Region

Jurisdiction

Regulator

2021-01-01

Instructions No. 1-2020 on External Investments

The Palestine Monetary Authority issued Instructions No. 1-2020 to regulate and cap external investments by licensed banks in Palestine. The directive mandates banks to establish robust internal risk management frameworks, calculate external investment ratios against total deposits, and adhere to phased concentration limits ranging from 40% down to 25% by March 2023. It further restricts single-country exposure to 40%, aligns permissible credit ratings with major agencies, and requires prior regulatory approval for exceeding specified thresholds or investing in unrated entities.

Palestine

Palestine Monetary Authority

Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (01) of 2020

Regarding External Investments

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

Article (1)

Scope of Application

The provisions of these Instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine.

Article (2)

Internal Measures

The bank shall comply with the following:

Identify and assess risks associated with investing funds outside Palestine and integrate them into the risk management framework, in addition to ensuring the efficiency and effectiveness of systems for managing exposures and avoiding risk concentration.
Establish effective and sound policies and procedures for managing external investment risks and country risks, which shall include the following:

a. Risk tolerance limits, including overall and sub-limits for exposures.
b. Clear boundaries of responsibilities and accountability related to decisions to manage these risks, including ceilings, approvals, and exception cases.
c. Define appropriate quantitative and qualitative standards and methods used in analyzing country risks, document them, and assess the effectiveness of those standards and methods in decision-making.
d. Define permitted or prohibited investment activities.
e. Ensure that risk management policies, standards, and procedures have been disseminated to all relevant employees.
Provide operational procedures and mechanisms that enable the bank to continuously monitor the economic and political conditions surrounding countries and financial instruments invested in, commensurate with the exposure size, and provide a comprehensive and effective internal reporting mechanism.

Article (3)

External Investment Ratio

The bank shall comply with the following when calculating the external investment ratio:

The numerator of the ratio shall include the bank's investments outside Palestine at accounting value (items within the balance sheet) and at conversion factors (items outside the balance sheet) as follows:

a. Balances invested with banks.
b. Certificates of deposit, treasury bills, bonds, and instruments of all kinds.
c. Investment in ownership shares or company stocks.
d. Portfolios and investment funds.
e. Syndicated loans and other direct facilities.
f. Off-balance sheet items: 20% of unconditional and irrevocable commitments and obligations, 10% if revocable without conditions, and 100% of direct credit substitutes.
The denominator of the ratio shall include the following:

a. Customer deposits.
b. Cash collateral.
c. Palestine Monetary Authority deposits.
d. Bank deposits.

Article (4)

Regulatory Limits for External Investments

The bank shall comply with the following:

Not exceeding the ratio of external investments to total deposits as follows:

a. Until the end of March 2020: 40%
b. Until the end of March 2021: 35%
c. Until the end of March 2022: 30%
d. Until the end of March 2023: 25%
Not exceeding 40% of total external investments in a single country in all currencies, excluding Jordanian Treasury bonds solely for the purpose of this ratio.
Adopting rating grades issued by the following institutions:

a. Standard & Poor’s
b. Moody’s
c. Fitch
d. Capital Intelligence
Maximum limits for external investments by country and institution according to the following table, whereby concentration ratios for subsidiaries and branches of external banking financial institutions shall be calculated as a single unit:

Maximum Concentration per Country	All Currencies in Other Countries	Rating
Maximum Concentration in US Dollar and Other Currencies	40%	AAA – A
	30%	(A–)–(BBB–)
	25%	Unrated/Non-investment grade

Maximum Concentration per Institution	Rating	Max Concentration in Israeli Shekel	Max Concentration in Jordanian Dinar
Max Concentration in All Currencies	35%	AAA – A	100%
	25%	(A–)–(BBB–)
	15%	Unrated/Non-investment grade

Article (5)

General Provisions

If the bank wishes to invest in financial instruments at financial institutions rated by a credit rating agency other than those listed in Article (4) paragraph (3), it must obtain written approval from the Palestine Monetary Authority after attaching basic information about the rating institution for review and approval of ratings issued by it.
The bank may submit an application to the Palestine Monetary Authority for approval to exceed concentration ratios in unrated countries and institutions, within specific investment ceilings.
Prior written approval from the Palestine Monetary Authority must be obtained in case of allocating ceilings for investing or deploying funds outside Palestine in securities traded in financial markets, such as certificates of deposit, bonds, instruments, stocks, shares in investment funds, syndicated loans, or granting facilities outside Palestine.
Notwithstanding the provisions of Article (4) of these Instructions, the Palestine Monetary Authority may relax the maximum limits permitted herein or impose other restrictions on the bank's external investments as it deems appropriate if it becomes evident that its risks have become unacceptable.

Article (6)

Regulatory Reports

The bank shall provide the Palestine Monetary Authority with the following reports:

The monthly form (Attachment No. 1) and submit it to the Palestine Monetary Authority along with monthly financial statements.

Article (7)

Penalties

Any person who violates the provisions of these Instructions shall be penalized in accordance with Article (54) of Law Decree No. (9) of 2010 regarding Banks.

Article (8)

Repeal

Paragraph (7/5) regarding External Investment Instructions from Instructions No. (2008/5) is repealed, and anything conflicting with the provisions of these Instructions is repealed.

Article (9)

Implementation and Enforcement

All competent authorities shall, each within their respective jurisdiction, implement the provisions of these Instructions and apply them from the date of their issuance.
The bank must rectify its status to comply with the provisions of these Instructions within a maximum period of (3) three months from the date of their issuance.

Issued in the city of Ramallah on Wednesday, dated 2020/01/15

Supervision and Inspection Department
Palestine Monetary Authority

Note: The text mentioned is an extracted version of an official document issued by the Palestine Monetary Authority, and constitutes an accurate and literal translation of the original text as it appeared in the provided images.

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