REGULATION OF FEBRUARY 16 TH, 2014 RELATING TO SOLVENCY RATIOS APPLICABLE TO BANKS AND FINANCIAL INSTITUTIONS

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1 REGULATION OF FEBRUARY 16 TH, 2014 RELATING TO SOLVENCY RATIOS APPLICABLE TO BANKS AND FINANCIAL INSTITUTIONS The Governor of the Bank of Algeria, Whereas Order of Jumaada al-thaany 27 th, 1424 corresponding to August 26 th, 2003 as amended and completed, relating to Money and Credit, namely its Articles 62 (h), and 97; Whereas Order of Shaban 19 th, 1416 corresponding to January 10 th, 1996 relating to leasing; Whereas Order of December 9 th, 1976 relating to Code of direct taxes and similar taxes as amended and completed; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of the Governor and Vice-Governors of the Bank of Algeria; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of Members of the Executive Board of the Bank of Algeria; Whereas the Presidential Decree of Shaaban 26 th, 1423, corresponding to November 2 nd, 2002 relating to appointment of a Member of the Executive Board of the Bank of Algeria; Whereas the Presidential Decree of Dhu al-qaadah 24 th, 1424 corresponding to January 14 th, 2004 relating to appointment of Members of the Council of Money and Credit of the Bank of Algeria; Whereas the Presidential Decree of Jumaada al-awal 5 th, 1427 corresponding to June 1 st, 2006 relating to appointment of a Vice-governor of the Bank of Algeria; Whereas Regulation of August 14 th, 1991 setting the prudential management rules of banks and financial institutions, Whereas Regulation of April 20 th, 1995 amending and completing Regulation of August 14 th, 1991 setting the prudential management rules of banks and financial institutions;

2 Whereas Regulation of July 23 rd, 2009 relating to the accounting plan and accounting rules applicable to banks and financial institutions; Whereas Regulation of December 29 th, 2009 relating to rules of assessment and accounting of financial instruments applied by banks and financial institutions; Whereas Regulation of November 28 th, 2011 relating to internal control of banks and financial institutions; Further to the Resolution of the Council of Money and Credit of the Bank of Algeria of February 16 th, 2014; Promulgates the Regulation the content of which follows: Article 1: The object of this Regulation is to set solvency ratios applicable to banks and financial institutions. Article 2: Banks and financial institutions shall be compelled to comply at all times on individual or consolidated basis, a minimum solvency ratio of 9,5% between on the one hand the total of their regulatory equity capital and on the other hand the sum of weighted operational risk, market risk and credit risk. Article 3: Core capital shall cover at least 7% of operational, market and credit risks. Article 4: Banks and financial institutions shall also provide in addition to the coverage provided for in Article 2 above, a so called safety cushion consisting of core capital and covering 2.5% of weighted risks. Article 5: The numerator of the solvency ratio is made up of regulatory equity. The denominator includes the sum of weighted exposures in respect of operational risk, market risk and credit risks. Credit risks include balance sheet and off-balance sheet risks. The amount of weighted operational risks is calculated by multiplying by 12.5 the equity requirement with respect to these risks determined in accordance with provisions of Articles 20 and 21 of this Regulation. The amount of weighted market risks is calculated by multiplying by 12.5 the equity requirement with respect to these risks, determined in accordance with the provisions of Articles 22 through 29 hereinafter.

3 Article 6: The Banking Commission may allow banks and financial institutions, time to comply with requirements set in Articles 2 through 4 hereinbefore and may impose gradual restrictions with regard to dividend distribution in case of non-compliance with provisions of Article 4. Article 7: The Banking Commission may require banks and financial institutions of systemic importance, solvency standards higher than those provided for in Articles 2 and 3 hereinbefore. TITLE I: REGULATORY EQUITY CAPITAL Article 8: Regulatory equity capital includes core capital and additional core capital. Article 9: Core capital shall be constituted of the sum of: - share capital or endowment; - premiums related to capital; - reserves (excluding revaluation differences and evaluation differences); - credit balance carried forward; - regulated reserves; - financial result of the last fiscal year, net of taxes and allocation of expected dividends; The following items shall be deducted from the elements hereinbefore: - own shares repurchased; - debit balance carried forward; - negative financial result pending allocation; - negative financial results determined semi-annually; - intangible assets net of amortization and provisions constituting nonvalues (goodwill, ); - 50% of the amount of equity stakes and all other claim amounting to equity capital held with other banks and financial institutions; - limit overruns in terms of equity stakes; - additional reserves as required by the Banking Commission. Core capital may include profits at intermediate dates, provided they are: - determined after accounting for all expenses incurred in the period and amortization and provisions allocation; - calculated net of corporate taxes and advance payment on dividends; - approved by Auditors and validated by the Banking Commission.

4 Article 10: Additional equity capital includes: - 50% of the amount of revaluation differentials; - 50% of the amount of unrealized capital gains arising from fair value of assets available for sale (excluding equity securities held on banks and financial institutions); - provisions for general banking risks constituted on current receivables item of balance sheet within the limit of 1.25% of assets weighted of credit risk; - equity securities and other indefinite term securities; - funds arising from the issuance of securities or borrowings, provided that: i) they are refundable only at the initiative of the borrower and with prior consent of the Banking Commission; ii) they give the possibility to the borrower to differ the payment of interests in case the level of profitability would not allow for this payment; iii) early repayment shall not be expected before a five year period, except in the case of its conversion into equity capital; iv) claims of lender on the bank or financial institution shall be contingent to those of all other creditors, v) they shall be available to cover losses even beyond the termination of activity, - funds deriving from the issuance of securities or subordinated debt that even if not meeting conditions listed above fulfill conditions hereinafter: i) if the contract provides a fixed term for the refund, the initial period shall not be less than five (05) years. If no maturity is fixed, the debt shall be repaid only after a prior notice of five years(05); ii) the loan contract does not include provisions for repayment providing that in specific circumstances other than liquidation of the liable bank or financial institution, the debt shall be repaid before the maturity agreed upon, and after the payment of all other debts due on the date of liquidation. From this additional equity capital should be deducted 50% of the amount of equity stakes and any other claims assimilated to equity held in other banks and financial institutions.

5 Article 11: Additional equity capital may be included in regulatory equity capital only within the limit of core capital. Subordinated loans or securities may be included in additional equity capital only within 50% of core capital. TITLE II: RISKS INCURRED A. credit risks Article 12: Shall be deducted from the balance sheet and off-balance sheet risks the elements hereinafter: - provisions for depreciating claims, securities and signature commitments ; - collateral admitted as provided for in Articles 17 and 18 of this regulation; - uncollected interests accounted for as doubtful claims. Article 13: To determine weightings of credit risk, banks and financial institutions make use of, depending on the nature and quality of the counterpart, either the ratings assigned by external bodies of credit assessment which list shall be set by the Banking Commission or if unrated, the standard weightings provided for in this regulation. In case of plurality of external ratings assigned to the same counterpart, the less favourable rating is to be retained for the weighting of risks. Article 14: Banks and financial institutions allocate credit risks within categories hereinafter and apply on them rates below. 1. Claims on sovereign borrowers a) Claims on the Algerian State and the Bank of Algeria: A weighting of 0% is applied on claims held on the Algerian State and the Bank of Algeria. A weighting of 0% is also applied on claims on Central Government and multilateral financial institutions.

6 b) Claims on other countries and their central banks: External rating of credit (*) AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- Lower than B- No Rating weighting 0% 20% 50% 100% 100% 150% 100% (*)Standards and Poors rating or equivalent rating 2. Claims on public institutions excluding Central Government External rating of public bodies(*) AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- Lower than B- No Rating weighting 20% 50% 50% 100% 100% 150% 50% Claims on public institutions are namely those held on local communities and public institutions of administrative nature. These claims are to be weighted at 20%. 3. Claims on banks and financial institutions a) Banks and financial institutions or assimilated, based abroad External rating of banks and financial institutions Weighting of claims with maturity exceeding three months Weighting of claims with initial maturity less than or equal to three months AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- Lower than B- No rating 20% 50% 50% 100% 100% 150% 50% 20% 20% 20% 50% 50% 150% 20% b) Claims on banks and financial institutions based in Algeria are to be weighted at 20%.

7 4. Claims on large and medium enterprises External rating of company AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- Lower than B- No rating Weighting 20% 50% 100% 100% 150% 150% 100% If a bank or financial institution chooses external rating for the assessment of risks on large and medium enterprises, said bank or financial institution shall use this process for all of their claims on rated companies. The bank or financial institution that does not make use of external ratings for the assessment of risks on large and medium enterprises shall weight evenly such risks at a rate of 100%. 5. Claims of retail banks A weighting of 75% is applicable on claims of retail banks including claims held namely on very small companies and individuals that meet the conditions hereinafter: - The level of exposure by beneficiary shall not exceed DA 10,000,000; - The portfolio is sufficiently diversified; - The exposure shall namely take one of the following forms: credits or revolving credit lines, financial support for setting up companies, facilities for small businesses, investments loan to individuals. Claims of retail banks that do not meet the conditions hereinabove are to be weighted at 100%. 6. Mortgage loan for residential use A weighting of 35% shall be applied to mortgage loan for residential use that meet the following conditions: - credits granted to individuals for the purchase, development or for housing construction shall be secured by mortgage and intended to be occupied by the borrower or be leased; - credit leases with purchase option on residential real estate shall be intended to be occupied by the tenant; - mortgage shall be of senior ranking, except if senior ranking has already been granted for the benefit of the lending institution; - loan shall represent an amount equal to or less than 80% of the value of the mortgaged property;

8 - value of the mortgaged property shall be updated at regular intervals. If any of the above criteria mentioned above is not met, the weighting to be applied is 75%. The Banking Commission may authorize banks and financial institutions to apply the rate of 50%. 7. Real estate loans for commercial use A weighting of 75% is applied to loans secured by mortgage on real estate for professional or commercial use. However, a weighting of 50% is applied on financial and operational leasing with purchase option, subject to regular assessments of mortgaged property. 8. Non-performing loans Weightings applicable on parts of non-performing loans, net of guarantees provided for in Articles 17 and 18 of this Regulation, and after deducting provisioning are as follows: a) Regarding real estate loans for residential use (outstanding credit), the weighting is: - 100% when the provisions are lower than or equal to 20% of the gross outstanding debt; - 50% when the provisions exceed 20% of the gross outstanding debt. b) For other non-performing loans, the weighting is: - 150% when the provisions are lower than or equal to 20% of the gross outstanding debt; - 100%, when the provisions are higher than 20% and lower than or equal to 50% of the gross outstanding debt; - 50%, when the provisions are higher than 50% of the gross outstanding debt. 9. Other assets The weighting to be applied on other assets is: - 0% on cash in hand securities and assimilated and deposits with financial services of Algérie Poste; - 20% on collection of receivables ; - 100% on net fixed assets, property deeds and debt instruments other than those deducted from equity capital and those forming part of traded securities. If, for the latter, market risk is applied, the weighting is to be applied to liaison accounts and to various debtors account;

9 - 100% on other assets not subject to a particular provision. 10. Securities loaned or sold under repurchase agreement Securities loaned or sold under repurchase agreement are weighted according to the quality of the issuer. Article 15: Off-balance sheet commitments shall be converted according to conversion factors into equivalent credit risks. Amounts obtained are weighted according to the same terms set for balance sheet elements, depending on the category to which the counterpart or the pledger belongs. Article 16: Conversion factors applicable to the different elements of offbalance sheet are the following: 1. Conversion factor of 0%: Unused facilities such as overdrafts and commitments to lend that may be cancelled without condition at any time and without prior notice. 2. Conversion factor of 20% Documentary credits granted or confirmed when corresponding goods constitute a guarantee 3. Conversion factor of 50% i) commitments to pay arising from documentary credits when corresponding goods do not constitute a guarantee; ii) guarantees of State contracts, guarantees of proper performance and customs and fiscal commitments; iii) unused irrevocable facilities such as overdraft and commitments to lend whose initial period exceeds one (01) year. 4. Conversion factor of 100% i) acceptances ii) opening of irrevocable credits and guarantees constituting alternatives to credit; iii) guarantees for credit allocated; iv) other signed commitments granted irrevocably and not listed above.

10 Article 17: Financial guarantees held as credit risk reduction factor and percentages applicable to them are as follows: Percentage of 100% - fund deposits and security deposits with the lending bank; - security deposits with the lending financial institutions; - guarantees received from the Algerian State, institutions or Algerian public funds whose guarantee is assimilated to that of the State; - debt securities issued by the Algerian State or benefiting from such guarantee; - guarantees received from funds and development banks and similar bodies. Percentage of 80%: - security deposit and term deposits held in Algeria in a bank other than the one that made the grant; - security deposit held in Algeria by a financial institution other than the one that granted the loan; - guarantee received from banks, financial institutions and credit insurance bodies approved in Algeria; - guarantees received from banks and financial institutions or assimilated, based abroad and with a rating equal to AA- or equivalent, except the guaranties issued by parent banks and other subsidiaries; - debt securities issued by a bank or financial institution based in Algeria, except the one that provided the grant; - debt securities traded on a regulated market in Algeria. Article 18: To be eligible, guarantees shall meet the following conditions: - deposits, securities and shares received as collateral shall be liquid, free of any commitments and be subject of a written bidding contract and enforceable against third parties; - collateral consisting of securities and shares issued by a third party, should in addition to conditions indicated hereinabove have been notified to the lending institution and assigned specifically to its exclusive payment; - collateral received shall be expressly specified as unconditional and enforceable upon first call.

11 Article 19: In calculating weighted exposures, a maturity mismatch exists when the residual maturity of a credit hedging is lower than that of the underlying exposure. In case of maturity mismatch, the credit hedging is taken into account only in case the initial maturity of the collateral provided exceeds one (01) year. This collateral is no longer considered when residual maturity becomes lower than or equal to three (03) months. B. Operational risk Article 20: Operational risk shall mean the risk of loss resulting from deficiencies or failures inherent to procedures, staff, internal systems or external events of banks and financial institutions. This definition excludes strategic and reputational risks but includes legal risk. Article 21: The requirement in capital equity needed for hedging operational risk is equal to 15% of the annual net banking average income of the last three (03) financial years. Only positive net banking income shall be taken into account when calculating such average. C. Market risk Article 22: The requirements in equity capital with respect to market risk cover risk exposure in trading portfolio and exchange risk. Article 23: Trading portfolio includes securities listed in trading assets other than those evaluated at the fair value. Article 24: Market risk on trading portfolio is assessed from two elements: - general risk related to the overall market trend; - specific risk related to the specific condition of the issuer. The overall risk is assessed according to maturities for debt securities and in flat rate for property deeds. Specific risk is assessed at a flat rate through the rating of the issuer. These risks are calculated on the basis of quarterly statements. Article 25: To calculate overall risk

12 -debt securities are ranked according to their maturities and assigned the following weightings: * 0.5% for maturities lower than one (01) year, * 1% for maturities between one (01) and five (05) years, * 2% for maturities exceeding five (05) years. -property deeds are assigned a fixed weighting of 2%. Article 26: The weightings assigned to calculate specific risk regardless of the nature of the security are as follows: - 0% for risks on the Algerian State and its dismemberments; - 0.5% for issuers rated AAA to A+; - 1% for issuers rated A to BB-; - 2% for issuers with a rating lower than BB-; - 2% for unrated issuers. Article 27: Banks and financial institutions with an average value of trading portfolio remaining lower than 6% of the balance sheet and off-balance sheet position over the last two semesters, are not subject to the obligation to hedge that risk position. In this case, securities in trading portfolio are weighted according to credit risk. Article 28: Capital requirement with respect to exchange risk is equal to 10% of the balance between total net short positions and total net long positions in foreign currencies. This requirement must be fulfilled provided that the balance exceeds 2% of the total balance sheet. Equity securities denominated in foreign currencies are not taken into account when calculating foreign exchange exposures. Article 29: The Banking Commission may impose banks higher weighting rates for foreign exchange risk in case of specific risk. D. Provisions relating to reporting Article 30: Elements of equity capital and risk incurred are drawn from the accountancy of banks and financial institutions concerned. Article 31: Banks and financial institutions shall declare quarterly to the Banking Commission and the Bank of Algeria the ratios provided for in Articles

13 2 through 4 hereinabove, according to the terms set by instruction of Bank of Algeria. The Banking commission may request that the statements of ratios be issued at periods less than a quarter. TITLE III: PRUDENTIAL OVERSIGHT OF THE ADEQUACY OF EQUITY CAPITAL AND FINANCIAL REPORTING Article 32: Banks and financial institutions shall hold equity capital in adequacy with risks of any nature that they may incur. The Banking commission may require banks and financial institutions to hold the level of equity capital above minimal requirements, if the latter does not allow for the covering of all risks effectively incurred. The Banking Commission expects banks and financial institutions to hold where required the level of equity capital above minimal requirements to effectively hedge all the risks to which they are exposed. Article 33: Banks and financial institutions shall implement an appraisal system of adequacy of their internal equity capital in hedging risks to which they are or would be exposed. This system shall be documented and reviewed regularly and shall ensure a periodic reporting to the governing body and to the executive body, on adequacy of equity capital to risks incurred and on discrepancies that may arise. Article 34: Banks and financial institutions shall carry out stress tests to assess the vulnerability of credit portfolios in the event of economic downturn or deterioration of the quality of counterparties Article 35: Banks and financial institutions shall set up a formalized procedure approved by the governing body and relating to financial reporting which in compliance with legal and regulatory provisions defines the terms of publishing information and controls to undertake on the whole process. Article 36: Banks and financial institutions shall proceed with publication of quantitative and qualitative information on the structure of equity capital, risk management practices, exposures to risks, adequacy of equity capital to incurred risks, profit and loss balance and financial position as well as essential information relating to management and business activities.

14 Article 37: Regulations and relating to prudential management rules of banks and financial institutions and all other otherwise provisions shall be repealed. Article 38: Provisions provided for by this Regulation will be specified when necessary through instruction of the Bank of Algeria. Article 39: Provisions of this Regulation shall be applicable as of October 1 st, Article 40: This regulation shall be published in the Journal Officiel of the Democratic and Popular Republic of Algeria. The Governor Mohammed LAKSACI REGULATION OF FEBRUARY 16 TH, 2014 RELATING TO LARGE RISKS AND EQUITY STAKES The Governor of the Bank of Algeria, Whereas Order of Jumaada al-thaany 27 th, 1424 corresponding to August 26 th, 2003 as amended and completed, relating to Money and Credit, namely its Articles 62 (h), 74, 97 and 114; Whereas Order of Shaban 19 th, 1416 corresponding to January 10 th, 1996 relating to leasing; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of the Governor and Vice-Governors of the Bank of Algeria; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of Members of the Executive Board of the Bank of Algeria; Whereas the Presidential Decree of Shaaban 26 th, 1423, corresponding to November 2 nd, 2002 relating to appointment of a Member of the Executive Board of the Bank of Algeria;

15 Whereas the Presidential Decree of Dhu al-qaadah 24 th, 1424 corresponding to January 14 th, 2004 relating to appointment of Members of the Council of Money and Credit of the Bank of Algeria; Whereas the Presidential Decree of Jumaada al-awal 5 th, 1427 corresponding to June 1 st, 2006 relating to appointment of a Vice-governor of the Bank of Algeria; Whereas Regulation if August 14 th, 1991 setting prudential management rules of banks and financial institutions, Whereas Regulation of April 20 th, 1995 amending and completing Regulation of August 14 th, 1991 setting prudential management rules of banks and financial institutions; Whereas Regulation of November 28 th, 2011 relating to internal control of banks and financial institutions; Whereas Regulation of February 16 th, 2014 relating to solvency ratios applicable to banks and financial institutions; Further to the Resolution of the Council of Money and Credit of the Bank of Algeria of February 16 th, 2014; Promulgates the Regulation the content of which follows: Article 1: The object of this Regulation is to define rules that banks and financial institutions shall observe regarding risk division and equity stakes. Article 2: For the application of this Regulation, it shall be understood that: Regulatory equity capital is the equity capital as defined by Regulation of February 16 th, 2014 relating to solvency ratios applicable to banks and financial institutions; Large risk means all risks incurred on the same beneficiary due to transactions whose amount exceeds 10% of equity capital of the bank or the financial institution concerned; Same beneficiary are natural persons or legal entities and related persons upon which the bank or financial institution incurs a risk; Related persons are natural persons or legal entities that have links of any nature whatsoever, so that it is likely that the difficulties for financing or

16 repaying loans faced by one person affects the others. These links are assumed to exist between: entities of a group consisting of parent companies, subsidiaries and joint-ventures; natural persons or legal entities that are subject to a joint common management or that maintain predominant business relationships such as outsourcing or that are linked by cross guarantees agreements. Equity stakes are securities whose term ownership allows to influence or control the issuing company. This situation is presumed to exist when a bank or financial institution owns at least 10% of capital or voting rights of said company. Article 3: For the application of this Regulation, the following elements are not taken into consideration when calculating limit ratios of large risks: - equity stakes and any other debts assimilated to equity capital held in other banks and financial institutions and deductible from equity capital; - risks incurred when settling: i) transactions relating to foreign exchange rates over the two (02) business days following the date of enforcement of commitment, ii) purchases or sales of securities over the three (03) business days from the moment the bank or financial institution has enforced its commitment. TITLE I: DIVISION OF RISKS Article 4: Any bank or financial institution shall be compelled to observe at all time a maximum ratio of 25% among all net weighted risks that it incurs on a same beneficiary and the amount of its regulatory equity capital. The Banking Commission may require a maximum ratio lower than that threshold for some beneficiaries or for all beneficiaries of a bank or financial institution. Article 5: The total of large risks incurred by a bank or financial institution shall not exceed eight (08) times the amount of regulatory equity capital. Article 6: Overruns of thresholds set out in articles 4 and 5 hereinabove shall be subject to sanctions of the Banking Commission.

17 Article 7: Risks incurred on a same beneficiary are credit in cash of all nature, securities and assimilated and irrevocable signature commitments granted. These risks, net of guarantees admitted and provisions are assigned the following weighting rates set in article 11 of this Regulation. Before being assigned the applicable weighting rate, signature commitments are converted into equivalent credit risks, according to conversion factors provided for in Article 12 hereinafter. Article 8: When a risk is guaranteed by a third party, this risk is considered to be incurred upon the guarantor in the amount of collateral being received. The bank or financial institution assigns the portion of the risk being hedged, the weighting applicable to guarantor as reflected in Article 11 below. Uncovered part remain assigned the weighting rate applicable to debtors. Article 9: Admitted guarantees are taken into account in accordance with provisions of Articles 18 and 19 of Regulation of February 16 th, 2014 relating to solvency ratios applicable to banks and financial institutions. Article 10: Banks and financial institutions may reduce their risks on residential mortgage loans of a maximum of 50% of the value of the real estate concerned, if one of the following conditions is met: - the risk is guaranteed by senior ranking mortgage; - the risk concerns a transaction of operational leasing whereby the lessor retains full ownership of the property. The value of the residential real estate is calculated on the basis of prudent assessment criteria. The bank or financial institution concerned shall be able to justify fulfillment of this requirement to the Banking Commission. Article 11: Weighting rates applicable to balance sheet receivables are the following: 1) Weighting rate of 0% - claims on State and similar bodies; - deposits and claims on the Bank of Algeria and financial services of Algérie-Poste; - claims on central and local government.

18 2) Weighting rate of 20% - deposits and grants to banks and financial institutions based in Algeria ; - debts securities issued by banks and financial institutions based in Algeria; - deposits and grants to banks and financial institutions or similar, based abroad, with rating at least equal to AA- or equivalent. 3) Weighting rate of 50% - deposits and grants to banks and financial institutions or similar, based abroad, with rating at least equal to BBB- or equivalent and less than AA- or equivalent. 4) Weighting rate of 100% All claims not benefitting a lower weighting rate, namely: - all credits to enterprises, individuals and associations, including leasing; - all claims constituting equity capital other than claims deducted in accordance with Article 21 of this regulation. Article 12: Conversion factors of off-balance sheet elements are the following: 1) Conversion factor of 0% Overdraft facilities and commitment to lend that may be canceled without condition at any time and without prior notice. 2) Conversion factor of 20% Documentary credits granted or confirmed when corresponding goods represent a guarantee. 3) Conversion factor of 50% i) commitment to pay resulting from documentary credits when corresponding goods do not represent a guarantee; ii) guarantee for Government contract, completion guarantee and customs and fiscal commitments;

19 iii) unused irrevocable facilities such as overdraft and commitment to lend whose original duration exceeds one (01) year. 4) Conversion factor of 100% i) acceptances; ii) irrevocable credit openings and guarantees representing credit substitutes; iii) guarantees of dispensed credits; iv) other irrevocable signature commitments not listed above. Article 13: Credits dispensed through project financing technique do not add to the risks incurred on shareholders of entities created to achieve such projects, provided that there are no cross guarantees between shareholders and the entity established. Article 14: Elements used for calculating standards hereinabove shall come out of accounting of banks and financial institutions. Article 15: Banks and financial institutions need to have available an external audit report on risks they incur on all enterprise representing a large risk as defined in Article 2 of this Regulation. Article 16: Banks and financial institutions draw periodically up stress testing scenarios relating to the deterioration of credit risks of main counterparts. These scenarios should namely consider credit risk concentration and the market value of related collateral. Article 17: Banks and financial institutions shall quarterly report large risk exposures according to the provisions adopted by instruction of the Bank of Algeria. TITLE II: EQUITY STAKES ARRANGEMENTS Article 18: Banks and financial institutions are authorized to take and hold equity stakes under conditions and limits determined in Articles 19 through 22 hereinafter. Article 19: Equity stakes shall not exceed one of the following limits: - for each equity stake: 15% of regulatory equity capital; - for the whole of equity stakes: 60% of regulatory equity capital.

20 Article 20: Shall not be subject to limits set by Article 19 above: i) equity stakes held in banks and financial institutions based in Algeria; ii) equity stakes in enterprises entitled to Algerian Law that represent a dismemberment or extension of banking activities including real estate companies created by banks and financial institutions and companies managing local interbank services; iii) securities acquired within the last three (03) years by virtue of financial assistance or for the remediation or rescue of businesses; iv) equity stakes for which the Council of Money and Credit has given express permission. Article 21: Shall be deducted: a) from core capital: i) 50% of equity stakes in banks and financial institutions based in Algeria and in banks and financial institutions or similar based abroad; ii) equity stakes that exceed one of the two limits set in Article 19 hereinabove. In case of exceeding individual limit for a single or multiple equity stakes, on the one hand, and of the overall limit, on the other hand, the highest overrun shall be deducted; b) from additional equity capital: 50% of equity stakes in banks and financial institutions based in Algeria and in banks and financial institutions or similar, based abroad. Article 22: For the implementation of this regulation, each equity stake is accounted for at its net book value. Article 23: The Banking Commission may authorize a bank or financial institution to derogate for a specific period with provisions of this Regulation. Article 24: Any provisions contrary to this Regulation shall be repealed. Article 25: Provisions of this Regulation shall be applicable as of October 1 st, Article 26: This Regulation shall be published in the Journal Officiel of the Democratic and Popular Republic of Algeria.

21 The Governor Mohammed LAKSACI REGULATION OF FEBRUARY 16 TH, 2014 RELATING TO THE CLASSIFICATION AND PROVISIONING OF CLAIMS AND SIGNATURE COMMITMENTS OF BANKS AND FINANCIAL INSTITUTIONS The Governor of the Bank of Algeria, Whereas Order of Jumaada al-thaany 27 th, 1424 corresponding to August 26 th, 2003 as amended and completed, relating to Money and Credit, namely its Articles 62 (h), and 97; Whereas Order of Shaban 19 th, 1416 corresponding to January 10 th, 1996 relating to leasing; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of the Governor and Vice-Governors of the Bank of Algeria; Whereas the Presidential Decree of Rabi al-awal 10 th, 1422 corresponding to June 2 nd, 2001 relating to appointment of Members of the Executive Board of the Bank of Algeria; Whereas the Presidential Decree of Shaaban 26 th, 1423, corresponding to November 2 nd, 2002 relating to appointment of a Member of the Executive Board of the Bank of Algeria; Whereas the Presidential Decree of Dhu al-qaadah 24 th, 1424 corresponding to January 14 th, 2004 relating to appointment of Members of the Council of Money and Credit of the Bank of Algeria; Whereas the Presidential Decree of Jumaada al-awal 5 th, 1427 corresponding to June 1 st, 2006 relating to appointment of a Vice-governor of the Bank of Algeria; Whereas Regulation of August 14 th, 1991 setting prudential management rules of banks and financial institutions, Whereas Regulation of April 20 th, 1995 amending and completing Regulation of August 14 th, 1991 setting prudential management rules of banks and financial institutions;

22 Whereas Regulation of Aouel Chaabane 1430 corresponding to July 23 rd, 2009 relating to the bank accounting plan and accounting rules applicable to banks and financial institutions; Whereas Regulation of June 28 th, 2011 relating to accounting of uncollected interests; Whereas Regulation of February 16 th, 2014 relating to solvency ratios applicable to banks and financial institutions; Whereas Regulation of February 16 th, 2014 relating to large risks and to equity stakes; Further to the Resolution of the Council of Money and Credit of the Bank of Algeria of February 16 th, 2014; Promulgates the Regulation the content of which follows: Article 1: The object of this Regulation is to set rules for classifying and provisioning claims and signature commitments of banks and financial institutions and the accounting procedures, I: CLASSIFICATION OF CLAIMS Article 2: Under this Regulation, claims shall mean all credits granted to natural persons or legal entities recorded in the balance sheet of banks and financial institutions. Article 3: Claims are classified in current receivables and doubtful claims. Article 4: Claims whose integral recovery within contractual time limits seems guaranteed are considered as current receivables. Are also included in this category: - claims secured by guarantees of the State; - claims guaranteed by deposits established with the lending bank or financial institution; - claims guaranteed by pledged securities that may be disposed of without their value being affected. Article 5: Claims which exhibit one of the following features are considered as doubtful:

23 - likely or definite risk of total or partial non-recovery; - outstanding claims for over three (03) months. These claims are divided into three (03) parts, according to levels of risk: - claims with potential problems; - high risk claims; - doubtful claims with no prospect of recovery. Category 1: Claims with potential problems The following claims are classified in this category: - depreciable loans for which at least one maturity is not settled for 90 days and outstanding redeemable credits with bullet repayment that are not resolved 90 days after the maturity; - leasing with rental maturity past due for 90 days; - debit balances of current accounts that during a period of 90 to 180 days, have not registered credit flows covering all bank charges and a significant part of said debit balances; - real estate loans to individuals guaranteed by a mortgage with monthly maturities past due for six (06) months at least; - debts of any kind with doubtful total or partial recovery due to the deteriorating financial position of the counterparty, suggesting probable losses (struggling sector of activity, significant decrease in turnover, excessive debt ) or experiencing internal difficulties (shareholder disputes, ). Category 2: High risk claims The following claims are classified in this category: - depreciable loans for which at least one maturity is not settled for 180 days and outstanding redeemable credits with bullet repayment that are nor resolved 180 days after the maturity; - debit balances of current accounts that, during a period of 180 to 360 days have not registered credit flows covering all bank charges and a significant part of said debit balances; - leasing with at least one rental past due for 180 days; - real estate loans to individuals guaranteed by a mortgage with past due monthly maturities for twelve (12) months at least; - claims on a counterparty declared to be in judicial settlement;

24 - claims whose materiality or consistency is challenged by judicial means. Claims of any kinds whose total or partial recovery is uncertain are also ranked in this category, regardless of the existence of overdue payments. Are particularly targeted the counterparties whose financial situation has deteriorated sharply and that generally present with more severity the same characteristics as those selected in Category 1 or that have been subject to an alert procedure. Category 3: Doubtful claims with no prospect of recovery Claims whose total or partial recovery is compromised and reclassification in current receivable is not expected are ranked in the category of doubtful claims, namely: - depreciable loans for which at least one maturity is past due for 360 days at least, and outstanding credit redeemable with bullet repayment is not resolved 360 days after the maturity; - leasing with at least one rental past due for over 360 days; - real estate loans to individuals guaranteed by a mortgage with monthly maturities past due for over eighteen (18) months; - debit balances of current accounts that have not registered credit flows covering all bank charges and a significant part of principal repayment for over 360 days; - event of default; - claims held on a counterparty in bankruptcy, in liquidation or cessation of activity. Article 6: For any given counterparty, the downgrading of a claim entails via contagion effects the downgrading of all other claims toward the same category of doubtful debts together with the downgrading to doubtful commitments of irrevocable signature commitments given. Irrevocable signature commitments given to a counterparty only benefitting signature commitments and presenting risk of defaulting are also ranked as doubtful commitments. When the counterpart belongs to a group, the bank or financial institution assesses the impact of failure of such counterparty on the position of the group and if needed, performs a downgrading of all debts on all entities of the group. Article 7: When restructuring doubtful claims, the later shall be maintained in the category of doubtful claims for a period of twelve (12) months at least. After this deadline, the reclassifying of a restructured debt into current receivables

25 may be considered, provided that the new repayment schedule is respected and related interests effectively collected. In case of overdue payment on restructured debts, the latter are downgraded in full into doubtful claims with no prospect of recovery, after a delay of ninety (90) days. The list of doubtful claims that have been subject to at least one restructuring and whose amount exceeds DA 50,000,000 shall be quarterly sent to the Banking Commission and to the Bank of Algeria. An instruction from the Bank of Algeria shall specify terms of application of this provision. Article8: Non performing claims are claims for which there is not prospect of recovery. Such claims should be written off, only after exhausting amicable or judicial means. However, claims of small amounts may be directly written off, in particular with regard to litigation costs. II: PROVISIONING OF CLAIMS AND DOUBTFUL COMMITMENTS Article 9: Current receivables shall be subject to yearly provisioning of 1% until reaching a total level of 3%. Article 10: Claims with potential problems, high risk claims and doubtful claims are provisioned respectively at minimum rates of 20%, 50% and 100%. These rates are also applied to signature commitments given irrevocably to a counterparty whose claims are ranked in one of the categories above. Signature commitments given irrevocably to a counterparty benefiting only signature commitments and also presenting default risk are thereby provisioned depending on the level of incurred risk. Article 11: The provisioning of claims is carried out on the gross amount, excluding uncollected interests and after deducting guarantees accepted. Article 12: Guarantees accepted and the percentages of deductions applied are as follows: Percentage of 100%:

26 - deposits of fund and deposits of guarantees with the lending bank; - deposits of guarantees with lending financial institution; - guarantees received from the Algerian State or institutions and Algerian public fund whose guarantee is assimilated to that of the State; - debt securities issued by the Algerian State or benefiting its guarantee; - guarantees received from funds and development banks and similar bodies. Percentage of 80%: - deposits of guarantee and term deposits held in Algeria in a bank other than the bank that granted the support; - deposits of guarantee held in Algeria with a financial institution other than the one that granted the support; - guarantees received from banks, financial institutions and credit insurance agencies approved in Algeria; - guarantees received from banks and financial institutions or assimilated, based in Algeria with rating equal at least to AA- or equivalent, except for guaranties issued by parents banks or financial institutions and subsidiaries; - debt securities issued by a bank or financial institution based in Algeria, other than the institution that granted the financial support; - debt securities traded on a regulated market in Algeria. Percentage of 50%: - mortgaged and pledged vehicles; - guarantees received from banks and financial institutions or assimilated, based abroad with rating at least equal to BBB- or equivalent and less than AA- or equivalent, except for the guarantees issued by parents banks and subsidiaries. Article 13: Guarantees shall observe the following conditions in order to be accepted as such: - deposits, shares and securities received as guarantee should be liquid assets, free of any commitment and be subject to a valid written contract and enforceable against third parties; - guarantees consisting of shares and securities issued by a third institution should, in addition to conditions mentioned above, have been notified to the lending institution and stipulated to be assigned to its exclusive payment;

27 - guarantees received should be formally specified as unconditional and achievable at first request; - mortgages should be registered and should be of first ranking, except if that ranking has already been granted to the lending bank or financial institution or for the benefit of the State or payment of registration fees related to the property concerned. Mortgages on commercial buildings are retained only if the property is completed and ready to be operated; - pledges on vehicles should be duly registered and cover new and easily negotiable standard vehicles; - real estate property and collateral provided should be subject to prudent assessment by independent experts, on the basis of internal formalized procedures. The assessment should refer to market prices effectively recorded and should take into consideration costs relating to the potential selling of the asset received as collateral. Assessments should be kept updated, namely in order to take into account obsolescence of the property and the possible deterioration of market conditions; - underlying assets should be hedged by adequate insurance covering property damages. Article 14: After the expiry of a period of five (05) years as from the date of the first downgrading, doubtful claims hedged by real collateral should be totally provisioned without deducting such collateral. Article 15: Banks and financial institutions should have internal procedures available in order to enable them to ensure legal validity of collateral, verify the adequacy of the underwritten insurances in covering property damages, assess the coverage actually offered, and the terms of effective and prompt implementation of collateral. Article 16: Banks and financial institutions shall consider each quarter at last the ranking of claims, and each year at least the quality of collateral, namely as regards its market value and terms of its implementation. If appropriate, a downgrading is carried out without delay along with the readjustment of provisioning. III: ACCOUNTING Article 17: Pursuant to provisions of Regulation of July 23 rd, 2009 relating to the bank accounting plan and accounting rules applicable to banks and financial institutions: - non-performing loans relating to credits in cash, including leasing, are accounted in appropriate accounts of doubtful debts;

28 - different categories of claims relating to credits in cash claims with potential problem, very risky claims and claims with no prospect of recovery- are accounted in appropriated subdivisions of accounts of doubtful debts or identified by attributes; - non-performing loans, restructured under conditions set in Article 7 above that have been subject to reclassification into current receivables are accounted in appropriate subdivisions of asset in the balance sheet; - signature commitments taken on a counterparty presenting a likely risk or definite risk of defaulting are accounted in account 98 under doubtful commitments item. The related provision is charged to the credit position of provisioning account for financing commitments by debiting the account of allowance provisions for signature commitments. Article 18: Accounting non-performing loans and allowance provisions shall be carried out upon the occurrence of situation and events provided for in Article 5 of this Regulation and at the latest, at the end of each quarter. Article 19: Interests on non-performing loans are not charged to profit and loss statement. The accounting shall be carried out in accordance with provisions of Regulation of June 28 th, 2011, relating to accounting of uncollected interests. Article 20: Accrued and not matured interests are calculated at the end of each reporting date. Bank income and bank charges deriving are charged respectively to the debit of appropriate accounts of related receivables and to the credit of appropriate accounts of related liabilities. Article 21: Any provisions contrary to this Regulation shall be repealed. Article 22: Provisions of this Regulation shall be applicable as of October 1 st, Article 23: This Regulation shall be published in the Journal Officiel of the Democratic and Popular Republic of Algeria. The Governor Mohammed LAKSACI