Regulatory Alerts2024-03-31 | CBE3.5.4Added · Updated
CBE Regulation Book 3.5.4: Pillar 2 Requirements - Concentration Risk Management
The Central Bank of Egypt mandates that all banks operating in Egypt implement specific qualitative and quantitative requirements for managing concentration risk under Pillar 2 of the Basel Accords. Banks are required to calculate Individual Concentration Risk using the Individual Concentration Index (ICI) and Sectoral Concentration Risk using the Sectoral Concentration Index (SCI) based on defined formulas and tables. The regulation establishes a tiered capital requirement structure, requiring banks to hold additional capital ranging from 0% to 8% of risk-weighted assets depending on the calculated index values, with specific rules for reconciling these Pillar 2 requirements with Pillar 1 capital adequacy standards for the largest clients. Banks must also adopt internal policies, limits, stress testing, and reporting mechanisms to monitor and mitigate credit, funding, liquidity, and operational concentration risks.