The Banking Regulation Review: Angola
The banking industry in Angola is largely made up of state-owned banks, including Banco de Poupança e Crédito, SA, and private banking institutions that are subsidiaries of international banks.
Most of the legislation in the banking industry is issued by the Parliament, the Executive Power (the President of the Republic of Angola) and the regulatory authority (the National Bank of Angola (BNA)), which issues most of the practical rules and instructions to banking institutions, notably orders, instructions and directives.
The five largest banks in Angola in terms of net assets are Banco Angolano de Investimentos SA, Banco Fomento de Angola, SA, Banco BIC, Banco Caixa Geral Angola SA and Standard Bank Angola, SA.
The regulatory regime applicable to banks
In Angola, the main regulatory legislation applicable to banking institutions is Law No. 12/15 of 17 June 2015 (the Financial Institutions Law (FIL)), which sets forth the rules on the process of incorporation and on the exercise of activity, supervision and funding of financial institutions, including commercial banks.
A financial institution is defined under Angolan law as a public or private company whose activities are conducted as a banking or non-banking financial institution. In this respect, there are two types of financial institutions that are highly regulated in Angola, namely, (1) banking financial institutions (e.g., banks and microfinance institutions whose main activity consists of receiving deposits or other reimbursable funds from the public, to be used in their own name); and (2) non-banking financial institutions (e.g., exchange offices and microcredit entities, which are subject to the supervisory powers of the BNA, and payment services entities and asset management and investment companies, which are subject to the jurisdiction of the securities market supervisory body, the Capital Markets Commission (CMC)).
Banking financial institutions in Angola provide a full range of banking services for both private corporate and public clients by receiving deposits and repayable funds from the public and offering products specifically tailored to their needs, such as investment solutions, lease of equipment and issuance of guarantees.
Banking financial institutions with a head office in Angola are subject to a vast number of rules and principles including having to adopt the form of joint-stock companies (sociedades anónimas) and ensuring a minimum share capital of 7.5 billion kwanzas represented by nominative shares.
On the same terms as for Angola-based banking institutions, branches of overseas banking institutions considering operating in the Angolan territory require and must obtain authorisation from the BNA. In addition, the FIL requires that two-thirds of the branch's personnel must be national citizens.
i Relationship with the prudential regulator
The supervision and regulation of banking institutions in Angola is primarily entrusted to the BNA whose additional responsibilities include ensuring the preservation of the national currency's value and participating in defining monetary, financial and exchange rate policies. In addition, the BNA is mainly responsible for the execution, monitoring and control of monetary, exchange and credit policies, and management of the payment system.
In terms of consumer protection, the BNA aims to ensure the transparency of information provided by supervised entities to clients in the sale of banking products and services, as well as ensuring entities comply with the regulatory framework for these products and services.
The activity of the BNA as a supervisor or regulator of banking institutions concerning rules of conduct, information duties, conflicts of interest and organisational measures is mainly set forth in Law No. 16/10 of 15 July 2010. In particular, the BNA has the authority to:
- grant authorisation to banking institutions to pursue banking activities in Angola, as well as to approve any subsequent corporate changes of existing banks;
- assess the reputation and capacity of financial institutions' management bodies;
- determine and monitor compliance of all prudential relationships, which banking institutions must observe to ensure their liquidity and solvency; and
- establish standards for the operation of banking institutions, in particular regarding accounting organisation and structures of income and internal control, as well as the information to be provided to the BNA and the public.
ii Management of banks
Under the FIL, the management of banking institutions shall be conducted by both executive and supervisory bodies (with auditing duties). To improve the daily management of a banking financial institution, the executive body shall be composed of an odd number of members with a minimum of three directors who are duly skilled and specialised in the management of banking institutions and subject to scrutiny and authorisation of both the BNA and the CMC.
Regulation on the daily management of banking institutions has been developed by BNA Order No. 1/13 of 19 April 2013, in which significant attention has been devoted to policies related to risk management, employee compensation, prevention of conflicts of interest, transparency and information disclosure, as well as internal control functions of global strategy and daily business activities.
Order No. 1/13 also provides that consistent remuneration principles should be implemented in line with the nature, size, complexity and economic situation of each Angolan banking institution.
Most Angolan banking institutions have created independent remuneration committees (whose members are appointed by the banks' shareholders). Remuneration policies applicable to executive and non-executive directors set forth that executive directors are remunerated through a fixed parcel or a variable amount aligned with the performance of the institution, but without encouraging excessive risk-taking; non-executive directors are also remunerated by a fixed amount, although such remuneration is not connected with the bank's financial results.
With respect to staff remuneration, in terms of employees performing in risk-taking areas, remuneration is typically associated with both monetary and non-monetary components. In contrast, employees performing control functions (e.g., internal audit, internal control, compliance and risk management) should not see their remuneration directly associated with the results of the risk-taking areas.
In terms of general staff remuneration policies, irrespective of the risk levels of employees' functions, banking institutions in Angola tend to implement talent retention programmes, which may include providing housing, private vehicles and family benefits, as long as these meet the objectives of each banking institution. In terms of assistance in retirement, most banking institutions (as well as insurance companies) create pension funds for their employees, the majority of which include contributions from both the banks and the employees.
Within a new legal framework based upon transparency, the appointment of members of corporate bodies of banking institutions is subject to registration with the BNA and upon verification of qualification, experience, independence and availability requirements. Since the second quarter of 2020, banking institutions have been obliged to establish a clear and strict internal policy for selection and evaluation of members of corporate bodies, both on an individual and joint level, through grounded reports that are intended to provide the required support to obtain authorisation for the appointment and registration of those members of the corporate bodies of banking institutions.
iii Regulatory capital and liquidity
Angolan capital and liquidity requirements have recently incorporated the European standards related to the capital adequacy requirements in line with the principles of Basel II and III. To ensure an adequate level of solvency and liquidity, banking institutions must comply with a minimum level of capital funds, provided that this amount is higher than the minimum share capital.
Angolan banks are required to have a minimum share capital of 7.5 billion kwanzas. In addition, the BNA, in its capacity as supervisory body, requires banking institutions to constitute minimum reserves of no less than 10 per cent of the relevant net profits of each year.
In contrast, if banking institutions breach regulations governing their activity or fail to comply with the conditions imposed by the BNA, jeopardising the interests of depositors and other creditors, or the normal operating conditions of financial or currency markets, the BNA has the authority to revoke the banking institution's authorisation.
In early 2019, the BNA proceeded with the revocation of the licences of two Angolan banking institutions due to their non-compliance, within the permitted time period, with the new share capital and regulatory own fund requirements under BNA Order No. 2/18. Consequently, the BNA requested that the Attorney General declare them bankrupt. In January 2021, the BNA revoked the licence of an investment bank, and requested its bankruptcy, on similar grounds.
Early in 2020, the BNA enacted legislation in respect of minimum share capital for non-banking financial institutions, including credit guarantee companies that were subject to significant regulation during 2020.
To further ensure economic sustainability, the BNA has also issued several orders for the creation of ratios and limits to banking institutions. Orders Nos. 2/2016, 3/2016, 4/2016 and 5/2016 mainly focus on banking institutions' compliance with the solvability ratio when accounting for own funds.
In this context, and following the European and international standards, several requirements must be analysed to determine the risk of compliance. For instance, Order No. 3/2016 focuses on the credit risk and counterparty credit risk; Order No. 4/2016 deals with the market risk and the counterparty credit risk in trading books; and Order No. 5/2016 mainly concerns operational risk.
Since October 2017, the BNA has pursued additional monetary and foreign exchange reforms. Angola has taken significant steps to improve its banking regulations to be in line with internationally acceptable practices of banking regulation and supervision. Angola has enacted several important pieces of banking legislation and has introduced regulations based on the principles of Basel II and Basel III.
Additionally, the BNA has also implemented a project to adopt the International Financial Reporting Standards (IFRS). Banking institutions that met one of the following criteria were required to fully adopt IFRS standards:
- the institution has total individual assets above 300 billion kwanzas;
- the institution is listed on the stock exchange or is a subsidiary of a company listed on the stock exchange;
- the institution has one or more subsidiaries domiciled abroad;
- the banking institution's head office is in Angola; and
- the institution is a subsidiary of a company domiciled abroad.
By the end of 2017, all banking institutions operating in Angola had adopted the IFRS.
iv Recovery and resolution
The FIL sets forth that if a banking institution is unable to meet its financial obligations, or is at risk of reaching this situation, the management or supervisory body must immediately report this to the BNA. In this context, the BNA, as the competent regulatory authority, may decide on the application of the following procedures:
- imposition of additional corrective measures, including for the bank to hold own funds above the established minimum level;
- strengthening of the provisions, processes, mechanisms and strategies created for corporate governance, internal control and risk self-assessment;
- reduction of risk inherent to the activities, products and systems;
- limitation of variable remuneration in terms of percentage of net profits, when said remuneration is not consistent with maintaining a solid base of own funds;
- restriction or suspension of certain individuals from holding executive or managerial positions within the financial system;
- imposition of additional duties to report information;
- restrictions on granting credits and the allocation of funds to certain types of assets, particularly concerning operations executed with related parties, and with entities based in foreign jurisdictions; and
- restrictions on accepting deposits.
In early January 2020, the BNA concluded, after an asset quality assessment exercise that focused on 13 banking institutions operating in Angola representing 92.8 per cent of total assets, that the Angolan banking system is 'globally robust'. However, the BNA pointed out recapitalisation needs in two Angolan banking institutions. This clearly reflects the active participation of the regulator and the BNA in the activities of Angolan banking institutions.
The BNA may request a banking institution to submit a recovery plan in situations that could seriously jeopardise its financial stability or solvency. This could include capital increase or disposal of shares and other assets.
However, if these conditions are not accepted by the banking institution, or if the approved recovery plan is not complied with, the BNA may determine the alteration, suspension or replacement, in part or in full, of the functions of one or more members of the management, executive or supervisory bodies, or shareholders, of the banking institution, with these parties being required to provide all the relevant information requested by the BNA or a supervisory committee.
Moreover, if the banking institution remains in a situation of financial instability that, due to its size or the duration of the instability, constitutes a serious threat to solvency and, consequently, does not comply with its obligations, the BNA may impose the following corrective measures:
- partial or total disposal or sale to another authorised banking institution; and
- partial or total transfer of the activity to one or more financial institutions.
Once verified that the extraordinary measures adopted were considered insufficient to complete the recovery process of the banking financial institution, the BNA must revoke the authorisation for the performance of its professional activities and shall ask the Attorney General to request a declaration of bankruptcy.
Conduct of business
Banking institutions in the Angolan territory are highly regulated in terms of compliance with extensive regulations concerning the implementation of financial and foreign exchange policies as well as the disclosure of information on activity in Angola. According to the FIL, banking institutions must observe the relevant rules applicable to banks' relationships with clients and third parties when performing their activities in the general interest of the public. In this respect, banking institutions are required to establish an internal organisation structure to support their activity. The concept of general interest may include the observance of rules applicable to banking institutions when dealing with:
- technical capacity maintenance;
- diligence, neutrality and loyalty in client relationships;
- market transparency and the public disclosure of information;
- client complaints;
- implementation of codes of conduct;
- preservation of confidentiality; and
- cooperation with other entities, such as the CMC and the Angolan Agency for Insurance Regulation and Supervision.
Conduct of business rules related to transparency are generally followed in most jurisdictions where clients are provided with clear and appropriate information when acquiring products and services from banks. The BNA is responsible for establishing the minimum requirements of this information (enforced by BNA Order No. 14/2016 regarding information requirements related to credit agreements).
In addition, the contractual relationship between a banking institution and its clients is subject to the banking duty to maintain secrecy in terms of fact and elements. In particular, such preservation of confidentiality includes clients' names and details regarding bank accounts, financial movements and other banking operations. In contrast, the elements resulting from the contractual relationship are allowed to be disclosed to third parties when required by the BNA, the CMC or the Angolan Agency for Insurance Regulation and Supervision, within the scope of their powers, or when deemed necessary within the context of judicial proceedings, ordered by a judge or public prosecutor.
Funding of Angolan banking institutions is typically composed of deposits made by their clients, usually funded by the petroleum sector and foreign exchange auctions.
In this respect, banking institutions usually attend foreign exchange auctions financed by the BNA. Under Order No. 1/18 of 19 January 2018, the BNA established the procedures for buying and selling foreign currency in auctions carried out electronically in the Exchange Market Management System. The BNA may also carry out direct sales to cover sovereign requirements and, on an exceptional basis, whenever the supply of goods and services of critical importance to the country is at stake.
For private operations, the BNA may also make direct sales to commercial banks based on the relevant bank's demand maps. Further, the BNA may organise specific auctions for exchange rate coverage of letters of credit. In addition, Order No. 1/18 establishes the requirements that banking institutions must meet to attend such auctions, including those related to the national currency mandatory reserve, the limit of foreign exchange position and compliance with the minimum regulatory solvency ratio.
In sales auctions, each bank may submit up to four bids with different exchange rates, with the maximum and minimum limits being set at 2 per cent of the reference rate at the date of the auction. The value of each bid shall not be less than the equivalent of €500,000. The amount of each bank's bid shall be limited to the equivalent of 15 per cent of its own funds and the maximum purchase amount for each bank is also limited to 25 per cent of the offer placed by the BNA.
Since the beginning of 2020, oil companies have been allowed to sell foreign exchange to banking institutions, which is intended to have a significant impact on the funding capacity of banking institutions in Angola in terms of foreign currency availability, as Angola is highly dependent on the oil and gas industry.
In 2020, the BNA adopted Bloomberg's FXGO online foreign exchange trading platform, which allows companies (notably, petroleum firms; in particular, block operators) to participate in foreign exchange auctions. The BNA gave a demonstration of the trading platform to major petroleum companies in Angola in the first quarter of 2020, and the system was fully functioning in the country by the second quarter of 2020.
Consequent to the system's adoption, the BNA reduced the foreign exchange position limit from 5 per cent of banks' own funds to 2.5 per cent, so that commercial banks may only retain a margin of 2.5 per cent of their own funds in foreign currency, to cover any needs they may have.
Control of banks and transfers of banking business
i Control regime
The acquisition of a controlling or significant interest in an Angolan banking institution is regulated under BNA Order No. 10/13 of 9 July 2013, where special attention is given to situations in which the BNA's prior approval is required. The direct or indirect acquisition of qualified holdings in financial institutions that are under the BNA's supervision shall generally be authorised in advance.
Prior notice must also be given to the BNA in situations involving the qualified holding's increased holding in financial institutions, provided that the proportion of share capital or the voting rights held reaches or exceeds the thresholds of 20 per cent, 33 per cent or 50 per cent of the share capital or voting rights in the target company. In addition, transactions between Angolan residents that hold more than 10 per cent of the capital, or any transaction involving non-residents (irrespective of the capital percentage), require the BNA's prior approval.
In turn, the reduction of a significant shareholding to below 20 per cent, 33 per cent or 50 per cent of the issued share capital or voting rights of an Angolan credit entity, or the loss of control of a credit entity, is also subject to prior notification to the BNA, whereby the new amount of the person's participation shall be communicated.
The BNA may oppose any of the aforementioned authorisation applications if it has evidence that the buyer or the relevant person does not meet the conditions that ensure the careful management of the banking system; in particular:
- compliance with the conditions necessary for restructuring the financial banking institution;
- suitability of the proposed stakeholders; and
- suitability of the ultimate beneficial owner. If the ultimate beneficial owner is considered a legal person, the BNA must be informed of the identity of the holders of the legal person's capital and voting rights shares of a value equal to or greater than 20 per cent, and its:
- full corporate name;
- business purpose;
- registered office address; and
- commercial register registration number.
If the BNA does not oppose the application, the acquisition or the increase in qualifying holding must take place within 90 days.
ii Transfers of banking business
The transfer of banking business in Angolan banking institutions is essentially processed through demergers or through asset or share deals.
BNA Order No. 10/13 governs the nature of such operations. As with most jurisdictions' banking regulations, prior authorisation must be obtained from the regulators; in Angola, the BNA approval relies on the shareholders' and ultimate beneficial owner's suitability and on the knowledge of the origin and control of funds, as well as a demonstration in the business plan of compliance with legal and regulatory requirements, and the feasibility of the plan, namely in terms of financial and human resources, intern controls and risk management.
In addition, a merger involving a banking institution shall be subject to the Competition Law approved Presidential Decree No. 240/18 of 12 October 2018, which requires prior submission of mergers of companies in which a market share of between 30 per cent and 50 per cent is acquired, created or strengthened, and when the volume of business individually carried out in Angola in the previous financial year, by at least two of the merging companies, is higher than 450 billion kwanzas.
The first merger to involve banking institutions in Angola occurred in 2016 between Banco Millenium Angola, the sixth-largest bank, and Banco Privado Atlântico, the fifth-largest bank.
The year in review
2020 was a year of significant change in Angolan banking regulation, with the particular objective of addressing foreign exchange constraints resulting from the continuing depreciation of the local currency due to decreased oil prices and the effects of the covid-19 pandemic. The Angolan banking system has tried (and shall continue to try) to redirect the economy towards different economic sectors, but it is still struggling to find reliable and long-lasting alternatives, particularly during 2020 due to the pandemic.
Most important developments have been brought about by changes in the methods of payment for imported essential goods during the state of emergency; notably, the temporary suspension of the limits for payment instruments and BNA prior authorisation for payments of goods that may be deemed essential but have not been included in the emergency state legislation.
The implementation of economic and political measures that guaranteed credit and funds to certain entities provided the required sustainability to the banking system, and consequently to the Angolan economy, in 2020.
There were also changes in terms of foreign exchange transactions, which had a significant impact on Angolan banking regulation.
On 9 January 2020, BNA Order No. 02/2020 was enacted to regulate the procedures applicable to foreign exchange transactions carried out by legal entities, essentially aimed at exempting certain current invisible transactions ordered by legal entities from BNA authorisation. These transactions are now scrutinised by the individual commercial banks. In terms of these transactions, in September 2020 the BNA launched Circular No. 02/2020, which contains specialised technical assistance service agreements, including a guidance manual and a checklist to be followed by the commercial banks to approve payments under these service agreements.
In practice, the commercial banks follow and comply with these guidelines and checklists in a very literal manner to establish that the services are actually required and are not already available in Angola. Major commercial banks in Angola have created special committees to exclusively scrutinise and approve new service agreements, as well as pending agreements and corresponding payments.
Further, the enactment of BNA Order No. 17/20 took place on 3 August 2020. Pursuant to the Order, Angolan companies must pay expatriate personnel salaries into Angolan bank accounts, forcing the expatriate workforce to open a bank account with a banking institution based in Angola. Angolan banking institutions must verify several requirements prior to the approval of the related purchase of foreign currency: the validity of the work visa; the existence of a valid employment agreement; confirmation that the salaries were transferred by employers; and tax compliance related to the payment of the salaries.
The BNA has advised Angolan commercial banks of a temporary moratorium applicable to oil and gas companies and their respective service providers, to enable them to continue paying their expatriate employees' salaries abroad. The implementation of this exception requires relevant operational adjustments. This means that the effective enforceability and application of BNA Order No. 17/20 is currently suspended until further notice for companies engaged in the petroleum sector (i.e., block operators and petroleum service providers that are duly registered or certified as such).
On 30 December 2019, BNA Order No. 15/19 was enacted to regulate the procedures applicable to foreign exchange transactions carried out by non-residents for foreign direct investments in Angola. Pursuant to this Order, all capital operations related to investment (namely, shareholder loans or the transfer of profits and dividends) are no longer subject to prior licensing by the BNA. This is dependent on the commercial banks' availability of the foreign currency required to process the transfer of these funds outside Angola.
Outlook and conclusions
While Angola is highly dependent on the oil and gas sector, banking institutions play a significant role in balancing the economy because of their responsibility for reviewing and assessing foreign exchange transactions (i.e., transactions that involve payments into bank accounts outside Angola), which the BNA has delegated to them. This has had a significant impact on international transactions.
As a result of the growing role of banking institutions in Angola, it is foreseen that their compliance departments will need to be strengthened and that they will undertake the new role of scrutinising their clients' transactions, which, until recently, had been carried out by the BNA and other governmental authorities.
1 Nuno de Miranda Catanas and Laura Maia Lucena are partners at MC Jurist Attorneys-at-Law.