Palestine Monetary Authority

Palestine Monetary Authority

(Circular No. 2014/11) To all banks operating in Palestine Date: Monday, January 20, 2014

Subject: Development of the Credit Information System (Version 3)

In reference to our circular No. (2013/61) dated 2013/5/7 regarding the development of credit operations systems, and to the discussion circle held on 2013/11/18 and subsequent meetings on the subject, and with the aim of maintaining the effectiveness and performance of the Credit Information System in accordance with best international practices related to it, which was launched in early 2008, the Palestine Monetary Authority has previously re-evaluated the system to achieve its intended purpose and to serve users from the banking sector and lending institutions, which resulted in developments in various aspects of the system.

In light of this, and based on Circular No. 2007/160 dated 2007/10/28 organizing the work of the Credit Information System, you find attached:

1. The developmental items agreed upon with banks and specialized lending institutions.
2. Clarifying instructions organizing the mechanisms for disclosing customers on the Credit Information System.

Given the importance of coordinating efforts, all banks are requested to take the necessary preparatory measures to modify their systems to comply with development requirements, as well as to modify current disclosure mechanisms in accordance with the instructions and attached appendices, and to take necessary procedures to meet the requirements of the development process.

It is worth noting that disclosure will remain according to the currently approved forms and appendices, and the forms and appendices attached to the circular are for direct guidance purposes for the preparation of the development process by banks, with all required developments to be completed by the end of April 2014, according to the action plan established for the development process.

Dr. Rabih Al-Aqra Head of Public Relations and Market Officers Palestine Monetary Authority

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Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps

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Palestine Monetary Authority

Palestine Monetary Authority

First: Developmental Items on the System

1. The aim is to provide accurate data to the Palestine Monetary Authority about credit granted by the banking sector to assist it in monitoring and managing credit risks on one hand, and to assist the banking sector and lending institutions in making credit decisions on the other hand. The Palestine Monetary Authority seeks to analyze facilities at the borrower's status level (military facilities, police, intelligence, national security... and other classifications). Therefore, all banks are requested to review granted facility files at the customer level and reclassify borrowers according to the classifications provided in Appendix No. (14) attached to the circular, effective from its date.

2. The aim is to develop Credit Information System data to include all types of facilities and their classifications, including the disclosure of housing loans, mortgages, and facilities granted to small and medium enterprises, as well as any emerging requirements. The Palestine Monetary Authority will develop the record opening screen, which will subsequently exempt banks, after launching the new version of the system, from sending multiple periodic files related to the disclosure of facility types.

   Therefore, it is worth noting the necessity to ensure the classification of loans granted to the customer effective from its date according to the general status or purpose of the loan (corporate facilities, individual facilities, housing and mortgage loans, facilities granted to small and medium enterprises) according to the classifications provided in Appendix No. (3) attached to the circular.

3. To ensure the comprehensiveness of Credit Information System data to include all types of facilities, the types of facilities will be modified by adding a special code for revolving ceiling facilities (purchase ceilings).

   Therefore, all banks are requested to identify revolving ceiling facilities and reclassify them to be disclosed within the monthly financial file under code (F021) according to the classifications provided in Appendix No. (6) attached to the circular.

4. For the purposes of credit analysis of lending operations, the following items will be added to the financial facility file structure (txt.file):

   • Grace period for facilities within the monthly financial file items
   • Disclosure of interest rates calculated on facilities (for Palestine Monetary Authority purposes only)

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Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps

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Palestine Monetary Authority

Palestine Monetary Authority

• Disclosure of the type of interest calculated on facilities according to the classifications provided in Appendix No. (12) and for Palestine Monetary Authority purposes only.

  Therefore, all banks are requested to review their automated systems to serve the extraction and disclosure of required data according to the modified financial facility file structure provided in Form No. (1) attached to the circular.

5. Modification of the non-resident borrower's personal file structure by adding the requirement to disclose the social security number or national ID number, if available.

   Therefore, all banks are requested to review non-resident borrower facility files and modify their automated systems to serve the disclosure of required data according to the modified financial facility file structure provided in Form No. (4) attached to the circular.

6. The aim is to determine the risks of granted facilities and distribute them on the guarantee of a single facility. The Palestine Monetary Authority will disclose the number and identity numbers of guarantors at the facility level, in addition to the nature of the guarantee provided by the guarantors.

   Therefore, all banks are requested to review facility guarantee files and ensure the linking of the borrower's facility file with the facility guarantee. Banks will disclose the personal identity numbers of guarantors in the monthly financial file, the guarantees provided, and the guarantor's identification data according to items (48-87) in the attached monthly financial file structure. This will subsequently exempt banks from disclosing the line related to guarantor data in the monthly financial file, as the financial data regarding guarantor data will be filled from the guarantor's file.

Second: Clarifying Instructions Organizing the Mechanisms for Disclosing Customers on the Credit Information System

Based on our circular No. 2007/160 dated 2007/10/28 and the items related to disclosing borrower facility data and their guarantors through the description of the total monthly facility file, the following clarifications are provided:

1. Disclosure of the Outstanding Balance

   To unify the concept of disclosing the basic items constituting the facility file, and especially the disclosure of the outstanding balance, given that some banks have reviewed the mechanism for calculating outstanding balances separately from the granted ceiling, we emphasize the necessity for banks to adhere to the mechanism for calculating outstanding balances at the level of a single facility and to disclose the outstanding balance as the

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Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps

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Palestine Monetary Authority

Palestine Monetary Authority

debt value owed by the customer, including unpaid installments, and not what has been collected from the granted ceiling.

2. Repayment of Borrowers' Facilities

   If the borrower is fully discharged of their material obligations, the bank must, starting from the first disclosure period following the repayment process, reduce the three items related to the facility file repayment, which are the granted ceiling, the utilized balance, and unpaid installments, in order to settle the disclosed borrowers' obligations on the Credit Information System database.

3. Disclosure of Guarantees

   For the purposes of organizing disclosure mechanisms for facility types, especially the disclosure of issued guarantees, and given that banks have adopted two methods for disclosing guarantees: either by disclosing each guarantee separately with a different facility file number, or by disclosing the guarantee ceiling and modifying the outstanding balance with each new grant. Therefore, based on the understandings reached during meetings with bank representatives, all banks are requested to adopt the second method for disclosing guarantees to be granted from the date of the circular, whereby the guarantee ceiling is disclosed and the outstanding balance is modified. The previously adopted disclosure mechanism for guarantees counted separately with a separate facility file number will be maintained to avoid their appearance in the unupdated facility file.

4. Disclosure of the Granted Ceiling for Facilities

   The granted ceiling is the ceiling or balance agreed upon in the contract terms. It is disclosed as is in the administrative approval from the beginning of the lending period until the end of the financing period with the same value. Therefore, in case of installment repayment, the outstanding balance is modified, while the granted ceiling balance remains constant. The granted ceiling is not modified except in cases of renewing lending ceilings according to the facility contract terms, and the modification must be through the financial data modification screens.

5. Disclosure of Customer Status Evaluation

   Given the importance of this item in evaluating the customer's creditworthiness, accuracy is required in disclosing the extent of the customer's compliance with repayment terms by determining the appropriate evaluation for the customer's status on the monthly financial file. Therefore, in the circular, Appendix No. (9) Customer Evaluation and the sequence in the transition process between borrower evaluation grades from the compliance status (a provision has been formed for the customer) to evaluation 1 (compliant with repayment), it is not allowed for a customer to transition from evaluation 6 (a provision has been formed for the disclosure in the borrower's monthly financial file),

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Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps

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Palestine Monetary Authority

Palestine Monetary Authority

as the principles of disclosure require a sequence in evaluation grades according to the borrower's behavior in paying periodic installments.

6. Disclosure of Installments Due on Facilities

   Disclosure is made regardless of their due periods or the formation of provisions against them from the facility file items, and includes disclosing them as a new facility granted with the value of unpaid installments.

7. Disclosure of Overdraft Facilities

   Overdraft facilities are defined for disclosure purposes for the Credit Information System, according to the understandings reached, as facilities overdrafted by an amount of four hundred dollars or its equivalent in other currencies for seven consecutive days or more from the date of the overdraft, excluding holidays and official feast days.

8. Disclosure of Bad Debts

   Given that local credit evaluation of borrower risks relies on analyzing the value of the outstanding balance owed by the customer, we emphasize the necessity to disclose the value of the outstanding balance in the case of full compliance with repayment for all facilities, regardless of the nature of the facility and the legal action taken. Therefore, bad debt facilities are disclosed with the value of the granted ceiling and the outstanding balance owed by the customer, with the customer evaluated as 9 (debt write-off).

9. Emphasizing the necessity to finally process unupdated facilities, which may appear as a result of one of the following errors:

   • Error in the facility file number
   • Failure to disclose expired facilities
   • Composite error (error in facility file number + one of the basic items constituting the facility file)

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Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps Ramallah - Al Bireh P.O.Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 www.pma.ps

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Index of Appendices for the Credit Information System

1. Borrower/Guarantor Document Type Appendix No. (1)
2. International Country Codes (for determining borrower/guarantor nationality) Appendix No. (2)
3. Facility Category Classification Appendix No. (3)
4. Parties Participating in the Facility Appendix No. (4)
5. Bank Numbers and Branches Appendix No. (5)
6. Facility Type (Direct and Indirect Facility Codes) Appendix No. (6)
7. International Currency Codes (Grant Currency) Appendix No. (7)
8. Economic Sector Appendix No. (8)
9. Customer Status Evaluation Appendix No. (9)
10. Periodic Installment Type Appendix No. (10)
11. Legal Procedures Appendix No. (11)
12. Interest Type Appendix No. (12)
13. Collateral Codes Appendix No. (13)
14. Borrower Status Appendix No. (14)

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Appendix No. (1)

Borrower/Guarantor Document Type

S	Identity	.1
F	Passport	.2
C	Registration Certificate	.3

Appendix No. (2)

International Country Codes (for determining borrower/guarantor nationality)

Country	Call	ISO
United Arab Emirates	971	AE
Argentina	054	AR
Australia	061	AU
Austria	043	AT
Belgium	032	BE
Bulgaria	359	BG
Bahrain	973	BH
Bosnia and Herzegovina	387	BA
Brazil	055	BR
Brunei	673	BN
Canada	C01	CA
Chile	056	CL
China	086	CN
Cameroon	237	CM
Colombia	057	CO
Costa Rica	506	CR
Cuba	053	CU
Cyprus	357	CY
Czech Republic	420	CZ
Germany	049	DE
Djibouti	253	DJ
Denmark	045	DK
Algeria	213	DZ
Ecuador	593	EC
Egypt	020	EG
Spain	034	ES
Finland	358	FI
France	033	FR
United Kingdom	044	GB
Greece	030	GR
Guatemala	502	GT
Hong Kong	852	HK
Hungary	036	HU
Indonesia	062	ID
India	091	IN
Ireland	353	IE

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Appendix No. (2) - Continuation

Country	Call	ISO
Iraq	964	IQ
Israel	972	IL
Italy	039	IT
Jordan	962	JO
Japan	081	JP
Kenya	254	KE
South Korea	082	KR
Kuwait	965	KW
Lebanon	961	LB
Libya	218	LY
Sri Lanka	094	LK
Luxembourg	352	LU
Morocco	212	MA
Mexico	052	MX
Malta	356	MT
Mauritania	222	MR
Malaysia	060	MY
Nigeria	234	NG
Netherlands	031	NL
Norway	047	NO
New Zealand	064	NZ
Sultanate of Oman	968	OM
Pakistan	092	PK
Peru	051	PE
Philippines	063	PH
Poland	048	PL
Portugal	351	PT
Paraguay	595	PY
Palestine	970	PS
Qatar	974	QA
Romania	040	RO
Russia	007	RU
Saudi Arabia	966	SA
Sudan	249	SD
Senegal	221	SN
Singapore	065	SG
Sweden	046	SE
Switzerland	041	CH
Syria	963	SY
Thailand	066	TH
Tunisia	216	TN
Turkey	090	TR
Taiwan	886	TW
Uganda	256	UG
Ukraine	038	UA
Uruguay	598	UY
United States of America	U01	US
Venezuela	058	VE