Will banks and other financial institutions close during the state of emergency?

No. The central bank (Bank of Cabo Verde or "BCV"), commercial banks, payment systems and insurance companies are exempt from the closure imposed by the state of emergency laws on public companies and services, private companies and service activities. But they will work only for activities considered essential; and, besides that, they are obliged to adapt their functioning to the norms of physical distancing of the people who attend and are attended to the hygienization of the spaces where the service is provided.

 

What are the activities of financial institutions considered essential in the context of COVID 19?

Internally, BCV has established as essential the following services to be provided on a continuous basis: (1) payment system; (2) reserve and monetary management; (3) cash withdrawal operations by commercial banks; (4) processing payments to suppliers; (5) processing payments to retired and injured parties with completed processes and the right to receive under the Automotive Guarantee Fund (FGA); and (6) credit risk central.

As for commercial banks and other financial institutions under the regulation of the BCV, the services contemplated in the respective contingency and business continuity plans are essential and must ensure the capacity to operate on a continuous basis and contain losses and that each of these institutions must have, under the terms of the law and the guidelines of the competent authorities of the Government of Cabo Verde and the WHO.

 

How will banks and other financial institutions operate?

Banks and other financial institutions must ensure their role in the functioning of the real economy and the continuity of their normal functioning and the service to customers and the public, but, (a) favouring digital channels to carry out their financial operations, (b) establishing a regime of conditional access to their counters and (c) managing the flow of entrances to the facilities in order to avoid people gatherings.

The guideline is that bank and insurance customers - especially the most vulnerable, such as the elderly and people with chronic illnesses or weakened immune systems – to give privilege the use of digital and telephone channels, reducing trips to the branches to what is strictly necessary.

On the other hand, banks and other financial institutions should adopt measures to protect their own employees, preferring and reinforcing the use of technological devices for communication and information and, where possible, encouraging as many employees as possible to work from home.

Within this framework, BCV has made recommendations to the banks and other financial institutions it regulates:

  1. Promote alternative teleworking or similar mechanisms whenever possible
  2. Adjust the opening hours to the public in their facilities according to criteria that contribute to avoiding crowds of people in the facilities; display in a visible place of the facilities and communicate to customers, through other available channels, the hours of service and the conditions to be adopted, regarding the number of customers and users and other access restrictions;   
  3. Make alternative means available, namely telephone contacts, e-mail, homebanking or other digital solutions that ensure regular access to the accounts and balances of their customers and allow remote operations
  4. Ensure full and regular operation of ATM/ATM and payment terminals, POS, in all agencies
  5. Promote the extension of the validity period of debit and credit cards, with expiry dates within the period of the state of emergency; and
  6. Inform the public about the nearest agency that will ensure the provision of services to customers, in case of temporary closure of some agencies and dependencies

 

What are the monetary stimuli and prudential flexibilization to face the situation generated by COVID-19?

According to a press release dated March 26th, 2020, the Board of Directors of the Bank of Cabo Verde resolved to adopt, an exceptional package of monetary stimuli and prudential flexibilization measures to mitigate the impact of COVID-19 on the national economy, to be effective as of April 1st.

The package of measures has the objective of (a) providing guarantees to commercial banks that, by providing credit in the context of COVID-19 where risk and uncertainty have increased exponentially, they will not lack liquidity and will not be penalized in terms of capital; and (b) promoting lower interest rates on loans to be granted by the banks, preventing possible difficulties in the normal compliance of credit payment obligations in the adverse context of the pandemic.

In this framework, the package includes the following measures:

  1. Reduction of the policy rate by 125 base points, from 1.5% to 0.25%
  2. Decrease of the marginal lending rate by 250 base points, from 3% to 0.5%
  3. Creation of a new long-term liquidity-providing instrument, designated as a Long-Term Monetary Financing Operation, for bank financing with maturities of up to three years, at an attractive interest rate of 0.75%, with a value of up to PTE 45 billion, depending on the public debt held by each bank and with a maturity equal to or greater than the maturity of the credit granted, to be activated until December 2020, at a total rate of PTE 5 billion/month
  4. Reduction of the rate of standing liquidity absorption facilities by 5 base points, from 0.1% to 0.05%, in order to redirect credit to the economy, discouraging overnight deposits from the banks with the BCV and channelling liquidity to credit to the economy where yields will be more attractive
  5. Reduction of Minimum Cash Availabilities by 300 base points, from 13% to 10%, in order to encourage banks to channel the liquidity released for credit to the economy
  6. Definition of rediscount as the appropriate instrument to resolve serious liquidity difficulties faced by the State in situations of crisis or shock in the economy and reduction of the rediscount rate by 450 base points, from 5.5% to 1%, under the terms of Article 2 of the Organic Law of the Bank of Cabo Verde ("LOBCV")
  7. Opening of the exceptional possibility of public debt purchase by the BCV at the rediscount rate, in a situation of liquidity shock by the State, to assist emergency programs to promote the minimum disposable income to households and companies, under Article 2 of the LOBCV
  8. Preventive extension of the intervention period of the BCV by means of Monetary Intervention Bonds (TIM) from 1 to 3 years; and
  9. Prudential measures to banking entities, namely:
    a)   The possibility for banks, at the request of customers (individuals and companies), to grant moratoriums or grace periods for the payment of credits for 3 months, possibly renewable depending on the assessment of the debtor's situation
    b)   not to consider payment failures as non-performing loans during the moratorium or grace period, with no effect on impairments, provisions or activity ratios
    c)   Reduction of the solvency ratio by 2 percentage points, from 12% to 10%, until December 31, 2021; and
    d)   Suspension in 2020 and 2021 of the deduction from own funds of the amounts of assets received in donations
    e)   Non-distribution of dividends in relation to the 2019 results
    f)    Recommendation to, in the exceptional circumstances, make available, expedite and reduce loan interest rates, particularly for treasury management, in order to ensure the working capital needs of companies affected by COVID 19 and to minimize the dismissal of personnel; and

Recommendation for banks to stimulate credit to the economy under special conditions, in order to help families and companies overcome this exceptional situation.

 

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This information is being updated on a regular basis.

All information contained herein  and all opinions expressed are of a general nature and are not intended to substitute recourse to expert legal advice for the resolution of real cases.