Cairo on: 7 April 2019

Dear Mr. Chairman

Bank

Greetings,

In the context of the Central Bank's continuous efforts to support all activities of the Egyptian economy, especially those that contribute to the development plans adopted by the state, including the real estate development sector, which is the engine of the economy due to its link to many other industries.

With reference to the regulatory instructions issued on 2 October 2007 regarding the controls and rules of bank financing for real estate development companies operating in the field of creating residential units for sale, as well as the instructions issued on 11 January 2016 regarding the maximum ratio of installments for consumer purposes and housing loans for personal housing to income (%35 in the case of granting housing loans for personal housing outside the framework of Law No. 148 of 2001 and reaching %40 in the case of granting within the framework of that Law).

And in light of the above, the Board of Directors of the Central Bank decided in its meeting held on 28 March 2019 to issue controls regarding the discounting of commercial papers of real estate development companies without recourse to them as follows (with emphasis on the continued validity of the aforementioned rules dated 2 October 2007 and 11 January 2016):

Exempt discounted commercial papers without the Bank's right of recourse to real estate development companies from the instructions on the maximum ratio of installments for consumer purposes and housing loans for personal housing to the monthly income of natural persons, provided that the following controls are adhered to:

• 1. Real estate development companies must obtain a signed declaration from customers confirming their approval to transfer that debt to the Bank and provide the Bank with a copy of it or include a clause in the purchase contract stating the customer's approval for the possibility of the real estate development company transferring the debt to the Bank.
• 2. The real estate development company is obliged to notify the customer of the value of the transferred commercial papers and the name of the Bank when transferring the customer's debt to it.
• 3. The commercial papers intended for discounting must be specific to units that have been delivered to their buyers, with the company obtaining a declaration from them to that effect and providing the Bank with a copy of it.
• 4. At least %50 of the contractual value of the unit must have been paid.
• 5. The remaining period for paying the remaining installments must not exceed 6 years from the date of discounting the commercial papers.
• 6. The Bank must obtain a valid assignment of rights in its favor for the unit (according to the opinion of the Bank's legal advisor).
• 7. The company must provide banks with a quarterly report certified by one of the accountants registered with the Central Bank showing the ratio of bounced commercial papers to the company's total portfolio, calculated based on a three-year average. Commercial papers are considered bounced if not collected within 90 days.
• 8. The Bank must conduct a credit inquiry for each customer in the portfolio of commercial papers submitted for discounting individually.
• 9. The company must deposit a cash amount with the Bank upon acceptance of commercial papers for discounting, used to cover bounced commercial papers at a rate of %10 of the company's total portfolio intended for discounting as a minimum, or equal to twice the ratio of bounced papers multiplied by the company's portfolio mentioned in item No. 7 of the total value of commercial papers submitted for discounting, whichever is higher, as follows:
     (Percentage of bounced commercial papers * 2) * Total value of commercial papers submitted for discounting.
• 10. The company must maintain the ratio mentioned in the previous item throughout the period of validity of the discounting of commercial papers, and the amount mentioned is used to cover the value of bounced commercial papers immediately upon their bouncing.
• 11. Obtaining a commitment from the company stating that in the event of the bouncing of a commercial paper from the portfolio of commercial papers of a customer, the entire portfolio is replaced with another customer's portfolio or the company pays the value of the portfolio for this customer, within 60 days at the latest from the date of bouncing.
• 12. The total value of amounts granted by banks to the real estate development company in addition to the debt resulting from the discounting of commercial papers without the Bank's right of recourse to the company must not exceed the company's total equity adjusted by 1:3.
• 13. The total amounts granted to the company and its related parties - for the purpose of discounting commercial papers without the Bank's right of recourse to the company - must not exceed %1 of the total direct loan portfolio of each bank, and the total of this type of financing must not exceed %3 of the total direct loan portfolio of each bank.
• 14. The amount granted under this type of financing from the banking sector as a whole must not exceed 50 billion EGP, and this is monitored through the Supervision and Oversight Sector (Office Supervision Department) at the Central Bank.
• 15. The debt of each real estate development company individually regarding commercial papers without the Bank's right of recourse to the company is reported to the Central Department for Aggregating Credit Risks - as marginal information - for calculating the ratios mentioned in the items above.
• 16. This debt is reported for natural individuals separately to the Central Department for Aggregating Credit Risks and the Egyptian Company for Credit Information (Score-I), to be excluded from the maximum ratio of the value of due installments to the monthly income of the individual.
• 17. Banks must take whatever measures they deem necessary to study real estate development companies when discounting commercial papers submitted by them without recourse in light of their credit policies, while adhering to all credit granting controls and instructions issued by the Central Bank of Egypt.
• 18. Adherence to the rules mentioned in calculating provisions for housing loans for personal housing under the instructions for implementing the International Financial Reporting Standards Standard (IFRS 9) issued on 26 February 2019 and the basis for assessing customer creditworthiness and forming provisions issued on 6 June 2005 and 4 April 2006 for the models provided by the Office Supervision Department in this regard.
• 19. Providing the Central Bank with a monthly statement according to
      These instructions apply from the date of issuance and do not apply to commercial papers discounted without the Bank's right of recourse to companies before this date.

Please be so kind as to alert regarding taking the necessary action to work in accordance with the above.

Accept our highest regards,
Tarek Amer