Regulatory Alerts2019-05-26
A circular dated May 26, 2019 regarding encouraging banks to invest in targeted investment funds for small emerging companies
The Central Bank of Egypt (CBE) has issued new guidelines for banks' investments in small and medium enterprises (SMEs) financing funds. The aim is to encourage and support the growth of these businesses by providing better access to finance and reducing the risk associated with bank lending. The main points are as follows: - Banks should allocate at least 10% of their total assets in SMEs financing funds. - A cap of 50% of the total capital of the banks will be applied, ensuring that no more than half of the bank's capital is included within the group. - The bank must adhere to all domestic financial ratios and regulatory requirements for credit institutions. - SME financing funds should be part of the bank's capital adequacy ratio (ICAAP). - Banks will need a license from the Financial Regulatory Authority (FRA) to handle non-banking financial transactions, while also being subject to general supervision by the FRA. - The SME financing fund must include provisions for exiting the fund if the bank does not achieve profits for three consecutive years. - An exit option for banks from the SME financing fund is provided in case of non-profitability for a period of three consecutive years.