CENTRAL BANK OF LESOTHO - PDF by sofiaie

VIEWS: 388 PAGES: 12

									                                                                                       51


                                 Central Bank of Lesotho



Central Bank of Lesotho
PO Box 1184
Maseru 100, Lesotho
Fax: + 266 22 310051/310557
Tel: + 266 22 314281/324281
e-mail: cbl@centralbank.org.ls



1.      History

        The Central Bank of Lesotho commenced its operations in January 1980 as the
        Lesotho Monetary Authority. The status of the authority was elevated to that of a
        central bank in 1982, with the main functions of promoting internal and external
        monetary stability and maintaining a sound monetary and financial system in
        Lesotho in order to provide the financial conditions for balanced and sustained
        economic growth. In August 2000, the principal law of the Central Bank of Lesotho
        was reviewed to provide the primary and sole objective of the Central Bank of
        Lesotho as being to achieve and maintain price stability.

2.      Relationship with government

2.1     Institutional arrangements

        The paid up capital of the Central Bank of Lesotho is subscribed and held
        exclusively by the Government of the Kingdom of Lesotho. However, the Central
        Bank of Lesotho has its own budget for purposes of its operations.

        The Governor of the Central Bank of Lesotho and the two Deputy Governors, are all
        appointed by the King on the advice of the Prime Minister for a term not exceeding
        five years and may be eligible for re-appointment.

        The Central Bank of Lesotho has eight Members in its Board of Directors, with the
        Governor (who is the Chairman of the Board) and Deputy Governors being
        executive Directors. Non-Executive Directors, on the other hand, are appointed by
        the Minister of Finance and hold office for a period not exceeding three years and
        may be eligible for re-appointment.




                                                                                    Lesotho
                                                                                            52


2.2   Operational framework

       Bank as banker to government.
       In pursuit of its banking activities to government, the Central Bank of Lesotho, shall
       amongst others:
       -     deal with/transact in valuable objects of, and on behalf of, government;
       -     extend credit to government within stipulated terms and conditions; and
       -    serve as fiscal agent for the government within the ambits of its principal law.

       Bank as financial advisor to government.
       The Central Bank of Lesotho’s duties include, though not limited to, advising
       government on:
       -    financial institutions whose services the government may utilise;
       -    activities of the Central Bank of Lesotho and any matter likely to affect the
            achievement of the objective of the Central Bank of Lesotho;
       -    economic developments; movement of money supply;                    price   levels,
            productivity, employment and real income levels/movements;
       -    when contracting external debt, the government has to consult the Central
            Bank of Lesotho on the terms and conditions of such debt.

       Relationship with government on foreign exchange and exchange rate issues.
       The Central Bank of Lesotho formulates and executes exchange rate policies on the
       one hand and, on the other, the government determines the foreign exchange
       regime of Lesotho.

3.     Design and conduct of monetary policy

3.1    Main objectives of monetary policy

       Monetary policy is aimed at:
       -   Promoting and maintaining internal and external monetary stability and the
           proper functioning of a soundly based monetary and financial system in
           Lesotho.
       -   The fostering of monetary, credit and financial conditions conducive to the
           orderly, balanced and sustained economic development of Lesotho.
       -   Enabling and channelling of financial resources into productive investments.
       -   Developing monetary and capital markets.
       -   Mobilising domestic savings.
       -   Maintaining an appropriate interest rate structure.
       -   Facilitating economic activity in Lesotho and at the same time avoiding the
           dangers of inflation and a deteriorating external balance.



                                                                                        Lesotho
                                                                                            53




3.2   Instruments of monetary policy

      The Central Bank of Lesotho makes use of the following instruments of monetary
      policy:
      -     Moral suasion
      -     Repurchase operations
      -     Open market operations
      -     Reserve requirements
      -     Lombard rate

3.3   Types of refinancing as well as collateral used

      The credit to the Government of Lesotho (GOL) should be within stipulated credit
      ceilings and no collateral is needed. The Central Bank of Lesotho extends credit to
      commercial banks through the Lombard Credit Facility. The facility requires
      collateral in the form of GOL monetary policy Treasury bills.

3.4   The money supply aggregate that plays the main role in monetary policy

      The M2 money aggregate plays the main role in monetary policy. This aggregate is
      compiled from the Monthly Banking Statistics obtainable from the commercial banks
      and the Central Bank of Lesotho.

3.5   Reserve requirements on financial institutions

      In terms of the Financial Institution Act of 1999, financial institutions are required to
      maintain certain reserves against their deposit liabilities on the basis prescribed by
      the Central Bank. These requirements are the following:

      a.    Minimum local asset requirements: Financial institutions in Lesotho are
            required to maintain 5 per cent of their deposits and balances due to banks in
            Lesotho, other borrowing, paid up capital and Reserves, locally.

      b.    Liquidity requirements: Financial institutions are required to maintain 25 per
            cent share of their deposit portfolio, balances due to banks abroad, other
            liabilities for borrowed money (excluding Central Bank and Government
            borrowings) in liquid form according to the following profile:
            -      The total currency held, surplus funds at the Central Bank, deposits with
                  local banks and GOL securities.

      c.    Capital requirements: A minimum of not less than M10,000,000 or


                                                                                        Lesotho
                                                                                          54


           8 per cent of risk weighted assets computed in line with the methodology
           adopted by the Basle Committee on Banking Supervision.

      d.   Cash reserves: Financial institutions are required to maintain cash reserves
           amounting to 3 per cent of their deposit liabilities, balances due to banks
           abroad and other liabilities for borrowed money (excluding Central Bank and
           Government of Lesotho borrowings) :

4.    Structure of the financial markets

4.1   Organisation of the money and capital markets

      Lesotho’s money market is at a developing stage. The market still needs to develop
      further with the introduction of more and better financial products. The securities
      market though dating as far back as 1992 has seen massive improvements in
      September 2008 with the introduction of two more tenures, the 273 and the 364 day
      securities, and the increased frequency of auctions to bi-monthly for all four tenures.
      The secondary market is however dormant.

      Capital market: The capital market is not active yet. The Bank and the Government
      are in the process of introducing Treasury bonds. Necessary legislation is in place,
      Technical and high level Committees are commissioned and the Bank is in the
      process of procuring a system that will enable auction of T-bonds and equities at a
      later stage. Trading of bonds is scheduled for 2010 and equities subsequently.

4.2   Instruments used in both these markets

      Instruments used in the money market include various deposits, Treasury bills and
      the Central Bank paper. The Central Bank paper is issued occasionally. New
      tenures of Treasury bills of 273 and 364 days were introduced into the market in
      September, 2008.

      Although there is at present no active capital market in Lesotho, the Government of
      Lesotho issued special purpose Treasury bonds some years ago. The five year
      bonds were redeemed in 2004 while the ten year bonds will mature in September
      2009.

4.3   Existing legal frameworks for the money and capital markets

      The Central Bank of Lesotho act, 2000 mandates the Central Bank to issue its own
      securities. Other requirements include the minimum local assets requirement,
      liquidity requirement, capital requirement and cash reserve requirement.


                                                                                      Lesotho
                                                                                        55


4.4     Type of financial intermediaries operating in these markets

        The following five financial intermediaries are operating in the Lesotho money
        market:
        -    Central Bank of Lesotho
        -    Standard Lesotho Bank
        -    Nedbank
        -    Fist National Bank
        -    Lesotho Post Bank
        -    Money lenders
        -    Unit trusts
        -    Insurance companies

5.      External payment arrangements

5.1     Determination of the exchange rate policy

        The Central Bank of Lesotho is responsible for determining the exchange rate policy
        (note: the country is a member of the CMA).

5.2     The present exchange rate system

        Lesotho’s currency is pegged at par (fixed) to the South African Rand.

5.3     Organising the foreign exchange market

        The commercial banks pay and receive foreign currency on request, subject to
        exchange control regulations. These regulations are set by the Central Bank of
        Lesotho.

5.4     The central bank's involvement in managing foreign exchange reserves

        The Central Bank of Lesotho is responsible for managing foreign exchange
        reserves.

6.    Currency convertibility and exchange control

6.1     Current state of currency convertibility


        Lesotho's currency, the loti is fixed at par to the South African rand which is
        convertible internationally and regionally.



                                                                                     Lesotho
                                                                                             56


6.2   Exchange control restrictions on the current account

      Lesotho acceded to Article VIII status under the IMF Articles of Agreement.
      Therefore, there are no controls on current account transactions.

6.3   Restrictions on capital account

      Limited reforms on the capital account transactions came into effect on
      27 June 2003.

      In terms of this liberalisation, priority has been focused in the following areas:
      -     Foreign investment by private individuals (natural persons) outside the
            Common Monetary Area (CMA) up to M250, 000. This is a one off investment,
            until the limit is revised. Individuals must be above the age of 18 years, and
            be taxpayers in good standing.
      -     Opening of foreign currency and offshore accounts for private individuals who
            are taxpayers in good standing and are above the age of 18. The limit to be
            applied is M250, 000.
      -     Direct investment by corporates/companies to countries outside the CMA is be
            allowed up to M50 million within the SADC region and up to M30 million
            elsewhere.
      -     Companies will be allowed to open bank administered foreign currency
            accounts (commonly as CFC accounts) for the credit of export proceeds and
            for payment of imports.
      -     Restrictions have been lifted on long-term capital inflows.

6.4   Retention rules for foreign exchange earned or owned by residents

      Residents are required by law to declare any foreign exchange earnings within thirty
      days.

7.    The Central Bank and external debt

7.1   The role of the central bank in managing the country's external debt

      The Central Bank of Lesotho's responsibility for debt management is to provide
      information on macroeconomic developments and to assess the impact and/or the
      sustainability of the government's borrowing strategy against the observed
      macroeconomic setting.




                                                                                           Lesotho
                                                                                         57


        The central bank also has to manage the external official reserves in such a manner
        that the government's debt obligations can be met as and when required and in the
        currencies in which they are denominated.

7.2     The role of Treasury in this respect

        The Treasury advises the Central Bank when payment is due and the Central Bank
        processes the payment.

8.      Supervision of financial institutions

8.1     Banking institutions

8.1.1   Authority responsible for banking supervision

        The Central Bank of Lesotho.

8.1.2   Licensing procedures for establishing a new bank

        In summary, the registration procedures require an application in writing as well as
        the submission of the following documents:
        -     authenticated copies of its memorandum and articles of association or such
              similar documents if the new bank is foreign;
        -     a statement with the address of its head office, etc.;
        -     full particulars of the business it proposes to carry on;
        -     the location of the principal and other places of business in Lesotho; and
        -     other information as the Commissioner may require;
        -     a statement from supervisory authorities of the home country if the new bank
              is foreign;
        -     a copy of audited financial statements for the last two years and that of its
              head office or parent company, where applicable.

8.1.3   Types of licences that exist

        Licences are limited to banking business only.

8.1.4   Minimum capital requirements for the different types of banks

        A minimum of not less than M10,000,000 or 8 per cent of total risk weighted assets
        computed in line with the methodology adopted by the Basle Committee on Banking
        Supervision.




                                                                                      Lesotho
                                                                                              58


8.1.5   Regulations governing current activities of banks

        -     Large credit exposure: The advance to any person should not exceed 25 per
              cent of the sum of unimpaired paid-up or assigned capital and the unimpaired
              balance in the Reserve Account of the financial institution.
        -     Capital adequacy ratio equivalent to 8 per cent of total weighted assets.
        -     Liquidity ratio: Every financial institution shall maintain liquid assets amounting
              to not less than 25 per cent of the deposit liabilities, balances due to banks
              abroad, and other liabilities for borrowed money (excluding Central Bank and
              Government of Lesotho borrowings. Liquid assets shall consist of freely
              transferable assets, unencumbered by any charge or lien whatsoever, of the
              following classes: total currency held, surplus funds at the Central Bank of
              Lesotho (excluding reserve balance), deposits with local banks and GOL
              securities.
        -     Open foreign exchange position.
        -     Provision for bad debts.
        -     Restricted lending.

8.1.6   Main supervisory practices

        -     Off-site surveillance: Weekly liquidity requirements, foreign currency returns,
              monthly banking statistics, quarterly returns, exposure to top twenty
              borrowers, lending limits, financial statements, reserve requirements, capital
              adequacy and minimum local asset returns.
        -     On-site examination: Physical inspection of the banks’ operations as well as
              surprise checks.

8.1.7   Measures to remedy deficiencies as well as penalties utilised

        When a financial institution does not comply with the provisions set out in 8.1.5
        above, it is notified of the deficiency and ordered to comply. If the order to comply is
        ignored, the institution may either be fined or taken to a court of law. The Financial
        Institutions Act 1999 specifies all the penalties for each and every offence in detail.

8.2     Non-banking institutions

8.2.1   Responsibility for supervision of non-banking financial institutions

        Regarding the non-bank financial institutions, the Central Bank's responsibility
        through (NBSD) includes the supervision and regulation of money-lenders, collective
        investment schemes, ancillary financial institutions and insurance companies.
        Microfinance institutions (MFIs) t in due course form part of the Division's area of


                                                                                          Lesotho
                                                                                         59


        jurisdiction. (these are proposed to emanate from the transformation of large
        moneylenders). The other development institutions operate according to their own
        Acts.

        The NBSD was in 2007, and is charged with the supervisory functions of the non-
        bank financial institutions (NBFIs) through monitoring and examining of the sector’s
        performance.

8.2.2   Categories of financial institutions and their licensing procedures

        The following are the categories of non-banking financial institutions and their
        licensing procedures:
        -   Money-lenders are required to apply for annual renewable licences.
        -   Collective investments schemes’ licensing requirement is as above and
            renewable annually.

            The requirement is for one standard licence renewable annually.


        -    Ancillary Financial Institutions are also expected to apply for an annual
            renewable licence.

8.2.3   Minimum requirements for the different types of non-banking financial
        institutions:

8.2.3   Supervision:
        The central bank supervises money-lenders , collective investment schemes and
        ancillary service providers.

8.2.3.2 Capital required:
               Collective Investments        M1,000,000
               Ancillary Service Providers   M250,000
                Money-lender                 no specified capital requirement

8.2.3.4 Regulations:
        Money-lenders are governed by Money-Lenders Act 1993. Ancillary service
        providers are regulated under Ancillary Financial Service Providers (Licensing
        Requirements) Regulations 2003 and collective investment schemes by Collective
        Investment Schemes Regulation 2001.




                                                                                      Lesotho
                                                                                        60




9.    National payment, clearing and settlement system

9.1   How is the payment, clearing and settlement system organised?

      The Central Bank of Lesotho launched the Real Time Gross Settlement system,
      named Lesotho Wire, in August 2006. Consequently, the Bank resolved that all
      payments equal or in access of M100,000.00 will no longer be cleared manually, but
      through the system. This is accomplished by posting entries across the accounts of
      the banks held at the Central Bank, resulting in final and irrevocable inter-bank
      settlement of the amount concerned. Banks complete their accounting processes
      and provide payment finality to customers upon receipt of confirmation that
      settlement has been successfully performed by the CBL.

      As a result, only the settlement of small values is done on a manual basis through
      the Maseru Clearing and Settlement House located at the Central Bank. Participants
      in the system are the three commercial banks mentioned in 4.4 above and the
      Central Bank, with the Lesotho Post Bank yet to participate. The Clearing and
      Settlement House operations are governed by the Maseru Clearing and Settlement
      House Rules, which are set by the Maseru Clearing and Settlement House
      Management Committee that consists of the Governor of the Central Bank (its ex-
      officio chairperson), and the Chief Executives of the commercial banks.

9.2   What is the role of the Central Bank in the system?

      The Central Bank, in co-operation with other stakeholders, is at the moment actively
      involved in improving the national payment, clearing and settlement system.

      The Maseru Clearing and Settlement House Management Committee, , is the
      administrative body of the Clearing House, and the clearing and settlement process
      is governed by the Maseru Clearing and Settlement House Rules.

      The Central Bank operates the clearing house and supervises the clearing process.
      It also acts as a settlement agent of the clearing and settlement system.

9.3   Short description of the processing of payment instructions

      With Lesotho Wire System, most payments originate from trade in various markets
      where a customer, following a trade agreement, instructs payment. Once the
      instruction has been received and accepted by a bank, the bank assumes
      responsibility for driving the payment to finality and irrevocable transfer of value.
      Banks initiate payment by verifying certain aspects of the payment instruction and


                                                                                     Lesotho
                                                                                              61


       determine the processing path to be followed through the inter-bank funds transfer
       processes.

       The clearing procedures of cheques and returned items are governed by a set of
       rules, as per the Lesotho Bankers Agency Agreement, to which all participants in the
       Maseru Clearing and Settlement House must subscribe to. The agreement
       stipulates the time-frames permitted to clear the various instruments. At each
       session the net settlements (setoff) are calculated per bank and entries passed to
       clearing accounts conducted by the participating banks in the books of the Central
       Bank. Participants are responsible to ensure that the accounts are sufficiently
       funded, as the accounts are not permitted to be overdrawn.

9.4    How are non-funded positions settled in the system?

       Participants are required to maintain sufficient funds to cater for their settlement
       obligations. In a situation where a participant is not able to settle due to liquidity
       shortfall, the Central Bank, through its Lombard Credit Facility would provide
       overnight liquidity boost. Banks should provide the 91-days securities as collateral
       for this lending. The rate that is incurred for using this facility, the Lombard Rate, is
       equivalent to certain basis points (maximum 4) above the prevailing 91-day
       Treasury bill rate.

10.    Currency in use

10.1   List of legal tender notes and coins currently issued and in use in the
       economy

       -     Currency:          - Loti
                                - 100 lisente equal one loti

       -     Notes:            - 200 maloti, 100 maloti, 50 maloti, 20 maloti, 10 maloti

       -     Coins:             - 5 maloti, 2 maloti, 1 loti, 50 lisente, 20 lisente, 10 lisente,
                                  5 lisente,.

11.    Other activities of central banks not covered above

       The Central Bank of Lesotho also acts as custodian of export finance schemes as
       well as part of development finances.




                                                                                          Lesotho
                                                                                      62


12.    The position of the central bank in SADC

12.1   Special relationships with other central banks in SADC (CMA excluded).

       The Central Bank of Lesotho exchanges its publications with other central banks in
       SADC. The Central Bank is also a member of some regional groupings together with
       other SADC central banks, such as MEFMI.

13.    Publications

13.1   Regular publications

       -    Monthly Economic Review, Quarterly Review and Annual Report
       -    Annual Supervision Report

13.2   Occasional/special publications published since 1990


       Research Department commissions different papers covering a wide spectrum, such as
       policy papers, occasional papers and so on. The latest publications in archive include;
       -   Regional comparison of Bank Charges
       -   Private Capital flow Survey,
       -   The Optimal Inflation for Lesotho
       -   Study on Privatised Public Entities
       -   The Impact of Taxing Interest Income
       -   and many that were mentioned in the previous reports.




                                                                                   Lesotho

								
To top