BANQUE CENTRALE DES COMORES

REGULATORY DECISION NO. 01-2023/BCC/DSBR

RELATING TO THE IMPLEMENTATION OF AN EFFECTIVE GLOBAL RATE (TEG) FOR CREDIT OPERATIONS OF CREDIT INSTITUTIONS

Having regard to the statutes of the Central Bank of the Comoros;

Having regard to the Banking Law No. 13-003-AU of June 12, 2013, specifically Articles 10, 56, 57, and 103,

THE GOVERNOR OF THE CENTRAL BANK OF THE COMOROS

Sets the rules relating to the Effective Global Rate (TEG) defined in Article 57 of the aforementioned Law No. 13-003-AU.

Article 1. Definition of the TEG

The effective global rate (TEG) is the actuarial rate that measures the real cost of the credit borne by the borrower through the integration of all debtor rates, various fees, and commissions related to the credit in its calculation. The TEG thus allows the borrower to have visibility on the actual effective cost of a credit and to effectively compare offers presented on the banking market. It is expressed as a percentage with a minimum of two decimal places, according to the equivalence method defined by the formulas appearing in the annex to this regulation.

This obligation concerns all types of borrowers and all types of credit operations within the meaning of Article 10 of Banking Law No. 13-003-AU.
It therefore concerns credit-lease and rental operations with or without an option to purchase.

In principle, the TEG should not exceed the usury rate set by the Central Bank of the Comoros, depending on the type of corresponding loan.

Article 2. Elements entering into the calculation of the TEG

The TEG represents the effective global cost of the credit by taking into account all charges of any nature, direct or indirect, associated with the credit, whether these charges are paid at the establishment of the credit or deducted periodically. In this regard, included in the calculation of the TEG of a credit are all fees, commissions, or remuneration of any nature, provided they are necessary to meet the conditions for obtaining said credit, notably:

• Interest calculated on the basis of the contractual nominal rate;
• File opening and/or credit study fees;
• Credit establishment or disbursement fees;
• Commissions of any nature whatsoever;
• Fees paid or due to intermediaries who intervened in any manner in the granting of the loan, even if these fees were advanced by the client;
• Fees for the constitution of guarantees required by the credit institution (mortgage, notarial guarantee deed, act of creditor privilege for funds, surety, pledge, ...), even if these fees were advanced by the client;
• Guarantee evaluation fees provided that these fees are required by the Bank;
• Monetary guarantees required in connection with the credit provided that these guarantees reduce the principal at the time of disbursement while interest is calculated on the basis of the initial capital.
• Consumption tax
• Mandatory insurance premiums.

On the other hand, not included in the calculation of the TEG:

• Optional insurance,
• Penalties, rebates, and other fees related to the early repayment of the credit
• Fees and penalties borne by the borrower in case of non-compliance with one of its obligations provided for in the credit contract.

Article 3. Obligation to calculate the TEG

Every financial institution whose purpose is to grant credits is obligated to calculate the TEG. This obligation concerns all types of borrowers and all types of credit operations within the meaning of Article 10 of Banking Law No. 13-003-AU.

Article 4. Methods of calculating the TEG

The TEG relating to amortizable credits is determined according to the compound interest method, expressing the equality between, on the one hand, the amounts lent and, on the other hand, the total payments due by the borrower for this credit, in capital, interest, and all known fees and charges at the date of conclusion of the credit agreement. The TEG is therefore the rate that verifies the equality between the amount lent by the bank on one side and the amounts paid by the borrower on the other side.

It is calculated for each credit before the conclusion of the credit agreement, considering that the latter will remain in force for the contractual period fixed; and that the lender and the borrower will execute their respective obligations within the agreed deadlines and dates.

• Case of bank overdrafts
  The items to be taken into account for the calculation of the TEG relating to an overdraft line are listed below:

• Amount of the global authorization,
• Validity period of the overdraft line,
• Debtor interest causing the deduction of fees (agios),
• Amount, number, and date of draws made relative to the global overdraft authorization,
• Usage and/or intervention commission,
• Disbursement commission,
• Maximum overdraft commission if it exists: this is a commission levied by the bank on the maximum amount used relative to the ceiling normally mentioned in the account agreement.

As a reminder, all debtor deductions (interest and various ancillary fees) related to the establishment and use of an overdraft line must be clearly mentioned in the current account agreement.

Before the use of the overdraft line, the TEG is calculated taking the hypothesis of 100% use of the credit line and this uniformly throughout the considered period. Thus, the TEG is obtained by relating the sum of interest over the entire period as well as all charges borne by the client (in accordance with Article 2), to the total amount of the credit line. This is the rate that will be communicated to the client in advance.

After the effective use of the overdraft line, the TEG is calculated according to the formula indicated in the annex following the interest calculation method adopted by the Bank: simple interest or compound interest. For the compound interest method, which is the most commonly used, it will be necessary to perform the calculation of the periodic rate by applying the formula communicated in the annex by establishing the ratio between the total fees (including agios, maximum overdraft commissions, and any other fees and commissions) and the sum of debtor numbers of the overdraft line, all reported to the year. The discounted TEG is that which will be declared by the credit institution, according to the conditions set out in this regulation and will be notified to the client, at the latest at the end of each quarter.

• Case of variable rate loans
  Variable rate loans are loans based on a reference index, generally EURIBOR or EONIA (For example: nominal rate = Euribor + 2 points).
  This condition is generally applied at the level of real estate loans or foreign currency loans.
  The level of these reference rates can fluctuate up or down according to market trends, a recalculation of the nominal rate must be performed according to the revision period agreed between the Bank and the borrower (annually, semi-annually, quarterly...). Since the nominal rate is thus variable throughout the duration of the credit depending on the evolution of the attached reference rate; for the calculation of the TEG, the nominal rate and applicable fees on the first revision period will be taken into account.

• Case of a discounting operation
  Given that the mobilization of each bill of exchange has its own conditions, particularly in terms of duration, or even the nominal rate applied depending on the risk on the drawee, the calculation of the TEG of a discount is performed at each draw following the formula applied to that of the overdraft.

The period rate thus corresponds to the ratio between the interest and various fees due by the borrower for the discount and the amount of the discounted effect. The period is equal to the number of calendar days between the establishment date and the maturity date of the effect.

The draws that will be the subject of declaration will correspond to those whose establishment occurred during said declaration period.

Article 5. Obligation to use the formula or TEG calculation tool provided by the BCC

Every credit institution, as described in Article 3 of this regulation, is required to use the formula or TEG calculation tool provided by the Central Bank of the Comoros to perform the TEG calculation. This tool and its user manual will be transmitted to institutions through the Central Bank of the Comoros. Each financial institution is required to report, as soon as possible, to the Central Bank of the Comoros any form of difficulty, of any nature whatsoever, that might be encountered during the manipulation and exploitation of said tool.

Article 6. Mandatory mentions to the client

Before the very conclusion of the credit contract, the credit institution is required to communicate to the borrower a prior written credit offer which will clearly and legibly include:

• The loan amount;
• The nominal interest rate;
• Fees and commissions;
• Guarantees to be constituted as well as an estimate of charges related to the constitution of the guarantee in accordance with Decree No. 16-023/PR setting the tariffs of notarial services;
• The estimated TEG at the negotiation stage; as well as,
• All hypotheses taken for the calculation of this TEG.

The credit contract must clearly and legibly include the effective global rate and its meaning, the total amount due by the borrower, calculated at the time of the conclusion of the credit contract. The credit institution is required to attach to the credit offer as well as to the credit contract a form on the understanding of the TEG which will be signed by the client. This form declares that the financial institution has explained to the client the meaning as well as the calculation method of the TEG. Model forms are provided in the annex for the case of a natural person borrower and a legal entity.

Article 7. TEG declaration methods

Every credit institution, as described in Article 3 of this regulation, is required to declare to the Central Bank of the Comoros, no later than the 20th following the end of the quarter, information on the individual TEGs of all new credits granted during the quarter.

The declaration of TEGs will be carried out electronically, according to the declaration format provided by the Central Bank of the Comoros.

Article 8. Non-compliance with the provisions of this regulation

Constitute a breach of this regulation:

• The use of another formula or another tool than that provided by the Central Bank of the Comoros for the calculation of the TEG;
• The absence of indication of the TEG to the borrower in advance through the credit offer, the credit contract as well as the TEG understanding form;
• The erroneous calculation of the TEG;
• Non-compliance with the TEG declaration format;
• Non-compliance with the TEG declaration deadlines to the Central Bank of the Comoros;

In case of non-compliance with the obligation to use the calculation formula and/or the TEG calculation tool of the Central Bank of the Comoros, the obligation of prior written communication to the subscriber, non-compliance with the TEG declaration format, the credit institution incurs disciplinary sanctions as provided for in Articles 64 to 66 of Law No. 13-003-AU relating to the banking law, namely:

• Disciplinary sanctions against the financial institution or against its executives, directors, partners, or any third party having the power to manage or administer:
  1. a warning,
  2. a reprimand,
  3. the suspension or prohibition of all or part of the operations,
  4. the suspension or dismissal of responsible executives,
  5. the appointment of a provisional administrator,
  6. the suspension of any assistance from the Central Bank,
  7. the withdrawal of the status of approved intermediary,
  8. the withdrawal of approval under the conditions provided for in Article 24 of this law.

In case of non-compliance with the deadlines for periodic declaration of TEGs, the credit institution incurs financial penalties in accordance with the provisions of Regulatory Decision No. 24-2020/BCC/DSBR.

Article 9. Contestation of the TEG calculation

The borrower has the possibility to contest the calculation of the TEG or to have its absence established with a credit institution and to report it to the Banking Supervision Department of the Central Bank of the Comoros throughout the duration of the credit. Any partial or total omission in the calculation of the TEG generates a forfeiture of the right to interest for the entire loan. The borrower thus has the right to request the repayment of interest from the beginning of the concerned credit. They are then only held to the sole repayment of the capital according to the scheduled payments. When justified contestations are found to be repeated at a credit institution, the Central Bank of the Comoros may pronounce disciplinary sanctions as provided for in Articles 64 to 66 of Law No. 13-003-AU relating to the banking law.

Article 10. Entry into force and repeal

This regulation repeals Regulation No. 012/2015/BCC/DBSR relating to the implementation of an Effective Global Rate for credit operations of credit institutions.
This regulation enters into force as of its signature date.
Within three months following the entry into force of this regulation, credit institutions, as described in Article 3, declare to the Central Bank of the Comoros information relating to the individual TEGs of the entire outstanding balance of their credit portfolio according to the provided declaration format.

Done in Moroni on April 1, 2023

Dr. Younoussa Imani
Governor

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ANNEXES

Formulas and examples of TEG calculation

a. For amortizable credits
The annual effective global rate is calculated actuarially and ensures, according to the compound interest method, the equality between, on the one hand, the amounts lent and, on the other hand, all payments due by the borrower for this loan for the repayment of the capital and the payment of the total cost of the credit.

$$\sum_{k=1}^{k=m} \frac{A_k}{(1+i)^{t_k}} = \sum_{p=1}^{p=n} \frac{A_p}{(1+i)^{t_p}}$$

i: Effective global rate k: designates the order number of a deduction made on the credit, therefore 1 ≤ k ≤ m m: designates the order number of the last deduction made on the credit Ak: is the amount of the disbursement made on the credit number k tk: designates the time interval, expressed in years and fractions of a year, between the date of the first deduction made on the credit and the date of each of the following deductions, therefore t1= 0 n: is the order number of the last repayment or payment of fees p: is the order number of a repayment or payment of fees Ap: is the amount of a repayment or payment of fees tp: is the time interval, expressed in years and fractions of years, between the date of the first deduction made on the credit and the date of each repayment or payment of fees

Examples:

1. Let a loan of 5,000,000 KMF over 1 year, which is made in a single disbursement repaid monthly, with:

• an annual nominal interest rate of 10%
• a commission of 50,000 KMF
• insurance rate of 0.30%
  The monthly payments are calculated with the following formula:
  $Monthly Payments = \frac{Capital * (interest rate/12)}{1 - (1 + \frac{interest rate}{12})^{-number of installments}} = 439,579.44 KMF$ In addition to insurance payments:
  $Insurance = \frac{Capital * insurance rate}{number of installments} = 1,250 KMF$ Therefore, the loan gives rise to installments amounting to 440,829.44 KMF per month. In accordance with the equivalence formula, we have:
  $\frac{5,000,000 - 50,000}{(1+i)^{0/365}} = \frac{440,829.44}{(1+i)^{30.42/365}} + \frac{440,829.44}{(1+i)^{60.83/365}} + ... + \frac{440,829.44}{(1+i)^{334.58/365}} + \frac{440,829.44}{(1+i)^{365/365}}$ The time interval per month is $\frac{365 days}{12} = 30.42 days$ By resolving the equation, we obtain a TEG of i = 13.18%

2. Let the same loan of 5,000,000 KMF over 1 year, which is made in two equal disbursements with an interval of 3 months between the two disbursements. But with the following conditions:

• an annual nominal interest rate of 10%
• a commission of 50,000 KMF per disbursement
• insurance rate of 0.30%
  The loan gives rise to installments of 440,829.44 KMF per month.
  In accordance with the equivalence formula, we have:
  $\frac{2,500,000 - 50,000}{(1+i)^{0/365}} + \frac{2,500,000 - 50,000}{(1+i)^{91.25/365}} = \frac{440,829.44}{(1+i)^{30.42/365}} + \frac{440,829.44}{(1+i)^{60.83/365}} + ... + \frac{440,829.44}{(1+i)^{334.58/365}} + \frac{440,829.44}{(1+i)^{365/365}}$ By resolving the equation, we obtain a TEG of i = 16.99%

3. Let the same loan of 5,000,000 KMF over 1 year, in a single disbursement and with the same conditions as the 1st loan but with a 3-month deferral on the monthly payments.
   Due to the total deferral, the loan gives rise to installments of 448,186.29 KMF per month after the deferral. Furthermore, the client is still required to pay insurance despite the deferral. We therefore have in accordance with the equivalence formula:
   $\frac{5,000,000 - 50,000}{(1+i)^{0/365}} = \frac{1,250}{(1+i)^{30.42/365}} + \frac{1,250}{(1+i)^{60.83/365}} + \frac{1,250}{(1+i)^{91.25/365}} + \frac{448,186.29}{(1+i)^{121.67/365}} + ... + \frac{448,186.29}{(1+i)^{425.83/365}}$ By resolving the equation, we obtain a TEG of i = 12.42%

b. For non-amortizable credits: Examples of cases of bank overdrafts and/or discounting after use and with the method of simple interest and that of compound interest.

i. Simple Interest

• Example 1:
  Let the loan with the characteristics below:
  | Initial Capital: Co | 5,000.00 |
  | :--- | :--- |
  | Annual debtor rate: t | 3% |
  | Duration of use: N | 365 |

To simplify the calculation, it is considered as a hypothesis the non-existence of fees or ancillary commissions.
By applying the formula below:
TEG = [Agios + fees (file, establishment) + Commissions] / amount of overdraft Agios = Amount of overdraft x Number of days x Rate / 365 The following operations will be performed:
Agios = Co x t x (365/365) = 150
TEG = 150/5000 = 3%
Indeed, for this very simplified case, the TEG is equal to the annual debtor rate t following the hypothesis of uniform use throughout the year as well as the non-existence of additional fees and commissions.

• Example 2:
  In this case, a much more complex example is given, closer to reality in terms of fees and use of an overdraft line.
  | Initial Capital: Co | 50,000 |
  | :--- | :--- |
  | Annual debtor rate: t | 10% |
  | Maximum overdraft commission: C1 | 0.0600% |
  | Account movement commissions: C2 | 0.0250% |
  | Duration of civil year in days | 365 |
  | Duration of use: N: cf. table below | |

Value Date	Debit	Credit	Debit	Credit	Duration	Nbr debtor days
Dec 31			-50,000.00		4	-200,000
Jan 04	10,000.00		-60,000.00		4	-240,000
Jan 08		85,000.00		25,000.00	3
Jan 11	30,500.00	10,000.00		4,500.00	3
Jan 14	120,000.00	10,000.00	-105,500.00		4	-422,000
Jan 18	240,500.00	230,800.00	-115,200.00		7	-806,400
Jan 25		100,000.00	-15,200.00		11	-167,200
Feb 05	12,400.00	12,500.00	-15,100.00		5	-75,500
Feb 10	453,600.00	452,500.00	-16,200.00		6	-97,200
Feb 16		41,000.00		24,800.00	6
Feb 22	12,000.00			12,800.00	7
Mar 01	58,700.00	1,000.00	-44,900.00		9	-404,100
Mar 10	85,200.00		-130,100.00		13	-1,691,300
Mar 23	12,000.00	700.00	-141,400.00		4	-565,600
Mar 27	210,000.00	210,000.00	-141,400.00		3	-424,200
TOTAL	1,244,900.00	1,153,500.00			TOTAL	-5,093,500

Information to be collected at the level of the interest scale relative to an overdraft line By applying the same formula as in example 1 above namely:
TEG = [Agios + fees (file, establishment) + Commissions] / amount of overdraft Agios = Amount of overdraft x Number of days x Rate / 365 The following results are obtained:

• Agios = (Number of debtor days x t) / 365 = (5,093,500 x 10%) / 365 = 1,395.48
• Maximum overdraft commission = (C1 x 115,200) + (C1 x 16,200) + (C1x141400) = 163.68
• Account movement commission = C2 x 1,244,900 = 311.225
• Quarterly TEG = Agios + Commissions/Co => (1,395.48 + 163.68+311.22) / 50,000 = 3.74%
• Annual TEG with hypothesis of same use on the last 3 quarters => 3.74% x 4 = 14.96%

NB: The amount of agios as well as commissions are normally visible at the level of the interest scale and their amounts will be entered directly at the level of the new TEG calculation tool. The calculation details are given here for indicative purposes for the needs of the example.

ii. Compound Interest
Below is the formula to apply for the calculation of the TEG in the case of overdraft with compound interest:
$$TEG = (1 + t)^D - 1$$ t: daily rate: ratio between the total fees (including agios, maximum overdraft commissions, and any other fees and commissions) and the sum of debtor numbers of the overdraft line. D: the number of periods of the civil year, 365 days generally.

Example 1: Let an overdraft of 1,000,000 KMF during the first 15 days of the month, with an annual nominal rate of 10% and a commission of 5,000 KMF.
This overdraft generates the following fees: AGIOS + COMMISSIONS ==> $\frac{Outstanding * number of days * nominal rate}{number of periods of the civil year} + Commissions = \frac{1,000,000 * 15 * 10%}{365} + 5,000 = 9,109.59$ The overdraft is characterized by its debtor number:
Debtor number = Debtor balance * number of debtor days = 1,000,000 * 15 = 15,000,000 The calculation of the daily rate consists of bringing the total fee amount to this debtor number:
Daily rate = $\frac{9,109.59}{15,000,000} = 0.0607%$ Therefore, $TEG = (1 + 0.0607%)^{365} - 1$ TEG = 24.79%

Example 2: Let the same example as previously namely:

Initial Capital: Co	50,000
Annual debtor rate: t	10%
Maximum overdraft commission: C1	0.0600%
Account movement commissions: C2	0.0250%
Duration of civil year in days	365
Duration of use: N: cf. table below

(Table of movements identical to the previous example)

The following results are obtained:

• Agios = (Number of debtor days x t) / 365 = (5,093,500 x 10%) / 365 = 1,395.48
• Maximum overdraft commission = (C1 x 115,200) + (C1 x 16,200) + (C1x141400) = 163.68
• Account movement commission = C2 x 1,244,900 = 311.225
  Total fees = 1,395.48 + 163.68 + 311.225 = 1,870.385 Debtor number = debtor balance x number of debtor days = 5,093,500* Daily rate = Total fees / number of debtor days = 1,870.41 / 5,093,500 = 0.0367% TEG = (1 + t)^D - 1 = (1 + 0.0367%)^365 - 1 = 14.33%

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Form

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