Total grants and investments in securitization portfolios do not exceed 5% of the bank’s total portfolio of loans and credit facilities
The Central Bank of Egypt (CBE) obligated banks operating in Egypt to limit financing to financial leasing companies so that the total grants and investments in securitization portfolios do not exceed 5% of the bank’s total portfolio of loans and credit facilities.
Additionally, the total direct and indirect credit facilities and investments in the securitization portfolios of the one financial leasing company shall not exceed 1% of the bank’s total portfolio of loans and credit facilities.
This came in regard to the decision of the CBE’s board of directors at its session held on February 20, 2024, aiming of tightening control over the financing provided to leasing companies and reducing the risks associated with it.
The CBE stressed the need to determine the purpose of the funding, whether it is for financing new financial leasing contracts or refinancing existing contracts from the company’s resources.
It also required the banks to follow up on the proper use of the funding by obtaining all the documents related to the contracts being financed.
The regulations emphasized that the primary means of repayment for the funding should come from the cash flows generated by the bank-financed financial leasing contracts. It stressed the importance of aligning the repayment schedule of the funding with that of the financial leasing contracts.
The CBE urged financial leasing companies to conduct a comprehensive assessment of the customers and parties involved in the contracts to evaluate their financial viability and repayment capacity. It also cautioned banks against providing credit facilities to financial leasing companies for a limited number of customers.
Additionally, the decision prohibited banks from extending credit facilities in foreign currency to financial leasing companies unless they are linked to an import operation and the customers have sufficient foreign currency sources for repayment. Banks must verify that financial leasing companies comply with the regulations set by the Financial Regulatory Authority.
These rules are applicable to new funding starting from the date of issuance. Existing investments that exceed the limits should be gradually reduced based on their maturity dates. Banks are required to submit a corrective plan to the supervisory sector within three months and provide quarterly reports on the status of their investments.
