The Monetary and Credit Policy for The Year2004

Ref: - BS/-/9/2/a

Date:- 6 Zul Qaeda, 1424 HJ

December 29, 2003

Introduction: -

The Monetary and Credit policy of the Bank of Sudan for 2003 was issued in accordance with the macro economic policy of the country which aims to realize real growth in the Gross Domestic Product of 6.5%, and to achieve economic stability, and to proceed further in the process of economic liberalization and maintenance of social balance.

To achieve the overall objectives mentioned above the Monetary and Credit policy is to control liquidity, and to maintain inflation at the overage rate of 6.5% during 2004 through growth in money supply at 21%.

The Bank of Sudan and the Ministry of Finance and National Economy will coordinate to establish a non-petroleum credit guarantee and export development institution, and another one for developing and financing the industrial sector. Moreover, the policy does encourage the banks to diversify and activate other credit guarantees.

Therefore, it has been resolved that circular number BS/-/9/2/a of December 30, 2002 covering the Monetary and Credit policy for 2003 is hereby revoked, and that this circular comes into effect as at January 1, ‏2004.

First: Measures to Control and Regulate Liquidity: -

1/Legal Monetary Reserve: -

A-      Each bank should maintain a legal monetary reserve in local currency at a percentage not less than 12% of its total deposits in local currency, (demand deposits, time deposits, other deposits, margins on Letters of Credit and on Letters of Guarantee), as reflected in the weekly financing and deposits reports of the bank, excluding investment deposits and the like.

2/Internal Liquidty: -

Each bank should maintain internal liquidity in the form of cash and liquid assets composed of Central Bank Musharaka Certificates (CMCs), Government Musharaka Certificates (GMCs) and other securities to meet daily withdrawals of the customers in all of its branches, bearing in mind the minimum (10% of the total deposits) as an indicator. Banks that will fail to manage their liquidity sufficiently will oblige the Bank of Sudan to impose a certain limit of internal liquidity, in addition to other administrative and financial measures.

3/ Financing of Banks Through Central Bank Windows: -

a-   The current policy of financing banks from Bank of Sudan two windows shall continue, (liquidity deficit financing window, and investment financing window), in accordance with the regulations issued by the Bank of Sudan.

b-   In the framework of the policy of the Bank of Sudan to encourage banks to extend medium-term credit (more than one year to three years), Central Bank windows will be used to provide financing from a credit fund into which local banks and some other foreign banks and institutions will contribute in order to finance priority sectors.

4/Inter-bank Market: -a-    Any group of banks may form consortiums to finance different economic activities, especially agriculture, industry, social development, medical and diagnostic equipment, and to notify the Bank of Sudan before execution.

Second: - Uses of Resources: -

1. Banks may use their resources to finance all sectors and activities, except those prohibited according to this circular, through any of the Islamic modes of finance except the unrestricted mudaraba mode including financing import and procurement of medical equipment with the aim to encourage local medical treatment.

2.   After determining the percentage of investment savings to total deposits, each bank should allocate 50% of this percentage for medium-term financing (more than a year to three years), using the Islamic modes of finance in use except both the murabaha and the unrestricted mudaraba modes.

3. Each bank should allocate a percentage not less than 10% of the total banking finance to social development activities, (productive families, small producers, handicraft, professionals). Term of finance for this sector may be two years maximum.

4. Banks should strictly comply with the principles and regulations of direct investment, and those governing banks’ companies financing in accordance with the circulars issued by the Bank of Sudan.

5. The principles and regulations in the banking finance circulars of the Bank of Sudan apply on credit extended to investment companies, partnerships, foreign trade names in which foreign nationals are shareholders and registered in Sudan under the Companies Law of 1925. Foreign nationals are financed after obtaining approval of the Bank of Sudan.

6. Banks should reduce non-performing loans percentages in both local and foreign currencies towards achieving the internationally recognized standard of (6%), provided that the percentage of non-performance should not exceed 9% by the end of the year.

7. Banks should observe the following when applying modes of finance:-

i) Credit extended in murabaha mode should not exceed 30% of the bank’s total credit amount by the end of the year.

ii) Application of murabaha profit margin of 10% maximum per annum.

iii) Credit should be extended   in accordance with the murabaha mode manual issued by the Bank of Sudan. Murabaha is considered fictitious   if the rules in the manual are not complied with.

B) Musharaka and Mudaraba Modes: -

Each bank is permitted to determine musharaka percentages, management remuneration margins in the musharaka contracts, and the share of the speculator in the restricted mudaraba contracts.

Third: Sectors and Activities Prohibited From Financing: -

A)Banks are prohibited to extend credit to finance any of the following:

i)  Purchase of foreign exchange.

ii)   Foreign exchange bureaus.

iii)   Purchase of shares and financial securities including government musharaka certificates (GMCs) and government securities.

iv) To settle outstanding loans.

B) Banks are Prohibited to Finance the Following Except Upon Prior Approval From the Bank of Sudan: -

i)        The central government, state and local governments, purchase of stocks and shares and securities they issue. Banks should comply with the regulations issued by the Bank of Sudan in this respect.

ii)  Financing of companies, corporations, and enterprises owned by the government, (central or state governments), (this means; companies and enterprises in which the government owns more than 50% of the shares).

Fourth: - Credit in Foreign Exchange: -

Banks should comply with the circulars issued by the Bank of Sudan concerning financing in foreign exchange as follows: -

Credit is extended in foreign exchange to finance import of permissible goods in accordance with the regulations issued by the Bank of Sudan

Credit is extended from the sources mentioned here-below as follows: -

-     A 95% maximum from investment deposits and the like.

-     A 35% maximum from demand deposits and margins on Letters of Credit and on Letters of Guarantee in foreign exchange excluding non-performing loans.

-     Foreign correspondents facilities.

Credit may be extended in all of the Islamic modes except the un-restricted mudaraba mode.

Banks to determine the share of the agent in the case of extending credit in musharaka mode.

Murabaha profit margin shall be applied at 10% maximum per annum.

Fifth: - Securities

1-  Banks shall continue to accept credit securities stipulated in the circular covering principles and regulations of financing represented by holding mortgage, goods, raw materials, crops, liquid financial assets, estates, equipment and machineries, and affidavits according to the governing rules.

2-    Stocks and shares, and certificates shall continue to be accepted as credit securities.

3- Floating mortgage and warehouse certificates may be accepted as credit securities according to the principles and regulations issued by the Bank of Sudan.

Sixth: - General Regulations and Guidelines: -

1-     Banks should strictly comply with the circulars and guidelines of the Bank of Sudan concerning the principles and regulations of extending finance.

2-     Banks should strictly observe Islamic financing modes of investment and banking services. Sharia supervisory boards and internal auditing administrations should observe proper execution..

3-     Banks should comply with the circulars issued by the Bank of Sudan concerning general banking regulations.

4-     Each bank should see to it that its tariff fees are in conformity with the actual cost of banking services, and that the tariff is sufficiently displayed to the general public at its head office and the branches, and to send a copy of it to the Bank of Sudan.

Dr. Sabir M. Hassan

Governor

Bank of Sudan