Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

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Instructions No. (6) of 2014

Concerning Credit Granted to Related Parties

Based on the provisions of Legislative Decree No. (9) of 2010 concerning Banks, particularly Articles (1) and (17) thereof,
and in the public interest,
we have issued the following Instructions:

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Article (1)

Definitions

The words and phrases contained in these Instructions shall have the meanings specified below unless the context indicates otherwise:

Related Parties

1. A natural or legal person who has any of the following relationships with the Bank:
   • Being a member of the Board of Directors or a senior executive in the Bank, and members of the Sharia Supervisory Board for Islamic Banks.
   • Holding a significant share directly or indirectly.
   • Being a member of the Board of Directors or a senior executive in a company to which the provisions of paragraphs (2), (6), and (7) of this definition apply.
   • Being a consultant to the Bank.
   • A company in which the persons mentioned in paragraphs (1) and (2) are partners with a significant share or relatives up to the second degree.
   • Any company controlled by the Bank alone or jointly with others directly or indirectly.
   • Any company controlled directly or indirectly by a company that controls the Bank.
   • The external auditor of the Bank.

Senior Executive

The General or Regional Manager of the Bank and their deputies and assistants, the directors of the departments specified below and their deputies and assistants, branch managers and their deputies and assistants, and persons holding similar responsibilities regardless of job title, including:

1. The first and second in command for all departments and activities in the Bank, including the Chief Executive Officer and their deputy, if any,
   for each of the risk management, compliance monitoring, internal audit, credit granting to institutions and individuals, collection and credit follow-up, credit supervision, treasury, investment and deployment management, operations management, finance department, human resources department, and area managers.

2. The first and second in command for any branch or office or their equivalent, regardless of the title.

3. The chief technical officer (Operations Manager) for any branch or their equivalent, regardless of the title.

4. The Sharia Supervisor in Islamic Banks.

Significant Share

The holding by a person or a group of persons acting together, sharing a common interest, or related up to the second degree, who own directly or indirectly a percentage equivalent to or exceeding (10%) of the company's shares or voting power.

Consultant

A natural or legal person contracted by the Bank to perform works and provide consultations in specific fields, including in particular:

1. The legal consultant.
2. The tax consultant.
3. The financial and investment consultant.

External Auditor

The company or audit team auditing the Bank and their first-degree family members.

First-Degree Kinship

Father, mother, son, and daughter.

Second-Degree Kinship

Grandfather, grandmother, brothers, sisters, and grandchildren.
Relatives of one spouse in the same kinship and degree are considered as such with respect to the other spouse.

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Article (2)

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 (3)

Bank's Credit Policy

The Bank must establish a policy and operational procedures approved by the Bank's management for granting credit to related parties, specifying the total credit granted to related parties, and ensuring neutrality and independence regarding the authorized approval body and those responsible for credit evaluation and classification. The Bank should ensure compliance with the provisions of these Instructions and credit granting instructions.

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Article (4)

Conditions for Granting Credit to Related Parties

The following conditions must be met when granting credit to related parties:

1. The credit granted to the related party must comply with the credit policy approved by the Bank's Board of Directors and in accordance with the law.

2. The granting process must be transparent and clear regarding the purpose, term, collateral, interest rates, commissions, and any other conditions.

3. The credit granted to the related party must be subject to the same controls, conditions, return and cost limits, collateral, and other regulations applicable to other Bank customers, without receiving any preferential terms, except for lending systems and programs applied to Bank employees approved by the Board of Directors and the Palestine Monetary Authority.

4. Management approval if the grant is to a member of the Bank's Board of Directors, guaranteed by them, or to their related parties, provided that the concerned board member does not participate in the discussion or review of the credit application for themselves or their related party.

5. No direct or indirect unsecured credit facilities shall be granted to the company or any member of the Bank's external audit team and their first-degree family members. In case facilities are granted to any of them exceeding USD 50,000 with non-personal collateral, prior approval from the Palestine Monetary Authority is required.

6. The credit granted to a subsidiary of the Bank must not exceed 10% of the Bank's capital base, and must not exceed the subsidiary's capital.

7. The credit granted to members of the Bank's Board of Directors, guaranteed by them, or to their related parties must not exceed 10% of the Bank's capital base without prior approval from the Palestine Monetary Authority for such exceedance.

8. The credit granted to related parties of the Bank, including the General or Regional Manager, their assistants and deputies, and the first in command in the facilities department, must not exceed 25% of the Bank's capital base.

9. Facilities granted to Bank employees under the approved employee lending program are excluded from calculating the percentages mentioned in paragraphs (6), (7), and (8), subject to instructions regarding single-name exposure limits.

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Article (5)

Write-off or Forgiveness of Related Parties' Debts

1. Approval from the Bank's Board of Directors and the Palestine Monetary Authority must be obtained for all debts to be written off or forgiven related to related parties.

2. Writing off or forgiving any debt for a related party is prohibited, even after their classification as a related party is removed, except with the approval of the Bank's Board of Directors and the Palestine Monetary Authority.

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Article (6)

Granting or Renewing Credit to Related Parties

1. Approval from the Palestine Monetary Authority is not required in the following cases:

   a. Bank employees, provided there are dedicated lending systems and programs for them, subject to obtaining the Palestine Monetary Authority's approval for these systems or programs. The General or Regional Manager, their deputies and assistants, and the first in command in the facilities department are excluded from this.

   b. If the credit is covered by collateral providing 100% coverage.

   c. If the credit amount is equal to or less than fifty thousand US dollars (50,000) or its equivalent in circulating currencies.

2. Approval from the Palestine Monetary Authority must be obtained when granting or renewing credit to related parties or guaranteed by them in the following cases:

   a. Subject to the provisions of paragraph (1) of this Article, if the credit amount exceeds fifty thousand US dollars (50,000) or its equivalent in circulating currencies.

   b. If the credit granting does not comply with the approved employee lending systems and programs.

   c. If any of the conditions of the credit granted and approved by the Palestine Monetary Authority are modified or changed.

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Article (7)

General Provisions

1. Banks must submit a written application to obtain the Palestine Monetary Authority's approval for granting credit to related parties as stipulated in these Instructions, which require prior written approval. The application must include the name of the person to be financed, the amount, interest rate, commission, collateral, purpose of financing, repayment mechanism, nature of the relationship with the Bank, and necessary specifications according to the Bank's approved authorities, subject to the provisions of Article (4) regarding Board of Directors members.

2. The Palestine Monetary Authority may request the Bank to obtain adequate collateral for any credit granted to related parties.

3. The Palestine Monetary Authority may deduct any credit amount from the Bank's capital base when calculating related party exposure from:

   a. If this credit was granted in violation of the Palestine Monetary Authority's instructions or the policy approved by the Board of Directors.

   b. If this credit is classified as facilities under monitoring.

   c. Amounts that exceed the percentages stipulated in the credit granting limits in Article (4) above.

4. If the credit granted to related parties is not implemented within 60 days from the date of the Palestine Monetary Authority's approval, the approval shall be considered void, and the Bank must submit a new application.

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Article (8)

Disclosure and Reporting Requirements

Banks must comply with the following:

1. Providing automated programs for classifying related parties.

2. Disclosing credit granted to related parties in the financial statements submitted to the Palestine Monetary Authority according to the designated form.

3. Disclosing credit granted to related parties in interim and annual financial statements in accordance with International Financial Reporting Standards and the Palestine Monetary Authority's disclosure requirements.

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Article (9)

Penalties

Anyone violating the provisions of these Instructions shall be penalized in accordance with Article (54) of Legislative Decree No. (9) of 2010 concerning Banks.

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Article (10)

Repeal

Item No. (4/6/5) concerning related party facilities included in Instructions No. (2008/5) issued on 2008/12/29 is repealed.

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Article (11)

Implementation and Enactment

All competent authorities shall implement the provisions of these Instructions according to their respective jurisdictions, and they shall apply from the date of their issuance.

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Issued in Ramallah on: 2014/05/14 AD
Corresponding to: 15 Rajab 1435 AH

Supervision and Inspection Department
Palestine Monetary Authority

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Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922 | Fax: +970 2 2409922 | Tel: +970 2 2415250 | P.O. Box 452 Ramallah - Palestine
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Email: info@pma.ps | Email: info@pma.ps
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