The Banking Control Commission (BCCL) recently issued memo number 15/2020 directed to banks and pertaining to the recapitalization plans banks are required to prepare in abidance by BDL basic decision number 13262 dated 27/08/2020. In details, the memo instructs banks to outline the required capital needs to conform to the minimum capital adequacy ratios, including the capital conservation buffer, as highlighted by the below table:

In addition, the memo calls banks to prepare a plan for securing the aforementioned capital needs. In details, capital needs must take into consideration the bank’s strategy and business plan for the next five years, the required provisions on the sovereign placements portfolio (including placements and Certificates of Deposit with BDL), provisions on the loans portfolio as per IFRS9 standards and any other provisions that may arise. Always in the same vein, the plan must be accompanied by supporting documents that clearly specify the methodology, assumptions and indicators that form the basis for the preparation of the bank’s strategy and business plan (namely financial position and profitability) and for evaluating the level of provisions. The memo requires banks also to list a set of options that could be adopted to abide by the regulatory capital adequacy ratios, being on the capital front (retention of profits, revaluation of fixed assets, issuance of stocks/bonds, only to name a few) or on the risk-weighted assets front (selling subsidiaries, selling part of the loan portfolios, etc.). The plan also requires banks to submit pro-forma financial statements on a stand-alone and consolidated basis over the 2020-2024 period. The BCCL memo must be updated on a semi-annual basis or upon the occurrence of any major modifications, with banks also asked to inform the BDL and the BCCL of any impediments that may derail the implementation of the plan. Finally, the BCCL memo requires banks to furnish the BOD (board of directors)-approved plan (along with the supporting documents) by no later than November 5, 2020 (which was further by the BDL extended till end of year according to ABL memo number 222/2020 dated November 5, 2020) and to present the semi-annual updates within a month after the end of June and December of each year. The BCCL provided banks with templates to be filled pertaining to projected solvency ratios before and after recapitalization, breakdown of equity before and after addressing capital shortage and an evolution of balance sheet & income statement components over a period of five years only to name a few.