A recent case clarifies the Angolan legally – prescribed interest rate on late payments – November 2013
In recent years, there have been several discussions amongst Angolan legal practitioners as to what interest rate must be applied to the late payment of amounts due in in terms of a loan or other contract.
The Angolan legislature has historically experienced great difficulties in determining such interest rate due to the vulnerability of Angola’s economy which was characterized by a significant depreciation in its currency (the Kwanza) and a high inflation rate.
In July 1998, the Angolan National Bank published Avis no. 3/98, which established that banking institutions could only apply the following maximum interest rates for late payments in their active operations:
- up to 180 days: 50% per year;
- from 181 days up to 1 year – 55% per year;
- more than 1 year – 57,5% per year.
Avis no. 3/98 was revoked one year later by Avis no. 7/99 which determined that banking institutions could adopt, in any active or passive operation, freely negotiated interest rates with their clients. As a result, interest rates in Angola had no legal limitation.
The underlying justification for this considerable freedom in establishing the interest rate was that, at the time, the Kwanza was depreciating rapidly and it was accordingly necessary for the contracting parties in any financial operation to allow the lender to earn a return even if the Kwanza suffered a considerable depreciation during the period of the agreement.
The economic situation of the country started to stabilize and Law no. 13/03 dated 14 February 2003 was published and modified the provisions of the Angolan Civil Code relating to interest rates. Article 559 of the Angolan Civil Code was changed to provide that “legal interest and any other interest that has no previous defined rate or quantum, shall be determined by a joint dispatch of the Ministers of Planning, Finance and Justice.” It seems clear that the intention of the legislature was to end the excessive flexibility in determining interest rates by entrusting State organs with such determination. Later that year, Joint Dispatch no. 36/03 dated 25 April 2003, was enacted and provided that the interest rate would be determined quarterly in terms of a specific formula that takes into account the consumer price index in Luanda (accumulated and publicized in the previous six months) and the inflation target for the next six months extracted from the monetary program. Based on this formula, it was then determined that “for legal interest relating to the quarter April – June 2003, the rate is 75% per year”.
In the past ten years, the prescribed interest rate in terms of article 559º of the Angolan Civil Code has not been updated, raising the question, “what is the legally prescribed interest rate currently in force in Angola?”
Some legal practitioners suggest that the legal interest rate of 75% per year in Joint Dispatch no. 36/03, continues to apply. In my opinion, this interest rate is no longer in force for the following two main reasons.
Firstly, in the actual current economic context of the country, it is completely usurious to apply a 75% annual interest rate. As explained above, in determining this rate, certain specific criteria were considered and were intended to deal with the problems caused by the continuous depreciation of the Kwanza. In fact, a table in an attachment to the Joint Dispatch indicates that an update was contemplated. From an analysis of the exchange rate used by the Angolan National Bank (www.bna.ao) in the last ten years, it appears that:
- During 2002, the Kwanza suffered a depreciation of 75%;
- During 2003 (the year in which the Joint Dispatch no. 36/03 was published) the Kwanza suffered a depreciation of approximately 52%;
- During 2004, the depreciation of Kwanza decreased to 7,5%;
- Thereafter, the Kwanza stabilized and suffered no significant depreciation.
It accordingly seems clear that the interest rate set out in Joint Dispatch no. 36/03 provided for an adjustment mechanism intended to adjust the rate having regard to the depreciation of the Kwanza. As the Kwanza has stabilized, it is not reasonable to apply an annual legally prescribed interest rate of 75% any more.
Secondly, the legal interpretation of the wording of Joint Dispatch no. 36/03 clearly restricts the use of the legal interest rate to the period set out therein, namely the quarter April- June 2003. Consequently, if such interest rate has only been determined for the quarter April-June 2003, its use after expiry of that period is arguably unlawful. There is presently legal uncertainty as to the level of the legally prescribed interest rate contemplated in article 559º of the Angolan Civil Code.
In my view, the rate should be determined taking into account the average interest rate used by commercial banks operating in Angola. My view is supported by a recent decision, issued by the Provincial Court of Luanda (Civil and Administrative Section), in legal process no. 0985/09-B, of March 2013. The Court declared that Dispatch no. 36/03 only established a temporary rule which is no longer in force. The Court decided to apply a 10% interest rate, which was determined having regard to the average interest rates used by commercial banks operating in Angola.
This is, in my view, a good start. However it is still essential that the Ministers of Planning, Finance and Justice issue a new joint dispatch in accordance with article 559º of the Angolan Civil Code to determine the legally prescribed interest rate to be applied in Angola. By doing so, the Angolan legal system will confer a higher degree of confidence and legal security to lenders carrying on activities under Angolan law.