Palestine Monetary Authority

Instructions No. (27) of 2020

Regarding the Mitigation of the Effects of the Financial Crisis and the Coronavirus Crisis

Based on the provisions of Law No. (9) of 2010 concerning Banks, particularly Articles 40, 41, and 72 thereof;

With the aim of mitigating the current necessary economic and financial effects and the coronavirus (COVID-19) crisis;

In accordance with the powers vested in us;

And in pursuit of the public interest;

We have issued the following Instructions:

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Article (1)

Scope of Application

The provisions of these Instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine.

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Article (2)

Definitions

For the purposes of implementing the provisions of these Instructions only, the following words and phrases shall have the meanings assigned to them below, unless the context indicates otherwise:

• Credit: All types of direct and indirect financing forms granted by Islamic banks, and all types and forms of direct and indirect facilities granted by conventional banks.
• Credit Restructuring: Any modification or change to the reference conditions of the loan, facilities, or financing, including modifying the installment repayment period or changing the installment value.
• Credit Rescheduling: Re-agreeing on the contractual terms related to the overdue loan or financing, which were classified as non-performing under the sub-standard category due to the crisis, and modifying the payment amount, interest/profit amount, grace period, type of collateral, or other terms.
• Contractual Interest or Profit: The interest rate or profit rate specified in the loan or financing contract.

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Article (3)

Objective

These Instructions aim to achieve the following:

1. Determine the necessary procedures and measures to mitigate the economic effects of the current financial crisis and the crisis caused by the coronavirus.
2. Address the shortage of short-term systemic liquidity by expanding the selection criteria for targeted categories.
3. Assist in directing funds and expected loan installments due until the end of the year to cover urgent operational expenses, and support working capital to maintain production, operation, and employment rates.
4. Inject more liquidity into the market to enable individuals and various economic sectors to resume economic activity as soon as possible.
5. Assist in containing the expected financial crisis and enabling the economy to overcome it.
6. Assist in restoring economic activity and addressing targeted growth.

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Article (4)

Procedures and Measures

1. The bank must identify debtor customers (individuals and companies) whose income, cash flows, business, and commercial activities were affected by the crisis and apply the provisions of these Instructions exclusively to them.

2. Subject to what is stated in Paragraph (1) of this Article, the bank is prohibited, unilaterally, from postponing installments for debtor customers not affected by the crisis, except after obtaining prior written approval from the Palestine Monetary Authority.

3. The bank must commit to documenting the application of the provisions of these Instructions in accordance with proper banking procedures and principles.

4. When applying the provisions of these Instructions, the bank must rely on the extent of damage suffered by the customer and consider taking necessary measures to enable them to overcome the crisis, through the following:

   a. Restructuring existing facilities.
   b. Rescheduling existing facilities.
   c. Granting the debtor customer (presumed) a temporary overdraft ceiling.
   d. Granting the debtor customer (presumed) in Islamic banks a temporary financing ceiling, or restructuring the Ijarah ending with ownership.

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Article (5)

Credit Restructuring

1. The bank may restructure existing credit for customers whose businesses were directly affected by the crisis, and rearrange their financial status and repayment capacity.
2. The bank must document the credit restructuring contract addendum in accordance with prevailing instructions.
3. The bank is prohibited, when signing a credit restructuring agreement, from increasing interest rates or profit above the contractual interest or profit.
4. The bank is prohibited from collecting any commissions or fees on the credit restructuring agreement.

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Article (6)

Credit Rescheduling

Based on what is stated in Instructions No. (2008/1) concerning the classification of facilities, the bank may reschedule existing credit for customers whose businesses were directly affected by the crisis under the following conditions:

1. Exempting the borrower from the down payment.
2. Exempting the borrower from any fees or commissions for rescheduling the credit.
3. Excluding the credit from the provision statement if the customer commits to paying four installments after rescheduling the credit, regardless of the number of rescheduling instances performed on the account.
4. Re-including the borrower in the provision statement if any installment becomes due.
5. Accepting shares of companies listed on the Palestine Exchange at 70% of the market value as collateral.
6. Documenting the credit rescheduling contract addendum in accordance with prevailing instructions, and including interest rates or profit rates therein.

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Article (7)

Temporary Overdraft

The bank must commit to the following:

1. Granting the borrower affected by the crisis, upon their request, a temporary overdraft ceiling equal to their obligations during the period from 2020/7/1 to 2021/1/1.

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Article (8)

Financing Ceiling and Ijarah Restructuring

The Islamic bank must commit to the following:

1. Granting the borrower affected by the crisis, upon their request, a temporary financing ceiling equal to their obligations during the period from 2020/7/1 to 2021/1/1.
2. Using the temporary financing ceiling exclusively for partial or full repayment of installments during that period.
3. Deducting from the temporary financing ceiling the value of partial repayments according to the borrower's degree and desire.
4. Not collecting any commissions or fees on the temporary financing ceiling, including the disbursement commission or repayment commission.
5. The profit on the temporary financing ceiling shall be at the contractual profit rate recorded in the original financing contract, plus 1%.
6. Repayment of the temporary financing ceiling must occur within a maximum period of (24) twenty-four months from the date of 2021/01/02. The bank may grant the borrower a grace period of up to (6) six months; otherwise, the ceiling shall be restructured in agreement with the customer.
7. Documenting the temporary financing ceiling contract in accordance with prevailing instructions.
8. The financing ceilings referred to in this Article are exempt from the requirements of Instructions No. (2020/60) concerning the maximum permitted financing ratio, which is set at 10% of the total existing financing portfolio.
9. Installments related to the Ijarah ending with ownership may be postponed by increasing the rental period and adjusting the rent for subsequent rental periods where the leased asset has not been utilized, based on Sharia Standard No. (9) and with the agreement of both parties.
10. Allowing the borrower to repay the financing ceiling early and exempting them from profits for the remaining period.

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Article (9)

Credit Quality Monitoring

The bank must commit to the following:

1. Conducting periodic assessments of the availability of indicators showing a significant increase in credit risk when restructuring or rescheduling credit, and linking this with sectoral and economic indicators.
2. Determining risk levels by economic sectors, identifying the most affected sectors, and taking this into account in the criteria for the migration of credit risk to higher stages.
3. Including current and future variables of economic conditions in the scenarios of expected credit loss calculation models, while giving appropriate weight to the worst-case scenario.
4. Considering the gradual transition between the three stages (Stage 1, Stage 2, Stage 3) for irregular facilities due to the crisis, as well as for rescheduled facilities, when viewing them retrospectively.
5. Conducting stress testing for conditions resulting from the crisis and improving the bank's plans with the measures taken and measures to be taken to mitigate associated risks, and reflecting this impact on expected credit loss calculation methodologies and recording it in financial statements as of 2020/12/31.

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Article (10)

Cash Liquidity Ratio

The bank must maintain an approximate liquidity ratio as follows:

1. At the bank level: The cash liquidity ratio at the currency level shall be 3%, and at the total currency level shall be 5%.
2. At the branch level: The cash liquidity ratio at the currency level shall be 2%, and at the total currency level shall be 3%.
3. Banks must commit to taking necessary measures to avoid any potential liquidity difficulties or risks and ensure meeting any customer withdrawals.

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Article (11)

General Provisions

The bank must commit to the following:

1. Continuing to grant credit to new and existing customers during the application of these Instructions, and applying the bank's credit policies in evaluating customer creditworthiness. New loans must be structured taking into account the current and future repayment capacity of the borrower.
2. Encouraging presumed customers to disclose their credit obligations in a timely manner, either fully or partially.
3. Identifying and measuring risks correctly and accurately, and continuing to identify cases where borrowers may face long-term financial difficulties and classifying them in accordance with prevailing instructions.
4. Clearly identifying all customers subject to the provisions of these Instructions, and determining potential losses the bank may incur due to their application, which may affect its financial data.
5. Transparently disclosing procedures and measures related to payment installments during the period specified in these Instructions, providing relevant information, and publishing specific disclosure requirements to the public in a timely manner.
6. Not relying solely on the procedures and measures stipulated in these Instructions for modifying credit classification.
7. Evaluating whether other measures and procedures the bank wishes to apply are capable of assisting and mitigating the financial conditions of borrowers under current circumstances.
8. Ensuring that the measures and procedures taken respond to the financial conditions of borrowers due to the crisis, and that the use of existing credit ceilings or renewing credit is not considered new facilities.

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Article (12)

Exemptions from Instructions

These Instructions do not apply to new credit and loans granted under the Sustainability Program and facilities for the government and its institutions, nor to non-performing credit prior to the date of 2020/3/1.

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Article (13)

Sustainability Program

The bank must commit to receiving credit requests for the Sustainability Program through all its branches, in order to serve the provision of financing for projects affected by the coronavirus crisis and enable them to restore activity and maintain employment.

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Article (14)

Implementation and Enforcement

1. All competent authorities must implement the provisions of these Instructions, each within their respective scope. Any provisions conflicting with them are repealed. These Instructions apply from the date of their issuance.
2. Issued in Ramallah on this Wednesday, corresponding to 2020/7/22.

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AZAM AL-SHWEID
Governor

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Note:
The original title of the document is: Instructions No. (27) of 2020 Regarding the Mitigation of the Effects of the Financial Crisis and the Coronavirus Crisis
It was issued by the Palestine Monetary Authority.

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Contact Information:
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www.pma.ps