Regulation on Foreign Exchange Coverage

Central Bank of São Tomé and Príncipe
PERMANENT APPLICATION NORM (PAN) 05/2017
Proponent(s): PMSP | Entry into Force: 01/03/2017 | Issue Date: 15/02/2017 | Doc No.: 05/2017 | Page: 1/9

Subject: Regulation on Foreign Exchange Coverage

Considering the need to ensure better management of the country's external availability, in the context of a fixed exchange rate regime; Considering further the need to improve the foreign exchange coverage process so as to better respond to the immense challenges facing the São Toméan foreign exchange market; In these terms, and under the prerogatives established by the Organic Law of the Central Bank (Law 8/92, Articles 31st, 32nd, 34th and letter g) of Article 38th, combined with Articles 1st, 6th, 8th and 10th of Decree-Law No. 32/99 "Foreign Exchange Law", the Central Bank of São Tomé and Príncipe determines the following:

Article 1. (Scope and Subject Matter)

1. This norm regulates the process and eligibility conditions for foreign exchange coverage, as well as the exchange rates and commissions to be applied in these operations.
2. It applies to Financial Institutions and Exchange Houses authorized to operate in the national market.

Article 2. (Daily Exchange Rate Bulletin)

1. The daily exchange rate bulletin published by the Central Bank of São Tomé and Príncipe takes into account the Exchange Rate of the Dobra against the Euro, defined within the framework of the Economic Cooperation Agreement with Portugal.
2. The rates published for other currencies are calculated taking into account their respective cross rates against the reference currency, the EURO, collected in the international market.

Article 3. (Definitions)
For the purposes of this norm, it is understood as:
Exchange Rate — the value of a currency expressed in units of another.
Exchange Rate Position — the algebraic sum of the total assets in a foreign currency, deducted from the total liabilities (excluding equity) in that currency, added to the net position arising from foreign exchange futures. The exchange rate position is said to be long (purchased) when the result of this operation is positive, and short (sold) when negative. Global Position — the algebraic sum of short and long global positions held in various foreign currencies. Long Global Position — also called purchased global position, results from the sum of exchange positions in each purchased currency, converted into Euros. Short Global Position — also called sold global position, results from the sum of exchange positions in each sold currency, converted into Euros. Global Spot Position — results from subtracting all liability elements, including accrued interest, from all asset and liability elements; it may be short or long. The time horizon for the mobilization of elements to be considered cannot exceed forty-eight (48) hours. Global Forward Position — results from subtracting all amounts payable under forward exchange operations, including foreign exchange futures, from all amounts receivable. Foreign Exchange Futures — corresponds to the purchase and sale operations of a specific foreign currency, contracted but not settled. Qualified Equity — the sum of base equity and supplementary equity, calculated in accordance with the PAN on Adequacy of Equity and Solvency Ratio.

Article 4. (Determination of Exchange Rate Position)

1. The following formula is applied to calculate the Exchange Rate Position, as of the date in question:
   PC = (AME - PME) + (CCL - CVL)
   Where:
   PC = Exchange Rate Position.
   AME = Total Assets in Foreign Currency.
   PME = Total Liabilities in Foreign Currency.
   CCL = Purchases of foreign currency contracted but not settled.
   CVL = Sales of foreign currency contracted but not settled.
2. The composition of each element affecting the calculation of the exchange rate position is described in ANNEX I of this regulation.

Article 5. (Limits on Exchange Rate Position)
The Central Bank may set limits on the Exchange Rate Position for financial institutions and exchange houses authorized to operate in the National Financial Market.

Article 6. (Processing of Foreign Exchange Coverage Requests)

1. The foreign exchange coverage request by financial institutions must:
   a) Contain the corporate name of the requesting institution; b) Contain the authorized signature in accordance with the mandate of each institution, according to the signature cards sent to BCSTP; c) Contain the specification of the respective currencies for the exchange operation; d) Be formulated based on requests from their clients.
2. The processing of the coverage request must also contain:
   a) List of the main imports carried out; b) Proof of transfer (MT); c) Justifications for the operation, namely:
   i. Final invoices with dates not later than 6 months from the date of the coverage request;
   ii. Documents confirming loading at origin or unloading of goods into the national customs territory;
   d) Date of the transfer request by the client, and the date on which the operation must be carried out; e) The Central Bank may request additional documents whenever deemed necessary.

Article 7. (Eligibility Requirements)
To access foreign exchange coverage, institutions must cumulatively meet the following requirements:
a) Have an exchange rate position, by currency, lower than 12% of the institution's qualified equity; b) Have a global exchange rate position lower than 25% of qualified equity; c) Have a liquidity ratio not lower than the limit set in accordance with the PAN on Bank Liquidity; d) Have a solvency ratio not lower than the limit set in accordance with the PAN on Adequacy of Equity and Solvency Ratio; e) Have qualified equity value equal to or higher than the minimum regulatory capital. Without prejudice to the preceding paragraph, the Central Bank may exceptionally accommodate the following situations:
a) Direct coverage for goods imports during crisis periods; b) Direct coverage for fuel imports.

Article 8. (Appraisal and Settlement)

1. Coverage requests are appraised/analyzed by the third business day, observing the provisions of this PAN;
2. For settlement purposes, the requesting bank's excess reserves at the Central Bank are used;
3. The use of 30% of Required Reserves in the last observation period is also permitted.

Article 9. (Information Submission)

1. Financial institutions must report to the Central Bank, on the first business day of each week, their exchange rate position as of the last day of the previous week, according to Annex II.
2. The exchange rate position referred to in the preceding point must be forwarded to the Markets and Liquidity Management Directorate of the Central Bank.

Article 10. (Publication of Rates and Commissions)
Authorized financial institutions and exchange houses are obliged to publish in a visible location the rates and commissions applied in foreign exchange operations with the public.

Article 11. (Rates and Commissions)

1. In Euro sale operations carried out by BCSTP with financial institutions, commissions of 1.5% are applied.
2. In Euro purchase operations carried out by BCSTP with financial institutions, commissions of 0.5% are applied.
3. For financial institutions, the maximum commission limit charged to the public is 2% for the euro, while for other currencies, a maximum spread of 4% is fixed.
4. In Euro purchase operations carried out by financial institutions and exchange houses with the public, the Single Rate published by BCSTP must be used, with no commissions being charged.
5. The BCSTP may alter the limits set above, provided that communication is made in accordance with legal terms.

Article 12. (Penalties)

1. Foreign exchange coverage requests submitted in disagreement with the provisions of Articles 6th and 7th of this regulation shall not be authorized;
2. Failure to comply with Article 9th of this PAN implies the suspension of the financial institution's access to foreign exchange coverage;
3. The falsification of documents and/or submission of requests with justifications for previously carried out coverages are subject to penalties under the PAN on Supervisory Action and Application of Penalties;
4. Non-compliance with this PAN determines the application of sanctions provided for in terms of the Foreign Exchange Law and other prevailing legal provisions.

Article 13. (Repeal)
The Permanent Application Norm 10/2012 - "Regulation on Access to the Foreign Exchange Market, Coverage, Rates and Commissions" is hereby repealed.

Article 14. (Entry into Force)
This PAN enters into force, under legal terms, after its publication.

Central Bank of São Tomé and Príncipe, 15 February 2017 Repeal Data: Repeals PAN No. 10/2012

ANNEX I
Element affecting the calculation of the exchange rate position Code | Description 1 | Foreign Currency Assets - Spot 101 | Receivables 111 | Deposits at CB 131 | Demand deposits in other Resident Banks/Financial Institutions 14 | Demand deposits abroad 16 | Gold 2 | Foreign Currency Assets - Forward 1201 | Receivables - Residents 1210 | Cheques on foreign countries 1901 | Other liquidity - Residents 1911 | Other liquidity - Non-Residents 20103 | Mandatory deposits - CB 20104 | Time deposits - Residents - CB 20106 | Repurchase agreement purchases - CB 20109 | Other applications - CB 20110 | Multi-currency time applications - OIFB 20111 | Deposits - CBs 20112 | Discounts - OIFB 20113 | Rediscounts - OIFB 20114 | Loans - OIFB 20116 | Repurchase agreement sales - OIFB 20119 | Other applications - OIFB 20120 | Multi-currency time applications - OIFNB 20122 | Discounts - OIFNB 20123 | Discounts - OIFNB 20124 | Rediscounts - OIFNB 20129 | Other applications - OIFNB 21103 | Mandatory deposits - CB 21104 | Time deposits - Non-Residents - CB 21108 | Repurchase agreement purchases - CB 21109 | Other applications - CB 21110 | Multi-currency time applications - OIFB 21111 | Deposits - OIFB 21112 | Discounts - OIFB 21113 | Rediscounts - OIFB 21114 | Loans - OIFB 21116 | Repurchase agreement sales - OIFB 21119 | Other applications - OIFB 21120 | Multi-currency time applications - OIFNB 21122 | Discounts - OIFNB 21123 | Discounts - OIFNB 21124 | Rediscounts - OIFNB 21129 | Other applications - OIFNB 2201 | Fair value income securities - Residents 2203 | Variable income securities 2211 | Fair value income securities - Non-Residents 2213 | Variable income securities 2221 | Investment fair value securities - Residents 2231 | Investment fair value securities - Non-Residents 231 | Granted credit - Residents 241 | Granted credit - Non-Residents 2601 | Debtors and other applications - Residents 2621 | Debtors and other applications - Non-Residents 271 | Applications - Overdue and adversely classified credits - Residents 273 | Securities - Overdue and adversely classified credits - Residents 275 | Granted credit - Overdue and adversely classified credits - Residents 2781 | Accrued interest to be regularized - Residents 279 | Expenses of overdue credits - IN FOREIGN CURRENCY 281 | Applications - Overdue and adversely classified credits - Non-Residents 283 | Securities - Overdue and adversely classified credits - Non-Residents 285 | Granted credit - Overdue and adversely classified credits - Non-Residents 2881 | Accrued interest to be regularized - Non-Residents 40 | Financial immobility - IN FOREIGN CURRENCY 501 | Interdepartmental accounts - Residents 5111 | Receivable provisions - Liquidity in FC 5121 | Receivable provisions - Applications in FC 5124 | Receivable provisions - Fair value securities in FC 5126 | Receivable provisions - Investment securities in FC 5128 | Receivable provisions - Granted credit in FC 5140 | Receivable provisions - Financial immobility IN
FOREIGN CURRENCY 518 | Receivable provisions - Others IN FOREIGN CURRENCY 529 | Receivable provisions - Extra-patrimonial operations IN FOREIGN CURRENCY 5621 | Expenses with deferred cost - Rec. IF - Resident 56251 | Expenses with deferred cost - Other resources - Resident 56261 | Expenses with deferred cost - Creditors - Resident 5631 | Expenses with deferred cost - Rec. IF - Non-Resident 56351 | Expenses with deferred cost - Other resources - Non-Resident 56361 | Expenses with deferred cost - Creditors - Non-Resident 5671 | Expenses with deferred cost - Commissions paid 568 | Expenses with deferred cost - Extra-patrimonial operations IN FOREIGN CURRENCY 569 | Expenses with deferred cost - Other expenses IN FOREIGN CURRENCY 58 | Other regularization accounts - ASSETS - IN FOREIGN CURRENCY 3 | Foreign Currency Liabilities - Spot 30100 | Deposits-CB 30110 | Demand deposits - OIFB 30120 | Demand deposits - OIFNB 31110 | Demand deposits - OIFB 31120 | Demand deposits - OIFNB 321000 | Demand deposits - SPA 321010 | Demand deposits - AR 321020 | Demand deposits - AL 321030 | Demand deposits - SS 321100 | Demand deposits - SNF - Public 321110 | Demand deposits - SNF - Private 4 | Foreign Currency Liabilities - Forward 30101 | Discounts - CB 30102 | Rediscounts - CB 30103 | Loans - CB 30106 | Repurchase agreement sales - CB 30109 | Other resources - CB 30111 | Time deposits - OIFB 30112 | Discounts - OIFB 30113 | Rediscounts - OIFB 30114 | Loans - OIFB 30116 | Repurchase agreement sales - OIFB 30119 | Other resources - OIFB 30121 | Time deposits - OIFNB 30122 | Discounts - OIFNB 30123 | Rediscounts - OIFNB 30124 | Loans - OIFNB 30126 | Repurchase agreement sales - OIFNB 30129 | Other resources - OIFNB 31111 | Time deposits - OIFB 31114 | Loans - OIFB 31116 | Repurchase agreement sales - OIFB 31119 | Other resources - OIFB 31121 | Time deposits - OIFNB 31124 | Loans - OIFNB 31126 | Repurchase agreement sales - OIFNB 31129 | Other resources - OIFNB 321001 | Time deposits - SPA 321002 | Savings deposits - SPA 321006 | Special fund accounts - SPA 321009 | Other deposits - SPA 321011 | Time deposits - AR 321012 | Savings deposits - AR 321018 | Special fund accounts - AR 321019 | Other deposits - AR 321021 | Time deposits - AL 321022 | Savings deposits - AL 321026 | Special fund accounts - AL 321029 | Other deposits - AL 321031 | Time deposits - SS 321032 | Savings deposits - SS 321036 | Special fund accounts - SS 321039 | Other deposits - SNF - Public 321101 | Time deposits - SNF - Public 321102 | Savings deposits - SNF - Public 321109 | Other deposits - SNF - Public 321111 | Time deposits - SNF - Private 321112 | Savings deposits - SNF - Private 321119 | Other deposits - SNF - Private 321201 | Time deposits - Other Residents 321202 | Savings deposits - Other Residents 321209 | Other deposits - Other Residents 321211 | Time deposits - ISFL 321212 | Savings deposits - ISFL 321219 | Other deposits - ISFL 3230 | Deposits - SPA 3231 | Deposits - SNF 3232 |
Deposits - Other Non-Residents 331 | Loans - Residents 333 | Loans - Non-Residents 341 | Liabilities - Securities - Residents 343 | Liabilities - Securities - Non-Residents 351 | Other Resources - Residents 353 | Other Resources - Non-Residents 361 | Creditors - Residents 363 | Creditors - Non-Residents 39 | Other liabilities - IN FOREIGN CURRENCY 534 | Costs to pay - Related resources - Residents 536 | Costs to pay - Administrative - Residents 5371 | Costs to pay - Others - Residents 539 | Costs to pay - Extra-patrimonial operations IN FOREIGN CURRENCY - Residents 546 | Costs to pay - Administrative - Non-Residents 5471 | Costs to pay - Others - Non-Residents 549 | Costs to pay - Extra-patrimonial operations IN FOREIGN CURRENCY - Non-Residents 5521 | Revenues with deferred benefit - Applications - Residents 5531 | Revenues with deferred benefit - Applications - Non-Residents 5541 | Revenues with deferred benefit - Fair value securities - fixed - Residents 5543 | Revenues with deferred benefit - Fair value securities - variable - Residents 5545 | Revenues with deferred benefit - Investment securities - Residents 5551 | Revenues with deferred benefit - Fair value securities - fixed - Non-Residents 5553 | Revenues with deferred benefit - Fair value securities - variable - Non-Residents 5555 | Revenues with deferred benefit - Fair value securities - fixed - Non-Residents 5561 | Revenues with deferred benefit - Granted credit - Residents 5571 | Revenues with deferred benefit - Granted credit - Non-Residents 558 | Revenues with deferred benefit - Extra-patrimonial operations IN FOREIGN CURRENCY 559 | Revenues with deferred benefit - Other revenues IN FOREIGN CURRENCY

ANNEX II
Foreign Exchange Map / EXCHANGE RATE POSITION TABLE BANK: [Name] | Period: [Date] to [Date] POSICAO DE CAMBIO EURO (1) | USD (2) | Outras Moedas (3) | Total (1+2+3)

1. Activos em ME (AME) [Foreign Currency Assets]
   • Spot / Forward
2. Passivos em ME (PME) [Foreign Currency Liabilities]
   • Spot / Forward
3. Compras nao-liquidadas (CCL) [Unsettled Purchases]
4. Vendas nao-liquidadas (CVL) [Unsettled Sales]
5. Posigao de Cambio - STD [(1-2)+ (3-4)] [Exchange Rate Position - Dobra]
   5.1 Longa (Comprada) [Long/Purchased] - Spot / Forward
   5.2 Curta (Vendida) [Short/Sold] - Spot / Forward
6. Posigao de Cambio - EURO [(1-2)+(3-4)] [Exchange Rate Position - Euro]
   6.1 Longa (Comprada) - Spot / Forward
   6.2 Curta (Vendida) - Spot / Forward
7. Posigao Cambial em % de Fundos PrOprios [Exchange Position as % of Equity]
   • Fundos Pr6prios em STD [Equity in Dobra]
   • Fundos PrOprios em EUR [Equity in Euro]

OBSERVACOES:

1. The values of columns 1 to 3 are the corresponding values in Dobra, obtained based on the Central Bank's purchase exchange rate of the last day to which the information refers.
2. The values presented in point 6 correspond to the Euro equivalent of the amounts described in point 6, obtained based on the rate fixed under the Economic Cooperation Agreement.
3. Global positions are obtained from the sum of columns 1, 2 and 3, associated with point 6.
4. Point 7 corresponds to the calculations inherent to the limits fixed by Article 4 of this regulation.

Assinatura 1 | Assinatura 2