Egyptian Gazette - Issue 178 on August 6, 2015

Egyptian Financial Regulatory Authority (FRA)

FRA Board of Directors Decision No. 77 of 2015

Dated 10/6/2015

On the Capital Adequacy Standard for Real Estate Financing Companies

The Board of Directors of the Egyptian Financial Regulatory Authority,

Having reviewed the Law on Joint Stock Companies, Companies Limited by Shares, and Limited Liability Companies issued by Law No. 159 of 1981 and its executive updates; Law No. 148 of 2001 on Real Estate Financing, amended by Presidential Decree No. 55 of 2014; Law No. 10 of 2009 regarding the regulation of supervision over non-Egyptian markets and financial instruments; Presidential Decree No. 192 of 2009 issuing the Statute of the Egyptian Financial Regulatory Authority; the Executive Bylaws of the Real Estate Financing Law issued by Cabinet Decision No. 1 of 2001 and its amendments issued by Cabinet Decision No. 1 of 2015; the memorandum from the Central Administration for Supervision and Oversight of Financing Companies dated 8/6/2015; and upon approval by the Board of Directors in its session held on 10/6/2015.

Has Decided:

Article (1)

Real estate financing companies licensed by the Authority are required to maintain at all times the minimum capital adequacy standard, defined as a ratio (minimum 10%) between capital base elements and risk-weighted assets, as detailed in Appendix (1) to this Decision.

Article (2)

The provisions of this Decision shall apply with effect from the preparation of financial statements for the financial period ending on 30/9/2015, regarding the preparation of the capital adequacy statement.

Article (3)

This Decision shall be published in the Egyptian Gazette and on the Authority’s website, and shall take effect from the day following its issuance. Any provision contrary to its terms is hereby repealed.

Chairman of the Board of Directors
Sherif Samy

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Appendix No. (1)

Capital Adequacy Standard

The capital adequacy standard is a solvency metric aimed at measuring the company’s ability to withstand risks associated with its operations, primarily the credit risks of investments issued by the company. The standard is calculated according to the following ratio:

Capital Base : Risk-Weighted Assets

First - Capital Base:
The capital base (numerator of the standard) consists of two tiers as follows:

1. Tier 1 (Core Capital):
   1-1: Paid-up capital.
   1-2: Legal reserve.
   1-3: Regulatory reserve (if any).
   1-4: Retained earnings/accumulated losses (including current year or period profits/losses).

2. Tier 2 (Supplementary Capital):
   2-1: Other reserves, excluding the legal and regulatory reserves (if any).

2-2: Subordinated loans: A loan qualifies as a subordinated loan for capital base calculation if it meets the following conditions:

• The loan term at inception must be at least five years.
• The remaining maturity to repayment must be at least 12 calendar months.
• The loan must be fully paid in cash.
• The loan must be unencumbered, not pledged or assigned to a specific activity or specific assets.

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Second - Risk-Weighted Assets:

The value of risk-weighted assets is calculated by applying relative risk weights to each asset item, after excluding balances whose risks are covered by banks, credit risk entities, default insurance entities, financial guarantees, or any other guarantees accepted by the Authority, as detailed below:

1. Risk Weights:

Risk-Weighted Ratio	Asset Type
0%	Cash and cash equivalents
0%	Treasury bills and government bonds issued by the Egyptian government in Egyptian Pounds (EGP)
10%	Bank deposits
20%	Financial investments - money market instruments
50%	Financial investments - non-risk bearing
100%	Financial investments - risk-bearing
50%	Regular balances - Real estate financing operations / Real estate financing loans
50%	For residential purposes
100%	Regular balances - Real estate financing operations / Real estate financing loans
100%	For non-residential purposes

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(b) In case debts are in foreign currency, they shall be assessed using credit ratings issued by credit rating agencies accepted by the Authority. In case of differing ratings from multiple agencies, the lowest (most lenient) rating shall be used. Ratings must be reviewed at least annually.

2. Risk Coverage Mechanisms and Guarantees Relied Upon:

• For the purpose of calculating risk-weighted assets, any balances secured by pledged guarantees in favor of the financier or whose risks are covered as detailed below shall be excluded:

• Cash and cash equivalents, including cash deposits and certificates of deposit.

• Treasury bills and government bonds.

• Credit risk coverage entities, provided the agreement stipulates that the financier has no recourse to the investor in case of the investor's failure to fulfill obligations to the financier.

• The financier is granted the right to sell pledged securities in its favor under an agreement with the financier.

• The financier is granted the right to sell pledged securities if the investor fails to fulfill its obligations.

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