Chapter Four: Liquidity Risk Management

Part Two: Liquidity Ratios in Local and Foreign Currencies

In implementation of its provisions, the Board of Directors of the Central Bank of Egypt, in its meeting held on February 22, 2005, decided to continue banks' obligation to follow the rules organizing the two liquidity ratios in local and foreign currencies and maintaining the minimum limit for each at 20% and 25% respectively, in accordance with the decisions issued by the Board of Directors of the Central Bank of Egypt on this matter.

The rules organizing this and the method for calculating the two liquidity ratios in local and foreign currencies, according to the aforementioned decision, are as follows:

First: Banks and branches of foreign banks are obliged to maintain a minimum liquidity ratio in local currency of 20% and a minimum liquidity ratio in foreign currency of 25%.

1. Local Currency Liquidity Ratio

Acknowledgments I would like to thank my supervisor, for his kind of support. I would like to thank my supervisor, for his kind of support.

Numerator Components:

(a) Cash.

(b) Excess balances at the Central Bank of Egypt over the minimum requirement for the reserve ratio.

(c) Bills and promissory notes purchased.

(d) Treasury bills, excluding bills used in repurchase operations (Repo).

(e) Egyptian Central Bank papers (Central Bank of Egypt certificates and guarantees).

(f) Egyptian Government papers tradable with the Central Bank of Egypt or traded in the market, excluding papers issued by some securities companies guaranteed by the Ministry of Finance, provided that the Ministry of Finance has studied the matter and approved their issuance.

(g) Bonds held by the Bank in local currency issued by other banks under the supervision of the Central Bank of Egypt, provided they are registered in the securities exchange.

(h) Local currency bonds held by the Bank in local currency issued by financial institutions, provided their credit rating is not less than AA for Moody's or Aa2 for Standard & Poor's or equivalent according to other recognized rating agencies, and that the bonds are registered and tradable in securities markets or possess an appropriate settlement system.

(i) Papers issued by the Egyptian Company for Real Estate Refinancing.

(j) Discounted commercial papers maturing within three months.

(k) Balances due from banks in Egypt (after performing the offset between the total of amounts due from banks in Egypt and amounts due to them).

No pledged, borrowed, or earmarked asset for a specific obligation is included in the numerator components. Nor are commitment components included for the aforementioned assets with a maturity exceeding the maturity of the assets used in the offset, provided that these commitments are in local currency.

Denominator Components:

(a) Bills, promissory notes, and credit lines due for payment.

(b) Balances due to banks in Egypt (after performing the offset between the total of amounts due from banks in Egypt and amounts due to them).

(c) Amounts due to foreign banks.

(d) Customer deposits.

(e) 50% of the non-cash portion of credit lines issued, (excluding the non-cash portion of credit lines from primary banks and those guaranteed by first-tier banks from foreign banks - high-risk banks - and in the case where a bank issues a credit line to another bank upon request and guarantees it, the non-cash portion of this credit line is included in the denominator of the liquidity ratio specific to each bank).

2. Foreign Currency Liquidity Ratio

Numerator Components:

(a) Gold and cash.

(b) Balances at the Central Bank of Egypt.

(c) Bills, promissory notes, and coupons of purchased securities.

(d) Development bonds in US Dollars and bonds issued by the US Treasury in US Dollars tradable in the securities market.

(e) Discounted commercial papers maturing within three months.

(f) Balances due from banks in Egypt (after performing the offset between the total of amounts due from banks in Egypt and amounts due to them).

(g) Amounts due from foreign banks.

(h) Treasury bills, government bonds, and bonds and certificates of guarantee issued by banks and financial institutions, provided the following conditions are met for these investments:

• Treasury bills and government bonds must be issued by a G10 country government, or by banks and financial institutions registered in these countries.

• The remaining period for maturity of bonds issued by banks and financial institutions and certificates of guarantee issued by banks must not exceed three years.

• The credit rating of the issuing entity must not be less than AA according to Moody's or Aa2 according to Standard & Poor's or equivalent according to other recognized rating agencies.

• These investments must be registered and tradable in securities markets or possess an appropriate settlement system.

No pledged, borrowed, or earmarked asset for a specific obligation is included in the numerator components. Nor are commitment components included for the aforementioned assets with a maturity exceeding the maturity of the assets used in the offset, provided that these commitments are in foreign currency. In this regard, the unused portion of credit lines held by the bank at foreign banks is excluded from both the numerator and denominator.

Denominator Components:

(a) Bills, promissory notes, and credit lines due for payment.

(b) Balances due to banks in Egypt (after performing the offset between the total of amounts due from banks in Egypt and amounts due to them).

(c) Amounts due to foreign banks.

(d) Deposits due to the Central Bank of Egypt.

(e) Customer deposits.

(f) 50% of the non-cash portion of credit lines issued, (excluding the non-cash portion of credit lines from primary banks and those guaranteed by first-tier banks from foreign banks - high-risk banks - and in the case where a bank issues a credit line to another bank upon request and guarantees it, the non-cash portion of this credit line is included in the denominator of the liquidity ratio specific to each bank).

Second: The ratio is calculated based on the daily average of actual working days during the month.

Third: If any bank fails to comply with the minimum prescribed limit for the liquidity ratio, whether in local or foreign currency as stated above, the Board of Directors of the Central Bank of Egypt may suspend any of the parts mentioned in the Central Bank and Financial Institutions Law issued under Law No. 88 of 2003. Banks shall comply with the supervision and inspection department by submitting the "Average Daily Local and Foreign Currency Liquidity Ratio - Form No. 301" on a monthly basis no later than the 10th of the month following the month to which the report relates.

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1. Supervision and Inspection Department Book issued on March 2, 2005. Supervision and Inspection Department Circular No. 345 issued on September 14, 1998. (Decision of the Board of Directors of the Central Bank of Egypt issued on September 3, 1998).

2. Governor of the Central Bank of Egypt Book issued on March 16, 2011.

3. Decision of the Board of Directors of the Central Bank of Egypt issued on August 2, 2005 and March 7, 2006.

4. Recorded at book value or market value, whichever is lower.

5. Ministry of Finance and after the study by the Central Bank of Egypt and issuance of approval for each issuance.

6. Supervision and Inspection Department Book issued on December 6, 2009 and May 4, 2010. (Decision of the Board of Directors of the Central Bank of Egypt issued on May 4, 2010). Supervision and Inspection Department Book issued on April 2, 2001. (Decision of the Board of Directors of the Central Bank of Egypt issued on March 27, 2001), and April 19, 2001.

7. Governor of the Central Bank of Egypt Book issued on September 9, 2007.

8. Supervision and Inspection Department Book issued on March 23, 2006. (Decision of the Board of Directors of the Central Bank of Egypt issued on February 21, 2006).

9. Supervision and Inspection Department Book issued on June 25, 2006. (Decision of the Board of Directors of the Central Bank of Egypt issued on April 4, 2006).

10. Supervision and Inspection Department Book issued on June 1, 2010. (Decision of the Board of Directors of the Central Bank of Egypt issued on May 4, 2010).

Recorded at book value or market value, whichever is lower.

11 United States, Canada, Belgium, United Kingdom, France, Germany, Italy, Netherlands, Sweden, Switzerland, and Luxembourg.