REPUBLIC GAZETTE OFFICIAL PUBLICATION OF THE REPUBLIC OF MOZAMBIQUE

SUMMARY

NOTICE

The material to be published in the «Republic Gazette» must be submitted as a duly authenticated copy, one per subject, containing, in addition to the necessary details for this purpose, the following endorsement, signed and authenticated: For publication in the «Republic Gazette».

NATIONAL PRESS OF MOZAMBIQUE, PUBLIC ENTERPRISE

Bank of Mozambique:
Notice No. 9/GBM/2018:
Determination of the Loan-to-Value (LTV) ratio and the Debt-to-Income (DTI) ratio.
Notice No. 10/GBM/2018:
Domestic Systemically Important Credit Institutions (D-SIBs).

Monday, 29 October 2018 SERIES I — Number 210

BANK OF MOZAMBIQUE

Notice No. 9/GBM/2018 of 29 October

In order to strengthen the criteria for assessing borrowers' creditworthiness by credit institutions, thereby strengthening the resilience of the financial system and promoting its capacity to absorb financial losses, the Bank of Mozambique, exercising the powers conferred upon it by Article 64 of Law No. 15/99 of 1 November – Credit Institutions and Financial Companies Law, as amended by Law No. 9/2004 of 21 July, determines:

CHAPTER I General Provisions

ARTICLE 1 Subject Matter

This Notice establishes the criteria that must be observed by credit institutions when granting credit to their clients.

ARTICLE 2 Scope

This Notice applies to all credit institutions authorized to grant credit by the Bank of Mozambique.

ARTICLE 3 Definitions

For the purposes of this Notice, the following shall be understood as:
a) «Credit contract» - the contract by which an institution grants or promises to grant a client credit in the form of a loan, payment deferral, credit card usage, or any other similar financing agreement, including financial leasing; b) «Debt to Income (DTI)» - the ratio between the monthly installment amount calculated with all loan(s) held by the client(s) and their monthly income(s); c) «Credit institution» – an enterprise whose activity consists of receiving deposits or other repayable funds from the public, in order to invest them on its own account by granting credit. d) «Primary and permanent residence» - the residence where the client or the client and their household maintain, in a stable manner, their center of family life; e) «Loan-to-value (LTV)» - the ratio between the total amount of credit contracts secured by a specific asset and the acquisition price or the assessed value of the asset given as collateral for credit; f) «Total amount of credit contracts» - the maximum limit or the total of amounts made available by the credit institution to the client(s); g) «Installment» - periodic payment of the capital amount plus interest, according to the loan repayment schedule; h) «Income» - amount received by the client(s), net of taxes and mandatory contributions or deductions; i) «Debt service» - set of charges borne by the client and paid periodically, namely capital, interest, commissions, fees, including other installment and regular payments arising from the contracting of a specific loan.

CHAPTER II Forms, Calculation Elements and LTV and DTI Limits

ARTICLE 4 Form and calculation elements of LTV

1. For the calculation of LTV, the amount of the loan(s) secured by the same asset shall be considered in the numerator, and in the denominator, the minimum between the acquisition price and the assessed value of the collateral asset.
2. The assessment of the asset's value must be carried out by an independent appraiser.
3. In the case of housing credit, mortgage or equivalent credit intended for construction, for the calculation of LTV, the denominator shall consider the minimum between the cost of works and the expected assessed value of the property at the time of completion of the construction project.
4. In the case of housing credit, mortgage or equivalent credit intended for works on properties acquired less than two years ago, for the calculation of LTV, the denominator shall consider the minimum between the property acquisition value plus the cost of improvement works and the expected assessed value of the property after said works.
5. In the case of housing credit, mortgage or equivalent credit where the period between property acquisition and credit granting is equal to or greater than two years, for the calculation of LTV, the denominator shall consider the property's assessed value or, in the case of credit intended for works, the expected assessed value of the property after said works.
6. In the case of credit secured by properties acquired free of charge (donations or inheritances), for the calculation of LTV, the denominator shall consider the property's assessed value.

ARTICLE 5 Form and calculation elements of DTI

1. For the calculation of DTI, the debt service calculated with all loans held by the borrower(s) shall be considered in the numerator, and in the denominator, the monthly income of the borrower(s).
2. When calculating the DTI numerator, installments from all previously concluded credit contracts must be considered, even if they relate to contracts excluded from this Notice, provided they have a defined repayment schedule, as well as installments from the new credit contract.

ARTICLE 6 LTV Limits

When granting credit to consumers, credit institutions and financial companies must observe the following limits, depending on the purpose of the financed asset:
a) LTV not exceeding 100%, for housing credit intended for the acquisition or construction of a primary and permanent residence; b) LTV not exceeding 100%, for mortgage or equivalent credit intended for other purposes, other than primary and permanent residence; c) LTV not exceeding 100%, for secured or equivalent credit held by the institution itself, namely in the form of assets held for sale (received in lieu of payment of its own credit); d) LTV not exceeding 100%, for real estate and movable property financial leasing contracts.

ARTICLE 7 DTI Limits

Institutions must not grant credit that results in a DTI exceeding 100%.

ARTICLE 8 Risk management criterion

1. Institutions must apply adequate risk management criteria in all credit operations.
2. The criteria introduced by this Notice correspond to maximum values, which do not replace the obligation for institutions to verify the adequacy of the values of different indicators and other relevant criteria used in assessing each borrower's solvency.

CHAPTER III Final Provisions

ARTICLE 8 Miscellaneous Provisions

1. Institutions must ensure they have adequate means and processes for implementing this Notice, as well as to allow the Bank of Mozambique timely access to data and information, with a view to monitoring compliance with the provisions of this Notice.
2. Institutions must periodically report to the Bank of Mozambique relevant information regarding concluded credit contracts, enabling verification of the degree of compliance with the limits set forth in this Notice.
3. The Bank of Mozambique shall issue the necessary instructions for compliance with the provisions of this Notice.

ARTICLE 9 Sanctioning regime

Violation of the provisions of this Notice constitutes an offense provided for and punishable under Law No. 15/99 of 1 November, as amended by Law No. 9/2004 of 21 July, the Credit Institutions and Financial Companies Law.

ARTICLE 10 Clarifications

Doubts arising from the interpretation and application of this Notice shall be submitted to the Macroprudential Analysis Department of the Bank of Mozambique.

ARTICLE 11 Entry into force

This Notice enters into force on the date of its publication.

Maputo, 19 October 2018. – Governor, Rogério Lucas Zandamela.

29 OCTOBER 2018 2767

Annex I - D-SIB Calculation Formula

1. The Bank of Mozambique will annually evaluate credit institutions under its supervision to identify those with systemic importance, whose score calculation follows these stages:
   a) 1st Stage: Identification of the weight of each credit institution in the banking system, for each category, based on the following formula:
   Table 1:
   b) 2nd Stage: Calculation of the final score of the credit institution, based on the following formula:
   Table 2:

Institutional Weight in Category = Bank i / ∑Total Score of an indicator = Bank i / ∑Total

Annex II – Conservation Buffers

1. All domestic banks identified as Systemically and Quasi-Systemically Important are subject to the establishment of a conservation buffer.
2. The conservation buffers to be established shall comply with the tiers defined by the Bank of Mozambique, according to the table below:

Tier	Buffer	Score
Tier 4	+5.0% Tier 1 and 2 Capital	430 - 529
Tier 3	+4.0% Tier 1 and 2 Capital	330 - 429
Tier 2	+3.0% Tier 1 and 2 Capital	230 - 329
Tier 1	+2.0% Tier 1 and 2 Capital	131 - 229
Tier 0	+1.0% Tier 1 and 2 Capital	065 - 130

3. The conservation buffer tiers are defined by the Bank of Mozambique, which reserves the right to revise them whenever circumstances so dictate.

Notice No. 10/GBM/2018 of 29 October

In order to identify, for macroprudential purposes, credit institutions with systemic importance operating in the Mozambican banking system, the Bank of Mozambique, exercising the powers conferred upon it by Article 37 of Law No. 1/92 of 3 January – Organic Law of the Bank, and by Article 64 of Law No. 15/99 of 1 November – Credit Institutions and Financial Companies Law, as amended by Law No. 9/2004 of 21 July, determines:

CHAPTER I General Provisions

ARTICLE 1 (Subject Matter)

This Notice establishes the requirements for identifying systemically important credit institutions in the Mozambican banking system.

ARTICLE 2 (Scope of Application)

The provisions of this Notice apply to all credit institutions subject to the supervision of the Bank of Mozambique.

ARTICLE 3 (Definitions)

1. For the purposes of this Notice, the following shall be understood as:
   a) «Conservation buffer» - additional Tier 1 capital buffer that must be built to protect the banking sector during periods of excessive credit growth; b) «Credit institution» – an enterprise whose activity consists of receiving deposits or other repayable funds from the public, when the legal regime of the respective species expressly permits it, in order to invest them on its own account by granting credit; c) «Domestic systemically important credit institution (D-SIB)» - an institution whose financial imbalance or insolvency may cause significant disruption to the financial system and the economy as a whole, and which has been identified as such by the Bank of Mozambique; d) «Banking System» - comprises the set of financial institutions that essentially ensure the channeling of savings into investment in financial markets, through the purchase and sale of financial products.

CHAPTER II D-SIB Classification

ARTICLE 4 (Methodology for determining D-SIBs)

1. For the purposes of this Notice, the approach for determining D-SIBs is based on an average score of three indicators with distinct weights, namely:
   a) Size, with a weight of 50.0%, since a bank's difficulty or failure is more likely to cause damage to the system if its activities represent a large share of the overall activity of the domestic banking system; b) Interconnectedness, with a weight of 25.0%, to the extent that financial difficulties in a credit institution may increase the probability of difficulties in others, given the network of connections and obligations in which these institutions operate; c) Substitutability, with a weight of 25.0%, considering that the systemic impact of a bank's financial difficulties should be negatively correlated with its degree of substitutability, both as a market participant and as a provider of services to clients.
2. The Bank of Mozambique may, whenever circumstances so dictate, review the weights of the categories set forth in the preceding paragraph.

ARTICLE 5 (Frequency and Calculation Formula)

1. The Bank of Mozambique will annually evaluate credit institutions under its supervision to identify those with systemic importance.
2. The assessment to be conducted by the Bank of Mozambique comprises two distinct stages:
   a) 1st Stage: Identification of the weight of each