Approval of Supervisory Instructions to Enforce the Prohibition on Banks Holding Shares in Non-Financial Companies Exceeding 40% of Issued Capital

Bank ............... Greetings,

I would like to refer to the decision of the Board of Directors of the Central Bank of Egypt in its meeting held on July 27, 2004, regarding the prohibition of banks continuing to own shares in non-financial companies with a value exceeding 40% of the company’s issued capital, granting banks a three-year period from the date of the Board's approval to regularize their positions.

In light of the continued requests by some banks for additional periods to regularize their positions, despite the necessity of taking the required measures to comply with the aforementioned decision by selling shares equivalent to the excess percentage, it was deemed that the continuation of this situation indicates the occurrence of impairment losses on the value of these shares that must be charged to the income statement. Therefore, the Board of Directors of the Central Bank of Egypt decided in its meeting held on September 8, 2009, the following:

"In the event that a bank owning shares in a non-financial company exceeding 40% of the company’s issued capital is unable to dispose of this excess within one year from the date of acquisition, the impairment losses on the value of these shares shall be measured in accordance with prevailing accounting rules, such that the value of these losses does not be less than the equivalent of the excess percentage over 40% of the company’s issued capital, and the value of these losses shall be recognized in the income statement under the item 'profits (losses) on financial investments' or the item 'other operating revenues (expenses)' depending on the case, against the reduction of the book value of the shares by the value of these losses. This treatment shall apply as of July 1, 2010."

In applying this decision, the following shall be observed:

1. New acquisitions of shares, in cases where the participation percentage in the company exceeds 40% of the issued capital, are limited to cases where the ownership of shares becomes the property of the bank as satisfaction of debts owed to it by its clients through settlements.

2. Impairment losses shall be calculated as follows: Prevailing accounting rules shall be followed to calculate losses according to the following example:

   • Book Value: 120 million pounds,
   • Participation Percentage: 50%,
   • Assume that the value of impairment losses is 30 million pounds.

   120 - 30 = 90 million pounds.

   Following this, additional impairment losses shall be calculated according to the Board's decision as follows: Book Value / Participation Percentage x Excess Percentage = 90 / 50% x 10% = 18 million pounds.

   Total impairment losses charged to the income statement: 48 million pounds.

   In cases other than the previous one, impairment losses shall be calculated as follows:

   $$\mathbf{\Pi}_{\mathbf{h}}^{r}$$

   Book Value / Participation Percentage x Excess Percentage = 120 / 50% x 10% = 24 million pounds.

3. In both cases, the value of the additional impairment losses shall affect the income statement of the bank prepared for the first financial year following the date mentioned in the decision (July 1, 2010).

Please be kind enough to alert regarding the full compliance with what is stated in this letter.

Accept our highest regards,

Gamal Naguib Central Bank of Egypt Board of Directors Secretariat Email: mohamed.kamaleldin@cbe.org.eg