Chapter Nine: Pledges Issued by the Central Bank to the Credit Risk Guarantee Company

The Central Bank of Egypt has issued several pledges to the Credit Risk Guarantee Company as a guarantee umbrella for the guarantee balances issued by the Company in favor of banks to cover part of the risks associated with financing companies granted under the following initiatives:

1. When calculating the capital adequacy ratio, the guarantee of the Credit Risk Guarantee Company is recognized for banks, with the portion covered by that guarantee receiving a risk weight of 20%. Regarding the portfolio covered by letters of guarantee issued by the Central Bank of Egypt to the Company, a zero risk weight is applied.

2. With respect to Article Five of the Circular Book regarding the principles of credit rating assessment for customers and the formation of provisions, issued with the approval of the Board of Directors of the Central Bank of Egypt in the session held on May 24, 2005, the guarantee of the Credit Risk Guarantee Company issued against the pledge of the Central Bank is considered when forming provisions, excluding the portion covered by that guarantee from the balances of facilities granted to the customer.

3. With respect to the treatment of guarantees issued by the Credit Risk Guarantee Company when calculating the maximum limit for bank investments in a single customer and the customer and related parties, the portion covered by the guarantee of the Credit Risk Guarantee Company is excluded from the bank's investments in a single customer or the customer and related parties. The excluded guarantee balances are added to the bank's investments in the Credit Risk Guarantee Company, provided that guarantees covered by pledges of the Central Bank of Egypt are excluded from them.

First: Initiatives for Micro, Small, and Medium Enterprises and Enterprises

With reference to the Central Bank's procedures to encourage financing for micro, small, and medium enterprises and enterprises, the Board of Directors of the Central Bank of Egypt approved the issuance of a guarantee of 2 billion Egyptian pounds to the Credit Risk Guarantee Company in exchange for the Company issuing its guarantees to banks to cover part of the risks associated with financing micro, small, and medium enterprises. This was approved in the session held on May 24, 2005.

The Credit Risk Guarantee Company expanded its scope of work to include guaranteeing large enterprises in addition to micro, small, and medium enterprises, where the Board of Directors of the Central Bank of Egypt decided in the session held on May 19, 2020 the following:

Launching an initiative under which the Central Bank will issue a pledge of 7 billion Egyptian pounds - in tranches - to the Credit Risk Guarantee Company as a guarantee umbrella for the guarantee balances issued by the Company in favor of banks to cover a portion of the risks associated with financing large enterprises, according to the following:

• Main Determinants of the Initiative:
  • Purpose of the Pledge: The Credit Risk Guarantee Company will guarantee credit facilities granted under the initiative for the private industrial and agricultural sector and services.
  • Target Groups: Customers benefiting from the initiative for the private industrial and agricultural sector and services with annual business volume/revenues of 200 million Egyptian pounds or more, and any amendments that may occur.
  • Duration of the Initiative: For ten years or upon full exhaustion of the value of the pledge, whichever comes first, provided that the Company's guarantees issued to banks remain valid until the pledge is exhausted, even if the initiative period ends.

Banks must commit to the following:

• Not using facilities granted under the aforementioned pledge to repay existing facilities, and ensuring the use of the facility for the purpose for which it was granted.
• Using the aforementioned pledge to guarantee facilities for new customers or increasing existing facilities.
• Periodic declaration of data on large companies guaranteed by the Credit Risk Guarantee Company to the supervision and oversight department, through forms to be provided to banks later.
• Providing the Credit Risk Guarantee Company with with detailed data on companies subject to the initiative.

Second: Initiative for Replacement and Renewal of Accommodation Hotels, Floating Hotels, and Tourist Transport Fleets

Issuing a pledge of 2 billion Egyptian pounds in tranches - starting with the first tranche of 1 billion Egyptian pounds - in favor of the Credit Risk Guarantee Company as a guarantee umbrella for the guarantee balances issued by the Company in favor of banks to cover part of the risks associated with financing companies in the tourism sector under the initiative for replacement and renewal of accommodation hotels, floating hotels, and tourist transport fleets, which includes an amount of 3 billion Egyptian pounds allocated to the initiative, guaranteed by the Ministry of Finance, according to the following:

• The maximum limit for the facility guaranteed by the aforementioned pledge does not exceed 400 million Egyptian pounds for a single customer and the customer and related parties.
• The Company guarantees 70% of the credit risks for the granted facility, while banks bear 30% before claiming the guarantee from the Company.
• Facilities can be granted under the initiative for replacement and renewal of accommodation hotels, floating hotels, and tourist transport fleets exceeding the maximum limit mentioned above, without benefiting from the pledge issued in favor of the Credit Risk Guarantee Company.
• Using the aforementioned pledge to guarantee facilities for new customers or increasing existing facilities.

With emphasis on the following:

• Not using facilities granted under the aforementioned pledge to repay existing facilities, and ensuring the use of the facility for the purpose for which it was granted.

Third: Initiative for Financing the Payment of Salaries and Wages of Workers in the Tourism Sector under the Guarantee of the Ministry of Finance

In light of the Ministry of Finance's approval to issue a guarantee of 3 billion Egyptian pounds to be used to provide further support to the tourism sector and its workers, the Board of Directors of the Central Bank of Egypt decided in the session held on June 7, 2020

1. To allocate a tranche of 3 billion Egyptian pounds from the amount allocated to the initiative for financing companies in the tourism sector, at a rate of 50 billion Egyptian pounds for the initiative for replacement and renewal of accommodation hotels, floating hotels, and tourist transport fleets, according to the following determinants:
   • Issuing a pledge of 3 billion Egyptian pounds - in tranches - in favor of the Credit Risk Guarantee Company as a guarantee umbrella for the guarantee balances issued by the Company in favor of banks to cover 100% of the value of loans granted to companies in the tourism sector under the mentioned tranche.
   • Providing the Credit Risk Guarantee Company with detailed monthly data including the names of customers benefiting from that tranche, the amounts disbursed to them and the date of disbursement, as well as delinquent customers and the value of delinquency, and any additional data requested by the Company on a monthly basis, to monitor the use of the initiative through a single bank through the Company.

Fourth: Initiative for Vehicle Replacement

In light of the Central Bank of Egypt's direction to support the state in achieving sustainable development goals, including environmental and social elements, and in light of the state's direction to replace vehicles operating on fuel with those operating on dual fuel and encourage citizens to take this step by providing the required financing to them at low interest rates, the Board of Directors of the Central Bank of Egypt approved the following decision in the session held on December 27, 2020:

• The Central Bank will issue a pledge of 15 billion Egyptian pounds - in tranches - in favor of the Credit Risk Guarantee Company as a guarantee umbrella for the guarantee balances issued by the Company in favor of banks, provided that the Company, under this pledge, covers 80% of the risks associated with financing individuals under the initiative, and banks bear the remaining percentage (20).