Through Order No. 4/2021, of 24 August 2021, which came into force on 25 August 2021, the Bank of Cape Verde regulated exceptional and temporary prudential flexibilization measures applicable to credit institutions under its supervision, with a view to mitigating the effects of Covid-19 on the financial system, namely: (i) the reduction of the total own funds adequacy ratio; (ii) the extension of the deadline for deduction from own funds of assets received as repayment of own credit; and (iii) the temporary suspension of the application of Order No. 4/2006, of 2 January 2006, as amended by Order No. 6/2007, of 25 February 2008, and Technical Instruction No. 196/2018, of 21 December 2018.

Among the measures regulated, we can highlight the following:

• Until March 2022, credit institutions may exceptionally ensure a total own funds adequacy ratio of no less than 10%;

• Credit institutions that, on 1 April 2022, have a total own funds adequacy ratio of less than 12% must adjust this ratio to the level set forth in Article 1.1. of Order No. 1/2017, of 9 February 2017, as follows: a) 10.5% by 31 December 2022; b) 11.25% by 31 December 2023; and c) 12% by 31 December 2024;

• The extension, for two more years, of the deadline for the deduction from own funds of assets received as repayment of own credit by credit institutions, during the years 2013 to 2016, whose impact on the capital adequacy ratio of these institutions would be felt in 2020 and 2021; and

• Exceptionally, credit institutions may decide not to classify renegotiated credit operations as "credit restructured due to financial difficulties of the client" and credits in default. This exceptional regime only covers credit operations that have been subject to the moratorium measures put in place under Decree-Law No. 38/2020, of 31 March 2020, as amended, provided that, according to the assessment of the credit institution, there are grounds for the economic and financial viability of the beneficiary (entity) or solvency of the beneficiary (natural person). This assessment must be approved in advance by the Bank of Cape Verde, whenever the beneficiary is a private company. Municipalities, state-owned companies and individuals are excluded from this approval. This measure applies for a six-month period: (a) commencing 1 July 2021, for credits with payment of interest beginning on this date; (b) commencing 1 October 2021, for credits with payment of interest beginning on this date.

The extension of the payment period for capital, rent, interest, commissions and other charges does not give rise to any contractual breach and, consequently, does not lead to automatic classification in the credit institutions' information systems as credit in default, credit being restructured, or credit having a low probability of compliance.

This Order repealed Order No. 2/2020, of 9 April 2020.

For more information on this Banking Alert please contact:
[email protected]