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Art. 13
Capital and Reserves
1) a) Every financial institution shall maintain unimpaired capital, either paid-up if it is an incorporated local financial institution or assigned if it is a foreign financial institution, at least equal to the minimum amount specified either in Article 14 (1) (a) (1) or in Article 14 (1) (b) (i), as the case may be.
b) For the purpose of computing the minimum required capital of a financial institution when such amount is prescribed in reference to liabilities, both capital and liabilities shall be of such kinds and computed in such manner as the Central Bank may prescribe by rules and regulations.
2) a) Every financial institution shall maintain a Reserve Account and, before any dividend is declared or any profits is transferred to the head office or elsewhere, shall transfer to such Account out of the net profit of each year after due provision has been made for taxation a sum equal to not less than what is specified either in Article 14 (1) (a) (ii) or in Article 14 (1) (b) (ii), as the case may be.
b) The Central Bank shall, from time to time, prescribe by regulation the method of computing the amount and form of the Reserve Account.
c) The Reserve Account shall neither be reduced nor impaired:
Provided, that the Central Bank shall permit a reduction when a transfer is made for the purpose of increasing the capital and the Central Bank shall permit an impairment of the Reserve Account when it is the only means of preventing an impairment of the capital, subject to agreement with the Central Bank on the period during which the deficiency must be repaired.
Art. 14
Capital requirements
1) The following requirements shall apply in respect of a financial institution:
a) operating as a bank:
i) the minimum required capital shall be not less than the greater of (1000) million Somali Shillings or (five) Percent of its total liabilities in Somalia in terms of the most recent annual balance sheet. The absolute amount of the minimum required capital shall be adjusted yearly by regulation of the Central Bank according to the Mogadishu price-index as calculated by the Ministry of Planning. The Central Bank shall publish such regulation in the Official Bulletin.
ii) there shall be transferred at the end of each financial year to its Reserve Account a sum equal to:
A) not less than (twenty-five) per cent of its net profits until the balance in the Reserve Account is equal to (one-half) the amount of its minimum required Capital; or
B) not less than (fifteen percent) of such net profits whenever the balance in the Reserve Account is equal or more than (one half) but is less than the whole amount of minimum required capital;
b) operating as a credit institution or as a specialized financial institution:
i) the minimum required capital shall be not less than such an amount as the Central Bank may prescribe by regulation in respect of the appropriate class of institution:
there shall be transferred each year to its Reserve Account a sum equal to not less than (twenty five) per cent of its net profits until the balance in such Reserve Account is equal to the whole amount of the minimum required capital.
2) When the minimum required capital of a financial institution, as computed on the basis of its total liabilities, exceeds the amount of the capital, the financial institution may, provisionally and subject to the approval of the Central Bank for such period as it may prescribe, include in the computation of its capital any unimpaired balance in its Reserve Account in excess of the minimum required amounts which shall have been transferred to such Account under the provisions of sub-Section (1) (a) (ii) or sub-Section (1) (b) (ii), as the case may be.
3) The Central Bank may prescribe by regulation the minimum ratio which financial institutions of the appropriate class shall maintain as between their unimpaired capital and unimpaired balance in their Reserve Account on the one hand, and the total amount of off-balance sheet items on the other.
Art. 15
Calculation of capital requirements
1) In making the calculations necessary to ascertain that a financial institution has complied with the requirements of Article 14 allowance shall be made to the satisfaction of the Central Bank and of the auditor of such financial institution for the following items:
a) depreciation of assets and bad or doubtful debts (to be calculated at least once in each financial year);
b) operating and accumulate losses, including accumulated depreciation and bad debts not yet written off;
c) preliminary expenses, representing expenses relating to organization or extension or the purchase of business or goodwill, and including underwriting commission;
d) such other items as the Central Bank may prescribe by regulation.
Art. 16
Liquidity requirements
1. Every bank, and every other financial institution to which this Article shall have been made applicable by the Central Bank by regulation, doing banking business in Somalia shall maintain not less than an amount of liquid assets as may from time to time be prescribed by the Central Bank through publication in the Official Bulletin and written notice to each financial institution. The amount of the assets as prescribed shall be expressed as a percentage of the aggregate demand and time deposits and other liabilities of each financial institution as may be specified for this purpose by the Central Bank: provided, that this percentage shall not be less than (15) nor more than (30) per cent; and provided, further, that the Central Bank may specify a period during which surpluses and deficiencies in liquid assets may be averaged. For the purpose of this Article advances granted to a financial institution or by an overseas branch or office of the same institution may be excluded from the computation of that institution's demand and time deposits and other liabilities by regulation of the Central Bank.
2. Notices issued under the Article shall apply uniformly in Somalia and shall come into effect on such date specified not earlier than twenty-one days after the issue date: Provided, that the Central Bank in its notices may differentiate between classes of banks and credit institutions. The distribution of amounts between the classes of liquid assets enumerated in sub-section (3) of this article shall be made at the creation of each financial institution: Provided, that the Central Bank may prescribe that up to (5) per cent of the demand and time deposits and other liabilities of each financial institution shall be held in the form of assets set forth in sub-Section 3 (d).
3. For the purpose of this Article "liquid assets" shall consist of freely transferable assets free from any charge or lien whatsoever consisting of the following:
notes and coins which are legal tender in Somalia;
b) balances at the Central/Bank except required reserves;
c) net balances at financial institutions in Somalia and money at call in Somalia: Provided, that if such balances are negative they will be subtracted from liquid assets;
d) treasury bills and other securities issued by the Government and maturing within (186 days);
e) bills of exchange and promissory notes eligible for rediscount by the Central Bank and warehouse warrants or their equivalent securing possession of goods against which the Central Bank may grant advances, within the limits fixed by the Central Bank and in accordance with the Central Bank's evaluation;
f) net balance at financial institutions including the offices and branches of a financial institution in such monetary areas as the Central Bank may approve for the purpose of this Article: Provided, that the Central Bank may prescribe by regulation for the treatment to be accorded the balance or any portion thereof in respect of the head office of a financial institution or any other financial institution organized abroad; and provided further, that if such balances are negative they will be subtracted from liquid assets;
g) money at call in monetary areas approved by the Central Bank under paragraph bills of exchange bearing at least two good signatures drawn on and payable at any place in the approved monetary areas, and treasury, bills issued by the Government of a country in any such approved monetary areas and maturing within (186 days).
4. A financial institution shall be held to be in violation of this Article if:
a) It fails to furnish within a reasonable time any information required by the Central Bank to satisfy itself that the financial institution is observing the requirements of this Article; or
b) It allows its holding of liquid assets to be less than the amount which is from time to time prescribed by the Central Bank; or
c) During the period of any such deficiency of liquid assets the financial institution grants or permits increases in its outstanding advances, whether by loans or overdrafts, or investment portfolio.
5. Any financial institution which allows its holding of liquid assets to be less than the amount which is from time to time prescribed by the Central Bank under this Article may be ordered by the Central Bank to pay a charge at an annual rate not exceeding by (ten) percentage points the highest rate fixed at the time by the Central Bank for any of its operations on the amount of the deficiency for so long as the failure continues. Such charge shall be payable to the Central Bank on such date as may be prescribed by the Central Bank and may be recovered by deduction from any balance of the financial institution with the Central Bank.
Art. 17
Minimum required assets in Somalia
The assets in Somalia of every financial institution shall not be less in value than an amount representing such ratio in respect of its average demand and time deposits and other liabilities specified by the Central Bank payable in Somalia as may be prescribed by regulation of the Central Bank from time to time. The average demand and time liabilities, shall be determined on a quarterly basis.
Art. 18
Restriction on dividends
No financial institution shall declare. credit or pay any dividend or make any other transfer from profits whenever such payment or transfer would result in an impairment of the capital or of the minimum required balance in its Reserve Account or if allowance satisfactory to the Central Bank has not been made in accordance with Article 15.
Art. 19
Limitations on credit and other activities
1. No financial institution shall, directly or indirectly, except with the approval of the Central Bank, on such terms and conditions as the Central Bank may prescribe:
a) grant to any person any advances or credit facilities or make any guarantee so that the total value of the advances, credit facilities or guarantees in respect of such person is at any time more than (fifteen) per cent of the aggregate amount of the financial institution's unimpaired capital and the unimpaired balance in its Reserve Account: Provided that the Central Bank shall prescribe by regulation:
i) a maximum limit which cannot in any case be exceeded by credit exposure to any individual person; and
I. a maximum limit to the aggregate of large exposure of each financial institution, large exposures being those which exceed (fifteen) per cent of the financial institution's unimpaired capital and unimpaired balance in its Reserve Account;
ii) a maximum limit to the aggregate of large exposure of each financial institution, large exposures being those which exceed (fifteen) per cent of the financial institution's unimpaired capital and unimpaired balance in its Reserve Account;
Provided further that the limitation upon the foregoing transactions shall not apply in respect thereof if such transactions:
iii) are upon, or with respect to, drafts or bills of exchange drawn in good faith against actually existing assets, or upon bankers acceptance or bills of exchange of the kinds and maturities authorized by regulation of the Central Bank or upon commercial or business paper actually owned by the person discounting or selling the same with or to such financial institution and endorsed without limitation or guaranteed by such person; or
iv) are secured by collateral, fully covered by insurance, having a value as collateral as found in good faith by an officer of such financial institution, of at least (fifteen) per cent more than the amount of the obligations secured thereby; or
v) represent loans to, or guaranteed by the Government, its, institutions, agencies and local government bodies;
b) grant any advance against the security of its own shares;
c) grant or permit to be outstanding unsecured advances, unless such have been unanimously approved by all of the members of its board, to the members of its board, whether such advances are obtained by them jointly or severally;
d) grant or permit to be outstanding any unsecured advances:
i) to any person in which it or any of its directors has an interest as an agent, director, manager, partner, shareholder or otherwise;
ii) to any person which either directly or indirectly owns an interest in the voting stock of the local financial institution involved which would confer upon him more than twenty per cert of the total voting power;
e) grant or permit to be outstanding to its officers and employees unsecured advances, which in aggregate amount for anyone officer or employee exceed the annual remuneration of such officer or employee;
f) engage in trade, except insofar as may be temporarily necessary in the conduct of its business or in the course of the satisfaction of debt due to it;
g) purchase, acquire or lease real property except as may be necessary for the purpose of conducting its business as a financial institution, including provision for further expansion and housing its officers or employees: Provided, that:
i) in respect of any real property held or leased by a financial institution prior to the coming into effect of this law for purposes other than those referred to herein, a financial institution shall be allowed a period of (ten) years in which to comply with this paragraph; and
ii) a financial institution may secure a debt on any real or other property and in default of repayment may acquire such property for resale as soon as possible thereafter;
h) acquire or hold any part of the share capital of, or otherwise have a direct interest in, any financial, commercial, agricultural, industrial or other undertaking where the value of the financial institution's interest would exceed in the aggregate 25 per cent of the sum of its unimpaired capital and unimpaired balance of the Reserve Account: Provided, that:
i) a financial institution may take an interest in such an undertaking in satisfaction of a debt due to it, but if it does so it shall dispose of the interest within such time as the Central Bank shall prescribe;
ii) a shareholding in any corporation established for the purpose of promoting development in Somalia and approved by the competent Minister shall not be including in the said percentage.
2. In the application of the limitations of sub-section (1) (a) and (c), if the Central Bank shall determine by regulation that the interests of a group of two or more persons are so interrelated that they should be considered as a unit, the total indebtedness of that group shall be combined and deemed in respect of a single person: Provided, that a financial institution shall not be deemed to have violated sub-section (1) (a) or (c) solely by reason of the fact that the combined indebtedness exceeds the limitation at the time of the determination but the financial institution shall dispose of the indebtedness of the group in the amount in excess of the limitation within such reasonable time as shall be determined by the Central Bank.
3. Any financial institution which, prior to the coming into effect of this Law, entered into any transaction incompatible with the provisions of paragraphs (a) through (e) of sub-section (1) shall, within twelve months after the coming into operation of this provision submit a statement thereof to the Central Bank and shall liquidate all such transactions within such reasonable time as shall be determined by the Central Bank.
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