Chapter One: Credit Granting Controls

Section Four: Loans for Consumer Purposes and Financing Companies Services Sales by Installments

I: Ratios of Loan Installments to Monthly Income

In light of the recent trend observed in banks towards growth in the portfolio of loans for consumer purposes, which have become a high percentage in some bank loan portfolios, and noting the disproportionate ratio of loan installments for consumer purposes to the value of granted loans, and in line with international practices of the necessity of having a ratio of the total value of installments to an individual's monthly income, the Board of Directors of the Central Bank of Egypt decided 1 in its meeting held on January 6, 2016, the following:

Banks shall not exceed a total of installments for loans for consumer purposes, credit cards, personal loans, car loans for personal use by the client, and housing loans for personal residence 2 outside the scope of Law No. 148 of 2001 promulgating the Real Estate Finance Law and its executive regulations, a ratio of 50% of the total monthly income after deducting taxes and social insurance, including housing loans for personal residence according to Law 148 of 2001 at a ratio of 40% of the total monthly income.

This applies to loans granted for consumer purposes starting from the date of notifying banks of this decision. The following are some clarifications regarding the ratio of installment value to the individual's monthly income concerning the portfolio of loans for consumer purposes.

1. Banks must fully adhere to matching the maturities of their assets and liabilities according to the maturity ladder when granting loans for consumer purposes.

2. Regarding the calculation of installments due to monthly income, the part covered by guarantees that are considered when forming the provision for loans and facilities shall be excluded.

1 Letter of the Deputy Governor of the Central Bank of Egypt dated January 11, 2016 2 Letter of the Governor of the Central Bank of Egypt dated December 19, 2019 1 3. All criteria used in the method of calculating monthly income for clients and the validation process shall be approved by the bank's Board of Directors, especially for clients whose monthly income cannot be proven.

4. The instructions do not apply to credit card limits, provided they are not increased if the prescribed ratio is exceeded.

5. Loans granted by banks to employees are excluded from the prescribed ratio.

6. Banks must ensure the commitment of commercial stores/commercial outlets/public companies in the field of installment sales financing that provide their customers with payment facilities to purchase consumer goods, as well as car companies, to apply the prescribed ratio in their dealings with their customers, in case of dealing with such entities in any form of investment.

7. Banks must obtain the supporting documents for the value of the monthly income since granting loans 4 for consumer purposes , and if this is not possible for some job categories, the calculation method for these categories must be approved by the Board of Directors as mentioned above.

8. The concept of monthly income for the purpose of calculating the aforementioned ratio refers to gross income after deducting 4 taxes and social insurance, plus other additional income sources proven by documents.

II: Controls for Financing Installment Sales Service Companies

Considering the installment sales companies that provide their services to individuals for the purchase of consumer or durable goods, and due to these companies not being subject to a regulatory body, which may result in high-risk rates and increased default rates, the Board of Directors of the Central Bank decided in its meeting held on August 15, 2018, to issue the following controls that banks must adhere to when dealing with public companies in the field of installment sales financing in any form of investment 3:

1. Financing for such companies shall be in the local currency only, taking into account the scope of these companies' portfolios to avoid maturity mismatches.

2. Banks shall obtain from the aforementioned companies reports approved by the company's accredited auditor as follows:

• An annual report confirming that the company has clear and effective policies for calculating and monitoring the value of installments due to an individual's monthly income.

3 Letter from the Supervision and Control Sector dated September 6, 2018 4 Circular dated December 28, 2016

• A quarterly report clarifying the extent of the company's commitment to applying the maximum ratio of installments due to an individual's monthly income prescribed by the Central Bank.

• Banks shall include clauses in the contracts concluded between them and public companies in the field of installment sales financing to ensure that they review the credit information contained in the report of the Egyptian Credit Information Company to analyze the customer's credit and payment behavior and evaluate it, in addition to the companies' commitment to the Egyptian Credit Information Company regarding the credit behavior of their customers.

• Provide the Central Bank with a quarterly statement including the total credit facilities granted/used/under study and the scope of these facilities, with respect to public companies in the field of installment sales financing.