LICENSING AND SUPERVISION OF BANKING BUSINESS -Ethiopian National Bank Directives
Directive No. SBB/30/2002 Amendment of Limitation on Loans to Related Parties 1. Issuing AuthorityThis Directive is issued by the National Bank of Ethiopia pursuant to the authorityvested in it by Article 41 of the Monetary and Banking Proclamation No. 83/1994 and by Articles 36 of the Licensing and Supervision of Banking Business Proclamation No. 84/1994.
2. Definition
2.1 “Affiliated Financial Institutions” shall mean a company:
2.1.1 In which a bank, directly, owns or controls 10% or more of the voting
shares or controls in any manner the election of a majority of its
directors or other persons exercising similar function;
2.1.2 Which owns or controls in any manner, directly or indirectly, 10% or
more of the voting shares of a bank or controls in any manner the
election of a majority of the directors, or persons exercising similar
function of a bank;
2.1.3 In which 50% or more of the voting shares is held, or control is held
directly or indirectly, through stock ownership or in any other manner,
by the shareholders of a bank who own or control 50% or more of the
voting shares of a bank; or
2.1.4 In which a majority of its directors, or other persons exercising similar
functions, are directors of a bank.
The term “company” as used in this definition means a bank or insurance
company and “indirect ownership or control” refers to ownership or control
exercised through ownership or control of entities that are shareholders in the same
financial institution or through similar arrangements.
2.2 “Cash collateral” means credit balances on accounts in the books of the
lending bank over which the customers have given the lending bank a formal
letter of cession and which the bank at its discretion has transferred from the
customer’s account(s) to a specific or general cash collateral account(s) or
blocked.
2.3 “Cash-substitutes” shall mean:
2.3.1 A security issued by the Federal Government of Ethiopia;
2.3.2 An unconditional obligation or guaranty issued in writing by the
Federal Government of Ethiopia or a non-affiliated domestic financial
institution, where the beneficiary bank maintains a current written and
wee-documented evaluation evidencing that the non-affiliated
financial institution is financially sound and capable of honoring the
guaranty on demand with respect to repayment of the both principal
and interest, or a specific amount, and the lending bank has not been
advised of any determination by the guarantor to deny payment under
the terms of the obligation or guarantee; and
2.3.3 An unconditional obligation or guaranty issued in writing by a foreign
bank with an A or above rating by Standards and Poor’s Corporation and/or by Moody’s Investor Services in their latest rating.
2.4 “Loan” or “Advances” means any financial assets of a bank arising from a direct or indirect advance (i.e. unplanned overdrafts, participation in loan syndication, the purchase of loans from another lender, etc.) or commitment to advance funds by a bank to a person that are conditioned on the obligation of the person to repay the funds, either on a specified date or dates or on demand, usually with interest. The term includes a contractual obligation of a bank to advance funds to or on behalf of a person, claim evidenced by a lease financing transactions in which the bank is the lessor, overdraft facility to be funded by the bank on behalf of a person, revocable or irrevocable documentary letters of credit, standby letters of credit, and guarantees or sureties issued on behalf of a borrower.
The term “person” as used in this definition and elsewhere referred in this Directive, includes individuals, groups of individuals, partnerships, common enterprises, share companies, joint ventures, private limited companies, public enterprises, corporate entities or other similar business groups and companies.
2.5 “ Majority-owned Subsidiaries” means a subsidiary controlled by a
business entity holding over 50% of its capital.
2.6 “Related Party” to a bank shall mean,
On the one hand, A share holder, a director or a principal officer of that bank and/or the spouse or relation in the first degree of consanguinity or affinity of such share holder, director or principal officer; and On the other, A partnership, a common enterprise, a private limited company, a share company, a joint venture, a corporation, or any other business in which the share holder, director or principal officer of the bank and/or the spouse or relation in the first degree of consanguinity or affinity of such share holder, director or principal officer has a business interest as shareholder, director, owner or partner.
2.7 “Total capital” shall mean the paid up capital, legal reserve and any other
unencumbered reserve acceptable to the National Bank of Ethiopia held by a
bank.
3. Threshold for Treatment of Shareholders as Related Party
As regards shareholders, only those shareholders of a bank with holdings of 5% or more of a bank’s subscribed capital shall be treated as related party and shall be subject to the provisions of this Directive.
4. Limitations
4.1 Banks shall not extend loans to related parties on preferential terms with
respect to conditions, interest rates and repayment periods other than the
terms and conditions normally applied to other borrowers.
4.2 The aggregate sum of loans extended or permitted to be outstanding directly
or indirectly to one related party at any one time shall not exceed 15% of the
total capital of the bank.
4.3 The aggregate sum of loans extended or permitted to be outstanding directly or indirectly to all related parties at any one time shall not exceed 35% of the total capital of the bank.
5. Exclusion
For the purpose of this Directive, the following types of loans or extensions of
credit shall not be subject to the credit limit prescribed under article 4 hereinabove:
iii) Loans fully secured by cash collateral; and
iv) Loans fully secured by cash substitutes.
6 Responsibility of Identifying Related Parties Identification of related parties shall be responsibility of each individual bank.
7. Reporting Requirement
Reports showing month-end exposures to each related party shall be submitted to the Supervision Department of the National Bank of Ethiopia with in twenty days after
the end of the period for which the data are reported. The report shall be
submitted in
accordance with the table attached herewith which shall be a part thereof.
8. Repeal
Directive No. SBB/17/96 is hereby repealed and replaced by this directive
9. Effective Date
This Directive shall enter into force as of 13th day of May 2002
30 Monthly Return on Loans to Related Parties
List of All Related Borrowers
(in millions of Birr)
Name of Bank: _______________________
Reporting month ____________________
Approved Loan Limit Collateral
Borrower
Type of
Loan/facility2 Amount Percent of
Capital
Type3 Estimated/Face
Value
Outstanding
Balance
Status
(classification)4
1) Defined in line with Article 2.6 of NBE Directive No. Sbb/30/2002.
2) Include all facilities extended to the borrower, be it on or off balance-sheet (i.e. overdrafts, term loans,
mercandize loans, L/C facilities, guarantees, etc.) and
whether secured or clean.
3) In case the collateral is financial guarantee bond, indicate whether it is issued by affiliated or non affiliated
finacial institution as defined in this directive.
4) Classified in line with provisions of article 6 of NBE Directive No. SBB/28/2002.
Prepared b: _____________________ Approved by: __________________
(name and signature) (name and signature)
Telephone: _____________________
Telephone: ____________________
Directive No. SBB/31/2002 Amendment of
9.14540.489673
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