Palestine Monetary Authority

Instructions No. (2010/4)

To all banks operating in Palestine

Date: Tuesday, May 11, 2010

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Subject: Disclosure, Work Ethics, and Complaint Handling

Based on the provisions of Chapters Five and Six of the Banks Law No. (2) of 2002, the following instructions are attached:

• (1/4): Disclosure and Market Discipline
• (2/4): Work Ethics and Conduct
• (3/4): Handling Public Complaints
• (4/4): Banking Awareness

The provisions of these instructions shall take effect from the date of their issuance. All banks must rectify their status to comply with these instructions within a period not exceeding June 30, 2010, and take the necessary measures to ensure full compliance.

[Signature] Dr. Mahdi Al-Tiftitah 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 | www.pma.ps

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(1/4) Disclosure and Market Discipline

In an effort to enhance disclosure and transparency procedures in the Palestinian banking sector and in compliance with international standards in the field of disclosure and financial reporting, and in alignment with the Palestine Monetary Authority's efforts to prepare for the implementation of Basel II capital adequacy and coverage agreements, all banks are required to comply with the following:

1. Preparation for implementing the requirements of Pillar 3 of the Basel II Agreement through phased compliance

with the following disclosure requirements:

A. Disclosure of capital adequacy and risk-weighted assets as follows:

1. Components of the capital base in accordance with PMA instructions, including the following:

   • Tier 1 capital (Common Equity Tier 1) with a breakdown of each component of this tier.
   • Total Tier 2 and Tier 3 capital (if applicable).
   • Deductions from capital.
   • Total regulatory capital.

2. Risk-weighted assets in accordance with PMA instructions, with disclosure detailing the different asset categories and their assigned risk weights.

3. The ratio of Tier 1 capital to risk-weighted assets, in addition to the total capital adequacy ratio.

4. Disclosure of any future plans that would result in changes to capital or its adequacy ratio.

B. Comprehensive disclosure of qualitative and quantitative risks that the bank may face related to its risk management strategy and the methodologies used to calculate exposure to each type of risk, in addition to quantitative disclosure including the following:

1. Disclosure related to credit risk, which includes the amount of exposure to credit risk, the volume of classified and non-performing facilities, the amount, ratio, and magnitude of changes in special provisions, as well as the distribution of credit across different economic sectors, business sectors, and the geographical distribution of facilities.

2. Disclosure related to market risk, including disclosure of interest rate, exchange rate, and commodity price risks to which the bank is exposed and their impact on the bank's assets and liabilities, a statement of the ratio of open positions and investments in various financial market instruments to the capital base, and any other information regarding the level of risk the bank faces due to its activities in these markets.

3. Disclosure of operational risks faced by the bank.

4. Disclosure of liquidity risk and disclosure of the necessary ratios and indicators to demonstrate the volume of exposure to liquidity risk.

5. Disclosure of legal and regulatory risks and reputational risk, and disclosure of any potential or expected losses resulting from legal disputes or conflicts with any entity.

C. Disclosure of the accounting policies followed by the bank in preparing interim and final financial statements.

D. Disclosure of basic information related to the work environment, management structure, and information concerning sound corporate governance. Disclosure in this context must include the following:

1. Names of board members and senior management at the bank, and the remuneration paid to them.

2. Capital ownership structure for board members and shareholders owning 5% or more of the bank's shares.

3. Information related to related-party facilities regarding their volume, classification, and any special provisions established to cover expected losses therefrom.

4. The annual report and the governance report.

2. Disclosure Frequency

All banks are required to disclose any relatively material information in a timely manner in a way that ensures the information reaches all concerned parties. Relatively material information refers to any information whose omission or inaccurate inclusion would influence the decisions made by investors, depositors, and users of financial statements. All disclosure requirements mentioned above shall be applied periodically according to PMA instructions regarding the publication of interim and final financial statements, interest rates, commissions, and others.

3. Disclosure Means

In addition to any requirements issued under prevailing laws or instructions in Palestine, banks are committed to providing, publishing, and disclosing information and reports continuously and making them available to market participants. Continuous disclosure includes the following:

1. Establishing a website for each bank on the internet and disclosing the following on it: a. The annual report issued by the bank, including comparative financial statements for a period of no less than six years. b. The annual report must include the disclosures outlined in these instructions. c. Foreign banks are required to disclose comparative financial statements of the parent bank in addition to the annual report as stated in item (a). d. Disclosure of interest rates on various products and services provided by the bank to its customer base. e. Disclosure of the types and rates of commissions charged by the bank for various services. f. Disclosure of all types of services provided by the bank to teachers, along with their terms and conditions for obtaining them. g. Addresses, locations, and telephone numbers of branches and offices. h. Addresses and locations of the bank's ATMs.

2. Printing the annual report on the bank's operations and distributing it to shareholders within no more than two weeks from the date of the General Assembly meeting for local banks, and making the annual report available for public use.

3. Providing a summary of the bank's final financial statements, at a minimum in the form of a "brochure," at all branches and offices of the bank.

4. Bank-Specific and Confidential Information

A bank shall not disclose any information characterized by banking secrecy, such as that related to its customers, or information whose disclosure would harm the bank or cause it to lose a competitive advantage.

5. Responsibility for Disclosure

1. Responsibility for disclosure rests with each of the following: a. The board of directors and executive management of the local bank. b. The general management and regional management of the foreign bank.

2. The board must approve a document defining the bank's disclosure policy, and the bank's management must ensure that disclosed information is characterized by accuracy and sufficiency.

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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 | www.pma.ps

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(2/4) Work Ethics and Conduct

The existence of a general policy and a code of conduct for work ethics at the bank represents the most important steps relied upon in building strong, effective, and cohesive banking units, and lays the foundation for a robust national economy capable of bearing various risks.

Based on this, the most important factors leading to elevating the status of the banking sector in Palestine are the existence of a suitable and professional work environment based on a strong ethical system. In an effort by the Palestine Monetary Authority to consolidate general concepts for this purpose, each bank must prepare a policy for etiquette, conduct, and work ethics for its employees, obtain board approval, and inform all employees thereof. It must include, at a minimum, the following main axes:

1. General Framework

The concept of work ethics and conduct is defined as the principles that serve as the foundation for the required behavior of profession members, which govern an individual's behavior in making decisions and distinguishing between right and wrong, and good and bad.

Within this framework, banks must ensure that their policies, products, and the conduct of all their employees align with the highest ethical principles in both letter and spirit.

2. Bank's Approach

The policy and code must document the bank's approach in its relationship with clients, emphasizing that it is built on integrity and trust in managing their accounts and authorizations. It must be based on a high degree of disclosure and transparency, with a strong commitment to ensuring that the bank's performance, transactions, and the conduct of all its employees serve to enhance public trust and achieve the highest degree of quality, excellence, and integrity in all its operations.

3. Loyalty and Belonging

The policy and code must promote a spirit of loyalty and belonging to the bank, safeguard its secrets, and continuously strive to protect its name, enhance its reputation and standing, and avoid any actions that could negatively impact them. It must also mandate immediate disclosure of any conflicts of interest to maintain a high level of transparency and protect the bank's assets.

A key driver of belonging is the existence of equal rights and non-discrimination among employees, ensuring the right to fair and equitable treatment. The bank and its employees must avoid all forms of discrimination,

especially discrimination based on race, gender, geographic region, age, physical disability, political views, opinions, or religious or philosophical beliefs.

4. Employees and Inter-employee Relations

The bank's policy toward its employees must be based on:

a. Treating employees well and providing an environment of professionalism, competition, and equal opportunities for all employees to develop.

b. Basing the bank's work on a spirit of teamwork and mutual selection.

c. Avoiding all behaviors driven by narrow personal ambitions and interests.

d. Ensuring the bank acts responsibly to serve as a positive role model for other employees in integrity, honesty, dedication, loyalty, and belonging.

e. Avoiding any situation that could lead to a conflict of interest or raise suspicions of such a conflict.

f. Prohibiting behaviors and actions that can be classified as psychological, sexual, or physical harassment of any kind.

5. Social Responsibility

Reference is made that the bank's policy toward society is based on the following:

a. Adhering to the application of prevailing laws, regulations, and instructions, and maintaining professional relationships with regulatory authorities.

b. Contributing to social development through the bank's products and services, expanding them to include all segments of society, and promoting banking culture in the communities where it operates.

c. Avoiding any services or products that may reflect sectional or sectarian interests.

d. Assisting in environmental protection and enhancing the culture of preserving and protecting the environment, which works

e. Allocating a portion of profits to contribute to various social activities and support community institutions.

6. Dealing with the Public/Customer Base

Reference is made that the bank's policy toward customer service is based on the following:

a. Maintaining customer confidentiality within the limits imposed by law.

b. Providing high-quality services that match best practices and standards and align with local and global developments.

c. Valuing customer feedback and suggestions and responding to them to achieve better service.

d. Providing banking services that cover the largest customer segment while considering their interests.

e. Balancing the interests of the bank with the interests of customers.

f. Exercising the highest degrees of responsibility, precision, good ethics, and courtesy.

7. Shareholders

Reference is made that the bank's policy toward shareholders is based on:

a. Preserving the bank's assets and not disposing of them without shareholder approval within the framework of authorities and internal regulations.

b. Keeping shareholders informed of the bank's status, position, and financial standing on a continuous basis, as well as the bank's future plans and expectations.

c. Avoiding any acts or behaviors that could expose the bank and its assets to any type of risk.

d. Respecting the authorities granted to the board of directors and using them in a manner that benefits the bank and shareholders.

e. Promptly disclosing all material matters of interest to shareholders to ensure the protection of their rights.

f. Not prioritizing the personal interests of board members, their related parties, or senior management over those of shareholders.