Part of the Monetary, Financial Regulatory Policy Group, the Licensing and Supervision Department’s mandate is to promote and maintain a safe, stable, sound, efficient and competitive banking/financial system. The main objective of the Department is to ensure financial stability in the country through the regulation and supervision of its financial institutions, aligned with the Central Bank of Somalia’s strategic goals.
The Department conducts (1) on-site examinations and off-site monitoring of Banks and other financial institutions; (2) develop and implement approved policies and strategies aimed at fostering a sound financial system. (3) Review financial institutions licensing and re-licensing applications; (4) determines the specifics of credit extension and discounting of bills by the Bank; and (4) liaises with financial industry associations. In addition, the Department seeks to promote market integrity, fair trading and high standards of customer care through consultation and open communication with key players in the banking system. The Department’s responsibilities are expressed under the provision of Central Bank Act, 2011 and Financial Institution Law 2012.
The Department has four Divisions: (1) Banking Supervision Division, (2) Non Banking Supervision Division, (3) Licensing, Regulations & Compliance Division, and (4) Payment System & Payment Instruments Oversight Division.
The Department is headed by a Director who provides strategic and organizational leadership to ensure the achievement of its goals, in line with the CBS’s overall strategic plan.
Commercial Banks
Financial Institution Law 2012, Chapter I, Article 2 “Commercial bank” means any bank in Somalia whose business includes the Acceptance of deposits withdrawable by cheque, issue of short term and medium-term loans, guarantees, foreign exchange transactions and such other activities as the Central Bank may by regulation classify.
Financial Institution Law 2012, CHAPTER II, Article 1 A person who intends to engage in banking business in Somalia must first obtain a license issued by the Central Bank.
Financial Institution Law 2012, CHAPTER III, Article 4 An application for bank license shall be made in writing in the form prescribed by the Central Bank of Somalia. The application must be accompanied by all required supporting information and documents, and the prescribed application fee. In addition to that The Central Bank may require any other information from the applicant, shareholders, significant shareholders, directors, officers and/or third parties that it deems necessary to complete its assessment of a bank license application.
Financial Institution Law 2012, CHAPTERI II, Section 14 Article 1, 2 and Section 15 (1), Section 16, and Bank Resolution on 31st December 2017 Central Bank of Somalia requires all commercial banks should maintain Minimum Capital Requirements of 7,000,000 in which 1,500,000 deposit at Central Bank of Somalia and maintain all time a Capital Adequacy Ratio which equals or exceeds twelve percent (12%) and a Core Capital Ratio which equals or exceeds eight percent (8%). A liquidity ratio which equals or exceeds twenty (20%) is also required.
Financial Institution Law 2012, CHAPTER 9 Section 67 Article 1, Central Bank of Somalia requires that no person or group of related person’s shareholders of licensed commercial banks direct or indirect owns or controls more 25%.
Money Transfer Businesses (MTBs)
Financial Institution Law 2012, Chapter 1, Article 2 “Money transfer business” or “Hawala” means the acceptance of cash, cheques and other payment instruments, [also including stored-value products], in one location, and payment [disbursement] of a corresponding sum in cash or other form to a beneficiary in another location.
Financial Institution Law 2012, CHAPTER 7, Article 50 A person shall not carry on or engage in money transfer business without a valid license issued by the Central Bank for that purpose.
Financial Institution Law 2012, CHAPTER 7, Article 50 every relevant person shall apply to the central bank for registration using prescribed form by the Central Bank of Somalia. Upon receipt of an application for registration the licensing and supervision department shall, within fourteen days, review the application and make recommendations, on the application, to a committee of the central bank after ascertaining the formal content and completeness of information and document requirements under Regulation.
Mobile Money Services
Mobile Money regulation, Part I, Article 3 “mobile money service” means a payment service delivered in electronic form by a mobile money service provider in accordance with the Mobile Money regulation Regulations.
Mobile Money regulation, Part II, Articles 6 (1) every relevant person shall apply to the central bank for License using the First Schedule to the Mobile Money regulation Regulations.
Mobile Money regulation, Chapter 2 Articles 7 (1 and 4) the Central Bank shall consider a renewal application within ninety days and may renew or decline to renew a license for reasons stated. In addition to that a license granted under the Mobile Money Regulation shall be valid for two years and may be renewable biennially; provided that a license granted in the course of a calendar year shall be valid up to 31st December of the end of the second year.
Central Bank of Somalia uses a judicious mix of both on-site examination and off-site examination methodology. All financial institution (banks and nonbanking Business) are subjected to annual on-site examination. Also, Off-site examination is carried out at regular intervals to gauge the health of the institutions in between on-site examinations. While the on-site rating is given on the basis of examination findings comprising broad-based criteria, off-site ratings are given on the basis of a set of financial soundness indicators, computed on a quarterly and Monthly basis.
ON-SITE EXAMINATION
In terms of the Financial Institution Law 2012, CHAPTER V, Article 33 all licensed financial institutions are subject to statutory on-site examinations, at least once a year. The License and Supervision Department carries out the on-site examinations of all commercial banks, Money Transfer Business and Mobile Money services with the objective of obtaining an assurance that these institutions operate in a safe and sound manner and comply with the minimum prudential requirements stipulated by the Central Bank of Somalia and that the affairs of the banks, Money transfer Business and Mobile Money services are conducted in a manner not detrimental to the public interest. In addition to annual statutory examinations, Spot or Special Examinations are also carried out, as and when a need arises.
According to Financial Institution Law 2012, CHAPTER V, Article 34 the on-site examination of banks is based on the internationally accepted standards for bank supervision set out by the Basel Committee for Banking Supervision. Currently, examinations are based on the CAMELS model which evaluates the performance of Banks with reference to Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk.
During an on-site examination, the compliance of commercial banks with a number of prudential requirements, such as capital adequacy, liquidity, large exposures, asset quality, provisioning for non-performing loans, related party transactions, income recognition, share ownership, investments, disclosure of accounts etc., is verified. In addition, the internal controls and standards of corporate governance in banks are also assessed.
Matters relating to non-compliance with prudential requirements and any weaknesses and deficiencies in the financial conditions, controls and systems of all commercial banks and money transfer business are brought to the notice of its Board of Directors by the Central Bank of Somalia to ensure that corrective action is taken by the concerned bank or money business transfer. Where necessary, penalties are imposed as per an approved of penalties.
OFF-SITE EXAMINATION
Off-site examination of all commercial banks and money transfer business are carried out by Licensing and Supervision Department. Financial Institution Law empowers the Central Bank of Somalia to collect various prudential returns from banks and money transfer business. The main objective of the off-site examination is to monitor the health of the banks / MTB in between the on-site examinations to ensure that the regulated entities are subjected to continuous supervision. Off-site examination process helps in identifying the early warning signals from the various reports and presenting the findings to appropriate level of management for initiating suitable corrective action. Further, the off-site examination results are also shared with the on-site examiners. The important off-site activities include: –
Scrutiny of Audited Financials of licensed commercial banks.
Operationalizing the prompt corrective action framework.
Analysis of off-site returns – covering asset quality, risk management, country risk, overseas exposure, earnings analysis, liquidity, capital adequacy etc.
A systemic review is prepared on a quarterly basis; however, the systemic review report is shared with all the commercial banks money transfer business. Further, the financial soundness indicators of the individual bank and money transfer business, along with comparative position of the previous quarter, are also shared with the commercial banks.
Central Bank of Somalia uses a judicious mix of both on-site examination and off-site examination methodology. All financial institution (banks and nonbanking Business) are subjected to annual on-site examination. Also, Off-site examination is carried out at regular intervals to gauge the health of the institutions in between on-site examinations. While the on-site rating is given on the basis of examination findings comprising broad-based criteria, off-site ratings are given on the basis of a set of financial soundness indicators, computed on a quarterly and Monthly basis.
ON-SITE EXAMINATION
In terms of the Financial Institution Law 2012, CHAPTER V, Article 33 all licensed financial institutions are subject to statutory on-site examinations, at least once a year. The License and Supervision Department carries out the on-site examinations of all commercial banks, Money Transfer Business and Mobile Money services with the objective of obtaining an assurance that these institutions operate in a safe and sound manner and comply with the minimum prudential requirements stipulated by the Central Bank of Somalia and that the affairs of the banks, Money transfer Business and Mobile Money services are conducted in a manner not detrimental to the public interest. In addition to annual statutory examinations, Spot or Special Examinations are also carried out, as and when a need arises.
According to Financial Institution Law 2012, CHAPTER V, Article 34 the on-site examination of banks is based on the internationally accepted standards for bank supervision set out by the Basel Committee for Banking Supervision. Currently, examinations are based on the CAMELS model which evaluates the performance of Banks with reference to Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk.
During an on-site examination, the compliance of commercial banks with a number of prudential requirements, such as capital adequacy, liquidity, large exposures, asset quality, provisioning for non-performing loans, related party transactions, income recognition, share ownership, investments, disclosure of accounts etc., is verified. In addition, the internal controls and standards of corporate governance in banks are also assessed.
Matters relating to non-compliance with prudential requirements and any weaknesses and deficiencies in the financial conditions, controls and systems of all commercial banks and money transfer business are brought to the notice of its Board of Directors by the Central Bank of Somalia to ensure that corrective action is taken by the concerned bank or money business transfer. Where necessary, penalties are imposed as per an approved of penalties.
OFF-SITE EXAMINATION
Off-site examination of all commercial banks and money transfer business are carried out by Licensing and Supervision Department. Financial Institution Law empowers the Central Bank of Somalia to collect various prudential returns from banks and money transfer business. The main objective of the off-site examination is to monitor the health of the banks / MTB in between the on-site examinations to ensure that the regulated entities are subjected to continuous supervision. Off-site examination process helps in identifying the early warning signals from the various reports and presenting the findings to appropriate level of management for initiating suitable corrective action. Further, the off-site examination results are also shared with the on-site examiners. The important off-site activities include: –
Scrutiny of Audited Financials of licensed commercial banks.
Operationalizing the prompt corrective action framework.
Analysis of off-site returns – covering asset quality, risk management, country risk, overseas exposure, earnings analysis, liquidity, capital adequacy etc.
A systemic review is prepared on a quarterly basis; however, the systemic review report is shared with all the commercial banks money transfer business. Further, the financial soundness indicators of the individual bank and money transfer business, along with comparative position of the previous quarter, are also shared with the commercial banks.