Amended Circular on Instructions No. (13-2018) and Instructions No. (6-2020)

10/1/10457 25 / 12 / 1445 AH 1 / 7 / 2024 AD Circular to Licensed Banks Greetings,

As part of the Central Bank's efforts to continue keeping pace with international best practices and issuing the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024, it has been decided to amend several provisions of the Instructions for Applying International Financial Reporting Standard (9) No. (13/2018), as detailed in Attached Annex No. (1), as well as to amend several provisions of the Instructions for Applying Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) No. (6/2020), as detailed in Attached Annex No. (2). These amendments shall be effective as of 1/1/2025.

Please accept our highest regards,

The Governor Dr. Adel Al-Sharkas

Annex No. (1) Instructions for Applying International Financial Reporting Standard (9) No. (13/2018) dated 6/6/2018

Item/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Item (Second/4) from our letter No. (10/1/7702) dated 6/6/2018.	"The Central Bank's Instructions No. (47/2009) dated 10/12/2009 and their amendments shall continue to apply, and the more stringent results shall be taken into account [by comparing the results for provisions calculated for Stage 2 and Stage 3 separately (total of each stage)] through a mapping between Stage 2 and Stage 3 according to the requirements of Standard (9) with credit exposures under monitoring and non-performing credit exposures respectively according to Instructions No. (47/2009)."	"Compliance with the provisions of Article (6/k) of the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024."
Within page No. (4), Item (2) of Governance Requirements.	"As stated in the text of these instructions, calculating Expected Credit Loss (ECL) according to the requirements of Standard (9) requires the application of automated systems, and therefore, the systems must be of high quality and reliability in terms of inputs, operational processes, or extracted results.

Consequently, the Bank's management must commit to not making any modifications to the results and outputs of the systems regarding ECL calculation and measurement processes and the variables being calculated, except according to a policy approved by the Board of Directors that specifies the exceptional and justified cases in which system outputs are modified, and that designates an independent body with the authority to make decisions on exceptions or modifications, and that these cases be presented to the Board of Directors or its committees at their first meeting and obtain their approval." | "As stated in the text of these instructions, calculating Expected Credit Loss (ECL) according to the requirements of Standard (9) requires the application of automated systems, and therefore, the systems must be of high quality and reliability in terms of inputs, operational processes, or extracted results." | | Within page No. (16) of the General Framework for Applying the Standard. | "In addition to the above, the Central Bank's Instructions No. (47/2009) dated 10/12/2009 included a set of indicators (Item Second/c) indicating a significant increase in credit risk that must also be adhered to [with the use of a past-due period of (60) days as a clear indicator for inclusion in this stage, noting that this period will decrease by an average of (10) days annually to become (30) days within (3) years from the date of application]." | "In addition to the above, the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 included a set of indicators indicating a significant increase in credit risk that must also be adhered to, and that a past-due period of (30) days shall be used as a clear indicator for inclusion in this stage." | | Within page No. (16) of the General Framework for Applying the Standard. | "In the event that evidence exists indicating a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be classified in Stage 2, and in the event of an overlap between the available indicators (Items 1-19) and the items contained in the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/c), the more stringent of the two shall be taken." | "In the event that evidence exists indicating a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be classified in Stage 2." | | Page No. (17) of the General Framework for Applying the Standard. | "In addition to the above, the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/d) included a number of indicators indicating a state of default that must also be adhered to." | "In addition to the above, the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 included a number of indicators indicating a state of default that must also be adhered to." | | Page No. (17) of the General Framework for Applying the Standard. | "In the event that one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be classified in Stage 3, and in the event of an overlap between the available indicators [Items 1-6] and the items contained in the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/d), the more stringent of the two shall be taken." | "In the event that one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be classified in Stage 3." | | Page No. (18) of the General Framework for Applying the Standard, Paragraph No. (7). | "New credit exposures may be increased/granted up to (25%) of the existing exposure balance for a customer whose exposures or any of them have been classified in Stage 2 (Stage 2), provided that this is not done except after an in-depth study of the exposure/customer risk, and that the increase/grant is not used to settle existing/due exposures of the customer or related customers." | "New credit exposures may be granted up to (25%) of the existing credit exposure balance for a customer whose exposures or any of them have been classified in Stage 2 (Stage 2), provided that the Bank has formed a conviction based on an in-depth study of expected cash flows, relying on documented evidence of the possibility of improving the customer's financial situation, and that this increase is not used to settle existing credit exposures of the customer or related customers at the Bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures." | | Page No. (18) of the General Framework for Applying the Standard, Paragraph No. (9). | "When there is an improvement in credit quality and sufficient and documented reasons exist that make it possible to transfer credit exposures from Stage 3 to Stage 2 or from Stage 2 to Stage 1, the transfer process must not be carried out except after verifying the improvement in the credit status of the exposure and committing to paying (3) monthly installments or two quarterly installments or at least one semi-annual installment on their due dates, i.e., early payment of installments is not considered for the purpose of transferring the debt to a better stage, and this applies to the provisions of the tables contained in Instructions No. (47/2009) and their amendments, and the transfer process is carried out thereafter." | "The Bank must harmonize the classification of the three stages mentioned in these instructions with the classification of the three categories contained in the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024, and credit exposures according to the definition in Article (2/c) of those instructions shall be subject to the provisions and conditions of transfers between credit exposure classification categories and the testing periods contained in Article (5) of the aforementioned instructions for the purpose of transferring the credit exposure classification to a better category, and the Bank is left to determine the necessary criteria to allow for the improvement of the classification of any credit exposures not covered by the provisions of Article (5) above within its credit policy." | | Page No. (21) of Credit Risk and Expected Credit Loss Measurement. | "The principle of measuring credit risk and expected credit loss on an aggregate basis for one or more groups of credit exposures may be applied, provided that the size of a single credit exposure for any component of the portfolio does not exceed (250) thousand dinars (or its equivalent) at the Bank. [In special cases, if the Bank has certain products/credit exposures for which expected credit loss is calculated on a portfolio basis and the amount exceeds (250) thousand dinars for any component of the portfolio, the Bank must submit a request to the Central Bank to obtain its approval]." | "The principle of measuring credit risk and expected credit loss on an aggregate basis for one or more groups of credit exposures may be applied, provided that the size of a single credit exposure for any component of the portfolio does not exceed (150) thousand dinars (or its equivalent) at the Bank." | | Page No. (24) of Credit Risk and Expected Credit Loss Measurement. | "The haircut percentages specified in the Debt Classification Instructions No. (47/2009) dated 10/12/2009 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional haircut percentages representing the time period during which the collateral will be converted to cash, provided that the Bank has sufficient information to document and support the calculation process." | "The haircut percentages on eligible collateral specified in the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional haircut percentages representing the time period during which the collateral will be converted to cash, provided that the Bank has sufficient information to document and support the calculation process." |

Annex No. (2) Instructions for Applying Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) No. (6/2020) dated 5/7/2020

Item/Article	Text of Instructions Before Amendment	Text of Instructions After Amendment
Item (Fifth/3) from our letter No. (10/1/7859) dated 5/7/2020.	"The Central Bank's Instructions No. (47/2009) dated 10/12/2009 and their amendments and our Instructions No. (60/2014) dated 17/11/2014 shall continue to apply, and the more stringent results shall be taken into account [by comparing the results for provisions calculated for Stage 2 and Stage 3 separately (total of each stage)] through a mapping between Stage 2 and Stage 3 according to the requirements of Standard (30) with credit exposures under monitoring and non-performing credit exposures respectively according to Instructions No. (47/2009)."	"Compliance with the provisions of Article (6/k) of the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024."
Within page No. (5), Item (2) of Governance Requirements.	"As stated in the text of these instructions, calculating Expected Credit Loss (ECL) according to the requirements of Standard (30) requires the application of automated systems, and therefore, the systems must be of high quality and reliability in terms of inputs, operational processes, or extracted results.

Consequently, the Bank's management must commit to not making any modifications to the results and outputs of the systems regarding ECL calculation and measurement processes and the variables being calculated, except according to a policy approved by the Board of Directors that specifies the exceptional and justified cases in which system outputs are modified, and that designates an independent body with the authority to make decisions on exceptions or modifications, and that these cases be presented to the Board of Directors or its committees at their first meeting and obtain their approval." | "As stated in the text of these instructions, calculating Expected Credit Loss (ECL) according to the requirements of Standard (30) requires the application of automated systems, and therefore, the systems must be of high quality and reliability in terms of inputs, operational processes, or extracted results." | | Within page No. (14) of the General Framework for Applying the Standard. | "In addition to the above, the Central Bank's Instructions No. (47/2009) dated 10/12/2009 included a set of indicators (Item Second/c) indicating a significant increase in credit risk that must also be adhered to [with the use of a past-due period of (60) days as a clear indicator for inclusion in this stage, noting that this period will decrease by an average of (15) days annually to become (30) days within two years from the date of application], and if the Bank began reducing the period according to our Instructions No. (13/2018) dated 6/6/2018, the aforementioned instructions shall continue to apply." | "In addition to the above, the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 included a set of indicators indicating a significant increase in credit risk that must also be adhered to, and that a past-due period of (30) days shall be used as a clear indicator for inclusion in this stage." | | Within page No. (14) of the General Framework for Applying the Standard. | "In the event that evidence exists indicating a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be classified in Stage 2, and in the event of an overlap between the available indicators (Items 1-17) and the items contained in the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/c), the more stringent of the two shall be taken." | "In the event that evidence exists indicating a significant increase in credit risk from the above conditions, the debt instrument/credit exposure shall be classified in Stage 2." | | Page No. (15) of the General Framework for Applying the Standard. | "In addition to the above, the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/d) included a number of indicators indicating a state of default that must also be adhered to." | "In addition to the above, the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 included a number of indicators indicating a state of default that must also be adhered to." | | Page No. (15) of the General Framework for Applying the Standard. | "In the event that one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be classified in Stage 3, and in the event of an overlap between the available indicators [Items 1-6] and the items contained in the Central Bank's Instructions No. (47/2009) dated 10/12/2009 (Item Second/d), the more stringent of the two shall be taken." | "In the event that one or more of the above conditions indicate a significant increase in credit risk (default), the debt instrument/credit exposure shall be classified in Stage 3." | | Page No. (16) of the General Framework for Applying the Standard, Paragraph No. (7). | "New credit exposures may be increased/granted up to (25%) of the existing exposure balance for a customer whose exposures or any of them have been classified in Stage 2 (Stage 2), provided that this is not done except after an in-depth study of the exposure/customer risk, and that the increase/grant is not used to settle existing/due exposures of the customer or related customers." | "New credit exposures may be granted up to (25%) of the existing credit exposure balance for a customer whose exposures or any of them have been classified in Stage 2 (Stage 2), provided that the Bank has formed a conviction based on an in-depth study of expected cash flows, relying on documented evidence of the possibility of improving the customer's financial situation, and that this increase is not used to settle existing credit exposures of the customer or related customers at the Bank, but rather is used exclusively for financing the customer's activities and enabling them to rectify the status of their existing exposures." | | Page No. (16) of the General Framework for Applying the Standard, Paragraph No. (9). | "When there is an improvement in credit quality and sufficient and documented reasons exist that make it possible to transfer credit exposures from Stage 3 to Stage 2 or from Stage 2 to Stage 1, the transfer process must not be carried out except after verifying the improvement in the credit status of the exposure and committing to paying (3) monthly installments or two quarterly installments or at least one semi-annual installment on their due dates, i.e., early payment of installments is not considered for the purpose of transferring the debt to a better stage, and this applies to the provisions of the tables contained in Instructions No. (47/2009) and their amendments, and the transfer process is carried out thereafter." | "The Bank must harmonize the classification of the three stages mentioned in these instructions with the classification of the three categories contained in the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024, and credit exposures according to the definition in Article (2/c) of those instructions shall be subject to the provisions and conditions of transfers between credit exposure classification categories and the testing periods contained in Article (5) of the aforementioned instructions for the purpose of transferring the credit exposure classification to a better category, and the Bank is left to determine the necessary criteria to allow for the improvement of the classification of any credit exposures not covered by the provisions of Article (5) above within its credit policy." | | Pages No. (17 and 18) of Credit Risk and Expected Credit Loss Measurement. | "The principle of measuring credit risk and expected credit loss on an aggregate basis for one or more groups of credit exposures may be applied, provided that the size of a single credit exposure for any component of the portfolio does not exceed (250) thousand dinars (or its equivalent) at the Bank. [In special cases, if the Bank has certain products/credit exposures for which expected credit loss is calculated on a portfolio basis and the amount exceeds (250) thousand dinars for any component of the portfolio, the Bank must submit a request to the Central Bank to obtain its approval]." | "The principle of measuring credit risk and expected credit loss on an aggregate basis for one or more groups of credit exposures may be applied, provided that the size of a single credit exposure for any component of the portfolio does not exceed (150) thousand dinars (or its equivalent) at the Bank." | | Page No. (20) of Credit Risk and Expected Credit Loss Measurement. | "The haircut percentages specified in the Debt Classification Instructions No. (47/2009) dated 10/12/2009 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional haircut percentages representing the time period during which the collateral will be converted to cash, provided that the Bank has sufficient information to document and support the calculation process." | "The haircut percentages on eligible collateral specified in the Credit Exposure Classification and Impairment Provisions Instructions No. (8/2024) dated 30/6/2024 shall be applied as a minimum, and the time period and time value of money shall be taken into account for the purpose of calculating expected credit loss by adding additional haircut percentages representing the time period during which the collateral will be converted to cash, provided that the Bank has sufficient information to document and support the calculation process." |