Chapter Eleven: Limits of Equilibrium in Currency Positions

In light of the importance of following the required approach to limit the risks of imbalance in currency positions, whether foreign or local, which requires considering equilibrium at the level of each currency individually, with the aim of avoiding the possibility that surpluses in some currencies and deficits in others may expose banks to risks resulting from fluctuations in foreign exchange rates.

And in light of the Central Bank of Egypt's keenness to keep pace with the supervisory standards issued in light of the developments of the Egyptian banking market, which ensures the safety of banks' financial positions and guarantees the good performance of their operations, the decision of the Board of Directors of the Central Bank of Egypt dated September 9, 1993, regarding the rules governing the limits of equilibrium in currency positions at banks, has been amended, specifically regarding surpluses or deficits in currency positions and their ratio to the capital base, as follows:

1. Regarding the value of the surplus or deficit in currency positions at any bank operating in Egypt, including branches of foreign banks:

   • The value of the surplus or deficit in the position of any currency must not exceed 10% of the capital base.
   • The value of the total surplus or deficit in currency positions (foreign or local) must not exceed 20% of the capital base.

2. The surplus or deficit in the local currency position is subject to the mentioned limit of 10% of the capital base.

3. The concept of the capital base refers to the definition provided in the Capital Adequacy Standard, and its equivalent at the branches of foreign banks, taking into account what was stated in the decision of the Board of Directors of the Central Bank of Egypt held on December 18, 2012, issued pursuant to Circular Letter No. 318 dated December 24, 2012, regarding the minimum threshold for the capital adequacy standard within the framework of Basel decisions.

4. Banks are committed to the prescribed limits as of December 1, 2017, at the end of each working day, and the surplus or deficit ratios in the position of any currency and the total surplus or deficit in currency positions must not exceed the capital base by more than double the limits mentioned above during the first two working days.

5. The remaining previous instructions apply to what is not covered by the above text, and are as follows:
   The value of the surplus or deficit is calculated based on the difference between assets and forward purchases in that currency on one hand, and liabilities, shareholders' rights, and forward sales in the same currency, plus any potential liabilities that may give rise to risks borne by the bank due to changes in exchange rates, on the other hand.

   (a) Regarding the applicability of the decision of the Board of Directors of the Central Bank of Egypt dated June 8, 1989, prohibiting banks from conducting operations involving speculation in the foreign exchange market, selling or buying currencies in the Spot market or conducting forward operations to cover open currency positions (those exceeding the prescribed percentage of surplus or deficit) is defined as part of the bank's normal operations and falls outside the scope of speculation. The prohibition stipulated in the aforementioned Board decision does not apply to this case.

   (b) Banks are committed to not creating reserves in foreign currencies from profits generated by activities held by banks at the end of the financial year, and also not creating provisions in foreign currencies to face liabilities in Egyptian Pounds.

It is worth noting that the Board of Directors of the Central Bank of Egypt approved in its meeting held on November 23, 2004, that "the rules for preparing data on equilibrium in currency positions should include, prospectively, the inclusion of the value of the capital required to be paid by shareholders to the bank in a foreign currency as a liability in that currency, in exchange for the assets available to the bank in the same currency."

In implementation of this, banks must take what is necessary, such that the instruction for this decision is limited to increases that occur prospectively in their capital as of the date of issuance of the decision, in the case of shareholders paying their shares in these increases in a foreign currency.

Furthermore, the Board approved in its meeting held on July 17, 2007, that the rules for preparing data on equilibrium in currency positions should include, as of that date, prospectively, the inclusion of the value of the increase in capital required to be paid by shareholders to the bank in a foreign currency as a liability in that currency or in the local currency, according to the needs of each bank, without modifying this inclusion subsequently.

Banks must provide the Supervision and Oversight Sector with a statement on "Equilibrium Position in Currency Positions - Form No. 821", according to the position at the end of the last working day of each week, in addition to the position at the end of each month "Form No. 801", within a deadline of three working days following the date for which the statement is prepared.

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1. Supervision and Oversight Sector Letter dated September 16, 1993.
2. Letter from the Deputy Governor dated November 28, 2017.
3. Supervision and Oversight Sector Letter No. 334 dated September 16, 1993 (Decision of the Board of Directors of the Central Bank of Egypt dated September 9, 1993).
4. Supervision and Oversight Sector Letter No. 334 dated September 16, 1993 (Decision of the Board of Directors of the Central Bank of Egypt dated September 9, 1993).
5. Supervision and Oversight Sector Letter No. 334 dated September 16, 1993.
6. Letter from the Governor dated August 3, 2003.
7. Supervision and Oversight Sector Letter dated December 15, 2004 (Decision of the Board of Directors of the Central Bank of Egypt dated November 23, 2004).
8. Letter from the Governor of the Central Bank of Egypt dated August 6, 2007 (Decision of the Board of Directors of the Central Bank of Egypt dated July 17, 2007).
9. Supervision and Oversight Sector Letter No. 348 dated December 15, 1999.