FINANCIAL INSTITUTIONS (BRANCHING REQUIREMENTS) REGULATIONS 1999

IN EXERCISE OF THE POWERS CONFERRED UPON THE COMMISSIONER OF FINANCIAL INSTITUTIONS BY SECTION 17(2) AND (3) OF THE FINANCIAL INSTITUTIONS ACT 1999 , THE COMMISSIONER MAKES THE FOLLOWING REGULATIONS -
 

PART 1 - PRELIMINARY

Citation and commencement

1. These Regulations may be cited as the Financial Institutions (Branching
Requirements) Regulations 1999 and shall come into operation on the date of publication in the Gazette.

Interpretation

2. In these Regulations, unless the context otherwise requires, words used shall have the same meanings assigned to them in the principal law.

Objective

3. These Regulations are meant to establish the criteria and the process for evaluating applications to open branches or other places of business and to outline the requirements for relocation of offices or closure of branches and agencies.

Application

4. These Regulations apply to all licensed financial institutions in Lesotho.

PART II -  REGULATORY REQUIREMENTS

Branching criteria

5. (1) No application to open a branch or agency shall be processed by the
Central Bank if any of the following conditions exists –

(a) the applicant has incurred a net loss in the immediately preceding year;
(b) there is any impairment in the paid-up capital or reserve account; or
(c) the applicant has failed to comply with the risk-based capital requirement, minimum liquid assets ratio or the reserve requirement for 4 times during the last 12 months.

(2) An applicant which does not have any of the aforesaid disqualifications shall be evaluated on the following criteria –

(a) satisfactory performance of the applicant regarding –
(i) compliance with pertinent laws and prudential regulations, and recommendations or directives arising from examinations conducted;
(ii) financial strength based on latest audited and other financial reports for the past 12 months;
(iii) managerial capabilities as reflected in a strong internal control system, business plans, and strategies; and
(iv) submission of timely and accurate reports to the Central Bank;

(b) economic justification for the branch –

(i) types of services to be offered in the proposed branch or agency and existing services offered by financial institutions in the area to be served;
(ii) description of the area to be served in terms of economic growth and potential; and
(iii) write-up on how the proposed branch or agency will contribute to the effective mobilisation of savings and development of banking or financial business in the area to be served;

(c) adequate head or main office support showing –

(i) operational and staff set-up of the proposed branch or agency;
(ii) internal control system for the branch or agency; and
(iii) investments in premises, office equipment and computers.
Branching procedures

6. (1) A financial institution which proposes to establish a branch or agency
shall apply, in writing, to the Central Bank and the application shall include the documentary requirements as set out in the Schedule.

(2) Notwithstanding subregulation (1), the Central Bank may require additional information or documents to evaluate the application.

(3) Where there are 2 or more applications received for the same service
area, priority in processing of applications shall be based on the time of the receipt of completed applications.

(4) The Central Bank shall respond with a decision on the application
within a period of 30 days from receipt of the completed application together with all supporting documents.

(5) Upon determination that the applicant satisfies the branching criteria, the
Central Bank shall issue its written approval and the applicant shall pay to the Central Bank the prescribed licence fee under section 13 of the Financial Institutions Act 1999.

(6) If the Central Bank determines that there exists a condition which
precludes evaluation of the application or that the applicant does not satisfy the requirements for branching, the Central Bank shall inform the applicant in writing of its refusal to grant permission.

(7) Advertisements or announcements of plans or intention to open any
branch shall state clearly that this shall be subject to prior approval by the Central Bank.

(8) The proposed branch or agency shall commence operations within 6
months following notice of approval by the Central Bank.

(9) The approval granted to a financial institution for the establishment of
the branch or agency shall be revoked if it fails to commence operations within the prescribed period.

Automated teller machines

7. (1) The installation of automated teller machines shall be subject to prior
notice to the Central Bank of the location and the security system in place.

(2) Only banks licensed in Lesotho shall be allowed to install automated teller machines.

Relocation of offices

8. (1) Transfer or relocation of head or main office or any branch or agency
may be allowed only subject to prior written consent of the Central Bank.

(2) The request for approval to transfer or relocate offices of financial institutions shall be accompanied by –

(a) justification for the relocation;
(b) a copy of the financial institution's board approval authorising the relocation; and
(c) proposed arrangements with the depositors and other clients who may be adversely affected by the transfer.

Closure of branches and agencies

9. (1) No branch or agency shall be closed without the prior written consent of
the Central Bank.

(2) The request for approval to close any branch or agency shall be accompanied by –

(a) justification for the closure;
(b) a copy of the financial institution's board approval authorising the closure;
(c) proposed arrangements to pay-off depositors and other creditors or to transfer the business of existing clients; and
(d) proposed notice of closure to depositors, creditors and other clients and announcement to the public.


Supervisory action

10. If a financial institution fails to comply with these Regulations, the Central
Bank may pursue any remedial measures at its disposal or require the institution to take any or all of the following measures-

(a) close the branch, agency or other place of business which was established without the prior approval of the Central Bank;
(b) re-open the branch, agency or other place of business which was closed without the prior approval of the Central Bank; and
(c) pay a fine which may be imposed by the Central Bank in accordance with section 29 of the Financial Institutions Act 1999.


S. M. SWARAY
GOVERNOR, CENTRAL BANK OF LESOTHO



_____________
NOTE
1. Act No. 6 of 1999




Schedule
(regulation 6(1))


DOCUMENTARY REQUIREMENTS FOR BRANCHING


1. Proposed site or address (indicate if owned or leased).

2. Proposed areas to be served.

3. Approximate date of opening.

4. Type of services to be offered.

5. Statistical data –

(a) approximate population of areas to be served;
(b) existing financial institutions in the area to be served; and
(c) principal economic activities and major business establishments.

6. Write-up on economic justification, including growth potential for the areas to be served, for the establishment of the proposed branch or agency.

7. Copy of board approval for the establishment of the branch or agency.

8. Operational and staffing set-up with names of branch or agency officers and the completed Personal Declaration Sheets for at least the branch manager and the assistant manager.

9. Internal control system within the branch or agency and reporting system to the head or main office.

10. Facilities to be put in place including estimated cost of major capital expenditure for premises, equipment, and security devices.