Chapter Four: Criteria for Approving the Opening of New Branches or Agencies for Registered Banks and the Use of Mobile Banking Service Vehicles

First: Criteria for Authorizing the Establishment of New Branches or Agencies for Registered Banks

In line with the Central Bank of Egypt's policy of encouraging the growth and spread of new branch presence in various regions of the Republic, the need has arisen to review the guidelines regulating and organizing the approval process for opening new branches or agencies for banks, and the guidelines currently in force.

These guidelines are based on the supervisory standards for capital adequacy, internal control systems in advanced banks, the request to open new branches, and the adequacy of their capital to face all risks resulting from the increase in the size of the activity.

Accordingly, the Board of Directors of the Central Bank of Egypt has approved the following guidelines, which must be adhered to by all banks submitting requests to the Central Bank of Egypt for the circumstances of each case requesting the opening of new branches. These guidelines will be applied with a degree of flexibility according to the case. If the Central Bank of Egypt requests the application of the supervisory guidelines when banks submit their requests, the need becomes clear for banks to have a policy of spreading to the level of regions of the Republic.

1. Supervisory and Supervision Department Letter dated June 5, 2008 (Resolution of the Board of Directors of the Central Bank of Egypt dated June 3, 2008).

-1 The Quantitative Aspect:

Renewal of the annual report on the branches owned by any bank (including all existing branches, branches whose approval to open has been obtained by the Central Bank of Egypt and for which that approval has not been implemented, and branches planned to be opened from January to December of each year) based on the audited balance sheet of each bank, with a minimum deduction of 20 million Egyptian pounds from the bank's basic capital for each branch.

-2 The Qualitative Aspect:

Consider the extent of the bank's compliance with laws and regulatory instructions and the implementation of corrective measures, especially the following:

• The minimum ratio of capital adequacy.
• The basis for evaluating the creditworthiness of assets and the formation of necessary provisions for them.
• The quality of balance sheet positions.
• The quality of concentration of investments in foreign countries, financial institutions, and financial groups.
• The bank's investments in the local currency and related parties and parties related to the bank.
• The results of the last inspection conducted on the bank by the Supervisory and Supervision Department of the Central Bank of Egypt.
• The observations contained in the external auditors' report.

Emphasis should be placed on the fact that the bank's general strategy justifies the objective of opening new branches.

The bank's seriousness in implementing the corrective measures obtained from previous inspections before opening new branches.

Emphasis on the fact that the bank seeking expansion has a multi-year Business Plan approved by its Board of Directors and submitted to the Central Bank of Egypt, including at a minimum the following aspects:

• A detailed plan for the human resources required to manage and operate those branches and sources to meet those needs, whether from within the bank or outside it. It is preferred in all cases that the bank provides proof of meeting the required needs.
• A feasibility study, economic and financial, for the expansion plan in opening new branches and its impact on the bank's revenues and profits.
• Approval for the activities that the new branches will practice and the new products that will be marketed, with a statement of all associated risks and how to control them.
• The extent to which certain areas are in need of new banking branches, meaning that the new branches requested to be opened are in underserved areas or areas with less presence of banking services from competing banks. With priority given to branches outside Greater Cairo and Alexandria.
• Existence of risk management that is effective, efficient, and commensurate with the size and nature of the bank's activities.
• The efficiency and effectiveness of the bank's internal control system to control current and future risks.
• Consideration of the adequacy of capital reserves for current and future risks resulting from opening new branches.
• Evaluation of the bank's information and technological infrastructure to accommodate new branches effectively and efficiently.

-3 The Organizational Aspect:

(a) Banks must submit requests to open new branches during the month of September only of each year. Requests for opening new branches for the next financial year (January - December) will not be accepted based on the date of submission. The Central Bank of Egypt must respond to bank requests in December of the same year.

(b) Documents and information required from banks:

• A letter from the Chairman of the Board of Directors of the bank or the General Manager or the Branch Manager of the bank, confirming the new branches to be opened and justifying them, and emphasizing the existence of a basic capital of 30-60% of the audited balance sheet to meet those branches.
• A detailed statement of previous approvals for opening new branches, what has been implemented from them, and justifications for documents and procedures not implemented, with a new schedule for implementation.
• Corrective measures taken by the Board of Directors to address observations contained in the inspection report on the bank.
• The bank's general strategy and annual business plan, including all the previously mentioned aspects under "The Qualitative Aspect."

Second: Registration of Branches:

-1 Banks that have obtained approval - in principle - to open a branch or agency for them must submit a request to the Supervision and Supervision Sector of the Central Bank of Egypt to amend the registration data on the form "Request to amend the name of the branch or agency and its address and date of activity," adding the branch or agency to the bank register with the activity, after completing all required security procedures. A check for the Central Bank of Egypt for the amount of the registration fee of 500 Egyptian pounds for each branch or agency must be attached to the request.

The branch or agency is not allowed to practice its activity until the bank notifies it of the date in the register.

-2 Banks must adhere to the following general conditions:

a- The branch or agency - which is subject to registration procedures - that carries out an activity primarily and predominantly involving deposits and loans to finance projects, and everything related to it as part of bank activities, regardless of the name given to it, regardless of the size of its activity and its independence from the administrative or accounting entity.

b- Offices or premises owned by banks for selling investment or deposit instruments offered by banks to depositors are therefore subject to registration procedures as an agency.

c- The following are not subject to registration procedures:

• Offices or premises located next to branches or agencies and owned by them internally, provided that they perform the activities that branches or agencies originally perform, as these premises represent a geographical expansion of the original branch or agency.
• Bank offices whose work is limited to foreign currency exchange.

d- In the event of changing the name of any of the bank's branches or agencies, a request must be submitted to amend the registration data. In the event that the name change involves transferring the entity to another administrative authority other than the original entity was affiliated with, a check for the amount of the registration fee of 500 Egyptian pounds must be attached to the request.

e- In the event of changing the address of any of the bank's branches or agencies - while continuing to practice its activity under the previous name registered in the bank register - or raising its administrative level, notification is sufficient without the need to submit a request to amend the registration data.

-3 No branch or agency is allowed to practice its activity until the Central Bank of Egypt verifies that it has fulfilled all procedures, and this also applies to the transfer of branches to new headquarters.

2. Supervisory and Supervision Department Letter dated April 11, 1976.

-4 Banks are prohibited from entering into practices or tenders for the lease or purchase of any headquarters to open new branches or agencies without obtaining prior approval from the Central Bank of Egypt.

Third: Guidelines for Opening Small Agencies/Branches ("Branches Mini"):

In line with the Central Bank's policy and to facilitate banks and respond to their desire to open small agencies or branches, and to encourage them to expand in providing retail banking services, thereby expanding the scope of their activity and reaching a larger number of customers with diverse social segments in the places where these agencies or small branches will be located.

Accordingly, the Board of Directors of the Central Bank of Egypt has approved the following guidelines for opening small agencies/branches for banks ("Branches Mini"), which must be adhered to by banks when submitting requests to the Central Bank (Supervisory and Supervision Department - Banking Affairs) to open small agencies/branches for them to provide new banking services to their customers:

-1 The activity of small agencies/branches is limited to the following:

• Cash deposits and withdrawals and currency exchange for individuals, as well as transactions conducted through ATMs.

• All banking transactions for individuals, including opening accounts, granting loans, deposit certificates, etc.

• Receiving requests for various banking services and sending them to the competent department in the bank to complete procedures.

• Receiving installment sales requests for goods in agreement with distributors (depending on their locations).

• Marketing and promotional activities for bank products.

• Providing banking services to the small and medium-sized enterprise sector.

4. Letter from the Governor of the Central Bank of Egypt dated December 8, 2014.
5. Circular Letter dated April 8, 2015.

-2 A minimum of 5 million Egyptian pounds from the bank's basic capital is deducted for each small agency/branch inside Greater Cairo, 2 million Egyptian pounds outside Greater Cairo, while for Upper Egypt governorates, 1 million Egyptian pounds is deducted.

-3 Banks must submit requests to open small agencies/branches to the Supervision and Supervision Sector (Banking Affairs) during the months of February and September of each year.

-4 The registration fee for the small agency/branch is in accordance with the provisions of the Central Bank and Banking Sector Law.

-5 The conditions for opening small agencies/branches are applied according to their locations and in accordance with the instructions issued by the Central Bank of Egypt pursuant to the Supervisory and Supervision Department Letter dated September 15, 2009, that customers must be served individually, as these small agencies/branches provide retail banking services to individuals only.

-6 Adherence to the decision of the Board of Directors of the Central Bank of Egypt in its meeting held on February 28, 2002, regarding the special security procedures for practicing the activity of new banking entities.

-7 Except for what is stipulated in clauses (1, 2, and 3), the supervisory guidelines issued by the Board of Directors of the Central Bank of Egypt in its meeting held on June 3, 2008, for approving requests to open new branches for banks must be observed when opening small agencies/branches.

Fourth: Guidelines for the Use of Mobile Banking Service Vehicles (Mobile ATM):

Given the increasing use of mobile banking service vehicles in cities, which contradicts their primary purpose and the need for banking services such as ATMs and others in remote areas where branches or bank competitors are not available, the Central Bank of Egypt has decided to facilitate the use of mobile banking service vehicles, provided that banks submit their requests to obtain prior approval from the Central Bank. The following conditions must be met:

-1 The presence of the vehicle must be limited to areas lacking banking services where branches or bank competitors are not available.

5. Letter from the Deputy Governor of the Central Bank of Egypt dated September 26, 2007.

-2 The vehicle must be limited to providing ATM services only, without performing any other banking services.

-3 No employees must be present inside the vehicle.

-4 The vehicle must be equipped with necessary security procedures and have dedicated security personnel provided by the bank throughout the period of its operation.

-5 Participation in a voice assistance service to monitor and track the vehicle (GPS service) in coordination with the Ministry of Interior.

6. Central Bank of Egypt Security Department Letter dated September 24, 2013.

-6 Notification of the competent security authority at the Ministry of Interior of the start and location of the vehicle's operation for the intended purpose at least 48 hours in advance.

-7 Equipping the vehicle with surveillance cameras and linking them to the daily transaction report and an event recording device (NVR - DVR), so that these cameras cover the area surrounding the vehicle and the interaction with the machine (deposit slot).

-8 Taking all necessary measures to manage risks associated with providing this service.

-9 Ensuring that operational risks do not result from fraud using ATMs or armed robbery.

-10 Ensuring the periodic updating of currency counterfeiting detection systems, including in ATMs that accept deposits.

-11 Ensuring the presence of a backup power supply for the vehicle and that the bank takes preventive measures to prevent fraud or theft.

-12 Monitoring and evaluating the quality level of all services provided through ATMs.