Regulation (NAP) - Standard on Bank Liquidity

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Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09
PROPONENTE(S) P.S.B.S.
ENTRADA EM VIGOR 06/08/2007
DATA DA EMISSAO 06/08/2007
N° DOC 04/2007
FL. 1/4

Subject: Standard on Bank Liquidity
Considering the inherent liquidity risk in banking activity, arising from an institution's inability to meet its financial obligations without incurring materially relevant losses. In accordance with Article 30 of the Financial Institutions Law, financial institutions are responsible for preserving their liquidity in compliance with the standards established by the Central Bank; Considering the provisions set out in letters d) and j) of its Organic Law, the Central Bank of São Tomé and Príncipe determines:

Article 1 Subjects
This standard applies to all financial institutions authorized to operate in São Tomé and Príncipe.

Article 2 Object
1- Banks must maintain an adequate balance between invested funds (assets) and their financial resources (liabilities), ensuring the financing of their operations at any time under reasonable conditions and costs. 2- Banks must comply with the minimum requirements on liquid resources established in this standard and define the basic principles for the effective management of liquidity.

Article 3 Principles
Banks must adopt international guidelines for the correct and effective management of liquidity with:
a) An internal structure for managing their liquidity; b) A strategy defined by management regarding liquidity; c) A monitoring and control program for liquidity risk; d) A mechanism for controlling and auditing policies and procedures.

Reviewed.
Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09
PROPONENTE(S) P.S.B.S.
ENTRADA EM VIGOR 06/08/2007
DATA DA EMISSAO 06/08/2007
N° DOC 04/2007
FL. 2/4

Article 4 Policies
Institutions must adopt policies aimed at guaranteeing an adequate liquidity level, under these terms they must:
1- Appoint a responsible official for this portfolio near the Central Bank.
2- Establish continuous analysis processes to measure and monitor their net fund needs.
3- Analyze their liquidity using different economic scenarios.
4- Periodically review the assumptions used in liquidity management to determine if they remain valid.
5- Periodically review market access mechanisms, establish and maintain good relations with creditors, maintain diversification of liabilities, and ensure the realization capacity of assets. 6- Define contingency plans to resolve liquidity crisis situations and procedures to overcome emergency funding shortages.

Article 5 Foreign Currency Liquidity
Banks must manage their liquidity in foreign currency, for which they must:
1- Have a system to measure, monitor, and control their liquidity position in the main foreign currencies with which they transact. 2- Establish, and frequently review, limits on their foreign currency positions for regular time periods, in aggregate terms, or for each of the currencies with which they transact individually.

Article 6 Internal Control System
1- Banks must have an adequate internal control system regarding the process of managing their liquidity risk, involving regular review or independent audit of the system and evaluation of its effectiveness. 2- The results of these reviews must be made available to the Central Bank's supervision when requested.

Reviewed.
Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09
ENTRADA EM VIGOR 06/08/2007
DATA DA EMISSAO 06/08/2007
N° DOC 04/2007
PROPONENTE(S) P.S.B. S.

Article 7 Information to the Public
Banks must have a mechanism to ensure an adequate public information system regarding their status and financial health.

Article 8 Ratio Calculation
Banks must maintain a Liquidity Ratio of at least 20%, calculated as follows:
Highly liquid assets x 100 / Total liabilities, excluding own funds

Article 9 Elements of Assets
Eligible highly liquid assets included in the numerator of the ratio include the following values:
a) Cash; b) Gold bullion; c) Compulsory and free reserves at the Central Bank; d) Deposits in other financial institutions; e) Securities immediately negotiable in the market; f) Net balance of interbank credits and debts maturing, with a residual maturity of up to one month.

Article 10 Limits
1 - Banks must comply with the limits established by their Board of Directors for accumulated differences in their cash flow, i.e., accumulated net fund needs as a percentage of total liabilities. 2 - The limits referred to in the preceding number cover the following periods: the next day, up to seven days, and from eight days to one year.

Reviewed. FL. 3/4
Banco Central de S. T. P.
NAP
NORMA DE APLICACAO PERMANENTE CODIGO RD 09
PROPONENTE(S) P.S.B.S.
ENTRADA EM VIGOR 06/08/2007
DATA DA EMISSAO 06/08/2007
N° DOC 04/2007
FL. 4/4

Article 11 Duty to Report

1. Banks must submit to the Central Bank, by the 10th day of the following month, in a format prescribed by the Central Bank, the calculation of the Liquidity Ratio and accumulated cash flow differences for the position at the end of each month.
2. The direct responsibility for defining a comprehensive liquidity management system of the bank lies with its Board of Directors, which must, at minimum, establish in writing policies and procedures to comply with the provisions of this standard.

Article 12 Validity
This NAP takes effect immediately.
Reviewed.