SADC Financial Systems: Structures, Policies and Markets

Home , Cheque truncation, Indebank, Jubilee Holdings Limited

September 2012

Disclaimer

This report has been prepared from information produced by the SADC central banks and all efforts have been made to ensure the accuracy of the information contained herein. However, the Secretariat of the Committee of Central Bank Governors does not warrant the correctness of, and shall not be held responsible for any errors or omissions contained in the information received.

This report has been prepared by the Secretariat of the Committee of Central Bank Governors with information made available as at 20 August 2012.

Foreword

Early in 1995, the Finance & Investment Sector of the Southern African Development Community (SADC) was created and the co-ordination of this new sector was allocated to South Africa. Within this sector, two independent but interrelated committees were established, namely the Committee of Treasury Officials to attend to fiscal issues, and the Committee of Central Bank Governors to attend to monetary policy issues.

At its inaugural meeting on 24 November 1995, the Committee of Central Bank Governors in SADC (CCBG) identified the need for greater knowledge of the structures and policies of central banks as well as the financial markets of member states as a prerequisite for future co-operation in the area of monetary policy. To this end, a project was launched to establish an information base on central banks in the region. In July 1996, the Ministers of Finance of the twelve member states approved this initiative as an official project of SADC.

A comprehensive questionnaire was developed, based on a similar survey done by the Bank for International Settlements (BIS) on central banks in Eastern Europe. All central banks in SADC completed this questionnaire in detail.

It is hoped that the information contained in this report will provide a basis for closer co- operation in the area of central banking in the region.

Any comments or enquiries can be directed to: The Secretariat of the Committee of Central Bank Governors in SADC South African Reserve Bank P.O. Box 427, Pretoria 0001 SOUTH AFRICA Tel. +27 12 313-4041 Fax. +27 12 313-4162/4177 E-Mail: [email protected]

TABLE OF CONTENTS

Banco Nacional de Angola ...... 1 1. History ...... 1 2. Relationship with government ...... 2 3. Design and conduct of monetary policy ...... 4 3.1 Main objectives of monetary policy ...... 4 3.2 Instruments of monetary policy ...... 4 3.3 Types of refinancing as well as collateral used ...... 5 3.4 The money supply aggregate that plays the main role in monetary policy ...... 5 3.5 Reserve requirements on financial institutions ...... 5 4. Structure of the financial markets ...... 5 4.1 Organisation of the money and capital markets ...... 5 4.2 Instruments used in both these markets ...... 6 4.3 Legal frameworks existing for the money and capital markets...... 6 4.4 Type of financial intermediaries operating in these markets ...... 6 5. External payment arrangements ...... 8 5.1 Determination of the exchange rate policy ...... 8 5.2 The present exchange rate system ...... 8 5.3 Organising the exchange market ...... 8 5.4 The central bank's involvement in managing foreign exchange reserves...... 8 6. Currency convertibility and exchange control ...... 8 6.1 Current state of currency convertibility ...... 8 6.2 Exchange control on current account transactions ...... 9 6.3 Restrictions on capital account transactions ...... 10 6.4 Retention rules for foreign exchange earned and owned by residents ...... 10 7. The central bank and external debt ...... 10 7.1 The role of the central bank in managing the country's external debt ...... 10 7.2 The role of Treasury in this respect ...... 10 8. Supervision of financial institutions ...... 11 8.1 Banking institutions ...... 11 8.2 Non-banking institutions ...... 13 9. National payment, clearing and settlement system ...... 14 9.1 How is the payment, clearing and settlement system organised? ...... 14 9.2 What is the role of the central bank in the system? ...... 15 9.3 Short description of the processing of payment instructions ...... 15

9.4 How are non-funded positions settled in the system? ...... 16 10. Currency in use ...... 16 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 16 11. Other activities of the central bank not covered above ...... 17 12. The position of the central bank in SADC ...... 17 13. Publications ...... 17 13.1 Regularly published publications ...... 17 13.2 Occasional/special publications published since 1990 ...... 17

Bank of Botswana ...... 19 1. History ...... 19 2. Relationship with government ...... 19 3. Structure ...... 20 4. Design and conduct of monetary policy ...... 20 4.1 Main objectives of monetary policy ...... 20 4.2 Instruments of monetary policy ...... 21 4.3 Types of refinancing as well as collateral used ...... 21 4.4 The money supply aggregate that plays the main role in monetary policy ...... 21 4.5 Reserve requirements on financial institutions ...... 21 5. Structure of the financial markets ...... 21 5.1 Organisation of the money and capital markets ...... 21 5.2 Instruments used in both these markets ...... 22 5.3 Legal frameworks existing for the money and capital markets...... 22 5.4 Financial institutions participating in the open market operations………………………………………………………………...... 23 6. External payment arrangements ...... 23 6.1 Determination of the exchange rate policy ...... 23 6.2 The exchange rate system ...... 23 6.3 Organising the exchange market ...... 23 6.4 The central bank's involvement in managing foreign exchange reserves ...... 24 7. Currency convertibility and exchange control ...... 24 7.1 Current state of currency convertibility ...... 24 7.2 Exchange control restrictions on current account transactions ...... 24 8. The central bank and external debt ...... 25 8.1 The role of the central bank in managing the country's external debt ...... 25 8.2 The role of Treasury in this respect ...... 25

9. Supervision of financial institutions ...... 26 9.1 Banking institutions ...... 26 9.2 Non-banking institutions ...... 30 10. National payment, clearing and settlement system ...... 31 10.1 The payment, clearing and settlement system infrastructure ...... 31 10.2 The role of the central bank in the systems ...... 32 10.3 Short description of the processing of payment instructions ...... 33 11. Currency in use ...... 34 11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 34 12. Other activities of the central bank not covered above ...... 34 13. The position of the central bank in SADC ...... 34 13.1 Special relationships with other central banks in SADC (CMA excluded) ...... 34 14. Publications ...... 35 14.1 Regularly published publications...... 35 14.2 Occasional/special publications published since 1990...... 35

Banque Centrale du Congo…...…….…………………………………………………..…… 37 1. Background………………………………………………………………………………... 37 2. Relationship with government……………..……………………………………...... 38 3. Determination and implementation of the monetary policy...... 39 3.1 Main objectives of monetary policy...... 39 3.2 Instruments of monetary policy...... 39 4. Structure of the financial market …………………..…………………………………. 43 5. Supervision of financial institutions…..………………………..……………………. 45 6. National payment system……………………………………………..………………. 46

Central Bank of Lesotho ...... 49 1. History ...... 49 2. Relationship with government ...... 49 2.1 Institutional arrangements ...... 49 2.2 Operational framework ...... 49 3. Design and conduct of monetary policy ...... 50 3.1 Main objectives of monetary policy ...... 50 3.2 Instruments of monetary policy ...... 50 3.3 Types of refinancing as well as collateral used ...... 51 3.4 The money supply aggregate that plays the main role in monetary policy ...... 51 3.5 Reserve requirements on financial institutions ...... 51

4. Structure of the financial markets ...... 52 4.1 Organisation of the money and capital markets ...... 52 4.2 Instruments used in both these markets ...... 52 4.3 Legal frameworks existing for the money and capital markets...... 52 4.4 Type of financial intermediaries operating in these markets ...... 52 5. External payment arrangements ...... 53 5.1 Determination of the exchange rate policy ...... 53 5.2 The present exchange rate system ...... 53 5.3 Organising the exchange market ...... 53 5.4 The central bank's involvement in managing foreign exchange reserves ...... 53 6. Currency convertibility and exchange control ...... 53 6.1 Current state of currency convertibility ...... 53 6.2 Exchange control restrictions on current account ...... 53 6.3 Restrictions on capital account ...... 53 6.4 Retention rules for foreign exchange earned or owned by residents ...... 54 7. The central bank and external debt ...... 54 7.1 The role of the central bank in managing the country's external debt ...... 54 7.2 The role of Treasury in this respect ...... 54 8. Supervision of financial institutions ...... 55 8.1 Banking institutions ...... 55 8.2 Non-banking institutions ...... 55 9. National payment, clearing and settlement system ...... 59 9.1 How is the payment, clearing and settlement system organised? ...... 59 9.2 What is the role of the central bank in the system? ...... 60 9.3 Short description of the processing of payment instructions ...... 60 9.4 How are non-funded positions settled in the system? ...... 60 10. Currency in use ...... 61 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 61 11. Other activities of central banks not covered above ...... 61 12. The position of the central bank in SADC ...... 61 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 61 13. Publications ...... 61 13.1 Regularly published publications...... 61 13.2 Occasional/special publications published since 1990...... 61

Reserve Bank of Malawi ...... 63 1. History ...... 63 2. Relationship with government ...... 63 3. Structure ...... 64 4. Design and conduct of monetary policy ...... 64 4.1 Main objectives of monetary policy ...... 64 4.2 Instruments of monetary policy ...... 65 4.3 Types of refinancing as well as collateral used ...... 65 4.4 The money supply aggregate that plays the main role in monetary policy ...... 65 4.5 Reserve requirements on financial institutions ...... 65 5. Structure of the financial markets ...... 65 5.1 Organisation of the money and capital markets ...... 65 5.2 Instruments used in both these markets ...... 66 5.3 Legal frameworks existing for the money and capital markets...... 66 5.4 Type of financial intermediaries operating in these markets ...... 66 6. External payment arrangements ...... 68 6.1 Determination of the exchange rate policy ...... 68 6.2 The present exchange rate system ...... 68 6.3 Organising the exchange market ...... 68 6.4 The central bank's involvement in managing foreign exchange reserves...... 69 7. Currency convertibility and exchange control ...... 69 7.1 Current state of currency convertibility ...... 69 7.2 Exchange control restrictions on current account ...... 69 7.3 Restrictions on capital account ...... 69 7.4 Retention rules for foreign exchange earned or owned by residents ...... 69 8. The central bank and external debt ...... 69 8.1 The role of the central bank in managing the country's external debt ...... 70 8.2 The role of Treasury in this respect ...... 70 9. Supervision of financial institutions ...... 70 9.1 Banking institutions ...... 70 9.2 Non-banking institutions ...... 73 10. National payment, clearing and settlement system ...... 74 10.1 How is the payment, clearing and settlement system organised? ...... 74 10.2 What is the role of the central bank in the system? ...... 75 10.3 Give a short description of the processing of payment instructions ...... 75

10.4 How are non-funded positions settled in the system? ...... 76 11. Currency in use ...... 76 11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 76 12. Other activities of the central bank not covered above ...... 76 13. The position of the central bank in SADC ...... 76 13.1 Special relationships with other central banks in SADC (CMA excluded) ...... 76 14. Publications ...... 76 14.1 Regularly published publications...... 76 14.2 Occasional/special publications published since 1990...... 77

Bank of Mauritius ...... 79 1. History ...... 79 2. Relationship with government ...... 79 3. Structure ...... 80 4. Design and conduct of monetary policy ...... 80 4.1 Main objectives of monetary policy ...... 80 4.2 Instruments of monetary policy ...... 80 4.3 Types of refinancing as well as collateral used ...... 81 4.4 The money supply aggregate that plays the main role in monetary policy ...... 82 4.5 Reserve requirements on financial institutions ...... 82 5. Structure of the financial markets ...... 83 5.1 Organisation of the money and capital markets ...... 83 5.2 Instruments used in both these markets ...... 84 5.3 Legal frameworks existing for the money and capital markets...... 85 5.4 Type of financial intermediaries operating in these markets ...... 85 6. External payment arrangements ...... 85 6.1 Responsibility for determining exchange rate policy ...... 85 6.2 Present exchange rate regime ...... 86 6.3 Organisation of the foreign exchange market ...... 86 6.4 Management of foreign reserves ...... 86 7. Currency convertibility and exchange control ...... 86 7.1 Current state of currency convertibility ...... 86 7.2 Exchange control restrictions on current account transactions ...... 86 7.3 Restrictions on capital account transactions ...... 86 8. The central bank and external debt ...... 86 8.1 The role of the central bank in managing the country's

external debt ...... 86 8.2 The role of Treasury in this respect ...... 86 9. Supervision of financial institutions ...... 87 9.1 Banking institutions ...... 87 9.2 Non-banking institutions ...... 97 10. National payment, clearing and settlement system ...... 101 10.1 How is the payment, clearing and settlement system organised? ...... 101 10.2 What is the role of the central bank in the system? ...... 101 10.3 Short description of the processing of payment instructions ...... 102 10.4 How are non-funded positions settled in the system? ...... 103 11. Currency in use ...... 104 11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 104 12. Other activities of central banks not covered above ...... 104 13. The position of the central bank in SADC ...... 104 13.1 Special relationships with other central banks in SADC (CMA excluded) ...... 104 14. Publications ...... 104 14.1 Regularly published publications...... 104 14.2 Occasional/special publications published since 1990...... 105

Banco de Moçambique ...... 107 1. History ...... 107 2. Relationship with government ...... 107 3. Structure ...... 108 4. Design and conduct of monetary policy ...... 108 4.1 Main objectives of monetary policy ...... 108 4.2 Instruments of monetary policy ...... 108 4.3 Types of refinancing as well as collateral used ...... 109 4.4 The money supply aggregate that plays the main role in monetary policy ...... 109 4.5 Reserve requirements on financial institutions ...... 109 5. Structure of the financial markets ...... 109 5.1 Organisation of the money and capital markets ...... 109 5.2 Instruments used in both these markets ...... 110 5.3 Legal frameworks existing for the money and capital markets...... 110 6. External payment arrangements ...... 110 6.1 Responsibility for determining exchange rate policy ...... 110 6.2 Present exchange rate regime ...... 110

6.3 Organisation of the foreign exchange market ...... 111 6.4 Management of foreign reserves ...... 111 7. Currency convertibility and exchange control ...... 112 7.1 Current state of currency convertibility ...... 112 7.2 Exchange control restrictions on current account transactions ...... 112 7.3 Restrictions on capital account transactions ...... 113 7.4 Retention rules for foreign exchange earned or owned by residents ...... 113 8. The central bank and external debt ...... 113 8.1 The role of the central bank in managing the country's external debt ...... 113 8.2 The role of Treasury in this respect ...... 113 9. Supervision of financial institutions ...... 113 9.1 Banking institutions ...... 112 9.2 Non-banking institutions ...... 116 10. National payment, clearing and settlement system ...... 117 10.1 How is the payment, clearing and settlement system organised? ...... 117 10.2 What is the role of the central bank in the system? ...... 118 10.3 Short description of the processing of payment instructions ...... 118 10.4 How are non-funded positions settled in the system? ...... 119 11. Currency in use ...... 119 11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 119 12. The position of the central bank in SADC ...... 120 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 120 13. Publications ...... 120 13.1 Regularly published publications...... 120 13.2 Occasional/special publications published since 1990...... 120

Bank of Namibia ...... 121 1. History ...... 121 2. Relationship with government ...... 122 3. Design and conduct of monetary policy ...... 122 3.1 Main objectives of monetary policy ...... 122 3.2 Instruments of monetary policy ...... 122 3.3 Types of refinancing as well as collateral used ...... 120 3.4 The money supply aggregate that plays the main role in monetary policy ...... 122 3.5 Reserve requirements on financial institutions ...... 123

4. Structure of the financial markets ...... 123 4.1 Organisation of the money and capital markets ...... 123 4.2 Instruments used in both these markets ...... 123 4.3 Legal frameworks existing for the money and capital markets...... 123 4.4 Type of financial intermediaries operating in these markets ...... 124 5. External payment arrangements ...... 124 5.1 Determination of the exchange rate policy ...... 124 5.2 The present exchange rate system ...... 125 5.3 Organising the exchange market ...... 125 5.4 The central bank's involvement in managing foreign exchange reserves ...... 125 6. Currency convertibility and exchange control ...... 125 6.1 Current state of currency convertibility ...... 125 6.2 Exchange control restrictions on current account transactions ...... 125 6.3 Capital account restrictions ...... 126 6.4 Retention rules for foreign exchange earned or owned by residents ...... 126 7. The central bank and external debt ...... 126 7.1 The role of the central bank in managing the country's external debt ...... 126 7.2 The role of Treasury in this respect ...... 127 8. Supervision of financial institutions ...... 127 8.1 Banking institutions ...... 127 8.2 Non-banking institutions ...... 129 9. National payment, clearing and settlement system ...... 130 9.1 How is the payment, clearing and settlement system organised? ...... 130 9.2 What is the role of the central bank in the system? ...... 131 9.3 Short description of the processing of payment instructions ...... 132 9.4 How are non-funded positions settled in the system? ...... 132 10. Currency in use ...... 133 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 133 11. Other activities of the central bank ...... 133 11.1 Activities of the central bank not covered above ...... 133 12. The position of the central bank in SADC ...... 133 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 133 13. Publications ...... 134 13.1 Regularly published publications ...... 134 13.2 Occasional/special publications published since 1990...... 134

13.3 Various Annual Symposium Papers…………………………………..135

Central Bank of Seychelles History ...... 137 2. Relationship with government ...... 137 3. Structure…………………………………………………………………………………..138 4. Design and conduct of monetary policy ...... 138 4.1 Main objectives of monetary policy ...... 138 4.2 Instruments of monetary policy ...... 138 4.3 Types of refinancing as well as collateral used ...... 139 4.4 The money supply aggregate that plays the main role in monetary policy ...... 139 4.5 Reserve requirements on financial institutions ...... 139 5. Structure of the financial markets ...... 139 5.1 Instruments used in money and capital markets ...... 140 5.2 Type of financial intermediaries operating in these markets ...... 140 6. External payment arrangements ...... 140 6.1 Determination of the exchange rate policy ...... 140 6.2 The present exchange rate system ...... 140 6.3 Organising the exchange market ...... 141 6.4 The central bank=s involvement in managing foreign exchange reserves ...... 141 7. Currency convertibility and exchange control…………………………………….. 141 7.1 Current state of currency convertibility ...... 141 7.2 Exchange control restrictions on current account transactions ...... 141 7.3 Capital account restrictions ...... 141 8. The central bank and external debt ...... 141 8.1 The role of the central bank in managing the country's external debt ...... 141 8.2 The role of Treasury in this respect ...... 141 9. Supervision of financial institutions ...... 142 9.1 Banking institutions ...... 142 9.2 Non-banking institutions ...... 150 10. National payment, clearing and settlement system ...... 151 10.1 How is the payment, clearing and settlement system organised? ...... 151 10.2 What is the role of the central bank in the system? ...... 152 10.3 Short description of the processing of payment instructions ...... 152 10.4 How are non-funded positions settled in the system? ...... 153 11. Currency in use ...... 153

11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 153 12. The position of the central bank in SADC ...... 154 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 154 13. Publications ...... 154 13.1 Regularly published publications ...... 154

South African Reserve Bank ...... 155 1. History ...... 155 2. Relationship with government ...... 155 2.1 Independence ...... 156 2.2 Appointment of Governor and grounds for dismissal ...... 156 2.3 Relationship with Government in formulation of monetary policy...... 156 2.4 The Board of the Bank ...... 156 2.5 The budget of the central bank ...... 157 2.6 Relationship with Government in terms of equity and development financing ...... 157 2.7 Credit to Government ...... 157 2.8 Main function of the SARB ...... 157 3. Structure ...... 162 3.1 Branches ...... 162 3.2 Functions of branches ...... 162 4. Design and conduct of monetary policy ...... 163 4.1 Main objectives of monetary policy ...... 163 4.2 Monetary policy framework ...... 163 4.3 Instruments of monetary policy……………………………………………… 164 4.4 Types of refinancing as well as collateral used ...... 165 4.5 The money supply aggregate that plays the main role in monetary policy ...... 166 4.6 Reserve requirements on financial institutions ...... 166 5. Structure of the financial markets ...... 166 5.1 Organisation of the money and capital markets ...... 166 5.2 Instruments used in both these markets ...... 167 5.3 Legal frameworks existing for the money and capital markets...... 169 5.4 Type of financial intermediaries operating in these markets ...... 169

6. External payment arrangements ...... 169 6.1 Determination of the exchange rate policy ...... 169

6.2 The present exchange rate system ...... 169 6.3 Organising the exchange market ...... 169 6.4 The central bank's involvement in managing foreign exchange reserves...... 170 7. Currency convertibility and exchange control ...... 170 7.1 Current state of currency convertibility ...... 170 7.2 Exchange Control restrictions on current account transactions ...... 170 7.3 Exchange control restrictions on capital account transactions ...... 170 7.4 Retention rules for foreign exchange earned or owned by residents ...... 170 8. The central bank and external debt ...... 171 8.1 The role of the central bank in managing the country's external debt ...... 171 8.2 The role of Treasury in this respect ...... 171 9. Supervision of financial institutions ...... 171 9.1 Banking institutions ...... 171 9.2 Non-banking institutions ...... 177 10. National payment, clearing and settlement system ...... 179 10.1 How is the payment, clearing and settlement system organised? ...... 179 10.2 What is the role of the central bank in the system? ...... 182 10.3 Short description of the processing of payment instructions ...... 182 10.4 How are non-funded positions settled in the system? ...... 182 11. Currency in use ...... 183 11.1 List of legal tender notes and coins currently issued and in use in the economy ...... 183 12. Other activities of the central bank not covered above ...... 183 13. The position of the central bank in SADC ...... 183 13.1 Special relationships with other central banks in SADC (CMA excluded) ...... 183 14. Publications ...... 183 14.1 Regularly published publications...... 183 14.2 Occasional/special publications published since 1990...... 184 14.3 Circulars, media releases ...... 184

Central Bank of Swaziland ...... 185 1. History ...... 185 2. Relationship with government ...... 186 3. Design and conduct of monetary policy ...... 186 3.1 Main objectives of monetary policy ...... 186

3.2 Instruments of monetary policy ...... 186 3.3 Reserve requirements on financial institutions ...... 186 3.4 The money supply aggregate that plays the main role in monetary policy ...... 186 3.5 Reserve requirements on financial institutions ...... 187 4. Structure of the financial markets ...... 187 4.1 Organisation of the money and capital markets ...... 187 4.2 Instruments used in both these markets ...... 187 4.3 Legal frameworks existing for the money and capital markets...... 187 4.4 Type of financial intermediaries operating in these markets ...... 188 5. External payment arrangements ...... 188 5.1 Determination of the exchange rate policy ...... 188 5.2 The present exchange rate system ...... 188 5.3 Organising the exchange market ...... 188 5.4 The central bank's involvement in managing foreign exchange reserves...... 189 6. Currency convertibility and exchange control ...... 189 7. The central bank and external debt ...... 189 7.1 The role of the central bank in managing the country's external debt ...... 189 7.2 The role of Treasury in this respect ...... 189 8. Supervision of financial institutions ...... 189 8.1 Banking institutions ...... 189 8.2 Non-banking institutions ...... 193 9. National payment, clearing and settlement system ...... 194 9.1 How is the payment, clearing and settlement system organised? ...... 194 9.2 The role of the central bank in the system ...... 194 9.3 Short description of the processing of payment instructions ...... 195 9.4 How are non-funded positions settled in the system? ...... 195 10. Currency in use ...... 196 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 196 11. Other activities of the central bank ...... 196 11.1 Activities of the central bank not covered above ...... 196 12. The position of the central bank in SADC ...... 197 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 197 13. Publications ...... 197 13.1 Regularly published publications...... 197

13.2 Occasional/special publications published since 1990...... 197

Bank of Tanzania ...... 199 1. History ...... 199 2. Relationship with government ...... 200 3. Formulation and implementation of monetary policy ...... 202 3.1 Main objectives of monetary policy ...... 202 3.2 Monetary objectives ...... 204 3.3 The monetary policy instruments ...... 204 3.4 Reserve requirements on financial institutions …………………………… .205 3.5 Refinancing types of collateralization ...... 205 4. Structure of the financial markets ...... 206 4.1 Organisation of the money and capital markets ...... 206 4.2 Legal framework ...... 210 4.3 Legal frameworks existing for the money and capital markets...... 210 5. External payment arrangements ...... 210 5.1 Determination of the exchange rate policy ...... 210 5.2 The present exchange rate system ...... 210 5.3 Organising the exchange market ...... 210 5.4 The central bank's involvement in managing foreign exchange reserves ...... 210 6. Currency convertibility and exchange control ...... 211 6.1 Current state of currency convertibility ...... 211 6.2 Exchange control restrictions on current-account transactions ...... 211 6.3 Restrictions on capital-account transactions ...... 211 6.4 Retention rules for foreign exchange earned or owned by residents ...... 212 7. The central bank and external debt ...... 212 7.1 The role of the central bank in managing the country's external debt ...... 212 7.2 The role of Treasury in this respect ...... 212 8. Supervision of financial institutions ...... 213 8.1 Banking institutions ...... 213 8.2 Main supervisory practices ...... 213 9. National payment, clearing and settlement system ...... 215 9.1 How is the payment, clearing and settlement system organised? ...... 215 9.2 What is the role of the central bank in the system? ...... 217 9.3 Short description of the processing of payment instructions ...... 217 9.4 How are non-funded positions settled in the system? ...... 218

10. Currency in use ...... 218 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 218 11. Other activities of the central bank ...... 219 11.1 Activities of the central bank not covered above ...... 219 12. The position of the central Bank in SADC ...... 220 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 220 13. Publications ...... 220 13.1 Regularly published publications...... 220 13.2 Occasional/special publications published since 1990...... 220

Bank of Zambia ...... 223 1. History ...... 223 2. Relationship with government ...... 223 3. Design and conduct of monetary policy ...... 223 3.1 Main objectives of monetary policy ...... 223 3.2 Instruments of monetary policy ...... 224 3.3 Types of refinancing as well as collateral used ...... 224 3.4 The money supply aggregate that plays the main role in monetary policy ...... 224 3.5 Reserve requirements on financial institutions ...... 224 4. Structure of the financial markets ...... 225 4.1 Organisation of the money and capital markets ...... 225 4.2 Instruments used in both these markets ...... 228 4.3 Legal frameworks existing for the money and capital markets...... 228 4.4 Type of financial intermediaries operating in these markets ...... 228 5. External payment arrangements ...... 229 5.1 Determination of the exchange rate policy ...... 229 5.2 The present exchange rate system ...... 229 5.3 Organising the exchange market ...... 229 5.4 The central bank's involvement in managing foreign exchange reserves...... 229 6. Currency convertibility and exchange control ...... 229 7. The central bank and external debt ...... 230 7.1 The role of the central bank in managing the country's external debt ...... 230 7.2 The role of Treasury in this respect ...... 230 8. Supervision of financial institutions ...... 230

8.1 Banking institutions ...... 230 8.2 Non-banking institutions ...... 233 9. National payment, clearing and settlement system ...... 236 9.1 How is the payment, clearing and settlement system organised? ...... 236 9.2 What is the role of the central bank in the system? ...... 238 9.3 Short description of the processing of payment instructions ...... 238 9.4 How are non-funded positions settled in the system? ...... 239 10. Currency in use ...... 240 10.1 List of legal tender notes and coins currently issued and in use in the economy ...... 240 11. Other activities of the central bank not covered above ...... 240 11.1 Activities of the Central Bank not covered above ...... 240 12. The position of the central bank in SADC ...... 240 12.1 Special relationships with other central banks in SADC (CMA excluded) ...... 240 13. Publications ...... 240 13.1 Regularly published publications...... 240 13.2 Occasional/special publications published since 1990...... 240

Reserve Bank of Zimbabwe ...... 241 1. History ...... 241 2. Relationship with government ...... 241 3. Structure ...... 241 4. Design and conduct of monetary policy ...... 242 4.1 Main objectives of monetary policy ...... 243 4.2 Instruments of monetary policy ...... 243 4.3 Types of refinancing as well as collateral used ...... 243 4.4 The money supply aggregate that plays the main role in monetary policy ...... 245 4.5 Reserve requirements on financial institutions ...... 245 5. Structure of the financial markets ...... 246 5.1 Organisation of the money and capital markets ...... 246 5.2 Instruments used in both these markets ...... 247 5.3 Legal frameworks existing for the money and capital markets...... 248 5.4 Type of financial intermediaries operating in these markets ...... 251 6. External payment arrangements ...... 251 6.1 Determination of the exchange rate policy ...... 251 6.2 The present exchange rate system ...... 252 6.3 Organising the exchange market ...... 252

6.4 The central bank's involvement in managing foreign exchange reserves ...... 252 7. Currency convertibility and exchange control ...... 252 7.1 Current state of currency convertibility ...... 252 7.2 Exchange control restrictions on current account transactions ...... 252 7.3 Restrictions on capital account transactions ...... 253 7.4 Retention rules for foreign exchange earned or owned by residents ...... 253 8. The central bank and external debt ...... 253 8.1 The role of the central bank in managing the country's external debt ...... 253 8.2 The role of Treasury in this respect ...... 254 9. Supervision of financial institutions ...... 254 9.1 Banking institutions ...... 254 9.2 Non-banking institutions ...... 255 10. National payment, clearing and settlement system ...... 262 10.1 How is the payment, clearing and settlement system organised? ...... 262 10.2 What is the role of the central bank in the system ...... 263 10.3 Short description of the processing of payment instructions ...... 264 10.4 How are non-funded positions settled in the system? ...... 264

ANNEXURE A: Organisational Structures of Member Central Banks

Banco Nacional de Angola

Banco Nacional de Angola Avenida 4 de Fevereiro, 151 CP nº 1243 Luanda, República de Angola Fax: + 244 222 390579 Tel: + 244 222 339934/336664

1. History

After Angola gained independence in 1975, the banking sector was nationalized and two major Angolan banks, namely Banco de Angola and Banco Commercial de Angola, changed their names to Banco Nacional de Angola (BNA) and Banco Popular de Angola (BPA) respectively. The BNA, according to the Organic Law 69/76, inherited the responsibilities of a central bank, bank of issue and commercial bank, as well as of being the only legal holder of foreign currency and responsible for all foreign transactions. In 1988, the government introduced a programme to transform the socialist centralized economy into a market-oriented economy. These changes also required the transformation of the banking sector, including the restriction of the BNA's role to being solely responsible for monetary policy and acting as issuing bank, banker of the Government and reserve bank. This was achieved by promulgating the new Organic Law 4/91, of 20 April, which transformed the BNA into a central bank.

The opening of the economy for a liberal system of market, had induced to the necessity of deep alterations in the functional philosophy of the BNA, on the other hand, and of the economic Management of the country, on the other hand, from there elapsing, a redefinition of the functional and executive attributions of the BNA while Central banking, Bank of issue and exchange authority of the country. In the scope of the reorganization of the banking system, the approval in July of 1997, for the Parliament Assembly of the new Organic Law of the National bank of Angola, - Law n° 6/97, of 11 of July, and the exchange Law - Law n° 5/97, of 11 of July, had allowed that some embarrassments of legal origin were exceeded, being the BNA as Central banking, competed of bigger responsibility and autonomy stops with bigger property leading and executing the monetary and exchange politics in the country.

The banking activity in Angola until then conducted by Law n° 5/91, of 20 of April - Law of the Financial Institutions - and, a time that of that date to this part, the Angolan financial system knew a gradual associated structural transformation to the sprouting of new institutions, meeting therefore out of time, advised to the reform of its legal picture in combination with the political and economical alterations in course. It is thus that in 1999, a new Law of the Financial Institutions

Angola 2

is promulgating - Law n° 1/99, of 23 of April - that regulates the process of establishment, the exercise of the activity, the supervision and the sanitation of the financial institutions and the financial societies. Law 1/99 attributes to central banking in the chapter of the authorization of constitution of the related institutions and proceeds to the reclassification from the same ones.

Dated on 30 September 2008 financial systems activities were segregated in banking and non banking institutions. Law 12/05, established the legal framework for non banking institutions, under regulation and supervision by Capital Market Commission (CMC- Comissão de Mercados de Capitais). Law 13/05, which revoked Law 01/99 dated on 20 of April, established the new framework for banking institutions, under regulation and supervision by Banco Nacional de Angola (BNA). Both Law are dated on 30 September.

2. Relationship with government

The independence of the BNA is guaranteed by the Organic Law (4/91), reviewed by the Law 06/97 of July, which established it in the form of a public company owned by the government with administrative and financial autonomy and independence, and states that the BNA is the monetary and foreign exchange authority of the Republic of Angola. However, it states that in realisation of its objectives, the BNA shall respect the economic policy defined by the government; in practice there is co-ordination between the central bank, Ministry of Planning and the Ministry of Finance for the determination of monetary and foreign exchange policies.

The President of the Republic appoints the Governor. The Deputy Governor is also appointed by the President of the Republic under the Governors proposal, for a period of five years, in terms of section 1, Act 51 of the Law 6/97. The BNA Board comprises the Governor, the Deputy Governor and three to five General Directors. The Governor and the Deputy Governor are not members of the Cabinet, but they participate in its meetings. The Cabinet on recommendation from the Governor, for a five-year period, appoints General Directors on the Board. They can only be dismissed for a serious reason.

The BNA has the Audit Council and the Council of Consultants. The Audit Council comprises of three members, two appointed by the Ministry of Finance and one appointed by BNA staff, for a period of three years. The Council of Consultants is comprised of the Deputy Governor, all ex-Governors, the Audit Council chairperson and four executives with proven banking, financial, planning and economic experience.

The BNA has its own budget and decides on its own finances as approved by the Board.

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According Law 06/97, BNA is responsible for the formulation and execution of monetary and foreign exchange policies. Such policies are made through the annual financial programming and a quarterly re-programming, approved by the Banks Board, in line with the governments economic policy.

The Banks main functions are to: - Promote and maintain monetary and financial stability; - act as banker of government; - issue of banknotes and coin; - ensure an efficient payment system; - advise the government on monetary, financial and foreign exchange matters; - act as an intermediary on international monetary government relationships; - act as lender of last resort; - manage international country reserves; and - ensure a sound financial system.

The BNA administers the Treasury account (collects tax revenue and effects payments on behalf of government). The Bank advises the Government on formulating the budget in line with the annual financial programme to guarantee co-ordination between the fiscal deficit and central bank credit and international reserves management. The central bank also participates in international negotiations dealing with loan contracting and consequently with debt-servicing arrangements.

The BNA also acts as the alternate Governor at financial institutions, namely the International Monetary Fund, the World Bank group and the African Development Bank.

The BNA must grant credit to the government up to the amount of the government deficit as approved by the Parliament. In this case, the Treasury Department of the Ministry of Finance issues Treasury bills for the amount required to be financed and remits them to the BNA.

According to Law 06/97, the BNA is allowed to extend credit to the government’s current account, up to an amount not exceeding 10 per cent of the governments ordinary revenue collected in the previous year. The credit has to be settled during the same fiscal year.

The Bank is state-owned and the Government of Angola is the sole shareholder of the National Bank of Angola. The Organic Law 6/97 states that at least 60 per cent of the BNA s net revenues should go to the government. In terms of development financing, the implementation of financial activities requires, according to the Banks Law 1/99 dated 23 April, legal authorization provided by the BNA on a case-by-case basis. However, for financial institutions with over 20 per cent of non-resident owned equity, such approval is a competence of the Ministry of Finance with the prior approval of the central bank. Law 13/05 dated 30

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September which revoked Law 01/99 dated on 20 of April, attributed competence of Council of Minister for authorization for financial institutions with over 20 per cent of non-resident owned equity.

3. Design and conduct of monetary policy

3.1 Main objectives of monetary policy

The main objectives of monetary policy in Angola, consistent with the goal of the government’s economic policy, are to achieve stable national currency unit and price stability.

3.2 Instruments of monetary policy

The BNA utilises direct as well as indirect monetary instruments. Since 1992 the BNA has used mostly direct instruments, such as credit controls, interest rate ceilings, as direct and indirect instruments such as reserve requirements and a rediscount rate. In the scope of monetary liberalisation, interest rates have been liberalised and the central bank started the issuance of central bank bills (TBC), in June 1999. Its introduction widened the set of instruments for monetary intervention available to the central bank and allowed a gradual reliance in direct instruments of monetary policy.

The main instruments of monetary policy are: - Reserve requirements. - Central Bank Bills (TBC) issues for liquidity regulation; - Foreign currency selling for liquidity regulation; - Rediscount rate, which is periodically adjusted in line with inflation developments; and - Open market-type operations, not used actually due the context of Central Bank Bills issuing.

3.3 Types of refinancing as well as collateral used

As lender of last resort, according to the Organic Law 6/97, the BNA may extend credit facilities for no more than three months to financial institutions to cover liquidity shortage problems. Collateral requirements for these loans are the following: - Treasury bills or Bonds; - Central Bank Bills; - Assets that the bank is authorised to buy, sell or transfer; - Other credit bills issued and guaranteed by the State - public issue; and - Invoice vouchers, "warrant" and other bills of the same kind.

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3.4 The money supply aggregate that plays the main role in monetary policy

The M2 aggregate is the most important of the money supply aggregates and its control plays a major role in monetary policy, and is a control variable in monetary programming.

Base Money is the operational aggregate is the variable for control money supply in monetary programming.

3.5 Reserve requirements on financial institutions

All banking institutions maintain deposits in the central bank, in the form of reserve requirements. Reserve requirements are extended to demand deposits in local and foreign currency in the banking institutions operating in Angola’s financial system. The present requirement is 15 per cent of the weekly average balance of demand deposits in local and foreign currency collected in domestic currency. Banks may maintain up to 7,5 per cent of reserve requirements in Central Bank Bills (TBC’s) or Treasure Bills with maturity up 63 days.

By Act/08/2009 dated 21 May reserve requirements is 30 per cent of weekly average balance of demand deposits in local and foreign currency collected in domestic and foreign currencies. Banks may maintain up to 10 per cent of reserve requirements in Treasury Securities (Treasury Bonds or Bills) or Central Bank Bills (TBC), also both in domestic or foreign currency.

The above instruction was amended by the Act/03/2010 dated 04 June, which states that reserve requirements is 25 per cent of weekly average balance of domestic currency of demand deposits, term deposits, other deposits, sale transactions in own bonds and repurchase, sale transactions in bonds of third parties and repurchase, bonds and securities issued or endorsed obligations for transactions pending clearance and obligations to provide service tax collection. Moreover, the foreign currency reserve requirement is 15 per cent of the same nature of deposits used for the reserve requirements of domestic currency.

4. Structure of the financial markets

4.1 Organization of the money and capital markets

Money market Angola’s money market is emerging, in June 1999; central bank bills (TBC) auctions were introduced by the central bank. They are issued periodically by the central bank to absorb excess liquidity in local currency in the domestic banking system. So far, this instrument works only in the primary market. TBC bills range in maturity from 14 days up to 364 days, and the interest rate is fixed by central bank and periodically adjusted or determinated by auction.

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In July 2003 the issue of Treasury bills with range in maturity from 28 to 364 days started to be issued in money market.

Capital market Created a Commission of the Capital market (CMC) by the Council of Ministries under the decree nº 9/05 on 18th March 2005 published at the Daily Republic paper. The Commission of the capital market is conducted by Law 12/05 dated 30 September, Law of Movable Values, Financial Institutions, Organic Status, as well as for its Internal Regulation.

The stock market is expected to start in a near future.

4.2 Instruments used in both these markets

There is only a short-term money market instrument - the central bank TBC bills. Actually, there are short, medium and long term instruments used in monetary market. Treasury bills and central bank bills as short term and Treasury Bonds as medium and long term. Act 51/03 and 52/03 establish the legal framework for Treasury Bonds and Treasury Bills issuance, based on Law 16/02, dated 5 December, which establish the general framework for Government debt. A set of additional rules the operational framework for money market transactions.

4.3 Legal frameworks existing for the money and capital markets

The following acts deal directly with the financial system: - Central Bank Organic Law 06/97 provides autonomy for the BNA to issue and negotiate its own bills or other institutions’ bills; - Financial Institutions Law 13/05 dated 30 September, defines the areas in which banking institutions and exchange agencies can operate; and - Law 13/05 dated 30 September establish the areas in which non banking institutions can operate; and - Central Bank Legislation: Notice 05/2004, dated 24 September defines the framework for the issuance of central bank TBC bills.

4.4 Types of financial intermediaries operating in these markets

At the moment there are 22 banks in Angola all of them are Universal banks as follows: - BPC, BCI, BPD, BDA which are state owned banks; and - BCTA, BFA, VTB, BPA, BESA, BANC, BNI, BIC, BCA, BMA, BRK, FNB, BQC, BMF, BAI, SBA, BSOL, BCH.

All the banks are fully licensed, but some of them are more focused to some activities e.g. micro-credit and investment bank, but all are universal banks.

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Development banks: - BDA; and - BPD.

Micro-credit banks: - BSOL; - BMF; and - BPC.

Offices representing foreign banks: Tentative offices of BNP, Equator Bank, Bank of Brazil, Firstrand Bank Limited, Ecobank, Standard Chartered Bank, Bank of India and Nedbank.

Exchange Bureaux

- Forty (40) Exchange Bureaux authorized as follow: MONETA, LDA, NEV CÂMBIOS, LDA, NOVA CÂMBIOS, SARL, EXPRESSO, LDA, UNIVERSAL, SARL, HUÍLA CÂMBIOS, LDA, ENOQUE & IRMÃO, LDA, SOFICHANGE, LDA, TRANSGLOBAL, SARL, ALMAC CÂMBIOS, LDA, SPOTCÂMBIOS, LDA, COTANGOLA, LDA, MERE- HALIMA, LDA, RIBEIRO DE OLIVEIRA, LDA, CAZUNDO, LDA, BOM CÂMBIOS, LDA, GLOBAL CÂMBIOS, LDA, MULIMBI, LDA, JT&T, LDA, NEVISA, LDA, ROBINSON, LDA, JOBA, LDA TRAVELEX, LDA, FERNANDES, LDA, COSTAMUNDO, MAGNATA, KITADI, LDA, EURODOLAR, LDA, TRIUNFAL, LDA, SANTA HELENA, LDA, BRUNO CHARLES, LDA, CAZUCA, LDA, AMAC, LDA, CASA DE CÂMBIOS DE ANGOLA, LDA, LUANDENSE, LDA, MEGA, LDA, XAMISSO, LUBAMBA, LDA, AND FASTCÂMBIOS, LDA.

- Twenty- two of which are operating;

MONETA, LDA, NEV CÂMBIOS, LDA, NOVA CÂMBIOS, SARL, EXPRESSO, LDA, UNIVERSAL, SARL, HUÍLA CÂMBIOS, LDA, TRANSGLOBAL, SARL, ALMAC CÂMBIOS, LDA, SPOTCÂMBIOS, LDA, COTANGOLA, LDA, MERE-HALIMA, LDA, RIBEIRO DE OLIVEIRA, LDA, BOM CÂMBIOS, LDA, GLOBAL CÂMBIOS, LDA, MULIMBI, LDA, JT&T, LDA, ROBINSON, LDA, JOBA, LDA, TRAVELEX, LDA, FERNANDES, LDA, EURODOLAR, LDA, TRIUNFAL, LDA AND- BRUNO CHARLES, LDA.

- According to the BNA regulations about the banking cards under decree nº01/07 of 21 March, It has been introduced the Credit Card (Visa), which is now operating and is providing efficient and convenient payment solutions adapted to customers.

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5. External payment arrangements

5.1 Determination of the exchange rate policy

The BNA is responsible for the formulation and execution of foreign exchange policy in Angola. Since 21 May 1999, Angola has been using a market-determined exchange rate.

5.2 The present exchange rate system

At present, Angola is using a free-floating exchange rate system.

5.3 Organising the exchange market

The Banco Nacional de Angola is the sole state authority for administering exchange control in Angola. Banks and foreign exchange dealers, licensed by BNA, are authorised to deal among themselves and with their customers at freely negotiated rates, namely for import/export proceeds and invisibles.

The Banco Nacional de Angola intervenes from time to time to promote orderly conditions in the foreign exchange market. The participants in the inter-bank foreign exchange market are the central bank and the banks. BNA publishes daily a reference rate, for accounting and statistical purposes, computed as a weighted (by quantities), average rate of the rates dealt with during the day, by banks.

Other measures were taken in the foreign exchange domain regarding the maintenance of export proceeds in the Angolan banking system, namely the abolition of part of the specific exchange prerogatives for the mining sector. Various previous restrictions on foreign exchange operations were relaxed; credit in foreign exchange is permitted to exporters, an incentive for exports; imports of goods and services with resources in own funds in foreign exchange are now permitted.

5.4 The central bank's involvement in managing foreign exchange reserves

The BNA acts as manager of the country's gold and other foreign exchange holdings. The BNA also establishes the maximum permissible foreign exchange limits that banks and exchange bureau may hold.

6. Currency convertibility and exchange control

6.1 Current state of currency convertibility

The domestic currency (kwanza-Kz) is not convertible, neither internationally nor regionally.

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6.2 Exchange control on current account transactions

Almost all current account transactions have been liberalised, but capital operations are subject to previous exchange licensing by BNA. All invisible operations above US$ 500 000,00 are subject to the previous exchange licensing by BNA.

Due the effects of international financial crisis is Angolan economy that requirement changes. Invisibles transactions above US$100.000,00 are subjected to licensing process by Banco National de Angola.

With regard to payments for invisibles, exchange allowances for medical treatment abroad, is provided through restrictions in the terms of the transitory regimen of Section 2 of Article XIV, and limits to the foreign currency for certain chain operations invisible, also for expenditures (business, education, cultural scientific, health and private travel).

Exchange allowances for private travel abroad on business, for education and fellowship are granted, up to US$15 000,00 per person, allowing being 4 times per year, upon the presentation of a passport with entry visa for the country of destination and airline tickets.

Foreign exchange bureau licensed to operate may deal only in banknotes and traveller's checks, being authorised to execute current invisible operations of a private nature (business, education, cultural scientific, health and private travel).

National residents are allowed to travel abroad without any requirements if the amount of foreign currency does not exceed US$15 000,00. The travel agent should present proof of purchase of foreign exchange from a local institution and authorized dealers. Non-residents are permitted to enter the country with any amount in foreign exchange.

All imports and exports of merchandise (goods) have been liberalized and no longer need a license from the Ministry of Commerce.

Exports of arms and ammunition and ethnological collections are prohibited. Special export regimes apply to aircraft, animals and animal products, historical objects and petroleum. Re-exports of goods other than capital goods and personal belongings are also prohibited.

Exporters are required to sell to the BNA (oil companies) and banks a portion of their export receipts destined for compliance with their fiscal obligations and local expenses, respectively, and may retain the remain to cover production costs.

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6.3 Restrictions on capital account transactions

Regarding restrictions applying to inward capital-account transactions, the Foreign Investment Law now called “LEI DE BASES DO INVESTIMENTO PRIVADO” Law nº 11/03 dated 13 May that revoke the Law No 15/94 of 23 September, prohibits investment in some strategic sectors as defense and security. Direct investment in the oil sector is encouraged. With the prior approval of the Ministry of Finance capital may be repatriated upon liquidation. Dividends are annually transferable after approval by BNA. Transfers of personal capital, such as legacies, dowries, savings from wages and salaries, and proceeds from the sale of personal property, are permitted only after assessing the merits of the individual case. All capital transfers are subject to licensing and control.

6.4 Retention rules for foreign exchange earned and owned by residents

Individual residents who are juridical persons may maintain demand and fixed-term foreign exchange accounts with Angolan financial institutions. These accounts earn interest at current interest rates. Cheque books may not be issued for these accounts. The opening of and transactions through these accounts are not subject to prior authorisation from the BNA. These accounts may be credited only through the delivery of foreign exchange currency in cash, traveller’s cheques or foreign payment orders. The accounts may be debited for the issuance of any instrument normally accepted on the international financial market in settlement of bills for imports of goods and current invisible or capital export operations carried out by the depositor. Transfers among accounts are allowed.

7. The Central Bank and external debt

7.1 The role of the central bank in managing the country's external debt

The Banco Nacional de Angola as a central bank, accepts the full responsibility for recording the external debt of Angola. Its mission therefore includes the collecting, processing and interpretation of debt statistics. The BNA is also a participant in a centralised group responsible for debt management, debt strategy and debt sustainability analysis chaired by the Minister of Finance.

7.2 The role of Treasury in this respect

The Treasury acts as a representative of the government in loan-contracting negotiations and also acts as unique state authority in choosing the loan's potential ownership. However, in order to maintain inflation at low levels and to exercise better control over liquidity, the Treasury works in close co-operation with the central bank in contracting loans.

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8. Supervision of financial institutions

8.1 Banking institutions

8.1.1 Authority responsible for banking supervision

In Angola, the Banco Nacional de Angola is responsible for all banking institutions supervision through its Banking Supervision Department.

8.1.2 The licensing procedures for establishing a new bank

The licensing procedures for establishing a new bank in Angola consist of the following two steps:

Step 1: Special authorization Special authorization entails the following: - The request for establishing a new bank is submitted to the BNA. Approval for the creation of Angolan banks is given by BNA, on a case-by -case basis, after the assessment of all the procedural conformity with the policy and requirements defined under section I of the Banking Act 13/05 from September 30th 2005. - For the establishment of a new bank with more than 20 per cent of foreign capital invested, approval must be submitted to Cabinet, after BNA agreement. - The framework of the administrative process uses the following criteria in the authorization process: - the objectives of the bank should be in accordance with the country’s monetary and financial policies; - the bank’s management must be competent and have relevant experience; - the bank should be in a position to improve its diversification and servicing quality rendered to the public, as well as to provide adequate protection for deposits held in its accounts; - technical and financial resources must be sufficient for the kind of operations envisaged; - the institutional development outlook should be compatible with the maintenance or organized market competition; - Authorization to establish a financial institution may not be transferred from one institution to another.

Step 2: Constitution of the bank The Organic Law decrees that no financial institution may be granted authorization to commence banking activities without complying with the following conditions: - a technical feasibility study shall be done for the proposed financial institution; - shareholders shall be identified personally and professionally as well as respective number of shares owned by each; and

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- the major shareholders as well as the proposed members of the financial institution's management board shall have the required competence and technical capacity.

8.1.3 Type of licenses that exist

There is only one full banking license in Angola.

8.1.4 Minimum capital requirements for the different types of banks

Updated at the end of each foreseen exercise, Aviso No 4/07 from September 26th 2007. Own currency: equivalent to US$8 million. That amount may be reduced by 50 per cent in a case where the new bank’s head is office established in any province other than the capital.

8.1.5 Regulations governing current activities of banks

- Large credit exposure: The concept of Large Credit Exposure is aimed at credit operations which exceed 10 per cent of bank assets. The sum of major credit risk is limited to three times the value of net bank assets. The BNA regulation "Aviso no. 5/96 of 26 April" governs large credit exposure.

- Capital adequacy: According to the BNA's "Aviso no. 4/07 from 26 September 2007" banking institutions aiming at constituting a commercial operation require banks to have a capital adequacy of a minimum of US$8, 000, 000.00 or equivalent in own currency. If the commercial banks head office is to be out of Luanda, this requirement can be reduced by 50 per cent. The BNA`S Aviso no. 5/99" authorizes the banking institutions to realize credit operations with exporters in foreign currency.

- Reserve requirement ratio. The bank regulation Instructive no. 02/00" of 13 March, defines the requirement regime in which it is established. Institutions subjected to the regime of reserve requirements include all financial institutions operating in the country, which are permitted to collect deposits. The coefficient of reserve requirements is 30 per cent of a weekly average balance of demand deposits in local currency.

- Provision for bad debts: The BNA's "Aviso no. 4/92 of July" decrees the minimum level of provision that may be made by financial institutions to cover bad debts or any other risk inherent in their activities.

- Restricted lending: According to the monetary programming, quarterly ceilings are set on the Net Domestic Assets (NDA) of the banking system. A global ceiling on NDA is derived as a residual between the M2 of the banking system and the NFA of the banking system. The ceilings on NDA by banks

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are calculated as a residual between the global NDA of the banking system and the bank NDA. The bank regulation Instructive 6/00 of 25 July, governs the establishment of NDA ceilings.

a) Interest rates

Interest rates have been negotiated between banks and their clients, since May 1999.

b) Discount operations

The rediscount rate was modified in September 2006 on basis of the decree nº 06/DSP/07 and has reference to the interest rate of the treasury bills with 91days maturity of the visible auction + 5 per cent of the spread.

Deposit insurance: None

8.1.6 Main supervision practices

The two main supervision practices used by the BNA to control banking activities are the following:

Off-site examination The banking industry in Angola has to submit records of the banks’ position for the main accounting aggregates, in own currency (Directive) and in foreign currency (Directive 1/99). Banks are also obliged to submit monthly statistics and quarterly net domestic asset limits. The review of these instruments allows the central bank to determine if the banks have complied with the regulations and prudential directives governing liquidity, credit operations and security assets.

On-site inspections The BNA physically inspects the records of the banks through on-site inspections and external audits. The BNA has special controllers who travel around the country to visit the different banks.

8.1.7 Measures to remedy deficiencies as well as penalties utilised - Comment - Penalties - Partial or total prohibition from undertaking banking activities.

8.2 Non-banking institutions

8.2.1 Responsibility for supervision of non-banking financial - ISS Insurance supervision authority:

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8.2.2 Categories of financial institutions and their licensing procedures

Law 1/00 and Decree 6/01 of the Reinsurance and Co-insurance, as well as Decree 25/98, of the Pension funds liberalized the insurance activity.

Insurance companies: There are five Insurance companies: are already to operate in the market of insurances, for beyond the ENSA - Angolan Insurance Company a state -owned enterprise, the AAA LDA enterprise, AAA Broker of Insurances and the PERITANA (broker), Global Seguros (GS);

Pension funds: Pension Funds: there is one state-owned a veteran pension fund, which is managed by a private manager a ” Fundo de Pensões SARL”, and AAA Fundo de Pensões LDA. The following Managing Societies of Pension fund: the AAA Pensions, SARL; and the Management of Funds, SARL. Gestão de Fundos (GF) The first one is to manage the 3 Funds of Pensions (FP) and last 2 FP.

9. National payment, clearing and settlement system

9.1 How is the payment, clearing and settlement system organized?

The Angolan Payment System Project (SPA - Framework and Strategy of Implementation) was approved in February 2000, and its action plan is being developed.

Currently two systems of the Angola Payment System are organized and functioning: the Values Clearance Service (SCV) and the Settlement for Major Payments System.

The SCV is aimed at the payment of clearable instruments, namely cheques, banker’s draft (OS), transfer order (OT), credit document (DC), document of participant, document of regularization of difference.

To participate in the SCV, the seven commercial banks are obliged to maintain reserve requirements accounts at the BNA and the National Treasury which also has an account at the National Bank of Angola. The National Treasury is represented by the BNA exclusively for the forwarding and receiving of clearable papers.

The SCV operates through local (only one location where the clearing house is situated), regional (locations where the clearing house is situated and surrounding locations, predefined by the BNA) and inter-linked systems (location previously defined by the BNA, served by the transport shared clearable papers).

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In the local systems and regional systems, the captive maximum deadline for the clearable papers collected in deposits is two working days, counted from the working day immediately after the reception day of the clearable paper. The devolution deadline is the day immediately after the exchange day. In the inter- linked systems the captive maximum deadline for the clearable paper is variable, being fixed accordingly to the frequency of air transport. Four inter-linked systems are installed, for which, coincidentally, a captive maximum deadline of six working days was set.

The netting carried out at the clearing house is settled on the participants accounts maintained at BNA, through credit or debit.

The settlement for Major Payments System, designed specifically for the settlement of buying and selling of central bank securities carried out in the interbank market, and for the settlement of the counter-value in domestic currency of the foreign exchange buying and selling effected at the same inter-bank market, is at an early stage. This system has been implemented to avoid transfers that require real time settlement to be built in. Therefore financial settlement in this system is done via crediting and debiting the accounts maintained by commercial banks at BNA, in bulk, in real time.

9.2 What is the role of the central bank in the system?

Currently, besides being the institution where settlements are made, the BNA also operates the SCV and the Settlement for Major Payments System.

The competence of the BNA is organizing, supervising and inspecting the clearing houses, in latu sensu as swaps systems and settlement systems, is foreseen in the BNA`S Organic Law.

9.3 Short description of the processing of payment instructions

Payment instructions are all paper-based. They are physically delivered at the clearinghouse. The processing at the clearinghouse is made through two specific and different kinds of software, one for SCV and one for Settlement for Major Payments System.

9.3.1 Processing in the SCV

A daily clearing session is carried out from Monday to Friday, at 09:00 am.

The clearing routine foresees the direct delivery among participants, in sealed boxes, of the respective clearable papers (on debit, credit, in refund), along with a diskette with an Issuance Summary File and Documents’ Movement File at Clearing. On the basis of the information on the diskettes received from the participants, the BNA, by automatic process, does the netting of each participant in

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the session and sends the results to the relevant sector to be effected on the Reserve Requirements accounts.

The results obtained from the clearing houses installed elsewhere than Luanda are transmitted via satellite (VST), in specific software, on a daily basis until 14:30.

9.3.2 Processing in the Settlement for Major Payments System.

On a daily basis, the system remains open from 12:00 to 16:00 hours to enable banks to deliver the respective information, through diskettes, on the settled operations, on the day, in this system.

A double set of information is required for each operation in the settlement. Both the buyer and seller banks must send the information to BNA, and if there is coverage in the Reserve requirements of the debited banks and, in the case of the buying and selling of bills, if the bills are available in the position of the seller bank, the operation is settled in real time, by a command in the processing system.

9.4 How are non-funded positions settled in the system?

It is foreseen that if there is insufficient provision in the bank’s reserves account for the settlement financial result from the Clearing process, the bank must redeem itself with the BNA by means of a rediscount operation, according to its regulations.

In the System of Settlement for Major Payments System, there is insufficient provision in the bank’s reserves account, the operation is not settled. Banks involved in the operation are formally informed of the fact by the BNA, leaving to the creditor bank the obligation for the interest rates arising from the delay. To settle the transaction, banks must send a new double communication. In the case of payment of interest rates, the settlement of this operation is processed by the same system through the double command.

10. Currency in use

10.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: Kwanza (Kz) - Notes: -Kz 2000 -Kz 1000 - Kz 500 - Kz 200 - Kz 100 - Kz 50

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- Kz 10 - Kz 5

- Coins: -Kwanza (Kz) - Kz 5 - Kz 2 - Kz 1

- Cents: - Cê 50 - Cê 10

11. Other activities of the Central Bank

There are no other functions.

12. The position of the central bank in SADC

The BNA participates twice per annum in meetings with the other central banks that are members of the Committee of Central Bank Governors in SADC, has a special relationship with the South African Reserve Bank (SARB) College with regard to training the BNA’s human resources. Moreover, the BNA participates in projects concerning: - Harmonization of Organic Law - Statistical database - Committee of Payment Systems - Legal and operational structure of central banks - Information technology - Protection services

13. Publications

13.1 Regularly published publications (since 1997)

- Annual report of the Central Bank - Annual Balance of Payments Bulletin - Economic Quarterly Bulletin - Statistical Monthly and Annual Bulletin

13.2 Occasional/special publications published since 1990

Available occasional published at the Central Bank website: www.bna.ao.

Angola

Bank of Botswana

Bank of Botswana Private Bag 154 Khama Crescent Gaborone, Botswana Fax: + 267 371231 Tel: + 267 3606000

1. History

Before independence in 1966, legal tender in the then Bechuanaland Protectorate consisted of Pound Sterling and Union coins issued by the South African Reserve Bank, later replaced by South African Rands. In 1974, Botswana announced its intention to withdraw from the Rand Monetary Area, establish its own Central Bank and introduce its own national currency, the Pula. The Bank of Botswana Act came into force on 1 July 1975, bringing the Central Bank into existence, and on 23 August 1976 the Pula was released for circulation, initially at par with the South African Rand, which was being exchanged and withdrawn. Since 1977, after the transition period had expired, the Bank of Botswana has pursued monetary policy that is independent of that of South Africa.

2. Relationship with Government

The establishment of the Bank of Botswana was not entrenched in Botswana's Constitution but the Bank was created in 1975 by an Act of Parliament. The Bank of Botswana Act can, therefore, be amended or repealed by Parliament. As prescribed in the Bank of Botswana Act, the Bank is a corporate body with perpetual succession and a common seal, capable of suing and being sued in its corporate name.

The State President appoints the Governor and Deputy Governors for a term of office not exceeding five years and are eligible for re-appointment. The Governor can be removed from office on the following grounds: inability to perform the functions of his/her office, gross misconduct, election to Parliament, appointment by any other financial institution, personal insolvency, conviction of an offence for which he/she could have been sentenced to imprisonment without the option of a fine, and suspension from his/her profession by reason of personal misconduct. The Board of the Bank of Botswana comprises the Governor (Chairperson), the Permanent Secretary in the Ministry of Finance and Development Planning (ex officio) and other seven members appointed by the Minister of Finance and Development Planning. The Bank has its own budget that is approved by the Board on the recommendation of the Governor.

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The Bank of Botswana has considerable autonomy in formulating and implementing monetary policy, although certain matters (e.g., major changes in the exchange rate and currency specifications) are reserved for decision by either designated Ministers or the State President. The Bank of Botswana is responsible for formulating and implementing monetary policy. The Bank also plays an advisory role in fiscal policy.

The Bank’s primary objectives are the promotion and maintenance of monetary and financial stability, issuance of currency, ensuring an efficient payment mechanism, acting as banker for the Government, as well as ensuring a sound financial system. The Bank is also the Government’s agent for the administration of the Banking Act (CAP 46:04), which legislates the supervision and regulation of banking activity.

The Bank is not allowed to make direct loans to the Government, but may grant temporary advances to the Government at an agreed rate of interest, which must be repaid within six months from the end of the financial year in which they were granted. Such an advance was made in 2004 to the Debt Participation Capital Funding (DPCF), a company that was set up by the Government to securitise the commercial portion of the Public Debt Service Fund loan book. DPCF’s P800 million loan was guaranteed by the Government, and was paid back within the six months’ period.

The Government of Botswana is the sole shareholder of the Bank of Botswana and the Bank's capital is not transferable. The Bank of Botswana plays no role in the provision of development financing or directed lending.

3. Structure

The Bank’s headquarters are in Gaborone with one branch in Francistown. This branch works mainly as a currency distribution centre in the north of the country and provides banking services to Government revenue collectors and treasury cashiers. The branch also collects cheques for onward transmission to the headquarters and for forwarding to the Clearing House.

4. Design and conduct of monetary policy

4.1 Main objectives of monetary policy

The main objective of Botswana’s monetary policy is to achieve a sustainable, low and predictable inflation that will contribute to macroeconomic stability and attainment of a stable real effective exchange rate (REER) and, in turn, support diversified economic growth.

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4.2 Instruments of monetary policy

To influence inflationary pressures, the Bank uses the Bank Rate to affect other market interest rates and open market operations, which involves purchase and sale of the Bank of Botswana Certificates (BoBCs) to affect the cost and quantity of loanable funds. Reserve requirements are in place but are less binding as an instrument of monetary policy mainly due to the excess liquidity in the market.

4.3 Types of refinancing as well as collateral used

The Bank of Botswana uses the Secured Lending Facility (SLF) and Repurchase Agreements (REPOS) and intra-day liquidity facility (ILF), as a way of bridging overnight liquidity shortages by providing emergency funding to solvent financial institutions and intra-day liquidity. The intra-day liquidity facility was introduce following the implementation of the RTGS in 2006. The Bank of Botswana Certificates (BoBCs) and Botswana Government bonds are used as collateral for the SLF and ILF. BoBCs have been used for the repurchase operations.

4.4 The money supply aggregate that plays the main role in monetary policy

The Bank does not actively monitor monetary aggregates in formulating monetary policy; instead the Bank monitors the growth in domestic credit and government expenditure as intermediate targets.

4.5 Reserve requirements on financial institutions

Effective February 2006, the required reserve ratio for commercial banks increased from 3.25 percent to 5 percent of daily average of deposits of a given month, excluding foreign currency accounts deposits. The required reserve ratio now also applies to merchant banks. By statute, no interest is payable on these reserves. The liquid asset ratio for both commercial and merchant banks is 10 percent of daily average deposit liabilities, also excluding foreign currency denominated deposits.

5. Structure of the financial markets

5.1 Organisation of the money and capital markets

5.1.1 Capital market: Botswana's capital market is not broad based. There is a small stock market which commenced operation in 1989. At present there are nineteen (19) domestic companies, out of which 17 are on the main board and twelve (12) foreign companies, half of them on the main board, whose shares are quoted and actively traded in the market while there is one (1) company which is not listed and, therefore, undertakes over-the-counter trading, and whose trading is not regulated by the stock exchange. Venture capital listings consist of eight companies, two (2) of which are domestic.

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5.1.2 Bond Market: In March 2003, the Government of Botswana successfully launched its first ever bond issue, comprising three separate bonds with a total value of P2.5 billon and maturities ranging from two to twelve years. This was a major step forward in the development of the financial sector in general and capital markets in particular. The primary objective of the issue was to develop the domestic capital market by increasing the supply of longer-term debt instruments and establishing a risk-free yield curve against which the launch of bonds by other issuers could be benchmarked.

5.1.3 As of July 2007, 29 bonds had been issued in the Botswana market, twenty-five of which are listed on the Botswana Stock exchange (BSE). Three Governments bonds were issued in 2003; the shortest dated government bond matured on June 1, 2005 at a coupon rate of 10.75 percent. Two more government bonds are maturing on March 1, 2008 and another on October 31, 2015. The coupon rate in both cases are 10.25 percent. All government bonds are listed on the BSE but traded over-the-counter. There are five unlisted corporate bonds, one of which is floating and a commercial paper, with maturities ranging from 2, 5 and 12 years.

5.1.4 Money markets: Among the short-term money market instruments are Bank of Botswana Certificates (BoBC’s) which are issued at periodic auctions by the Bank of Botswana and are used to absorb excess liquidity in the domestic banking system. The Bank currently issues a 14-day BoBC, a 91-day BoBC and a 364-day BOBC under the multiple price auction format. The auction of the 14-day BoBC is weekly, while the 91-day BoBC is issued monthly. The 364-day BOBC was introduced in March 2006 and is issued once every month. Starting in 2004, the Bank of Botswana withdrew from the BoBC secondary market: It no longer buys back or sells outright in the market after the auction. The main purpose is to encourage secondary market trading among primary counterparties. The Bank has been using repo and reverse repo transactions to manage the domestic liquidity conditions since 1999.

5.2 Instruments used in both these markets

The key short-term money market instrument is the BoBCs while shares and bonds are the only instruments in the capital market.

5.3 Legal frameworks existing for the money and capital markets

The Stock Market Act was passed in 1995 and a Collective Investments Undertakings Act (CIUA) was also passed in 1996. However, subsequent to the establishment of Botswana as an International Financial Service Centre (IFSC) through the Bank of Botswana Amendment Act (1999), the CIUA was reviewed in order to ensure that it incorporates the IFSC participants and was passed in 1999. The regulations for the CIUA (1999) were passed in June 2001.

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5.4 Financial institutions participating in the open market operations

With effect from March 2006, the banking institutions listed below are the only institutions permitted to purchase and hold Bank of Botswana Certificates: - Barclays Bank of Botswana Ltd - Standard Chartered Bank Botswana Ltd - Stanbic Bank Botswana Ltd - First National Bank of Botswana Ltd - Bank of Baroda (Pty) Ltd - Bank Gaborone Ltd - African Banking Corporation (Pty) Ltd

6. External payment arrangements

6.1 Determination of exchange rate policy

The Bank of Botswana calculates and publishes the daily Pula exchange rates, and this is done in accordance with the Bank of Botswana Act (CAP 55:01), Section 21 which states:

"The external value of the Pula is to be calculated in a manner determined by the President on the recommendation of the Minister of Finance and Development Planning, after consultation with the Bank."

6.2 The exchange rate system

The Pula is pegged to a weighted basket of currencies comprising SDR currencies and the South African rand. A crawling band exchange rate mechanism was introduced on May 30, 2005, with the objective of avoiding the need for periodic discrete large adjustment of the exchange rate to maintain real effective exchange rate stability. The rate of crawl of the nominal effective exchange rate is determined on the basis of the Bank’s inflation objective and forecast inflation for trading partner countries; hence, the exchange rate mechanism is forward looking. At the same time the foreign exchange trading margin of Bank of Botswana for foreign exchange transactions was increased from ± 0.125per cent around the central rate to ± 0.5per cent in order to encourage trading on the interbank market.

6.3 Organising the exchange market

Following the abolition of exchange controls from February 8, 1999, the Bank issued revised guidelines for measuring, monitoring and controlling foreign exchange exposure limits for commercial banks.

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6.4 The central bank's involvement in managing foreign exchange reserves

The Bank of Botswana is responsible for investing and managing the foreign exchange reserves of the country.

7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

The Pula is a convertible currency. Domestically, authorised dealers in Botswana are permitted to avail themselves of foreign currency facilities up to any amount. Limits on foreign currency were removed following the abolition of exchange controls.

In terms of the foreign exchange exposure prudential guidelines, the foreign exchange market consists of the Bank of Botswana dealing in four major currencies (US dollars, South African rands, euro and UK pounds) and other minor currencies, with commercial banks. Authorised dealers (banks) are permitted to deal in foreign currency on behalf of customers and for their own account within specified prudential limits for the net open position and for spot against forward limits. Effective from 7 September 1998, commercial banks are allowed to take foreign exchange positions within net prudential limits specified at 15 per cent of unimpaired capital per major dealing currency (USD, ZAR, GBP and EUR), 5 per cent of unimpaired capital to all other currencies and 30 per cent of unimpaired capital for total foreign exchange exposure.

Botswana residents, meanwhile, are permitted to maintain foreign currency deposit accounts on- and offshore, with no limits. In turn, commercial banks are permitted to make foreign currency denominated loans to all categories of customers, subject to prudential limits on large exposures and foreign exchange risk exposure.

Regarding purchases of foreign currency with Pula outside Botswana, residents are allowed to export an unlimited amount in cash (notes and coin) or in any other form subject to completion of declaration forms if the cash is in excess of the equivalent of P10000. Regarding the selling of foreign currency for Pula, there is no limit, provided the foreign exchange is legally earned and transferred, and declared at the port of exit.

7.2 Exchange control restrictions on current account transactions

With the abolition of exchange controls, effective 8 February 1999, Botswana achieved full capital account convertibility. However, there is a requirement for customers to complete Forms A and S to record inward and outward transfer or foreign currency payments where the amount exceeds an equivalent of P10 000. This is done for balance of payments purpose and money laundering checks.

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8. The Central Bank and external debt

8.1 The role of the central bank in managing the country's external debt

The Ministry of Finance and Development Planning is authorised to contract loans on behalf of Government and the Division of Economic Affairs is charged with the responsibility to negotiate with creditors. The Public Debt Service Unit in the Budget Administration Division in the Ministry of Finance and Development Planning is charged with the responsibility to record disbursements, instructing Bank of Botswana to make debt service payments and also to compile debt data classified by creditor and currency for publication in the Annual Statements of Accounts published by the Accountant General’s Department. The Public Debt Service Unit gets information on reimbursements/disbursements from the Creditors in the form of Loans Disbursement Vouchers and confirmation on debt service payments is got from Bank of Botswana. All this information is computerised and reports are printed on a monthly basis mainly for reconciliation purposes.

The Cash Flow Unit in the Budget Administration Division in MFDP records, manages and monitors public, government guaranteed debt using a computerised system designed by the Commonwealth Secretariat called the Commonwealth Secretariat – Debt Recording and Management System (CS-DRMS). The information on disbursements and debt service payments are obtained from Public Debt Service Unit ledgers, while the information regarding government guaranteed debt is obtained from the respective Parastatals or executing agencies. Debt data is recorded on a cash basis and in foreign currency. The daily exchange rates are used for daily transactions, while the mid exchange rates (as at 31 of March are used for the end of fiscal year balances.

Bank of Botswana handles the information on private debt. The private debt data is derived from the annual and quarterly balance of payments surveys. The requirement is for respondents to give information on stocks of debt at the beginning of the reference period, movements during the period as well as stocks at the end of the period. Until 1995, the Bank used CS-DRMS to monitor the private external debt. This was discontinued because most of the loans that were held by direct investment enterprises were either cancelled or converted to equity. However, as the country moves towards embracing IMF’s Special Data Dissemination Standard (SDDS), it will be required that the monitoring of private debt be resumed. The Commonwealth Secretariat, together with Development Finance International and MEFMI, is providing assistance in this respect.

8.2 The role of the Treasury in this respect

The Ministry of Finance and Development Planning is responsible for recording public and publicly guaranteed external debt. In the execution of its responsibilities, the Ministry uses the Commonwealth Secretariat's Debt Recording and Management System CS-DRMS. The Ministry of Finance and Development

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Planning is responsible for contracting external debt and formulating an external debt policy.

9. Supervision of financial institutions

9.1 Banking institutions

9.1.1 Authority responsible for banking supervision

The Banking Supervision Department of the Bank of Botswana is responsible for supervising the activities of all financial institutions licensed under the Banking Act and designated statutory institutions, namely, the Botswana Building Society, Botswana Savings Bank and National Development Bank.

9.1.2 Licensing procedures for establishing a new bank

The licensing procedures for establishing a bank in Botswana are set out in sections 3 to 12 of the Banking Act and Banking Regulations 3 to 6. The licensing requirements are further amplified in the Licensing Policy of the Bank of Botswana. Among the basic criteria to be met are the following: - Local incorporation - Paying of a non-refundable processing fee by the applicant (currently P3 300 or US $533 as at July 31, 2007 Value Added Tax (VAT) inclusive. - Adequate initial capitalisation, (currently P2.5 million and P5 million or equivalent in foreign currency depending on the type of bank) a proposal for back-up capital and a management comprising fit and proper persons, including management depth - Provision of competition to the established banks - Documentation regarding the particulars of the applicant as well as the technical knowledge and experience of management - A comprehensive business plan, including detailed five-year financial projections

Within six months of receipt of an application for a banking licence, the Central Bank may reject it, or grant the applicant a licence to transact banking business in Botswana, subject to payment of a licence fee of P11 000.00, or US $1778 as at July 31, 2007 (inclusive of VAT) and in either case, this shall be done in writing.

An applicant, whose application for a banking licence has been refused, may within six weeks of notice, appeal (current appeal fee is P1 000 or US $162 as at July 31, 2007 plus 10 per cent VAT) to the Minister or pay the fee as prescribed. The Minister shall decide the outcome of the decision within three months of receipt of the appeal from the applicant.

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9.1.3 Types of licences that exist

In terms of the Banking Act, both general licences and limited licences (specialised types of licences) may be granted. General banking licences are granted to institutions that wish to engage in a full range of banking activities including accepting of deposits of any amount, operation of cheque-based current accounts, granting of loans and overdrafts and other facilities. Limited or special licences are granted to institutions that wish to engage in specialised banking activities, such as asset-based financing, merchant/investment banking and discounting of paper Limited or special licences are granted to institutions that wish to engage in specialised banking activities, such as asset-based financing, merchant/investment banking and discounting of paper. Such institutions would normally be restricted with regard to the minimum deposits they may accept, types of accounts they may operate, etc.

9.1.4 Minimum capital requirements for the different types of banks

The minimum capital requirements for the different classes of banks are currently as follows: - Commercial/Merchant/Investment banks: The greater of P5 000 000 (US$808 000 as at July 31, 2007) or 8 per cent of the risk-weighted assets and other risk-weighted exposures of the bank, in accordance with the Banking Regulations. - Credit institutions/Discount houses: The greater of P2 500 000 (US$404 000 as at July 31, 2007) or 8 per cent of the risk- weighted assets and other risk- weighted exposures of the bank, in accordance with the Banking Regulations. - Merchant/Investment banks: The greater of P5 000 000 (US$808 000 as at July 31, 2007) or 8 per cent of the risk-weighted assets and other risk- weighted exposures of the bank, in accordance with the Banking Regulations.

9.1.5 Regulations governing current activities of banks

Large credit exposure: Large credit exposure to a single borrower or group of related borrowers is defined and regulated under section 17 of the Banking Act. Exposure limits are determined as a prescribed percentage of a bank's unimpaired capital. Such percentages are prescribed under Regulation 9 (1-3) of the Banking Regulations, 1995. Specified lending limits are as follows: - Direct or indirect credit exposures in excess of 10 per cent of a bank's unimpaired capital must be approved by the bank's board of directors - Direct or indirect credit exposures in excess of 30 per cent of a bank's unimpaired capital must be referred to the Bank of Botswana for consideration

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- Lending to bank's directors and their related interest unsecured facilities in excess of 10 percent of the bank’s core capital or secured facilities up to 25 per cent of its unimpaired capital must be approved by the board.

Capital adequacy: Section 13 of the Banking Act, Regulation 7 of the Banking Regulations, and the Capital Adequacy Policy Paper of 1997 govern the current activities regarding capital adequacy.

Liquidity ratio: In terms of Section 16 (1) and (2) of the Banking Act and Section 8 (1) and (2) of the Banking Regulations, banks are required to maintain a proportion of their assets in liquid form, computed on a basis to be fixed from time to time, as a percentage of the deposit liabilities. At present, the liquid asset ratio for both commercial and merchant banks is 10 percent of daily average deposit liabilities, exclusive of foreign currency deposits. Financial institutions are required to report their liquid asset positions in a prescribed format to the Bank of Botswana.

Open foreign exchange position: The Bank of Botswana determines foreign exchange exposure limits for banks authorised to deal in foreign currency. The limits are set at levels that enable banks to conduct their day-to-day international business of providing foreign exchange facilities for their customers. The need to control the open positions of the banks emanates from the fact that by taking positions in foreign currency, banks expose themselves to foreign exchange risk, which has a bearing on capital, earnings and international reserves. It is also not considered prudent to allow banks to engage in undue speculation against the Pula with the portion of international reserves, which should be managed exclusively by the Bank of Botswana. Section 41 of the Bank of Botswana Act, empowers the Bank to determine the maximum amount which any financial institution may hold or maximum indebtedness which it may incur in foreign currency. The maximum net foreign exchange exposure for a bank shall not, at any time, exceed 30 per cent of the bank’s unimpaired capital; and within the total of 30 per cent, the net foreign currency exposure limit shall be 15 per cent of a bank’s unimpaired capital, per major currency (USD, ZAR, GDP, and EUR). For all other currencies, the prescribed limit shall be restricted to not more than 5 per cent of a bank’s unimpaired capital per currency.

Provision for bad debts: Section 14 of the Banking Act requires all financial institutions licensed under the Act to maintain both general and specific provisions against bad and doubtful debts to the satisfaction of the Central Bank. General provisions are maintained at a percentage agreed between banks and the Central Bank against unforeseeable losses on loans and other unidentifiable risks while specific provisions are to be made for advances that have been identified as having performance problems.

Restricted lending: All lending is regulated under Section 17 of the Banking Act and this is discussed under "Large credit exposure" above.

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Deposit insurance: Botswana does not have a deposit insurance scheme in place as yet. However, the Bank of Botswana is currently reviewing such a proposal.

9.1.6 Main supervisory practices

The main supervisory practices used by the Bank are on-site examinations and off- site supervision and regular bilateral and trilateral meetings with each supervised bank and its external auditors. With the adoption of the risk-based approach the frequency of on-site examinations (full scope or targeted) depends on the risk profile of the bank. However, the Bank of Botswana conducts on-site examinations focussing on internal controls at least every two years. The objectives of these examinations are to establish the financial soundness of banks and to ensure banks' compliance with the provisions of the Banking Act and with banking regulations and policies. An on-site examination involves the assessment and analysis of the banks' books and records in order to determine their capital adequacy, asset quality, profitability and liquidity and to evaluate management and internal controls. Off-site monitoring involves the assessment of a bank's performance through the weekly, monthly and quarterly returns. From the monthly returns, some key financial ratios such as capital adequacy ratios, liquidity ratios, etc. are derived. A full financial analysis of the performance of the bank is carried out on a quarterly basis and an overall performance report on all financial institutions produced annually. Banks are required under Section 22 of the Banking Act to appoint, annually, an independent auditor acceptable to the central bank, and to make available to the central bank financial statements within three months of the banks’ financial year-end.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

There are several measures that the Bank of Botswana uses to ensure that deficiencies noted with regard to prudential banking supervision are corrected. Through examination report findings, banks would normally be required to take corrective actions regarding deficiencies noted, such as: - maintaining provisions at the recommended levels; - directive to suspend interest on non-performing advances; - improvement of internal controls and other risk management systems; - injection of further capital; and - withholding of dividend payments.

The Bank of Botswana has powers to impose penalties or even remove management where there is reasonable cause to do so. A bank may be fined for failure to submit returns or for supplying incorrect information as laid down under Section 20(3) of the Banking Act. Specific penalties for offences by principal officers and directors of a bank are laid down under Sections 26 and 32 of the Banking Act, respectively. Further general penalties for any person who contravenes or fails to comply with the provisions of the Banking Act are laid down under Section 52 of the Act.

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As a more serious action, the Bank may assume temporary management of any institution where: - its unimpaired capital does not meet the requirements of Section 13 of the Act; - its business is being conducted in an unlawful or imprudent manner, or it is otherwise in an unsound financial condition; - the continuation of its activities is not in the best interest of its depositors; - it has refused or refuses to permit an on-site examination; or - it has been served with a notice of intention to revoke its licence, pursuant to Section 11 of the Banking Act.

As a final action, and in terms of Section 35 of the Act, a financial institution in distress may be wound up or placed under judicial management. The Central Bank may revoke a banking licence if a bank or its senior management, affiliate or parent bank has been convicted of an offence involving money laundering.

Revocation of licences: The Central Bank may revoke a banking licence if the bank concerned: - does not engage in the business authorised by the licence within twelve months from the granting of the licence; - is found to have ceased banking business; - goes into liquidation or is wound up or otherwise dissolved; - is found to be carrying on banking business in a manner that may be detrimental to depositors or the public at large; - is found to have insufficient assets to cover its liabilities to depositors or the public; - has been convicted of an offence related to the use or laundering of illegal proceeds, or is an affiliate or subsidiary or parent of a bank so convicted; - has supplied false or misleading information in its application for a banking licence; and - has contravened any provisions of the Banking Act.

9.2 Non-banking institutions

9.2.1 Responsibility for supervision of non-banking financial institutions

The supervision of non-banking financial institutions such as building societies, savings banks and other financial parastatals is, primarily, the responsibility of the Ministry of Finance and Development Planning and to a limited extent, the Central Bank. The authorisation of such institutions lies with the Ministry of Finance and Development Planning. Such institutions are constituted under separate Acts of Parliament. However, the Bank of Botswana is empowered by the Banking Act to conduct examinations on the financial condition of such institutions where they

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accept deposits from the public. The Bank of Botswana's supervision over these institutions is that of examination powers only.

From time to time the Bank of Botswana carries out on-site inspections of such institutions and advises the Ministry on the findings of the examinations.

The current thinking is that the central bank should have full supervisory powers over all deposit taking financial institutions while the Ministry of Finance and Development Planning focuses its attention on other institutions falling under the envisaged Capital Market Authority.

9.2.2 Categories of financial institutions and their licensing procedures

Botswana has a relatively small financial system comprising the Central Bank (Bank of Botswana), six commercial banks, one merchant/investment bank and several development finance institutions. The country also has a number of non- bank financial intermediaries, such as insurance companies, pension funds asset management companies, collective investment undertakings, bureaux de change, a micro-finance institution and three stockbroking companies.

The Ministry of Finance and Development Planning is responsible for licensing some of these non-bank institutions, e.g., insurance companies, pension funds and stock broking companies.

9.2.3 Information as requested under 9.1 which is applicable to non-banking institutions

Non-banking financial institutions are currently not required to adhere to the prudential requirements stipulated under the Banking Act. However, the Bank of Botswana advises these institutions to abide by certain prudential requirements under the Banking Act on capital adequacy, provision for bad debts, large credit exposures and liquidity measurements. As they are formed under different statutes, the regulations governing these institutions’ activities are separate from those governing licensed institutions. In future, all deposit taking institutions will be expected to adhere to prudential requirements.

10. National payments, clearing and settlement system

10.1 The payments, clearing and settlement systems infrastructure

Robust and timely National Payments Systems are a vital element of the overall economic and financial infrastructure. Their efficient functioning, which allows financial transactions and transfers to be completed safely and on time, is a key contribution to overall economic performance.

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The Government is working in conjunction with the Bank of Botswana to accelerate the process of reforming and modernising the country’s national payments system. Their objective is to provide to provide more efficient, secure and timely payment systems and practices that will facilitate safe and sound payments transmission process whilst also reducing the risks in the delivery of value to transacting parties. To this end, the Bank implemented a Code-line clearing system in 2002 to facilitate the exchange of Cheques and Electronic Funds Transfer (EFTs) by the clearing financial institutions. This Electronic Clearing House is owned and managed by the Bankers Association of Botswana. Subsequently in 2006, the Bank implementated the Real Time Gross Settlement (RTGS) system, as part of the overall objectives of the total National Payments System. The RTGS aims to reduce and control systemic disturbances and risk by handling time-critical high value payments. The introduction of the RTGS system has provided interfaces with the Electronic Clearing House (ECH) and the Bank’s core banking system (Globus). The systems runs on a SWIFT platform and has the flexibility for connectivity to other future electronic payment streams and future cross border activities.

There are two clearing sessions each weekday, one in the morning at 10:00 hours and the other one in the afternoon at 16:00 hours, and none on Saturdays. These clearing sessions are meant for the clearing banks to exchange Electronic Journal (EJ) files through the Electronic Clearing House (ECH). The Settlement process in Botswana is a centralised operation at the Bank of Botswana, with the commercial banks maintaining settlement accounts with the Bank of Botswana.

The Bank worked progressively on the implementation of the National Clearance and Settlements Systems (NCSS) Act and regulations following the announcement of the commencement date of March 1, 2005. To-date, the Bank has issued a certificate of recognition to the Electronic Clearing House (Botswana) on August 31, 2005, effectively transferring the Electronic Clearing House (ECH) out of the Bank to the newly registered company under the auspices of Banker’s Association of Botswana (BAB). Operations at the new ECH site commenced on September 1, 2005, and clearing has now stabilised.

10.2 The role of the central bank in the payment systems

The role played by the Bank of Botswana in the payment system is central. The Bank of Botswana does not accept deposits from individuals or non-financial business corporations or compete with institutions in the lending field. The Bank of Botswana does, however, interact the payment system in at least two different ways viz: - it facilitates and effects the final settlement of balances for the national clearing and settlement system and, - it acts as banker to Government, which is the largest payer in the country.

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Furthermore the Bank oversees the management and operation of payments system. This entails recognition and licensing as well as investigations of compliance to the BIS core principles for systematically important payment system (SIPS).

10.3 Short description of the processing of payment instructions

Processing of payment instructions is divided into three parts as follows:

a) “On-us” Cheques These are cheques presented over branch counters of banks on which they are drawn. “On-us” cheques do not go through the clearing system, but are processed directly into accounts on which they are drawn.

b) “Off-us” Cheques These are cheques which are presented over counters of collecting banks, where they are not drawn, either being encashed or deposited. The collecting banks process these cheques and create Electronic Journal files (EJs) and Settlement files which they exchange with the drawee/paying banks through the ECH. The ECH forwards the EJs to the Processing Centres of the drawee/paying banks, where the data gets matched with physical cheques exchanged at the Clearing House. Discrepancy files are generated for any unmatching items and they get sent back to collecting banks through the ECH. Unpaid cheques are also returned to collecting banks, with clear statements of the reason for return, by not later than the third day after deposit. Cheques for which funds are available get processed by the paying banks, thereby debiting the accounts.

c) Credit transfers These are pre-fated credit push payments. The credit transfers are processed electronically via an Electronic Funds Transfer (EFT) system, which became fully operational in October 2002. This new element of the payment system has made it possible for the Government and other commercial bank customers to post payments directly to suppliers’ accounts and to post salaries into their employees’ accounts. The EFT module is used to handle credit transfers through the clearing system.

Other issues related to payment instructions

a) Re-presentment of Cheques In support of the reform and the modernisation of the domestic National Payment System Project, the banking industry has agreed that the presentment of cheques will be restricted to a single instance. Should a cheque be returned to a depositor as dishonoured, it shall be the responsibility of the depositor to seek redress from the issuer of the cheque. The practice of restricting the re-presentment of cheques to a single instant was put into effect

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July 1, 2000. The introduction of the NCSS Act has brought with it criminalisation of bouncing cheques. Issuing of cheques against insufficient funds is a criminal act.

b) Special Clearance Cheques There are special presentations, whereby the collecting bank sends a cheque deposited at their counters to the paying bank requesting for special clearance. The drawee bank issues a bank cheque to the presenting bank. The bank cheque is an acknowledgement by the drawee bank that the cheque has been honoured and funds can be made available to the customer. It should be noted that special clearances are not processed through the clearing system.

c) Clearing Cycle Presently the Clearing House Rules provide that local cheques take 4 days to clear, i.e., to know that value has or has not been received. For high value cheques, notice of dishonour must be given to the depositing bank by no later than the third day.

11. Currency in use

11.1 List of legal tender notes and coins currently issued and in use in the economy

Currency: -Pula (P) (100 thebe (t) are equal to one pula) Notes: - P100, P50, P20, P10 Coins: - P5, P2, P1, 50t, 25t, 10t, 5t

The one thebe and two thebe coins have been demonetised and, therefore, no longer accepted as legal tender. The P1, P2 and P5 banknotes are no longer issued, and are in the process of being demonetised.

12. Other activities of the central bank not covered above

The Bank of Botswana is responsible for the management of Botswana’s foreign exchange reserves. The international reserves amounted to P48 billion (US$8 billion) at the end of 2006. The reserves are invested in a diversified portfolio, part of which are managed in-house and part by external managers.

13. The position of the central bank in SADC

13.1 Special relationships with other central banks in SADC (CMA excluded)

The Bank does not have any special formal relationships with any other central banks in SADC. Many informal links exist for sharing information and experience

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on an ad hoc basis. For example, the Bank has sent senior staff to the central banks of neighbouring countries to learn from their experience with exchange control liberalisation. Similarly, staff from regional banks have visited the Bank of Botswana for short-term attachments to learn about the bank's approaches and policies.

14. Publications

14.1 Regular Publications

The Bank publishes an Annual Report, which incorporates the Economic Review (around May each year), Monetary Policy Statement (around February each year) and its mid-year review (July/August), as well as a Research Bulletin (targeted for twice a year) and the Botswana Financial Statistics (monthly). Effective 1999, the Bank of Botswana also started publishing a Banking Supervision Annual Report.

14.2 Occasional/special publications published since 1990

Since 1990, the Bank has published four special Research Bulletins, the first in December 1994 based on Capital Market Development and Economic Diversification in Botswana, the second, published in September 1996, was to commemorate the twentieth anniversary of the Pula, Botswana’s currency, while the third, published in February 1998, was on Inflation in Southern Africa, based on papers presented at an inflation seminar held in Gaborone. The Bank held a seminar on Savings and Investment in Botswana in November 1998 and later in December 1999 published another special bulletin based on that seminar.

A book, entitled, Aspects of the Botswana Economy: Selected Papers was also published in 1997, and reprinted in 2002.

Botswana

Banque Centrale du Congo

Banque Centrale du Congo BP 2697 Boulevard Colonel Tshiatshi Kinshasa I Rep Dem de Congo Fax: +243 8844889 Tel: +243 1220690

1. Background

Banque Centrale du Congo was established on the 30th July 1951 under the name”Banque Centrale du Congo Belge et du Rwanda-Urundi”. However, it should be pointed out that already on the 11th January 1909, the first private commercial bank was created and as a subsidiary of the Société Générale, under the name of Banque du Congo Belge. The Bank was tasked with organizing the fiduciary circulation in the colony, and on 7 July 1911 it received the privilege of issuing notes in the colony for a renewable period of 15 years.

During its existence, Banque Centrale du Congo has undergone various changes, including the following:

- On the 3rd October 1960, the Congolese Government created the Monetary Council on the suggestion of the IMF, which was charged among other tasks with issuing the national currency, preparing the structure of the future Central Bank of Congo as well as organizing the liquidation of the ”Banque Centrale du Congo Belge et du Rwanda Urundi”, which occurred with the convention that was signed with Belgium on the 15th November 1960 in New York; - On the 22nd June 1967, when the Zaire was created as a currency, the statutes of the Bank had their first modification; and - In July 1979, through the stabilization programme that was concluded between the DRC and the IMF, the Central Bank underwent a few adjustments as far as its management was concerned, which consisted - among others- in guaranteeing the Bank’s autonomy vis-à-vis the Government; - In 1993, the statutes of the ‘Banque du Zaire’ were modified, changes were made with regard to the Board of Directors and the relationship between the Bank and the Government was made clear; - In 1997, with the arrival of the AFDL regime, a monetary reform was planned and implemented with a set of measures towards the deregulation of the exchange rate, as part of the introduction of a floating Congolese franc; and - In 2002, the statutes of the Bank were reviewed and two important innovations were made: the independence of the Bank in its

Democratic Republic of the Congo 38

implementation of the monetary policy and the ruling out of loans to the Treasury by the Bank of issue.

2. Relationship with the government

According to the applicable law No 005/2002 of the 7th May 2002 on the constitution, the organization and the functioning of Banque Centrale du Congo (acronym BCC), the Bank is an institution which is governed by public law with a legal status. The BCC is invested with a mandate to define and implement the monetary policy of the country, the policy’s objective being to insure the general stability of prices.

In terms of the above-mentioned law, the Board of Directors, the Governor and the College of auditors make up the organs of the BCC.

- The Board of Directors comprises seven members, including the Governor and the Deputy Governor, as well as five experts who bear the title of Directors. This Board is chaired by the Governor; - The Governor and the Deputy Governor are appointed by the President of the Republic to hold office for terms of five and four years respectively, renewable once; and - The five directors, including the Director of the Treasury, are also appointed by the President of the Republic for a 3 year-term renewable once.

With regard to certain issues, like the determination of the interest rate, Banque Centrale du Congo exercises ifs full independence. But for other issues, such as issuing and adjusting the facial values of the currency, a prior agreement by the Government is always required.

In terms of the statutes of 1961, the Central Bank was legally allowed to grant direct loans to the Government, provided that the amount of the loan would not at any time exceed a certain limit. This limit was fixed at 20per cent of the average annual revenue of the Government, calculated on the basis of the last three years for which data was available. This limit was reduced to 15per cent as from 1967.

The law No 005/2002 of 7 May 2002 brought about an end to this, by strictly banning advances or any other form of loan by Central Bank of Congo to the State, its administrative branches and government-owned organisations or enterprises.

The legal documents that deal with the organization of Central Bank of Congo have established clear mechanisms to preserve its independence. This independence is further strengthened by article 176 of the Constitution.

Central Bank of Congo plays the role, among others, of cashier for the State and of manager of the Republic’s official reserves.

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3. Determination and implementation of the monetary policy

During the financial year 2008, the monetary policy in terms of credit by the Bank was marked by pursued efforts to maintain the liquidity of the economy at levels that are compatible with the stability of internal prices. The effectiveness and efficiency of monetary policy also depends on the degree of coherence and coordination with fiscal policy, the BCC has reformed the CPM in January 2010 to facilitate the exchange of information with those responsible for fiscal policy by integrating, in the Monetary Policy Committee, executives and experts from outside the Bank, including the Presidency of the Republic.

In general, decisions of the Monetary Policy Committee are taken on a consensual basis. Without a consensus on an issue, use is made of the vote. However, to preserve the independence of the Central Bank in monetary policy, only members of the Committee from the Central Bank have the right to vote.

In addition, the Bank has worked effectively to the development of other frameworks for dialogue on macroeconomic policy such as the Troika, the Troika and the technical CISPI. This action has strengthened the collaboration between the Bank and other institutions of the Republic. It has also improved the flow of information and resulted in monetary policy decisions and changes with effective results.

3.1 Main objectives of the monetary policy

The ultimate objective of the monetary policy in the DRC remains the control of inflation, so as to facilitate the stability of the internal and external value of the currency. The pursuit of this objective addresses the need of paving the way of a sustainable and cumulative economic growth, allowing for a reconciliation of the other concerns of the economic policy, namely the search for full employment and external balance. This monetary policy, in conjunction with other policies –namely the budgetary policy- remains essentially restrictive since the start of the DRC’s programme with the Bretton Woods Institutions and aims at a contraction of the total demand in order to adapt it to the level of the supply, with a view to preserve the macroeconomic framework.

3.2 Reform of the analytical framework of the Monetary Policy

The analytical framework has been significantly improved, the effect of reinforcing the contours of the decision making of monetary policy. The current monetary analyzes were supplemented by forecasts of autonomous factors of liquidity for a better framing of market intervention and monetary exchange. This component also includes the analysis of institutional factors of bank liquidity.

Furthermore, economic analyzes and market have been systematized and extended

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to a range of indicators including industrial production index, a barometer of the economy and the international context.

The search for transparency of monetary policy

Transparency was an important part of the reforms undertaken by the BCC. Two lines of action were followed:

The first axis is to communicate the financial position of the Bank. The financial statements of the Central Bank, since 2002 audited and certified by audit firms of international repute, are published in the media and the website of the BCC. This action reflects the interests of transparency that the bank authorities wanted to give the owner against the State and the public.

The second part deals with the monetary policy. Indeed, the BCC had adopted as a strategy and prior public announcement of the objectives and directions of monetary policy. The disclosure and transparency of monetary and exchange are strategic, firstly, to establish public understanding and better focus its expectations of inflation or exchange rate and, secondly , to strengthen the credibility of the term at BCC As she reached the macroeconomic targets it has set.

In this context, the central bank has improved the transparency of its monetary policy and exchange by strengthening communication channels with the public.

To do this, the BCC held once a month, a press conference after each meeting of the Monetary Policy Committee to take stock of the objectives of monetary policy and exchange rate risks that could affect the achievement of objectives and future directions. On this occasion, a press release is published.

I. Results

The objectives of monetary policy

Inflation rate

The inflation rate fell significantly between 2001 and 2011. As a reminder, the annual average inflation rate between 2002 and 2010 was 19% against 1972.9% between 1990 and 2009, excluding 2001.En described as atypical because of the international financial crisis, the average inflation would fall to 14.5%.

Although these results are already significant, inflation remains relatively high. Indeed, monetary policy has the objective of single digit inflation.

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3.3 Instruments of the monetary policy

In accordance with the objective of price stability, the Bank of issue has determined the framework through which the monetary policy should be implemented and has used the two indirect instruments to deal with credit, namely the interest rate used for refinance operations and ”Treasury bills” operations, as well as the coefficient for the reserve requirement.

3.2.1 The interest rate

With regard to the debtor interest rate pertaining to the refinance operations that are used to bring about liquidities, the objective pursued by the Bank is to maintain a positive real interest rate. Also with regard to the change of the inflation rate, the Bank of issue makes regular adjustments of its official market rate in order to keep it positive in real terms.

Conversely, Banque Centrale du Congo uses its depositor rate of interest on the BTR security that it issues with a view to extract the liquidities that it deems superfluous in the economy.

3.2.2 The coefficient for the reserve requirement

The reserve requirement system consists in ‘sterilizing’ part of the assets that are kept into unavailable, non remunerated accounts. In accordance with specified provisions, the base and the coefficients of reserves vary as a function of the requirements of the monetary policy. This base consists of deposits, both in national and foreign currency, which are collected by lending institutions. As from 7 January 2008, the coefficient for the reserve requirement has been fixed at 5 per cent.

3.2.3 Tightening of eligibility requirements for securities to be admitted as collaterals

Previously, the refinancing mechanism provided for the establishment of a ceiling for the refinancing, depending on an evaluation done on the financing capacity per bank. This mechanism allowed the banks to do a ‘blank refinance’ for themselves, i.e. without any prior collateral security being arranged with regard to the trade bills. The tightening of the eligibility requirements for securities admitted as collaterals for refinancing operations came about in January 2006, through the establishment of a rational and effective system of control and evaluation of the quality of the credits distributed by the banks.

To this effect, accredited lending institutions are required to provide in advance Banque Centrale du Congo’s Directorate of Credit and Financial markets with the files of the economic agents who benefit from banks’ contributions, and for which commercial papers may be presented as collaterals for refinancing operations at the Central Bank.

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Based on these financial statements of credit beneficiaries, Banque Centrale du Congo may carry out an analysis of the risks for credit institutions and establish a list of economic actors whose commercial papers are eligible for refinancing purposes.

Finally, it should be pointed out that in the process of evaluating the eligible bills for the purpose of refinancing, other factors such as industrial interdicts, possible defaults of payment that might have occurred in the last three years, as well as signatures of economic agents who are under a bank or judiciary interdict are also considered.

3.3 Reforms to be undertaken

They pass through:

3.3.1 Establishment of an open market desk

For widening operations of liquidity, the central bank should establish an open market desk. However, the functioning of this market requires financial deepening and diversification of the securities the issuance of securities. The proper functioning of government securities should stimulate private securities and strengthen the functioning of this market. Under these conditions, the Central Bank may, at the beginning of its operations, as guarantor of government securities to ensure the credibility and quality of signature.

The procedure will allow the auction rate determination by the market. In practical terms, it is easy to implement because the steps are similar to those tenders of BTR.

In addition, BTR was a kind of prelude to the introduction of open market mechanism.

3.3.2 Establishment of a one-stop pension

The Central Bank should consider putting in place directly or indirectly (by banks) a counter board (repo to refinance and repurchase agreements for the collection of deposits).

The rate will be determined administratively as to refinance existing. The difference from the open market is the final transfer of ownership to the latter while for the pension, transfer of ownership is temporary (until maturity). This is different than it does now at the counters of refinancing where there is no transfer of ownership.

3.3.3 Implementation of fine-tuning operations of liquidity (BTR)

It is important that the operational framework provides specific operations intervention (fine-tuning operations in liquidity) or inject or to puncture the liquidity in order to

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correct significant variances after a regular operation. In principle, the fine-tuning operations are not a specific timetable. They are also regular operations. They are sporadic over the year and are only used in extreme emergencies.

3.3.4 Fungibility of accounts available and unavailable bank

Following the recommendation of the Monetary Policy Committee at its regular meeting on November 8, 2011, the Central Bank of Congo intends to merge the accounts of banks available and unavailable.

4. Structure of the financial market

4.1 Organization of the money and capital markets

In the DRC, the effort of distributing securities to the public exists since 1972, through the banking law of 14th January 1972 regarding the protection of savings and the supervision of financial intermediaries. This was indeed an innovation brought about by the banking law, as it provided the legislator with the means to regulate the profession of financial intermediaries in a general sense, i.e. the banking institutions as well as other financial intermediaries. Moreover, in a search for complete protection of savings, the banking law invested the Bank of Issue with the mandate to organize and supervise these markets by requiring prior notice to the Central Bank of any public offering project and by defining the Central Bank’s course of action in this regard.

On the other hand, the law N° 005/2002 of the 7th May 2002 on the constitution, the organization and the functioning of the BCC also points to this concern in its article 6, by giving the Bank of issue the mandate to promote the development of money and capital markets.

The structure of these markets in the DRC seems to be in practice limited to the level of money and exchange markets, which remain under developed. However, we should be point out the private placement of immovables (shares and bonds) during the creation of limited liability companies –which include banks- as well as the growth of their share capital.

4.4.1 The money market

This market comprises two main components: the banker’s market and the interbank market.

4.4.1.1 The Banker’s market

The banker’s market consists of two refinancing branches for banks authorized by the Central Bank, namely the short-term loan branch and the permanent facility branch.

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a) The short-term loan branch

This branch deals with operations of temporary transfer of Congolese francs by the Central Bank to authorized banks, with a maximum maturity of 7 days. The interest collected here is deducted at source.

It should be noted that the interest rate applicable to the short-term loan operations is the official market rate of Banque Centrale du Congo. This rate is kept flexible and variable according to the fluctuation of the inflation rate, in order to keep it positive.

b) The permanent facility branch

The permanent facility branch allows the authorized banks to unwind their operations smoothly in a clearing house, namely in the event of any short position that may remain on their accounts in the BCC’s books at the end of the day, subject to an appropriate collateral security being arranged.

With this branch, banks may borrow for a maximum duration of 24 hours and the interests are collected in arrears.

Apart from these two refinancing branches, Banque Centrale du Congo uses an instrument to regulate the money supply called ”Commercial paper”.

c) The Commercial papers

In the course of implementing its monetary policy, Banque Centrale du Congo issues a product called ”Commercial paper” since December 2002 for banks, economic agents of various sizes, physical or juristic persons, whether they are national or foreign, and whether they hold a bank account or not.

As a monetary policy instrument, the commercial paper has somehow helped to resolve the tricky issue of the depletion of banks’ assets, while easing at the same time the pressure exerted by the demand of cash in a significant way.

However, it should be mentioned that as from the 1st April 2008, the issue of commercial papers is done through an invitation for tenders.

The tendering system that was adopted is the one with variable rates; the bids are remunerated at the proposed interest rates, but a cap interest rate is used in order to cut the financial charges pertaining to the use of this instrument.

From now on the BTR securities are dematerialized and managed in security accounts by the Central Bank as the central custodian of securities. On the other hand, these securities are negotiable (transferable) on the secondary market, on which the Central Bank can also operate as a purchaser.

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5. Supervision of financial institutions

In the DRC, Banque Centrale du Congo serves –among other roles- as the regulatory authority of the financial system, in accordance with the law No 005/2002 of the 7th May 2002 regarding the Bank’s constitution, organization and functioning.

To this effect, the Bank enacts special regulations pertaining to the creation of banks and the exercise of the business of banking. Some of these regulations address issues such as the requirements for entering the profession or the accreditation conditions for the banks.

Thus in accordance with the law No 003/2002 of the 2nd February 2002 on the activity and the supervision of lending institutions, called ”Banking Law”, the exercise of the business of banking is reserved for the lending institutions which are constituted as juristic persons and must obtain prior accreditation from Banque Centrale du Congo.

This Law subordinates the accreditation to the following legal and economic conditions:

a) Legal conditions:

- the bank must be a juristic person with the legal form of a limited company; - the shareholders and proposed leaders must not be under the interdicts provided for in article 15 of the said law; - the juristic persons who are shareholders must submit the minutes certifying that their governing bodies have mandated them to participate in the capital; - the project must prove a general or local economic interest ; - The bank must have a legal paid up capital, which has been currently set by Banque Centrale du Congo at USD 5,000,000.

b) Economic conditions

- to present a business plan or a feasibility study over at least three years, reflecting the development plan and the compliance with the management standards; - to guarantee the security of the clientele by making sure that the technical and financial resources deployed by the bank fit its programme of activity; - to make sure that the enterprise has leaders with the necessary good character and adequate experience in relation with their duties; - to evaluate the aptitude of the future banking institution to achieve its development objectives under conditions that are compatible with a good operation of the banking system; - When a lending institution which is accredited in a foreign country wishes to set up a subsidiary in the DRC, the Central Bank consults the supervision authorities from its country of origin in order to ensure its financial credibility in

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supporting its subsidiary and the good character of its leaders, especially in relation with money laundering and organized crime.

Once it has been accredited, the banking institution must observe certain regulations in the exercise of its business. In addition to the conditions relating to the operations, the accounting and the prudential standards which are set out in the various instructions enacted by the Central Bank, other regulations pertaining to the organization of the institution itself, or of the entire profession, are specified and must be complied with.

In this regard, the applications for accreditation are placed under a great deal of scrutiny, especially with regard to the quality of capital contributors and of the leaders, the resources deployed and the internal control systems.

The financial system comprises 18 banks of deposit, out of which 17 are private capital banks and 1 is a mixed capital bank.

6. National payment system

In the DRC, the status of the Payment System shows several deficiencies that have to do with the low level of bancarization of the economy, the significance of the informal and rural economy coupled with the predominance of the fiduciary money, with the poor performance of manual compensation and of the telecommunication systems, as well as with the existence of an inappropriate legal framework.

In order to address these deficiencies and on the initiative of Banque Centrale du Congo, the Government –through the Decree No 04/083 of the 27th September 2004- set up the National Committee of Payment and Settlement, which it gave the mandate to supervise the implementation of the Upgrading project of the National Payment System, whose main mission is to develop the strategic vision of revamping the National Payment System.

This National Payment System has a legal basis which is made up of various legal documents. These documents essentially address the status of the various actors of the payment system, the system of law of the various instruments of payment, the mechanisms of exchange and settlement of securities among payment service providers, as well as the possibility of settlement for certain aspects of the payment system through conventions.

In addition to Banque Centrale du Congo, the main financial institutions concerned by the National Payment System in the DRC are the lending institutions, the financial messaging institutions, the bureaux de change, one insurance company, one social security organization, as well as postal money order and cheques services.

Banque Centrale du Congo is currently in the process of upgrading its payment system with the assistance of the firm ERNST AND YOUNG which has been selected.

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It should be noted that the monetary unit, the Congolese franc, is divided in 100 cents and is made up of the following denominations that are legal tender in the DRC: 500 FC, 200 FC, 100 FC, 50 FC, 20 FC, 10 FC, 5 FC, 1 FC, 50 C, 20 C, 10 C, 5 C, 1 C.

However, the strong depreciation of the currency that occurred in the last few years has caused a de facto calling in of the notes denominated in cents.

Democratic Republic of the Congo

Central Bank of Lesotho

Central Bank of Lesotho PO Box 1184 Maseru 100, Lesotho Fax: + 266 22 310051/310557 Tel: + 266 22 314281/324281 e-mail: [email protected]

1. History

The Central Bank of Lesotho commenced its operations in January 1980 as the Lesotho Monetary Authority. The status of the authority was elevated to that of a central bank in 1982, with the main functions of promoting internal and external monetary stability and maintaining a sound monetary and financial system in Lesotho in order to provide the financial conditions for balanced and sustained economic growth. In August 2000, the principal law of the Central Bank of Lesotho was revised to provide the primary and sole objective of the Central Bank of Lesotho as being to achieve and maintain price stability.

2. Relationship with government

2.1 Institutional arrangements

The paid up capital of the Central Bank of Lesotho is subscribed and held exclusively by the Government of the Kingdom of Lesotho. However, the Central Bank of Lesotho has its own budget for purposes of its operations.

The Governor of the Central Bank of Lesotho and the two Deputy Governors, are all appointed by the King on the advice of the Prime Minister for a term not exceeding five years and may be eligible for re-appointment.

The Central Bank of Lesotho has eight Members in its Board of Directors, with the Governor (who is the Chairman of the Board) and Deputy Governors being executive Directors. Non-Executive Directors, on the other hand, are appointed by the Minister of Finance and hold office for a period not exceeding three years and may be eligible for re-appointment.

2.2 Operational framework

Bank as banker to government. In pursuit of its banking activities to government, the Central Bank of Lesotho, shall amongst others:

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- deal with/transact in valuable objects of, and on behalf of, government; - extend credit to government within stipulated terms and conditions; and - serve as fiscal agent for the government within the ambits of its principal law.

Bank as financial advisor to government. The Central Bank of Lesotho’s duties include, though not limited to, advising government on: - financial institutions whose services the government may utilise; - activities of the Central Bank of Lesotho and any matter likely to affect the achievement of the objective of the Central Bank of Lesotho; - economic developments; movement of money supply; price levels, productivity, employment and real income levels/movements; - when contracting external debt, the government has to consult the Central Bank of Lesotho on the terms and conditions of such debt.

Relationship with government on foreign exchange and exchange rate issues. The Central Bank of Lesotho formulates and executes exchange rate policies on the one hand and, on the other, the government determines the foreign exchange regime of Lesotho.

3. Design and conduct of monetary policy

3.1 Main objectives of monetary policy

Monetary policy is aimed at: - Promoting and maintaining internal and external monetary stability and the proper functioning of a soundly based monetary and financial system in Lesotho. - Achieving and maintaining an adequate level of foreign currency reserves in order to support the peg of the loti to the rand. - The fostering of monetary, credit and financial conditions conducive to the orderly balanced and sustained economic development of Lesotho. - Enabling and channelling of financial resources into productive investments. - Developing money and capital markets. - Mobilising domestic savings. - Maintaining an appropriate interest rate structure. - Facilitating economic activity in Lesotho and at the same time avoiding the adverse effects of inflation and a deteriorating external balance.

3.2 Instruments of monetary policy

The Central Bank of Lesotho makes use of the following instruments of monetary policy: - Moral suasion - Repurchase operations

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- Open market operations - Reserve requirements - Lombard rate

3.3 Types of refinancing as well as collateral used

The credit to the Government of Lesotho (GOL) should be within stipulated credit ceilings and no collateral is needed. The Central Bank of Lesotho extends credit to commercial banks through the Lombard Credit Facility. The facility requires collateral in the form of GOL monetary policy Treasury bills.

3.4 Reserve Money plays the main role in the conduct of monetary policy

Reserve money plays the main role in the conduct of monetary policy. A target is set on reserve money and any deviation of actual reserve money from the target represents excess or shortage of liquidity. Monetary policy treasury bills are issued on a bi-monthly basis based on liquidity conditions in the economy and maturing domestic debt. This aggregate is compiled from daily central bank balance sheet..

3.5 Reserve requirements on financial institutions

In terms of the Financial Institution Act of 1999, financial institutions are required to maintain certain reserves against their deposit liabilities on the basis prescribed by the Central Bank. These requirements are the following:

a. Minimum local asset requirements: Financial institutions in Lesotho are required to maintain 5 per cent of their deposits and balances due to banks in Lesotho, other borrowing, paid up capital and Reserves, locally.

b. Liquidity requirements: Financial institutions are required to maintain 25 per cent share of their deposit portfolio, balances due to banks abroad, other liabilities for borrowed money (excluding Central Bank and Government borrowings) in liquid form according to the following profile: - The total currency held, surplus funds at the Central Bank, deposits with local banks and GOL securities.

c. Capital requirements: A minimum of not less than M10,000,000 or 8 per cent of risk weighted assets computed in line with the methodology adopted by the Basle Committee on Banking Supervision.

d. Cash reserves: Financial institutions are required to maintain cash reserves amounting to 3 per cent of their deposit liabilities, balances due to banks abroad and other liabilities for borrowed money (excluding Central Bank and Government of Lesotho borrowings).

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4. Structure of the financial markets

4.1 Organisation of the money and capital markets

Lesotho’s money market is at a developing stage. The market still needs to develop further with the introduction of more and better financial products. The Treasury bills market though dating as far back as 1992, saw major improvements in September 2008 with the introduction of two more tenors, the 273 and the 364 day bills, the increased frequency of auctions to bi-monthly for all four tenors, and settlement on a T+0 basis. The secondary market is however dormant.

Capital market: The capital market is not yet active. The Bank and the Government are in the process of introducing Treasury bonds. Necessary legislation is in place and technical and high level committees are commissioned. The Bank has procured a Central Securities Depository (CSD) system which will be used for dematerialising both T-bills and T-bonds. The system will be used for equities as well at a later stage when the market has developed. The CSD has an auctioning module that will be used to auction Treasury securities.

It is expected that the introduction of T-bonds will be in September 2010. The initial offers will be in 3 and 5 year tenors. Other long dated maturities will be issued at a later stage.

4.2 Instruments used in both these markets

Instruments used in the money market include various deposits, Treasury bills and the Central Bank paper. Provision has been done to issue the Central Bank paper as and when there is need.

In the capital market, the 3 and 5 year bonds will be issued in September 2010. Preparations to establish a stock market will begin following the issuance of T- bonds.

4.3 Existing legal frameworks for the money and capital markets

The money and capital market instruments with specific reference to Treasury securities are issued under the Local Loans Act 2001, and Local Loans Securities Trading Regulations of 2009.

4.4 Type of financial intermediaries operating in these markets

The following eight financial intermediaries are operating in the Lesotho money market: - Central Bank of Lesotho - Standard Lesotho Bank - Nedbank

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- First National Bank - Lesotho Post Bank - Money lenders - Unit trusts (Collective Investment Schemes) - Insurance companies

5. External payment arrangements

5.1 Determination of the exchange rate policy

The Central Bank of Lesotho is responsible for determining the exchange rate policy (note: the country is a member of the CMA).

5.2 The present exchange rate system

Lesotho’s currency is pegged at par (fixed) to the South African Rand.

5.3 Organising the foreign exchange market

The commercial banks pay and receive foreign currency on request, subject to exchange control regulations. These regulations are set by the Central Bank of Lesotho.

5.4 The central bank's involvement in managing foreign exchange reserves

The Central Bank of Lesotho is responsible for managing foreign exchange reserves.

6. Currency convertibility and exchange control

6.1 Current state of currency convertibility

Lesotho's currency, the loti is fixed at par to the South African rand which is convertible regionally and internationally.

6.2 Exchange control restrictions on the current account

Lesotho acceded to Article VIII status under the IMF Articles of Agreement. Therefore, there are no controls on current account transactions.

6.3 Restrictions on capital account

Limited reforms on the capital account transactions came into effect on 27 June 2003.

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In terms of this liberalisation, priority has been focused in the following areas: - Foreign investment by private individuals (natural persons) outside the Common Monetary Area (CMA) up to M250, 000. This is a once off investment, until the limit is revised. Individuals must be above the age of 18 years, and be taxpayers in good standing. - Opening of foreign currency and offshore accounts for private individuals who are taxpayers in good standing and are above the age of 18. The limit to be applied is M250, 000. - Direct investment by corporates/companies to countries outside the CMA is allowed up to M50 million within the SADC region and up to M30 million elsewhere. - Companies are being allowed to open bank administered foreign currency accounts (commonly referred to as CFC accounts) for the credit of export proceeds and for payment of imports. - Restrictions have been lifted on long-term capital inflows.

6.4 Retention rules for foreign exchange earned or owned by residents

Residents are required by law to declare any foreign exchange earnings within thirty days.

7. The Central Bank and external debt

7.1 The role of the central bank in managing the country's external debt

The Central Bank of Lesotho's responsibility for debt management is to provide information on macroeconomic developments and to assess the impact and/or the sustainability of the government's borrowing strategy against the observed macroeconomic setting.

The Central Bank also has to manage the external official reserves in such a manner that the government's debt obligations can be met as and when required and in the currencies in which they are denominated.

7.2 The role of Treasury in this respect

The Treasury advises the Central Bank when payment is due and the Central Bank processes the payment.

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8. Supervision of financial institutions

8.1 Banking institutions

8.1.1 Authority responsible for banking supervision

The Central Bank of Lesotho.

8.1.2 Licensing procedures for establishing a new bank

In summary, the registration procedures require an application in writing as well as the submission of the following documents: - authenticated copies of its memorandum and articles of association or such similar documents if the new bank is foreign; - a statement with the address of its head office, etc.; - full particulars of the business it proposes to carry on; - the location of the principal and other places of business in Lesotho; and - other information as the Commissioner may require; - a statement from supervisory authorities of the home country if the new bank is foreign; - a copy of audited financial statements for the last two years and that of its head office or parent company, where applicable. - financial projections (balance sheets, income statements and and cash flow statements) for at leas a three year period. - certified true copy of the board resolution of the head office or parent company authorising the establishment of a branch or subsidiary.

8.1.3 Types of licences that exist

Licences are limited to banking business only.

8.1.4 Minimum capital requirements for the different types of banks

A minimum of not less than M10,000,000 or 8 per cent of total risk weighted assets computed in line with the methodology adopted by the Basle Committee on Banking Supervision.

8.1.5 Regulations governing current activities of banks

- Large credit exposure: The advance to any person should not exceed 25 per cent of the sum of unimpaired paid-up or assigned capital and the unimpaired balance in the Reserve Account of the financial institution. - Capital adequacy ratio equivalent to 8 per cent of total weighted assets. - Liquidity ratio: Every financial institution shall maintain liquid assets amounting to not less than 25 per cent of the deposit liabilities, balances due to banks abroad, and other liabilities for borrowed money (excluding Central Bank and

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Government of Lesotho borrowings. Liquid assets shall consist of freely transferable assets, unencumbered by any charge or lien whatsoever, of the following classes: total currency held, surplus funds at the Central Bank of Lesotho (excluding reserve balance), deposits with local banks and GOL securities. - Open foreign exchange position. - Provision for bad debts. - Restricted lending.

8.1.6 Main supervisory practices

- Off-site surveillance: Weekly liquidity requirements, foreign currency returns, monthly banking statistics, quarterly returns, exposure to top twenty borrowers, lending limits, financial statements, reserve requirements, capital adequacy and minimum local asset returns. - On-site examination: Physical inspection of the banks’ operations as well as surprise checks.

8.1.7 Measures to remedy deficiencies as well as penalties utilised

When a financial institution does not comply with the provisions set out in 8.1.5 above, it is notified of the deficiency and ordered to comply. If the order to comply is ignored, the institution may either be fined or taken to a court of law. The Financial Institutions Act 1999 specifies all the penalties for each and every offence in detail.

8.2 Insurance Institutions

8.2.1 Authority responsible for insurance supervision

The Central Bank of Lesotho.

8.2.2 Licensing procedures for establishing a insurance company

Only public companies are eligible to apply for conducting insurance business. An application letter and a completed application form are to be submitted together with the following; - Certified copies of Memorandum and Articles of Association - Statement showing: o The name and address of the Principal Officer in Lesotho o The name and address of the person in resident in Lesotho who is to accept any notice required to be served upon the applicant o The address and place of business of the applicant o The names and addresses of persons holding five percent or higher percentage of the share capital of the applicant and the number of shares allotted to each such person. o The class of business intended to be transacted by the applicant

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- A statement duly certified by an auditor that the relevant capital requirement (M65,000)specified by the Commissioner has been complied with. - A certified copy of premium rates, rating plans, rules and standard policy forms of each class or subclass of insurance business to be carried out by the applicant. Applicants for long-term insurance business are required to state: o The basis of calculation of premium rates o The calculation of non-forfeiture values o The method of distributing profits to policyholders and shareholders - A statement showing the particulars of proposed reinsurance agreements - A statement as to the prospective administration costs and commission - A statement showing qualification and experience in insurance business applied for of the Executive officers of the applicant at his place of business in Lesotho

8.2.3 Types of licences that exist

Licences are limited to insurance business only.

8.2.4 Minimum capital requirements for insurance companies

A minimum of M65,000 in unimpaired capital.

8.2.5 Regulations governing current activities of insurers

- Margin of solvency: o For life insurance business margin of solvency is M30,000 o For general insurance business margin of solvency is M50,000

8.2.6 Main supervisory practices

- Off-site surveillance: Quarterly returns, annual financial statements, margin of solvency, unimpaired capital minimum, minimum local investment, reserve requirements and working capital requirements. - On-site inspections: Physical inspections of the insurers’ operations are conducted and when necessary, special inspections are undertaken.

8.2.7 Measures to remedy deficiencies as well as penalties utilised

When an insurer fails to comply with the requirements in 8.2.5 and 8.2.6 it is notified of the deficiency and issued with a directive to comply by a given deadline. The regulator can further impose a fine if the directive is not complied with. The Insurance Act 1976 empowers the commissioner to issue fines and take legal action against an insurer who contravenes the requirements of the Act.

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8.3 Non-banking institutions

8.3.1 Responsibility for supervision of non-banking financial institutions

Regarding the non-bank financial institutions (NBFIs), the Central Bank's responsibility through the Non Banks Supervision Division (NBSD) includes the supervision and regulation of money-lenders, collective investment schemes and ancillary financial service providers. Microfinance institutions (MFIs) in due course will form part of the Division's area of jurisdiction. (These are proposed to emanate from the transformation of large money lenders).

The NBSD was established in 2007, and is charged with the supervisory functions of the non-bank financial institutions (NBFIs) through monitoring and examining of the sector’s performance (through Off- Site surveillance and On-Site Inspection).

8.3.2 Categories of financial institutions and their licensing procedures

The following are the categories of non-banking financial institutions and their licensing procedures: - Money-lenders are required to apply for licenses that are renewable annually. - Collective investments schemes’ licensing requirement is as above and renewable annually. The requirement is for one standard licence renewable annually. - Ancillary Financial Institutions are also expected to apply for an annual renewable licence.

8.3.3 Minimum requirements for the different types of non-bank financial institutions:

8.3.3.1 Supervision: The central bank supervises money-lenders, collective investment schemes and ancillary service providers.

8.3.3.2 Capital required: Collective Investments M1, 000,000 Ancillary Service Providers M250, 000 Money-lender no specified capital requirement

8.3.3.3 The Regulatory Framework: Money-lenders are governed by Money-Lenders Act 1993. Ancillary service providers are regulated under Ancillary Financial Service Providers (Licensing Requirements) Regulations 2003 and collective investment schemes by Collective Investment Schemes Regulation 2001.

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9. National payment, clearing and settlement system

9.1 How is the payment, clearing and settlement system organised?

The payment system in Lesotho consists of two systemically important payment systems namely: Real Time Gross Settlement named Lesotho Wire (LSW), and Maseru Clearing and Settlement House (MCSH). Preparations for the implementation of the Automated Clearing House (ACH) for clearing low value large volumes electronic payments are at an advanced stage. Lesotho Payment system is striving to achieve the following vision:

Vision: By 2015 Lesotho shall have a widely accessible, secure, reliable, and efficient payment and settlement system. The system shall facilitate Lesotho’s development objectives.

9.1.1 Lesotho Wire (RTGS)

The Central Bank of Lesotho launched the Real Time Gross Settlement system, Lesotho Wire (LSW), on the 25th August 2006. LSW is used for processing large value and Time critical payments. The Lesotho cap is M100, 000-00 (One hundred Thousand Maloti). The participants in LSW are the three commercial banks operating in Lesotho, namely: Standard Lesotho Bank, Nedbank Lesotho, FNB Lesotho and the Central bank of Lesotho which acts as both the system Operator and a participant on behalf of the Government of Lesotho. These banks hold settlement accounts with the CBL, to facilitate settlement of their interbank obligations.

The system is located at the Central Bank of Lesotho and it is operated and administered by the central Bank. The National Payment System Legal Framework is not yet in place, as the NPS Bill is not yet enacted. However, the RTGS operations are governed by the Rule Book containing rules and procedures agreed and signed by the participants, and they are binding.

9.1.2 Maseru Clearing and Settlement House (MSCH)

The second system is the Maseru Clearing and Settlement House (MCSH), for the manual clearing and settlement of small value payments. The system is housed at the Central Bank of Lesotho (CBL). Members who are also participants of the MCSH are the above commercial Banks including the CBL with the Lesotho Post Bank yet to participate. Clearing process is hosted at CBL and it has two sessions, one in the morning and another in the afternoon, and one on Saturday morning. The Clearing and Settlement House operations are governed by the Maseru Clearing and Settlement House Rules, which are set by the Maseru Clearing and Settlement House Management Committee that consists of the Governor of the Central Bank (its ex-officio chairperson), and the Chief Executives of the commercial banks. The rules are also binding for all the participants.

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9.2 What is the role of the Central Bank in the system?

The Central Bank of Lesotho is spearheading the Lesotho National Payment Systems Modernisation Project. It is mandated with the successful implementation of the payment reform project. o It is the facilitator, the catalyst in the payment system. o It provides Liquidity in a form of Lombard and Intra-day to LSW participants running short of funds in their settlement accounts to settle their obligations. o It is the overseer of the payment system, to ensure that the payment systems are operated and administered in accordance with the rules and regulations, International standards and Best Practices. o It also provide settlement system or services through the RTGS Settlement is done with the Central Bank money since it bears no risks.

The Central Bank operates the clearing house and supervises the clearing process. It also acts as a settlement agent of the clearing and settlement system.

9.3 Short description of the processing of payment instructions

With Lesotho Wire System, most payments originate from trade in various markets where a customer, following a trade agreement, instructs payment. Once the instruction has been received and accepted by a bank, the bank assumes responsibility for driving the payment to finality and irrevocable transfer of value. Banks initiate payment by verifying certain aspects of the payment instruction and determine the processing path to be followed through the inter-bank funds transfer processes.

The clearing procedures of cheques and returned items are governed by a set of rules, as per the Lesotho Bankers Agency Agreement, to which all participants in the Maseru Clearing and Settlement House must subscribe to. The agreement stipulates the time-frames permitted to clear the various instruments. At each session the net settlements (setoff) are calculated per bank and entries passed to clearing accounts conducted by the participating banks in the books of the Central Bank. Participants are responsible to ensure that the accounts are sufficiently funded, as the accounts are not permitted to be overdrawn.

9.4 How are non-funded positions settled in the system?

Participants are required to maintain sufficient funds to cater for their settlement obligations. In a situation where a participant is not able to settle due to liquidity shortfall, the Central Bank, through its Lombard Credit Facility would provide overnight liquidity boost. Banks should provide the 91-days securities as collateral for this lending. The rate that is incurred for using this facility, the Lombard Rate, is equivalent to certain basis points (maximum 4) above the prevailing 91-day Treasury bill rate.

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10. Currency in use

10.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: - Loti - 100 lisente equal one loti

- Notes: - 200 maloti, 100 maloti, 50 maloti, 20 maloti, 10 maloti

- Coins: - 5 maloti, 2 maloti, 1 loti, 50 lisente, 20 lisente, 10 lisente, 5 lisente.

11. Other activities of central banks not covered above

The Central Bank of Lesotho also acts as custodian of export finance schemes as well as part of development finances.

12. The position of the central bank in SADC

12.1 Special relationships with other central banks in SADC (CMA excluded

The Central Bank of Lesotho exchanges its publications with other central banks in SADC. The Central Bank is also a member of some regional groupings together with other SADC central banks, such as MEFMI.

13. Publications

13.1 Regular publications

- Monthly Economic Review, Quarterly Review and Annual Report - Annual Supervision Report

13.2 Occasional/special publications published since 1990

Research Department commissions different papers covering a wide spectrum, such as policy papers, occasional papers and so on. The latest publications in archive include; - Regional comparison of Bank Charges - Private Capital flow Survey, - The Optimal Inflation for Lesotho - Economic Impact of Privatisation in Lesotho - The Impact of Taxing Interest Income - Determinants of Demand for Holding Net International Reserves - Modelling the Yield Curve - Appropriate Measure of the Competitiveness of the Treasury bill Market

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- Government Intervention In The Financial Sector: Is Bailout A Panacea? - The Impact of Anti-Money Laundering Legislation on Investment: An Application of an Overlapping Generations (OLG) Model - Soaring Global Food Prices: Nature, Causes, and Responses: The Case of Lesotho

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Reserve Bank of Malawi

Reserve Bank of Malawi PO Box 30063 Capital City Lilongwe 3, Malawi Fax: +265 1 772752/1 or +265 1 772289 Tel: +265 1 770600

1. History

The Reserve Bank of Malawi (the Bank) was established by an Act of Parliament passed on 23 July 1964. It commenced operations in Blantyre in June 1965. The Bank's headquarters moved to Lilongwe in 1981, and the Blantyre office became the first branch.

2. Relationship with government

The Reserve Bank of Malawi (Amendment) Act of 2010 provides for full independence of the Bank in the areas of monetary policy and the issuance of Malawi currency.

The Governor and up to three Deputy Governors are appointed by the President of the Republic of Malawi for a term of five years and are eligible for reappointment for one more term upon the expiry of their term. The Board consists of the Governor, at least one but not more than three Deputy Governors, and at least four but not more than seven Directors, two of whom must come from the business community. Every Director is appointed by the President of the Republic of Malawi for a period of two years and is eligible for reappointment. The Bank has its own budget approved annually by the Board.

The Central Bank and Treasury consult on a regular basis about the formulation and implementation of fiscal policy. At his discretion, the Governor may inform the Ministry of Finance about developments in monetary policy.

The Bank conducts the following activities on behalf of the Government: - the issue and management of government securities; - the facilitation and development of money and capital markets; Malawi

- the guaranteeing of the repayment of the principal and the repayment of interest and charges of any external borrowing by the Government; - acting as agent of the Government as may be agreed by the Minister of Finance and the Bank; - managing and implementation of exchange control; - making payments to, and receiving moneys from, the International Monetary Fund on behalf of the Government; and - the supervision of banks and other financial institutions.

The Bank may make short-term advances to the Government in respect of temporary shortfalls in budget revenues, provided that the total amount of advances shall not exceed twenty per cent of the annual budgeted domestic revenues. All advances are payable within four months of the end of the government's financial year in which the advances were made, and if after the end of the financial year such advances remain outstanding, the power of the Bank to grant further such advances shall not be exercisable until the outstanding advances have been repaid. If at any time the Bank has any Government loans and advances outstanding, irrespective of maturity, the Bank may require the Government to issue to it Treasury bills or promissory notes and other instruments as the Bank may deem fit for open market policy purposes. All advances are at the ruling Bank rate.

The capital of the Bank can be increased by such amounts as the Board may resolve with the consent of the Minister of Finance. From time to time, the Bank has provided export development finance. The Bank recently supported the development of a small and medium enterprise fund.

3. Structure

The head office of the Bank is in Lilongwe, and has one branch in Blantyre. The head office is charged with all the functions of a central bank. The main function of the branch in Blantyre is currency issue and recently supervision of financial institutions.

4. Design and Conduct of Monetary policy

4.1 Main objectives of Monetary Policy

The main objectives of monetary policy are to promote economic growth, employment, stability in prices and to maintain a sustainable balance of payments position. The Reserve Bank of Malawi seeks to influence the growth of the M2 money aggregate and market interest rates to attain these objectives.

Malawi

4.2 Instruments of Monetary Policy

The main instruments used by the Reserve Bank of Malawi are liquidity reserve requirements (LRR), open market operations (OMO) and the bank rate.

4.3 Types of refinancing as well as collateral used

The commonly used type of refinancing is the repurchase agreement collateralised by short-term government securities. However, liquidity reserve requirements may be drawn upon for domestic cheque clearing, provided that the weekly average reserve requirement is within the required ratio. Violation of the average weekly reserve requirements attracts a penalty charge.

4.4 The money supply aggregate that plays the main role in monetary policy

The main money supply aggregate which plays a role in Malawi's monetary policy is the M2 aggregate. The components of M2 are the following: - Currency outside banks - Demand deposits - Time and savings deposits - Foreign currency denominated deposits

4.5 Reserve requirements on financial institutions

Reserve requirements are applicable to any depository institution licensed under the Banking Act, 2010, and which accepts demand, savings or time deposits or any substantial equivalent thereof. For the time being, these institutions are banks and discount houses. The eligible liquid assets consist of: - Balances on deposit with the Reserve Bank of Malawi. Reserves are required to be in domestic currency as the underlying deposit liabilities. Required reserves are currently non-interest bearing.

5. Structure of the financial markets

5.1 Organisation of the money and capital markets

The domestic money market includes all commercial banks, finance houses, savings and credit institutions, institutional investors and discount houses. The capital market in Malawi is in a nascent stage of development with four stockbrokers operating on the Malawi Stock Exchange (MSE). There are fourteen listed

Malawi

companies.

5.2 Instruments used in both these markets

The major money market instruments are:

– Treasury Bills – REPOS – Bankers Acceptances – Commercial Paper – Savings bond – Term deposits

Instruments used in the capital market are shares (stocks), Government of Malawi Local Registered Stocks (LRS), promissory notes units of CIS (Unit Trusts).

5.3 Legal frameworks existing for the money and capital markets

The money and capital markets players in Malawi operate within the following legal framework:

• The Banking Act, 2010 • The Securities Act, 2010 • Collective Investment Scheme Regulations • Broker Dealer Regulations • Pension Act, 2011 • Insurance Act, 2010 • Microfinance Act, 2010 • Financial Cooperatives Act, 2011 • Exchange Control Act

5.4 Type of financial intermediaries operating in these markets - Central bank: Reserve Bank of Malawi - Commercial banks: National Bank of Malawi Standard Bank First Merchant Bank Ecobank INDEBank NEDBANK NBS Bank Ltd

Malawi

Malawi Savings Bank Ltd Opportunity International Bank of Malawi FDH Bank International Commercial Bank

- Finance houses and Merchant Banks: Leasing and Finance Company - Savings and Credit institutions: Malawi Union of Savings and Credit Cooperatives (MUSCCO), Savings and Credit Cooperatives (SACCOs)

- Development finance institutions: INDEfund - Insurance institutions General Insurers: NICO General Insurance Co Ltd Charter Insurance Company Ltd Citizen Insurance Co Ltd General Alliance Insurance Co Ltd Prime Insurance Co Ltd Reunion Insurance Co Ltd Real Insurance Co Mw Ltd United General Insurance Co

Re-Insurers: Malawi Re Reinsurance Co Ltd

Life-Insurers: Vanguard Life Assurance Co Ltd Old Mutual Life Assurance Co Mw Ltd NICO Life Assurance Co Ltd

- Stock Exchange Malawi Stock Exchange

- Stock brokers

African Alliance Securities Ltd CDH Stockbrokers Ltd FDH Stockbrokers Ltd Stockbrokers Malawi Ltd

Portfolio/Investment Managers Malawi

Alliance Capital Limited Indetrust Nico Asset Managers Ltd CDH Asset Management Ltd First Merchant Bank National Bank C.M Ltd Old Mutual

Collective Investment Schemes

National Investment Trust Ltd Old Mutual Unit Trust Ltd

- Discount houses

Continental Discount House Ltd First Discount House Ltd

- Pension Funds

6. External payment arrangements

6.1 Determination of the exchange rate policy

The Reserve Bank of Malawi has the responsibility to determine the country's exchange rate policy.

6.2 The present exchange rate system

The Malawi kwacha was floated on 7 February 1994. The official exchange rate is based on the mid rate of the average buying and selling rates as reported by the banks.

6.3 Organising the exchange market

The foreign exchange market in Malawi is organised as follows: - The Interbank Market: Reserve Bank of Malawi, commercial banks and finance houses (ADBs). - Forex bureau market specialises in spot cash transactions - Residents may maintain foreign currency denominated accounts (FCDAs) with local banks Malawi

- Non-residents may maintain FCDAs or non-resident local currency deposit accounts - Forex interbank marketing system based on the Reuters System

6.4 The central bank's involvement in managing foreign exchange reserves

The Reserve Bank is mandated under the Reserve Bank of Malawi Act to manage the country's foreign exchange reserves.

7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

Currency is convertible with respect to current account transactions. Given that capital account controls still exist, the currency is not convertible internationally.

7.2 Exchange control restrictions on current account

No exchange controls exist on the current account.

7.3 Restrictions on capital account

Both inward and outward direct and portfolio investments require prior approval.

7.4 Retention rules for foreign exchange earned or owned by residents

Sixty per cent of export proceeds must be sold to an authorised dealer bank upon receipt. The exporter may hold the balance in a foreign currency denominated account for as long as required.

8. The central bank and external debt

8.1 The role of the central bank in managing the country's external debt

The Central Bank of Malawi is responsible for the following issues relating to the country's external debt: - maintaining a comprehensive database on all public sector external debt; - processing various external debt aggregates and updating the records on Malawi's external debt position; - processing the debt servicing instructions from the Ministry of Finance; Malawi

- currently creating a database on private sector external debt; - assisting the Treasury with debt management and negotiations on new multilateral and bilateral loans; and - managing the local debt of the Government and issues and trades in Government paper under directives from the Treasury.

8.2 The role of Treasury in this respect

Acting on behalf of the Malawi Government, the Treasury is responsible for borrowing, debt management and servicing.

9. Supervision of financial institutions

9.1 Banking institutions

9.1.1 Authority responsible for banking supervision

The Reserve Bank of Malawi.

9.1.2 Licensing procedures for establishing a new bank

- The initial step is for the prospective investor to contact the Reserve Bank and provide a synopsis of the nature of business to be conducted.

- When the Reserve Bank has determined that the proposal has potential and is compatible with the interest of the national economy and public interest, the prospective applicant is provided with a set of application forms. If the Reserve Bank determines at the outset that the proposal is incompatible, the prospective applicant is advised accordingly.

- Applications for a license to conduct banking business are made to the Minister of Finance through the Reserve Bank, which conducts the necessary evaluation and assessment of the application before making recommendations to the Minister. An application processing fee of Malawi Kwacha equivalent of US$5,000 equivalent is payable when submitting the application documentation.

- Before granting a license the following factors are considered: i) the validity and accuracy of the documents and information submitted; ii) the financial condition and history of the applicant; iii) the reputation of the executive officers as well as their competence and Malawi

expertise in conducting the proposed business; iv) the capacity of the applicant to maintain an adequate capital base at all times; v) the nature, scope and legality of these proposed business operations with regard to soundness, solvency and liquidity; vi) the ability of the proposed business to meet the needs and convenience of the communities and sectors within which it will operate; vii) the impact of the proposed bank’s business operations on prospective depositors, creditors, the national economy and the general public; viii) the ability of the proposed bank to hire at least two persons as executive officers; ix) the capacity of the proposed bank to commence its business operations within 12 months from the day an operating license is granted; x) the adequacy of the capital base and earning prospects resulting from the intended business; xi) the structure of its organisation; and xii) the capacity of the applicant to comply with all conditions of the license, provisions of the Act and any other Act relevant to its business.

9.1.3 Types of licenses that exist

There are no specific categories of banking licenses. All banks are issued a similar generic banking license.

9.1.4 Minimum capital requirements for the different types of banks

The minimum capital requirement for a bank is US$ 5.0 million. Minimum start up capital for other financial institutions licensed under the Banking Act such as leasing companies and discount houses is USD1.5 million. .

9.1.5 Regulations governing current activities of banks

- Large credit exposure: There is currently a limit of 25 per cent of core capital on lending to one single borrower or group of related borrowers. This is referred to as the Prudential Lending Limit. Waivers on compliance may however be granted on exceptional facilities of national interest.

- Capital adequacy: A risk-weighted tier 1 capital requirement of 8 per cent for commercial banks and 6 per cent for other financial institutions is applied. Malawi

- Liquidity ratio: Banks are required to institute a liquidity policy statement which serves as the basis for monitoring funds and liquidity management. However, an indicative ratio of 30 per cent of liquid assets to total deposits is observed.

- Open foreign exchange position: An overall foreign exchange exposure limit of 35 per cent of qualifying capital is in force.

- Provision for bad debts: There is an Asset Classification Directive which stipulates suspension of interest and provision for bad debts in liaison with requirements of IAS39.

- Restricted lending: Over and above the 25 per cent limit on lending to an individual borrower, there are some guidelines on lending to shareholders, executive officers, staff and their relatives. This is guided by the Directive on Transactions with related persons.

9.1.6 Main supervisory practices

Supervision is conducted through both off-site analysis and risk based on-site examinations. Routine on-site visits are made at least once a year to each institution. However, special visits may be arranged whenever necessary. In order to facilitate off- site analysis, financial institutions submit balance sheets as well as profit and loss accounts on a monthly basis. Other prudential returns (computation of capital adequacy, suspension of interest and provisioning) are also submitted on a quarterly basis.

External auditors are required to submit a full management audit report after every financial year audit.

As required by the Directive on Audit Committees, Annual Independent Audit and Publication of Financial Statements for Licensed Institutions, financial institutions, are also obliged to publish within six months after the close of their financial year, their audited annual accounts in at least one of the widely circulated daily newspapers.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

The Banking Act empowers the Reserve Bank to (i) impose administrative and monetary penalties, (ii) remove from office any executive officer (iii) appoint a care- taking officer (iv) add new conditions to a license and (v) revoke a license. Malawi

9.2 Non-banking institutions

9.2.1 Responsibility for supervision of non-banking financial institutions

The Reserve Bank is responsible for all deposit-taking financial institutions, irrespective of the law under which they are licensed. Under delegated powers from the Ministry of Finance, the Reserve Bank is charged with the responsibility for supervising insurance businesses.

9.2.2 Categories of non-bank financial institutions and their licensing procedures

There are seven broad groups of non-banking financial institutions, namely: - Insurance and assurance companies - Pension funds - Leasing and hire purchase companies - Building societies - Microfinance institutions - Savings and credit co-operatives - Development finance institutions

Licensing procedures are laid down in respective laws. The Central Bank is only responsible for the licensing of leasing and hire purchase companies. In the latter case, procedures described under 9.1.2 are generally applicable.

9.2.3 Information as requested under 9.1 which applies to non-banking institutions Category Law Licensing Authority Insurance and assurance Insurance Act Reserve Bank of Malawi Pension funds Pensions Act, 2011 Reserve Bank of Malawi Malawi Revenue Authority Building societies Building Societies Act Ministry of Finance

Development finance institutions Companies Act Registrar General Microfinance Act Reserve Bank of Malawi

Savings and credit industry Financial Cooperative Act Reserve Bank of Malawi

Malawi

9.3 Capital Market

Under the Reserve Bank of Malawi Act (1989) and the Securities Act, 2011, the Bank is charged with duty of promoting the establishment and maintenance of adequate money and capital markets by establishing and monitoring the regulatory frameworks of such markets for the maintenance of orderly market conditions. Specifically, the Securities Act, 2011 provides for the development of a capital market; expansion of access by companies in Malawi to term financing for development purposes; utilisation of savings and excess liquidity in domestic development; adequate regulation of the capital market and self regulatory organisations and to foster development of fair and orderly market.

9.3.1 Categories of Capital Market Professionals

The Malawi Stock Exchange (MSE) is a registered self regulatory organisation (SRO) which is itself supervised by the Reserve Bank. Other market professionals include the following players: - brokers/dealers; - portfolio/fund managers; - investment advisers; - Investment institutions namely unit trusts, mutual funds and/or collective investment schemes.

Licensing requirements are laid down in respective regulations and guidelines.

10. National payment, clearing and settlement system

10.1 How is the payment, clearing and settlement system organised?

On 19th March 2002, the Reserve Bank of Malawi introduced the real time gross settlement system (RTGS) which is known as MITASS (short for Malawi Interbank Transfers and Settlement System). The MITASS software was installed by Perago, a South African based company. MITASS links all commercial banks and two discount houses to the Reserve Bank of Malawi through a secure proprietary network which is owned by the Malawi Switch Centre (MALSWITCH). The system settles both individual and concurrently batched funds settlement instructions (FSIs). MITASS is owned by the Reserve Bank of Malawi but the technical administration was outsourced to MALSWITCH under a service level agreement (SLA). In addition, MITASS facilitates settlement of transactions from the following systems: the smart card, Electronic Bidding (used by the Treasury Department of the Reserve

Malawi

Bank of Malawi) Government Credit Ceiling Authority system (CCA) and the Electronic Cheque Clearing House (ECCH).

The ECCH which is based on cheque imaging and truncation was commissioned on 1 August 2005. The introduction of the ECCH reduced the clearing period from seven days to less than three days. Bankers Association of Malawi owns the ECCH but technical administration was outsourced to MALSWITCH under SLA.

10.2 What is the role of the central bank in the system?

The Reserve Bank of Malawi is entrusted with the responsibility of promoting, maintaining and regulating the efficient operation of the payment, clearing and settlement system. In this regard, the Reserve Bank of Malawi plays a leading role in major payment systems reform initiatives.

While acting as a settlement provider through the MITASS and a participant in the ECCH, the Reserve Bank of Malawi conducts oversight activities of these systems and other payment systems related products and services to ensure that their operations conform to internationally acceptable best practices.

10.3 Give a short description of the processing of payment instructions

In the MITASS, participants use source documents to raise an FSI that is transmitted to the beneficiary bank after observing all the necessary validation procedures within the system. Once effected, settlement is final and irrevocable. The FSI is accompanied by payment information which banks use to credit accounts of the appropriate beneficiary customers. The MITASS opens at 08:00 hours and squares off at 17:00 hours. The introduction of the ECCH significantly changed the clearing procedures. At designated bank branches, cheques are scanned through the transport scanners to capture the MICR code line and images back and front. Amounts are however manually entered. After conducting all validation checks, electronic files comprising cheque images and code line data are created and transmitted through banks’ head offices to the ECCH throughout the day. The cut-off time for receiving all electronic journal files and images data files at the ECCH is 15:00 hours. After the cut-off time, the ECCH exchanges electronic images and data and creates a settlement file (concurrent batch) based on gross bilateral obligations. At 15:30 hours, the ECCH transmits the concurrent batch to the MITASS for settlement. The MITASS settles the batch at 16:10 hours. Since settlement takes place at 16:10 hours and that the MITASS squares off at 17:00 hours on the same day, this implies that settlement of payment obligations presented to the ECCH before the cut-off time occurs on the day of value. Transactions from the Smart Card Clearing House are however scheduled for

Malawi

settlement at 09:00 hours of the following business day.

10.4 How are non-funded positions settled in the system?

Non-funded positions do not arise since settlement in the MITASS is on a pre-funded basis. The system discards any instruction that is not sufficiently covered by funds in the settlement account. If a participant has insufficient funds in its settlement account, it can resort to collateralized intra-day borrowing from the central bank.

11. Currency in use

11.1 List of legal tender notes and coins currently issued and in use in the economy

Currency: Kwacha (notes) and Tambala (coin) Notes: K1,000, K500, K200, K100, K50, K20 Coins: -K10, K5, K1, 50t, 20t, 10t, 5t, 2t, 1t (100t = K1)

12. Other activities of the central bank not covered above

None.

13. The position of the central bank in SADC

13.1 Special relationships with other central banks in SADC (CMA excluded)

- Currency repatriation arrangements with the South African Reserve Bank; - Training for central bankers with the South African Reserve Bank. - Membership of: MEFMI, AACB, COMESA, SADC, CISNA

14. Publications

14.1 Regularly published publications

Quarterly Financial and Economic Review Annual Report and Statement of Accounts Monthly Economic Review Mid-year Economic Report Bank Supervision Annual Report The Central Banker Non-Bank Supervision Annual Report

Malawi

14.2 Occasional/special publications published since 1990

- Official inauguration of the new Blantyre Branch, 26 November 1998 - Several occasional papers written by staff in the Research Department

Malawi

Bank of Mauritius

Bank of Mauritius PO Box 29 Port Louis Mauritius Fax: 230 208 9204 Tel: 230 202 3800 Home page address: http://bom.intnet.mu E-mail address: [email protected]

1. History

The Bill for the establishment of the Bank of Mauritius as the central bank of Mauritius was passed by the Legislative Assembly on 26 July 1966. It received the assent of the Governor-General on 28 September 1966 and became an Act when it was gazetted on 15 October 1966. The first Directors of the Board of the Bank were appointed in July 1967. The Bank of Mauritius started its operations in August 1967.

The Act of 1966 witnessed many changes over time until the year 2004 when it was repealed and replaced by a new Bank of Mauritius Act 2004.

2. Relationship with the government

In accordance with the Bank of Mauritius Act 2004, the Board of Directors of the Bank comprises of the Governor of the Bank, who is also the Chairperson, a First Deputy Governor, a Second Deputy Governor and between five to seven other Directors. The Governor and Deputy Governors are appointed by the President on the recommendation of the Prime Minister for a period not exceeding 5 years and are eligible for reappointment. The other Directors are appointed by the Minister of Finance and Economic Development and they hold office for a period not exceeding three years and are also eligible for reappointment.

The Bank is the banker to Government, it is the adviser on monetary and financial matters and the depository of the official foreign exchange reserves of Mauritius and of Government funds. It undertakes the issue and management of loans publicly issued in Mauritius by Government. The Bank may also act as agent for Government on such terms and conditions as may be mutually agreed. The Bank has, in terms of an agreement reached with the Ministry of Finance and Economic Development under Section 59 of the Bank of Mauritius Act 2004, taken over all debt management functions performed by the Debt Management Unit with effect from 1 July 2008.

The Government may raise advances from the Bank to cover negative net cash flow of Government at such rate as mutually agreed with the Government. The total Mauritius 80

amount of such advances outstanding, together with the amount of Government securities in the ownership of the Bank, other than under repurchase agreements, shall not exceed 10 per cent of the Government’s revenue excluding grants and receipts of a capital nature for the current financial year.

3. Structure

The organization chart of the Bank of Mauritius is annexed to the document.

4. Design and conduct of monetary policy

Effective 18 December 2006, the Bank introduced a new framework for the conduct of monetary policy. The Key Repo Rate has replaced the Lombard Rate as the policy interest rate to signal changes in the monetary policy stance of the Bank. In terms of that framework, the Bank supplies and absorbs liquidity to hold the overnight interbank interest rate within an interest rate corridor around the Key Repo Rate. The corridor around the Key Repo Rate is currently +/- 125 basis points. Reverse Repurchase transactions are conducted at 125 basis points below the Key Repo Rate and Repo transactions at 125 basis points above the Key Repo Rate. The Key Repo Rate which was set at 8.50 per cent on 18 December 2006 is currently at 5.50 per cent.

The Monetary Policy Committee (MPC) was launched on 23 April 2007. The members are the Governor of the Bank, who is also the Chairperson, the two Deputy Governors, two Directors of the Board and four external members. Two observers have also been appointed on the MPC. The first interest rate-setting meeting of the MPC was held on 30 June 2007. Towards the end of August 2007, the MPC was empowered to formulate and determine monetary policy to be conducted by the Bank. Effective 30 July 2009, the number of external members has been increased from three to four.

4.1 Main objectives of monetary policy

In accordance with the Bank of Mauritius Act 2004, the primary object of the Bank shall be to maintain price stability and to promote orderly and balanced economic development.

The other objects of the Bank are: – to regulate credit and currency in the best interests of the economic development of Mauritius; – to ensure the stability and soundness of the financial system of Mauritius; and – to act as the central bank for Mauritius.

A Financial Stability Committee has been set up by statute in 2009 to regularly review and ensure the soundness and stability of the financial system. Members of the Committee are the Minister of Finance and Economic Development, who is also

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the Chairperson, the Governor of the Bank, the Financial Secretary and the Chief Executive of the Financial Services Commission.

4.2 Instruments of monetary policy

Prior to July 1993, the main instruments of monetary policy were direct credit control and reserve requirements. Thereafter, monetary policy started to be and is still implemented through indirect monetary management. This is achieved essentially through the auctioning of Bank of Mauritius Bills/Notes, conduct of Repurchase Transactions and Special Deposit Facilities.

Effective 15 December 1999, the Bank of Mauritius started to conduct repurchase transactions with banks formerly holding a Category 1 banking licence for a maximum term of 14 days to provide for a more dynamic management of liquidity by the market. Effective 1 April 2008, the maximum term has been extended from 14 to 21 days.

The Bank of Mauritius acts as lender of last resort to banks. Effective 15 December 1999, the Bank of Mauritius introduced a standing facility, known as the Lombard Facility, to provide overnight collateralised advances to banks, with a specific borrowing quota earmarked for each. With the introduction of the new framework for the conduct of monetary policy on 18 December 2006, the Lombard Facility was replaced by a new standing facility.

From December 1998 to October 2002, the Bank of Mauritius has been selling, out of its own portfolio, Government of Mauritius Treasury Bills (GMTB) over the counter to individuals and non-financial corporations for more active secondary trading in securities and provides an investment instrument to the public. After October 2002, GMTB were available for sale over the counter at the central bank office in Rodrigues only. As from July 2007, the Bank resumed the over the counter sale of GMTB and introduced the sale of Treasury Notes to individuals.

Since 15 December 2003, the Bank of Mauritius, in collaboration with The Stock Exchange of Mauritius and the Central Depository & Settlement Co Ltd, started the sale of GMTB out of its own portfolio to Mauritian Citizens only through licensed stockbroking companies on The Stock Exchange of Mauritius. Effective 19 August 2005, the issue of 728-day GMTB was discontinued.

With effect from 1 April 2008, the Bank of Mauritius strengthened its Liquidity Management Framework. A series of operational changes have been brought in the management of liquidity. Following the primary auction of GMTB/ Government of Mauritius Treasury Notes (GMTN), the Bank would, at its discretion, make counter offer of Bank of Mauritius Bills/Notes to bidders of GMTB/GMTN, whose bids have not been accepted. The Bank has also introduced BOM Bills with shorter maturities of 28 days and 56 days but no such bill has been issued in 2011.

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Concurrently, the Bank started to accept a Special Deposits Facility (SDF) at 100 basis points below the Key Repo Rate for a maximum period of 21 days. This facility is operated at the initiative of the Bank of Mauritius.

The corridor around the Key Repo Rate has been widened from +/- 50 basis points to +/- 125 basis points. Reverse Repurchase transactions are now conducted at 125 basis points below the Key Repo Rate and Repo transactions at 125 basis points above the Key Repo Rate.

An Overnight Facility against collateral at 150 basis points above the Key Repo Rate has been introduced and is subject to a borrowing quota.

As lender of last resort, the Bank provides the collateralised Standing Facility to banks without any borrowing quota at 400 basis points above the Key Repo Rate. Drawdowns under both the Overnight Facility and the Standing Facility are at the initiative of banks.

As from December 2009, the Bank of Mauritius has started to offer spot-to-three- month forward swap transactions in USD, EUR and GBP in the domestic foreign exchange market for an amount not exceeding USD100 million or its equivalent, for the smooth functioning of the market. The swaps which used to be conducted on Wednesdays as from 23 December 2009 for a minimum amount of USD1 million, EUR750,000, and GBP600,000, or for such other amounts as the Bank may decide, are now available on Mondays as well as Wednesdays.

In August 2010, the Bank started the issuance of longer-term securities, namely, 2- Year, 3-Year and 4-Year Bank of Mauritius Notes with semi-annual coupons.

Banks are required to maintain a minimum Cash Reserve ratio.

4.3 Types of refinancing as well as collateral used

4.4 The Money supply aggregate that plays the main role in monetary policy

Broad Money Liabilities (M3) is one of the main indicators used to assess monetary conditions. It is defined as: – currency outside depository corporations; plus – private deposits, which comprise rupee transferable, savings, time and foreign currency deposits; and – securities other than shares included in broad money.

4.5 Reserve requirements on financial institutions

Prior to July 1998, Category 1 banks were required to hold no less than 6 per cent of eligible rupee deposits in the form of non-interest bearing cash balances with the Bank of Mauritius and notes and coins in their vaults. However, as from that date, the required cash ratio was reduced from 6 to 5.5 per cent of total deposits, including those denominated in foreign currencies. Mauritius 83

Non-bank deposit taking institutions are required to maintain a liquid assets ratio of not less than 10 per cent of their total deposits in the form of cash balances with banks and the Bank of Mauritius and investments in Treasury Bills/Bank of Mauritius Bills or other Government securities.

With effect from January 2006, the minimum cash ratio was reduced from 5.5 per cent to 4.0 per cent of banks’ total deposits and there was no minimum cash ratio on a particular day at that time. For the purpose of computing the cash ratio, minimum cash balances consist exclusively of balances held by banks with the Bank of Mauritius. The minimum cash ratio on a particular day was introduced in January 2007 and was set at 2.0 per cent and the maintenance period for the cash ratio was lengthened from one to two weeks. In August 2008, the cash ratio was raised from 4.0 per cent to 6.0 per cent and the minimum cash ratio on a particular day was also increased to 4.0 per cent. The cash ratio was reduced to 5.0 per in November 2008 and further down to 4.5 per cent in December 2008. In December 2008, the minimum cash ratio on a particular day was also brought down to 3.0 per cent.

The cash ratio was raised to 5.0 per cent in June 2010 and the minimum cash ratio on a particular day was also increased to 4.0 per cent. In October 2010, the cash ratio was raised to 6.0 per cent and concurrently, the minimum cash ratio on a particular day was raised to 4.5 per cent. The cash ratio was further raised in February 2011 to 7.0 per cent while the minimum cash ratio on a particular day was raised to 5.0 per cent.

5 Structure of the financial markets

5.1 Organisation of the money market and capital markets

Money Market

The money market consists of an interbank money market and a market for Treasury Bills/Bank of Mauritius Bills and other Government securities. The definition of Government Securities in the Public Debt Management Act 2008 has been extended to include Sovereign Sukuks in light of the initiative of the Bank to capture the Islamic finance market. Interbank transactions are carried out among banks for call (overnight), short notice (up to 7 days) and term maturity (more than 7 days).

Since June 2004, banks can enter into repurchase/reverse repurchase transactions among themselves using Government Securities /Bank of Mauritius Bills as collateral. Effective 22 August 2003, the Bank of Mauritius started to issue Bank of Mauritius Bills in addition to Treasury Bills. Bank of Mauritius securities are issued for monetary policy purposes while Treasury Bills are issued for Government borrowing requirements only. There also exists a secondary market for these securities.

A Primary Dealer System was established in February 2002 and as of date twelve banks are appointed primary dealers. Mauritius 84

The Bank of Mauritius intervenes in the money market from time to time by way of repo and reverse repo transactions, Special Deposits Facility and issuance of Bank of Mauritius Bills and Notes depending on liquidity conditions on the market.

Capital market

As at end of June 2011, there were 37 companies listed on the Official Market of The Stock Exchange of Mauritius, of which 36 were local companies and one was a foreign company. Five foreign funds were also listed. Market capitalisation stood around US$6,505 million as at 30 June 2011. Currently, the financial instruments traded on the capital market are mainly company shares. The Stock Exchange of Mauritius, which was set up on 30 March 1989, is the only organised market for the trading of company shares and debentures. The Over-the-Counter Market has been phased out and a Development and Enterprise Market (DEM) was launched on 4 August 2006. The DEM is a market designed for Small and Medium-sized Enterprises and newly set-up companies that possess sound business plan and demonstrate a good growth potential. It is meant for companies wishing to avail themselves of the advantages and facilities provided by an organised and regulated market to raise capital to fund their future growth, improve liquidity in their shares, obtain an objective market valuation of their shares and enhance their overall corporate image. The DEM is also in line with Government's policy to foster the development of a dynamic business environment in Mauritius and the emergence of a diversified financial services sector where companies can raise financial resources from a variety of sources and where investors can have access to a wider array of investment opportunities. The SEM is presently going through a strategic reorientation of its activities and gradually moving away from an equity-based domestic exchange to a multi-product internationally oriented exchange.

5.2 Instruments used in the Money and Capital Markets

In the money market, the major instruments used are Treasury Bills/Bank of Mauritius Bills/Notes and other Government Securities. As from September 2002, the Bank has been auctioning Five-Year Government of Mauritius Bonds. In fiscal year 2005-06, Five-Year Government of Mauritius Bonds have been issued every two months. Furthermore, Mauritius Development Loan Stocks are being issued on a more regular basis, and with a view to avoid confusion in the market, have been termed as Long Term Bonds. Instruments traded on the capital market are mainly shares that are issued by private companies listed on the Stock Exchange of Mauritius.

During the period 17 September 2004 to 15 April 2005, the Bank issued, on weekly basis, Treasury Notes with a 3-Year maturity through conversion of existing maturing Treasury Bills. As from 7 October 2005, the Bank started with the monthly issue of 2-Year, 3-Year and 4-Year Treasury Notes with interest payable on a semi- annual basis.

With a view to broadening the range of Government instruments, the Bank issued the Seven-Year inflation indexed linked bonds in June 2009 and Fifteen-Year Mauritius 85

inflation-indexed bonds in December 2010. Furthermore, in order to foster secondary market trading, 5-Year, 10-Year and 15-Year Government of Mauritius benchmark Bonds were issued during the financial year 2010-11.

5.3 Legal framework for the money and capital markets

There is no specific framework regulating the money market. However, transactions in Treasury Bills, Five-Year Government of Mauritius Bonds and Mauritius Development Loan Stocks and Long Term Bonds were, until 1 July 2008, regulated by the Loans Act 1974. The Loans Act has been repealed and replaced by the Public Debt Management Act 2008, which, enacted on 8 May 2008, came into force on 1 July 2008. With regard to the stock market, it is regulated by the Securities Act 2005, which became effective as from 28 September 2007. Prior thereto, the stock market was regulated by the Stock Exchange Act 1988.

At the initiative of the Bank of Mauritius, as a part of a consultative forum, a Financial Markets Committee (FMC), comprising representatives of the central bank and banks, was set up in March 2000. In May 2001, the FMC published the Mauritius Code of Conduct for the foreign exchange and money markets.

5.4 Type of financial intermediaries operating in these markets

– Central Bank – Banks – Non-bank deposit taking institutions – Money-changers – Foreign exchange dealers – Development Bank – Insurance Companies – Reinsurance Companies – Mutual Funds – Equity Funds – Fund Managers – Pension Funds – Mortgage Companies – Leasing Companies – Investment Companies and Trusts – Stock Exchange of Mauritius – Stock broking Companies – Asset Managers

6. External payment arrangements

6.1 Responsibility for determining exchange rate policy

The exchange rate policy is the responsibility of the Bank of Mauritius.

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6.2 Present exchange rate regime

Starting July 2010, the Bank of Mauritius intervened occasionally in the foreign exchange market to smooth excess volatility and the de facto exchange arrangement was reclassified by the IMF from free floating to floating.

6.3 Organisation of the foreign exchange market

The foreign exchange market is totally liberalised wherein banks, foreign exchange dealers and money-changers transact in foreign exchange. The Bank of Mauritius intervenes in the market to smooth out excessive volatility and to ensure that the market functions efficiently.

6.4 Management of foreign reserves

The Bank of Mauritius is responsible for the management of foreign exchange reserves.

7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

The Exchange Control Act was suspended in July 1994. Both the current account and the capital account of the Balance of Payments are fully convertible.

7.2 Exchange control restrictions on current account transactions

Mauritius has adopted Article VIII, Sections 2, 3 and 4 of the IMF Articles of Agreement with effect from September 1993.

7.3 Restrictions on capital account transactions

There are no restrictions on capital account transactions.

8 The central bank and external debt

8.1 The role of the Central Bank in managing the country's external debt

The Bank of Mauritius acts as the banker to the Government.

Effective 1 July 2008, the Bank has also taken over the management of the external debt portfolios of the Government.

8.2 The role of Treasury in this respect

Negotiations for foreign currency loans are carried out by the Ministry of Finance and Economic Development.

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9 Supervision of financial institutions

9.1 Banking institutions

9.1.1 Authority responsible for banking supervision

The responsibility for regulating and supervising banks is vested with the Bank of Mauritius.

9.1.2 Licensing procedures for establishing a new bank

Applicants willing to carry on banking business or Islamic banking business in Mauritius are required to obtain a banking licence from the Bank of Mauritius, which may be granted if the licensing criteria are met and subject to such conditions as the Bank of Mauritius may impose.

An applicant for a banking licence or an Islamic banking licence should be a corporate body and the application must be made on a form prescribed by the Bank of Mauritius. It should be accompanied, inter alia, by the applicant’s constitution, copies of the balance sheet and profit and loss account as of a date within 60 days preceding the date of the application as well as a business plan incorporating projections for the next 3 years. In case of a foreign company registered in Mauritius, its application must also be supported by a written confirmation from the banking supervisory authority in its country of incorporation that it has no objection to the applicant’s proposal to carry on banking business in Mauritius. These documents should be authenticated copies or, in the event that the originals are not in the English Language, certified English translation should be submitted. The Bank may also call for such supplementary information or document as it may require.

As of 30 June 2011, 20 banks were licensed under the Banking Act 2004 to undertake banking business in Mauritius. These institutions are supervised by the Bank of Mauritius through off-site monitoring and on-site examination.

9.1.3 Type of licence that exist

Under the Banking Act 2004, the Bank of Mauritius issues a single banking licence. Banks may, under a single licence, conduct banking business with any person and in any currency.

9.1.4 Minimum capital requirements of banks

Banks are required to maintain in Mauritius, an amount paid as stated capital or an amount of assigned capital of not less than 200 million rupees or the equivalent amount in any freely convertible currency held in assets in or outside Mauritius, as may be approved by the central bank or such higher amount as may be prescribed, after deduction of the accumulated losses of the bank.

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9.1.5 Regulations governing current activities of banks

Large Credit Exposure

The Banking Act 2004 requires the central bank to set out by way of guidelines on credit concentration limits related to the capital base of a bank in respect of: – individual large credit exposure, including off balance sheet commitments, to any one customer or group of closely-related customers; and – aggregate amount of large credit exposure to all customers and groups of closely-related customers.

The Bank has reviewed the Guideline on Credit Concentration Risk which was issued in 2000. The revision took into account best central banking principles, the recommendations of the FSAP and the specificities of the local industry. The system of approvals by the Bank on a case-by-case basis has been dispensed with and the limits moderated so as not to stymie a bank’s ability to lend to a reasonable extent.

The Basel II Pillar 2 specifications have also been taken into consideration. Banks will be required to conduct stress tests on the impact of the large exposures turning delinquent.

Banks are required to report to the Bank of Mauritius quarterly data on credit facilities extended to any one customer or group of closely-related customers which exceed 15 per cent of the banks’ capital base.

Guideline on Related Party Transactions

The Bank has reviewed the Guideline on Related Party Transactions to bring it in line with best international practice and to take into consideration the recommendations made by the FSAP Mission. The guideline embodies the essential criteria of the Basel Core Principles relating to exposures to related parties and realigns the definition of ‘related party’ with the Banking Act 2004.The Bank has dispensed with the system of approvals in excess of the regulatory limits. Any derogation from the regulatory limits would be considered by the Bank on the condition that the additional exposure is deducted from the financial institution’s Tier 1 capital.

Guideline on Measurement and Management of Market Risk

A Proposal Paper on market risk (including interest rate risk in the banking book) was issued to banks in January 2007. After further consultation with the banks, a guideline on Measurement and Management of Market risk was issued to banks in July 2009. The Bank has not imposed a capital charge in respect of market risk other than foreign exchange risk; rather capital add-ons may be required under Pillar 2 on an individual basis.

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Guideline on Supervisory Review Process

In line with its objective of implementing Basel II framework, the Bank has finalised the guideline on Supervisory Review Process and issued to banks for implementation with effect from 1 July 2010. Banks will have the possibility to use the Internal Rating Based approach to credit risk for the limited purpose of drawing up the ICAAP document. They will have to submit their first Internal Capital Adequacy Assessment Process (ICAAP) document to the Bank as a hand-holding process not later than 5 months after the end of their financial year. With the coming into force of this guideline, the Bank has now implemented all the three pillars of the Basel II framework.

Capital Adequacy

In accordance with the Banking Act 2004, banks are required to maintain, in Mauritius, a minimum capital of 10 per cent of such of their risk assets and of other types of risks, as directed by the central bank.

The central bank may require a higher percentage or ratio from a bank, which will be determined, having regard to the nature, scale and risks of the bank’s operations, other financial resources available to the bank and the amount and nature of capital required, in the central bank’s opinion, to protect the interests of depositors and potential depositors and the public.

The Bank of Mauritius has implemented the standardised approaches of the Basel II framework as from first quarter of 2009.

The Bank of Mauritius has issued a Guideline on Capital Adequacy Ratio for Non- Bank Deposit Taking Institutions (NBDTIs) to bring about greater convergence in the regulatory framework for banks and NBDTIs, to prevent regulatory arbitrage and reinforce the safety and soundness of our financial sector.

Public Disclosure of Information

The Bank of Mauritius reviewed the guideline on Public Disclosure of Information in 2008 with a view to incorporate the new disclosure requirements of Basel II and the revised International Accounting Standards (IAS) .The guideline provides for the disclosure of a comprehensive, meaningful and accurate information in a timely manner and brings strong market discipline on financial institutions to manage their activities and risk exposures prudently and consistently with their stated objectives. The Guideline on Public Disclosure of Information was reviewed again in 2009 to reflect changes in the revised IAS 1. The revised guideline makes it incumbent on financial institutions to comply with the new requirements in the presentation of their financial statements. However, financial institutions have been given a choice to present their income and expenses either in a single statement (a statement of comprehensive income) or in two statements (a separate income statement and a statement of comprehensive income).

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Guideline on Fair Valuation of Financial Instruments

The Bank of Mauritius issued in August 2010 a guideline on Fair Valuation of Financial Instruments which became effective as from 1 November 2010. The guideline requires institutions to establish strong governance and control processes around the fair valuation of financial instruments. This follows the issue of a guidance paper entitled “Supervisory guidance for assessing banks’ financial instrument fair value practices” by the Basel Committee on Banking Supervision (BCBS) in April 2009. Concerns were raised over the major failures in the financial sector and in financial regulation and supervision and the role played by fair value accounting (FVA) in exacerbating the financial crisis through the promotion of pro- cyclicality. While fair value gains and losses shall, in accordance with and as far as permissible by accounting standards, be taken to the Income Statement, fair value gains, given their unrealized nature, shall not, from a prudential perspective, count towards distributable profits or earnings for the payment of dividends either in cash or in kind.

Guideline on Country Risk Management

The Bank issued a guideline on Country Risk Management effective since 1 October 2010. The guideline gives a broad framework for banks to assess measure and monitor country risk and would be included in the ICAAP programme. However, while banks would be required to provide for country risk, the quantum of the provision would be left to banks for individual determination, based on their internal assessments. Banks shall have to establish internal policies for the management of country risk.

Well-being of a Financial Institution Reportable by an External Auditor

This guideline was issued in February 2003 and lays down the ground rules respecting certain types of relationships between financial institutions and their external auditors. The relationships are described in terms of categories of transactions or conditions impinging on the well-being of financial institutions that must be reported by their external auditors. The reportable transactions and conditions are those that are encountered by external auditors in the course of financial statement audits.

Liquidity

The Bank’s current prudential framework for liquidity risk management in banks, set out in Guideline on Liquidity, that was introduced in 2000 has been reviewed in October 2009, in light of financial market developments and changing banks’ liquidity management practices over the past decade. The revised prudential standard takes into account the updated global principles for sound liquidity risk management and supervision developed by the BCBS as well as the lessons learnt from the global financial market turmoil. It provides for the reporting of gap analysis and requires banks to perform scenario analysis and stress tests on their liquidity positions. Mauritius 91

Open Foreign Exchange Position

The Bank issued the guideline for Calculation and Reporting of Foreign Exchange Exposures of Banks effective 14 April 1997 whereby it prescribed that the overall foreign exchange exposure or overall open position of a bank in foreign exchange as at close of business each day must not exceed 15 per cent of its Tier 1 capital base. The limit was raised to 30 per cent of a bank’s Tier 1 capital as from 7 July 2005. The limit is applicable to foreign exchange transactions for Segment A activities. The limit was reduced to 20 per cent with effect from 17 April 2010 and further to 15 per cent with effect from 4 January 2011.

Credit Impairment and Measurement

In November 2004, the Bank of Mauritius issued a new Guideline on Credit Impairment Measurement and Income Recognition in line with international accounting standards. Banks are required, inter alia, to establish a sound credit risk management policy with adequate associated internal controls, documentation processes and information systems, and to ensure that they have adequate processes for determining allowances for credit losses, the carrying amounts of credit portfolio represent recoverable values and there is timely recognition of identified losses.

The Guideline sets strict criteria on how to determine the recoverable amount (based on net present value of future cash flows) in an objective manner in respect of individually impaired loans, which must, among other things, be supported by reliable cash flow estimates and business or repayment plans.

Loans that have not been individually assessed for impairment or those assessed individually and not found to be impaired must be assessed on a ‘portfolio basis’.

The Guideline also makes provision for the establishment of a general provision, which is designed to cover potential losses that are not captured in the allowances for individually assessed loans and ‘portfolio’ loans. Banks should exercise their best judgement to determine the amount of the general provision.

Restricted Lending

Banks are free to lend to various sectors of the economy without any restriction, subject to large credit exposure limits.

Corporate Governance

Effective 1 June 2001, banks are required to maintain a high quality of corporate governance because of their special position of trust in the national economy and also to achieve the objectives of enhancing shareholder value and ensuring the safety and soundness of the financial system. The Guideline on Corporate Governance is currently under revision.

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Internet Banking

The Bank has issued a Guideline on Internet Banking, effective as from 2 April 2001. In terms of that Guideline, any institution licensed by the Bank of Mauritius which seeks to launch its own communicative and/or transactional website or utilize the communicative and/or the transactional website of a third party requires the prior approval of the Bank of Mauritius to that effect. Such approval should take into account, inter alia, a confirmation by the bank’s Board of Directors, the strategic plans, the internet security policy, the risk management framework, the terms and conditions for the services, a private policy statement and any outsourcing or strategic alliances that have been finalised.

Credit Risk Management

The Bank of Mauritius has issued a guideline on Credit Risk Management effective 5 January 2004, which sets out the responsibilities and accountabilities of the Board of Directors and Management of all deposit taking financial institutions for the formulation and management of credit risk policy. The credit risk policy of each financial institution should outline the processes to be used in managing the credit activity. The processes of the entire credit cycle are, inter alia, credit appraisal, approval, disbursement, monitoring and recovery.

Operational Risk Management and Capital Adequacy Determination

Effective 1 April 2005, a guideline on Operational Risk Management and Capital Adequacy Determination was issued to banks. The guideline outlines the essential elements of the principles for an effective operational risk management framework including, inter alia, the establishment of an Operational Risk Management Policy, the responsibilities and accountabilities of the Board of Directors and senior management, processes for identification, assessment, monitoring, reporting, control, mitigation of operational risk.

The requirements of the Guideline are supplementary to those of the guidelines issued under Basel II for the determination of capital adequacy, entailing a capital charge to be maintained by banks in relation to their operational risk. As such, there are three alternative approaches for calculating operational risk capital charge, namely the Basic Indicator Approach, the Standardised Approach and the Advanced Management Approach. Presently, all banks are subject to the Basic Indicator Approach for calculating the capital charge for operational risk.

Fit and Proper Persons

The Bank of Mauritius believes that fitness and propriety are undeniable pre- requisites for a financial institution to be run along sound principles. The officers holding senior positions in financial institutions should be competent, honest and financially sound and enjoy total integrity. In this regard, in March 2005, an updated version of the Guideline on Fit and Proper Person Criteria was issued, setting out the framework for assessing whether the person is fit and proper. A Fit and Proper Mauritius 93

Person Test should be carried out on senior officers, directors and shareholders with significant influence.

In accordance with the Banking Act 2004, financial institutions are required to give prior notice to the Bank before appointing a senior officer. The Bank may raise its objection, if any, for the appointment.

Furthermore, the Act requires all directors and seniors officers of financial institutions to take an oath of confidentiality in the Supreme Court of Mauritius before they commence any duties under the banking laws.

Outsourcing by Financial Institutions

Effective 1 June 2006, a guideline on Outsourcing by Financial Institutions was issued to all financial institutions falling under the supervisory purview of the Bank of Mauritius. The Guideline sets out a broad framework for financial institutions that have entered into outsourcing and/or planning to outsource their business activities to service providers. It covers issues relating to, inter alia, the role of the Board of Directors, policy formulation, risk evaluation, due diligence in selecting service providers, contract issues, service level agreement, contingency planning, confidentiality and security.

The guideline provides a three-tier classification of activities, namely, material, non- material and core. Financial institutions require the prior authorization of the Bank of Mauritius when outsourcing material activities. The core activities, as defined in the Guideline, cannot be outsourced except on certain specific circumstances.

Guideline for Institutions Conducting Islamic Banking Business

The Banking Act 2004 was amended by the Finance Act 2007 to enable existing banks licensed under the Banking Act 2004 to offer Islamic financial products through a window. The Bank of Mauritius has also been empowered to issue new Islamic banking licence in Mauritius to conduct Islamic banking business.

The Bank has issued a guideline for institutions conducting Islamic Banking Business in June 2008. The requirements of this guideline serve to complement the current regulatory framework applicable to financial institutions. Accordingly, in addition to this guideline, Islamic Banking Institutions are required to adhere to the other guidelines and guidance notes issued by the Bank of Mauritius.

The introduction of Islamic financial services will add to the repertoire of products that banks offer thus furthering the broader objective of making Mauritius a major international financial centre.

Anti-Money Laundering Measures

In June 2005, the Bank of Mauritius issued revised Guidance Notes on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) to financial Mauritius 94

institutions falling under its jurisdiction. The Guidance Notes which encompass all the principles set out in the revised Forty + Nine Recommendations for combating money laundering and terrorist financing issued by the Financial Action Task Force and the Basel Committee on Banking Supervision Paper on Customer Due Diligence for banks, outline the broad parameters within which financial institutions should operate in order to ward off money laundering and terrorist financing risks.

The Guidance Notes have further been reviewed in December 2009 to cater for the recommendations made by the Financial Sector Assessment Program (FSAP) following their mission from 24 September to 9 October 2007.

A list of all guidelines issued by the BOM is available on its website http:// bom.intnet.mu

Deposit Insurance

The Banking Act which came into force in November 2004 makes provision for the establishment of a Deposit Insurance Scheme to provide insurance against the loss of part of or all deposits in a bank in a manner that will contribute to the stability of the financial system in Mauritius and minimize exposure to loss. The Bank of Mauritius is actively considering the establishment of a Deposit Insurance Scheme and, as of date, a Working Group, comprising members from The Mauritius Bankers Association Ltd and Bank of Mauritius, is looking into the key characteristics of the Scheme.

Mauritius Credit Information Bureau

The Mauritius Credit Information Bureau (MCIB), fully owned and operated by the Bank, was established in 2005 under the provisions of the Bank of Mauritius Act 2004. It collects information from all institutions offering credit including leasing facilities and hire purchase and utility companies and consolidates, stores and discloses this information to its participants. The Act also provides for the credit bureau to impart information to recognized external credit assessment institutions for credit rating purposes.

Participants of the MCIB are, as from 1 December 2005, required to consult the MCIB before approving, increasing or renewing any credit facility.

Where it appears to the Bank that any participating institution has refrained from complying, or negligently failed to comply, with any statutory requirement imposed with respect to the MCIB, the Bank is empowered to – issue directives to remedy the situation, – impose penalties, – revoke licences of institutions licensed by it, or – refer the matter to the relevant authority for action as appropriate in case of institutions other than those licensed by the Bank.

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Ombudsperson

The Banking Act 2004 provides for the appointment of an ombudsperson for dealing with complaints against financial institutions by their customers. The Minister of Finance and Economic Empowerment has in his Budget Speech 2009 stated that an office of the Ombudsperson will be set-up to merge the functions of the ombudsperson for banking, for non-banking financial services and the Commissioner for the Protection of Borrowers.

Conservator

Provision has been made for the appointment of a conservator for the purpose of taking in charge the assets of a financial institution for the protection of depositors where the central bank has reasonable ground to believe that the institution’s capital has been or may be impaired or its directors are engaging in practices that are detrimental to the interests of depositors or where the institution has violated purposely or negligently the provisions of laws or guidelines.

Licence Fee

Banks are required to pay to the Bank of Mauritius such annual licence fee as may be prescribed by regulations made by the Bank with the approval of the Minister. The Banking (Processing and Licence Fees) Regulations 2007 came into operation on 15 April 2007. They set out the processing and annual licence fees for banks, non-bank deposit-taking institutions, foreign exchange dealers and money changers.

The Regulations had been revised in 2009 to further refine the determination of the fixed fee component of the annual licence fee payable by financial institutions.

9.1.6 Main supervisory practices

The supervision of banks is exercised through off-site surveillance and on-site examination. Banks are required to submit to the Bank of Mauritius periodical reports containing, inter alia, information on their assets and liabilities, off-balance sheet commitments, sectoral distribution of private sector credit, foreign exchange exposure, foreign currency assets and liabilities, foreign currency commitments, concentration of risks, risk-weighted capital adequacy, value range of loans and advances and bills discounted, ownership and value range of deposits, maturity value of time deposits, particulars of investments, profit and loss accounts and schedules, amounts due to and from subsidiaries, related party transactions and impaired credit facilities. These reports are analysed to monitor the condition and performance of banks on an on-going basis. The off-site surveillance is done on a systematic and integrated system along the lines of the CAMEL system. Based on the performance indicators of the components of CAMEL, a rating is assigned and communicated to each bank on a quarterly basis. The Bank has started to disclose the CAMEL rating of individual banks as from March 2011 on its website. The disclosure is carried out on a half yearly basis. Mauritius 96

Furthermore, every bank is required to appoint annually an external auditor to audit its accounts, and such appointment is subject to the approval of the Bank of Mauritius. Banks are required to prepare and publish financial statements in such form as the Bank may approve. The guideline on public disclosure of information requires each financial institution to disclose relevant information in the required format including a management discussion analysis report.

The Bank of Mauritius is empowered under the Banking Act 2004 to conduct regular examinations of the operations and affairs of every financial institution at least once every two years to assess whether the financial institution is duly observing the provisions of the banking laws, guidelines, and instructions issued by the central bank and is in a sound financial condition.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

In October 2008, the Minister of Finance and Economic Empowerment made two regulations stipulating the compoundable offences under the Banking Act 2004 and the Bank of Mauritius Act 2004. The Bank can now impose fines on institutions for specified offences, but only with the consent of the Director of Public Prosecutions and of the institution concerned.

9.1.8 Revocation of Licences

The Bank of Mauritius may revoke the licence of a bank, where, inter alia, the bank in question: – fails to commence business within a period of 12 months from the date the licence is issued; – is carrying on business in a manner which is contrary or detrimental to the interests of its depositors or the public; – has insufficient assets to cover its liabilities to its depositors or the public; – fails to comply with any directive or instruction issued by the central bank under the banking laws; – contravenes any provision of the banking laws; – has been convicted by a court in Mauritius, a court of the Commonwealth or a court of such other countries as may be prescribed, of an offence under any enactment relating to anti-money laundering or prevention of terrorism or the use, laundering in any manner, of proceeds or funding of terrorist activities or other illegal activities or is the affiliate or subsidiary or parent company of a financial institution which has so been convicted, provided the conviction is a final conviction; – ceases to carry on banking business; – goes into receivership or liquidation, is wound up or otherwise dissolved; or – in the case of a branch of a bank incorporated abroad, such bank has lost its banking licence in the jurisdiction where its head office is located.

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9.1.9 Offences by Directors or agents of banks

Any director, chief executive officer, manager, officer, employee or agent of a bank shall commit an offence and shall on conviction be liable to a fine not exceeding one million rupees and to imprisonment for a term not exceeding five years, if he – makes, with intent to deceive, any false or misleading statement or entry or omits any statement or entry in any book, account, report or statement of the bank; – obstructs an inspection or examination of the bank under the Banking Act; – fails to take all reasonable steps to ensure compliance by the bank with the Banking Act; or – is privy to any of the above mentioned offences and fails to report them to a senior officer or in the case of a director, to the Board of the central bank.

The directors and senior officers are also liable to various other penalties for breaches of other provisions of the Banking Act 2004.

9.1.9.1 Powers of the Bank following regular or special examination

Where an inspection or examination of a bank by the Bank of Mauritius discloses that the bank is conducting its business in a manner detrimental to the interests of its depositors or the bank has insufficient assets to cover its liabilities or the amount paid as the bank’s stated capital or assigned capital, as the case may be, is impaired or the bank is otherwise in an unsafe or unsound condition, the Bank of Mauritius may take any of the following actions: – impose conditions on the bank’s licence or vary conditions attached thereto; – require the bank forthwith to take such steps as may appear to the central bank to be necessary to remedy the situation; – appoint a person to advise the bank in the proper conduct of its business and fix the remuneration to be paid by the bank to the person so appointed; and – revoke the bank’s licence.

9.2 Non-bank financial institutions

9.2.1 Responsibility for regulation and supervision of non-bank financial institutions

As at 30 June 2011, 11 non-bank deposit taking institutions were licensed under the Banking Act 2004 to undertake deposit taking business in Mauritius. These institutions are supervised by the Bank of Mauritius through off-site monitoring and on-site examinations.

The Financial Services Act 2007, that came into force on 28 September 2007, regulates financial services which do not fall under the aegis of the Bank of Mauritius. Prior thereto those financial services were regulated under the Financial Services Development Act 2001. The Financial Services Commission is Mauritius 98

responsible for supervising the capital market and other non-banking financial businesses such as leasing, insurance, unit trusts etc.

9.2.2 Memorandum of Understanding (MOU) between the Bank of Mauritius (BOM) and other institutions

Financial Services Commission (FSC)

A Memorandum of Understanding (MOU) was signed on 5 December 2002 between the Bank of Mauritius and the Financial Services Commission (FSC). The Memorandum of Understanding sets out a framework of co-operation between the BOM and the FSC in their common pursuit to maintain a safe, efficient and stable financial system in Mauritius. Both supervisory bodies, under the terms of the MOU, work in close collaboration to ensure the setting up of appropriate arrangements to respond to threats to financial stability, and to coordinate information sharing and avoid duplication.

On 12 July 2007, as part of the process of promoting a more structured collaboration and coordination between them, the Bank and the FSC signed a Protocole D’Accord and launched the Joint BOM/FSC Coordination Committee. The main purpose of the Protocole D’Accord is to expand on the scope of the MOU signed between the two regulatory and supervisory bodies in December 2002. The Protocole D’Accord makes further provision for the parties to agree on the extent of their responsibilities and harmonization of their procedures with respect to financial institutions which are regulated by both institutions. The BOM and the FSC have also agreed to the principle of rotating Chairmanship.

Central Statistics Office (CSO)

A Memorandum of Understanding between the Bank of Mauritius and the Central Statistics Office was signed on 03 March 2009 with a view to have a more structured collaboration between the BOM and the CSO and to promote quality statistics and avoid overlapping and duplication in the collection and production of statistical information. The BOM and the CSO have also agreed that staff and resources shall be made available to each institution for participation in technical committees to be established to ensure that the aims and objectives of the Memorandum of Understanding are achieved.

Financial Intelligence Unit (FIU)

A Memorandum of Understanding between the Bank of Mauritius and the Financial Intelligence Unit was signed on 12 November 2009 as part of the National effort in combating money laundering and terrorist financing. The MOU underscored the need for consultation, cooperation and assistance between the Bank and the FIU.

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Mauritius Revenue Authority (MRA)

A Memorandum of Understanding between the Bank of Mauritius and the Mauritius Revenue Authority for the purpose of, amongst others, gauging activities in the real sector of the economy and also setting out the framework of their co-operation in the interest of the economy was signed on 31 December 2009.

Competition Commission of Mauritius

A Memorandum of Understanding between the Bank of Mauritius and the Competition Commission of Mauritius was signed on 26 August 2010 for the purpose amongst others, of mutual consultation and information-sharing between the two institutions with the aim of avoiding inconsistent decisions, ensure complementarity in policies and smooth out potential sources of conflict.

9.2.2 Categories of financial institutions and their licensing procedures

Deposit-taking business by non-bank financial institutions

A non-bank deposit taking institution (NBDTI) is an institution other than a bank which has been authorized by the Bank of Mauritius under the Banking Act 2004 to conduct deposit taking business. Deposit-taking business means the business of accepting deposits of money for the purpose of financing the specific activities of the non-bank deposit taking institution receiving such deposits or such other activities as may be approved by the central bank and investment in Government securities, Bank of Mauritius Bills issued under the Bank of Mauritius Act 2004 or such other investment as may be approved by the central bank. It also means the business of accepting Islamic deposits for the purposes of financing the activities of the non- bank deposit taking institution receiving such deposits or such other activities as may be approved by the central bank, the aims and operations of which are, in addition to the conventional good governance and risk management rules, in consonance with the ethos and value system of Islam.

With the proclamation of section 12(5) of the Banking Act 2004 which became effective 1 June 2007, a non-bank deposit taking institution is subject to the same prudential regulation as a bank and any guidelines and instructions issued thereunder and the existing terms and conditions of non-bank deposit taking institutions shall stand amended to that effect.

Foreign Exchange Dealers and Money-Changers (Bureaux de Change)

Any body corporate, other than a bank, wishing to carry on the business of cash dealer in Mauritius shall apply to the Bank of Mauritius for a foreign exchange dealer licence or a money-changer licence, as the case may be.

A foreign exchange dealer is permitted to conduct the business of buying and selling of foreign currency, including spot and forward foreign exchange transactions, Mauritius 100

wholesale money market dealings and the business of a money changer and/or money or value transfer services.

A money changer is licensed to carry on solely the business of buying and selling foreign currency notes, coins and travellers cheques, the replacement of loss or stolen travellers cheques and encashment under credit cards.

Cash dealers are subject to off-site surveillance and on-site examinations carried out by the Bank of Mauritius. Foreign exchange dealers are required to maintain liquid assets equivalent to or not less than 10 per cent of their liabilities or such higher percentage as may be prescribed by the Bank of Mauritius.

Foreign exchange dealers and money changers are required to pay an annual fee as prescribed by regulations made by the Bank of Mauritius and shall, at all times, display in a conspicuous place at their principal place of business, the licence granted to them and an authenticated copy of the licence in each branch or office.

With a view to fostering competition in the domestic foreign exchange market, the Bank decided in July 2008 to licence more money-changers.

As at 30 June 2011, 6 foreign exchange dealers and 10 money-changers were operating in Mauritius

9.2.3 Capital requirements for Cash Dealers

A cash dealer has to maintain at all times such amounts of capital as may be determined by the Bank of Mauritius.

A foreign exchange dealer, other than a bank, shall at all times maintain such minimum liquid assets, equivalent to not less than 10 per cent of its liabilities or such higher percentage, as may be determined by the Bank of Mauritius.

9.3 Credit Information Bureau and External Credit Assessment Institution

The Banking Act 2004 has been amended in the Finance (Miscellaneous Provisions) Act 2008 to enable the Bank of Mauritius to licence any company which is desirous of engaging in the business of credit information bureau and to recognize an institution as an external credit assessment institution.

9.3.1 Credit Information Bureau

Any company wishing to carry on the business of credit information bureau, i.e. collecting, consolidating and collating trade, credit and financial information whether fund based or non-fund based on recipients of credit facilities and guarantors for sale to creditors, must apply to the central bank for a credit information bureau licence.

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9.3.2 External Credit Assessment Institution

Any institution desirous of being recognised by the central bank as an external credit assessment institution, i.e., an institution which has been recognised by the central bank under the Banking Act 2004 for the purposes of carrying on the business of assigning credit ratings on debt instruments and on issuers of debt instruments, shall submit an application for recognition to the central bank in such medium and in such form as the central bank may determine and shall be accompanied by such information or document as may be required for the purposes of determining the application.

10. National payment, clearing and settlement system

10.1 How is the payment, clearance and settlement system organised?

The Payment System in Mauritius consists for five interconnecting blocks,that enable all payment activities in Mauritius:

The Mauritius Automated and Clearing and Settlement System (MACSS) Operated by the Bank of Mauritius, the MACSS is a Real Time Gross Settlement (RTGS) system with guaranteed finality of payment, based on the credit push principle.

The Port Louis Automated Clearing House (PLACH) Also operated by the Bank of Mauritius and fully integrated with the MACSS, the PLACH performs netting on cheque data that are sent to the clearing house by electronic means and performs settlement at each clearing cycle on the MACSS.

Contribution Network Project (CNP) Operated by the Mauritius Network Services (MNS), the CNP connects all large employers, and the majority of small ones, to the revenue authority via a single point of contact. The final settlements are done through the MACSS at the Central Bank which maintains the accounts of the Mauritius Revenue Authority.

Central Depository System (CDS) This system is operated by the Stock Exchange of Mauritius and allows delivery versus payment of stock exchange transactions on a T+3 rotating basis via the MACSS. Transactions in MUR and USD are settled through the MACSS.

Card Settlement Systems This is a private initiative on behalf of commercial banks to settle inter-bank rupee transactions made through credit cards.

10.2 What is the role of the Central Bank in the system?

The Bank of Mauritius is entrusted with the duty to promote, regulate and organize the efficient and secure operation of the payment and clearing system.

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Section 48(1) of the Bank of Mauritius Act 2004 provides for the Bank, in conjunction with banks, to organize a clearing house to facilitate the clearing of cheques and other payment and credit instruments and issue instructions concerning such instruments, their processing, collection, payment and retention and the functioning of other clearing houses that it may authorize.

Section 48(6) of the Act empowers the Bank to issue instructions or to make regulations for the smooth functioning of a clearing house and payments system.

10.3 Short description of the processing of payment instructions

MACSS is a SWIFT-Ready application and therefore strictly adheres to SWIFT Message protocols. Participants send payment instructions to and receive settlement notification from the MACSS via SWIFT network. The funds transfer mechanism in MACSS is based on the SWIFT Y Copy scheme and the MUP service which is owned and operated by the Bank of Mauritius.

Payment instructions sent to the MACSS are subject to a priority value set by the sender and all instructions of same priority are settled in real time on a first in first out basis. Most instructions are sent with a priority of 99 which is the lowest priority and means ‘settled or rejected’, i.e., the instruction is rejected if funds are not available in the account at the time of settlement. Instructions may be sent with higher priorities to be queued until funds are available. All queued payment instructions are cancelled at end of day.

Participants of the MACSS are also connected to the central application by a private and secured network for monitoring purposes. In case of SWIFT outage, this network can be used to send payment instructions.

Since December 2009, the multi-currency feature of MACSS has been enabled and the system now settles payments in USD, EUR and GBP in addition to the MUR in real time with finality.

Cheque payment instructions are processed separately in the Port Louis Automated Clearing House application and settled via special clearing transactions in the MACSS.

Two clearing sessions are held daily from Monday to Friday. Net settlement is effected in the RTGS system after each clearing session. Electronic files containing details of the MICR code line and amount are exchanged between participants. Another file containing settlement details are sent to the Port Louis Automated Clearing House for settlement. Each participating bank has been allocated a unique 2-digit code that was used in the MICR code line to identify the bank issuing the article. The same code was used to identify participating banks in the data files, which were exchanged between participating banks. The documents that are cleared are cheques, drafts, debit vouchers, credit vouchers and other claims on member banks drawn in Mauritian rupees, as well as articles drawn in foreign currencies up to a value of Rs10,000. The exchange of articles presently takes Mauritius 103

place at the Bank of Mauritius when the participants meet after each clearing session.

10.4 How are non-funded positions settled in the system?

Non-funded positions have not arisen as all banks are required to maintain adequate cash balances in their current accounts held with the Bank of Mauritius. The balances on these current accounts are monitored on a daily basis at the Bank. Settlement instructions, which bear same day value, are effected electronically through the MACSS system which maintains the accounts of all participants. In the event that these banks are in need of funds during the day, they may have recourse to intra-day facility from the Bank of Mauritius against eligible collateral securities. These facilities should be repaid by the end of the day.

10.5 International Bank Account Number (IBAN)

The Bank of Mauritius implemented the International Bank Account Number (IBAN) format in March 2006. Banks in Mauritius are increasingly engaging in cross-border banking transactions. In this connection, the Bank of Mauritius initiated action with a view to adopting an IBAN format for Mauritius. Extensive consultations were held with banks during the previous year. A consensus was thereby reached on the IBAN format which was implemented by banks as from March 2006. Banks were requested to issue an IBAN to their clients as from 1 April 2006.

The IBAN consists of 30 alphanumeric characters as shown below:

MU67BOMM0101123456789101000000

The first two letters represent the Country Code for Mauritius The next two digits represent the Check Digits for validation purposes. The next four letters represent the SWIFT code of the Bank of Mauritius. The next two digits represent the Bank Code. The next two digits represent the Branch Code. The next twelve digits represent the National Account Number. The next three characters have been reserved for any future needs (to be filled in with zero for the time being). The next three characters have been reserved for the currency code.

The Bank of Mauritius has made a request to the European Committee for Banking Standards (ECBS) to register the IBAN format for Mauritius and has already forwarded to the ECBS the information called for.

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11. Currency in use

11.1 List of legal tender notes and coins currently issued and in use in the economy

Currency - Rupee - 100 cents equal one Rupee Notes - 2000 Rupees, 1000 Rupees, 500 Rupees, 200 Rupees, 100 Rupees, 50 Rupees, 25 Rupees Coins - 20 Rupees, 10 Rupees, 5 Rupees, 1 Rupee, 50 Cents, 20 Cents, 5 Cents, 1 Cent, Commemorative coins and the Dodo Gold Bullion coins

12. Some Other activities of the Bank of Mauritius not covered above

The Bank may – issue bills and demand drafts, and effect remittances of funds; – purchase/sell gold coins, gold bullion or gold; – open and maintain accounts for the Governor, Deputy Governors and members of the staff; – invest in securities of government on behalf of staff funds and superannuation Funds and other internal funds of the Bank; – issue and hold Bank of Mauritius Bills and purchase and sell outright or by way of repurchase agreement, Bank of Mauritius Bills; – regulate the fees or charges in respect of the services provided by banks; and – appoint, on such terms and conditions as it may deem fit, fit and proper persons to act as Primary Dealers.

13. The position of the central bank in SADC

13.1 Special relationship with other central banks in SADC (CMA excluded)

The Bank of Mauritius does not have any special relationship with other central banks in SADC. The Bank participates, however, in collaborative projects with other SADC central banks, such as short-term attachments with a view to promoting the mutual exchange of experience.

14. Publications

14.1 Regular published publications

The Bank of Mauritius publishes its Annual Report as of end-June each year. As from June 2011, the Annual Report of the Bank will also cover developments in the area of Banking Supervision and Regulation. These were previously reported in a separate publication, namely, the Annual Report on Banking Supervision. The Bank also publishes a Monthly Statistical Bulletin. As per section 33(2)(b) of the Bank of Mauritius 105

Mauritius Act 2004, the Bank shall publish at least twice a year statements on price stability and on the stability and soundness of the financial system. Accordingly, the Bank has started publishing bi-annual Financial Stability Reports and Inflation Reports since July and November 2008, respectively.

14.2 Occasional/special publications since 1990

Since 1990, the Bank has published the following occasional papers:

1. Monetary policy making in Mauritius, co-authored by Prof Maxwell Fry and Mr R. Basant-Roi, the then Director-Research, which appeared in the Quarterly Review January-March 1995. - Occasional Paper Series No.1 2. The determinants of interest rate spread: Empirical evidence on the Mauritian Banking Sector by P. Ramful (Research Officer) -May 2001. 3. The impact of the Africa Growth and Opportunity Act and the phasing out of the Multi Fibre Agreement on the Mauritian Economy by Vimal Thakoor-Research Officer-April 2003. 4. The Experience of Mauritius with the Lombard Rate: An Overview by Vikram Punchoo-Senior Research Officer, April 2004. 5. Determination of an Equilibrium RS/US$ RATE according to the purchasing power parity- By Marjorie Heerah-Pampusa, Assistant Director-Financial Markets Department, and Padma Hurree-Gobin, Senior Research Officer, research Department-30 June 2006.

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Banco de Moçambique

Banco de Moçambique PO Box 423 Maputo, Mozambique Fax: +258 1 29718 Tel: +258 1 428151

1. History

Banco de Moçambique (BM), was established on 17 May 1975, conducting both commercial and central bank operations. However, as a result of the financial sector reforms, in 1992 the Government decided to split the two functions, creating for commercial aims the Banco Commercial de Moçambique (BCM), now integrated on group BIM, the major commercial bank in the country.

2. Relationship with government

The independence of the BM is guaranteed by Law no. 1/92, which creates and states that the BM is the Monetary and Foreign Exchange Authority of the Republic of Mozambique. However, it states that in the realisation of its objectives the BM shall respect the economic policy defined by the Government of the Republic of Mozambique.

According to the Constitution of the Republic of Mozambique, the President of the Republic appoints the Governor and deputy Governor of the BM for a period of five years.

The relationship between the BM and the Government in formulating monetary policy lies in the level of co-ordination, as Law no. 1/92 states, the BM is responsible for designing and implementing the monetary policy, according to all the macroeconomic objectives of the Government.

The Board of the Bank is composed of seven members: The Governor and Deputy Governor who are appointed by the President of the Republic, and five General Managers who are appointed by the Prime Minister. They can only be dismissed for a serious reason.

According to Law no. 1/92, the number of Board members is limited to 7, i.e. Governor, Deputy Governor and five General Managers. The central bank is allowed to grant credit to the Government to an amount not exceeding 10 per cent of the Government’s ordinary revenue collected in the previous two years. This credit has

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to be settled during the same fiscal year. Any outstanding amount bears interest at the rediscount rate.

On behalf of the government, the central bank intermediates the sale of Treasury bills issued by the Government to the commercial banks, manages the Government loans to be allocated to the economy through the commercial banks (refinancing process).

3. Structure

As from June 2011, five agencies and one Department were turned into branches, thus totalizing eight branches distributed along the equal number of cities.

The specialised functions reserved for central bank branches are:

 co-ordinate clearing operations among commercial banks (including the central bank) in that specific region;  Hold Government accounts and to do operations with the Government;  Promote operations both in domestic and foreign currencies;  Provide technical and specialized support to local financial operators, particularly those operating in microfinance area;  Elaborate specialized information on their jurisdiction in a regular basis;  Ensure a more regular provision of banknotes and coins of the Metical to commercial banks nearest operating areas.

4. Design and conduct of monetary policy

4.1 Main objectives of monetary policy

The main objective of the monetary policy in Mozambique, consistent with the goal of the government’s economic policy, is to reduce inflation.

4.2 Instruments of monetary policy

The main instruments of monetary policy are:

- Open Market Operations; - The Bank of Mozambique reference interest rates (the Standing Lending Facility and the Standing Deposit Facility); - Reserve Requirement Ratio; and - Moral suasion.

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4.3 Types of refinancing as well as collateral used

The refinancing policy by Banco de Moçambique, whereby it advances overnight funds to commercial banks against Treasury Bills as collaterals, aims at liquidity management, according to the reserve money target.

4.4 The money supply aggregate that plays the main role in monetary policy

The money supply aggregate playing the major role in the monetary policy is the reserve money, as an operational target and M3 as the intermediate target.

4.5 Reserve requirements on financial institutions

The reserve requirement has been extended to all deposits (deposits in local and foreign currency, demand and time deposits) in the banking institutions operating in Mozambique’s financial system, including Government deposits, deposits of commercial banks with other commercial banks outside the monetary market (since April 1998).

The reserve requirement, for deposits both in local and foreign currency, to be placed two weeks with the central bank, must be denominated in local currency (Metical), referring to the average deposits of the preceding two weeks.

In the context of the gradual abandonment of direct monetary control, the BM introduced the Inter-bank Monetary Market in September 1997, in which open market operations are performed as well as liquidity exchanged between credit institutions.

5. Structure of the financial markets

5.1 Organization of the money and capital markets

The Interbank Money Market (MMI) was introduced in September 1997. It comprises:

- Operations of exchange of liquidity among the commercial banks; - Issuance and trading of Treasury Bills (issued by central bank on behalf of government) for Monetary Policy Purposes and to Finance the Temporary Deficits of the Current Budget (subject of request of MoF); - Issuance of Central Bank Bills (TAMs) for Monetary Policy Purposes, suspended since August, 2004; - Availability of Deposit and Lending Standing Facilities (Commercial Banks Initiative); - Repo and reverse repo operations were introduced formally in June 2007 by the Central Bank, with transactions (reverse repo) starting in July 2007 and in July 2008 the BM software became suitable to repo transactions, and the first

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operations between the Central Bank and commercial banks occurred in the second half of 2009 as did the operations amongst commercial banks.

The capital (stock) market was introduced in October 1999.

5.2 Instruments used in both markets

- Treasury Bills (T-Bills); - Central Bank Bills (TAMs); - Standing Facilities; - Reserve Requirements (ROs); - Repo and Reverse Repo; - Treasury (Government) Bonds (T-Bonds), and; - Corporate Bonds and Equities.

5.3 Legal Frameworks existing for the Money and Capital Markets

BM is the intermediary of Treasury Bills (T-Bills) and the Commercial Banks of Treasury Bonds (T-Bonds).

Existing Notices in Money and FOREX Markets:

- Notice nº 10/GGBM/2005, 28th September, Treasury Bills (T-Bills); - Notice nº 05/GGBM/2006, 28th December, Interbank Foreign Exchange Market (MCI); - Notice nº 11/GBM/2007, 19th June, Repurchase Operations of fixed income securities; - Notice nº 01/GBM/2009, 26th January; Interbank Money Market (MMI); - Notice nº 11/GGBM/2009, 26th January, Markets Operations System (SOM); - Notice nº 01/GBM/2011, 24th January , Reserve Requirements; - Notice nº 02/GBM/2011, 27th April, Interbank Foreign Exchange Market (MCI).

6. External payment arrangements

6.1 Determination of exchange rate policy

The central bank is responsible for designing and conducting Foreign Exchange Policy in Mozambique.

6.2 The present exchange rate system

The present exchange rate regime is the free floating system.

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6.3 Organising the exchange market

The participants in the inter-bank foreign exchange market are the central bank and commercial banks. Foreign exchange is freely traded, namely export proceeds and invisibles. Funds from import support are also marketed in this market according to the conditions stated in the agreements by the donors/financiers.

6.4 Management of foreign reserves

6.4.1 Legal Framework

- Law 1/92, of 3rd January – Law of the Banco de Moçambique, which defines the nature, objectives and functions of the Bank as Central Bank of the Republic of Mozambique. - Investment Policy - Guidelines

6.4.2 Rationale for holding reserves

a) Meet foreign exchange needs and external obligations - Service foreign exchange liabilities and public debt obligations; - Provide foreign exchange for operational purposes/transactional needs.

b) Support monetary exchange rate management policies - Intervene in support of the domestic currency, providing confidence to markets.

c) Limit external vulnerability - Provide a buffer to absorb shocks during times of crises, in terms of imports coverage.

6.4.3 Reserve management Objectives

Capital preservation – to ensure that liquidity, market and credit risks are controlled in a prudent manner;

Liquidity - to ensure that adequate foreign exchange reserves are available to meet the following objectives:  provide confidence that the country can meet short term foreign debt obligations;  support monetary and exchange rate policy;  buffer for times of crises; and

Income generation – to ensure that, subject to liquidity and other risk constraints, efficient earnings are generated over the medium and long term on the funds invested.

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6.4.4 Strategic Currency Composition

Working Capital Tranche - is denominated in the currency composition of historical average of monthly transaction and FX intervention currency; Liquidity Tranche - is denominated in the currency composition of historical average of 3 months of imports and the currency composition of the short term debt; Investment Tranche - is designed to replicate the currency composition of the stock of external public debt.

6.4.5 Strategic interest rate risk

The strategic target effective duration of the portfolio is set up to be consistent with the maximization of long term annual average returns attributable to interest rate exposure, subject to a low probability of posting negative returns on any given year. The Investment Committee reviews the strategic asset allocation in accordance to the approved criteria prior to the beginning of every fiscal year when significant changes in volatility or level of interest rates take place.

7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

The domestic currency (Metical - MZM) is not convertible, either internationally or regionally.

7.2 Exchange control restrictions on current account transactions

No restrictions are imposed on the export of goods. Only registration is needed with the Customs, for statistics and balance of payment purposes.

The import of goods must be preceded by negotiation of foreign currency with commercial banks and then it must be registered at the Customs.

There are no restrictions on the entry of earnings for services. Only registration with the banking system bureaux of exchange is required, and subject to conversion into MZM, the retention in foreign currency is allowed up to 50 per cent, after covering domestic debt service in foreign currency. Payments for current transactions are liberalized.

As from 2006, with the purpose of minimizing the foreign exchange risk on banking loans, the financial institutions were obliged to create a provision of 50 per cent for each loan in foreign currency granted to non-exporter entities or individuals.

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7.3 Restrictions on capital account transactions

Capital transactions are subject to approval of the central bank. The entry and exit of foreign currency is allowed up to equivalent USD 5000 and no need for declaration. Amounts above USD 5000 have to be done by a bank transfer. Under the present investment law, foreigners are allowed to invest in Mozambique. The expatriation of profits and invested capital (at the end of the investment) are also allowed and regulated by the law.

7.4 Retention rules for foreign exchange earned or owned by residents

The new regulation establish that foreign exchange earned have to be converted to MZM and the retention in foreign currency is up to 50 per cent. Residents are allowed to hold foreign currency accounts in the foreign currency, even if they are not exporters.

The bureau de change can only transact with individual, and sell foreign currency for purpose of travel abroad up to equivalent USD 5000.

The account in foreign currency can only withdraw up to USD 5000 per transaction and for the purpose of travel abroad.

8. The Central Bank and external debt

8.1 The role of the central bank in managing the country’s external debt The role of the central bank in managing the external debt is the following:

- Monitor the external debt service;

a) Government’s adviser on multilateral and bilateral negotiations of external debt.

b) For the private sector indebtedness, is required a previous authorization by the central bank. The private sector debt service is effected with the commercial banks prior to disbursement registration at the central bank.

8.2 The role of the Treasury in this respect

The Treasury controls the public debt by budgetary measures.

9. Supervision of banking institutions

9.1 Banks

9.1.1 Authority responsible for banking supervision

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The central bank is the authority responsible for banking supervision through its Bank Supervision Department.

9.1.2 Licensing procedures for establishing a new bank

The licensing procedures for establishing a new bank are the following:

- Formal application to the central bank (BM), through bank supervision department; - After evaluation, the department gives its opinion and submits the application to the governor - Governor decision comes within ninth (90) days from the date on which the application is submitted to the Bank of Mozambique.

9.1.3 Types of licences that exist

Banks are allowed to conduct general operations and Microbanks operate in Microfinance

9.1.4 Minimum capital requirements for the banks

At present, the minimum paid-up capital required for banks is 70 million Meticais for banks – roughly US$ 3 millions at present exchange rate.

9.1.5 Regulations governing current activities of banks

a. Large credit exposure - Financial institution shall not grant an advance or credit facility to a single customer or group of customer which exceed 25 per cent of its total regulatory capital. - Advances or credit facilities that are equal or greater than 10 per cent of total capital are considered large exposure. The aggregate limit on large exposure shall not exceed eight times the total capital. Notwithstanding, a financial institution may grant an advance or credit facility in excess of twenty five percent of its total regulatory capital with prior approval of Bank of Mozambique if the facility is adequately secured by—(a) Mozambique Government; (b) deposits held by the financial institution and secured by a lien; (c) Bank of Mozambique; (d) Foreign Government and Central Banks (e) International Financial Organization.

b. Capital adequacy ratio is 8 per cent as established by Basle Committee requirement.

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c. There is no regulation on the liquidity ratio yet. However, a maturity gap approach is applied to assess liquidity amongst the supervised instituitions. d. Foreign exchange positions

- The net open foreign exchange position in each currency must not exceed 10 per cent of the total regulatory capital. - The overall net open foreign exchange position is fixed at 20 per cent of the total regulatory capital. e. Provision for bad loans

The provisions are recognized when the loan fall due and according to its classification. There are six categories (classes) of non-performing loan:

Category I principal or interest is due and unpaid up to 90 days Category II principal or interest is due and remain unpaid for more than 90 days to 180 days; Category III principal or interest is due and unpaid for more than 180 days to 270 days; Category IV principal or interest is due and unpaid for more than 270 days to 360 days; Category V principal or interest is due and remain unpaid for more than 360 days to 540 days; Category VI principal or interest is due and remain unpaid for more than 540 days

The specific provision for the above mentioned categories are calculated as a percentage of outstanding balance of the credit facility, taking into account, the security held on the facility. The restructuring of the facility does not change the classification category and the corresponding level of provisions:

Class III Class IV Class V Class VI Class I Class II Residential 5 15 20 50 75 100 mortgage Property 5 15 25 50 75 100 Leasing Commercial 5 15 35 60 85 100 mortgage Other 10 20 40 75 100 securities Unsecured 15 25 50 75 100

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f) Deposit insurance The draft of deposit insurance scheme has been submitted to the Ministery of Finance to be approved by the cabinet

9.1.6 Main supervisory practices used

The supervisory approach comprises off-site supervision and on-site supervision. The Off-site supervision is conducted on a daily, monthly, quarterly and annual basis using several indicators to assess the financial soundness of the banks. The indicators include Asset quality, Liquidity, Capital Adequacy and Earnings and are derived from returns submitted by banks on a periodic basis. On-site supervision is conducted within the financial institution premises according to the supervision work plan or on ad-hoc basis. Furthermore, reports based on such analysis are submitted to the Board of the BM and of the supervised banks.

Regular meetings are held with the financial institutions to discuss general and specific aspects of the prudential regulations.

The department is moving towards full implementation of risk based supervision since March 2007.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

In order to remedy/prevent deficiencies, the Banking Supervision Department of the central bank has been using moral persuasion and assuming an educational posture. However penalties, including charges and temporary or definitive suspension are envisaged for non-compliance with the regulations.

9.2 Non-banking financial institutions

9.2.1 Responsibility for supervision of non-banking financial institutions

The central bank is also responsible for the supervision of the non-banking institutions (except insurance companies and pension funds), in conjunction with the Ministry of Finance.

9.2.2 Categories of financial institutions and their licensing procedures

The categories of financial institutions and societies are described on the law no. 15/99, amended by the law no. 9/04 and the Decrees 56/2004 and no.57/2004, the last of which focus on micro finance institutions that comprises both deposit taking and non-deposit taking institutions.

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9.2.3 Information as requested under 9.1 which is applicable to non-banking institutions

For licensing of non-banking financial institutions, a formal application must be submitted to the Governor with the following information enclosed:

- Amount of initial capital and the method of realisation. - Identification of the shareholders and their shares in the equity capital, as percentage of total. - Description of the main objectives of the institution and the financial and economic needs it intends to satisfy. - Any previous economic and financial feasibility studies - Statutary project made according to the law - Declaration that the money do not come from illegal activities - 5 per cent of capital must be deposited at Central Bank or issued a first demand guarantee

After evaluation the central bank gives the authorisation and proposes the specific conditions for the operation of the new institution, according to the overall objectives of the monetary and financial policies pursued by the Government.

There are limited licences for the non-banking financial institutions. The minimum capital requirement varies according to the type of institution.

Banking and Non-banking financial institutions are mainly regulated according to the law no. 15/99, amended by the law no. 9/04 and the Decrees 56/2004 and no. 57/2004, with effect from 10 December and by specific terms of the licence given.

The non-banking financial institutions must submit monthly balance sheets. Their annual balance and regular on-site inspections are done by the banking supervision department.

There are penalties for non-compliance with the regulations.

10. National payment, clearing and settlement system

10.1. Payment, clearing and settlement system organised

The payment system in Mozambique is composed by the following streams:

Automated Clearing House (ACH) for cheques and Electronic Funds Transfers (EFT).

Government Electronic Funds Transfer System (STF) – it allows same day settlement for government payment instructions.

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Settlement of VISA card (debit and credit) transactions through National Net Settlement System.

Settlement of national debit cards transactions branded Ponto24. The cards are issued by Interbancos, a private company that owns a switch interlinking five commercial banks.

Settlement of stock exchange transactions (BVM)

Banco de Moçambique is the settlement agent for all the payment streams in Mozambique.

Money Market both for Domestic and Foreign Currencies - it is a gross payment stream dedicated to settle the open market operations.

Mozambique Stock Exchange (BVM) – deal with securities transactions of government bonds and treasury bills as well as financial market instruments.

VISA International - For National Net Settlement System of VISA debit and credit cards.

Banco de Moçambique is in the process of introducing the Large Value Payment (RTGS) system that will address the processing, transmission and settlement of high value payments. The conceptual design of the RTGS system has been carried out by the SADC Payment System Project Team and Banco de Moçambique has adopted it as a guiding instrument in building its own RTGS system, suitable for Mozambique’s unique environment. The NPS act has been approved and promulgated in February 2008. The regulation package is being drafted and as soon as it is ready wiill be sent to the board of the Bank for approval. The system is expected to go live in December 2008.

10.2 Role of the central bank in the system

Banco de Moçambique acts as operator, coordinator, settlement agent and overseer of the NPS.

10.3 Recent developments

In retail payment stream we have introduced the check digit as a security feature in the cheques. In order to introduce EFT, we have introduced the bank identification number (BIN).

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10.4 Short description of the processing of payment instructions

We do not have a RTGS system in place. The clearing cycle for each of the payment system stream is as follows: D + 2 for cheques stream; D + 1 for Ponto 24; D + 3 for BVM; D + 1 for Visa and EFT and, D + 0 for money market transactions.

10.5 How are non-funded positions settled in the system

The settlement system does not allow banks to go overdraft in the accounts held at the central bank. Also, the banks have to comply with a daily reserve requirement of 9,0 per cent. The banking system is long in liquidity, thus we have not experienced the unfunded situation. Therefore, Banco de Moçambique is the lender of the last resort.

11. Currency in use

11.1 List of legal tender notes and coins currently issued in use in the economy, since 1st July 2007:

a-1) Notes and issuing dates:

1000 MTn (16 June 2006) 500 MTn (16 June 2006) 200 MTn (16 June 2006) 100 MTn (16 June 2006) 50 MTn (16 June 2006) 20 MTn (16 June 2006)

a-2) Coins issuing dates:

10 MTn (16 June 2006) 5 MTn (16 June 2006) 2 MTn (16 June 2006) 1 MTn (16 June 2006) 50 Cents (16 June 2006) 20 Cents (16 June 2006) 10 Cents (16 June 2006) 5 Cents (16 June 2006) 1 Cent (16 June 2006)

In the context of the currency reform process, which is in course, the following structure of notes and coins are simultaneously still circulating in the economy with the above indicated.

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b-2) Coins:

10 000.00 MT (2003) 5 000.00 MT (1998) 1 000.00 MT (1994) 500.00 MT (1994) 100.00 MT (1994) 50.00 MT (1994 ) 20.00 MT (1980 and 1994) 10.00 MT (1980 and 1994) 5.00 MT (1980 and 1994) 2.50 MT (16.06.80) 1.00 MT (1980 and 1994) 50 Cents (16.06.80)

12. The position of the central bank in SADC

12.1 Special arrangements with other central banks in SADC (CMA excluded)

BM has been cooperating with the other Central Banks in the SADC region under SADC regional payment system project. Banco de Moçambique, has a bilateral agreement for clearing and settlement.

13. Publications

13.1 Regularly published publications

The BM publishes the following regularly bulletins:

- Annual report; - Report on prices and financial situation (Quarterly); - Monthly Bulletin (Monthly); - Quarterly Statistical Bulletin; and - Press release on Recent Development on a fortnightly basis.

13.2 Occasional/special publications published since 1990

Twenty-three "staff papers" and three occasional papers have been published, and there is a set of other occasional publications which include documents on the regulations and laws concerning the financial sector.

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Bank of Namibia

Bank of Namibia PO Box 2882 Windhoek, Namibia Fax: + 264 61 283 5151 Tel: + 264 61 283 5111 Webpage: www.bon.com.na

1. History

The Bank of Namibia was created by an Act of Parliament in compliance with the Namibian constitutional provision under Article 128. The Bank of Namibia started its operations on 1 August 1990. In 1993, the national currency, the Namibia dollar, was introduced and is pegged at par with the South African rand.

The Bank of Namibia operates as an independent and autonomous institution, accountable to the Government and the People of the Republic of Namibia. The Bank is wholly owned by the Namibian Government.

The Governor and the Deputy Governor are appointed by the President of the Republic of Namibia in consultation with the Minister of Finance, for a term of five years. The President may remove the Governor or Deputy Governor on the grounds of misconduct, or unfitness to carry out his duties efficiently. The Board of the Bank consists of eight members, namely the Governor, Deputy Governor, the Permanent Secretary: Ministry of Finance, one staff member from the Public Service, who is appointed on the recommendation of the Minister of Finance and four other persons, appointed on the recommendation of the Minister of Finance. All board members are appointed by the President for a period of five years, subject to the Namibian Constitution and the provisions of the Bank of Namibia Act.

The Bank has its own budget, which is approved by the Members of the Board.

2. Relationship with government

The Bank acts as banker and financial adviser to, and fiscal agent of the Government. It also serves as the official depository of Government funds and manages the issue of Government securities. Furthermore, it advises the Government on the administration of exchange controls. The Bank also serves as fiscal agency through which Government deals with international financial organisations such as the IMF and the World Bank.

In terms of the Bank of Namibia Act of 1997 (No. 15 of 1997 as amended), the Bank may grant advances to the Government on such terms and conditions as the Board

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and the Minister may agree upon, every such loan must be repaid within six months from the date on which the loan in question was granted.

The financial relationships between the Government and the Bank are further defined in a Memorandum of Understanding.

3. Design and conduct of monetary policy

3.1 Main objectives of monetary policy

Namibia’s monetary policy objective is to support the fixed exchange rate between the Namibia dollar and the South African rand. This policy has been effective in attaining the ultimate monetary policy objective of price stability.

3.2 Instruments of monetary policy

The Bank uses the Repo Rate, Reserve Requirements, and moral suasion as instruments to conduct its monetary policy. An intraday credit facility is offered to commercial banks to ensure prompt and smooth interbank settlement, while a longer-term discount window facility is also available to inject liquidity into the banking system. Owing to the country’s membership in the CMA, the scope for an independent monetary policy is very limited.

3.3 Types of refinancing as well as collateral used

The 7-day repo is the main refinancing facility offered by the Bank of Namibia. In addition the Bank offers the overnight repo and the intraday repo facilities to commercial banks. The usage of the intraday repo facility is free, whilst a penalty above the ruling repo rate is charged on the usage of the overnight repo.

Commercial Banks are required to pledge to the Bank adequate holdings of Internal Registered Stock, Treasury Bills, Bank of Namibia Bill, securities fully guaranteed by the Government or investment graded debt papers of State Owned Enterprises to cover any credit extended by the Bank should the need arise. Various haircuts are charged on the market value of these securities, based on the maturities and the quality of the assets.

3.4 The money supply aggregate that plays the main role in monetary policy

Namibia uses the M2 aggregate for analytical purposes. The M2 is compiled from the Banking Survey which is a consolidation of the accounts of the central bank, four commercial banks and three other banking institutions. M2 is defined to include M1 plus time and savings deposits of the non-bank private sector.

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3.5 Reserve requirements on financial institutions

The minimum reserve requirement for each banking institution is determined by applying a unified ratio of 1 per cent to the average daily amount of a banking institution’s total liabilities to the public on a monthly basis.

4. Structure of the financial markets

4.1 Organisation of the money and capital markets

Money market Local interbank lending is limited as local banks frequently deal with the South African interbank market. This is due mainly to their close links with South African parent or affiliated companies

Capital market While encouraging additional companies to list their shares, the Namibian Stock Exchange (NSX) has also established a Development Capital Board to organise a separate trading system for shares of companies, which wish to have a market for their shares but do not meet the stringent requirements for a full board listing on the NSX.

4.2 Instruments used in these markets

The major money market instruments are: - demand and savings deposits; - notice and fixed deposits; - negotiable certificates of deposits; and - treasury bills.

Lending by financial institutions mostly occurs in the form of overdrafts, but also includes mortgage loans, leasing, instalment sales and a limited number of Bankers’ Acceptances (BA). The number of BAs issued dropped after the liquid asset status of the BAs was revoked in mid-1995.

The major capital market instruments are: - shares listed and traded on the NSX; - listed government stock; and - bills, debentures and bonds issued by state-owned enterprises.

4.3 Legal frameworks existing for the money and capital markets

The issuing of money and capital market instruments is regulated by the following: - Bank of Namibia Act, 1997 (Act No. 15 of 1997 as amended) - Banking Institutions Act, 1998 (Act No. 2 of 1998 as amended) - Development Bank of Namibia Act, 2002 (Act No. 8 of 2002)

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- Agricultural Bank of Namibia Act, 2003 (Act No.5 of 2003) - Building Societies Act, 1986 (Act No. 2 of 1986) - Long and Short Term Insurance Acts, 1998, (Acts Nos. 4 and 5 of 1998) - Stock Exchanges Control Act, 1985 (Act No. 1 of 1985) and rules and regulations issued by the NSX - State Finance Act, 1991 (Act No. 31 of 1991) - Unit Trusts Control Act, 1981 (Act No. 54 of 1981) - Participation Bonds Act, 1981 (Act 55 of 1981) - Friendly Societies Act, 1956 (Act No. 25 of 1956) - Namibia Financial Institutions Supervisory Authority (NAMFISA) Act, 2001 (Act No. 3 of 2001) - Public and Accountants’ and Auditors’ Act, 1951 (Act No. 51 of 1951) - Inspection of Financial Institutions Act, 1984, (Act No. 38 of 1984) - Pension Funds Act, 1956 (Act No. 24 of 1956) - A money lender as defined in the Usury Act, 1968 (Act No. 73 of 1968)

4.4 Type of financial intermediaries operating in these markets

The Namibian financial system comprises the Bank of Namibia as the central bank, four commercial banks, a number of other banking institutions, a range of non-bank financial institutions such as insurance companies and pension funds, smaller financial intermediaries in the form of stockbrokers and money market funds, and the Namibia Stock Exchange, which was established in 1992. The financial intermediaries operating in Namibia are the following:

Commercial Banks - First National Bank of Namibia (Ltd.) - Standard Bank of Namibia (Ltd.) - Nedbank of Namibia (Ltd.) - Bank Windhoek (Ltd.)

Other specialised banking institutions - Namibia Post Office Savings Bank a division of NamPost Ltd - Agricultural Bank of Namibia Ltd - National Housing Enterprise Ltd - Development Bank of Namibia Ltd

5. External payment arrangements

5.1 Determination of the exchange rate policy

Namibia is a member of the Common Monetary Area (CMA) region, and its national currency (Namibia Dollar) is pegged, on par, to the South African Rand. Therefore, it follows the same exchange rate policy as that of South African.

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5.2 The present exchange rate system

Namibia has a fixed exchange rate regime.

5.3 Organising the exchange market

Within the CMA, all member countries apply the same exchange control regulations. All foreign exchange transactions are to be routed via an authorised dealer (AD). Foreign exchange earnings by Namibian enterprises have to be brought into the CMA within three months of exports.

The foreign exchange acquired by the ADs has offshore limits, which they can hold as a balance with their external correspondent banks. The prudential requirements on currency risk containment in terms of their foreign assets and liabilities, allow commercial banks to have an open position, limited to 15 per cent of each bank’s capital and reserves. In terms of the Determination on Foreign Currency Limits, the requirements on currency risk containment in foreign assets and liabilities, consist of two limits, namely the “overall” and “single” currency exposure limits. The first is to restrict the exposures of banks in foreign currency to 20 per cent of capital funds, whereas the second limit it to 10 percent for all major currencies and 5 percent for all other currencies, irrespective of whether long or short positions.

Given the capital mobility within the CMA and functional linkage between some commercial banks in Namibia and those in South Africa, it is easy to tap into the foreign exchange market.

5.4 The central bank’s involvement in managing foreign exchange reserves

The Bank of Namibia is responsible for managing and investing the country’s stock of foreign reserves. Through its Executive Committee the Bank assesses the investment performance of reserves and decides on the best options for investment, within the investment guidelines approved by the Board.

6. Currency convertibility and exchange control

6.1 Current state of currency convertibility

The Namibia dollar is convertible regionally into the South African rand, while it is not convertible internationally.

6.2 Exchange control restrictions on current account

There is virtually no restrictions on the current account. Namibia acceded to Article VIII of the International Monetary Fund in 1996.

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6.3 Capital account restrictions

On inward investments There are no restrictions on capital from non-residents for equity investments.

On outward investments On application to the Bank of Namibia, corporate entities are allowed to invest offshore. The quantitative limit has been abolished.

Private individuals over 18 years of age are allowed to invest up to N$ 2 million outside the CMA.

Travel allowance may be availed at the rates of N$ 160 000 per adult and N$ 50 000 per child under the age of 12, per calendar year respectively.

Any student may be provided with study allowance at the rate of N$ 160 000 per annum and N$ 320 000 if a student accompanied by a spouse who is not studying.

6.4 Retention rules for foreign exchange earned or owned residents

Private individuals resident in Namibia are allowed to retransfer abroad income earned abroad and capital introduced into Namibia.

As a member of the CMA, Namibia follows the same exchange control rules and regulations as South Africa, Lesotho and Swaziland. However, in terms of exchange control liberalisation, Namibia follows its own pace of liberalisation.

The Bank continues to gradually release the emigrant blocked funds with the aim of softening the impact on the country’s reserves. Emigrant whose assets are under the physical control of an Authorised Dealer will, on application to the Exchange Control Division of the Bank of Namibia, be allowed to transfer funds in excess of the limit of N$ 2 million or N$ 4 million per family unit. Such approval will be subject to an exit charge of 10 per cent of the amount in excess of the limit.

7. The central bank and external debt

7.1 The role of the central bank in managing the country’s external debt

In 1992, the Government of the Republic of Namibia designated the Bank of Namibia (BoN) as the main institution responsible for recording information on each private foreign borrowing, non-parastatal debt, associated draw-downs, and debt service payments. The Ministry of Finance (MoF) was given the responsibility for contracting loans, recording and monitoring the country’s public and publicly guaranteed external loans.

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The Commonwealth Secretariat Debt Recording and Management System (CS- DRMS) is an electronic recording system installed at Bank of Namibia’s Research Department to capture data on private external loans. The system was also installed at the Ministry of Finance to capture data on public and publicly guaranteed external debt.

Apart from recording private external debt, the Bank acts as financial adviser to the Government. Whenever Government procures external loans, the Bank plays an advisory role on the suitability of the terms and conditions of such loans.

7.2 The role of Treasury in this respect

Disbursements of the loans proceeds to Government are routed via the Bank’s Treasury Division. The division is responsible for ensuring that the Bank has enough foreign exchange to service external loans. This involves matching the timing of loan repayments with the availability of foreign currency. To undertake this function effectively, the Bank liaises with the Debt Management Unit of the Ministry of Finance.

8. Supervision of financial institutions

8.1 Banking institutions

8.1.1 Authority responsible for banking supervision

The Bank of Namibia’s Banking Supervision Division is responsible for banking supervision. The Bank of Namibia derives its supervisory and regulatory powers from the Banking Institutions Act, No. 2 of 1998, as amended.

8.1.2 Licensing procedures for establishing a new banking institution (a bank)

Any person who intends to carry on the business of a banking institution may apply to the Bank to establish a bank and the Bank of Namibia shall, after consultation with the Minister, grant such permission if the applicant satisfies all the criteria applicable to authorisation.

Sections 10 to 13 of the Banking Institutions Act No. 2 of 1998 sets out in part the essential requirements for the authorisation process, which includes among other things: - capital requirements as specified in section 28 of the Act; - fit and properness of shareholders, directors, and officers of the applicant; - permission from home country supervisor; - the structure and shareholding of the group of companies of which the applicant forms a part or intends to form a part; and - economic interest of Namibia.

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An applicant who is authorised to conduct banking business may engage in the complete range of banking activities or part thereof as contained in the conditions of authorisation. The Act does cater for all types of banking institutions, as all the criteria for licensing such institutions are the same.

8.1.3 Minimum capital requirements

In terms of section 28 of the Act the minimum capital funds, unimpaired by losses, shall at any time not be less than the greater of: - an amount as determined by the Bank; or - an amount which represents a percentage (currently 10 per cent) of the risk- weighted assets and other exposures of a banking institution as the bank may determine.

Sub-section 4 of section 28 empowers the Bank to require banking institutions to maintain higher levels of capital if there is a risk of the existing capital funds being impaired.

In addition, section 28A stipulates the minimum capital funds in respect of a banking institution. In terms of section 28 (1) a controlling company must manage its affairs in such away that the sum of the capital funds of the banking group structured under such controlling company does not at any time amount to – - less that the sum of the amounts of the required capital funds determined, for the respective entities constituting such banking group, in accordance with the rules and regulations of the respective regulators responsible for the supervision of those entities; - plus such amount as may be determined by the Bank in respect of entities that are included in such banking group, but are not subject to the supervision of a regulator.

Subsection (2) makes peremptory on a banking group in calculating the aggregate amount as required to maintain in terms of subsection (1) to deduct from it such amounts as may be determined from the sum of the banking group`s capital funds as calculated.

8.1.4 Regulations governing current activities of banks

The Act empowers the Bank to issue determinations in accordance with the various provisions of the Act. The determinations relating to prudential requirements prescribe the minimum prudential standards relating to: - liquid assets requirement; - large exposures to a single customer or group of related customers; - risk-weighted capital adequacy; - loan classification and provisioning and suspension of interest on non- performing loans; - money laundering and the “know your customer” policy;

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- appointment, duties and responsibilities of directors and principal officers; - role of the audit committee, responsibilities and duties of external auditors; - fraud and other economic crime; - compulsory suspension of cheque accounts by banking institutions; - disclosure of bank charges, fees and commissions; - minimum local assets; - minimum insurance cover for banking institutions; and - other banking business practices.

8.2 Non-banking institutions

8.2.1 Responsibility for supervision of non-banking financial institutions

Most non-banking institutions are exempted from the provisions of the Banking Institutions Act, 1998, Act 2 of 1998 as amended, and are governed by their respective legislations. As from 2001, the Namibia Financial Institutions Supervision Authority (NAMFISA) supervises all non-banking financial institutions, a function that was previously performed by the Ministry of Finance. However, there are other non-banking financial institutions that are supervised by their own boards of directors. These include the Post Office Savings Bank, the Agricultural Bank, the Development Fund of Namibia, the National Development Corporation, the National Housing Enterprises, the Social Security Commission and the Motor Vehicle Accident Fund.

8.2.2 Categories of financial institutions and their licensing procedures

- Insurance Companies - Pension Funds - Unit Trusts - Asset Management Companies

Licensing procedures are as follow for respective institution. As the list of requirements is not exhausted, interested stakeholders are advised to consult respective legislations as outlined in 4.3 above.

Insurance: The insurance business is divided into two categories, namely: short- term insurance and long term insurance. The following licensing requirements apply for both: - Payment of N$ 200 registration fee - Be registered with the Registrar of companies - Be a public company with the Managing Director and at least 50 per cent of the Directors to be Namibian citizen or residents.

Asset Management Company: The following requirements apply: - Registration with Ministry of Trade and Industry (MTI); - Memorandum and Articles of Incorporation from MTI;

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- Business physical address; - Proof of capital of N$20,000.

9. National payment, clearing and settlement system

Namibian Interbank Settlement System (NISS)

The Namibia Inter-bank Settlement System (NISS) was implemented in 10 June 2002 for settlement of Namibian domestic interbank transactions. NISS is based on pre-funding principle and transactions settle in NISS is final and irrevocable. Another advantage of NISS is that it allows high value payments to settle on the same business day as long as instructions to transfer funds are given within agreed cut-off times.

During 2004, NISS moved to same-day settlement. This means that the settlement of payment obligations for all payments, including the PCH batches, was now settling on the intended day of value. The Bank of Namibia provides credit to participants in NISS through repurchase agreements, such as intra-day, overnight and 7-day repurchase agreements.

Namclear

In 2003, the Namibian banking industry together with the Bank of Namibia established the electronic payment clearing house, called Namclear Pty Limited. Each of the four banks jointly owns Namclear with 25% shareholding by each bank. The activities and operation are governed through mutually agreed clearing rules agreements. Namclear was established with the objective to process, clear and settle domestic retail payments, such as Cheque, Card and EFT transactions for Namibian banking industry.

Electronic Transfer System (EFT)

The EFT system was implemented on 14 June 20042004 for clearing of all domestic EFT transactions. The banks are submitting NAD-to-NAD EFT transactions to Namclear, which is handling the clearing of the transactions within Namibia. Settlement of EFT transactions is taking place through NISS in Namibian dollar at Bank of Namibia. The EFT stream caters for bulk retail payments (e.g. salaries, stop orders and insurance premium payments).

Electronic Cheque Processing System (CPS)

The Namibian banking institutions, represented by the Bankers Association of Namibia (BAN), together with the Bank of Namibia, implemented a multi-bank electronic Cheque Processing System (CPS) on 18th July 2005. The CPS solution replaced the manual cheque clearing system with code line (CLC) system. Code line clearing enables banks to capture the information of a deposited cheque

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electronically by reading the magnetic code line and transmitting the information via Namclear clearing house to the paying bank for settlement before the paper cheque is delivered to the paying bank for final approval.

The cheque clearing cycle has been reduced to 5 days, nationally, from 1 April 2008. This means that upon depositing a cheque, banking customers will have access to their funds on their bank accounts within five working days anywhere in the Namibia. This is a major achievement because the clearing cycle used to vary between 7 to 21 years in the past. The cheque item has also been reduced from 5,000 000 to 500 000 effective from 10 June 2010. This means that Namibian clients and businesses can not issue cheque above 500, 000. For cheques above this limit electronic payment methods or NISS can be use.

NAMSWITCH

The Namibian banking industry implemented a local card switch called NAMSWITCH in 2008. NAMSWITCH was implemented in a phased approach because of the nature of payments, facilities, and the complexity of systems that are involved. The Automated Teller Machine (ATM) solution went live on 21 April 2008 and the Point-of-Sale (POS) was rolled out on 16 November 2008. With the implementation of NAMSWITCH, the Namibian banking industry has achieved the objective of switching/clearing of Namibian inter-bank domestic card transactions locally and settling it in Namibia Inter-bank Settlement System (NISS) in order to manage and control domestic exposures and risks.

9.2 What is the role of the central bank in the system?

In terms of the Payment System Management Act, 2003 (Act No. 18 of 2003 as amended) the Bank of Namibia has the powers to oversee, inspect and monitor the national payment system, the operation of the Payments Association of Namibia (PAN), system participants and service providers. The Bank has carried out a number of oversight activities aimed at promoting a safe and efficient NPS.

Effective payment system oversight is an essential ingredient in achieving the public policy objective relating to the safety and efficiency of the National Payment System (NPS). In addition, effective oversight will ensure financial and technical integrity of the NPS, including its overall robustness against systemic shocks together with its overall, efficiency, accessibility and cost effectiveness through rules, standards, monitoring, analyses and enforcement.

The Bank of Namibia plays pivotal dual roles in the payment system. First, as banker to the government which issues paper instruments that go through the clearing house. Also the Bank issues its own cheques and these go through the normal clearing process.

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On the other hand, the Bank is the provider of settlement services. That is, the settlement system, called the Namibia Inter-bank Settlement System (NISS), which is owned by and resides at the Bank of Namibia. Settlement takes place in central bank money. Therefore, the Bank acts in dual role of being a settlement and clearing system participant, on one hand, and being responsible for the sound and efficiency of the whole payment system, on the other.

9.3 Short description of the processing of payment instructions

Cheque Transactions

The cheque clearing in Namibia is based on Code line data. The banks exchange Code line data on the cheque through Namclear. The commercial banks capture Code Line at point of deposit. Code line clearing enables banks to capture the information of a deposited cheque electronically by reading the magnetic code line and transmitting the information via Namclear clearing house to the paying bank for settlement before the paper cheque is delivered to the paying bank for final approval.

EFT transactions

All Namibian registered companies and individual clients wishing to make EFT payments will submit their payment instructions to their bank at certain cut-off time. The banks collect all EFT payments for the day and route it to Namclear at certain cut-off time. Namclear process/clear the EFT payments and prepare inter-bank settlement obligations and submit a settlement file to NISS at Bank of Namibia. Settlement of EFT transactions is taking place through NISS in Namibian dollar at Bank of Namibia. Namclear also sort EFT payments per bank and provide each bank with clients’ EFT payments which the banks are posting to their banking systems.

Card transactions

All domestic Debit, Credit or ATM card transactions are routed through the Namibian Card Switch (NAMSWITCH) for authorization. However, banks may choose to process “On-Us” card transactions internally. Card clearing and interbank settlement is achieved through the use of NAMSWITCH. Namibian banks are required to switch all interbank domestic card transactions through the NAMSWITCH. All Namibian domestic card transaction are settled in NISS.

9.4 How are non-funded positions settled in the system?

All the commercial banks have a settlement account with the central banks. The daily settlements filter through these accounts. The commercial banks also have intraday credit facilities with the Bank of Namibia. The banks are allowed to draw from these facilities on condition that adequate security is provided. The commercial

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banks also have access to the money markets where interbank arrangements for the provision of funds take place.

10. Currency in use

10.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: The currency in circulation in Namibia is the Namibia Dollar (N$) and the South African Rand (R). The South African Rand is in circulation as a result of its status as legal tender in Namibia. - Notes: South African Rand (R); R200, R100, R50, R20, R10 Namibia Dollar (N$): N$200, N$ 100, N$50, N$20, N$10 - Coins: South Africa: R5, R2, R1, 50c, 20c, 10c, 5c, 2c, 1c - Namibia: N$10, N$5, N$1, 50c, 10c, 5c

11. Other activities of the central bank

11.1 Activities of the central bank not covered above

- The Bank serves as official depository of the Government funds - The Bank manages the issues of Government Securities - The Bank acts as agent for the government agreed between the Ministry of Finance and the Bank - The Bank serves as adviser to the Government on any foreign borrowing by the Government - The Bank may give advances to the Government - The Bank serves as an agent to the Government on the administration of Exchange Controls.

12 The position of the central bank in SADC

12.1 Special relationships with other central banks in SADC (CMA excluded)

The Bank has, on numerous occasions, sent its staff to the SARB for attachments and training. Some staff members have also been on official visits to other countries such as Botswana, Zimbabwe and Swaziland.

The Bank is a member of the SADC Committee of Bank Supervisors (SSBS) and actively contributes to the development of harmonised standards for banking supervision in the region.

The Bank also participates in the various projects of the Committee of Central Bank Governors in SADC.

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13. Publications

13.1 Regularly published publications

- Bank of Namibia Annual Reports - Quarterly Bulletins - Monthly Statistical Releases - Monetary Policy Reviews - The Financial Stability Reviews - Economic Outlook

13.2 Discussion/Occasional /special publications published since 1990

Since 1990, the Bank has published various discussion/occasional /special publications including the following: - Promoting Microfinance activities in Namibia, 2004 - Central Government Debt Sustainability, 2004 - Viability of Commercial Bank branches in rural communities in Namibia, 2004 - Potential for Diversifying Namibia's Non-Mineral Exports, 2002 - The Structure and Nature of Savings in Namibia - Efficiency of Commercial Banks in Namibia, 2000 - Estimating the Demand for Money in Namibia - Savings and Investments in Namibia, 1999 - Modeling Inflation in Namibia - Monetary Policy Transmission mechanism in Namibia, 2001 - Assessing the Revenue Loss Resulting from the SA/EU Free Trade Agreement, 2001 - Private Equity: Lessons for Namibia, 2005 - Efficiency of Public Expenditure in Namibia, 2001 - Electronic Commerce: Implications for the financial system - How can Namibia Benefits further from AGOA - Property Rights and Access to Credit, 2006 - Namibia Macro-econometric Model, 2004 - Supervisory Authorities Reform, April 1999 - Commercialization and Privatization February 1998 - Privatisation and Commercialisation April 1997 - The Financial System in Namibia, 2002 - Assessing the Potential for the Manufacturing Sector in Namibia, 2008 - Celebrating 20 Years in Central Banking, 2010 - Enhancing the role of factoring and leasing companies in providing working capital to SMEs in Namibia, 2008 - Investigating the role securitisation could play in deepening the financial sector in Namibia, 2008 - The Impact of HIV/AIDS on the Banking Sector in Namibia, 2008 - Unleashing the Potential of the Agricultural Sector in Namibia, 2008 - Namibia Monetary Policy Framework, 2008

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13.3 Various Annual symposium papers:

The Bank has been hosting a series of symposia as follows: - The first symposium took place in November 1999, focused on central banking issues and economic development. Its proceedings were documented in the South African Journal of Economics, Volume 68:1, 2000. - 2nd: The challenges of monetary policy within the context of the Common Monetary Area (CMA) arrangement - 1999 - 3rd: Optimal Financial Structure for Namibia - 2001 - 4th: Raising investment and growth in Namibia - 2002 - 5th: Poverty, Income Inequality, and Economic Development in Namibia - 2003 - 6th: The challenges for the developments of Namibian Government bonds market: Lessons from other countries -2004 - 7th: The benefits of Regional Integration for smaller economies -2005 - 8th: Foreign Direct investment versus Direct Investment in Namibia - 2006 - 9th: Broad-Based Economic Empowerment: Experience from other Developing Countries-2007 - 10th Structural Transformation of the Namibian Economy: Insight from other countries-2008 - 11th Privatization in Namibia-2009 - 12th SME Development in Namibia-2010 - 13th Housing in Namibia-Has the situation changed 21 years after independence?-2011

Some of these publications can be accessed via Bank of Namibia’s website: www.bon.com.na

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Central Bank of Seychelles

Independence Avenue, Victoria, Mahé P.O. Box 701, Victoria, Mahé, Seychelles Tel: +248 4282000

1. History

In 2002, conscious of the need to restore confidence in the institution, the Central Bank of Seychelles, in consultation with the International Monetary Fund (IMF), commenced work on updating the Central Bank Act and in December 2004, the National Assembly and President of the Republic enacted the Central Bank of Seychelles Act 2004 thereby repealing the previous legislation. The Act formally provides the Bank with institutional and operational autonomy. Under the previous legislation, the Governor of the Bank also held the position of Principal Secretary in the Ministry of Finance. This occasionally led to a certain degree of ambiguity in economic policy decision-making as the Bank and government have different agendas. Under the new Act, the Governor of the Bank is no longer allowed to hold the post of Principal Secretary of Finance, giving the Bank more autonomy. Furthermore, a new Board of Directors of the Bank was appointed.

The new Act also explicitly sets out the objectives of the Bank, which were revised in 2008 and 2009, as part of the IMF-supported macroeconomic reform programme so as to be in conformity with current developments. The last amended to the Act was made in 2011 to set the primary objective of the Bank and replace the post of Deputy Governor with the positions of First Deputy Governor and Second Deputy Governor.

2. Relationship with government

In accordance with the Central Bank Act 2004, which was last amended 2011, the Board of Directors currently comprised of eight members namely the Bank’s Governor who is also the Chairperson of the Board, the First Deputy Governor, the Second Deputy Governor (no voting rights), the Attorney General1 and four other members. The Governor and the two Deputy Governors are appointed by the President of the Republic “on such terms and conditions as the President may determine”2. Other members of the Board are also appointed by the President but

1 As per section 7(1)(g) of the Central Bank Act except for the Attorney General (ex-officio status), a person who is an employee of a public body shall not be appointed on the Board. 2 CBS Ac t, 2004 Section 6 (2)

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“on the recommendation of the Governor on such terms and conditions as may be determined by the President”3.

The Bank is the banker to government, its adviser on monetary and financial matters and the depository of the official foreign exchange reserves of Seychelles and of government funds. It undertakes the issue and management of loans publicly issued in Seychelles by government. The Bank may also act as agent for government on such terms and conditions as may be mutually agreed.

3. Structure

The organization chart of the Central Bank of Seychelles (CBS) is annexed to the document.

4. Design and conduct of monetary policy

As part of the IMF supported macroeconomic reform programme adopted by the authorities in November 2008, monetary management in Seychelles is for the time being based on a monetary targeting framework. In this framework, the final target - price stability - is to be achieved by influencing changes in broad money supply. Because monetary authorities can only control money supply indirectly, reserve money - which is more directly controllable by the Central Bank - has been chosen as the operating target of monetary policy. Money supply is linked to reserve money through the money multiplier and the Central Bank aims to control money supply by changing reserve money. As a consequence of the monetary targeting system, monetary price variables, such as interest rates and exchange rates, are in principle free to fluctuate and be determined by market forces. However, the Central Bank is responsible for monitoring closely these variables and intervening as necessary to avoid disruptive fluctuations.

4.1 Main objectives of monetary policy

Following amendments to the Central Bank Act (2004) in 2011, the primary objective of the Bank is price stability.

4.2 Instruments of monetary policy

The main monetary policy instruments used by the CBS in the implementation of its monetary policy are (a) Deposit Auction Arrangement (DAA), (b) Credit Auction Arrangement (CAA), (c) Standing Facilities, (d) Foreign Exchange Auctions (FEA),

3 CBS Act, 2004, Section 6 (2)

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(e) Foreign Exchange Swaps and (f) the Minimum Reserve Requirement (MRR) on commercial bank deposit liabilities, both in local and foreign currencies.

4.3 The money supply aggregate that plays the main role in monetary policy

Reserve money is the key money supply aggregate use for monetary policy.

4.4 Reserve requirements on financial institutions

In accordance with section 31 of the Central Bank of Seychelles Act 2004, the minimum required reserve to be maintained by the banks, which is based on the daily average of the closing balance, held over two weeks payable in Seychelles Rupee, US Dollar and Euro, is currently set at 13 percent4. Similar to foreign currency reserves, since July 15, 2011 rupee reserves are no longer remunerated.

5. Structure of the financial markets

Money Market The Seychelles money market is mostly driven by the Treasury Bills (T-Bills) market. T-Bills are also one of the main sources of government funding. Reverse Repurchase Agreements (RRA) and Deposit Auction Arrangements (DAAs) are the main money market instruments used by the Central Bank to conduct monetary policy.

Capital Market In light of the fact that Seychelles does not currently have a stock exchange, the only capital market instruments being used are bonds. Government bonds dominate the market with the Central Bank of Seychelles acting as the issuing agent. CBS also acts as an intermediary for treasury bondholders wishing to exit before maturity on the bonds being held and matching them with potential buyers. It is important to note that corporate bonds are also issued. Nevertheless, the necessary legislation is in place to set up a stock exchange with the enactment of the Securities Act 2007. The Act encourages overseas and local securities dealers to trade in foreign and Seychelles’ securities and provides the legal framework for the setting up of the Seychelles Stock Exchange (SSE). It is envisaged that the setting up of the SSE will help further develop the domestic securities market, provide a platform to orderly trade shares and other securities and provide listing facilities for the issue and redemption of securities as well as other financial instruments.

4 Since April 1, 2011 for rupee deposits and June 1, 2011 for foreign exchange deposits.

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5.1 Instruments used in the Money and Capital Markets

In the money market, the only instruments used are Treasury Bills and are presently being issued on a tender basis. Currently there are three types of T-bills being issued namely the 91, 182 and 365 –days.

5.2 Type of financial intermediaries operating in these markets

- Banks - Non-bank deposit taking institutions - Foreign exchange dealers - Development Bank - Insurance Companies - Pension Funds - Investment Companies and Trusts - Housing Finance Company

6. External payment arrangements

6.1 Responsibility for determining exchange rate policy

The exchange rate policy is the responsibility of the Board of Central Bank of Seychelles in consultation with the President of the Republic5.

6.2 Present exchange rate regime

Since November1, 2008 Seychelles has adopted a floating exchange rate regime.

6.3 Organisation of the foreign exchange market

The foreign exchange market is totally liberalised wherein banks, foreign exchange dealers and money-changers transact foreign exchange. The Central Bank of Seychelles is also a player but intervenes in the market only to smooth out excessive volatility as and when required. The intervention currency is the US dollar.

5 Section 25 (5) of CBS Act

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6.4 Management of foreign reserves

The Central Bank of Seychelles is responsible for the management of foreign exchange reserves.

7.0 Currency convertibility and exchange control

7.1 Current state of currency convertibility

The Exchange Control Act was repealed in 2009. Both the current account and the capital account of the Balance of Payments are fully convertible.

7.2 Exchange control restrictions on current account transactions

Seychelles has adopted Article VIII, Sections 2, 3 and 4 of the IMF Articles of Agreement. From November 2008, all restrictions on current account transactions were removed.

7.3 Restrictions on capital account transactions

There are no restrictions on capital account transactions in respect of both inward and outward flows.

8.0 The central bank and external debt

8.1 The role of the Central Bank in managing the country's external debt

The Central Bank of Seychelles acts as intermediary in respect of proceeds and payments of external loans of the government.

8.2 The role of Treasury in this respect

The Ministry of Finance, Trade and Investment (MOFTI) is responsible for the formulation of Public Debt Management Act which came into force in December 2008. The Public Debt Unit in the MOFTI is responsible for daily debt management. However, a National Debt Committee comprising representatives from the MOFTI, CBS and other government institutions has the responsibility of approving contraction of debt. MOFTI has the oversight function of the overall debt management of the country.

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9.0 Supervision of financial institutions

9.1 Banking institutions

9.1.1 Authority responsible for banking supervision

Central Bank of Seychelles is responsible for regulating and supervising banks in the country.

9.1.2 Licensing procedures for establishing a new bank

It is a requirement for an applicant of a banking licence to be an incorporated company in Seychelles. If the applicant is an overseas company, it needs to register with Seychelles’ Registrar of Companies. The application should hence include, amongst other things, the Certificate of Incorporation, the Memorandum and Articles of Association along with the applicant’s business plan, a copy of the applicant company’s financials for the past 3 years in operation and particulars of the administrators and holders of substantial interest. In cases where foreign financial institutions apply to establish a branch or subsidiary in Seychelles, this should be supported by written confirmation from the supervisory authority that it has no objection for the foreign financial institution to conduct banking business in Seychelles and that the authority exercises consolidated supervision. The supporting documents to the application should be authenticated copies of the original or, in the event that the originals are not in the English language, certified translations in that language should be submitted. The application requirements are set out in an application pack which is the manner in which the application should be submitted to Central Bank.

A licence is granted only if the licensing criteria are satisfied. Central Bank is required to give a decision as to whether a licence has been granted or not within 90 days of receipt of a complete application.

As at the end of May 2012, 7 commercial banks were in operation in Seychelles. These institutions are supervised by the Central Bank of Seychelles through its offsite and onsite monitoring functions.

9.1.3 Type of licence that exist

Central Bank issues a single banking licence which allows banks to conduct offshore and/or domestic banking business that requires banks to maintain separate records accordingly. For offshore activities, a lower taxation rate of 3% is applicable to income transactions generated by and sourced from a non-resident person (individual and entity) or an entity incorporated or registered in Seychelles

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which has personal and economic relations or place of effective management outside Seychelles. Note that a taxation rate is 33% on banking activities that includes domestic transactions.

9.1.4 Minimum capital requirements of banks

In 2010 banks’ minimum paid-up/assigned capital requirement for holders of banking business licence was doubled to SCR20 million or equivalent in a freely convertible currency (~USD 1.7 million). Existing banks which do not meet the requirement have been allowed a transitional period until December 31st 2012 to increase their paid-up capital to the required level.

In addition, banks are required to transfer 20 percent out of net profits each year into a reserve fund until the fund is equal to the paid-up/assigned capital.

9.1.5 Regulations governing current activities of banks

Banks are governed by the Financial Institutions Act 2004 which was last amended in 2011 as part of ongoing efforts to further develop and strengthen the supervisory framework. Regulations and other pronouncements supplementing the Act are summarised below.

Directive on Large Exposure, Credit Concentration and Connected Lending

The above-mentioned Directive was revised in 2009 incorporating the relevant amendments to the Financial Institutions Act 2004. It sets limits on credit concentration as follows: - 25 percent of core capital for individual credit concentration - 600 percent of core capital for aggregate credit concentration.

The limits were previously set as a percentage of capital funds which was replaced with core capital given that the former was deemed too restrictive in line with international norms.

Banks are required to seek Central Bank’s approval prior to extending credits representing credit concentration. This requirement does not apply to a government body and public authority. However, the exemption which was previously granted to parent undertaking or to own subsidiaries has been removed in line with international best practice which maintains that such lending within the corporate group may actually represent higher risk to the institution. Banks are required to submit a report on large exposure (loans representing between 15 percent and 25 percent of core capital) and credit concentration to Central Bank on a monthly basis. Credits to entities exempted from requiring Central Bank’s

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approval also need to be reported if they exceed 25 percent of a bank’s core capital.

The Directive also prescribes limits on connected lending as follows: - 10 percent of core capital on the aggregate of lending to administrators and their close relations - 20 percent of core capital on the aggregate of lending to holders of substantial interest and their close relations - 25 percent of core capital on aggregate connected lending, i.e. lending to administrators, holders of substantial interest and their close relations

Such lending is at the discretion of the Board of Directors which needs to be in line with internal policies approved by the Board.

Banks are also required to report connected lending to Central Bank on a monthly basis.

Capital Adequacy

The Financial Institutions Act and existing Regulations on capital adequacy require that a bank maintains minimum capital which covers at least 12 percent of a bank’s risk-weighted assets. The Regulations on capital adequacy was promulgated in the fourth quarter of 2010.

The capital adequacy measure as set out by the Regulations is mainly based on the Basel I framework, although the Basic Indicator approach of Basel II for capturing operational risk has been incorporated. In addition, revaluation reserve has been removed as part of Tier 1 capital and unaudited profits, which was previously omitted has been included as part of Tier 2 capital.

The Financial Institutions Act also contains a leverage ratio as a measure of a bank’s solvency. With this measure, a bank is said to be insolvent if its capital is 1.5 percent or less of its tangible assets on an unweighted basis.

Banks are required to report their capital adequacy positions to Central Bank each month.

Public Disclosure of Information

Banks are required by the Financial Institutions Act to prepare their accounts in line with International Financial Reporting Standards. The audited accounts need to be

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published (in the Official Gazette and newspaper) and displayed conspicuously at the banks’ premises.

In addition banks are required to regularly notify their customers of the terms and conditions associated with transactions and adhere to disclosure guidelines issued in 2011. Central Bank also requires banks to periodically publish their fees and charges in the local newspaper. These charges are also published on Central Bank’s website on a comparative basis.

Appointment of External Auditors

A circular was issued in August 2009 to formalise the way that Central Bank approves the appointment of external auditors. It introduced a form which financial institutions need to get their external auditors to complete including details of the auditor’s experience, qualification and professional proficiency, on the basis of which the application is processed.

Liquidity

The Liquidity Risk Management Regulations were introduced in February 2009. These Regulations require banks to maintain a minimum of 20 percent of total liabilities as liquid assets, the status of which is reported monthly to Central Bank. In addition, the Regulations require banks to practice sound liquidity risk management, which includes establishing a risk management committee, implementing a risk management policy, analysing net funding requirements, conducting stress testing and maintaining an adequate management information system.

Foreign Currency Exposure

The Foreign Currency Exposure Regulations were introduced in January 2009. In view of banks’ positions then, the Regulations set a total long to capital limit of 100 percent whilst the threshold for total short to capital was 20 percent. As of July 2009, the limits as a percentage of capital were revised to 30 percent irrespective of whether long or short to be in line with international norms.

Credit Classification and Provisioning

The guidelines on Credit Policy, Credit Classification for Provisioning and Income Recognition Purposes 2005 was replaced by the Credit Classification and Provisioning Regulations in November 2010 and was further amended in 2011. The Regulations require that credits be classified into five categories; i.e. Pass, Special Mention, Substandard, Doubtful and Loss depending on the status of the facilities.

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The Regulations consider 50% of tangible assets, including land, as eligible collateral given that its value may be uncertain as shown by the global financial crisis. This is also in view of foreclosure being a lengthy process in consideration of the legal system in place. Amongst other things, the Regulations also provide for the reconciliation of differences between the regulatory requirements and International Accounting Standards and address the issue of write-offs which was previously not dealt with.

Restricted Lending

Banks are free to lend to various sectors of the economy without any restrictions, subject to credit concentration limits.

Fit and Proper Persons

Central Bank ensures that adequate measures are taken to ascertain the fitness and propriety of administrators (Managing Director, Director and Managing Agent) and holders of substantial interest (10 percent shareholding or more) in financial institutions. It is important to ensure that these key persons are suitable regardless of whether they have entered the financial system via the licensing process or through a later acquisition of shares. A set of guidelines were issued in 2005 detailing the minimum requirements for a person to be deemed as fit and proper to hold key positions in a financial institution. This includes assessment of the person’s professional proficiency, work experience, qualifications and character.

The Financial Institutions Act requires that Central Bank’s approval be sought prior to appointing an administrator or acquiring substantial interest. Approval is granted only upon Central Bank’s satisfaction that the person is fit and proper.

Anti-Money Laundering Measures

Under the Anti–Money Laundering Act 2006 (AML) as amended, the Financial Intelligence Unit (FIU) has the overall mandate in the Seychelles when it comes to money laundering and prevention of terrorist financing. The FIU’s mandate includes ensuring compliance with the AML Act and receiving and analysing suspicious transactions reports as received from the Reporting Entities. Some of the Anti–Money Laundering Measures taken include the issuance of Guidelines on Money Laundering and Combating the Financing of Terrorism (AML/CFT) to all Reporting Entities including financial institutions, Corporate Service Providers, Money Remitting Service Providers and Bureau de Changes, Insurance Companies and Real Estate Agents amongst others, training on AML/CFT provided in collaboration with other Regulators in the different industries.

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Furthermore, the AML Act was amended in August 2008 and that amendment amongst other things, provided for a new definition of Money Laundering and under the new definition predicate offences included criminal acts as committed outside of the jurisdiction. Under the amended legislation and in parallel with the enactment of the Proceeds of Crime (Civil Confiscation) Act, the FIU’s remits were expanded to include identifying and recovering the proceeds of criminal conduct through the Civil Courts. A further amendment was made in 2011 which included a cash declaration obligation at borders and new Customer Due Diligence measures in line with international standards and best practices were issued under the AML Regulations in 2012.

Deposit Insurance

There is presently no deposit insurance scheme in Seychelles.

Complaints Handling

The Complaints Handling Regulations were issued in 2008 setting out the procedures by which complaints should be handled by financial institutions. The Regulations state the timeline in which complaints are to be dealt with and highlight that a complaint should be assessed in a fair, consistent and prompt matter. If a customer is not satisfied with the financial institution’s response to a complaint, the complaint may be escalated to the Central Bank. Financial institutions are required to report statistics on complaints to Central Bank semi-annually. This provides an indication of the areas experiencing customer dissatisfaction and the level of customer service at the institutions.

Licence Fee

The Bank Licence Fees Regulations 2010 as amended in 2012 stipulates processing fees of bank applicants and licence fees of banks.

The revised licence fees take the cost of supervision into account and are on the basis of the institution’s asset base.

Total assets Annual fees Less than SCR300 million SCR250,000 SCR300 million or more, SCR500,000 but less than SCR1 billion

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SCR1 billion or more, but SCR750,000 less than SCR5 billion SCR5 billion or more SCR1,000,000

As regards to the processing fee, this was revised to SCR20,000 for a banking business applicant whilst that of offshore banking applicant has remained unchanged at US$2,000.

Abandoned Property

As part of its role of protecting depositors’ interest, Central Bank administers banks’ abandoned property. The circulars were revised in 2009 and amongst other things provided for the administration of safe deposit boxes which were previously not included in abandoned property.

9.1.6 Main supervisory practices

Banks are supervised by Financial Services Supervision Division of the Central Bank through its off-site and on-site supervisory functions. They are required to submit statistical reports at different periodicities. Reports include inter alia, information on their financial position and performance, foreign currency exposure, liquidity, capital adequacy, maturity analysis, credit concentration and connected lending. Statistics are compiled for analysis on both a micro and macro basis and analysed by way of Financial Soundness Indicators. Stress tests are also carried out offsite to assess banks’ vulnerabilities to changes in market fundamentals.

Onsite examination is conducted on the basis of the CAMELS bank rating system. Since 2008, examinations are carried out on a risk-based approach and reports are done by exception. This allows for a focused review of the most critical risk and adopts a more forward looking approach to risk management. Depending on the level of risk that a bank is exposed to, onsite inspections may be limited or full scope.

On-site and off-site supervision allows for monitoring of banks’ adherence to prudential standards and other requirements as set out by the Financial Institutions Act.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

The corrective actions that Central Bank can take in cases where banks are carrying out unsafe and unsound practices are set out in the Financial Institutions Act. In addition a manual on prompt corrective action is in place which sets out the remedial

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steps to be taken on the basis of the CAMELS rating that a bank has been assigned. Central Bank’s powers include inter alia the issue of written orders to cease from infractions, issue written orders of remedial actions to be taken, suspend administrators and attach conditions to the licence to the extent required to remedy the infraction. Furthermore, pecuniary penalties as well as imprisonment are stipulated in the Financial Institutions Act and are to be invoked upon conviction unless compounded.

9.1.8 Revocation of Licences

The Central Bank may revoke the licence of a bank, where, inter alia, the bank in question: - has obtained the licence on the grounds of false statements or other material irregularities in the licence application; - fails to commence business within a period of 6 months from the date the licence is issued or such additional time period as allowed by the Central Bank ; - fails to comply with terms and conditions of the licence or any corrective measures prescribed by Central Bank; - no longer meets the minimum capital requirement and reserves; - is insolvent or apparently insolvent; - is in breach of material provisions of the Financial Institutions Act, Regulations and other relevant pronouncements; - undergoes a merger, consolidation, amalgamation or division; - has ceased for more than 3 months to engage in business of receiving deposits and lending for its own account.

9.1.9 Offences and Penalties

A person or financial institution who commits an offence shall upon conviction be liable to a fine of as high as SCR400,000 and imprisonment for a term of one year, if the person or financial institution;

- conducts banking of foreign exchange business without a valid licence; - knowingly or recklessly furnish information which is materially false; - makes, with intent to deceive, any false or misleading statement or entry or omits any statement or entry in any book, account, report or statement of the bank; - obstructs an inspection or examination of the bank under the Financial Institutions Act; - fails to comply with the requirements of the Financial Institutions Act.

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9.1.9.1 Central Bank’s Power Over Unsafe and Unsound Practices

Where the Central Bank determines that a financial institution or any of its owners or administrators is conducting an unsafe or unsound operation, the Central Bank can inter alia do the following within its powers:

- issue written warnings; - call a meeting of owners and administrators to discuss and agree on remedial measures; - issue written orders to cease and desist from infractions and undertake remedial action; - issue written orders; - appoint an adviser for the financial institution; - appoint an external auditor at the expense of the financial institution; - suspend administrators; - Require owners to dispose of substantial interest; - attach conditions to the licence to the extent required to remedy the infraction; - appoint a reorganising agent; - revoke the licence.

9.2.1 Non-bank financial institutions

9.2.1.1 Responsibility for regulation and supervision of non-bank financial institutions

Non-bank financial institutions which are supervised by the Central Bank include insurance companies and their intermediaries, Seychelles Credit Union, Bureau de Change (Money changers), Housing Finance Company and Development Bank of Seychelles.

Insurance companies and intermediaries are governed by the Insurance Act 2008.

Seychelles Credit Union was brought under the supervision of Central Bank in 2005 for which Central Bank was legally designated as its regulatory authority in 2009.

As regards to the Housing Finance Company (provides loans for housing) and Development Bank of Seychelles (provides loans for development purposes), these are credit granting institution for which Central Bank was designated as their regulatory authority in 2009.

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These institutions are supervised by Central Bank through its offsite and onsite monitoring functions.

9.2.2 Categories of financial institutions and their licensing procedures for Banking business and offshore banking business

Applicants of offshore and banking business licensees are both subject to the same licensing criteria.

Money-Changers (Bureau de Change)

The requirements for a bureau de change licence are set out in the Financial Institutions Act. In 2008, the Act was amended to allow for the streamlining of the licensing requirements for a bureau de change in line with Government’s initiative to bring more competition in the foreign exchange market. This is in line with the on-going IMF supported macroeconomic reform programme. As at June 19, 2012 there were 24 licensed bureau de change.

There are two types of bureaux de change; Class B which is allowed to buy and sell foreign currency in the form of notes, coins and travelers cheques and Class A, which in addition to the activities of a Class B bureau de change, is allowed to engage in money transmission activities.

An applicant of a bureau de change licence is required to be incorporated solely for the purpose of carrying out bureau de change business. A bureau de change needs to pay an annual licence fee (SCR10,000 for a Class A, SCR5,000 for a Class B) and is required to display a copy of its licence at all times at its premises. It is a requirement that a bureau de change maintains half of its paid up capital as liquid assets and is subject to onsite and offsite surveillance.

9.2.3 Capital requirements for Bureau de Change

A Class A bureau de change is required to maintain a minimum of SCR500,000 as paid-up capital and a Class B bureau de change is required to maintain SCR50,000. At least half of the capital should be maintained as liquid assets.

10. National payment, clearing and settlement system

10.1 How are the payment, clearance and settlement systems organised?

The clearing and settlement function is currently the domain of the clearing banks and the CBS. The ability of Non-Bank Financial Institutions to participate is

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facilitated via the member banks. All member banks have the facility to maintain settlement accounts with the CBS in order to participate in interbank clearing. The settlement of transactions is effected on a Deferred Net Settlement basis for the cheques clearing and on real time basis for interbank rupee transactions effected through the SWIFT system.

10.2 What is the role of the Central Bank in the system?

The National Clearance and Settlement Systems Act 2010 gives the Central Bank of Seychelles mandate through Banking Services Division for the undertaking of payment systems oversight, entry and participation criteria, recognition and supervision of systems for the clearance and settlement systems.

The Central Bank of Seychelles acts as the fiduciary agent of the government and provides facilities such as collecting revenue and effecting payments on behalf of the government.

Furthermore, the Central Bank acts as the banker of the commercial banks. It provides payment and settlement facilities for clearing of retail payments, such as cheques, ATM/POS and SWIFT transactions. The Central Bank also provides other banking facilities to commercial banks – such as to issue and accept deposits of currency.

10.3 Short description of the processing of payment instructions

The Central Bank of Seychelles Immediate Transfer Service (CBSITS) is a straight- through-processing (STP) service operated by the CBS designed to securely undertake transfer of funds at an interbank level while also accommodating for third party transfers of a time critical nature using primarily the SWIFT system. The CBSITS operationalizes settlement finality of all interbank transfers directly across the General Ledger of the CBS on an intraday basis, this is facilitated by the CORE Banking System. All participants of the system that are SWIFT Enabled users are required to use the SWIFT Network for this service. Under the CBSITS the STP functionality embedded within the CORE Banking System receives SWIFT payment instructions, generates outgoing SWIFT payment instructions, effects the accounting entries across the General Ledger and provides email confirmation of each transaction to the concerned participants.

The settlement of transactions is undertaken using the “CBSITS” arrangement at T+0 and the delivery is also on a T+0 basis provided the instructions are received within the Transfer Windows. All instructions received after the Cut-off time of the Transfer Windows are to be processed on a T+1 basis by 09:00hrs the next

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working day. Customer accounts should be credited within 2 hours of receipt of the SWIFT instructions from the CBS.

Cheque payment instructions are processed manually through the Clearing House supervised by the Central Bank. It is worth noting that the Central Bank is currently implementing a state of the art Electronic Cheque Clearing system which will be an image based clearing system and is due to Go-Live in August 2012.

Cheque manual clearing session is held once daily from Mondays to Fridays only. Settlement occurs across the books of CBS on a Deferred Net Settlement [DNS] basis. Settlement occurs on the same day, assuming that there are no validation delays of payment instructions by the receiving bank. All member banks are required to maintain settlement accounts with the CBS and should always remain in credit. In the event of shortfall, participants can make recourse to the overnight lending facilities offered by CBS.

10.4 How are non-funded positions settled in the system?

Non-funded positions have not arisen as all banks are required to maintain strict collateral with the Central Bank of Seychelles. The CBS imposes strict collateral requirements for extending short-term credit facilities to clearing banks. The collateral required by the Bank is restricted to high quality, liquid instruments, and collateral is currently restricted to Treasury Bills and Bonds. The Central Bank has been taking measures to reduce the reliance by commercial banks on Central Bank credit to cover their exposures and to encourage the development of interbank borrowing. This is intended to encourage clearing banks to be more proactive in their treasury operations and risk management activities.

11.0 Currency in use

11.1 List of legal tender notes and coins currently issued and in use in the economy

Currency - Seychelles Rupees (SCR) - 100 cents equal one Seychelles Rupee Notes - 500 Rupees, 100 Rupees, 50 Rupees, 25 Rupees, 10 Rupees Coins - 5 Rupees, 1 Rupee, 25 Cents, 10 Cents, 5 Cents, 1 Cent as well as Commemorative coins Gold, Silver and Cupro-Nickel coins of different sizes and face values.

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12.0 The position of the central bank in SADC

12.1 Special relationship with other central banks in SADC (CMA excluded)

The Central Bank of Seychelles does not have any special relationship with other central banks in SADC. The Bank participates, however, in collaborative projects with other SADC central banks, such as short-term attachments with a view to promoting the mutual exchange of experience.

13.0 Publications

13.1 Regular published publications

The Central Bank of Seychelles publishes its Annual Report and a Financial Supervision Report by the March 31 and end –June each year, respectively.

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South African Reserve Bank

South African Reserve Bank PO Box 427 Pretoria, 0001 South Africa Tel: +27 12 313 3911 Fax: +27 12 313 3925

1. History

The founding of the South African Reserve Bank (SARB) was necessitated by events before and immediately after World War I and formed part of a more comprehensive set of measures dealing with unsatisfactory monetary and financial conditions at that time.

The Currency and Banking Act, 1920 (Act No. 31 of 1920) (“Currency and Banking Act”) provided, among other things, for the establishment of the SARB. The first Governor of the SARB was appointed with effect from 17 December 1920 and the Bank opened its doors for business for the first time on 30 June 1921.

2. Relationship with government

2.1 Independence

The SARB was established by the Currency and Banking Act in the form of a public company. The equity capital of the SARB is held by private individuals and entities, and the government holds no shares in the SARB. The said Act of 1920 was amended and amplified from time to time and re-enacted in the form of the South African Reserve Bank Act, 1944 (Act No. 29 of 1944). This latter Act, in turn, was repealed and substituted by the South African Reserve Bank Act 1989 (Act No 90 of 1989) (“SARB Act”), which Act currently governs the management, powers, functions and duties of the SARB.

Complementary to the provisions of the SARB Act, the status of the SARB as the Central bank of the Republic of South Africa and its primary objective is defined as “...to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic” in section 224(1) of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996) (the Constitution). Furthermore, section 224(2) of the Constitution states that the Bank should, in the pursuit of its primary objective, “...perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the SARB and the Cabinet member responsible for national financial matters”.

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2.2 Appointment of Governor and grounds for dismissal

The Governor is appointed by the President of the Republic of South Africa in terms of section 4 of the SARB Act. This section also provides for the appointment of the Deputy Governors on the same conditions as the Governor. While they must devote all their time to the business of the SARB (section 5(4)), the Governor and Deputy Governors may accept or hold any other office to which they may be appointed by or with the approval of the President of the Republic or the Minister of Finance. In terms of section 5 of this Act, the Governor and Deputy Governors are appointed for periods of five years and are on the expiration of their terms of office eligible for re- appointment. The Governor should be a person of tested banking experience (section 4.2 (a)).

The Governor and Deputy Governors are members of the Board of Directors of the SARB and no person shall be appointed or elected as or remain a director who is: - not resident in the Republic of South Africa; or - a director, officer or employee of a banking or mutual banking institution; - or, a member of the legislative assembly of the Republic or one of the provinces.

2.3 Relationship with government in formulation of monetary policy

The SARB is responsible for the formulation and implementation of monetary policy and is responsible for the execution of such policy, whereas the government determines and implements fiscal policy. Regular consultations take place between the Minister of Finance, the Governor of the SARB and between officials of the National Treasury and the SARB. At these meetings, monetary and fiscal policies are co-ordinated and different points of view are taken into consideration.

As discussed below in paragraph 4.2, the Government, after consultation with the SARB, sets an inflation target which guides monetary policy.

The SARB, however, remains solely responsible and accountable for the implementation of monetary policy. The SARB's accountability is ensured by sections 31 and 32 of the SARB Act. Section 32 of the SARB Act requires the SARB to submit the statement of assets and liabilities monthly and annually in respect of its finances to the National Treasury. Section 31 requires it to submit to the Minister of Finance an annual report on its implementation of monetary policy. The annual financial statements and this report must be tabled in Parliament. In addition, the Governor of the SARB may be, and on several occasions has been, called upon to account before the Parliamentary Portfolio Committee on Finance.

2.4 The Board of the SARB

In terms of section 4 of the SARB Act, the SARB is managed by a Board of fourteen (14) directors, consisting of:

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- a Governor and three Deputy Governors ; - three other directors appointed by the President for a period of three years; and - seven directors elected by the shareholders, also for a period of three years.

Of the directors elected by the shareholders, four must be persons who are or have been actively and primarily engaged in commerce or finance, one must be a person who is or has been engaged in agriculture, and two must be persons who are or have been engaged in industrial pursuits.

2.5 The budget of the SARB

The SARB has its own budget which is funded from profits generated by its activities.

2.6 Relationship with government in terms of finance, equity and development financing

As a relative rarity among central banks today, the SARB's shares are privately held. Its share capital of R2 million, divided into 2 million ordinary shares of one rand each, is held by approximately 670 shareholders, comprising companies, institutions and private persons. Single shareholders are restricted by the SARB Act to a maximum share ownership of 10 000 shares and the annual dividend paid has also been limited to 10 cents per share.

The SARB pays company tax to the government. In addition, 90 per cent of the profit after tax, dividends and transfers to reserves is due to the government. The remaining 10 per cent is transferred to a statutory reserve.

The SARB is not involved in development financing.

2.7 Credit to government

Section 10 (1)(f)(i) of the SARB Act allows for the granting of an unsecured loan to the government. However, section 13(f) of the SARB Act stipulates that the SARB may not hold stocks of the government of the Republic which have been acquired directly from the Treasury by subscription to new issues, the conversion of existing issues or otherwise, a sum exceeding its paid-up capital and reserve fund plus one third of its liabilities to the public in the Republic.

2.8 Main functions of the SARB

The main functions that the SARB conducts are to: - issue bank notes and coin; - facilitate the development and maintenance of an efficient national payment, clearing and settlement system;

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- act as banker to the government; - act as custodian of the country's official gold and other foreign reserves; - act as government's funding agent; - formulate and implement monetary and exchange rate policy in co-operation with the National Treasury; - act as lender of last resort for domestically registered banks; - supervise banks and mutual banks; - monitor and promote the stability of the financial system; - administer exchange controls; and - compile and publish macroeconomic data.

2.8.1 Issuing of banknotes and coin

The SARB's first notes were issued to the public in April 1922. The activities of the SARB were extended further in 1989 when the sole right to mint, issue and destroy coins was statutorily transferred to the SARB by the South African Reserve Bank Act, 1989 (Act No. 49 of 1989). In pursuance of this legislation, the South African Mint Company (Pty) Ltd and the South African Bank Note (Pty) Ltd were established as wholly-owned subsidiaries of the SARB to perform these functions.

2.8.2 National Payment System

Section 10(1)(c) of the SARB Act empowers the Bank to perform such functions, implement such rules and procedures and, in general, take such steps as may be necessary to establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems. The SARB provides for the final real-time electronic settlement of interbank obligations, emanating from non-cash payments made in the economy, via the South African Multiple Option Settlement (SAMOS) system. In addition, the SARB oversees the safety and soundness of the national payment system through the introduction of settlement risk-reduction measures as and when required. The settlement risk-reduction measures are aimed at minimising possible systemic risk emanating from, inter alia, settlement default (inability or lack of funds to settle obligations) by one or more settlement banks.

2.8.3 Government's banker

The SARB currently administers the accounts of the central government. The Exchequer and the Paymaster-General account are held in the Bank and no interest is paid to Government on these accounts. However, the bulk of Government’s funds is held in Tax-and-Loan accounts with the four big commercial banks. The main objective of this arrangement is to smooth the money market liquidity impact of the government’s flow of funds. The SARB also acts as adviser, agent and representative of the government in various ways. This entails giving advice on monetary and financial matters, administering the exchange control regulations and handling the weekly tenders for Treasury bills, government bonds and special issuance, e.g. floating rate bonds and inflation-linked bonds. The SARB also

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conducts switch and buy-back auctions on behalf of the National Treasury. The SARB also takes care of various aspects of South Africa's dealings and relations with institutions such as the International Monetary Fund and the International Bank for Reconstruction and Development.

2.8.4 Custodian of foreign reserves

The SARB has acted as custodian of the country's official gold and foreign exchange reserves. The SARB holds approximately 13 per cent of these gold and foreign exchange reserves in the form of gold. The foreign exchange reserves are held mainly in assets denominated in US dollar, euro and sterling pound. Foreign reserves are managed conservatively, with safety and liquidity requirements foremost in their policy. A relatively small part of the foreign reserves has been placed with external fund managers. These funds are managed against certain benchmarks and the fund managers have been given specific investment guidelines within which to operate. These guidelines limit the degree of risk which the fund managers may take in their efforts to outperform the benchmarks and within specified risk parameters.

The SARB joined the World Bank’s “Reserves Advisory and Management Program” (RAMP) in 2005, through which the World Bank Treasury provides the SARB with advisory services and training, to assist the SARB in better managing the foreign exchange reserves. In 2007, the SARB implemented a Strategic Asset Allocation, in terms of which it has increased the amount of funds in its Investment Portfolio. The main objective of the SAA was to enhance the total returns on foreign reserves. The SARB undertakes an annual review of the SAA.

2.8.5 Government's funding agent

As funding agent of the government the SARB is responsible for the primary issuance of Treasury bills (TBs) and government bonds. The government uses TBs to fund themselves in the shorter term (money market) while bonds are used for longer term funding (capital market). TBs are issued on an auction basis with maturities of 91-, 182-, 273- and 364 days. Government bonds are issued through an auction system of eight primary dealers who have an obligation to participate in the auction and also perform a market-making function.

The auctions for both TBs and bonds are conducted electronically. The SARB uses its wire services (Reuters, Bloomberg and the internet) to communicate all auction related information like invitations and results to market participants. The SARB also conducts surveillance of primary dealers’ activities in the primary and secondary markets.

The SARB plays a leading role in the development and promotion of the efficient functioning of financial markets by supporting efforts to improve the clearing, settlement and safe-custody systems in South Africa. In this regard, the SARB was

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involved in the formalisation of the South African bond market through its representation on the previous Bond Exchange of South Africa (BESA). The SARB played an important role in the dematerialisation of its own debentures, as well as TBs, and managed the transfer of these securities in the Financial Instrument Register (FIR) which formed an integral part of the SAMOS system. In March 2010, South Africa’s money-market industry officially commenced the electronic issuing, trading and settlement of money-market securities in place of the manual paper- based system. The SARB played a leading role in this initiative by introducing SARB debentures as the first dematerialised money-market instrument to settle via STRATE1. The process of dematerialising all money-market instruments is still in progress. The SARB was also a founder member of the South African Futures Exchange (SAFEX), which subsequently became a division of the JSE.

The motivation for the SARB's participation in the creation and maintenance of formal markets is to enable the government to issue bonds at the lowest possible rates and to encourage foreign investors to participate in a liquid market which is relatively free of settlement and systemic risks. Furthermore, a formal market offers trade reporting, price discovery and transparency. These characteristics enhanced the standing of the domestic bond market as an efficient and sophisticated market, effectively integrated into world financial markets.

2.8.6 Monetary and exchange rate policy

The SARB is responsible for the formulation and implementation of monetary policy. However, the exchange rate policy, and the implementation thereof, is the responsibility of the SARB in close consultation with the National Treasury. Since the beginning of 2000, South Africa has adopted an inflation targeting regime. The Governor of the SARB is also required to submit to the Minister of Finance an annual report on the implementation of monetary policy.

Monetary policy is determined on the basis of the SARB's assessment of current and prospective economic developments, against the background of its primary task of maintaining of price stability.

The South African exchange rate is based on a freely floating system where the value of the rand is determined by the market forces of supply and demand. The SARB, consistent with its inflation-targeting monetary policy framework, has no intermediate policy targets or guidelines regarding the level of the exchange rate. The SARB’s operations in the foreign exchange market, therefore, represent normal prudent management of the SARB’s balance sheet and are in no way directed at seeking to influence the level of the rand. The SARB’s participation in the foreign exchange market is aimed at building the official foreign exchange reserves.

1 STRATE Ltd. is the only registered securities depository for equities, bonds and money market instruments in South Africa.

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Purchases of foreign exchange by the SARB naturally affect the domestic money market. For every transaction executed by the SARB in dollars in the foreign exchange market, there is normally a rand counterpart. Dollars purchased by the SARB will increase the amount of rand liquidity available in the domestic money market. In order to sterilise the liquidity impact of these purchases, the SARB applies a range of open-market operations instruments. These instruments, amongst others, include the issuance of SARB debentures, long-term reverse repos and money market swaps in foreign exchange.

The National Treasury contributes towards the accumulation of foreign exchange reserves by funding such purchases. This is achieved among others things, through the National Treasury Sterilisation Deposit Account (NTSDA), transfer of funds from the Tax-and-Loan accounts to the SARB. The SARB also conducts longer-term swaps which are meant to sterilise foreign exchange purchases. The outstanding foreign exchange swaps are recorded as forward position.

2.8.7 Supervision of banks

In 1985, a department for bank supervision was established in the SARB to monitor the activities of South African banking institutions. The mission of the department is to promote the soundness of the banking system through the effective and efficient application of international regulatory and supervisory standards.

Bank Supervision Department (“BSD”) is a function within the SARB and is headed by the Registrar of Banks (“Registrar”), who is responsible for the administration of the Banks Act. The BSD is responsible for the regulation and supervision of banks which includes the registration of banks and mutual banks. The Registrar has to report annually on his activities to the Minister of Finance, who in turn has to table this report in Parliament. The mission, philosophy, principles, approach and prudential requirements applied by the Registrar complies with the standards set by the Basel Committee on Banking Supervision. The implementation of the revised capital framework (Basel II) and the compliance with the Basel Committee’s amended Core Principles for Effective Banking Supervision bears testimony to the department’s mission.

2.8.8 Contributing to financial system stability

In 2001, the SARB decided to separate its macro-prudential oversight of the financial sector from the Bank Supervision Department and to form a specialist department, called the Financial Stability Department (FinStab). The purpose was to focus explicitly on financial-system stability as a natural secondary objective of a central bank, without which monetary policy cannot be effectively implemented. The SARB is, however, not the sole custodian of financial-system stability and contributes towards a larger effort involving government, other regulators and self- regulatory agencies.

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The approach of FinStab is twofold: Firstly, to identify inherent weaknesses in the financial system environment and initiate projects to enhance the system’s ability to withstand shocks. Secondly, to identify through quantitative analyses the build-up of exogenous and endogenous risks to the broader domestic financial system and to mitigate them. Should financial sector crises occur, FinStab plans and co-ordinates the authorities’ responses, develops and maintains safety-net policies and procedures and co-ordinates contingency planning for systemic crises resolution.

The SARB also publishes the Financial Stability Review, a semi-annual publication representing an endeavour to enhance the understanding of financial stability issues and to encourage informed debate on matters affecting the stability of the financial system.

2.8.9 Exchange control

Exchange controls in South Africa are administered by the Financial Surveillance Department (“FinSurv”) of the SARB in terms of powers delegated to it by the Minister of Finance. The name of the Department was changed from the Exchange Control Department to the Financial Surveillance Department with effect from 2010- 08-02. In terms of the Exchange Control Regulations, the Minister bears the ultimate responsibility for exchange control and therefore for exchange control policy, on which he is advised by the Governors of the SARB.

To assist in the provision of the day-to-day foreign exchange requirements of the public, the Minister has appointed a number of banking institutions as Authorised Dealers in foreign exchange. These banks are authorised to buy and sell foreign currency within certain parameters and subject to the conditions laid down by the SARB. Any request by the public to the Authorised Dealers, which falls outside the limitations prescribed by the SARB, is forwarded to the exchange control authorities for adjudication. All cross-border transactions undertaken by the Authorised Dealers are reported to the SARB for statistical and monitoring purposes. Inspectors from the SARB also visit the branches of Authorised Dealers regularly to ensure that their foreign exchange transactions comply with the prescribed guidelines.

3. Structure

3.1 Branches

The SARB has seven branches, situated in Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria North.

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3.2 Functions of branches

In terms of the SARB Act, the issuing of banknotes is one of the primary functions of the SARB. It is the branches’ responsibility to ensure that there is an adequate supply of new notes available to meet the demand, and to replace the unfit notes destroyed by a branch.

The collection and delivery of legal tender to the numerous commercial banks are performed by SBV Services (Pty) Ltd, a company started and owned by Standard, FirstRand and the ABSA bank.

In order to provide an efficient service to the banks and satisfy their requirements for banknotes, the SARB has ensured that there is sufficient storage capacity in branch vaults to meet the normal demand, as well as a "buffer" amount to meet exceptional or seasonal demands. The branches all have electronic note-processing machines to sort the banknotes deposited with them for sorting. In this way, the Bank ensures that a good quality of notes remains in circulation. The Bank destroys soiled or "unfit" banknotes in terms of the SARB Act. Each of the branches has off-line or on- line shredder facilities to perform this task. The branches are responsible for the quality of banknotes in circulation in their respective regions.

The branches of the SARB, the South African Police Services and the commercial banks also work together to combat counterfeiting of banknotes. Claims for mutilated banknotes are also settled by the branches on an ad hoc basis.

4. Design and conduct of monetary policy

4.1 Main objectives of monetary policy

The primary objective of the SARB is to protect the value of the currency in the interest of balanced and sustainable economic growth in the country. In pursuing its objective the SARB strives to achieve financial stability, i.e. price stability as well as stable conditions in the financial sector as a whole.

4.2 Monetary policy framework

During February 2000 the SARB adopted an inflation-targeting monetary policy framework. This means that the monetary authorities now target the rate of inflation directly instead of following the previously applied ”eclectic” monetary policy approach in which intermediate objectives were targeted.

The new inflation-targeting monetary policy framework is primarily concerned with one element of financial stability, i.e. price stability. For overall financial stability it is important that the SARB:

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- ensures the availability of high quality currency in circulation in various denominations to serve as a reliable means to execute financial transactions in the economy; - facilitates the development and maintenance of an efficient national payment, clearing and settlement system; - encourages the development and efficient functioning of the money, capital and foreign exchange markets; - monitors the financial risks of banks and supports the development of sound and well-managed banking institutions; and - where appropriate, acts as lender-of-last-resort providing assistance to smooth temporary liquidity shortages and safeguard the system from systematic risks.

Inflation targeting is a monetary policy framework characterised by the public announcement of a numerical target for the inflation rate that is intended to be achieved over a specific time period. It is, however, important to note that inflation targeting is a framework and not a rule. Therefore, although the achievement of the target becomes the overriding objective of monetary policy in an inflation-targeting framework, the adoption of an inflation-targeting monetary policy framework does not mean that the central bank must apply rigid rules and is left without any discretion. Exclusive emphasis on inflation goals without a careful analysis of economic conditions can lead to serious distortions in the economy which could result in higher volatility over the long term. A rigorously applied rule will deprive the central bank of its ability to deal with unusual or unforeseen circumstances.

The adoption of an inflation-targeting monetary policy framework provides the SARB with an explicit anchor or ultimate objective for monetary policy. At the same time it enhances the transparency of monetary policy and the accountability of the central bank. With this framework it should be clearer why interest rate or other policy changes are made.

4.3 Instruments of monetary policy

The SARB’s refinancing system was introduced on 9 March 1998. The refinancing system is modified from time-to-time in line with international best practice and in order to enhance the functioning of the domestic money market and the interbank market, in particular. The most recent modification was implemented in March 2012.

Through its open market operations, the SARB creates a shortage in the domestic money market which the banks need to refinance from the SARB at the prevailing repo rate. Banks are offered the opportunity to tender on a weekly basis for central bank funds through repurchase transactions (repos). The repo rate, as the key refinancing rate of the SARB, is determined by the Monetary Policy Committee. Liquidity in the money market is influenced by numerous factors. Some liquidity factors, such as the amount of notes and coin in circulation and movements on the

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cash reserve accounts, are determined by market forces while others are used by the SARB to manage the amount of liquidity in the market. The instruments utilised by the SARB to manage market liquidity are:

- Repos and reverse repos (repurchase agreements). - Spot and swap transactions in the foreign exchange market. - Changes in the minimum reserve balances that banking institutions must hold with the SARB. - Issuing of SARB debentures. - Outright selling of government bonds by the SARB. - Changes in the level of government deposits at the SARB and the Corporation for Public Deposits.

The Bank started to use longer-term foreign exchange swaps with maturities of up to 12 months to manage money market liquidity. These swaps will show as an overbought forward position in the monthly release of the official gold and foreign exchange reserves, resulting in a decline in gross reserves and an unchanged international liquidity position.

The recent changes implemented in March 2012 entail:

 Allocating the amounts tendered by banks in the weekly main repo auctions on a pro rata basis, up to the announced average daily liquidity requirement for the week in instances where the auction is over-subscribed;  Conducting two- and five days main repo transactions during the week of the Monetary Policy Committee meetings; and  Issuing SARB debentures and longer-term reverse repo transactions with maturities of 7- and 14 days, on top of the 28- and 56 days.

4.4 Types of refinancing as well as collateral used

Using the instruments mentioned in paragraph 4.3, the SARB creates a shortage of cash in the domestic money market. This shortage of cash can be refinanced by the banks by availing themselves to the weekly main repurchase auctions offered by the SARB on Wednesdays at the prevailing repo rate. Any fluctuations in the daily cash requirements of banks are accommodated at square-off through the automated standing facilities, supplementary auctions (ad-hoc) and the utilisation of banks’ cash reserves accounts. The automated overnight standing facilities were implemented in August 2010. Banks’ debit balances (short positions) on their SAMOS settlement accounts are settled at repo plus 100 basis points while credit balances (surplus position) are settled at repo minus 100 basis points.

Liquid assets, which consist of Treasury bills, government bonds, SARB debentures and Land Bank bills, qualify as eligible securities at the main repurchase and

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supplementary auctions, as well as for utilising the automated standing facilities offered on SAMOS.

An averaging principle applies to the banks’ cash reserve accounts, which implies that although banks have automatic access to their cash balances at the central bank on a daily basis, the average level of reserves during the maintenance period should equal or exceed the minimum cash reserves requirement.

As lender-of-last-resort the SARB can provide accommodation against other forms of security to banks with temporary liquidity problems at a discretionary or negotiated rate and for limited periods of time.

4.5 Reserve and liquid asset requirements on commercial banks

The current minimum cash reserve requirement that commercial banks need to keep with the SARB is 2,5 per cent of liabilities as adjusted, on which no interest is paid. The commercial banks are also required to keep 5 per cent of their total liabilities in statutory liquid assets, namely Treasury bills, government bonds, SARB debentures and Land Bank bills. While the cash reserve requirement is applied as a monetary policy instrument, the liquid asset requirements constitute a prudential requirement.

5. Structure of the money and capital markets

5.1 Organisation of the money and capital markets

Money market: Defined as that part of the market which deals in financial instruments with a maturity up to twelve months. The money market consists of the following: - Markets in the securities of ultimate borrowers (marketable and non- marketable) - Markets in the securities of financial intermediaries (marketable and non- marketable) - Interbank market

The issuers in the money market can be categorised as ultimate borrowers (corporate and government sectors) or financial intermediaries. The South African money market can be regarded as an informal market. The main participants in the money market are banking institutions (including the Land Bank and the SARB), corporates, portfolio managers, insurance companies and pension funds.

Capital market: The capital market constitutes dealing in securities with an outstanding maturity longer than one year. The capital market comprises: - The fixed interest securities market (mainly bonds). - The variable interest securities market (which is rather undeveloped). - The equity market regulated by the JSE Limited.

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The main institutions involved as issuers of securities are the National Treasury, Trans-Caledon Tunnel Authority (TCTA), public corporations (e.g. Eskom) public utilities (e.g. Transnet), local authorities, banks and companies. The main participants as buyers in this market are the Public Investment Corporation, insurance companies, banks, pension funds and unit trust companies. The same institutions are also active in the secondary capital market where they are supplemented by banks, stockbrokers, the SARB (through its open market operations) and money brokers.

5.2 Instruments used in both these markets

The major money market instruments are: - Treasury bills and government bonds (with less than twelve months to maturity); - bankers’ acceptances; - promissory notes; - Eskom commercial paper bills; - Transnet bills and bonds; - Telkom commercial paper notes and bearer coupon stock; - SARB debentures; - Land Bank bills and promissory notes; - SA Housing Trust bonds; - negotiable certificates of deposit (NCD’s); and - forward rate agreements; - short-term securities issued by the Trans-Caledon Tunnel Authority (TCTA); and - commercial paper of banks and other corporates.

The major capital market instruments are: - government, inflation-linked and floating rate bonds with more than twelve months to maturity; - bonds issued by public corporations and public utilities; - corporate bonds; and - shares or equities.

In addition to the bond and equity markets, which are both formalised through an exchange, there is also a well-developed derivatives market where futures and options on commodity, money, capital and foreign exchange market instruments are traded.

5.3 Legal frameworks existing for the money and capital markets

The issuing of money and capital market instruments is regulated by either general legislation, specific legislation and/or enabling legislation.

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Those money and capital market instruments that can be created by a wide variety of issuers are usually regulated in terms of general legislation. In cases where the issuer is established and/or constituted in terms of specific legislation, such legislation normally contains stipulations regarding the issuing requirements and processing of the relevant instruments.

Exchanges (i.e. formalised markets) are regulated in terms of enabling legislation. The Securities Services Act, no.36 of 2004 regulates the operations of the JSE, and the activities of the South African Futures Exchange (SAFEX) and the Bond Exchange of South Africa (BESA). This is still the case after the JSE had purchased SAFEX in 2001 and BESA in 2009.

The JSE, as a self-regulatory authority, accepts the responsibility for regulating all trade in listed equities, options on equities, and options on equity indices. SAFEX regulates all listed futures contracts and options on these futures, while the BESA regulates trade in listed bonds and options on such bonds. BESA became a wholly- owned subsidiary of the JSE on 22 June 2009, in terms of which the JSE acquired the entire issued share capital of BESA.

The Financial Services Industry in South Africa is regulated in terms of, inter alia, the following legislation: - South African Reserve Bank Act, 1989 (Act No. 90 of 1989) - Banks Act, 1990 (Act No. 94 of 1990) (“Banks Act”) - Pension Funds Act, 1956 (Act No. 24 of 1956) (“Pension Funds Act”) - Financial Services Board Act, 1990 (Act No. 97 of 1990) (FSB Act”) - Competition Act, 1998 (Act No. 89 of 1998) (“Competition Act”) - The National Credit Act, 2005 (Act No. 34 of 2005) - The Income Tax Act, 1962; Stamp Duties Act, 1968 - Value Added Tax Act, 1991 - Estate Duty Act, 1955 - Tax on Retirement Funds Act, 1996 - Capital Gains Tax - Securities Services Act, 2004 (Act No. 36 of 2004)(“SSA”) - Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002) (CISNA) - Long-Term Insurance Act, 1998 (Act 52 of 1998) (“Long-Term Insurance Act) - Short-Term Insurance Act, 1998 (Act No. 53 of 1998) (Short-Term Insurance Act) - Financial Advisory and intermediary Services Act, 2002 (Act No. 37 of 2002) (“FAIS Act”) - Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) (“FICA”) - Protection of Constitutional Democracy Against Terrorist and related Activities Act, 2004 (Act No. 33 of 2004) (“POCDATARA”) - Friendly Societies Act, 1956 (Act No. 25 of 1956) (“Friendly Societies Act”) - Inspection of Financial Institutions Act (Act No. 8 of 1998) (“Inspection of Financial Institutions Act”)

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5.4 Type of financial intermediaries operating in these markets

Money market: - Registered Banks - 20 as on 31 May 2009 - Mutual Banks - 2 as on 31 May 2009 - Local branches of foreign banks - 14 as on 31 May 2009 - Foreign banks with local representative offices- 42 as on 31 May 2009

Bond market: - Bond Exchange Trading Members - 56 as on 31 July 2009 - Bond Exchange Broking Members - 3 as on 31 July 2009 - Primary Dealers - 8 as on 31 August 2011

6. External payment arrangements

6.1 Determination of the exchange rate policy

The SARB assists the National Treasury and Minister of Finance in the formulation and autonomously implements exchange rate policies.

6.2 The present exchange rate system

The SARB allows the rand to float freely against international currencies. As noted above in section 2.8, the SARB may purchase foreign currency from the market from time to time to supplement reserves.

6.3 Organising the foreign exchange market

There are 23 banks in South Africa which may act as Authorised Dealers in foreign exchange as well as 13 Authorised Dealers in foreign exchange with limited authority (ADLA’s). The supply of and demand for foreign exchange through these dealers will determine the value of the rand. The foreign exchange market may be described as a well-structured, professional market.

6.4 The central bank's involvement in managing foreign exchange reserves.

The SARB also acts as custodian of the official gold and other foreign reserves. It acts as principal in exercising this function, with the assets appearing on its balance sheet. Interest income is for the SARB’s account. The National Treasury also receives interest income on the portion of reserves that it has purchased. Valuation adjustments of all foreign currency assets, however, are for account of Government.

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7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

South African residents may purchase foreign currency for current transactions and limited capital transactions within certain parameters without exchange control approval. Capital account transactions generally require exchange control approval. South Africa is a member of the Common Monetary Area, along with Lesotho, Namibia and Swaziland, and transactions between these countries are effected freely without exchange control restrictions.

7.2 Exchange control restrictions on current account transactions

There are virtually no exchange control restrictions on current account transactions. With a few exceptions, limits were abolished on transfers of foreign exchange for current account transactions. Accordingly the International Monetary Fund is satisfied that South Africa effectively has no exchange controls on current transactions. South Africa complies, in other words, with the IMF's Article VIII status.

7.3 Exchange control restrictions on capital account transactions

There are no restrictions on inward investment and disinvestment by non-residents.

Outward corporate foreign direct investment is permitted within certain guidelines, but there are no restrictions on the amount of foreign currency that may be transferred abroad for such investments.

In the case of outward corporate investment, each transaction is viewed on its own merits, taking into account the nature and purpose of the investment. Institutional investors are permitted, within certain guidelines, to make portfolio investments by means of currency transfers. Private individuals (natural persons) may invest up to R4 000 000 per calendar year abroad, subject to certain conditions. Requests for the transfer of funds by private individuals, in excess of R4 000 000, will be considered by FinSurv.

7.4 Retention rules for foreign exchange earned or owned by residents

Foreign exchange earned by private individuals (natural persons) by way of income, dividends and services are permitted to be retained abroad, but the proceeds of merchandise exports must be sold to an authorised dealer in South Africa within a period of 30 days from receipt. The foreign exchange proceeds of merchandise exports and service receipts of corporates must similarly be repatriated, but South African entities (legal persons) operating Customer Foreign Currency (“CFC”) accounts may retain funds in their CFC accounts, without the obligation to convert the funds into Rand.

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8. The central bank and external debt

8.1 The role of the central bank in managing the country's external debt

The SARB is officially represented at the National Treasury’s debt management committee.

The SARB administers exchange controls on behalf of the Treasury. Permission for a South African resident to borrow abroad has to be obtained from either FinSurv and/or the Treasury.

8.2 The role of the National Treasury in this respect

In South Africa, the National Treasury fulfils an important function in co-ordinating foreign borrowing by the public sector.

9. Supervision of financial institutions

9.1 Banking institutions

9.1.1 Authority responsible for banking supervision

The Registrar of Banks is the responsible authority for the supervision of commercial banks, while the supervisor of co-operative banks is reposnsible for the regulation and supervision of co-operative banks. Both authorities have offices in the SARB.

9.1.2 Registration for establishing a new bank and failure to register

- The registration of banks and of branches of foreign banks is governed by the Banks Act. - In terms of section 11 of the Banks Act it is an offence for any person to conduct the business of a bank without being registered as a bank in terms of the Banks Act. - In terms of section 18A of the Banks Act it is an offence for a foreign institution to conduct the business of a bank by means of a branch without the prior written authorisation of the Registrar of Banks. - Application for authorisation to establish a bank has to be made in terms of section 12 of the Banks Act. Application for registration as a bank is governed by section 16 of the Banks Act. - The registration of mutual banks is governed by the Mutual Banks Act, 1993 (Act No. 124 of 1993) (“The Mutual Banks Act”)

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9.1.3 Types of registration that exist

- Registration as a bank, mutual bank or branch of a foreign institution, which allows the entity to conduct the business of a bank in the Republic of South Africa. - Registration as a representative office, which allows the registered representative office to represent locally the business interest of overseas banking institutions but not itself to conduct the business of a bank in the Republic of South Africa. - The Cooperative Banks Act, 2007 will govern the registration of cooperative banks. The effective date for implementation of the Act has been 1 August 2009.

9.1.4 Minimum capital requirements for the different types of banks

Capital requirements are laid down in SA rands in terms of section 70 of the Banks Act for banks and branches of foreign banks. The current requirement for banks and branches of foreign banks is the greater of R250 million or an amount which represents a prescribed percentage of the sum of amounts relating to the different categories of assets and other risk exposures. The prescribed percentage shall be a minimum of 8 per cent, or such higher percentage (currently 9,5 per cent) as may be determined by the Registrar of Banks in consultation with the Governor of the SARB. Mutual banks have to maintain a minimum capital adequacy of a minimum of R10 million or 10 per cent of weighted assets and other risk exposures.

9.1.5 Statutory provisions governing current activities of banks

Concentration risk: Section 73 of the Banks Act precludes a bank from making any investments with, or granting loans or advances or other credit to, any person exceeding a prescribed percentage (currently 10 per cent) of its net qualifying capital and unimpaired reserves without prior approval of either the board of directors or a committee appointed for that purpose by the board of directors and the composition of which should be approved by the Registrar.

Any investments, loans or other credit by the bank to any person which either alone or together with others, results in the prescribed percentage (currently 10 per cent) of capital and reserves being exceeded must be reported to the Registrar of Banks. This reporting is done through the submission, on a quarterly basis, of the statutory BA 210 return, duly completed and signed, to the Office of the Registrar of Banks in terms of section 75 of the Banks Act.

No exposures in excess of 25 per cent of capital to a private sector non-bank person without prior written approval of the Registrar.

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Section 73 further provides that "person", for the purposes of that section, includes two or more persons related to each other by way of control, or by being regarded as a single exposure due to interconnectedness.

Capital adequacy: Banks and branches of foreign banks are required to maintain a minimum net qualifying capital and unimpaired reserves equivalent to the greater of R250 million or 8 per cent, or such higher percentage (9,5 per cent) as may be determined by the Registrar of Banks in consultation with the Governor of the SARB, of the sum of amounts relating to the different categories of assets and other risk exposures.. The current minimum capital adequacy requirement for mutual banks is the greater of R10 million or 10 per cent of risk-weighted assets and other risk exposures.

Liquidity ratio: In terms of section 72 of the Banks Act and the Regulations promulgated thereunder, banks are required to hold, in the Republic, liquid assets to the value of not less than 5 per cent of the sum of amounts of the various categories of liabilities as specified in the regulations with reference to the time when such liabilities fall due or with reference to any other aspect pertaining to such liabilities.

Open foreign exchange position: The current maximum permissible aggregate effective net open position(s) in foreign currencies that may be maintained by any bank is 10 per cent of net qualifying capital and reserves.

Restricted lending: Section 76 of the Banks Act provides that when a bank invests in immovable property or shares or lends money to any of its subsidiaries whose main objective is the acquisition and holding or development of immovable property, the following will apply: The transaction(s) will be managed in a manner that ensures that the sum of the book value of the bank's investments in immovable property plus amounts invested in shares (excluding preference shares not convertible into ordinary shares), taken at their original cost, plus the amount owing to it by any subsidiary in respect of any loan or advance of the nature referred to above, granted by it, does not exceed a prescribed amount. Currently the amount is equal to the sum of the bank's net qualifying capital and reserves relating to banking activities.

Loans to Associates: In terms of section 77 of the Banks Act the sum of amounts: - invested in debentures or preference shares of associates (excluding subsidiaries in terms of Section 76(1) above, a bank or mutual building society); - owing to the bank by such associates in respect of loans or advances it has granted to such associates; and - of guarantees provided by the bank in respect of liabilities of such associates may at no time exceed 10 per cent of its liabilities (excluding liabilities in respect of capital and reserves).

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9.1.6 Main supervisory practices

- Regulation 3 of the Regulations relating to Banks ("the regulations") promulgated in terms of section 90 of the Banks Act, stipulates that the prescribed risk-based returns of a bank and of a controlling company shall be compiled in accordance with financial reporting standards in South Africa and shall use the same accounting policy as applied in the compilation of its annual financial statements.

- A bank or a controlling company, in the case of a banking group, is required, within 120 days of the end of its financial year, to furnish the Registrar with its consolidated financial statements.

- The approach used by the Office of the Registrar of Banks in the discharge of its supervisory obligations seeks to employ an appropriate mix of off-site and on-site supervisory approaches. The off-site component primarily involves the collection of relevant and reliable data from the statutory returns. In addition, information is gathered from other sources, such as the bank's audited financial reports and the financial media. This is then supplemented by regular meetings held with risk managers of banks, meetings with the chief executive officer, as well as annual trilateral meetings with the bank’s audit committee and external auditors in order to address particular facets of the bank's business in some depth and to obtain an evaluation of the bank’s risk management in those areas. Furthermore, an annual meeting is held with the board of directors, and is based on information submitted to the Registrar's office by the bank. These meetings offer an opportunity to verify whether the perception of the Registrar's Office corresponds with that of the bank's board.

9.1.7 Measures to remedy deficiencies as well as penalties utilised

In terms of section 74 of the Banks Act, if a bank fails to comply or is unable to comply with any provision pertaining to the minimum capital or the minimum liquid assets it is required to maintain, the bank shall report its failure or inability to the Registrar of Banks ("the Registrar") stating the reasons for such failure or inability. The Registrar may either take immediate action (which involves the imposition of a fine) against the bank or may condone the failure or inability and afford the bank the opportunity, subject to certain conditions as determined by the Registrar, to comply with the relevant provisions within a specific period.

Section 91 of the Banks Act provides that a person can be found guilty of an offence in any of the following situations: - Any person who fails to comply with a directive issued by the Registrar in terms of section 7 of the Banks Act for the furnishing of information or the furnishing of a report of a public accountant or any other person with appropriate professional skill to the Registrar.

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- Any person who in the completion of any questionnaire, that is to be returned to the Registrar, knowingly furnishes the Registrar with information that is untrue or misleading. - Any person who contravenes or fails to comply with various other provisions of the Banks Act.

9.1.8.1 Implementation of Basel II

On 1 January 2008 all South African banks implemented Basel II – the Basel Committee’s revised capital framework. Basel II seeks to set significantly more risk- sensitive capital requirements and is aimed at greater international convergence though capital requirements and better disclosure, thus enhancing the role of market discipline; and to ensure improved supervisory processes and procedures. Furthermore, Basel II offers a menu of approaches, ranging from standardised approaches to more advanced approaches.

The implementation of Basel II necessitated the amendment of the regulatory framework to give effect to the prescriptions of Basel II. The South African regulatory framework is divided into the following tiers:

- The top tier is the Banks Act, 1990, which contains the enduring principles and overarching enabling framework. Only Parliament is empowered to amend the Banks Act.

- The middle tier is the Regulations relating to Banks, which contains the technical Basel II prescriptions, and generally the essence and bulk of internationally agreed stipulations, requirements and standards. The Minister of Finance is empowered to amend these regulations.

- The bottom tier comprises directives, Banks Act circulars and guidance notes, and is used to deal with operational matters that may change frequently or require immediate action. The Registrar of Banks is empowered to issue this tier of legislation.

The amended Banks Act and Regulations became effective on 1 January 2008.

As regards the preparation of each individual bank to implement Basel II, the Bank Supervision Department requested all banks to perform a high-level gap analysis and readiness assessment to facilitate planning, identification of key deliverables, deadlines and the responsible person(s). Furthermore, banks participated in quantitative impact studies, field tests in respect of the selected statutory returns and a parallel-run process, that is, the completion of statutory returns under both the Basel I and Basel II prescriptions.

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Internally, the department modified its supervisory processes; upgraded its information technology database; approved banks’ approaches to credit and operational risk; and developed and upskilled its staff.

The success of the Basel II implementation process was its participative and consultative nature, which involved the immediate stakeholders, namely the banks, the National Treasury, external auditors of banks, The Banking Association South Africa and the SARB.

9.1.8.2 Monitoring of banks’ compliance with anti-money-laundering legislation

In June 2003, South Africa was admitted as a member of the Financial Action Task Force (FATF), established by the Group-of-seven summit in June 1989 to examine measures to combat money laundering. The retention of South Africa’s membership has been assessed in August 2008 and confirmed. In terms of the FATF Recommendations, countries are required to ensure that financial institutions in their jurisdictions are: subject to adequate regulation and supervision in respect of anti- money laundering and combating the financing of terrorism (AML/CFT); and effectively implementing the FATF Recommendations.

The Bank Supervision Department, in keeping with current global expectations to optimise compliance with AML/CFT, have taken proactive steps in supervising compliance with the Financial Intelligence Centre Act, 2001 (FICA), and the related exemptions. This entails reviewing bank’s systems and processes; having regular meetings with banks; and maintaining a close working relationship with the Financial Intelligence Centre.

FinSurv is responsible for the monitoring and supervision of compliance with anti- money laundering legislation in respect of Authorised Dealers in foreign exchange with limited authority (ADLA’s).

9.1.8.3 Compliance with the revised Core Principles for Effective Banking Supervision (Core Principles)

In October 2006 the Basel Committee on Banking Supervision issued the revised Core Principles.

During 2006/7 the Bank Supervision Department embarked on a project to reach an acceptable level of compliance with the revised Core Principles. A project team held regular meetings during this period to monitor the department’s progress and compliance status. Following the 1 January 2008 implementation of the amended Banks Act and Regulations relating to Banks, and the revised supervisory process, the Department was confident that it had reached an acceptable level of compliance. This view was confirmed by the International Monetary Fund (IMF) following their assessment of the department in early 2008.

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9.2 Financial institutions

9.2.1 Responsibility for supervision of financial institutions

The Financial Services Board is responsible for the supervision of non-bank financial institutions registered under the following statutes: - Pension Funds Act, 1956 (Act No. 24 of 1956) (“Pension Funds Act”) - Financial Advisory and Intermediacy Services Act, 37 of 2002 (FAIS) - Friendly Societies Act, 1956 (Act No. 25 of 1956) (“Friendly Societies Act”) - Securities Services Act, 2004 (Act No. 36 of 2004)(“SSA”) - Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002) (CISNA) - Long-Term Insurance Act, 1998 (Act 52 of 1998) (“Long-Term Insurance Act) - Short-Term Insurance Act, 1998 (Act No. 53 of 1998) (Short-Term Insurance Act) - Inspection of Financial Institutions Act (Act No. 8 of 1998) (“Inspection of Financial Institutions Act”)

The Financial Intelligence Centre is responsible for administering the following statutes: - Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) (“FICA”) - Protection of Constitutional Democracy Against Terrorist and related Activities Act, 2004 (Act No. 33 of 2004) (“POCDATARA)

The Competition Commission, the Competition Tribunal and the Competition Appeal Court (together the “Competition Authorities) are responsible for administering the following statute: - Competition Act, 1998 (Act No 89 of 1998) (“Competition Act”)

9.2.2 Categories of financial institutions and their licensing procedures

The Financial Services Board is the statutory body responsible for supervising non- bank financial institutions and it is mandated by the Financial Services Board Act, 1990.

The licensing procedures are as follows for the respective institutions:

Long-Term Insurance and Short-Term insurance Companies: Insurance companies are registered subject to the provisions of Part II, Sections 7 to 14 of both the Long- Term and Short-Term Insurance Acts. The prospective insurer is required to submit a form R.V.1, Application for Registration as an Insurer, which requires certain information to be disclosed.

Pension funds: Pension Funds are registered subject to the provisions of section 4 of the Pension Funds Act. The prospective fund is required to submit rules which are subject to the provisions of Regulation 30 of the Pension Funds Act.

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Friendly societies: Friendly societies are registered subject to the provisions of the Friendly Societies Act.

Collective Investment Schemes: Unit trust management companies are registered subject to the provisions of section 5 of the Collective Investment Schemes Control Act, which provides that only a person registered as a “manager” of collective investment scheme, or a person authorised as an “authorised agent” by the registered manager, or a person who is exempt from complying with the Collective Investment Schemes Control Act, may administer a collective investment scheme.

The JSE Limited: An application for a stock exchange license is made subject to the provisions of sections 8 to 10 of the Securities Services Act.

The South African Futures Exchange: An application for a financial market licence is made subject to the provisions of sections 8 to 10 of the Securities Services Act. The South African Futures Exchange is no longer an institution on its own, but a division of the Johannesburg Securities Exchange.

Bond Exchange of South Africa: See South African Futures Exchange.

Collective Investment Schemes: Granting of participation in mortgage bonds is subject to the provisions of section 53 of the Collective Investment Schemes Control Act.

9.2.3 Information as requested under 9.1 which is applicable to non-banking institutions

The following types of licences and minimum capital requirements exist: - Insurance Companies Long-term: - Life R10 000 000 - Sinking fund R5 000 000 - Home service (Funeral) R5 000 000

Short-term: - Miscellaneous } - Fire } - Marine } R5 000 000 irrespective of the - Motor } class of business written - Guarantee } - Personal accident }

- Pension funds General certificate of registration No specific capital requirements

- Friendly societies Only the rules are registered and

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No specific capital requirements must comply with the Act - Unit trusts Unit trust company is registered A minimum capital of R2 000 000 is required, of which 10 per cent must be invested in each unit trust under management. There is a cap of R1 000 000 per unit trust

- The Johannesburg Securities Exchange General certificate of registration No specific capital requirements as it has to be an ongoing concern - The South African Futures Exchange General certificate of registration No specific capital requirements as it has to be an ongoing concern

- Participation bonds Operates under an exemption granted No specific capital in terms of section 37 of the requirements Unit Trusts Control Act

All of the above-mentioned companies are supervised by the Financial Services Board in accordance with the Acts governing them. The Financial Services Board has an inspectorate division which is responsible for the on-site inspection of the institutions supervised by the Board. The inspectorate's mandate is the Inspection of Financial Institutions Act.

10. National payment, clearing and settlement system

10.1 How is the payment, clearing and settlement system organised?

The South African National Payment System Framework and Strategy document, as agreed to between the South African banking industry and the SARB and published in November 1995, laid the groundwork for the organisation of the National Payment System. The functions and responsibilities of the role players are as follows:

10.1.1. The SARB and its role in the payment systems

The role of the SARB in the national payment system (NPS) is specified in the SARB Act, section 10(1)(c)(1) and the National Payment System Act, 1998 (Act No.

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78 of 1998) – (NPS Act) as amended. The SARB Act states that the SARB may perform such functions, implement such rules and procedures and, in general, take such steps as may be necessary to establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems. The NPS Act provides for the management, administration, operation, regulation and supervision of payment, clearing and settlement systems in South Africa and connected matters.

10.1.2. The National Payment System Department

The National Payment System Department of the SARB oversees the safety and soundness of the national payment system and implements risk-reduction measures in the payment system to reduce systemic risk. In doing so, the Department plays a significant role in supporting the mission of the SARB. Following the implementation of strategies set out in the initial Framework and Strategy document (known as the Blue Book - 1994 to 2004), the Vision 2010 published in 2006, sets the strategies for the period until the year 2010. The SARB provides an inter-bank settlement service via the real-time electronic settlement system, the South African Multiple Option Settlement (SAMOS) system. Besides single inter-bank settlement instructions generated by the participant banks, SAMOS is also used for the settlement of obligations arising out of the retail payment clearing environment, as well as the Equity and Bond (Financial) markets.

10.1.3. The Payments System Management Body and its role in the payment system

In terms of Section 3 of the NPS Act, the Payments Association of South Africa (PASA) is recognised as the payment system management body with the object of organising, managing and regulating the participation of its members in the payment system.

PASA is an association of South African payment clearing and settlement banks. It is established by a formal constitution, and is governed by a council drawn from amongst its member banks.

PASA, in terms of Section 4 (2) of the NPS Act, also provides a forum for consideration of matters of policy and may act as a medium of communication between its members and government, the SARB and other bodies.

10.1.4. The Payment Clearing Houses (PCHs) in the NPS

PCHs are arrangements between two or more SARB settlement system participants, governing the clearing of payment instructions between those SARB settlement system participants.

Within a PCH, payment instructions are sorted, the values accumulated, and the financial obligations between its member banks determined. The obligations that

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arise are then sent to the SARB for subsequent discharge (settlement) in the SAMOS system.

10.1.5. The Payment Clearing Houses (“PCHs”) in the NPS

A PCH-PG is a formal committee of banks engaging in the acceptance and clearing of payment instruments constituting a particular payment stream. A payment stream refers to payment instructions that are homogeneous in terms of their nature, risk and processing requirements and that have the same legal basis.

Each PCH is governed by a PCH Agreement that stipulates the rules and processing requirements particular to that PCH. The PCH Agreements form part of the overall legal structure used to administer and manage payment system issues.

The PCH Agreements are administered by the PCH-PGs and form part of the overall structure of PASA.

10.1.6. The Payment-processing infrastructure operators in the NPS (“NPS operators”)

A PCH System Operator does not have to be a bank, but must be licensed by PASA to provide processing services to two or more SARB settlement system participants. A PCH System Operator accepts operational responsibility only according to the agreed-upon service level and cannot be held responsible for the financial risk associated with the clearing process. The ownership of the infrastructural components is separate from their utilisation.

10.1.7. Third party payments providers in the NPS

The payment system is not the exclusive domain of the banking industry. Individual business enterprises and/or markets collectively are enabled and encouraged to interface with the payments system. In principle, the NPS has to be accessible to whom-ever wishes to process payment instructions.

A System Operator is a person authorised to provide services to any two or more persons in respect of payments, while a Third Party Payment Provider is any person that, as a regular feature of that persons business accepts money or payment instructions from another person for the purposes of making payment on behalf of that person to a third person to whom the payment is due.

To ensure that the scope, roles and responsibilities of System Operators and Third Party Payment Providers are clearly understood and acted upon, directives issued in terms of the NPS Act will govern these entities.

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10.2 Short description of the processing of payment instructions

Since the inception of the Automated Clearing Bureau (ACB) in 1973, now known as BankServ, the clearing procedures have changed considerably. Apart from the processing of cheques, which takes place at BankServ in Johannesburg, information relating to amongst others Electronic Funds Transfers (EFTs), Card, and ATM transactions is transmitted electronically to BankServ for consolidation and the determination of the banks’ Interbank obligations.

The obligations that arise in each of the PCHs are submitted to the SARB’s SAMOS system on a daily basis, some at intervals during the day, whereupon settlement takes place immediately.

The SAMOS system settles all transactions on a same-day basis, thereby ensuring settlement on the day of value.

10.3 How are funds obtained in the SAMOS System?

The SAMOS system settles all transactions on a pre-funded basis.

Apart from utilising the balances in their settlement accounts, participating banks may utilise a portion of their liquid assets requirements as well as their reserve account balances to fund the settlement of transactions.

The SAMOS system has been so designed that should a bank have insufficient funds available in its settlement account to settle a transaction, the SAMOS system will automatically grant a loan to the bank against acceptable collateral lodged with the SARB.

10.4 Inclusion of the RAND as a settlement currency on the Continuous Linked Settlement (CLS) System

The Rand was included as a settlement currency in the CLS system on 6 December 2004. The inclusion of the Rand reduced the settlement risk for foreign exchange transactions considerably. In this regard, the Rand became one of the seventeen major currencies that settle in CLS. The CLS system is overseen by the Federal Reserve Bank of New York as the lead overseer while the SARB, together with other central banks of currencies settled in the CLS system, is a member of the cooperative oversight team.

10.5 Message carriers in the payment system

SWIFT is the main message carrier in the NPS. SWIFT V-copy is used in the SAMOS settlement system while Y-copy is used for the CLS settlements.

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SARB-Link, a proprietary messaging system, is used by some smaller banks in the settlement system and also as a complementary system for the bigger banks.

11. Currency in use

11.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: - Rand - Notes: - R10, R20, R50, R100, R200 - Coins: - 5c, 10c, 20c, 50c, R1, R2, R5

11.2 Common Monetary Area (“CMA”)

Lesotho, Namibia, South Africa and Swaziland form the Common Monetary Area which constitutes a single monetary and exchange control territory.

12. Other core activities of the central bank not covered above

None.

13. The position of the central bank in SADC

13.1 Special relationships with other central banks in SADC

The Committee of Central Bank Governors in SADC is co-ordinated by the SARB, and the Governor of the SARB acts as Chairperson of this Committee.

14. Publications

14.1 Regularly published publications

Annual publications: - Annual Economic Report - Report of the Ordinary General Meeting of Shareholders - Governor's Address at the Ordinary General Meeting of Shareholders - Bank Supervision Annual Report - Institutional Sector Classification Guide - Annual Financial Statements

Semi-annual publications: - Financial Stability Review - Monetary Policy Review

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Quarterly publications: - Quarterly Bulletin

Two-monthly publications: - Bankindaba

Monthly publications: - Monthly Release of Selected Data - Financial Statements - Monthly statements of assets and liabilities of the SARB - Monthly release of the official gold and foreign exchange reserves of the SARB.

14.2 Occasional/special publications published since 1990

- Occasional papers - Inflation and how to combat it - List of Bank directors - The Bank Art Collection - History of the Quarterly Bulletin - Departmental studies - Media releases - Speeches - Mission statement - Brief introduction to the Bank and its functions - Departmental pamphlets - Exchange control manual - NPS booklet - NPS update - Fact sheets - NPS Position and Information Papers. - Operational notice pertaining to money market operations

14.3 Circulars, Media releases

- Bank Supervision Circulars - Public Awareness Initiatives - Monetary Policy Statements - Information on South African banknotes - Exchange Control Circulars

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Central Bank of Swaziland

Central Bank of Swaziland PO Box 546 Mbabane, Swaziland Fax: + 268 40 40013 Tel: + 268 40 82000

1. History

The King's Order-in-Council cited as the Monetary Authority of Swaziland was enacted by the King in collaboration with the Council on 22 March 1974, and officially began its operations on 1 April 1974. The Order-in-Council was amended on 18 July 1979, replacing the previous Monetary Authority with the Central Bank of Swaziland.

2. Relationship with government

There is no specific law guaranteeing the independence of the central bank. Functionally, the Bank falls under the Ministry of Finance but has its own structure which is independent of Government. Also, in the execution of its duties, the Bank operates independently as a parastatal organisation. The Bank has statutory powers, but recommendation and clearance by the Finance Minister on such policies as exchange rate and staff salaries are sought before implementation.

The Governor is appointed by the King in consultation with the Prime Minister and on recommendation by the Finance Minister for a period of 5 years (renewable). Grounds for dismissal include mental or physical incapabilities, insolvency, conviction of an offence involving dishonesty, gross misconduct in relation to his duties, or suspension from practising his profession. There are seven members of the Board of Directors, composed of the Governor, the Deputy Governor and five other Directors. The five Directors and Deputy Governor are appointed by the Minister of Finance. The Principal Secretary of Finance serves as ex officio member of the Board. The Bank has its own budget which has to be approved by the Board, and has full authority to decide on its finances.

The Bank and the Ministry of Finance consult frequently on matters affecting the financial system and budgetary situation. A committee-type of structure is also in place to enhance co-ordination on monetary and fiscal issues.

The Bank serves as adviser to Government on monetary and financial matters. It is also the duty of the Bank to inform and advise the Finance Minister about any matter that is likely to affect the achievement of its objectives. The Minister may at any time request the Bank to give advice on matters relating to monetary and

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financial issues. In addition, the Bank performs the following services to the Government: - Issue, service and redemption of public domestic debt - Administration of exchange controls - Management and service of public external debt - Issue of notes and coin - Management of external reserves - Formulation and implementation of monetary policy - Regulation and monitoring of commercial banks and other financial institutions

The central bank does not directly extend any form of credit to the Government, but on certain occasions, it does hold government securities and Treasury bills and also allows for limited overdrafts to government.

3. Design and conduct of monetary policy

3.1 Main objectives of monetary policy

The main objectives of monetary policy are to promote monetary stability and a sound financial structure so as to foster financial conditions conducive to the orderly and balanced economic development of Swaziland.

3.2 Instruments of monetary policy

The main instruments of monetary policy used by the Central Bank of Swaziland are the discount rate, reserve and liquidity requirements, open market operations and moral suasion.

3.3 Types of refinancing as well as collateral used

Refinancing in the form of rediscount of commercial (and agricultural) paper against government stock, Treasury bills and Central Bank bills as collateral.

3.4 The money supply aggregate that plays the main role in monetary policy

Money supply aggregates are underestimated due to the unknown volumes of South African rands in circulation. The use of money supply aggregates (M1 and M2) for monetary policy purposes are therefore inadequate as the proportion of South African rands in circulation is believed to be significant. The MO aggregate plays the main role and constitutes currency in circulation (about 55 per cent) and bankers’ deposits (about 45 per cent).

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3.5 Reserve requirements on financial institutions

The reserve requirement had been held at 6 percent of total public deposits with each bank from December 1976 to April 1992. On the latter date it was reduced to 5 percent until January 1994 when the requirement was increased again to 6 percent of the public's deposit liabilities held by banks. Since 1999, the Central Bank has been gradually reducing the reserve requirement to be in line with regional trends as well as to reduce the punitive effect it has on banks’ intermediation activities. Since August 2003, the reserve requirement has been maintained at 2.5 percent. Reserves can only be held as deposits with the Central Bank. Cash holding of reserves was also ceased in August 2003.

4. Structure of the financial markets

4.1 Organisation of the money and capital markets

Money market: Dealings in the money market are done by the commercial banks and the central bank.

Capital market: All dealings in the capital market are carried out by the Swaziland Stock Brokers (LTD), African Alliance of Swaziland Securities (LTD) and Interneuron Swaziland (PTY) (LTD).

4.2 Instruments used in both these markets

The major instruments used in the money market are - Treasury bills; (active) - Central Bank bills; - Bankers’ acceptances; and - Negotiable certificates of deposits.

In the capital market the instruments used are - Debentures and bonds; - equities; and - unit trusts.

4.3 Legal frameworks existing for the money and capital markets

Money market: Consists of mainly commercial banks that are regulated by the Financial Institutions Order of 1975.

Capital market: Government debt is issued in accordance with the Treasury Bills and Government Stocks (Amendment) Order, 2003. Stock Exchange activities are regulated using the Financial Institutions Order of 1975. The Securities Bill has been approved by both Houses of Parliament and currently awaits to be assented by the Head of State, hopefully during the current financial year 2010/2011.

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4.4 Type of financial intermediaries operating in these markets

Money market: - Commercial banks (3) - Swaziland Development and Savings Bank - Swaziland Building Society - Central Bank of Swaziland

Capital market: - Government of Swaziland - Parastatals - Stockbrokers (African Alliance Swaziland Securities (LTD), Swaziland Stockbrokers (LTD) and Interneuron Swaziland (PTY) (LTD) - Asset Managers (African Alliance of Swaziland and Stanlib Swaziland) - Private sector - Swaziland Stock Exchange (SSX)

5. External payment arrangements

5.1 Determination of the exchange rate policy

The responsibility for determining the exchange rate policy of Swaziland is entrusted to the Central Bank of Swaziland, in consultation with the Minister of Finance. Swaziland is a member of the Common Monetary Area (CMA) and the lilangeni is pegged at par to the South African rand.

5.2 The present exchange rate system

At present, Swaziland is using a fixed exchange rate regime, pegging its currency, the lilangeni, at par with the South African rand under the auspices of the Common Monetary Area (CMA) arrangement. CMA membership consists of South Africa, the larger partner, and the peripheries namely Swaziland, Lesotho and Namibia.

5.3 Organising the exchange market

By virtue of being a member of the CMA, Swaziland's foreign exchange market is closely linked to the South African market. The Central Bank of Swaziland therefore imports its credibility in terms of exchange rate policy, from the South African Reserve Bank.

Owing to the currently sustainable level of external debt exposure, Swaziland's reserves tend not to be strictly matched according to liabilities. The market is fairly free, with placements made in various reserve currencies mainly driven by the prime objective of maintaining the purchasing power of Swaziland's lilangeni as provided by the statute.

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5.4 The central bank's involvement in managing foreign exchange reserves

Legally, the Central Bank of Swaziland is the custodian of the country's foreign exchange reserves. However, the Treasury also manages and places some of its funds in offshore markets such as the South African market.

6. Currency convertibility and exchange control

See South Africa.

7. The central bank and external debt

7.1 The role of the central bank in managing the country's external debt

The central bank plays an important role in external debt management and externalising the payments of the central Government borrowing on instructions by the Treasury Department. The Bank requires the debt data for forecasting the balance of payments, reserves management and compilation of statistical information as it has a debt unit in the Research Department. The Bank together with the Ministry of Finance uses the Commonwealth Secretariat Debt Recording and Monitoring System for recording and management of the country’s debt (both external and domestic) contracted by both the public and private sector.

7.2 The role of Treasury in this respect

The Treasury Department is responsible for the servicing of the external debt after instructions are received from the Ministry of Finance. The Treasury Department, in turn, instructs the Central Bank to externalise the payments. Once the payments have been made’ the Bank advises both the Ministry of Finance and the Treasury Department by sending them copies of the debit note.

8. Supervision of financial institutions

8.1 Banking institutions

8.1.1 Authority responsible for banking supervision

The Central Bank of Swaziland is responsible for banking supervision.

8.1.2 Licensing procedures for establishing a new bank

The applicant must be a company registered in Swaziland. The application must be made in writing and must include the company's memorandum and articles of association; details of head office, directors and chief executive; business proposal; recent financial information and any other information which may be required by the Central Bank of Swaziland. The Central Bank must be satisfied as

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to the financial integrity and history of the applicant, character and experience of management, capital adequacy, how it would benefit the community and its effect on existing banks.

In the operating plan of the institution the applicant must explain to the Central Bank what activities the proposed bank will engage in, how they will be conducted and the resources available to the group. The plan has to give more than just the bare statistics and therefore also has to analyse the competition in the market. The plan must also explain the business strategies the proposed bank will follow to capture a share of each product market as well as the projected results.

8.1.3 Types of licences that exist

General banking licences and credit institutions licenses exist.

8.1.4 Minimum capital requirements for the different types of banks

Legislatively a bank incorporated in Swaziland, shall have initial capital in the form of paid-up shares of not less than E15 million or such other sum in paid-up shares and reserves being not less than the greater of E15 million or 5 per cent of its liabilities to the public in Swaziland in terms of the most recent balance sheet. The Central Bank may, in its discretion, require a larger sum than the sum stipulated in the legislation. In essence, a bank is required by these statutes to maintain a level of capital relative to the size and nature of its liabilities. The Central Bank requires each bank to maintain a minimum capital ratio of not less than 8 percent of total risk weighted assets.

8.1.5 Regulations governing current activities of banks

- Large credit exposure: Under the provisions of the Financial Institutions Act, 2005, a bank incorporated in Swaziland should not employ assets (both on and off the balance sheet) amounting to more than 25 percent of its capital resources with any one client or what is considered by the central bank to be a connected group of clients. Banks are required to seek the explicit approval of the Central Bank to exceed this limit. Banks should notify the Central Bank of all such large exposures on a quarterly basis. However, there are exemptions to this rule e.g. when a credit facility is secured by cash held in a segregated deposit account by the lending bank or the credit facility is guaranteed in writing by the government of Swaziland.

- Capital adequacy: A bank is required by statute to maintain a level of capital relative to the size and nature of the bank's liabilities. The Central Bank requires each bank to maintain a minimum capital ratio (capital fund as a proportion of risk weighted assets) in relation to credit risk of 8 percent (or such higher levels as the Bank may determine on a case-by-case basis). A bank, incorporated in Swaziland, shall have initial capital in the form of paid-

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up shares of not less than E15 million or such other sum in paid-up shares and reserves, being not less than the greater of E15 million or 5 percent of total liabilities to the public in Swaziland. A sum equal to not less than 10 percent of a bank's net profits will be transferred to a statutory reserve account until the balance in the statutory reserve account is equal to its minimum paid-up capital.

- Liquidity ratio: Banks should establish appropriate and prudent policies for the management of their liquidity. They should ensure to the satisfaction of the Central Bank that adequate internal systems exist to monitor and control maturity mismatches between their assets and liabilities. The law provides that the Central Bank may from time to time, by notice published in the Gazette prescribed that every financial institution of a given class or classes shall maintain liquid assets amounting to not less than a prescribed percentage not exceeding 25 per cent of the total of its liabilities to the public in Swaziland.

- Liquid assets mainly comprise notes and coins, certain inter-bank deposits, net balances held with the Central Bank and other securities as approved by the central bank including certain Government securities. - a minimum ratio of liquid assets, as specified by the Central Bank, to total liabilities to the public in Swaziland of 13 percent in the case of commercial banks and 10 percent in the case of the development bank.

- Open foreign exchange position: The Computation of Risk Assets Returns, based on the Basle Minimum Standards on capital adequacy, provides for weighted risk on hedged or covered positions and captures the counterparts’ risk involved.

- Provision for bad debts: All banks in Swaziland are required by law to make provisions to the satisfaction of the Central Bank and the auditor of such institutions for bad and doubtful debts (to be calculated at least once in each calendar year) and including accumulated bad debts not written off. From October 1999, the Central Bank issued Inspection Circular No. 8 on Non Accrual, Classification and Reserve requirements for Loans and other Assets which is to provide a uniform guideline to financial institutions on provisions. The Inspection Circular on provisions is currently being revised to be in line with international banking supervision practices.

- Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT): Banks are guided by the Money Laundering (Prevention) Act of 2001 which awaits promulgation of further amendments to incorporate Combating the Financing of Terrorism (CFT) and other shortfalls under the current Act. The Central Bank as supervisory authority issued guidelines to financial

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institutions in 2002 to give them guidance in the setting up of internal controls to detect and deter Money Laundering Activities and promote compliance. A circular was thereafter issued requesting banks to submit quarterly reports on progress made in the Know Your Customer drive. This also serves as a tool for off-site monitoring purposes.

- Restricted lending: Lending is not restricted.

- Deposit insurance: Currently there is no deposit insurance scheme yet, but this is under discussion with banks with the aim of determining its feasibility.

8.1.6 Main supervisory practices

It is a generally accepted regulatory practice that supervision of banks and their associated enterprises should be carried out on a consolidated basis. The Central Bank's policy on consolidated supervision is as follows: - The various ratios and limits enshrined in the Financial Institutions Act, 2005, are applied on a consolidated basis to each bank under the Central Bank's supervision.

- From the subsidiaries of all international banks, the Central Bank will require undertakings within the group to provide such information as is necessary to enable it to carry out its supervisory functions effectively.

- The main areas of supervision are the off-site monitoring and on-site inspections. Off-site monitoring is carried out through analysis of monthly statements showing assets and liabilities at the close of business on the last business day of the preceding month and quarterly statements giving an analysis of its income and expenses of the last business day of the quarter.

- Banks are required to draw up their annual accounts in accordance with the provisions of the Financial Institutions Act, 2005, which requires the Balance Sheet and profit and loss account to be prepared in accordance with standard banking practice.

- Legislation stipulates that the external auditor of every bank is required to report to the shareholders of each bank whether in his/her opinion the balance sheet and profit and loss account have been prepared in accordance with standard banking practices, whether they fairly represent the bank's affairs and whether the auditor has obtained satisfactory explanations and information in the performance of the audit.

8.1.7 Measures to remedy deficiencies as well as penalties utilised

If the Central Bank is of the opinion that a financial institution is conducting its business in an unlawful or unsound manner or that it is otherwise in an unsound

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condition, the bank in question may be required to take such corrective measures as the Central Bank may consider necessary to rectify the situation. The Central Bank may also appoint a person, who in its opinion has proper training and experience, to advise the bank on measures to be taken to rectify the situation. The current Financial Institution Act, 2005 also stipulates other enforcement actions the Bank may invoke as well as the penalties chargeable on violation of the Act.

8.2 Non-banking institutions

8.2.1 Responsibility for supervision of non-banking financial institutions

Non-banking institutions are currently not supervised but the insurances and pension funds administrators are supervised and regulated by the newly established Office of the Registrar of Insurances and Pensions. The Ministry of Agriculture and Co-operatives is currently responsible for Co-operative Unions. The Ministry of Finance is responsible for all other non-banking financial institutions. A study was done and finalized in January 2004 by the IMF through FIRST whereby it is recommended that a new and independent regulatory agency known as the Financial Services Regulatory Authority (FSRA) be established. The bill aiming to enact a law that would empower FSRA to supervise Non Banks Financial Institutions (NBFIs) is still in parliament awaiting promulgation.

8.2.2 Categories of financial institutions and their licensing procedures

- Banking institutions. Licensing procedure: i) Adhere to the procedures- checklist. ii) Conduct a preliminary conference. iii) Receive a banking license application. iv) Conduct an in-depth evaluation of the banking license application. v) Prepare a written recommendation. vi) Obtain necessary review and approvals. vii) Consult with the MOF. viii) Submit a banking license application to the Board of Directors of CBS. ix) Notify the applicant of the CBS decision. x) Publish notice of the new license.

- NBFIs. - Other Financial institutions.

8.2.3 Information as requested under 9.1 which is applicable to non-banking institutions.

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9. National payment, clearing and settlement system

9.1 How is the payment, clearing and settlement system organized?

The Central Bank of Swaziland in conjunction with commercial banks successfully implemented Real Time Gross Settlement (RTGS) system from the 15th June 2007. In order to create significance and distinguish the system from other payment systems, the system was named “Swaziland Interbank Payment and Settlement System (SWIPSS)”. The systems is owned and administered by the Central Bank of Swaziland through the National Payment Systems Division in the Operations Department.

The Ministry of Finance Module (MOF) on the Real Time Gross Settlement (RTGS) platform was successfully implemented in February 2010. Government, through the Treasury Department, is now able to capture transactions directly onto RTGS, marking a major milestone in the development and modernization program of the country’s NPS.

The MOF module is expected to greatly enhance reduction of financial risk associated with paper-based instruments and facilitate speedy settlements for time critical payments for the Swaziland Government

By design, SWIPSS is aimed at processing settlements of high value and time critical payments on real time basis. The system would also facilitate settlement for future payment systems as they would be progressively introduced in the country. SWIPSS also facilitates settlement of other net interbank settlements of cheques and EFTs generated from the Swaziland Automated Electronic Clearing House (SAECH).

SAECH is a body corporate owned by five participant banks at 20per cent shareholding for each participant member including the Central Bank. SAECH is responsible for operating, regulating, supervising the processing of paper-based instruments (cheques) and EFTs for settlement in accounts held at the Central Bank.

9.2 The role of the Central Bank in the system

Central Bank is responsible for ensuring that the system’s start of day and end of day are done on time and that there are smooth operations throughout the day. Central Bank, as provider and administrator of the system, is also responsible for attending to participants’ problems with the system.

The Central Bank is also the custodian of statutory reserve accounts for each participating bank in the clearing system through which settlement obligations are honoured, and has an important role in the oversight of the National Payment

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System by ensuring safe and efficient payment system in the country including operations of SAECH.

9.3 Short description of the clearing processes

Member banks send electronic input files containing data on outward clearing to SAECH for every clearing session through a transport server/client. These files are processed by the SAECH payment SWITCH, which then produces the output files containing data on inward clearing for each bank, which are then transmitted electronically to the paying bank. Participating banks then download these files on to their systems for automatic update of their customer’s accounts.

A consolidated net settlement file, which contains settlement obligation for each bank is also produced, which is electronically sent to the Central bank for settlement.

The Central bank then uploads the file into SWIPSS where the banks’ accounts are debited or credited. Final and irrevocable settlement takes place when each bank’s account is debited or credited with the net settlement figure, from the consolidated settlement file downloaded by the Central Bank.

Representatives from clearing member banks assemble at the SAECH on a daily basis for the exchange of paper based instruments. The clearing session is supervised by the SAECH Administrator, who facilitates smooth flowing of the operations. On completion of each clearing session, each member representative is given a certificate, showing the net settlement position for that session. SAECH provides two clearing sessions per day, that is, at 09:00 and 15:00 hours Monday to Thursdays. Friday clearing sessions are at 09:00 and 14:30 hours.

9.4 How are non-funded positions settled in the system?

The Central Bank extends an Intraday Liquidity Facility (ILF) to participants in order to fund intraday liquidity requirements in SWIPSS. The ILF must be fully secured by eligible collateral securities and such collateral shall be 110per cent of sought funding unless the Central Bank prescribes otherwise.

The Central Bank establishes the amount and collateral arrangements for the ILF with each Participant, which is reviewed monthly based on moving three (3) preceding months’ average of highest debit settlement amounts per participant. All participant banks are required to restore the intra-day repo by the end of each SWIPSS operating day. No interest charges apply to intraday lending facilities at the moment.

Participant banks are currently allowed to utilize their minimum reserve requirements (MRR) for funding of their SWIPSS transactions. Participants are also required to restore used-up MRR by the end of each SWIPSS operating day.

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Participant banks are also eligible to overnight lending facilities (OLF) at the Central Bank to facilitate funding short positions for participants’ settlement accounts. However, participants are expected to first utilize the inter-bank money market and only to approach the Central Bank as a last resort. The overnight facilities also require collateral before grant.

In the following morning, by 9.00a.m., the Central Bank debits the loaned bank’s settlement account to reverse the repo and thereby settle the obligation to clear the facility. Failure to obtain available funds in the settlement account to settle the obligation would prompt the Central Bank to liquidate the pledged security (ies) to enable settlement of the outstanding debt.

10. Currency in use

10.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: - Lilangeni (E) - 100 cents equals one Lilangeni - Notes: - E200, E100, E50, E20, E10 - Coin: - E5, E2, E1, 50 cent, 20 cent, 10 cent, 5 cent

11. Other activities of the Central Bank

11.1 Activities of the Central Bank not covered above

Other activities also include the management of the Development Finance Department, which comprises the following offices: - Export Credit Guarantee Scheme; - Small Scale Enterprise Loan Guarantee Scheme; and - Public Enterprise Loan Guarantee Fund.

Capital Market Development Unit whose functions include:- - Development of capital markets in Swaziland; - Creation, maintenance and regulation of the markets in which securities can be issued and traded in an orderly, transparent and efficient manner; - Protection of investors; and - Promotion of cooperation with other financial exchanges in other countries.

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12. The position of the central bank in SADC

12.1 Special relationships with other central banks in SADC (CMA excluded)

Special relationships are more pronounced with CMA banks under the CMA arrangements. Outside the CMA, the Central Bank of Swaziland has a relationship with the Bank of Botswana as it maintains a correspondent account, mainly to fund students at the University of Botswana.

The Central Bank of Swaziland and COMESA Central Banks communicate with one another when there is a need to purchase each other's currencies and for transactions done through the clearing house.

13. Publications

13.1 Regularly published publications

Monthly Statistical Release, Quarterly Review, Annual Report and Governor’s Annual Policy Statement.

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Bank of Tanzania

Bank of Tanzania P. O. Box 2939 Dar es Salaam, Tanzania Fax: +255 22 2234217 Tel: +255 22 2234494-97

1. History

The Bank of Tanzania (BOT) was established in 1966 by the BOT Act of 1965. The Act provided for the establishment, constitution and functions of BOT as a central bank to take over the functions and operations of the then East African Currency Board (EACB) founded in 1919 to manage currency supply and exchange in the then British colonies of East Africa and neighboring countries. However, the BOT Act of 1965 was repealed in 1995 and was replaced with the BOT Act of 1995. The BOT Act of 1995 was a landmark in Tanzania’s monetary history by adopting a single policy objective, i.e. price stability and moving away from multiple-policy objectives. The new BOT Act 2006 was enacted in 2006 when the BOT Act of 1995 was repealed.

According to the BOT Act of 2006, the principal functions of the Bank are: - To formulate, implement and be responsible for monetary policy, including exchange rate policy; - To issue currency; - To regulate and supervise banks and financial institutions including mortgage financing, development financing, lease financing, licensing and revocation of licenses; and - To deal, hold and manage gold and foreign exchange reserves of Tanzania.

The primary objective of the Bank is to achieve the economic objective of maintaining domestic price stability conducive to a balanced and sustainable growth of the national economy. The Bank is responsible to ensure the integrity of the financial system and support the general economic policy of the Government and promote sound monetary, credit and banking conditions conducive to the development of the national economy.

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2. Relationship with Government

The new BOT Act (2006) provides that the Central Bank is autonomous in pursuit of its objectives and performance of its tasks. The Bank is therefore an independent corporation despite the fact that the Governor and Deputy Governors are appointees of the President of the United Republic of Tanzania. The Act provides that the Minister of Finance and the Governor shall, where circumstances require, consult each other with a view to exchanging information and seeking coordination on economic and financial matters.

2.1 Appointment of Governor, Deputy Governors and Board Members

According to the BOT Act of 2006, the President appoints the Governor and three Deputy Governors for a term of five years and they are eligible for re-appointment for a further term of five years only. The appointment of the Deputy Governors is made on the basis that at least one of the appointees hails from either side of the United Republic. The President can also dismiss the appointees for a good cause or disqualification.

The Governor is a Chairperson of the Board of Directors and the Deputy Governors are Deputy Chairpersons in the order determined by the Governor. Other Members of the Board are: - The Representative of the Permanent Secretary to the Treasury of the Government of United Republic of Tanzania, - The Principal Secretary to the Treasury of the Revolutionary Government of Zanzibar, and - Three non-executive Directors appointed by the Minister of Finance for a three- year term and eligible for re-appointment. - The Secretary to the Bank of Tanzania.

The Board of Directors determines the policy of the Bank and approves the Bank budget.

2.2 Bank of Tanzania as a banker and fiscal agent

The Bank is a banker and fiscal agent of both Governments of the United Republic of Tanzania and Zanzibar. The Bank may, subject to such arrangements as may be made with the authority concerned, act as a banker and fiscal agent for any public authority.

The Bank in its capacity as banker and fiscal agent of the Governments or of any public authority may be the official depository of the Governments or public authority concerned

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and accept deposits and effect payments for the account of the Governments or public authority. Further, the Bank performs the following functions: - Maintain and operate special official accounts in accordance with arrangements made between the Bank and the Government or public authority concerned; - Perform as an agent of the Government for servicing the public debt, including the issuance of, payment of interest on, and the redemption of bonds and other securities of the Government; - Pay, remit, collect or accept for deposit or custody funds in Tanzania or abroad; - Purchase, sell, transfer or accepts for custody cheques, bills of exchange and other securities; - Collect the proceeds, whether principal or interest resulting from the sale of Government securities or other property; and - Purchase, sell, transfer or accept for custody gold or foreign exchange.

2.3 Credit to Governments

The Bank may, for the purpose of offsetting fluctuations between receipts from the budgeted revenues and payment of the Government: i. make direct advances to the Government for the purposes of offsetting fluctuations between receipts from the budgeted revenues and payments of the Government ii. Purchase, hold and sell negotiable stocks, bonds or similar debt obligations or other securities issued by the Government which shall bear interest at such market rate as determined by the Bank and which mature not later than twelve months from the date of issue.

Each advance made to the Government under the above provisions shall be made solely for the purpose of providing temporary accommodation to the Government and shall accordingly be repayable within one hundred and eighty days. The total amount outstanding at any time of advances made and the Treasury bills and other securities held by the Bank shall not exceed one eighth of the average budgeted revenues of the Government.

2.4 Ownership of the Bank

The Government of the United Republic of Tanzania is the sole subscriber and holder of the share capital of the Bank. The authorized share capital of the Bank is at one hundred

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billion shillings. The Bank capital may be increased by such amount as may be determined by the Board, and authorized by the Minister of Finance.

3. Formulation and implementation of monetary policy

3.1 Main objectives of monetary policy

The primary Mission of the Bank of Tanzania is to maintain price stability that is conducive to the attainment of macroeconomic stability and achievement of a sustainable rate of real economic growth. In conducting monetary policy, the Bank of Tanzania follows the modalities stipulated in the Bank of Tanzania Act, 2006. The Bank uses a combination of indirect instruments to contain liquidity within desired levels. These include the sale of Treasury bill and Treasury bond; and sale of foreign exchange. Also, the Bank actively uses repurchase agreements (REPOs) to manage short term liquidity movements. The liquidity management efforts are further supplemented by periodic adjustments in the pricing of the liquidity windows at the central bank - namely the bank rate and the Lombard rate, to ensure a consistent level of liquidity in the economy.

3.1.1 The Bank of Tanzania Inflation Control Strategy

The Bank of Tanzania has the responsibility of ensuring that it establishes monetary conditions that are consistent with low and stable inflation.

i. Low inflation allows the economy to function more efficiently, thereby contributing to a better overall economic performance. ii. The Bank of Tanzania focuses on the Consumer Price Index (CPI) as a measure of inflation. The rate of change in the overall CPI is referred to as the HEADLINE INFLATION RATE. iii. However, the inflation rate that excludes food and energy prices, which is referred to as UNDERLYING INFLATION is used as a measure of policy induced inflation and to some extent as a measure of long-run inflation.

Underlying inflation, which is also sometimes referred to as CORE INFLATION, is normally obtained by excluding from the headline measures the prices of certain items that are thought to be volatile enough to obscure long-term movements of inflation. The price index "excluding food and energy" is one well-known example. Several countries compute such indices and consider them in the setting of policy.

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iv. In Tanzania, the underlying inflation excludes food and energy prices as well because of their volatility, which depends on the supply side factors and believed to be short lived. v. The Bank of Tanzania also monitors food and energy prices and their index. This is because though most of times are affected by non-monetary factors like drought, floods and prices in the global market, can affect inflation substantially regardless of the stance of monetary policy. vi. The Bank further believes that inflation control is not an end in itself, but rather, the means by which monetary policy contributes to overall economic performance. vii. Central banks control inflation by influencing the growth of money supply. The Bank of Tanzania focuses on the growth of reserve money, which is defined as liabilities of central bank, which include currency outside the central bank and deposit money banks’ reserves held by the central bank. Reserve money is chosen because through the money multiplier, its expansion determines the potential growth rate of the broad money supply.

3.1.2 The Modalities of Monetary Policy Implementation

i. At the beginning of every fiscal year, the Bank of Tanzania sets annual monetary policy targets in its Monetary Policy Statement, in line with the broader macroeconomic policy objectives of the government. The targets are reviewed at mid-year. ii. The statement is approved by the Board of Directors of the Bank of Tanzania and submitted to the Minister for Finance of the Government of United Republic of Tanzania, who in turn submits it to the Parliament iii. The same procedure is followed in the mid-year review of the Monetary Policy Statement, which shows progress in the implementation of the monetary policy and the outlook for the remaining period. iv. The Monetary Policy Committee of the Board of Directors of the Bank of Tanzania, chaired by the Governor, is responsible for setting the monetary policy direction bi- monthly, consistent with the ultimate objective of maintaining domestic price stability. v. At the operational level, the Liquidity Management Committee, chaired by the Governor, monitors progress on monetary policy implementation on a weekly basis and decide on appropriate measures. vi. At the Bank, the Surveillance Committee, also chaired by the Governor, meets daily to evaluate progress in monetary policy implementation and approve appropriate measures for liquidity management.

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vii. A Technical Committee reviews liquidity developments on daily basis and advises Surveillance Committee on appropriate daily measures for liquidity management.

3.2 Specific monetary policy objectives for 2012/13

In support of the broader macroeconomic policy objectives of the Government, monetary policy of the Bank of Tanzania will remain focused on attaining price stability, through maintaining appropriate level of liquidity in the economy. Specifically, the Bank aims at achieving the following targets in 2012/13:

i. Annual growth of average reserve money not exceeding 16.0 percent; ii. Annual growth of M3 of 18.0 percent; iii. Annual growth of private sector credit of 20.0 percent; and iv. Accumulation of gross official reserves adequate to cover at least 4.5 months of projected imports of goods and services.

3.3 The monetary policy instruments

In implementing the monetary policy, the Bank employs indirect instruments to influence the level of money supply as: - Open Market Operations (OMOs): This is the main instrument conducted at the initiative of the Bank on behalf of the Government, which involves the sale or purchase of securities (e.g. Treasury bill, Treasury bond) with voluntary participation by individual counterparties in the banking system. This is done in order to withdraw or inject liquidity into the economy to influence the reserve money; - Foreign exchange market operations (FEMO): This instrument involves sale or purchase of foreign exchange by the Bank to or from the economy; - Bank rate: The rate of interest the Bank of Tanzania charges on loans it extends to commercial banks. At present, it is also the interest rate charged on government overdraft from the Bank of Tanzania; - Standing facilities: These are borrowing or deposit facilities available at the initiative of banks, usually within limits set by the Bank of Tanzania e.g. Stand-by Lombard and Intraday facility. This is a “safety valve” mechanism for banks to borrow from the Bank but usually a penal rate to discourage frequent use— lending by the Bank is usually collateralized; - Statutory minimum reserve requirement: These are balances which banks are required to keep with the Bank of Tanzania, determined as a percentage of their total deposit liabilities, and their short-and medium-term borrowing. An increase in

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reserve requirements forces the banks to hold more balances at the central bank; subsequently helps to control liquidity in the system; - Moral suasion: This is an instrument of monetary policy whereby the Bank of Tanzania attempts to influence the behavior of certain economic units in the market (e.g. government, banks, non-banks), using all available means of communication (reports, studies, speeches, etc) in an effort to achieve its objectives.

3.4 Reserve requirements on commercial banks

Reserve requirements in Tanzania are the percentage of commercial banks’ total deposit liabilities1 (both private and government) and their short-term to medium-term borrowings, which are required to be held as reserves at the Bank of Tanzania. The reserves are used for both prudential and for monetary policy purposes. The Bank does not pay interest on these reserves. The prevailing reserve requirement ratio is 10.0 and 30.0 percent of total private deposits and Government deposits (including foreign currency deposits) with depository corporations, respectively.

3.5 Refinancing types and collateralization

There are two kinds of refinancing policy—discount policy and Lombard policy, which are used in the execution of monetary policy by the Bank. These monetary policy instruments help the Bank to extend loans to commercial banks at the discount rate and the Lombard rate, respectively, for the purpose of liquidity management in the banking system. The Bank may buy Treasury bill, Treasury bond and other securities from commercial banks at a rate (discount rate) set by itself.

Since December 2003, the Bank introduced Intraday and Lombard standby credit facilities, which provides collateralized loans to commercial banks that have signed master repurchase agreement and subject to short-term liquidity problems. However, the collateral should not be more than 91 days. As collateral for refinancing (Lombard facility), the Bank uses Government securities i.e., Treasury bill and bond with maturity exceeding the loan duration, and the amount is more than 100 per cent of the total loan.

1 Effective June 9, 2008, government deposits held by banks and financial institutions started to be subjected in the determination of statutory minimum reserve requirements, as it is for other total deposit liabilities and short-and medium-term borrowing.

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4. Structure of the financial markets

4.1 Organization of the money and capital markets

4.1.1 Money Markets

Tanzania introduced the financial market in August 1993 as part of the financial reforms, the main objective being to manage liquidity in the economy and to finance the government budget deficits. The rates obtained in the government securities market also serve as a benchmark for the determination of interest rates in the market therefore paving the way for market-determined rates. The market is essentially dealing with short- term financial instruments with maturities not exceeding one year, e.g. Treasury bills and repurchase agreements (REPOs).

The Bank is committed to ensure development of efficient financial markets in the country; maintenance of an optimal and stable exchange rate; management of the country's domestic public debt; development of policy framework and strategy for provision of special development finance services and fund management for both the government and the Bank. The following are the measures that the Bank is pursuing: i Strengthen daily open market operations (OMO) ii Development of Secondary Markets:  The Bank will support the development of the secondary market in government securities, so as to deepen the money markets and enhance the liquidity and marketability of government securities. iii Development of New Instruments  Consistent with the growing demands of open market economy, the Bank will support the development of new financial instruments in the market. iv Coordination of the Foreign Exchange System  Due to the growing needs of the economy, the Bank will promote and coordinate the development of markets in the economy. v Improvement of Reserves Management  In order to maximize the income of the Bank from its operations, more effort will be directed towards the development and consolidation of reserve management skills and policies in the Bank. vi Facilitate effective management of government debt:  The aim is to build resilient markets, so BOT will be more proactive, i.e. take initiatives and make timely judgement, so as to anticipate market's future outlook with a clear vision. vii Improve Responses to market signals:

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 Responses to market signals of changes in macro-economic conditions, which impact market behavior, need to be improved. viii Further Development of Foreign Exchange Market:  Institute an intervention policy to clearly qualify BOT's actions in the market (trader of last resort, OMO or normal foreign exchange transactions);  Ensure day-to-day monitoring and execute timely and clearly intervene in the IFEM with the view to smoothen out exchange rate movements;  Review the rules and regulations in IFEM operations;  Foster efficiency by facilitating introduction of new instruments in the foreign exchange market;  Enhance and intensify market research and surveillance (local and international);  In collaboration with other market participants, facilitate introduction of electronic trading in the IFEM; and  Analyze and closely monitor linkages between market operations and foreign exchange market developments to guide proper OMO and intervention strategies. ix To accumulate and maintain sustainable level of external reserves:  Participation in the Inter-bank foreign exchange market will be geared towards maintaining a sustainable level of reserves in close collaboration with the Directorate of Economics and Policy. At the same time, the Bank intends to maximize investment interest while minimizing interest cost on borrowing.

4.1.2 Instruments used and structure of the market

The Bank issues government securities to the public through fortnightly auctions (for Treasury bills) and one bond per month (for Treasury bonds) in the primary market. The securities include: - The 35-day and 91-day 182-day, 364-day Treasury bills; - Two-year, five-year, seven-year and ten-year Treasury bonds; and - Repurchase Agreements (REPOs).

Treasury bills are auctioned under a multiple price system in which bidders pay for the price quoted. Settlement for both Treasury bonds and Treasury bills successful bids is T+1 implying that successful bidders are required to pay within one day after the date of the auction.

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Primary Dealership

The primary dealership system was introduced in January 1999 and the structure of the market is such that participation in the primary market is limited to licensed primary dealers (commercial banks and broker dealers). Public then bids through the primary dealers. Previously, participants with bids worth over TZS 100.0 million were allowed to participate directly, the amount was later reduced to TZS 50.0 million. In 2006, the Bank allowed participation of direct investors2 and reduced the minimum threshold from TZS 50.0 million to TZS 5.0 million in Treasury Bills/Bonds. To date, there are 18 registered dealers out of which 13 are commercial banks and 5 are broker dealers.

However, the system has failed to perform well, thus suggesting that a lot need to be done in improving the market. This includes linking the primary market to the secondary market. The main reasons for the dismal performance could be due to: - lack of demand for securities as pension funds and insurance companies participate directly in the primary market; - commercial bank dealers purchase and hold securities up to maturity for their own liquidity management objectives; - low capital base by broker/dealers of TZS 10 - 20 million as compared to TZS 1.0 billion (minimum) for commercial banks dealers. This makes it difficult for the Bank to enforce requirement of two-way quotation by dealers. In the absence of a two-way quote price system it is difficult to have a dynamic secondary market trading; and - low yields, declining from a level of about 12 per cent, when the system was established in 1999, to the current level of about 5 per cent thereby reducing the trading margins for dealers.

Thus, the Bank continuously reviews the primary dealership system with a view to address the above factors.

Treasury Bonds

Two and five - year Treasury bonds were introduced in 1997 and 2002, respectively; and are auctioned by the Bank on behalf of the Government. The seven and ten - year Treasury bonds were launched in August and October 2002, respectively. Initially, the two-year bond was issued fortnightly before it was changed to weekly and allocation was based on uniform pricing. However, currently all Treasury bonds are issued one

2 These include pension funds, insurance companies, non-bank financial institutions and individuals.

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bond per month through a multiple price bidding system. These bonds are traded at the Dar es Salaam Stock Exchange (DSE).

4.1.3 Capital Markets

The Act establishing the Capital Market and Securities Authority (CMSA) of 1994 provides the authority with a mandate to promote and facilitate the development of an orderly, fair and efficient capital market and securities industry in the country. Two years later, DSE was incorporated but effectively commenced its operations in 1998. Until July 2008, there are about eleven companies indicating that the stock exchange is experiencing a modest growth in terms of listing, market capitalization and trading activities. Out of the listed companies, seven are locally listed: - Tanzania Oxygen Limited - Tanzania Breweries Limited - Tanzania Tea Packers - Tanzania Cigarette Company Limited - Tanga Cement Company (SIMBA) Limited - Dar es Salaam Airport Handling Company Limited - National Investment Company (NICOL) - National Micro Finance Bank

Three are cross-listed from Nairobi Stock Exchange namely; - Kenya Airways Limited, - East African Breweries Limited, and - Jubilee Holdings Limited (JHL)

In addition to these companies, the DSE listed six corporate bonds, namely; - EADB bonds, - PTA Bank bonds, - Standard Chartered Bank bonds, - BIDCO bonds, and - Barclays Tanzania bonds.

The 2-year, 5-year, 7-year and 10 year Treasury bonds are also listed.

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4.2 Legal Framework

While the Government Loans, Guarantees and Grants Act of 1974 govern Treasury Bills, short-term deposits, inter-bank placements and bank loans are governed by the Banking and Financial Institutions Act of 2006.

4.3 Participating institutions in the money market

- Deposit Money Banks (Commercial Banks) - Insurance Companies - Pension Funds - Non-Bank Financial Institutions - Dealers and Broker Dealers - Investment Advisers - Individuals

5. External payment arrangements

5.1 Determination of the exchange rate policy

BOT is responsible for determining the country's exchange rate policy.

5.2 The present exchange rate system

Tanzania implements a managed float exchange rate system.

5.3 Conduct of foreign exchange market

The daily Inter-bank Foreign Exchange Market (IFEM) is conducted on Reuters dealing system. The market session starts from 08:30 to 15:00 Hrs during the working days. During the session, sellers and buyers (commercial banks and non-bank financial institutions excluding bureaux) are obliged to quote two way prices (bid/ask). BOT intervenes by selling and buying only to smooth fluctuations.

5.4 BOT as a custodian of foreign exchange reserves

The BOT Act of 2006 has mandated the Bank to manage the gold and foreign exchange reserves of the country.

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6. Currency convertibility and exchange control

6.1 Current state of currency convertibility

The Tanzanian shilling is not easily convertible outside East Africa. Within the region, a currency convertibility agreement was reached in 1995. The agreement stipulates that the currency conversions are dealt with commercial banks and foreign exchange bureaux in the region.

Furthermore, commercial banks in the region have to establish special arrangement such that they open and maintain, in their books, currencies of their partner banks in the respective countries. Under the agreement, residents of the East African States are allowed to use their respective national currencies in cross-border transactions; thereby crossing the borders of the three countries with any amount in the three currencies (Rwanda and Burundi are new entrants in the EAC).

6.2 Exchange control restrictions

In July 1996, Tanzania liberalized its current account and currently the exchange rate regime is market determined. The liberalization of the current account is according to IMF’s Article VIII that requires all restrictions on current account transactions with the rest of the world removed. Now, Tanzania operates a free trade and exchange regimes.

6.3 Restrictions on capital account transactions

Currently, Tanzania has not fully liberalized its capital account, a situation that has resulted to limited movement of investment to and from the country. However, the country intends to implement a careful, gradual and well sequenced capital account liberalization process in order to ensure that the country benefit mostly from its liberalization. For example, foreign investment in Treasury bills is not allowed. Also, outward investment is not allowed. However, some restrictions have been lifted. For instance, the existing regulations allow non-residents investors to transact in shares and corporate bonds traded in the Dar es Salaam Stock Exchange and not in government Treasury bills and bonds. Foreign investors may purchase up to 60% of the shares issued. The existing regulations also allow residents to enter into foreign loan agreements without prior approval from the Central Bank. Private individuals’ investment abroad is totally restricted, unless approval is obtained from the Central Bank.

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6.4 Retention rules for foreign exchange

According to the Foreign Exchange Act of 1992, Tanzania has no regulations on foreign exchange retention.

7. Management of the country’s debt

The responsible institutions that are collaborating in the management of the external debt include the Ministry of Finance, the BOT, Planning Commission, and the Attorney- General Chambers. However, the overall responsibility for the formulation of the country’s debt policies for all Government loans, contracts and accounting remains with the Ministry of Finance.

7.1 The role of the Central Bank in managing the country's debt

Since 1988, the Bank of Tanzania has been charged with the role of recording, monitoring and assisting in the management of Tanzania's debt which covers Government, parastatals and private sector debt (including trade credits).

The Bank therefore implements the country debt policy by: - Collecting comprehensive data on the private sector external debt; - In collaboration with Ministry of Finance, undertake analysis on a comprehensive debt database; - Participating in bilateral loan negotiations and providing advice on the appropriate borrowing terms; - Managing all external debt reductions, debt re-organization arrangements and operations such as the Debt Conversion Program, Debt Buyback and Debt Rescheduling; - Determining priorities for the externalization of debt service payments; and - Managing Government domestic debt.

The Bank employs a computerized debt management system, namely the Commonwealth Secretariat Debt Recording and Management System (CS-DRMS 2000+) in managing the country’s external debt.

7.2 The role of the Treasury

The Minister for Finance is mandated by the Loans, Grants and Guarantees Act of 1974 (and the amendment Act of 2003), on behalf of the Government to:

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- Raise foreign and local loans, - Issue guarantees, and - Receive grants.

These funds are aimed at financing Governments budgetary activities.

8. Banking Supervision

8.1 Legislation Governing Banking Business

There are two key pieces of legislations governing banking business in Tanzania namely Bank of Tanzania Act, 2006 and Banking and Financial Institutions Act, 2006. These legislations give powers to Bank of Tanzania to license and supervise banks and financial institutions with the purpose of instituting proper banking practices in the banking system for financial sector development.

In addition to Bank of Tanzania Act, 2006 and Banking and Financial Institutions Act, 2006, the Bank also issued various prudential regulations which intend to institute prudent practices in different areas of banks operations. These regulations set limits to various banking operations so as to reduce the risk exposure facing banks and financial institutions

8.2 Main Supervisory Practices

- BOT uses both on-site examinations and off-site surveillance in supervising banks and financial institutions. In on-site examinations, examiners visit institutions for the purpose of performing risk management review and CAMELS analysis. At the moment supervisory cycle of on site examination for every institution is once a year. In addition, supervisors do verify compliance with laws and regulations and assess the effectiveness of the institutions' internal control system.

- In off-site surveillance analysis of statutory returns is made to assess the financial condition of individual institutions and the industry as a whole. The statutory returns are submitted periodically (i.e. weekly, monthly, quarterly, semi-annually and annually or on ad hoc basis if the circumstances so demand).

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8.3 Minimum Capital Requirement

8.3.1 Every bank shall commence operations with and maintain at all times a minimum of core capital of not less than five billion shillings or such higher amount as the Bank may prescribe by order published in the Gazette. In addition, at all times every bank shall maintain core capital and total capital of not less than ten per cent and twelve per cent of its total risk weighted assets and off balance sheet exposures respectively.

8.3.2 For the purpose of encouraging provision of banking services to underserved communities in the rural and in the urban, the Bank may establish categories of financial institutions and prescribe capital requirements that may differ from the requirements as stated above, so long as the Bank determines that such capital requirements are reasonable. Tables below indicate initial capital requirements for regional Unit financial institutions and regional unit banks.

Table 1: Initial capital for Regional Unit Financial Institutions Location of Head Office Minimum Capital requirement (TZS) Any regional capital classified as municipality 100,000,000

Any regional capital classified as town and any 75,000,000 other municipality outside the regional capital Any town outside the regional capital 50,000,000

Table 2: Initial capital for Regional Unit Banks Location of Head Office Minimum Capital requirement (TZS) Any regional capital classified as municipality 200,000,000

Any regional capital classified as town and any 100,000,000 other municipality outside the regional capital Any town outside the regional capital 50,000,0000

8.3.3 Every financial institution other than regional units shall commence operations with a minimum core capital of not less than five hundred million Tanzanian Shillings (TZS 500,000,000) and shall maintain this minimum amount at all times.

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9 National payment, clearing and Settlement system

The national payment system modernization project in Tanzania commenced in the 1990s following the financial sector reforms with the objective of promoting economic growth and stability of the financial system. The Bank of Tanzania plays a pivotal role in modernization of payment systems in the country. In its facilitation capacity, the Bank has developed efficient payment and settlement systems (Real-Time Gross Settlement Systems (RTGS)), clearing systems (Electronic Clearing House) and encouraged the market to establish retail clearing switches for card payments (domestic and international transactions). The securities systems also include the Central Securities Depository (CSD) Systems for the bond and equity markets. The Bank also oversee the development and implementation of the payment and securities clearing and settlement systems to ensure that they comply with the international standards issued by the Bank of International Settlement.

The Bank continues to enhance the national clearing and settlement systems in tandem with market demands and changes in technology. In recent years, mobile phone technology has immensely contributed in bridging the financial access divide in Tanzania. The service is offered by banks and non-financial institutions contributing to financial access of at least 40% of the population hitherto unbanked.

9.1 How is the Payment, Clearing and Settlement system organized?

9.1.1 Payment Systems

Payment systems in Tanzania are categorized into two major streams. These are the large value payment system and retail payment systems:  Large value payment system The large value payment system in Tanzania is a Real Time Gross Settlement System (RTGS) known as Tanzania Interbank Settlement System (TISS). This system processes settlement of large value and time sensitive payments, such as inter-bank net settlement obligations, money market and foreign exchange market settlement transactions;  Retail payment systems Retail payment systems include cheques, interbank electronic funds transfer (EFT) system, card payments schemes for accessing payment at automatic teller machines (ATMs) and point of sales (POS). Card Payments include debit and credit cards issued by commercial banks. Some commercial banks are issuing proprietary cards and while others issue VISA and Mastercard branded cards.

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Internet banking and mobile banking services are also offered for payment purpose by commercial banks in the country. Mobile phone payments schemes are deployment by banks and non-banks. Banks offer the bank led mobile banking services using telcos platforms, while Telcos on the other hand are also permitted to deploy mobile payment services. Currently there are four telcos (Vodacom, Airtel, Tigo and Zantel) that aggressively compete in the market. Remittance services are two fold, domestic and cross-border. Domestic money transfers are provided Tanzania Postal Services. These include moneyfax, Giro and Postal orders. International remittances are offered by commercial banks in partnership with international remittance companies (such Western Union, Money Gram, Travelex, and Coinstar Money Transfer). Western union have also partnered with the telcos offering money services to offer inward remittances services through mobile phone. 9.1.2 Clearing and Settlement Systems

Final settlement of interbank transactions is effected in the books of accounts held at the central bank through TISS. Interbank payments include net obligations arising from the cheques and EFT clearing houses and card switches. Inter-bank payments are cleared between banks through local clearing arrangements on bilateral or multilateral arrangements through bankers clearing houses. Bilateral arrangements are practiced where clearing houses do not exist. Currently there are five clearing houses located in the Bank of Tanzania premises at the head office and at its four branches in Mwanza, Zanzibar, Arusha and Mbeya. The Electronic Clearing House (ECH) system was first introduced at the Dar es Salaam Clearing House in 2004, and then rolled over to the other clearing houses. The ECH facilitate clearing of interbank cheques and EFT credits to produce net settlement obligations for the members. The system is managed by the Bank of Tanzania and member of the clearing houses who are commercial banks. The net settlement obligations from the four clearing centers across the country are the submitted to the Dar es Salaam ECH for consolidation and final settlement in TISS. For risk management purposes, cheque capping is applied in the clearing systems thereby reducing values processed in the net clearing system. There are two types of cheque clearing systems in Tanzanian. These are the local currency and United States Dollar (USD) cheques clearing. Card clearing switches facilitate multilateral clearing of net obligation of members of a card switch that arise from interbank card transactions of the issuing commercial banks’ customers. There are three card switches in Tanzania. Domestic switch for proprietary cards owned by a consortium of commercial banks (UmojaSwitch), Visa cards (Tanzania National Net Settlement Services for local visa card) and Master Card switch (for local

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transactions). Final settlement obligations for TNNSS, UmojaSwitch and MasterCard are settled through members’ accounts held at the central Bank.

9.2 What is the role of BOT in the National Payment Systems?

The Bank plays a dual role in payment systems. These are participatory and regulatory roles. The participatory role include provision of the core payment infrastructure for clearing and settlement services and provision of risk free assets to ensure finality of payments and stability of the financial system. Specifically, the Bank participates in payments systems as a participant on its behalf and the Government, and provides clearing and settlement services for interbank payments through accounts held at the Banks. The Bank also provides settlement services for payment obligations emanating from the clearing houses and card switches. The regulatory role includes payment systems oversight which involves coordination of the development of the legal and regulatory framework for supporting national payment system, monitoring and assessing the country’s payment systems so as to foster safety and efficiency of national payment systems. In response to financial service developments, the Bank also facilitate development of new payment instruments and infrastructure through provision of policies and guidelines that promote competition, innovation, safe and efficient payments systems. The Bank also provides consultative advice to payment system operators. The Bank is actively involved in the regional harmonisation workgroup forums for payment systems in the Southern Africa Development Corporation (SADC) and the East African Monetary Affairs Committee (MAC). The Bank also cooperates with central banks of other countries for harmonisation of standards and oversight functions. For the purpose of involving stakeholders the Bank conducts workshops and awareness programs on the development of payment systems

9.3 Short description of the processing of payment instructions

Payment instructions are either on gross or net basis. Gross payment instructions are made through the large value system TISS on real time interbank payment instruction effected from the paying commercial bank to the TISS on a credit instruction basis where its account in TISS is debited and the receiving banks account in TISS is credited on real time. TISS uses SWIFT network to facilitate secure interbank payment flows. Net payment processes for interbank is effected using debit instruments such as a cheque or EFT debit. The paying banking account is debited in the net clearing obligation in the BOTECH after final settlement of the net clearing batch in TISS. Origination of the payment instruction is captured at the paying bank in electronic file

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and routed to the clearing house using the SWIFTnet FileAct for production of net settlement file for final settlement in TISS. The settlement cycle is averaged at T+ 3. The Bank in collaboration with Clearing House members in Tanzania are now subjected to a complete automation on its payment clearing operations by moving towards a Cheque Truncation System (CTS) using image based clearing. The system will enhance safety and efficiency in clearing operations for both cheques and EFT payments. The anticipated benefits include reduction of the cheque clearing to up to same day clearing, centralised clearing across the country, standardisation of cheques with added security features, reduced operational risks by securing the transmission route as well as reduced cheque handling costs. The Tanzania Automated Clearing House project is currently at initial phase of implementation and is anticipated to be completed by 2013.

9.4 How are non-funded positions settled in the system?

In principle, settlement is done only where the participant has sufficient funds. The net settlement figures sent from BOTECH to TISS in a batch is not processed for settlement until all banks have sufficient funds to clear their settlement obligations. Banks which do not have sufficient funds or have debit balances in their accounts at the end of clearing periods, are supposed to make funding arrangement for their accounts before 3.30 p.m. The arrangement includes borrowing from inter-bank market or approach the Bank of Tanzania for a collateralized Intra-day Loan Facility (ILF) or Overnight lending (Lombard) funding as a last resort. As a mitigating measure for failure to settle the threshold value limit for payment instruments processed through the clearing houses is TZS 10.0 Million local curreny instrument and USD 5,000 for USD denominated cheques. Further, the Defaulters Pay Failure to pay mechanism has been adopted to ensure timely completion of daily settlement in the event of an inability to settle by the participant with the largest single settlement obligation. This mechanism requires all members to pledge collateral which are treasury bills of less than ninety days before maturity. Pledging is conducted before participating in the settlement process. Pledging collateral in advance ensure members of the clearing system that settlement will takes place without any loss to the remaining participants regardless failure of a member to settle its net obligation. The mechanism also ensures that the defaulter bears own obligations as each participant collateralizes fully its own debit position.

10. Currency in use

The BOT Act of 2006 provides the Bank with a sole right of issuing notes and coins, which are the legal tenders for use in the economy. The unit of currency in Tanzania is shilling where 100 cents equals one shilling.

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The Banknotes series are in the denominations of Tanzania Shillings 500, 1000, 2000, 5000 and 10000.

The current coins in circulation are as follows: 5 cents, 10 cents, 20 cents, 50 cents, 1 shilling, 5 shillings, 10 shillings, 20 shillings, 50 shillings, 100 shillings and 200 shillings.

11. Other activities of the BOT

According to the BOT Act of 2006, other functions of the Bank include: - The bank of issue BOT has the sole right to issue notes and coins which are the only legal tender in Tanzania. This role is aiming at directly influencing money supply in the economy for the objective of controlling inflation. - The bank for commercial banks and other financial institutions BOT accepts deposits of commercial banks, issues discounted commercial and Government papers, and the lender of last resort to banks. It also provides central clearance facilities for inter-bank transactions. - The Governments’ bank BOT is the banker and fiscal agent for the Governments and other public authorities. At that capacity, BOT may be the official depository of the Governments and the public authorities’ funds. - The adviser to the government BOT advises the Governments (both Union and Zanzibar) on any matters relating to the Bank and Governments functions, powers and duties. - The custodian of the country’s international reserves BOT is the depository of the official external assets of Tanzania, including gold and foreign currency reserves. - Supervision of banks and financial institutions BOT ensures that commercial banks and other financial institutions conduct their business on internationally acceptable practices. - Promotion of financial stability BOT establishes and promotes an effective financial system, and facilitates financial transactions necessary for the smooth functioning of the economy.

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12. Participation in SADC

12.1 Special relationships with other central banks in SADC (CMA excluded)

The BOT supervises operations of the financial institutions in the country and facilitates transactions between Tanzania and the rest of the world. In so doing, it has to establish and maintain close relations with other central banks in the world. In the SADC region, BOT has special relations with central banks in the member States. The Bank participates actively in the regional economic and financial matters through the Committee of Central Bank Governors (CCBG) and exchanges information through publications and the SADC interactive web.

In addition, BOT co-operates with other central banks in areas of training and attachments in order to enhance knowledge, technical skills, exposure and gathering of experience among staff in fields that the Bank determines potential for improving economic and financial sector management.

13. Bank’s Publications

13.1 Periodic publications - Monthly Economic Review - Quarterly Economic Bulletin - Monetary Policy Statement - Economic and Operations Annual Report - Tanzania Investment Reports (in collaboration with Tanzania Investment Centre and the National Bureau of Statistics) - Tanzania Tourism Sector Survey Report (in collaboration with the Ministry of Natural Resources and Tourism and the National Bureau of Statistics) - Risk Management Guidelines for Banks and Financial Institutions - Financial Stability Reports

13.2 Occasional/special publications

The Bank publishes a number of special and occasional publications, including: - Report on the Proceedings of the Bank of Tanzania Silver Jubilee Symposium, 1991 - Establishment of Rural Community Banks in Tanzania, 1991 - Tanzania Debt Portfolio Review, 1986-1995 - Explaining Inflation, 1995

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- Bank of Tanzania - Its Functions and Monetary Policy Instruments, 1995 - The sixth Gilman Rutihinda Memorial Lecture, August 2011 - The Role of Central Banking in Economic Development - The 1st Generation Financial Sector Reforms – 2000 - National Payment Systems Vision And Strategic Framework – 2000 - Tanzania Clearing House: Paper Instrument Standards – 2000 - Export Credit Guarantee Scheme - Operational Guidelines & Document; Third Finance Policy Document (2001) - Criteria for Approving and Registering External Auditors of Licensed Banks and Financial Institutions, 2003 - The Second Generation Financial Sector Reforms (Volumes I & II) – 2007 - National Payment System – Newsletters 1999 – 2007 - Tanzania Mainland’s 50 Years of Independence – A review of the Role and Functions of the Bank of Tanzania (1961 to 2011), June 2011

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Bank of Zambia

Bank of Zambia P.O. Box 30080 Lusaka, ZAMBIA Fax: +260 1 221722 Tel: +260 1 228888 / 228903

1. History

The Bank of Zambia (Bank) was established by an Act of Parliament, under the Bank of Zambia Act of 1964 as amended by the Bank of Zambia Act No.43 of 1996.

2. Relationship with Government

The Bank of Zambia is mandated, under the Act, to formulate and implement monetary and supervisory policies. The powers of the Bank are vested in the Board of Directors who are responsible for policy formulation and general administration of the Bank. The President appoints the Governor and two Deputy Governors for a contract period of five years. The Minister of Finance appoints the members of the Board. The Bank has its own budget and decides on its own finances.

The Bank formulates monetary policy while the Government through the Ministry of Finance formulates fiscal policy.

The Bank acts as banker and fiscal agent of the Government. It also acts as adviser to the Government on matters related to economic and monetary management.

The Government is the sole subscriber to the Bank’s capital.

3. Design and Conduct of Monetary Policy

3.1 Main Objectives of Monetary Policy

The primary objective of monetary policy in Zambia is to ensure the maintenance of price stability in order to promote macroeconomic stability which is a key pre-requisite for sustainable economic growth and development.

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3.2 Instruments of Monetary Policy

In response to the changing financial environment and global consensus, the Bank of Zambia places greater emphasis on market-based (indirect) monetary instruments such as open market operations rather than direct instruments (such as reserve requirements and core liquid asset ratios) in its conduct of monetary policy. This shift from heavy reliance on direct instruments of monetary policy was a central part of the extensive measures taken to liberalise the economy that began in earnest in 1992.

Since January 1993 the Bank has employed both direct and indirect instruments, with a greater reliance on the latter. These are as follows:

Indirect instruments:

Government Securities (Treasury bills and bonds) Auctions Daily Open Market Operations; The discount window; The Overnight Lending Facility (OLF); and Foreign exchange dealings.

Direct instruments:

Core Liquid Asset Ratio Statutory Reserve Ratio

3.3 Types of refinancing as well as collateral used

Daily Open Market Operations, introduced in March 1995, are conducted through the sale of Term deposits of varying maturities and the sale of Treasury bills for outright purchase by the commercial banks when the central bank wants to withdraw liquidity. In addition Repurchase Agreements (Repos) are also used as a liquidity withdrawal instrument. The Treasury bills used in this instance are those on the Bank of Zambia’s trading portfolio. When the central bank intends to inject liquidity into the banking system, it provides secured loans, which are backed by either Treasury bills or Bonds.

3.4 Monetary Policy Implementation Framework

Prior to April 2012, reserve money was the operating target of monetary policy while broad money, defined as including foreign exchange deposits of commercial banks (M3), was the intermediate target of monetary policy. In April 2012, the Bank of Zambia introduced a policy rate signalling a shift in the monetary policy framework from targeting monetary aggregates (quantities) to targeting interest rates (prices). The Bank of Zambia policy rate is a short-term interest rate used to signal the monetary policy stance. The policy rate

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effectively becomes the operating target while broad money remains the intermediate target.

Reserve requirements on financial institutions

There are two types of reserve requirements for commercial banks in Zambia. These requirements can be summarised as follows: - Statutory reserves ratio on commercial bank deposits; these are unremunerated reserves that commercial banks must keep with BoZ calculated as a percentage of total deposit liabilities (excluding central government deposits). The ratio was adjusted downwards by 3.0 percentage points in November 2011 to 5.0 per cent from 8.0 per cent on both Kwacha and foreign currency deposits.

- Core liquid assets ratio; this is the ratio of eligible liquid assets to total deposit liabilities including bills payable (excluding central government deposits). Eligible assets that can be held by commercial banks as core liquid assets include those that are interest bearing such as Treasury bills, Repurchase Agreement (Repos) and Term deposits. In November 2011, the ratio was adjusted downwards to 6 per cent from 9 percent in July in 2006.

4. Structure of the Financial Markets

4.1 Organisation of the Money and Capital Markets

The financial markets in Zambia, like elsewhere, are composed of money and capital markets. The development and enhancement of these markets over the years have been in part influenced by the shift in policies from reliance on direct to market based monetary policy instruments.

The Money Market Money markets in Zambia are dominated by commercial banks that mainly trade in short-term financial instruments. Currently the main instruments being traded are Treasury bills, Commercial paper, Term deposits and Repurchase Agreement (Repos).

a) The Government Securities Market

The main instruments being traded in this market are Treasury bills and Government bonds. The Treasury bills are offered in four maturity categories, namely 91-day, 182-day, 273-day and 364-day Treasury bills. In January 2012, the frequency of the Treasury bill auctions was changed from weekly to fortnightly. The Bonds are offered in the following tenors: 2, 3, 5, 10 and 15 years portfolios. The 7, 10 and 15

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year portfolios were introduced in August 2008 with the view to elongating the yield curve and facilitate benchmarking of private pricing of long dated financial instruments. In April 2012, the frequency of government bond auctions was changed from monthly to quarterly. The reduction in the frequency of auctions for both the Treasury bills and government bonds was aimed at promoting the development of the secondary market. The primary market for Government securities is open to banks, non-bank financial institutions and the non-bank public while settlement of transactions is done through banks that maintain accounts at Bank of Zambia. There are also off-tender sales to the non- bank public through authorised dealers. b) The Inter- bank Money Market

The inter-bank market is operated by commercial banks with settlement accounts at the Bank of Zambia. The market activities largely involve borrowing and lending of short-term funds on an overnight basis, although, lending for longer periods is also possible. Commercial banks use the inter-bank facilities for adjusting their reserve positions. The inter-bank market is an avenue through which the central bank monitors and manages liquidity conditions. Broadly, the Bank of Zambia through its daily open market operations via debit or credit auctions (Secured loans, Repos and Term deposits) influences liquidity conditions in the inter-bank market. Banks short of liquidity can purchase funds from the Bank of Zambia by pledging Treasury bills as collateral in the case of secured loans. Alternatively, the Bank of Zambia purchases funds from commercial banks by offering them interest bearing Term deposits with a view to removing excess liquidity from the banking system. c) The Foreign Exchange Market

The structure of the foreign exchange market has evolved over time in line with the policy changes that saw the removal of foreign exchange controls and ultimately the full liberalisation of both the current and capital accounts in 1994. With these developments it was imperative to establish new structures to improve the allocation of foreign exchange. To this end, the Bank of Zambia Dealing Window was established in 1993. This was a wholesale market for commercial banks and major suppliers transacting amounts above US$100,000 per week. The allocation was done through a bidding system.

To enhance the role of the market, the wholesale market was in July 2003 transferred to the commercial banks through the introduction of a Broad Based Interbank Foreign Exchange (IFEM) System. The rationale for introducing the IFEM system was to address the shortcomings in the previous system (BoZ dealing window), in particular, the multiple

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exchange rates exhibited in the various segments of the foreign exchange market. The general public can either buy or sell foreign exchange to commercial banks and bureaux de change.

The Capital Market

The most significant development in the capital market was the establishment of the Lusaka Stock Exchange that started operating in February 1994. Currently, there are 20 listed and 8 quoted companies on the stock exchange (Table 1). Other participants are the institutional investors, such as the pension schemes and provident funds which have invested in floated shares. In addition, over-the-counter (OTC) or private trading in shares and bonds for quoted companies has been evident in the recent past.

Table 1

Listed companies Quoted companies

BARCLAYS BANK 1 AFRICAN EXPLOSIVES ZAMBIA PLC ZAMBIA PLC

BRITISH AMERICAN TOBACCO 2 CHIBULUMA MINES PLC ZAMBIA

3 BATA SHOE COMPANY PLC NANGA FARMS PLC CHAMBESHI METALS 4 PUMA PLC CAVMONT CAPITAL HOLDING ZAMBIA 5 KANSANSHI MINES PLC PLC COPPERBELT ENERGY COMPANY KONKOLA COPPER 6 PLC MINES PLC MOPANI COPPER MINES 7 CELTEL ZAMBIA(ZAIN) PLC PLC PRIMA RE-INSURANCE

PLC 8 LAFARGE CEMENT PLC

9 REAL ESTATE INVESTMENTS ZAMBIA PLC (REIZ)

10 INVESTRUST BANK PLC

11 NATIONAL BREWERIES PLC

12 PAMODZI HOTELS PLC

13 STANDARD CHARTERED BANK PLC

SHOPRITE HOLDINGS LIMITED - RSA 14

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15 ZAMBEEF PRODUCTS PLC 16 ZAMEFA

ZAMBIAN BREWERIES PLC 17

ZCCM INVESTMENT HOLDINGS PLC 18

19 ZANACO

20 ZAMBIA SUGAR PLC

Government bonds are also traded on LuSE (since March 1998) with a view to enhancing liquidity in the financial system and to develop an active secondary market for Government bonds.

4.2 Instruments used in both these markets

The instruments being traded in the money market are Treasury bills, Commercial paper, Term deposits and Repurchase Agreements (Repos). In the capital market, Government bonds, shares or equities and bonds are the main instruments traded.

4.3 Legal frameworks existing for the money and capital markets

The legal framework that exists for the capital and money markets in Zambia is found in the Banking and Financial Services Act, Cap 387 of the laws of Zambia as amended in 2000, Securities Act, Cap 354 of the laws of Zambia, Loans and Guarantees Act, Cap 366 of the laws of Zambia, Companies Act, Cap 388 of the laws of Zambia. In addition, the Bank of Zambia issues guidelines to commercial banks from time to time.

4.4 Type of financial intermediaries operating in these markets

Commercial banks, non-bank financial institutions and the public operate in the money markets while non-bank financial institutions such as insurance companies, pension funds, the Lusaka Stock Exchange and other private licensed dealers and the public operate in the capital market.

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5 External Payment Arrangement

5.1 Determination of the Exchange Rate Policy

The Bank of Zambia is responsible for determining the exchange rate policy in conjunction with the Ministry of Finance and National Planning.

5.2 The Present Exchange Rate System

At present, the exchange rate is fully market-determined depending on supply and demand conditions in the interbank foreign exchange market.

5.3 Organising the Exchange Market

The foreign exchange market has been liberalised since 1992. This led to the repealing of the Exchange Control Act, CAP 593 in January 1994. Exporters are now allowed to retain 100 percent of export proceeds. There are three segments in the foreign exchange market, namely: - The Broad Based Inter-bank Foreign Exchange Market System (introduced in July 2003); Commercial banks; and The foreign exchange bureau market.

The exchange rate is market determined in all these segments of the market. Furthermore, the introduction of a more transparent Broad Based Inter-bank Foreign Exchange Market has improved information flows to the general public and narrowed the spread between the wholesale and retail markets considerably.

5.4 The Central Bank’s Involvement in Managing Foreign Exchange Reserves

The Bank of Zambia is responsible for the management of the country’s foreign exchange reserves and only participates in the market for purposes of either purchasing foreign exchange to build up reserves or selling/purchasing to smoothen out any swings in the exchange rate.

6. Currency Convertibility and Exchange control

There are no exchange controls on current or capital account transactions. The currency is fully convertible regionally and internationally.

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7. The Central Bank and External Debt

7.1 The Role of the Central Bank in Managing the Country’s External Debt

The Bank of Zambia is responsible for monitoring and recording private sector external debt. In addition, the Bank maintains data on the country’s overall external debt position. Further, it is responsible for ensuring that the Government’s external debt service obligations are processed and payment is effected on time. The Bank works closely with the Government on various debt reduction strategies such as the Debt Sustainability Analysis (DSA) and the National Debt Strategy to guide debt management

7.2 The Role of the Treasury

The Treasury dictates the terms and conditions for managing the country’s external debt. The Government through its External Resources Mobilisation (ERM) Department is responsible for contracting external loans and maintenance of all data pertaining to these loans. The external loans are also repaid by Government through the External Resource Mobilisation Department which gives instructions to the Bank of Zambia to effect debt service payments.

8. Supervision of Financial Institutions

8.1 Banking Institutions

8.1.1 Authority responsible for Banking Regulation and Supervision

The Bank of Zambia is responsible for the supervision of banks as provided in the Banking and Financial Services Act of 1994 as amended in 2000.

8.1.2 Licensing procedures for establishing a Bank in Zambia

The applicant submits a completed application form (Form BF1) provided by the Bank of Zambia together with a non-refundable application fee, currently nine (9) million Kwacha (approximately US$1,900). The application requirements include the following: - A business plan with full particulars of the business the applicant proposes to conduct and three years’ financial projections; The company’s articles of association; - Addresses of the head office and branches; directors, details of proposed board; chief executive officer and chief financial officer; and shareholders with holdings in excess of one percent; Start-up capital; and - Such assurances and evidence of the foregoing as the Registrar may require to be given by the applicant.

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The Registrar shall examine the application within 180 days after receipt of a completed application for a banking license taking the following into consideration: - Capital adequacy of the applicant; - The applicant and his associates and affiliates’ financial condition, resources and history; - The character and experience of directors and management and major shareholders; - Convenience and needs of the community to be served by the business; and - Prospects of profitable operation of the business.

If no reply is received by the applicant within 180 days, the application is deemed to have been successful.

8.1.3 Types of licenses that exist

- Banking licenses; and - Financial institutions licenses.

8.1.4 Minimum Capital Requirements for the different types of Banks

Revision of the Capital Adequacy Framework - On 30 January 2012, the Bank of Zambia announced higher minimum capital requirements for commercial banks. The minimum primary capital was raised from K12 billion to K104 billion (approximately US$20 million) and K520 billion (approximately US$100 million) for local and foreign owned banks, respectively. In addition, the primary capital shall be made up of at least 80% in nominal paid-up common shares. The banks have been given up to 31 December 2012 to progressively build up their primary capital to the required amount.

8.1.5 Regulations governing current activities of Banks

- Large credit exposure: Statutory Instrument No. 96 of 1996 - Large Loan Exposures Regulations. - Capital adequacy: Statutory Instrument No. 184 of 1995 - Capital Adequacy Regulations. - Liquidity ratio: S41 (1) (a) Bank of Zambia Act 1996 - Circular No. SCH/CB/1/98. - Open foreign exchange position: Statutory Instrument No. 57 of 1996 - Foreign Exchange Risk Management and Exposure Regulations. - Provision for bad debts: Statutory Instrument No. 142 of 1996 – Classification and Provisioning of Loans Regulations. - Cost of borrowing regulation: Statutory Instrument No. 179 of 1995. - Payment of fees regulation: Statutory Instrument No. 180 of 1995.

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- Return of unclaimed funds regulations: Statutory Instrument No. 181 of 1995. - Reserve account regulations: Statutory Instrument No. 182 of 1995. - Disclosure of deposit charges and interest regulations: Statutory Instrument No. 183 of 1995. - Fixed assets investments regulations: Statutory Instrument No. 185 of 1995. - Restricted lending: Statutory Instrument No 96 of 1996 - Large Loans Exposures Regulations. - Statutory Instrument No. 97 of 1996 - Insider Lending Regulations

8.1.6 Main supervisory practices

The two main supervisory practices used are as follows:

a) Off-site inspections which entail receiving and analysing the following returns: - Balance sheets; - Income statements; - Capital position computations; - Classification of loans and provisions; - Large loans; - Insider loans; - 20 largest loans; - Sector analysis of loans; - Foreign exchange risk management and exposure; - 20 largest depositors; - Investments is fixed assets (bi-annual); and

In addition, off-site reviews are complimented by external audit reports on capital adequacy, loan loss provisioning and corporate governance issues, to mention a few.

b) On-site inspections entail actual visitation by inspectors to investigate the banks and financial institutions at their premises and provide inspection reports on the soundness of these institutions.

8.1.7 Measures to remedy deficiencies as well as penalties utilised when implementing supervisory actions.

The measures that constitute supervisory actions used to remedy deficiencies and institute penalties are as follows:

- Restriction of operations except with the Bank of Zambia approval, e.g. lending expansion through opening of new branches, purchases of fixed assets, e.tc;

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- Removal of erring officers; - Restrictions on the payment of dividends, management fees and other capital related payments; - Bank of Zambia takes possession of the bank; - Revocation of banking licenses and restructuring of the bank with Bank of Zambia approval; and - Penalties in the form of fines and imprisonment or both for breach of any part of the provisions of the Banking and Financial Services Act.

8.2 Non-banking financial institutions

The Banking and Financial Services (Amendment) Acts of 2000 and 2005 (BFSA) extended the Bank of Zambia’s regulatory and supervisory mandate to non-bank financial institutions, whether or not licensed by the Bank of Zambia, providing regulated financial services prescribed under the BFSA. Thus, non- bank financial institutions, such as development banks, building societies, and savings and credit banks, which were established under separate statutes and were previously not supervised by the Bank of Zambia, are now regulated and supervised by the Bank.

Furthermore, the provisions of the Building Societies Act, the Development Bank of Zambia Act, and the National Savings and Credit Act, were harmonized with the BFSA in 2005 through respective amendments to the Acts. Microfinance institutions were brought under the regulation and supervision of the Bank of Zambia with the passing of Statutory Instrument No.3 of 2006, the Banking and Financial Services (Microfinance) Regulations, on 30 January 2006.

The Bank of Zambia co-operates with other financial sector regulatory and supervisory agencies in discharging its duties. These include: - The Pensions and Insurance Authority (PIA): this is the independent regulator set up under the Pensions and Insurance Act to regulate the operation of insurance and pension schemes; and - The Securities and Exchange Commission (SEC) which is responsible for supervising the stock exchange.

The supervisory bodies for non-bank financial institutions and applicable laws are shown in the Table 2 below:

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Table 2: List of Supervisory Bodies and Applicable Laws and Regulations Financial Service Supervisory body Applicable laws and regulations Provider Banks Bank of Zambia Banking and Financial Services Act as amended, regulations listed under 8.1.5, the Prohibition and Prevention of Money Laundering Act of 2001, National Payment systems Act of 2007, supporting regulations and directives. Leasing companies Bank of Zambia Banking and Financial Services Act as amended, regulations listed under 8.1.5, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives Bureaux de change Bank of Zambia Banking and Financial Services Act as amended, the Bureaux de Change Regulations of 2003, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives Development Bank of Zambia The Banking and Financial Services finance institutions Act as amended, the Development Bank of Zambia Act of as amended, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives. Building societies Bank of Zambia The Banking and Financial Services Act as amended, the Building Societies Act as amended, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives. Savings and credit Bank of Zambia The Banking and Financial Services institutions Act as amended, the National Savings and Credit Bank Act as amended, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives. Microfinance Bank of Zambia The Banking and Financial Services institutions Act as amended, the Microfinance Regulations of 2006, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives.

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Credit reference Bank of Zambia The Banking and Financial Services bureaux Act as amended, the Prohibition and Prevention of Money Laundering Act of 2001, supporting regulations and directives. Insurance and Pensions and Pension Scheme Regulation Act No. pension funds insurance authority 28 of 1996 and the Insurance Act no 27 of 1998 Securities and Securities and exchange exchange Securities Act, 1993 institutions Commission

8.2.2 Categories of non-bank financial institutions and their licensing procedures The licensing procedure for non-bank financial institutions is the same as that for banks, with the major differences being the capital and shareholding requirements. The minimum capital requirements for the various non-bank financial institutions supervised by the Bank of Zambia are shown in Table 2 below.

The provisions for the minimum capital requirements can be found in the following documents:

 Banking and Financial Services (Capital Adequacy) Regulations, 2005 (with amendments);  Banking and Financial Services (Microfinance) Regulations, 2006;  The Banking and Financial Services (Capital Adequacy) Notice, 2006;  Circular No. 6/2003 for Bureaux de Change. Application and annual licence fees for the various categories of non-bank financial institutions can be found in Table 3 below.

Table 1: Minimum capital requirements for non-bank financial institutions

Minimum capital Annual licence Institutional type Application fee requirements fee K7,500 million or Development 10% of risk K5.4 million K2.7 million finance institution weighted assets, whichever is higher Leasing companies K1,500 million or 10% of the risk Deposit taking K5.4 million K2.7 million weighted assets, whichever is higher.

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K500 million or 10% of the risk weighted Non deposit taking K5.4 million K2.7 million assets, whichever is higher. Microfinance institutions K250 million or 15% of the risk weighted Deposit taking K5.4 million K2.7 million assets, whichever is higher. K25 million or 15% of the risk weighted Non deposit taking K1 million K600,000 million assets, whichever is higher. K2,000 million or 10% of the risk Building societies K5.4 million K2.7 million weighted assets, whichever is higher. K2,000 million or Savings and credit 10% of the risk K5.4 million K2.7 million institutions weighted assets, whichever is higher. Bureaux de K40 million K5.4 million K10.8 million change Credit reference K1,000 million K2.7 million bureaux

The maximum shareholding limit for all non-deposit taking non-bank financial institutions is 50 percent of the total voting shares per person as stipulated in the Bank of Zambia (Limitation of Voting Control for Financial Businesses) Directive, 2006. The maximum shareholding limit for deposit taking non-bank financial institutions is 25 percent of the total voting shares per person as stipulated in the Banking and Financial Services Act.

The BFSA, as well as related subsidiary laws, apply to all categories of non bank financial institutions. Laws and regulations that are specific to the non- bank financial institutions supervised by the Bank of Zambia can be found in Table 2.

9. National Payment, Clearing and Settlement System

9.1 How is the payment, clearing and settlement system organised?

The Bank of Zambia, working with the Bankers Association of Zambia, has since 1994 worked to reform the payment system in Zambia to embrace the

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international standards of risk control. Risk management has been a key feature of the modernisation and reform of the payment system in Zambia.

In 1999, The Bankers’ Association of Zambia and the Bank of Zambia an established an independent clearing house i.e. the Zambia Electronic Clearing House which processes two payment streams namely Physical Inter - bank Clearing (PIC) and Direct Debit and Credit Clearing (DDACC).

 Physical Inter - bank Clearing (PIC)

This is a predominantly retail payment stream which enables cheques to be exchanged between banks through the ZECHL and settled on the Zambia Inter- Bank Payment and Settlement System (ZIPSS) at Bank of Zambia. Automation of the PIC has resulted in shortening of the clearing and settlement period for cheques to between three to ten days.

Zambia is currently working on automating this process further by introducing cheque truncation Cheque Truncation is the process of clearing cheques using cheque images as opposed to using physical cheques. The Cheque Truncation System envisages a safe, secured, faster and effective system for clearing of the cheques. Cheque Truncation is also expected to enhance customer service, reduce the scope for clearing related frauds, minimize cost of clearing cheques, reduce reconciliation problems as well as eliminate logistical problems.

 Direct Debit and Credit Clearing (DDACC)

DDACC is an electronic funds transfer payment stream that was implemented in October 2001. It is a retail payment stream that include both direct debits and direct credit instructions. and the system operates on the Credit Push principle. The system also allows banks to manage their debit positions better with advance information from the system. The service is used mainly to settle utility bills and pay salaries. DDACC payment instructions are settled and effected to beneficiaries’ account within the same day.

 ZIPSS/RTGS

As part of the reforms the Bank of Zambia in collaboration with the Bankers Association of Zambia implemented the (ZIPSS) in 2004. The ZIPSS enable commercial banks to effect high value and time critical funds transfer electronically in real time. ZIPSS is typically based on agreements among the participants to transfer funds using agreed technical infrastructure. Settlement is effected in central bank money. Settlement instructions are, pre-funded, on a credit push basis, final, irrevocable and exposures are visible.

In order to participate on the ZIPSS, commercial banks are required to have pledged collateral for use to ensure settlement of gross transactions and/or

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clearing obligations at the designated time. Further, the Bank of Zambia has in place intraday and inter-day loan facilities for access by the commercial banks so as to ensure settlement of transactions.

Other payment streams include:

 Card schemes - Card schemes are the main providers of credit and debit card transactions including automated teller machines and point of sale terminals. The main players include the commercial banks which provide these services to their customers.

 Mobile payments/Electronic money (e-money) – E-money is a monetary value (claim on the issuer) which is stored in an electronic device (mostly mobile phones) and is accepted as means of payment by undertakings other than the issuer. E-money can take the form of prepaid cards, or it can be stored on a device. The mobile payments services cater for commercial banks, financial institutions, corporate companies, government as well as the general public.

 Electronic Funds Transfer (EFT)/SWIFT - This is the system used to make foreign payments. Swift also processes local currency transactions that settle on the ZIPSS/RTGS system. This service is mainly provided by the banks.

9.2 What is the role of the central bank in the payment system?

The National Payment Systems Act of 2007 provides for the management, administration, operation, supervision and regulation of payment, clearing and settlement systems in Zambia. The Act empowers the Bank of Zambia to develop and implement policy so as to promote efficiency, stability and safety of the financial system in Zambia.

Under the Act the Bank of Zambia is given the responsibility of designating and overseeing payment systems and payment systems businesses so as to promote efficiency and safety in the national payment systems. The responsibilities of the Bank of Zambia include the following:

 Formulation of policies and regulatory framework  Implementation of policies, laws, regulations etc.  Designation of payment systems and payment systems business  Payment systems oversight  Promote payment systems developmental issues  Provision of settlement services through the Real Time Gross Settlement system

9.3 Short Description of the Processing of Payment Instructions

 Physical Inter- bank Clearing (PIC)

Banks maintain current accounts at Bank of Zambia (BOZ) and through these accounts; settlements are debited or credited based on the net settlement position. Currently there are two main clearing centres, one in Kitwe and the

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other one in Lusaka. Besides the two clearing centres, there are also 12 other manual clearing centres located in the peripheries of the two main clearing centres (i.e. is any place where there more than two banks). Banks transmit electronic files to the two clearing centres and deliver the physical instruments not later than 17.00 hours each business day for the electronic processing at the clearing house. The clearing house determines the net balances for PIC for each bank. The manual centres exchange cheques and calculate the net obligations that are added to the Lusaka Clearing House for calculating the total settlement position. The Net settlement position is advised to BOZ, who then processes settlement on the deferred basis on ZIPSS at 09:30 hours the following business day.

 Direct Debit and Credit Clearing (DDACC)

DDACC is a simple, safe and speedy way to pay or receive regular bills and subscriptions electronically from a customer’s bank account. It is an Electronic Funds Transfer payment service hosted by the Zambia Electronic Clearing House (ZECH).

It has two streams - Direct debits and Direct credits. The direct debit (DD) stream is an efficient way for organisations to collect regularly occurring payments from large numbers of customers. The direct credit (DC) enables the customer to make payments by electronic transfer directly into a bank account.

Settlements of obligations arising from the DDACC stream are settled every two hours and are done within the business day.

 ZIPSS/RTGS

Real-Time Gross Settlement processing and settlement of transactions takes place continuously in real time (processing transactions at the time they are received rather than later) on a transaction by transaction (gross). This allows risks to be managed immediately and continuously. All transactions are on CREDIT PUSH.

9.4 How are non-funded positions settled in the system?

Non-funded positions are settled through borrowing in the inter-bank money market, Bank of Zambia open market operations, the re-discount of Treasury bills and liquidation of collateral deposited with the Bank of Zambia. For settlement of clearing house obligations, all the above sources are used. Additionally, a bank is required to deposit collateral specifically for the clearing house obligations. In case of default and the clearing house collateral is utilised, the defaulting bank will be excluded from the clearing if the liquidated collateral was not replaced until such condition is met.

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10. Currency in use

10.1 List of legal tender notes and coins currently issued and in use in the economy

- Currency: - Kwacha (K). - 100 ngwee equals one Kwacha. - Notes: - K50,000; K20,000; K10,000; K5,000; K1,000; K500; K100; K50; and K20. - Coins: - K10; K5; K1; 50 ngwee; and 25 ngwee. (still in circulation, but have low demand due to low value).

The K10,000, K5,000 and K1000 notes were introduced in May 1996. The K10,000 note was upgraded in May 2001 to include a multi-redundant hologram aimed at minimising the counterfeits. In addition, in September 2003, polymer notes were introduced for K1,000 and K5,000 notes since they were found to have the highest velocity and hence the most frequently replaced notes in the family structure. The polymer substrates are known to last at least four times longer than paper notes although they cost twice as much.

11. Other Activities of the Central Bank not Covered Above

11.1 Activities of the Central Bank Not Covered Above

The Bank has the sole right to issue and regulate all matters relating to the currency of the country.

12. The Position of the Central Bank in SADC

12.1 Special Relationships with Other Central Banks in SADC (CMA excluded) None, except through decisions taken by the Committee of Central Bank Governors in SADC.

13. Publications

13.1 Regularly published publications

- Bank of Zambia Annual Report; - Quarterly Financial and Statistical Review; - Quarterly Business Opinion Survey; - Fortnightly Statistics Bulletin; and - The Bank of Zambia Reader published annually starting 2003. Occasional / special publications published since 1990-The History of the Central Bank 1964 – 1994

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Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe 80 Samora Machel Avenue P. O. Box 1283 Harare, Zimbabwe Tel: + 263 4 703000 Fax: + 263 4 705890 or 263 4 705979

1. History

The Reserve Bank of Zimbabwe (Reserve Bank) has its origins in the Bank of Rhodesia and Nyasaland, which was established in 1956 as a central bank for the Federation of Rhodesia and Nyasaland. The Bank of Rhodesia and Nyasaland was the successor to the Central Currency Board.

The dissolution of the Federation of Rhodesia and Nyasaland saw the establishment of the Reserve Bank of Rhodesia in 1964, which was thereafter succeeded by the Reserve Bank of Zimbabwe at independence in 1980.

2. Relationship with Government

The Reserve Bank of Zimbabwe Act [Chapter 22:15] defines the Bank’s relations with the State. The Reserve Bank is answerable to the Minister of Finance, who has the power to give general directions on all policy issues and determines the budget of the Reserve Bank. Consequently, the Reserve Bank enjoys a limited degree of autonomy with which it performs its statutory functions.

The State President appoints the Governor and his Deputies for renewable five- year terms, not exceeding two terms. The Board of the Reserve Bank consists of the Governor, Deputy Governors, a person employed in the Ministry of Finance appointed by the Minister and no less than five and no more than nine Directors, who are appointed by the President after consultation with the Minister.

Besides being the sole issuer of local currency and banker to the Government, the Reserve Bank is also advisor to the Government on all financial and economic matters. While the Reserve Bank is still the sole issuer of local currency, this function is currently not being undertaken since the adoption of the multicurrency regime in February 2009.

According to the statutes the Reserve Bank acts as the banker and financial adviser to, and fiscal agent of the State. In addition, the Reserve Bank manages

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the Government debt, acts as registrar of Government Stock and conducts the Treasury bill tenders.

3. Structure

The Reserve Bank specialises in central banking operations. Its structure is, therefore, consistent with this mandate.

4. Design and conduct of monetary policy

4.1 Main objectives of monetary policy

Over the years, the main objective of monetary policy has always been the maintenance of the internal and external value of the Zimbabwean currency through price stability. In this regard, the Bank has been responsible for the formulation, implementation and monitoring of monetary policy, directed at ensuring low and stable inflation levels.

In October 2005, the Reserve Bank of Zimbabwe adopted the monetary targeting framework in which the main intermediate target of monetary policy was broad money supply (M3) while the operating target was reserve money (RM) and inflation was the ultimate target.

However, since the formal adoption of the multicurrency framework by Government, as espoused in both the Fiscal Budget and the Monetary Policy Statements since February 2009, the conduct of Monetary Policy has been adapted to the new foreign currency operating environment.

Principally, the multicurrency environment implies diminished capacity for direct Monetary Policy intervention in the economy in as much as Monetary Authorities no longer issue high powered money and hence limited capacity to control money supply. Money supply now consists of foreign currencies deposited in banks, as well as hard currencies circulating as cash in the economy. There is a lot of cash circulating outside the formal banking channels, especially in the informal sector.

Under the new arrangements, the Central Bank, however, continues to foster liquidity management arrangements and payment system facilities, in order to assist the smooth flow of liquidity and inter-bank settlements. Banks are also advised to be prudent in their liquidity management especially given that most of the deposits are short-term in nature. A limited lender of last resort facility is now available to the banks. There is need to increase the fund so that the Bank can play its lender of last resort function effectively.

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4.2 Instruments of monetary policy

Prior to the multi-currency system, the main instruments of monetary policy at the disposal of the Monetary Authorities included:

- Reserve requirements; - Open Market Operations (OMO); - Bank Rate - Repurchase Agreements (REPOS).

Under the multicurrency framework, the role of the Central Bank has largely been limited to financial sector stability under Banking Licensing, Supervision and Surveillance, administration of the payment systems through National Payments Systems (NPS), Exchange Control and Policy Advice to the Government.

4.3 Types of refinancing as well as collateral used

Since February 1997, the Reserve Bank accommodated the market surpluses and shortages through a primary dealership system involving discount houses as counter-parties. Under the current system, discount houses no longer exist and commercial banks are the clearing banks, which operate accounts with the Reserve Bank through the Zimbabwe Electronic Transfer and Settlement System (ZETSS).

Clearing and settlement arrangements were further altered in 2002 when the Reserve Bank launched the Real Time Gross Settlement System (RTGS), also known as the Zimbabwe Electronic Transfer and Settlement System (ZETSS), which went live in November 2002. This development was in line with international best practice of reducing risk associated with the clearing and settlement arrangements.

The business of the Clearing House is managed by the Clearing House Committee, composed of one representative from each member bank and chaired by the Reserve Bank. An inspector of clearing, appointed by the Reserve Bank, supervises and oversees the day to day operations of the Clearing House. The Reserve Bank, however, does not impose decisions, but plays a co-coordinating role in order to ensure the efficient functioning of the system.

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Repos

To improve the commercial banks’ clearing function, the Reserve Bank introduced repurchase agreements (repos) in September 1997, designed to assist banks during periods of shortages in the market. When the market was in a short position, the Bank supplied liquidity through repurchase agreements, with the underlying instrument being the Government of Zimbabwe Treasury bills.

The Reserve Bank also conducted anticipatory and reverse repos in order to smoothen liquidity and lessen interest rate volatility. Use of the repo window, however, quickly became inactive due to lack of sufficient market shortages at the time.

Open Market Operations

Open market operations (OMO) involved mainly issuance of Government Treasury bills and Central Bank short-term bills, which became known as OMO Bills. These instruments were very popular with banks, as they qualified as collateral for borrowing and for their liquidity management. In order to effectively mop up excess liquidity from the market, the Central Bank introduced its own OMO bills, which were essentially treasury bills issued for monetary policy purposes. The OMO bills were clearly separated from ordinary Treasury bills for funding Government operations, so as to avoid the usual conflict between the two instruments.

The tenure of OMO Treasury bills ranged from 91 days to 1 year. The Bank also introduced 1-year CPI indexed Treasury bills, with bi-annual coupon payments. The interest on the TBs was based on average annual inflation plus a margin.

Intraday credit facility

The intraday facility was introduced in 2004, to provide banks with an opening day credit facility to smoothen inter-bank transactions and help oil the payments system. The facility was fully collateralized by suitable instruments, and attracted rates of interest related to the Bank’s overnight facilities. The intraday credit was repayable before the end of business day. Any unsettled intraday credit at the end of the business day was automatically converted to an overnight advance at the ruling overnight accommodation rate.

Overnight accommodation

The Bank’s accommodation policy was strictly guided by the lender-of-last resort objective, so as to promote both sound financial management practices by banks

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and steer monetary aggregates towards targeted levels. The Bank’s overnight rates primarily served as a pre-emptive tool for fighting inflation expectations in the economy. In view of this, the determination of overnight rates for secured and unsecured borrowing was guided by actual and projected inflation rate levels.

Since the adoption of the multiple currency regime in February 2009, no open market operations have been conducted as the role of monetary policy has diminished due to the use of other currencies for domestic activities. A seed fund was availed by the Government in October 2010 for the Reserve Bank to conduct its lender of last resort function. However the lender of last resort facility has remained unutilized due to limited funding and lack of acceptable collateral.

4.4 The money supply aggregate that plays the main role in monetary policy

The main aggregate in the conduct of monetary policy has been the broad money supply (M3), which was also the intermediate target. Prior to December 1993, broad money (M3) was made up of currency in circulation plus demand, savings and time deposits with deposit money banks (commercial banks, merchant banks, discount houses) and private deposits at the Reserve Bank of Zimbabwe. From January 1994, this aggregate was redefined to include the savings and time deposits of other non-bank financial institutions (OBIs), such as building societies, finance houses and the Post Office Savings Bank (POSB).

Since February 2009, attempts have been made to estimate the level of Broad Money Supply (M3), consisting of foreign currency deposits in banks and an estimate of the hard currencies circulating in the public domain. This variable, however, is no longer a liability of the Central Bank.

4.5 Reserve requirements on financial institutions

Statutory reserves

The Reserve Bank has, over the years, frequently adjusted the statutory reserve requirement ratios, largely to manage the liquidity in the money market. The increase in the ratio was primarily to curtail credit expansion, and to discourage banks from lending for speculative purposes.

Statutory reserves were calculated as a proportion of the banks’ liabilities to the public. All banking institutions were required to comply with minimum statutory reserve requirements on a daily basis, with weekly returns documenting daily assessments of compliance being sent to the Central Bank for verification. The

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Reserve Bank did not pay any interest on the reserve amounts held by these banks.

With effect from 28 July 2010, however, the Reserve Bank of Zimbabwe abolished the statutory reserve requirements for all banking institutions. This policy was taken as part of risk containment measures in the banking system, as well as an effort to release more resources for lending by banks, at lower and affordable interest rates.

Effective 1 January 2012, all outstanding statutory reserve balances at the Reserve Bank were converted to Government bonds of 2 to 4 year maturities.

5. Structure of the financial markets

5.1 Organization of the money and capital markets

In Zimbabwe, the money and capital markets consist of the Reserve Bank on the one hand, which performs the traditional central banking role of managing the financial system and implementing monetary policy. On the other hand, is the interbank market, which comprises deposit money banks (commercial and merchant banks) and other banking institutions (building societies and the People’s Own Savings Bank (POSB).

Also forming part of the financial markets are non-bank financial institutions such as asset management companies, micro-finance institutions (money lenders), insurance companies, pension funds, provident funds, corporate bodies, public enterprises, local authorities, stock broking firms and the Zimbabwe Stock Exchange (ZSE). Government also plays a very important role as a borrower through issuance of short, medium and long dated paper.

Money market

The money market is a market for short-term securities notably those with less than one year to maturity. Dominant instruments in this market include Treasury Bills, Bankers Acceptances, commercial paper as well as Government bonds of less than one year tenor.

Any financial institution which has an RTGS account can subscribe to instruments issued by the Reserve Bank. Historically, the primary take-up of such securities was reserved for discount houses. With liberalization, this monopoly for discount houses has vanished and any institution with an RTGS account can access instruments directly from the Central Bank. These instruments constitute an important part of the liquidity management processes of banks.

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The money market plays a crucial role in the liquidity management of institutions. Banks experiencing short-term liquidity challenges can sell some of the securities through the inter-bank market, before resorting to the lender of last resort.

5.2 Instruments used in the money market

The major money market instruments are: - Treasury bills; - Central Bank paper (OMO bills); - Parastatal paper usually guaranteed by Government; - Negotiable certificates of deposits; - Bills of Exchange especially Bankers Acceptances.

Since the adoption of the multicurrency regime in February 2009, the instruments which have been dominant in the money market are bankers acceptances. Most of the banks with such securities have, however, been holding these to maturity thereby limiting trading. The Government has been operating under a strict cash budgeting framework and has, therefore, not come into the market to raise funds through the traditional Treasury bills.

Capital market

The capital or equity market comprises mainly the Zimbabwe Stock Exchange (ZSE), stock-broking firms, insurance companies and pension funds. Unlike the money market, activities in the capital market are undertaken through a central trading place. Government and the Reserve Bank only participate in this market on a regulatory basis by setting up rules and regulations for participants. The Securities Commission of Zimbabwe (SECZ) is the main regulator of the capital markets in Zimbabwe. The Bank is one of the regulators as some of the participants fall under its purview.

The major capital market instruments available are: - Shares; - Debentures; - Government bonds; - Public enterprise bonds; and - Local Government bonds.

Since February 2009, the Zimbabwe Stock Exchange (ZSE) has completely rolled over to the foreign currency regime, under the multiple currency framework. All share prices are quoted and traded in foreign currency. There is currently push by

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Government for the ZSE to speed up the process of setting up an Automated Trading System (ATS) and Central Securities Depository (CSD).

Government treasury bill auctions

Prior to the adoption of the multiple currency framework in February 2009, Treasury bill auctions were held to fund Government requirements, as well as for open market operations (OMO). These auctions were announced in advance to the market players and conducted weekly. Government tenders were, however, synchronized with Central Bank tenders for OMO bills, in order to strengthen the congruency and effectiveness of both fiscal and monetary policies.

OMO treasury bills were issued on daily basis, to mop up any projected liquidity inflows into the market. The tenders were always announced in advance to primary dealers, to promote planning and competitive bidding.

Since February 2009, however, no Government debt instruments have been issued, since Government is broadly pursuing a cash budgeting strategy, under the multiple currency framework. However, effective 1 January 2012, Government issued bonds of 2 to 4 year maturities against outstanding statutory reserve balances at the Reserve Bank.

5.3 Legal frameworks existing for the money and capital markets

The Central Bank’s activities are governed by the Reserve Bank of Zimbabwe Act [Chapter 22:15]. The defined functions of the money market are also supported by the country's various other pieces of legislation. The Banking Act [Chapter 24:20], provides for the registration, supervision and regulation of persons conducting banking business and financial activities in Zimbabwe. It is the Banking Act [Chapter 24:20] that regulates the operation of key financial market players like banks and discount and finance houses.

The Banking Act also provides for banking institutions to engage in mortgage lending, subject to approval by the Registrar of Banking Institutions. The Building Societies Act [Chapter 24:02] governs building societies whilst the Peoples Own Savings Banking Act [Chapter 24:22] establishes the People’s Own Savings Bank of Zimbabwe (POSB) and provides for its functions and administration. In 2005, the Banking Act was amended to ensure that the POSB became subject to supervision by the Central Bank. In addition, certain sections of the Banking Act also apply to building societies.

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In addition to the above, there are other pieces of legislation relevant to the operations of the financial sector, and/or applied by the Reserve Bank in the execution of its mandate. The following are the relevant pieces of legislation:

(a) The Bank Use Promotion and Suppression of Money Laundering Act [Chapter 24:24] seeks to promote the use and suppress the abuse of the banking system. The Act also enables and facilitates the identification, tracing, seizure and confiscation of unlawful proceeds of all serious crime including drug trafficking and money laundering. Through the Act, a Bank Use Promotion and Suppression of Money Laundering Unit has been established to regulate financial conduct and transactions. The Act also requires financial institutions and cash dealers to take prudential measures to help combat money laundering.

(b) National Payment Systems Act [Chapter 24:23]: provides for the recognition, operation, regulation and supervision of systems for the clearing of payment instructions between financial institutions, for the netting or other settlement of obligations arising from such clearing and the discharge of indebtedness arising from such netting or settlement. It also makes provision for the finality of payments and settlements made in accordance with such systems.

(c) The Securities Act [Chapter 24:25] establishes the Securities Commission and provides for its objectives, functions and powers. It further seeks to control and regulate the marketing of securities and investment in securities, to regulate and register securities exchanges, to regulate and license persons who trade or deal in or manage securities, to provide for the establishment and functions of central securities depositories to facilitate the marketing and transfer of securities, to prohibit individuals who have inside information relating to securities from dealing in those securities and to provide for criminal and civil penalties for such dealing and for other improper practices..

(d) Asset Management Act [Chapter 24:26] regulates and controls the business of asset management in Zimbabwe. It provides for the appointment and functions of a Registrar of Asset Managers and other officers. The business of asset management falls under the purview of prudential regulation and supervision by the Central Bank.

(e) The Collective Investment Schemes Act [Chapter 24:05] regulates and controls the promotion and operation of collective investment schemes in Zimbabwe. It also provides for the appointment and functions of a Registrar of Collective Investment Schemes and other officers. The schemes are also supervised by the Reseve Bank of Zimbabwe.

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(f) The Deposit Protection Corporation Act [Chapter 24:29] establishes a Deposit Protection Corporation and provides for its management, functions and powers. The Act provides for the establishment of a Deposit Protection Fund for the compensation of depositors in the event of financial institutions becoming insolvent. The Act makes provision for the administration and application of the Fund. The Act has amended the Banking Act [Chapter 24:20] by the repeal in the latter Act of provisions relating to deposit protection.

(g) Troubled Financial Institutions (Resolution) Act [Chapter 24:28]: This Act provides for the administration of troubled financial institutions. There are provisions in the Act that seek to provide for formulation and implementation of schemes of resolution in respect of such institutions.

(h) The Export Credit Reinsurance Act [Chapter24:06] makes provision for the promotion of trade with countries outside Zimbabwe by providing for the reinsurance with the State of insurance contracts in connection with export transactions and loans or similar facilities connected with such transactions.

(i) The Exchange Control Act [Chapter 22:05] and several regulations enacted in terms thereof: The Exchange Control Act confers powers and imposes duties and restrictions in relation to gold, currency, securities exchange transactions, payments and debts, and the import, export, transfer and settlement of property, The Act and regulations are also applied for purposes connected with the matters aforesaid.

(j) The Zimbabwe Investment Authority Act [Chapter 14:30] was enacted to make provision for the establishment of the Zimbabwe Investment Authority and its functions. The Act also provides for the promotion and co-ordination of investment. The Act repealed the Zimbabwe Investment Centre Act [Chapter 24:16] and the Export Processing Zones Act [Chapter 14:07].

(k) The Money Lending and Rates of Interest [Chapter Act 14:14] is an Act that regulates money-lending in Zimbabwe.

(l) The Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14] makes provision for the establishment, constitution, duties and powers of an Infrastructure Development Bank of Zimbabwe to assist in and promote the economic development of Zimbabwe.

(m) The Insurance Act [Chapter24:07] regulates the carrying on of insurance business in Zimbabwe.

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5.4 Types of financial institutions in the market (31 may 2012)

Category Number

Central Bank 1 Commercial Banks 18 Merchant Banks 3 Building Societies 4 Discount Houses 0 Finance Houses 0 Peoples Own Savings Bank 1 Microfinance Banks 0 Asset Management Companies 16 Microfinance institutions & Moneylenders 172

Insurance (life, non-life and re-insurance 47

Insurance brokers 28 Pension and provident funds 2600

6. External payment arrangements

6.1 Determination of the exchange rate policy

The Minister of Finance, in consultation with the Reserve Bank Board, is responsible for determining the exchange rate policy in Zimbabwe, while the Reserve Bank is responsible for the implementation and management of the policy.

6.2 The present exchange rate system

Since the adoption of the multicurrency system in February 2009, international cross rates obtained from the Reuters Screen, are used for conversions of the various foreign currencies used by the country.

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6.3 Organising the exchange market

Under the current regime, the determination and exchange rate adjustments are triggered by international rates as well as bid/offer rates by sellers and buyers of foreign exchange on the market.

Authorized Dealers (Banks, Money Transfer Agencies and Bureau de Change) are required to visibly display their bid and offer rates in their banking halls for corporates and individuals wishing to buy or sell foreign exchange.

6.4 The central bank's involvement in managing foreign exchange reserves.

The Reserve Bank is responsible for managing the foreign exchange reserves of the country. Ideally, these should at least cover the cost of three to four months of imports.

7. Currency convertibility and exchange control

7.1 Current state of currency convertibility

The Zimbabwe dollar is currently not in use, as the country has adopted a multiple currency framework, since February 2009. Under this framework, the country uses five prescribed currencies, namely, USD, GBP, PULA, ZAR, EURO.

7.2 Exchange control restrictions on current account transactions

In line with the SADC protocol and IMF recommendations, the current account has been fully liberalized, with Authorized Dealers being allowed to process import payments as well as exports, irrespective of amounts involved, without seeking Reserve Bank approval. All service agreements including software licences, franchise, royalty, consultancy, professional etc, however, require prior exchange control registration, after which payments can be made in terms of the granted authority.

However, Authorized Dealers are supposed to report all the transactions to Reserve Bank for statistical purposes.

7.3 Restrictions on capital account transactions

The capital account in Zimbabwe has been partially liberalized. This has resulted in dividends, capital appreciation, profits and loan repayments being freely remittable by Authorised Dealers, without need for prior approval by the Reserve Bank.

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Applications pertaining to the receipt or payment of capital transfers and/or acquisition/disposal of non-financial assets as well as transactions associated with changes of ownership in the foreign financial assets and liabilities of the country require prior approval by the Exchange Control Review Committee (ECRC).

These include cross-border investments by Zimbabwean companies, investment and disinvestment into existing unlisted entities (Up to 40%), mergers and acquisitions involving companies with foreign shareholding, Restructuring and Rights Issues in companies with foreign shareholding. However, foreign investments in green-field projects require approval by the Zimbabwe Investment Authority.

Foreigners are also allowed to freely participate on the local bourse by investing in companies that are listed on the Zimbabwe Stock Exchange up to 10 per cent per investor and 40 per cent per counter by a collective group.

Use of derivatives is now encouraged, but Authorised Dealers have to enter into such transactions in excess of USD5 million after approval of Exchange Control.

7.4 Retention rules for foreign exchange earned or owned by residents

Exporters as well as holders of free funds (NGOS, Embassies, and International Organizations are allowed to retain 100 percent of their foreign currency earnings for an indefinite period, in their local Foreign Currency Accounts.

These funds are retained for personal use, to effect payments locally and externally. However, exporters are required to repatriate all foreign currency earnings for credit to corporate Foreign Currency Accounts held with local Authorized Dealers.

7.5 Dividends due to foreign investors

Dividends due to foreign investors including former Zimbabwe Residents, are remitted 100 per cent on net after tax profits.

8. The central bank and external debt

8.1 The role of the central bank in managing the country's external debt

The Reserve Bank is an agent for the State in the payment of interest and principal payments. As a fiscal agent of Government, the Central Bank is also jointly responsible, with the Ministry of Finance and Economic Development, for the management of the country’s external debt. Further involvement includes the

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formulation of strategy for external debt management and policy, through the External Loans Co-ordination Committee (ELCC). Overall, the Reserve Bank advises Government on issues pertaining to prudent external debt management.

In order to debug bureaucratic hurdles associated with the processing of external loan applications for both domestic and foreign investors, Authorized Dealers are now allowed to process loans of up to USD5 million without prior ELCC approval. All loans above this threshold require prior ELCC approval.

In addition, all public sector external loans are repaid through the Reserve Bank. The Reserve Bank is also responsible for overall management of private sector external loans, whose repayments are, however, done through Authorised Dealers, namely commercial and merchant banks. The Reserve Bank also manages other Government guaranteed external loans for public enterprises and quasi-fiscal institutions.

The Government has set up the Zimbabwe Aid and Debt Management Office (ZADMO) in the Ministry of Finance to avoid the diffusion of debt management responsibilities across multifarious agencies with in the country. This development will culminate in consolidated responsibilities for managing all aspects of government debt, including monitoring of on-lending, contingent liabilities as well as private sector debt facilitates, thus, facilitating an integrated management of the country’s debt portfolio in a manner that strengthens accountability, reduces information gaps and establishes coordination.

8.2 The role of treasury in this respect

The Treasury plays an important role as a member of the ELCC, and ensures the timely payment, as well as general servicing, of all external Government debt. Treasury also confers borrowing authority to the Reserve Bank, which enables the Bank to arrange and facilitate external lines of credit. ZADMO is also an office under the Ministry of Finance.

9. Supervision of financial institutions

9.1 Banking institutions

Authority responsible for banking supervision… The Reserve Bank is both the licensing and supervisory authority for banking institutions (i.e. commercial banks, merchant banks, microfinance banks, building societies, discount houses and finance houses) and non-bank financial institutions

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(NBFIs) namely credit-only microfinance institutions and asset management companies. The People’s Own Savings Bank (POSB) was established in terms of section 3 of the People’s Own Savings Bank of Zimbabwe Act [Chapter 24:22] of 1999, and is supervised by the Reserve Bank. The vesting of both the licensing and supervisory activities with the Reserve Bank with effect from 2004 has strengthened the regulation of the banking sector through the alignment of the licensing and ongoing supervision standards. The RBZ is empowered to licence and deregister banking institutions in terms of section 4 (2) of the Banking Act [Chapter 24:20] and money lending institutions in terms of section 2A (2) of the Money lending and Rates of Interest Act [Chapter 14:14].

9.2 Licensing procedures for a new bank The Reserve Bank has continued to strengthen the licensing framework for financial institutions under its purview in line with international best practice. The criteria for assessing the fitness and probity of those entrusted with running financial institutions have been enhanced to ensure that financial institutions are run by people of impeccable integrity. The licensing procedures for banking institutions are as follows:

. Completed application forms accompanied by a business plan and other documents as required in terms of the relevant Acts and prescribed regulations are submitted to the Reserve Bank’s Bank Licensing, Supervision & Surveillance Division together with the payment of application fees. . The submitted documentation and other information is evaluated, with particular emphasis on capital adequacy, shareholding and ownership structure, management, viability and profitability, risk management policies and structures and developmental value of the project. . An evaluation report with recommendations is presented before a First Level Licensing Committee, which is made up of representatives from most of the Divisions of the Reserve Bank. . The First Level Licensing Committee reviews the report and can either confirm or vary the recommendations for approval or rejection of the application, or refer the application back to Bank Licensing, Supervision & Surveillance for more information and further analysis. . The recommendations of the First Level Licensing Committee are forwarded to the Second Level Licensing Committee, which is made up of the Heads of most of the Divisions of the Reserve Bank. This Committee makes its own assessment and can either concur with or vary the recommendations of the First Level Licensing Committee.

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. The recommendations of the Second Level Licensing Committee are passed on to the Licensing Authority for the final decision. The Licensing Authority is the final licensing Committee and is made up of Deputy Governors. . If the Licensing Authority agrees with the opinion of the lower committees to approve, then the promoters are issued with an appropriate license in consultation with the Minister of Finance, otherwise a letter is written to the promoters informing them that their application was unsuccessful. . The licenced bank will, however, only open its doors to the public after the Reserve Bank has conducted a pre-opening inspection in terms of section 16 of the Banking Act [Chapter 24:20] to assess its readiness.

9.3 Minimum Capital Requirements of Different Institutions Type of Institution Minimum Capital Required

1 Commercial Bank USD12,500,000 2 Merchant Bank USD10,000,000 3 Building Society USD10,000,000 4 Finance House USD7,500,000 5 Discount House USD7,500,000 6 Microfinance Bank USD1,000,000 7 Asset Management Companies USD500,000 8 Money-lending Institution USD5,000

The sources of funds are ascertained to ensure that initial capital is not in the form of borrowed funds.

9.4 Guidelines governing current activities of banks These are embodied in the Banking Act [Chapter 24:20] and Banking Regulations, Statutory Instrument 205 of 2000 and guidelines issued in terms of the Banking Act and cover the following:

Capital adequacy Capital is regulated in terms of the minimum capital requirements and capital adequacy ratios. Applicable capital adequacy thresholds are as follows: a) Tier 1 ratio = minimum of 5 percent b) Total Capital Adequacy Ratio = minimum of 10 percent c) Leverage Ratio = minimum of 6%

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‘Minimum capital’ means capital representing a permanent commitment of funds by the shareholders of the banking institution (net of any loans and advances given to an insider and borrowed capital) which is available to meet losses incurred without imposing a fixed unavoidable charge on the institution’s earnings and includes such of the following elements as are available to the institution after making any required deductions- a. Issued and fully paid up ordinary shares or common stock; b. Paid up non cumulative irredeemable preference shares; and c. Reserves. Provision for bad debts… Provisions for bad debts are divided into specific and general provisions. Loan Category Provisions

General provisions For Loans or assets graded ‘Pass’ 1 percent For Loans or assets graded ‘Special Mention’ 3 percent Specific provisions For Loans or assets graded ‘Substandard’ 20 percent

For Loans or assets graded ‘Doubtful’ 50 percent

For Loans or assets graded ‘Loss’ 100 percent

The Reserve Bank has expanded the above scale to make it more granular as part of the Basel II implementation process. The expansion of the above scale is also accompanied by a more granular provisioning regime as shown below. Revised Provision Levels Grade Previous 5-Tier Grade Provisioning Percentage (of 1 to 2 1% Pass 3 2% 4 3% 5 4% Special Mention 6 5% 7 10%

8 Substandard 20% 9 Doubtful 50% 10 Loss 100%

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Restricted lending… There are no sectoral restrictions on lending but the Reserve Bank encourages diversification of portfolio to minimize concentration risk in banks’ credit portfolios. Large credit exposure… There are two main regulations: - Prudential Lending Limits a) Exposure to a single counterparty not to exceed 25 per cent of the bank’s capital base; b) Exposure to a single corporate group not to exceed 75 per cent of the bank’s capital base; and c) Aggregate value of large exposures (i.e. more than 10% of capital base) of a bank should not exceed 800 per cent of the capital base. - Limits on Loans to Insiders a) Exposure to a single insider or to any related interest of that person, not to exceed 25 per cent of capital; b) Aggregate value of exposures to insiders and to their related interests not to exceed 100 per cent of the capital base (excluding loans made pursuant to benefits/compensation package) and 200 per cent (including loans made pursuant to a benefits/compensation package).

9.5 Open foreign exchange position… The overnight individual currency net open position is not to exceed 10 per cent of the capital base of a banking institution as at the end of the previous quarter. The overnight overall (all currencies) net open position is not to exceed 20 per cent of the capital base as at the end of the previous quarter. Liquidity ratio… Every registered financial institution is required to maintain a minimum holding of prescribed liquid assets which shall not be less than 25 percent of the liabilities to the public.

9.6 Guidelines Issued: In addition to the statutes governing the regulation and supervision of the banking sector, the Reserve Bank of Zimbabwe issued the following policy documents to the banking sector to provide specific regulatory guidance in various areas: a) Guideline No. 01-2004/BSD: Corporate Governance; b) Guideline No. 02-2004/BSD: Minimum Internal Audit Standards in Banking Institutions; c) Framework on the Relationship between Bank Supervisors and Banks’ External Auditors; d) Guideline No. 04-2004/BSD: Accreditation of Credit Rating Agencies; e) Guideline No. 05-2004/BSD: Special Purpose Vehicles, Securitization & Structured Finance;

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f) Guideline No. 1 - 2006/BSD: Risk Management; g) Guideline No. 2 - 2006/BSD: Risk-Based Supervision Policy Framework; h) Guideline No. 2 - 2007/BSD: Consolidated Supervision; and i) Guideline No. 01-2008/BSD: Minimum Disclosure Requirements for Financial Institutions.

The Reserve Bank is in the process of revising some of the guidelines above in order to enhance them in line with international best practice. Basel II In an effort to provide guidance and facilitate smooth implementation of Basel II, the Reserve Bank issued, Guideline No. 1-2010/BSD: Technical Guidance on Basel II Implementation in Zimbabwe in January 2011. According to the implementation plan, banking institutions are required to undertake parallel runs of the current framework with the revised framework in 2012.

9.7 Main supervisory practices The Banking Act provides for explicit supervisory powers for the Reserve Bank. Two methods are employed namely: on-site examinations; and off-site surveillance. On-site examinations involve an on-site review of entire operations of banks and NBFIs with a view to determining asset quality; capital adequacy; adequacy of accounting and internal control systems; quality of management; compliance with applicable regulations and guidelines; and verification of information submitted through prudential returns. Off-site surveillance entails the analysis of prudential returns submitted by banks and NBFIs on regular or other basis. Early warning mechanisms have been put in place to enable supervisors to undertake a comprehensive evaluation of an institution’s condition and potential vulnerabilities. This information provides the basis for regular contacts with bank management, to discuss the condition of their institutions and, to ensure that corrective action is taken timeously. The Reserve Bank formally adopted Risk Based Supervision in 2000 and fully implemented the methodology in 2006. This development has enhanced the supervisory process through a more incisive determination of banks’ risk profiles thereby making it possible to plan the supervisory activities accordingly. The Reserve Bank adopted the consolidated supervision approach in January 2002. Through this supervisory approach, the Reserve Bank determines the total risks affecting a banking group and the potential impact of such risks on the operations of the banking entities. In all cases, the Reserve Bank undertakes to ensure that the overall structure of the banking organization or group complies with good corporate governance and risk management standards.

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9.8 Multi-disciplinary Financial Stability Committee Following Zimbabwe’s adoption in 2009 of the COMESA developed Framework for Assessing and Maintaining Financial Stability, the Reserve Bank along with other central banks, adopted a framework for assessing financial system stability over time and across nations. As part of the implementation of the COMESA framework, the Reserve Bank has set up a Financial Stability Unit housed within the Bank Licensing, Supervision and Surveillance Division. Further, a Multi-disciplinary Financial Stability Committee comprising of Reserve Bank staff and other financial sector regulators has also been set up. The performance and condition of the banking sector is assessed through evaluation of the key financial soundness indicators on at least a quarterly basis. Assessment of the financial indicators encompasses the analysis of the trend, level against prudential benchmarks where applicable and peer review. Evaluation of the global and domestic macro-financial conditions is also undertaken periodically by the Reserve Bank through its Economic Research and Policy Enhancement Division. However, analysis of the performance and condition of the financial markets, other financial institutions such as insurance companies and pension funds, the condition of the financial infrastructure and the real sector; and their impact on the financial system (macro-financial linkages), have to date, not been conducted systematically. In line with recent trends in risk management and the weaknesses unearthed by the global financial crisis, banking institutions are expected to manage risk in a more comprehensive, coordinated and integrated way across the entire business spectrum as opposed to focusing only on regulatory compliance. As such, the Reserve Bank has directed banking institutions to develop formal bank-wide risk management frameworks incorporating the Enterprise-wide Risk Management (ERM) concept. In terms of this approach, banking institutions adopt an integrated process for identification, measurement, aggregating and managing of all risks within the institution. In this respect, the Reserve Bank is also in the process of revising the Risk Management Guideline to take into account the unfolding global dynamics of financial sector risk profiling and management. The Reserve Bank also coordinates supervisory activities with other domestic regulatory authorities locally namely the Insurance and Pensions Funds Commission (IPEC) and the Securities Commission of Zimbabwe (SECZ) which are responsible for other entities within the corporate structures of financial conglomerates, as well as regulatory authorities in countries where local banking groups have operations. In this regard, the Reserve Bank signed a Memorandum of Understanding with IPEC and SECZ governing the sharing of information on supervised entities.

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9.9 Measures to remedy deficiencies as well as penalties utilized The Banking Act incorporates the various measures and penalties that can be applied in order to remedy any deficiencies noted through on-going supervision of banking institutions. The Reserve Bank also employs a ‘Troubled and Insolvent Bank Policy’ which provides for a framework for timely and effective responses to banking problems. The Policy provides for ‘Informal’ actions such as Commitment Letter and Memorandum of Understanding as well as ‘Formal’ actions such as Corrective Orders and Curatorship. The Troubled and Insolvent Bank Policy is currently being enhanced to incorporate other indicators of troubled institutions utilizing CAMELS ratings and the recommended corrective actions to be taken thereof.

9.10 Deposit insurance The Deposit Protection Board (DPB) was established in 2003 and its legal mandate was provided for through the Banking Act [Chapter 24:20] and its effective operations through the Banking (Deposit Protection) Regulations SI 29 of 2003. In 2011, through the enactment of the Deposit Protection Corporation Act [Chapter 24:29], the Deposit Protection Corporation was established to replace the Deposit Protection Board. The main function of the Deposit Protection Corporation is to administer the deposit insurance scheme for the protection of depositors against the risk of loss in the event of a bank failure. Deposit insurance schemes form part of the financial sector safety net that helps avoid interruptions in payment and settlement flows, maintain market confidence and permit a structured approach to bank resolutions.

9.11 Non-bank financial institutions Responsibility for supervision of non-banking financial institutions The Reserve Bank is responsible for the supervision of the Peoples Own Savings Bank and other non-bank financial institutions namely microfinance and money lending institutions. The Reserve Bank remains the supervisory authority for asset management companies although this function is expected to be taken over by the Securities Commission going forward. Insurance and Pensions Funds Commission is responsible for supervising insurance companies and Pension and Provident Funds. Development institutions such as the Small Enterprise Development Corporation (SEDCO) and the Infrastructural Development Bank of Zimbabwe (IDBZ) fall under the auspices of the Ministries of Small Enterprises and Finance, respectively. Other non-bank financial institutions such as the Securities companies are regulated by the Securities Commission while Venture Capital Companies are currently unregulated.

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Categories of financial institutions and their licensing procedures The licensing procedures for non-bank financial institutions under the supervision of the Reserve Bank are largely the same as for the banking institutions detailed in 9.1.2 above. The Insurance and Pensions Commission (IPEC) is the licensing and supervisory authority for insurance companies and pensions and provident funds. The procedure for both short-term (non-life insurance) and long-term (life insurance) insurance companies are as follows:

. The applicant approaches the Insurance and Pensions Commission with a proposed name which has to be cleared first; . If the Insurance and Pensions Commission is satisfied that the submitted application meets the minimum requirements as stated in the guidelines, the application is approved and a licence issued; . The Registrar of Companies then registers the insurance company.

As for pension and provident funds: . For both provisional and full registration, the applicants submit registration documents conforming to the Pension and Provident Act (1976); . the Registrar considers and assesses the applicant proposed set of rules; and . if the Registrar is satisfied that the proposed rules are in line with the Pensions and Provident Act, a licence is granted.

Development institutions, namely the SEDCO and Infrastructural Development Bank of Zimbabwe (IDBZ), are statutory bodies created by Acts of Parliament namely, the Small Enterprises Development Corporation Act and the Infrastructural Development Bank of Zimbabwe Act, respectively.

10 National Payment Systems 10.1 Organization of the Payment Clearing and Settlement System

Large Value Payment Clearing and Settlement Systems The Central Bank owns and operates the country’s large value settlement systems, namely:  The Real time Gross Settlement (RTGS) System called the Zimbabwe Electronic Transfer and Settlement System (ZETSS) set up in November 2002 in line with international best practice of reducing risk associated with clearing and settlement.  The Centralised Securities Depositories (CSD) for Government Securities, that facilitates the achievement of Delivery Versus Payment (DvP) as it is interfaced with ZETSS, was established in 2006. The CSD is meant to reduce risks associated with the security settlement systems.

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The National Payment Systems Act (NPSA) authorizes the Central Bank to operate settlement systems, whose direct participants are regulated financial institutions.

In February 2009, Zimbabwe introduced the use of multiple currencies in the economy for domestic transactions. This culminated in the signing of a tripartite agreement between the Government, Central Bank and the ZETSS/CSD participants to realign the operations of the systems with the new dispensation.

Furthermore, following the introduction of multicurrency system, all other clearing and settlement systems were realigned to use the United States Dollar (USD) as the settlement currency.

10.2 Retail Payment Systems The interbank cheque Clearing House is managed and operated by the Reserve Bank of Zimbabwe, to ensure the efficient functioning of the system. A Clearing House Committee manages the business of the Cheque Clearing House, which is composed of one representative from each member bank and chaired by the Central Bank. An inspector of the Clearing House, appointed by the Central Bank, administers the day-to-day operations of the Cheque Clearing House.

The RBZ plays a coordinating role in the development of retail payments, in line with international best practice and is also responsible for the regulation and oversight of retail payment systems.

The banking community manages the other retail payments streams, which include cards, mobile and internet payments as well as Electronic Funds Transfers (EFT). Since the launch of ZETSS, there has been a steady increase in volumes and values of transactions settled. This increase can be attributed to the growing public confidence in the payment systems and awareness from targeted campaigns undertaken by the Reserve Bank in collaboration with the banking community.

The average usage of the payment system was 94.1% of transactions settled for the year ending May 2012 compared to 96.1% for the year ending June 2011. This decrease can be attributed to the growth in other retail electronic means of payments.

During the year July 2011 to May 2012, a cumulative 1.9 million transactions valued at USD32.8 billion were settled through ZETSS. The system has been performing efficiently as per Central Bank expectations and in line with international best practice.

The card payment switches currently in operation include Zimswitch (Local Switch), Visa and MasterCard. During the period ending May 2012 a total of 10.2 million

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card transactions amounting to USD1.5 billion were processed. In the same period, 4 million mobile and internet transactions amounting to USD725.25 million were processed.

10.3 Major Legislation, Regulation and Policies The general legal framework for payment systems includes the following:  The RBZ Act,  The National Payment Systems Act;  The Banking Act;  The Bills of Exchange Act;  Bank Use Promotion and Suppression of Money Laundering Act;  Exchange Control Act;  Regional and International standards;  Directives and Guidelines issued by the Central Bank; and  Payment systems rules, procedures and agreements.

To ensure that the National Payment System has a sound legal basis, the National Payments Systems Act [Chapter 24:23] was passed into law in November 2001 which authorizes the Reserve Bank to operate the settlement system, to recognize and oversee payment systems.

The Reserve Bank has also put in place ZETSS/CSD Operating Rules and Memorandum of Agreements between the Reserve Bank and participants. These Operating Rules govern ZETSS/CSD operations, and all system participants are expected to observe the rules.

Participants of the Cheque Clearing House, in collaboration with the Central Bank put together a set of rules that regulate the operation of the Cheque Clearing House. These set of rules regulate the criteria relating to specific areas, which include membership, management, clearing times and processes.

Participants in the Card, mobile, internet and Electronic Financial Transfer (EFT) networks are governed by specific system rules. The rules regulate the criteria relating to membership, management, clearing times and processes, risk management, as well as settlement arrangements. However, the Central Bank is in the process of reviewing the current banking laws in order to align them to the new developments.

10.4 Participation in the Systems

The current legal framework prescribes that only the central bank and regulated financial institutions may be direct participants in payment systems. Non-financial

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institutions may participate as service and infrastructure providers to ensure that all banking transactions take place within a financial institution, thus ensuring financial stability.

As at 31 May 2012, there were twenty five (25) participants on ZETSS comprising of seventeen (17) commercial banks, seven (7) non-commercial banking institutions and the Reserve Bank. The participation of non-commercial bank institutions has enhanced efficiency and effectiveness in the settlement of payment instructions. It has also reduced liquidity pressures on commercial banks that used to process instructions on behalf of these institutions.

There are sixteen (16) institutions with direct participation in the Cheque Clearing House, including the Reserve Bank; while two (2) banks participate through a sponsorship arrangement. To manage risk emanating from the Cheque Clearing House, the Banking institutions are required to lodge collateral (under the Cheque Clearing House Collateral Scheme) with the Central Bank as a precondition for participating in the Cheque Clearing House.

As at 31 May 2012, there were sixteen (16) active participants on the Zimswitch system that is, thirteen (13) commercial banks, and three (3) non-commercial bank financial institutions.

Currently there are seven (7) Visa, three (3) MasterCard and twenty two (22) EFT member banks.

10.5 Types of Transactions Handled

ZETSS settles inter bank transactions, which comprise final settlement of obligations from financial market operations, customer payments, tax payments, and government payments, among others.

The cheque is the main instrument cleared through the Clearing House. However, it is possible for physical exchange of credit items to take place through the clearing system. Such an exchange does not affect the banks’ clearing accounts, as it is entirely a means of channeling items to the intended destinations for processing.

Zimswitch, Visa and MasterCard provide switching platforms for card transactions at Automated Teller Machines (ATM) and Point of Sale (POS) terminals. In addition, Zimswitch has upgraded its switching platform to provide for mobile and low value credit push interbank transfers.

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Transactions processed through mobile and internet channels include bill payments, airtime top up, purchases and money transfers, amongst other payment services.

Presently the following transactions are handled on the EFT platforms: corporate payments, salary transfers, debit orders and schedules to support numerous payments bulked into one credit. ·

10.6 Operation of the Transfer

Once a transaction has been sent on ZETSS, and there are sufficient funds in the initiating financial institution’s settlement account held at the Central Bank, the funds will automatically be transferred to the receiving bank in real time.

After cheques are presented to the banks of initial deposit, they are taken to the Cheque Clearing House for exchange and clearing. Funds are made available to the depositor for withdrawal upon clearing and settlement.

For inter-bank card transactions, customers receive immediate value on ATM/POS transactions, provided that there are sufficient funds in their accounts. The switch validates, authorises and forwards the instruction to the issuing bank, which then validates and returns the instruction.

EFT instructions are initiated from the customer’s interface to financial institution through the EFT network. The instructions are automatically transmitted to the core banking system for validation and account debiting after which they are forwarded to the other banks through the same EFT system for final processing.

10.7 Clearing and Settlement Procedures

Transactions processed through ZETSS are final and irrevocable.

The manual multilateral netting output from the Cheque Clearing House is electronically “posted” into ZETSS as a Payment Clearing House (PCH) Batch for final settlement.

To increase operational efficiency and minimize risks associated with the deferred net settlement system in the Cheque Clearing House, the RBZ introduced same day clearing and settlement, which brought with it same day “square-off” in ZETSS.

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Participant banks have to ensure that their debit Cheque Clearing House positions are fully covered and for ease of operation, participants are required to pre-fund their settlement accounts in ZETSS.

After interbank card transactions are processed at the acquiring banks, the card switch will come up with the multilateral net positions for each participant. These positions are electronically posted to the participants for settlement on a T+1 basis. For Zimswitch or local and international interbank card transactions, final settlement occurs in ZETSS and through correspondent settlement banks respectively.

For EFT transactions, clearing is on a bilateral basis and funds are only applied after settlement, which is done through ZETSS. For any payment instruction, the paying bank requires the customer to advise in advance for liquidity management purposes.

10.8 Transaction Processing Environment

The Central Bank is linked to all participants through ZETSS/CSD using the SWIFT communication infrastructure. The electronic instruction moves from the paying bank to the receiving bank via the core system at the Central Bank in real time.

The electronic inter-bank transfer system (ZETSS) facilitates the electronic settlement of the manual and paper based output from the Clearing Houses in Harare and Bulawayo. Settlement of obligations arising from country clearing is also done through ZETSS.

The card participants are linked to the card switch through virtual private networks (VPNs). The electronic instruction moves from the paying bank to the receiving bank via the core switching system in real time.

The EFT customers are linked to the participating financial institutions that in turn, are linked to the EFT switch through a VPN.

10.9 Payment Systems Developments

Over the past few years, notable strides continued to be made in modernizing and diversifying payment systems through collaborative efforts with the banking industry and other stakeholders. To this end, the following projects were completed while some initiatives are in progress at various stages:

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10.10 Straight Through Processing (STP)

STP, a solution that automates the end-to-end processing of transactions for all financial instruments from initiation to settlement, was launched in July 2008. STP enables linkage of ZETSS to the entire banking industry’s internal systems and improves the operational efficiency by minimizing or eliminating human intervention during transaction processing. However, during the transitional period to the multicurrency environment most participants shelved the STP project in order to realign the other payment systems to the new dispensation.

To this end, the Central Bank has resuscitated the project to ensure efficiency of ZETSS transaction processing.

10.11 Central Securities Depository for Equities

The Central Bank continued to collaborate with the Securities Commission of Zimbabwe (SECZ) and other relevant stakeholders to modernise the securities settlement systems. The objectives of these collaborative efforts are to improve efficiency in securities settlement systems, reduce inherent risks in the current processes and reduce securities settlement cycle to internationally acceptable standards.

10.12 Mobile and Internet Banking

Banks have partnered with three (3) mobile network operators to come up with transformational mobile banking products. The products are targeted at the banks’ existing customers and the informal economic players.

In addition, some banks have collaborated with the local switch envisaged to promote interoperability of mobile and internet banking products. In its efforts, the Central Bank continued to encourage the development of such ecosystems that accommodate the settlement of all retail payment streams as a way of improving affordability and efficiency.

To this end, the Central Bank is working on comprehensive payment systems guidelines aimed at guiding the market on the new developments.

10.13 Electronic Clearing House

The banking community is exploring ways of implementing a comprehensive Electronic Clearing House (ECH) solution that aims at promoting efficiency by

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enhancing processing speed, minimizing errors and addressing other challenges posed by the current paper based clearing and settlement systems.

10.14 Pricing Policies

The RBZ bears the entire cost of running the Cheque Clearing House and there are no arrangements in place to recover the costs from the member banks.

The current pricing policy on ZETSS/CSD is not based on a recovery strategy. However, a nominal fee is charged for each transaction processed through the systems to cover operational costs.

In addition, the Reserve Bank came up with penalty charges in order to instill prudent behaviour amongst system participants.

The Central Bank does not regulate the pricing policies of privately owned retail payment systems. However, the Bank applies moral suasion where it feels the participants are engaged in unfair pricing practices that prejudice the customers. These efforts complement other strategies by the Consumer Council of Zimbabwe and Anti-Monopolies Commission.

Role of the Central Bank in the Payment System 10.15 Statutory Responsibility World over, central banks are mandated with the responsibility to oversee and ensure the safety, soundness and efficiency of payment, clearing and settlement systems to enhance financial stability.

In this regard, the RBZ fully subscribes to international best practices, in particular, the Bank for International Settlements (BIS) Committee on Payment and Settlement Systems (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS) as well as the IOSCO Recommendations for Securities Settlement systems (RSSs), among others. The RBZ has also participated in the new consolidated Financial Market Infrastructures (FMI).

The Reserve Bank has statutory responsibilities for the:  Oversight of payment systems;  Establishment and operation of settlement systems;  Discharge of settlement obligations within settlement systems;  Organization as well as provision of facilities for the collection and clearance; of cheques and similar instruments;  Recognition of payment systems; and  Payment systems developments.

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10.16 Provision of Settlement and Credit Facilities The Reserve Bank owns and operates the ZETSS, CSD and Cheque Clearing House facilities.

The Cheque Clearing House, which is situated at, and monitored by the Reserve Bank, caters for the clearing and settlement of inter-bank claims. Commercial banks, which are the clearing banks, know their net positions after mid-day when multilateral netting takes place.

Building societies and other financial institutions are not members of the Cheque Clearing House; therefore, they use commercial banks as their clearing agents. Because of the usual costs associated with either a surplus or a deficit position, banks aim for a matched position by exhausting all avenues of inter-bank borrowing and lending before recourse to the lender of last resort facility.

The Zimswitch administers the clearing and settlement process of card transactions through the nominated settlement bank. Settlement positions are available to participating financial institutions via the network at the cut off time.

The VISA and MasterCard Electronic Clearing Houses are monitored by the nominated correspondent settlement bank, which cater for the clearing and settlement of inter-bank card claims. Participating financial institutions, know their net positions when multilateral netting takes place.

Participating financial institutions settle EFT transactions bilaterally.

10.17 Settlement Final settlement of all local transactions from domestic payment platforms takes place in ZETSS at agreed intervals.

VISA and MasterCard settlements are done using correspondent bank arrangements.

10.18 Description of the Processing of Payment Instructions a.) Credit Transfers Credit transfers are a commonly used payment medium in Zimbabwe. The transfer is usually executed from a standing order or a variable order that is given from time to time. The orders are mainly given in electronic format. The main users of credit transfers are large institutions, for example, private companies, Government, pension funds and local authorities. Credit transfers are used for recurrent payments like salaries, dividends and pensions.

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b.) Cheques Cheques are deposited with financial institutions and cleared through the Cheque Clearing House.

c.) Direct Debits Like credit transfers, direct debits are mainly used for recurrent payments initiated by the receiver of a service being paid for. These recurring payments include public utility charges, insurance premiums, subscriptions, as well as mortgage and loan repayments. Users of this payment medium include individuals and corporate bodies. This payment mechanism is generally acceptable and offers certainty and convenience to customers.

d.) Payment Cards i. Debit cards: These allow the cardholder to withdraw funds from his account at the issuing bank. Debit cards require a Personal Identification Number (PIN) to be keyed into the terminal before services can be provided. They are mainly used at ATMs and POS terminals. Debit Cards can be used at ATMs and POS from other banks through Zimswitch, VISA and MasterCard platforms.

ii. Credit Cards: The banks generally issue credit cards, which allow cardholders to obtain cash advances from their accounts. In addition, the same cards allow customers to pay for purchases at the outlets of all-participating merchants or service providers.

Banks under license from the international organizations issue Visa and MasterCard branded credit cards. In this regard, banks are required to comply with the Exchange Control regulation pertaining to the issuance of international credit cards.

A number of retail outlets also issue their closed loop cards, which allow their customers to conduct credit purchases within a specified credit limit. iii. Prepaid Cards: There are a number of pre-paid cards being used in Zimbabwe and these include smart cards issued by banks, fuel companies, utility providers and cellular phone companies.

e.) ATMs and POS Network ATM and POS terminals offer a wide range of services, which include cash withdrawal, account balance enquiries, ordering of cheque books, funds transfer

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and utility bill payment facilities. Zimswitch, VISA and MasterCard provide a shared network, for switching ATM and POS transactions. f.) Settlement of Non-Funded Positions ZETSS operates on a “credit push basis” and any institution emanating from the Cheque Clearing House with a debit position has to ensure that its account is funded in advance. If the funds are required to finance other payment obligations, the respective institutions must ensure that they have sufficient funds to meet the payment before submitting their instruction. Failure to do so will result in the instruction being discarded by the system.

Zimbabwe ORGANISATIONAL STRUCTURE OF BANCO NACIONAL DE ANGOLA

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ORGANISATIONAL STRUCTURE OF BANK OF BOTSWANA

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ORGANISATIONAL STRUCTURE OF RESERVE BANK OF MALAWI

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ORGANISATIONAL STRUCTURE OF BANK OF MAURITIUS

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ORGANISATIONAL STRUCTURE OF BANK OF NAMIBIA

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ORGANISATIONAL STRUCTURE OF CENTRAL BANK OF SEYCHELLES

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ORGANISATIONAL STRUCTURE OF SOUTH AFRICAN RESERVE BANK

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ORGANISATIONAL STRUCTURE OF CENTRAL BANK OF SWAZILAND

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