Chapter Twelve: Bank Contributions to the Capital of Joint Stock Companies

1. The Board of Directors of the Central Bank of Egypt, in its meeting held on July 27, 2004, decided the following:

-1 The Bank is prohibited from holding shares in financial institutions whose value exceeds 40% of the issued capital of the institution.

-2 The Bank is permitted to hold shares in financial institutions without a maximum limit.

-3 "Financial institutions" refers to the following:

• Banks.
• Exchange companies.
• Companies operating in the field of capital markets pursuant to the Capital Market Law.
• Companies exercising the activity of real estate financing and securitization companies.
• Companies exercising the activity of financial leasing and companies operating in the field of privatization.
• Insurance companies.
• Companies providing payment services and payment processors.

-4 Compliance with the provisions of Article 3/60 of Law No. 88 of 2003, prohibiting the book value of shares from exceeding the capital base according to the percentage or shares owned by the Bank - excluding trading lands - as stipulated in Article 18 of the Executive Regulations of the Law.

-5 Banks are granted a grace period of three years to regularize their status from the date of approval by the Board of Directors of the Central Bank.

In light of the continued request by some banks for an additional grace period to regularize their status, and given that the first item of the Council's decision on July 27, 2004, indicated the necessity of taking measures to comply with the referred decision by selling shares equivalent to the excess percentage, it was deemed that continuing this situation would lead to significant losses in the value of these shares, which must be charged to the income statement.

Therefore, the Board of Directors of the Central Bank of Egypt, in its meeting held on September 8, 2009, decided the following:

"In cases other than where the Bank owning financial shares exceeding 40% of the issued capital of the institution is unable to dispose of this excess within one year from the date of acquisition, the impairment losses in the value of these shares shall be calculated according to the prevailing accounting standards, such that the value of these losses is not less than the equivalent of the excess percentage over 40% of the issued capital of the institution, and the value of these losses shall be recognized in the income statement under the item 'profits (losses) of financial investments' or the item 'other operating revenues (expenses)' according to the case, against reducing the book value of the shares by the value of these losses, and this treatment shall apply as of July 1, 2010'."

In applying this decision, the following shall be observed:

.1 The rules regarding new ownership of shares shall apply only if the Bank's percentage in the institution exceeds 40% of the current issued capital, and the shares shall be treated as non-performing loans.

.2 Impairment losses shall be calculated as follows:

• Follow the prevailing accounting rules to calculate losses according to the following example:

• Book value: 120 million EGP.
• Ownership percentage: 50%.
• Assume that the value of impairment losses amounts to 30 million EGP.

120 - 30 = 90 million EGP.

Then, calculate additional impairment losses according to the Council's decision as follows:
Book value / Ownership percentage * Excess percentage:
90 / 50% * 10% = 18 million EGP.
Total impairment losses charged to the income statement: 48 million EGP.

• In the previous case, impairment losses shall be calculated as follows:
  Book value / Ownership percentage * Excess percentage 120 / 50% * 10% = 24 million EGP.

.3 In both cases, the impact of the additional impairment losses on the Bank's income statement shall be reflected in the financial statements for the first financial year following the date referred to in the decision (July 1, 2010).

Banks shall submit quarterly reports to the Supervision and Disclosure Sector regarding the status of their holdings in the capital of growth companies, using the "Ownership" model, no later than the eighth day of the month following the month for which the report is prepared.

In the event that the Bank wishes to contribute to the capital of financial or non-financial companies with a percentage reaching 5% of the issued capital of the company, it must notify the Central Bank of Egypt at least two months before taking any actual action for the contribution. The notification must include comprehensive information about the institution to be contributed to, including at least the following:

.1 The identity of the institution and its main activity.

.2 Names of the company and the contributors.

.3 Information about the ultimate owners, if the contributors are individuals.

.4 The Chief Executive Officer in charge of managing the company.

.5 The Bank's target contribution percentage.

.6 The source of funds for the contribution.

.7 The expected return or benefit.

.8 The exit strategy.

It is considered that if there are objections from the Central Bank of Egypt, the Bank shall be notified no later than two months from the date of submitting the notification.

Banks shall submit the "Financial Investments and Treasury Certificates - Model No. 901" to the Supervision and Disclosure Sector in a clear form no later than the tenth day of the month following the month for which the model is prepared.

4 Supervision and Disclosure Sector Letter dated April 14, 2011 (Decision of the Board of Directors of the Central Bank of Egypt dated April 12, 2011), whereby the impact of additional impairment on the income statement was deferred from 2011 to 2012.

5 Letter from the Governor of the Central Bank of Egypt dated March 13, 2014.