Department of Supervision

1. Mandate
The Department of Supervision derives its mandate from the Central Bank of Lesotho Act of 2000. Section 6 of the Act states the following specific objectives of the Central Bank of Lesotho which are undertaken by the Department of Supervision:

  • To foster the liquidity, solvency and proper functioning of a stable market-based financial system;
  • To formulate, adopt and execute the foreign exchange policy of Lesotho;
  • To license or register and supervise institutions pursuant to the Financial Institutions Act 1999, the Money Lenders Act 1989, the Building Finance Institutions Act 1976, and the Insurance Act 1976; and
  • To promote the safe and sound development of the financial system.

2. Key Functions

  • In order to achieve the above-mentioned objectives, the Department undertakes the overall regulatory and supervision of financial institutions in Lesotho, being the commercial banking, insurance, investments and securities as well as other non-bank financial institutions.
  • The regulatory function entails formulation, adoption and execution of relevant financial institutions policies; formulation and execution of relevant laws regulating the financial institutions.
  • The supervisory role entails formulation, adoption and execution of relevant financial institutions supervisory frameworks including undertaking appropriate supervisory actions.
  • The Department periodically publishes relevant supervisory reports on the financial health of the financial sector in Lesotho.

3. Divisions
The Department consists of four (4) Divisions namely; Banking Supervision, Insurance, Investments and Securities Supervision, Non-Banks Supervision and Deposit Insurance.

a) Banking Supervision Division
The Banking Supervision Division is responsible for the supervision of banks in Lesotho. This function is discharged through off-site monitoring and on-site inspections. Off-site monitoring analyses financial statements and compliance reports submitted periodically to the Central Bank of Lesotho. The onsite inspections evaluate applications for new banking licenses, mergers, acquisitions, changes in ownership control as well as requests for exemptions from legal and regulatory requirements, as permitted by law. The accuracy and reliability of data and information submitted to CBL by the banks is confirmed through on-site inspections. The inspections also look at areas that cannot be readily assessed through prudential reports. Banks are required to operate in a sound and safe manner and to comply with the legal and regulatory requirements, as well as preventing and detecting money laundering in the financial institutions.
The functions of the Division include the following:

  • To develop and implement an off-site surveillance system for banks that continuously monitors the financial health of banks;
  • To prepare periodic reports on the financial soundness of and the review of compliance with laws and regulations by banks;
  • To conduct examinations of banks to ensure effective regulatory and supervisory oversight of Banks;
  • To verify accuracy of data submitted by banks to the CBL and provide feedback to the off-site information system;
  • To prepare comprehensive reports of examination on financial condition, adequacy of risk management systems and internal controls, adequacy of Board and Senior Management oversight and Management Information Systems and extent of compliance with laws and regulations of examined banks;
  • To follow-up banks’ compliance with directives and other corrective measures issued by the Commissioner pursuant to examinations conducted and offsite reports;
  • To recommend to the Commissioner possible course of action in handling problem banks;
  • To arrange meetings with the Board, Management and Auditors of banks to discuss areas of concerns arising out of examinations and reports submitted to the CBL;
  • To evaluate applicantions for mergers, acquisitions and change in ownership control of banks;
  • To evaluate requests for branching and establishment of agencies and other extension offices of existing banks;
  • Cooperate with other supervisory authorities in cases of cross border banking activities;
  • To advise the Government of Lesotho through the Bank on appropriate domestic policies to implement and to ensure that an enabling environment in foreign exchange controls exists;
  • To hold consultative meetings with data providers such as the Department of Customs and Excise, Authorized Dealers and the exporting community, in order to ensure compliance to Exchange Control Regulations;
  • To issue instructions to Authorized Dealers whenever there are policy changes or adjustments;
  • To process all foreign exchange applications submitted to the Central Bank, in terms of the Regulations.
  • To monitor inflows and outflows of Foreign Exchange Transactions from the Authorised Dealers and ADLA’s in order to ensure compliance with Exchange Control Laws.
  • To compile statistics quarterly from above files for submission to the Research Department of the Central Bank and advice on policy direction.
  • To monitor inflows of export proceeds to ensure compliance with the Regulations.
  • To inspect the records of authorized Dealers and ADLA’s to ensure compliance with Exchange Control Regulations and Guidelines; and
  • To process and analyze Exchange Control Declaration Forms F178.

b) Non-Banks Supervision Division
The Non-Banks Supervision Division is generally responsible for maintenance of financial system stability through the supervision and regulation of Non-banks Financial Institutions (NBFIs) in Lesotho. Its mandate is derived from the following CBL functions as contained in the CBL Act of 2000:

  • To foster the liquidity, solvency and proper functioning of a stable market-based financial system;
  • To license, register and supervise institutions pursuant to the Financial Institutions Act of 2012, the Money Lenders Order of 1989, and the Building Finance Institutions Act of 1976, and the Insurance Act of 1976; and
  • To promote the safe and sound development of the financial system.

The functions of the Division include the following:

  • To formulate, adopt and execute relevant NBFIs policies and supervisory frameworks;
  • To formulate and execute relevant laws regulating the non-bank financial institutions;
  • To develop Financial Sector through building requisite financial infrastructure and participating in other national initiatives with the same aim, e.g. Financial Inclusion;
  • To undertake on-site and off-site inspections and publishing relevant supervisory reports on the financial health of NBFIs in Lesotho;
  • To collect and compile NBFIs statistics;
  • To license and register NBFIs; and
  • To undertake financial consumer protection through handling of consumer complaints.

c) Insurance, Investments and Securities Supervision Division
The Insurance, Investments and Securities Supervision Division is generally responsible for maintenance of financial system stability through the supervision and regulation of Insurance, Investments and Securities sectors in Lesotho. Its mandate is derived from the following CBL functions as contained in the CBL Act of 2000:

  • To foster the liquidity, solvency and proper functioning of a stable market-based financial system;
  • To license, register and supervise institutions pursuant to the Financial Institutions Act of 2012, the Money Lenders Order of 1989, and the Building Finance Institutions Act of 1976, and the Insurance Act of 2014; and
  • To promote the safe and sound development of the financial system.

The functions of the Division include the following:

  • To formulate, adopt and execute relevant insurance, investments and securities policies and supervisory frameworks;T
  • o formulate and execute relevant laws regulating the financial institutions in the insurance, investments and securities sectors;
  • To develop the financial sector through building requisite financial infrastructure and participating in other national initiatives with the same aim, e.g. Financial Inclusion;
  • To undertake on-site and off-site Inspections on the regulated institutions;
  • To license institutions operating insurance, investments and securities businesses; and
  • To undertake financial consumer protection through handling of consumer complaints.

d) Deposit Protection Division
The Deposit Protection Division is responsible for the establishment of an explicit Deposit Insurance System (DIS) that will:

  • Protect the small uninformed depositors from loss of their deposits;
  • Contribute to the stability of Lesotho’s financial sector by providing early detection of troubled banks;
  • Ensure timely intervention on insolvent banks;
  • Mitigate moral hazard in the financial sector; and
  • Assist in the event of a financial crisis.

The Division is also charged with the responsibility of establishing a fund that will act as a deposit guarantee that compensates depositors in the event of a bank failure. The functions of the Division towards the establishment of an explicit Deposit Insurance System include the following:

  • To develop and amend policies, legal framework and manuals of the DIS for Lesotho;
  • To advise the Bank and hence the country on the appropriate policies to be adopted for the DIS;
  • To identify strategies that will enhance the enforcement of the regulations governing the DIS activities in Lesotho;
  • To prepare reports on the activities of the Division and reports to the relevant bodies;
  • To participate in Local, Regional and International initiatives beneficial to the Division, the Bank as well as the country and;
  • To liaise with Regional and International initiatives beneficial to the country;
  • To assist in the co-ordination of sub-regional, regional as well as international development efforts;
  • To liaise with all the relevant stakeholders of the DIS activities in Lesotho;
  • To organise sensitization campaigns for the DIS; and
  • To design proper risk analysis tools for the DIS.

The functions of the Division towards the establishment of a fund that will act as a deposit guarantee that compensates depositors in the event of a bank failure include the following:

  • To ensure proper setting up and efficient management of the Fund;
  • To set and collect premiums from participating institutions;
  • To verify and process claims;
  • To reimburse or pay out depositors up to a maximum insurable limit in the event of a bank closure;
  • To prepare financial statements for the Deposit Insurance Fund;
  • To establish a proper record keeping system in respect of the Fund;
  • To monitor performance and exploits proper investment opportunities for building the Deposit Insurance Fund; and
  • To monitor proper resolution and liquidation of failing banks in order to ensure protection of the DIS fund;

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15 September 2017

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