Rwanda
Regulation on Credit Concentration and Large Exposure
Regulation 5 of 2008
- Published in Official Gazette 2 on 10 January 2011
- Assented to on 5 September 2008
- Commenced on 10 January 2011
- [This is the version of this document from 10 January 2011.]
Chapter One
General provisions
Article one – Purpose
This regulation aims at establishing norms relating to credit concentration and large exposuresArticle 2 – Definition of terms
In this Regulation, unless the context requires otherwise:1.Credit: an operation whereby a person, in exchange for compensation, lends or promises to lend funds to another person, or accepts in that person’s interest a signed pledge such as a guarantee, security deposit, or any other personal collateral.2.Exposures: all types of credits, credit openings, letters of credit, advances, debt securities and similar forms of credits or credit commitments granted by a bank to a client, as well as shares, participation in the capital, and other types of investments in an undertaking.3.Large Exposure: exposure, which is equivalent to, or exceeds 10% of the Net Worth.4.Net Worth: all funds constituted by the capital base and additional equity (or supplementary capital) as defined by Central Bank regulations on Capital Adequacy Regulation.5.Placement: sum of money deposited by one bank in another bank or financial institution within or outside Rwanda for a specified period outside the normal banking or correspondent banking transactions.6.“Group of related clients”: two or more natural persons or legal entities that are regarded as constituting a single interest because they have at least one of the following relationships:(a)One controls the other or the entire group, directly or indirectly;(b)They are so interrelated that, if one of them were to experience financial problems, the other or all of the others would encounter repayment difficulties.7.Bank Related Party: any natural person or legal entity that maintains with the bank at least one of the following relationships:(a)a person who is a member of the Board of Directors or management, or is a senior official of the bank;(b)person who has a direct or indirect qualifying holding in the bank;(c)person who is a member of the Board of Directors or management of an enterprise covered by b, g or h of this paragraph;(d)any spouse, family member up to the second degree of any of the persons mentioned under a, b, or c of this paragraph;(e)any enterprise in which any of the persons mentioned under a, b, c, or d is a member of the Board of Directors or management;(f)any enterprise in which any of the persons mentioned under a, b, c, or d above holds directly or indirectly, alone or with others, at least ten (10%) percent of the shares or voting rights;Chapter II
Prudential rules
Article 3 – Single borrower’s limits
A bank shall not grant or promise to grant to a single person or to related parties, an advance, credit or commitment which is more than 25% of its Net Worth.Article 4 – Collaterals
A bank may grant an advance or credit facility in excess of 25% but not more than 50% of its Net Worth, if its maturity does not exceed 5 years and adequately secured by the following collaterals or securities:1.Rwanda Government or Central Bank securities;2.Fixed deposits held by the lending bank3.Guarantees issued by the World Bank or other similar multilateral lending organizations;4.A financial guarantee issued by a reputable and highly rated foreign financial institution acceptable to the Central Bank;5.A guarantee issued by a parent financial institution where the parent institution is highly rated and is acceptable to the Central Bank.Article 5 – Limits in aggregate large exposure
A bank shall not have large exposures which, in the aggregate, exceed 8 times its Net Worth.Article 6 – Placements
Placements by a Rwandan bank within an affiliated banks or financial institutions outside Rwanda shall be subjected to the regulation on banking placement.Article 7 – Reporting and computation of credit concentration and large exposure
Every bank shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purpose of identifying, recoding and monitoring all large exposures and subsequent changes to them, in order to ensure compliance, at a consolidated level, with the limits on credit concentration and large exposures.Every bank shall submit, on a quarterly basis, to the Central Bank, a return titled “Credit Concentration and Large Exposure” as indicated in appendix 1.Article 8 – Disclosure of loans granted to insiders
The Bank shall disclosure detailed insider related loans in audited annual financial statements. The non performing component should be clearly stated in the report. The external auditor should also give an opinion in the financial statement on the insider related loans.Insider related loans should not be secured by the bank’s own shares.Chapter III
Remedial measures and penalties
Article 9 – Penalties
Where the Central Bank determines that a bank is not in compliance with the limits on credit concentration or large exposure, it may invoke any or all the corrective measures specified in articles 65 and 68 of the Banking Law.Article 10 – Administrative sanctions
In addition to the remedial measures prescribed by article 9, the Central Bank may impose all or any of the following administrative sanctions on a bank that fails to comply with these Regulations:1.requirement of the infusion of additional capital; prohibition from declaring or paying dividends;2.prohibition of the payment of bonuses, salaries incentives, management fees or other discretionary compensation to directors or officers;3.suspension from establishment of new branches and extension into new banking activities;4.suspension of access to the Central Bank’s credit facilities;5.suspension of lending operations;6.suspension of opening of letters of credit;7.suspension of acquisition of new deposits;8.suspension of acquisition of fixed assets.Chapter IV
Final provisions
Article 11 – Transitional provisions
A bank which is not in compliance at the time of the publication of this regulation must take remedial measures.The bank must submit to the Central Bank, 30 days after publication of this Regulation, a detailed remedial plan.Article 12 – Repealing provisions
All previous provisions contrary to this Regulation are hereby repealed.Article 13 – Commencement
This regulation shall come into force on the date of its publication in the Official Gazette of the Republic of Rwanda.History of this document
10 January 2011 this version
Commenced
05 September 2008
Assented to