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Banking Regulation in East Timor

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Overview of Key Regulations

East Timor has implemented various regulations to govern its banking sector. This excerpt highlights key points from these regulations, specifically focusing on remuneration, internal control systems, bank capital requirements, and liquidity requirements.

Remuneration of Senior Management

The remuneration of senior management in East Timor is governed by the following rules:

• The General Meeting of Shareholders freely establishes the remuneration of senior management members.
• For the first three years of operations, the Banking and Payments Authority (BCTL) must approve the remuneration of senior management members.

Internal Control Systems

To ensure reliable financial reporting and prevent losses, banks in East Timor are required to establish sound internal control processes:

• Banks must appoint an independent external auditor recommended by the Audit Committee and approved by BCTL.
• Instruction 5/2001 requires banks to segregate duties, identify potential conflicts of interest, and subject them to careful monitoring.

Bank Capital Requirements

The Banking and Payments Authority defines minimum capital requirements for newly licensed banks in East Timor:

• The minimum capital for newly licensed banks may not be less than US$2 million.
• The amount of allocated capital determines the financial activities a bank can engage in.
• Instruction 2/2000 develops capital adequacy ratio requirements, which must be at least 12%.
• Dividend distribution is limited if it leads to a situation where the bank fails to comply with minimum regulatory capital or capital adequacy ratio requirements.

Liquidity Requirements

To ensure adequate liquidity, East Timor’s banking regulations require banks to maintain an appropriate balance between invested funds (assets) and liabilities:

• Instruction 3/2000 establishes liquidity requirements for banks licensed in East Timor.