.

3. In the recovery of credit not yet transferred to loss, through the giving of assets in payment, the following procedures must be observed:
   a) the value of the asset must be registered observing the amount determined in its evaluation; b) the accounting value of the credits must be canceled, as well as the value of the specific provision constituted, with the respective registration of the cancellation of provisions for credits; c) when the value of the credits is higher than their accounting value, the difference must be recognized as revenue of the period, up to the amount determined in the evaluation of the assets; d) when the evaluation of the assets is lower than the accounting value of the credits, the difference must be recognized as the cost of the period; e) when the evaluation of the assets is higher than the value of the credits, the difference must be registered as an obligation.

4. In the recovery of credit not yet transferred to loss, through cash payment, the following procedures must be observed:
   a) the accounting value of the credit must be canceled, as well as the value of the specific provision constituted, with the respective registration of the cancellation of provision for credit; b) when the value received is higher than the accounting value of the credit, the difference must be recognized as revenue of the period; c) when the value received is lower than the accounting value of the credit, the difference must be recognized as the cost of the period.

Article 17
(Appropriation of Revenues)

It is prohibited to recognize in the period's result, revenues and costs of any nature related to credits that present a delay greater than 60 (sixty) days in the payment of the portion of the principal or charges.

Article 18
(Assignment of Credit Rights)

1. The credit subject to the assignment of its rights, without co-obligation, must:
   a) be canceled by the assigning institution, with the recognition of revenue or cost; b) be registered by the assignee, according to the modality, the borrower, and the risk of the original operation.

2. The credit subject to the assignment of its rights, with co-obligation, must:
   a) be reclassified, in the assigning institution, to credit linked to assignment with co-obligation; b) have the value of the assumed co-obligation registered in the liability; c) be registered by the assignee, according to the modality and the risk of the assigning institution, with linkage to credit acquired in assignment with co-obligation.

3. The revenue or cost of the credit assignment must be registered in the appropriate account of credit negotiation results in the market, based on the difference between the value received and the accounting value of the credit, net of the provision for doubtful collection credits.

4. The credit assigned without co-obligation that remains in the possession of the assignor for collection must be registered as simple collection on behalf of third parties, in an off-balance sheet account.

Article 19
(Present Value of Credit)

All credits must have their present value controlled in a specific off-balance sheet account, for the purpose of providing information to the Credit Risk Central.

Article 20
(Revocation Norm)

All regulation that contradicts the provisions of this Notice is revoked, notably Notice No. 04/09, of June 18.

Article 21
(Entry into Force)

This Notice enters into force 30 days after the date of its publication.

PUBLISH
Luanda, on June 8, 2011

THE GOVERNOR
JOSÉ DE LIMA MASSANO