Instructions No. 13 of 2023 Regarding Dealing with Liquidity Shortage in the National Economy

Palestine Monetary Authority PALESTINE MONETARY AUTHORITY

Instructions No. (13) of 2023 Regarding Dealing with Liquidity Shortage in the National Economy

Based on the provisions of Legislative Decree No. (9) of 2010 regarding Banks, particularly Articles (40, 43, 72) thereof, and based on the provisions of Instructions No. (6) of 2023, and in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following Instructions:

Article (1) Objective and Scope of Application

1. These Instructions aim to regulate procedures for dealing with liquidity shortage in the economy and facilitate liquidity injection procedures through a number of instruments.
2. The provisions of these Instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine.

Article (2) Procedures for Dealing with Existing Loans and Financing

Given the difficult economic conditions resulting from the repercussions of the current crisis, banks are required to comply with the following:

1. Handle installments for public sector employees, private sector employees, and workers that have matured and remain unpaid due to delayed salary disbursement, according to the following options: a. Open a temporary overdraft account for a public sector employee to be used for settling due installments, subject to the following conditions: 1. Suspend collection of contractual interest on due installments. 2. Suspend collection of late payment interest on due installments. 3. Suspend collection of any commissions or fees. 4. Collect a declining interest rate of up to 3% maximum. 5. The employee's temporary overdraft shall be settled or reduced by the amount transferred from the Ministry of Finance according to the deduction percentages stipulated in the Instructions. b. Allow private sector employees and workers to defer/settle the deduction of due or upcoming installments for the coming months until the end of January 2024, to be processed according to the following options: 1. Spread them over 24 months from the date of the last deferred installment. 2. Spread them over the remaining loan tenure. 3. Defer the installments to be deferred to the end of the loan tenure. 4. Do not charge any additional commissions or interest on the rescheduling process, and ensure the interest on the new loan does not exceed the interest on the current loan. c. Allow rescheduling or restructuring of the employee's debt according to the following treatments and options: 1. Reschedule the entire debt, due installments, and revolving overdraft within a new loan. 2. Allow exceeding the specified periods for personal and real estate loans beyond those stipulated in the Instructions. 3. Calculate interest on the new (rescheduled) loan equal to or less than the interest on the current loan. 4. Do not charge any additional commissions or interest on the rescheduling process. 5. Allow granting the customer a grace period for the new loan not exceeding 6 months. 6. Allow the rescheduling process without paying the down payment stipulated in the Instructions. 7. Do not increase the debt value beyond what it was on the rescheduling date. 8. Allow converting the debt balance in the same currency as the salary. 9. Allow future debt restructuring upon customer request to reduce the tenure without any commissions.
2. Comply with documenting amendments to credit facilities contracts in accordance with the law and sound banking practices.

Article (3) Procedures for Dealing with Existing Financing in Islamic Banks

1. The Islamic bank must, upon request, grant a public sector employee a Murabaha financing to purchase goods, certificates, or communication packages to settle due installments during the period from (2023/10 - 1/2024), subject to the following conditions: a. Suspend collection of contractual return on due installments. b. Suspend collection of any commissions or fees. c. Collect a declining return of up to 3% maximum. d. The Murabaha shall not cover installments due to the customer before 2023/10/1. e. The financing shall be settled or reduced by the amount transferred from the Ministry of Finance according to the deduction percentages stipulated in the Instructions.
2. Allow extending the Ijarah period for customers who obtained financing in the form of Ijarah Muntahia Bittamleek, or spreading it over the remaining financing tenure at the same agreed return with the customer according to signed contracts. Allowing exceeding the periods specified in the Instructions.
3. Allow the customer, upon request, to reschedule financing in Islamic banks using the Tawarruq format subject to prior approval from the Palestine Monetary Authority, provided the following is complied with: a. Shall not cover distressed customers or those with installments due before 2023/10/1. b. The customer must have installments due after 2023/10/1. c. Shall cover due or upcoming installments from 2023/10/1 to 2024/1/31.
4. Comply with documenting amendments to financing contracts in accordance with the law and sound banking practices.

Article (4) Instruments for Liquidity Injection in the Economy

1. The bank shall design and approve the following new products for the purpose of injecting liquidity into the national economy: a. Granting the employee a temporary advance/financing in accordance with the provisions of these Instructions. b. Granting the employee a temporary loan/financing to settle the value of due or upcoming installments until the end of 2024 in accordance with the provisions of these Instructions. c. Approving a new product called "Emergency Loan/Financing" aimed at financing the customer's working capital and business activities in accordance with the provisions of these Instructions.
2. The Palestine Monetary Authority enables banks to obtain emergency liquidity in accordance with the provisions of these Instructions.

Article (5) Temporary Advances

The bank shall comply with the following:

1. Design an advance program for public and private sector employees on a salary account basis, such that the program includes the following: a. Determining the maximum advance value allowed for the employee, which shall in no case exceed the salary amount registered with the bank. b. Determining advance repayment mechanisms and specifying whether repayment will occur upon salary receipt. c. Documenting the employee's receipt of the advance in accordance with approved documentation standards or through electronic means.
2. The employee advance program shall include the possibility of granting advances to employees whether they are borrowers or non-borrowers.
3. The temporary advance shall be available to employees whose salaries are transferred to the bank.
4. Advances shall be disbursed to employees upon their request via the banking app, ATM, or call center.
5. Establish a specific pricing policy for the employee advance program, such that the policy includes the following: a. An interest rate that shall in no case exceed the interest rate registered in existing credit facilities contracts for current borrowers, or the personal loan interest rate for new borrowers, in cases not related to the employer's delay in salary payment. b. An interest rate or return not exceeding 3% declining in cases of employer delay in salary payment to the employee for force majeure reasons and pursuant to specific Palestine Monetary Authority Instructions.
6. Islamic banks shall provide the advance referred to in this Article by executing a Murabaha financing to purchase goods, certificates, or communication packages for the customer's benefit, subject to compliance with the following: a. Shariah Standard No. (30) regarding the mechanism and implementation parameters. b. The cost of return and fees on the Murabaha shall not exceed 3% declining in cases of employer delay in salary payment to the employee for force majeure reasons, in accordance with Palestine Monetary Authority Instructions. c. A return rate that shall in no case exceed the return rate registered in existing financing contracts for current borrowers, or the personal financing return rate for new customers.

Article (6) Repayment of Temporary Advances

The bank shall comply with the following:

1. Agree with the customer on the mechanism for repaying the temporary advance/financing value.
2. Allow any customer wishing to do so to record the advance on the temporary overdraft account in the case of public sector employees.
3. Repay the advance/financing value upon salary receipt or as agreed with the employee.

Article (7) Uses of Advance/Financing

The bank shall comply with the following:

1. Allow the customer to use the advance or financing, or part thereof, to settle checks drawn on their account or any of their obligations.
2. Do not use the advance/financing to settle installments of loans or financing previous to the customer without obtaining their prior consent.

Article (8) Temporary Loan or Financing

The bank shall comply with the following:

1. Design a temporary loan or financing program for employees, such that the program includes the following: a. Determining the value of the loan or financing allowed for the employee to obtain. b. Determining the categories eligible to obtain the loan or financing. c. Determining the added value of cash flows minus the customer's obligations during the period until the end of 2024. d. Determining the options available to the customer to repay the loan or financing, and allowing repayment and re-obtaining it more than once during the period without any commissions or fees. e. Determining the costs expected to be borne by the customer, and repayment mechanisms according to their capacity and cash flows. f. Documenting the customer's receipt of the loan or financing in accordance with approved documentation standards.
2. The temporary loan or financing program shall include the employee whether they are a borrower or non-borrower.
3. Establish a specific pricing policy for the temporary loan or financing program for employees.
4. Emergency financing granted by Islamic banks to employees shall be in the form of commodity Murabaha.

Article (9) Uses of Temporary Loan or Financing

The bank shall determine the uses of the temporary loan or financing to include the following:

1. Settling due installments or installments expected to mature until the end of 2024.
2. Granting the customer the opportunity to increase the loan or financing value above the value of due or expected installments until the end of 2024.
3. Covering the employee's emergency expenses, whether resulting from salary interruption, delayed disbursement, or considerations related to the economic situation and financial hardship.

Article (10) Emergency Loan / Financing

1. The bank shall comply with the following: a. Design an emergency loan or financing program for individuals, companies, and medium and small projects, such that the program includes the following: 1. Determining the value of the emergency loan or financing allowed for individuals, companies, and projects to obtain. 2. Determining the categories eligible to obtain the emergency loan or financing, including individuals, companies, and projects operating in the tourism, agricultural, and industrial sectors, and projects affected by the crisis. 3. Determining the net cash flows the customer will benefit from during the period until the end of 2024. 4. Allowing repayment of the loan or financing and re-obtaining or utilizing it again until the end of 2024 without any commissions or fees. 5. Determining the options available to the customer to repay the loan or financing, the expected costs to be borne, and repayment mechanisms according to their capacity and cash flows. 6. Documenting the emergency loan or financing in accordance with approved documentation standards. b. Establish a specific pricing policy for the emergency loan or financing program, provided that the approved interest rate or return for the customer's existing loans or financing is not exceeded. c. Emergency loans or financing granted by Islamic banks to companies and projects shall comply with Islamic Shariah provisions and follow financing formats approved by the Supreme Shariah Supervision Board.
2. The bank may design the emergency loan or financing program to include all customers.

Article (11) Provisions on Emergency Liquidity

1. The bank may resort to the Palestine Monetary Authority to obtain emergency liquidity subject to the following conditions: a. The bank must have high financial solvency. b. The Palestine Monetary Authority must be the lender of last resort for obtaining liquidity. c. Compliance with the Palestine Monetary Authority's conditions for obtaining liquidity. d. The bank must need liquidity for the purpose of restructuring its financial position and liquidity indicators.
2. The bank is prohibited from using emergency liquidity to finance external activities without obtaining prior approval from the Palestine Monetary Authority.
3. The Palestine Monetary Authority may request guarantees from the bank applying for emergency liquidity.
4. The duration of emergency liquidity shall be relatively short-term, and must not exceed a maximum of 180 days. The term may be extended for other periods with the approval of the Palestine Monetary Authority Board of Directors.
5. The Palestine Monetary Authority shall establish a specific pricing policy to implement the requirements of these Instructions, and publish interest rates on a weekly basis.

Article (12) Repeal of Conflicting Provisions

All provisions conflicting with these Instructions are hereby repealed.

Article (13) Enactment

The provisions of these Instructions shall take effect from the date of their issuance, and all competent authorities shall comply with the following, each within their respective scope:

1. Complete the design of new products within two weeks from the date at the latest.
2. Begin marketing the new products immediately upon completion of their design and approval.
3. Commit to giving priority in implementation to the temporary advance or financing program for employees, with implementation to begin at the latest from the beginning of the coming December.

Issued in Ramallah, on: 2023/11/27

Dr. Faras Malham Governor [Signature]