Notice No. 6/GBM/2023 of 16 October - Regulation on Prudential Ratios and Limits for Mutual Guarantee Societies

SUMMARY
NOTICE
The matter to be published in the «Boletim da República» must be submitted as a duly authenticated copy, one for each subject, containing, in addition to the necessary details for this purpose, the following endorsement, signed and authenticated:
For publication in the «Boletim da República».
NATIONAL PRESS OF MOZAMBIQUE, S.A.
Bank of Mozambique:
Notice No. 5/GBM/2023:
Establishes the rules to be observed in the disclosure and provision of pre-contractual information on credit.
Notice No. 6/GBM/2023:
Approves the Regulation on Prudential Ratios and Limits for Mutual Guarantee Societies.
Monday, 16 October 2023 SERIES I — Number 197
BANK OF MOZAMBIQUE
Notice No. 5/GBM/2023 of 16 October
In order to promote transparency regarding the provision of pre-contractual information by credit institutions, financial companies, and microfinance operators granting credit, the Bank of Mozambique, exercising the competence conferred by paragraph 6 of Article 64 of Law No. 20/2020 of 31 December – Law on Credit Institutions and Financial Companies, determines:
CHAPTER I
General Provisions
ARTICLE 1
Subject Matter
This Notice establishes the rules to be observed in the disclosure and provision of pre-contractual information on credit.
ARTICLE 2
Scope

1. This Notice applies to credit institutions and financial companies authorized to grant credit.
2. This Notice also applies, in specifically established situations, to microfinance operators subject to the supervision of the Bank of Mozambique.
   ARTICLE 3
   Definitions
   For the purposes of this Notice, the following shall be understood as:
   a) consumer - an individual or legal person who uses or intends to use any financial product and service made available or marketed by credit institutions, financial companies, and other entities subject to supervision or monitoring by the Bank of Mozambique; b) distance contract - any contract whose formation and conclusion are carried out exclusively through distance communication means, integrated into a sales or service provision system organized for this purpose by the provider; c) housing credit - credit granted for the purpose of acquiring, constructing, or rehabilitating property for housing, or for acquiring or maintaining rights over existing or planned real estate; d) consumer credit - credit intended to satisfy needs for acquiring consumer goods or services; e) revolving credit - credit of indefinite duration with a maximum limit established, which the client may use over time up to that limit, and which, upon repayment of outstanding amounts, the client may reuse, with the exception of overdraft facilities; f) overdraft facility - a contract by which a credit institution allows the holder of a bank account to access funds exceeding the account balance. g) index - the interest rate representative of market conditions, used as a reference in loans with variable rates; h) distance communication medium - any lasting and demonstrably provable communication medium that can be used without the physical and simultaneous presence of the institution and the client, including web pages; i) total credit amount - the overall amount or maximum limit of the credit; j) total credit amount attributed to the client - the overall credit amount plus its total cost to the client, which corresponds to the sum

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10. In field 2.4. “Promotional Conditions” of Chapter C, it should only be completed if the loan in question falls under a promotional campaign.
11. In field 2.5.1. “Initial Fees” of Chapter C, information regarding the total value of fees charged must be included. As well as the effects of optional bundled sales and promotional conditions on fees, where applicable. The billing frequency should only be included in the information regarding fee identification, with institutions indicating for this purpose whether the fee in question is billed monthly, quarterly, semi-annually, or otherwise.
12. Field 2.8. “Costs for DO accounts” in Chapter C must be completed, except if account opening is optional and account costs have been clearly and separately determined in the credit contract or in any other contract concluded with the client.
13. Field 2.12. “Other costs” in Chapter C should only be completed if protocols, agreements, or any other situations likely to affect the cost of the loan are applicable.
14. Specific situations impacting loan costs (notably regarding the fixed interest rate or spread) may also be included in this table, due to the client having acquired financial products or services prior to the loan simulation or approval. In this case, institutions must also expressly indicate the respective conditions for application, review, and maintenance.
    Notice No. 6/GBM/2023 of 16 October
    In order to establish the specific prudential ratios and limits for mutual guarantee societies, the Bank of Mozambique, exercising the competences conferred by Article 85 of Law No. 20/2020 of 31 December, Law on Credit Institutions and Financial Companies, determines:
15. The Regulation on Prudential Ratios and Limits for Mutual Guarantee Societies, attached to this Notice, is hereby approved and forms an integral part hereof.
16. This Notice enters into force on the date of its publication.
17. Doubts regarding the interpretation and application of this Notice shall be submitted to the Prudential Supervision Department of the Bank of Mozambique.
    Maputo, 4 September 2023. — The Governor, Rogério Lucas Zandamela.
    Regulation on Prudential Ratios and Limits for Mutual Guarantee Societies
    CHAPTER I
    General Provisions
    ARTICLE 1
    Subject Matter
    This Regulation establishes the prudential ratios and limits applicable to mutual guarantee societies.
    ARTICLE 2
    Scope
    This Regulation applies to mutual guarantee societies in pursuing their object and providing related services, as provided for in the Regulation of the Law on Credit Institutions and Financial Companies.
    ARTICLE 3
    Duty of Continuous Compliance
    Mutual guarantee societies must continuously and permanently observe the ratios and limits established in this Regulation.
    CHAPTER II
    Prudential Ratios and Limits for Mutual Guarantee Societies
    ARTICLE 4
    Prudential Limits Applicable to Mutual Guarantee Societies The following rules shall apply to mutual guarantee societies, with the necessary adaptations:
    a) Notice No. 4/GBM/2013 of 18 September, establishing the Risk Management Guidelines, with due adaptations; b) Notice No. 11/GBM/2013 of 31 December, concerning the Calculation Base for Minimum Capital Requirements to Cover Credit Risk; c) Notice No. 12/GBM/2013 of 31 December, determining the Calculation Base for Minimum Capital Requirements to Cover Operational Risk; d) Notice No. 13/GBM/2013 of 31 December, concerning the Calculation Base for Minimum Capital Requirements to Cover Market Risk; e) Notice No. 16/GBM/2013 of 31 December, establishing the Regime on Minimum Regulatory Provisions; f) Notice No. 20/GBM/2013 of 31 December, concerning the Supervisory Review Process (SRP); g) Notice No. 8/GBM/2017 of 2 June, approving the Regulation on Own Funds of Credit Institutions, with the exception of what is established in paragraph 1 of Article 8; h) Notice No. 9/GBM/2017 of 5 June, approving the Regulation on Prudential Ratios and Limits for Credit Institutions, with the exception of Article 15; i) Notice No. 16/GBM/2017 of 22 September, concerning Market Discipline - Disclosure Requirements; j) Notice No. 5/GBM/2018 of 6 June, establishing Prudential Limits on Risk Concentration; and k) Notice No. 7/GBM/2019 of 27 May, revoking paragraph 3 of Article 8 of Notice No. 5/GBM/2018 of 6 June.
    ARTICLE 5
    Capital and Own Funds
18. The total own funds of mutual guarantee societies must not be less than the minimum share capital amount defined by the Bank of Mozambique.
19. Basic own funds (Tier 1 Capital) must correspond to at least 50% of total own funds.
20. Core basic own funds (Tier 1 Core Capital) must correspond to at least 50% of basic own funds (Tier 1 Capital).
21. Supplementary own funds must not exceed the equivalent of 50% of total own funds.

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Proof
5. The elements indicated in letters m) to p) of Article 3 of Notice No. 8/GBM/2017 of 3 April may only be considered up to 50% of basic own funds.
ARTICLE 6
Exceptions to Limits on Shareholdings in Other Companies

1. The provisions of Article 14 of Notice No. 9/GBM/2017 of 5 June shall not apply to shareholdings in institutions subject to the supervision of the Bank of Mozambique and in insurance companies headquartered in Mozambique.
2. Without prejudice to the provisions of the following article, the limits provided for in Article 14 of Notice No. 9/GBM/2017 of 5 June may only be exceeded as a result of the repayment of own credit, and situations arising therefrom must be regularized within a maximum period of two years.
   ARTICLE 7
   Elements to be Deducted from Own Funds
3. Without prejudice to other deductions provided for in Notice No. 8/GBM/2017 of 2 June, mutual guarantee societies shall deduct from the calculation of their own funds the amounts exceeding the limits specified in Article 14 of Notice No. 9/GBM/2017 of 5 June.
4. The deductions referred to in the preceding paragraph shall not apply to shareholdings in institutions subject to the supervision of the Bank of Mozambique and in insurance companies headquartered in Mozambique.
   ARTICLE 8
   Solvency Ratio
   Mutual guarantee societies must maintain a capital level compatible with the nature and scale of their operations, as well as the inherent risks, maintaining a global solvency ratio equal to or greater than 8% and a basic solvency ratio equal to or greater than 4%, calculated in accordance with the provisions of Article 7 of Notice No. 9/GBM/2017 of 5 June.
   ARTICLE 9
   Classification of Risk Positions for Coverage of Risks of Provided Guarantees
5. Without prejudice to what is established in letter b) of Article 4 of this Regulation, for the purpose of the weighting to be assigned, the risk positions assumed by mutual guarantee societies must be classified in accordance with letter a) of Article 5 of Notice No. 11/GBM/2013 of 31 December, concerning the calculation base for minimum requirements to cover credit risk.
6. The risk positions assumed by the Mutual Guarantee Fund, in the form of counter-guarantees to mutual guarantee societies, must be weighted in accordance with paragraph 7 of Part 2, of Annex II, of Notice No. 11/GBM/2013 of 31 December, concerning the calculation base for minimum requirements to cover credit risk.
   ARTICLE 10
   Classification and Provisioning Criteria for Positions of Provided Guarantees Without prejudice to the provisions of letter e) of Article 4 of this Regulation, for the purpose of establishing minimum regulatory provisions, the credits assumed by the Mutual Guarantee Fund, in the form of counter-guarantees to mutual guarantee societies, must be classified in accordance with letter a) of paragraph 1 of Article 16 of Notice No. 16/GBM/2013 of 31 December, which establishes the Regime on Minimum Regulatory Provisions.
   ARTICLE 11
   Guarantee and Counter-Guarantee Operations
   All guarantee operations carried out by mutual guarantee societies with their clients must be conducted in national currency, except in cases where:
   a) the mutual guarantee society itself is the beneficiary of foreign currency counter-guarantees provided by national or foreign entities; or b) the guaranteed credits were contracted in foreign currency.
   ARTICLE 12
   Accounting
   Mutual guarantee societies must carry out the accounting registration of their operations in accordance with the rules governing the accounting of institutions subject to the supervision of the Bank of Mozambique.
   CHAPTER III
   Final Provisions
   ARTICLE 13
   Amendment of the Calculation Base for Prudential Ratios and Limits The Bank of Mozambique may order the adjustment of the calculation bases for the limits established in this Regulation whenever the conditions for observing prudential principles so justify.
   ARTICLE 14
   Instructions
   The Bank of Mozambique issues the necessary instructions for the compliance with this Regulation.
   ARTICLE 15
   Sanctioning Regime
   Non-compliance with the provisions of this Regulation constitutes an offense punishable under the Law on Credit Institutions and Financial Companies and other applicable legislation.
   Price — 50.00 MT
   NATIONAL PRESS OF MOZAMBIQUE, S.A.