Chapter One: Credit Granting Controls

Section Six: Import Operations

In the context of the Central Bank of Egypt's interest in contributing to the enhancement of the national economy, encouraging local products and strengthening their competitiveness against foreign products, and directing banking resources in a manner that achieves real development in society with a focus on goods and production inputs that drive the economy. In light of current developments and to complete the role of the Central Bank of Egypt in supporting local industry, the following has been decided 1:

First: Monetary Coverage:

Banks are obligated to obtain monetary coverage at a rate of 100% as follows:

1. Standby letters of credit used to finance imports for the account of commercial companies or government entities, as well as in the case of enhancing commercial or financial guarantees provided on the strength of suppliers for the import of these goods for the account of those entities, or to meet any obligations on the bank, including import operations conducted via deferred shipping documents enhanced, including issuing guarantee letters regarding import operations for the account of traders and government entities.

2. Banks are permitted to obtain the aforementioned monetary coverage in Egyptian Pounds, maintaining a suitable margin to face exchange rate fluctuations, or in foreign currency.

3. The 100% monetary coverage applies to shipments intended for non-trade import operations conducted on the strength of financial standby letters of credit (C/L Standby).

4. The exception from the aforementioned monetary coverage is limited to the following import operations:

• Medicines, vaccines, and their special chemical materials.
• Infant milk.
• Medical devices, equipment, and supplies.
• Spare parts for machines and equipment.
• Software, applications, computers, and their accessories.

5. Regarding import operations conducted via unenhanced deferred shipping documents, the monetary coverage at a rate of 100% is exempted for basic goods and products 2 that include:

6. Circular letter dated January 27, 2016, regarding the amendment of the instructions for import operations issued on December 21, 2015, concerning import operations.

7. Circular letter dated February 22, 2016, regarding the addition of some exceptions to the import operations instructions.

• Basic food and supply goods, including powdered milk and infant milk.
• Production machines, equipment, and spare parts.
• Intermediate goods, production inputs, and raw materials, including medical devices, equipment, and supplies, software, applications, computers, and their accessories.
• Medicines, vaccines, and their special chemicals.

6. The use of credit limits granted to customers by banks in providing the aforementioned monetary coverage is not permitted, including credit facilities backed by commercial or financial guarantees. This is without prejudice to the non-use of local currency credit limits granted to non-trade customers to procure foreign currency for import operations, whether those available through Central Bank auctions or from the bank's own sources of foreign currency.

7. Regarding standby letters of credit for importing goods for non-trade purposes, except for what manufacturers import of capital goods, production inputs, raw materials, etc., they are subject to the usual banking rules.

8. The aforementioned applies to import operations to be conducted from January 1, 2016.

9. Regarding micro, small, and medium-sized enterprises (according to the definition issued on March 5, 2017, and subsequent instructions and directives) operating in the field of importing basic food goods only, the monetary coverage for non-trade import operations conducted on the strength of standby letters of credit used to finance imports for the account of commercial companies or government entities, as well as in the case of enhancing commercial or financial guarantees provided on the strength of suppliers for the import of these goods for the account of those entities, or to meet any obligations on the bank, including issuing guarantee letters regarding import operations for the account of traders and government entities, is canceled. This replaces the currently applied rate of 100%, taking into account the credit study conducted by each bank 3.

10. Banks are permitted to exempt rice, lentils, and chickpeas from the 100% monetary coverage for import operations 4 for non-trade purposes until March 15, 2025.

Second: Temporary Facilities:

1. It is not permitted to refinance import operations for non-trade purposes that are subject to 100% monetary coverage through a temporary foreign currency facility limit, and the permission to refinance import operations 1 continues as follows:

2. Circular letter dated May 3, 2018, regarding some procedures to facilitate import operations.

3. Circular letters dated March 6, 2019, March 16, 2020, March 23, 2021, March 10, 2022, March 13, 2023, March 11, 2024, regarding the exemption of some food products from monetary coverage requirements.

a- Operations for non-trade purposes.

b- Basic food and supply goods (excluding the Supply General Organization).

c- Goods and products exempted from monetary coverage.

Taking into account the following:

a- Banks are permitted to refinance import operations for non-trade purposes that were shipped up to December 31, 2015, according to the letter from the Deputy Governor of the Central Bank of Egypt dated January 14, 2013 5.

b- Accepting the refinancing of import operations for intermediate commercial goods and production inputs not sold to industrial companies (provided there is a contractual relationship with the factories) after referring to the Supervision and Inspection Sector for approval on a case-by-case basis.

A decision was taken in a temporary capacity according to the meeting held on February 20, 2017, at the Central Bank of Egypt with the heads of boards of directors of banks in the presence of representatives of the Investors Union to discuss the position of temporary facilities granted in foreign currencies to some customers - according to the circular letter issued on January 14, 2013 and its subsequent circular letters on the same matter - during which the impact of foreign exchange market developments on the debts of those companies was discussed. A comprehensive inventory was made of the volume of debts of those companies at the banking sector level, revealing that the majority of companies holding temporary facilities fall within the segment of companies whose sales volume/business is 500 million Egyptian Pounds or less, and temporary facilities granted to them do not exceed 5 million dollars. After studying available alternatives and the proposed mitigation, the Central Bank of Egypt deemed it appropriate to issue guiding parameters through which banks study each case of the aforementioned companies individually and take the appropriate decision regarding them as follows:

(a) Permission for banks not to include any company holding a temporary foreign currency facility among non-performing companies due to their ability to settle those debts and granting them a grace period to rectify their situation, except in the case of non-cooperation by the customer regarding the seriousness of repayment.

(b) For companies whose annual sales/business volume is 500 million Egyptian Pounds or less and owe temporary facilities not exceeding 5 million dollars at the banking sector level:

5. Letter from the Deputy Governor of the Central Bank of Egypt dated January 14, 2013.

6. Circular letter dated March 1, 2017, regarding temporary foreign currency facilities.

-1 Companies are determined according to the latest statement received from the Supervision and Inspection Sector of the Central Bank regarding customer balances at the end of February 22, 2017.

-2 In case the company deals with more than one bank, the Central Bank will notify the dealing banks to coordinate among themselves for the same customer under the supervision of the bank holding the largest temporary loan debt.

-3 Each bank will prepare a credit study for each customer's activity individually to restructure the debt.

-4 The gap in monetary coverage - for customers wishing to cover their temporary debts through the aforementioned guiding parameters - will be covered to reach a coverage rate of 100% against the temporary facility based on the prevailing exchange rate of the gap loans on the date of implementation, through the bank providing its customer with Egyptian Pounds to cover cash flows. This is based on the study prepared for each customer according to the monetary coverage.

-5 An interest rate for debtors will be applied to the facility granted in local currency - within the first two years from the date of loan disbursement - at a maximum of 12% (decreasing) without applying any commission on the highest debtor balance.

(c) For companies that fall outside the aforementioned parameters, and those that have not expressed willingness to benefit from the aforementioned guiding parameters:

1 - These companies will be charged a creditor interest rate on local currency monetary coverages (at the overnight deposit rate - 1% for Treasury bills issued in dollars).

2 - An interest rate will be applied to foreign currency debtor balances corresponding to the US dollar at 3.62% annually according to the last issue price.

(d) On another level, banks must review the credit limits granted to companies to finance import operations and working capital to match the changes that occurred in exchange rates since November 3, 2016.

Third: Customs Clearance:

• The parallel issuance of Form 4 in both paper and electronic versions has been stopped, and reliance is placed on issuing the electronic form starting September 5, 2017, and delivering a printed copy stamped by the bank to the customer 7.

• Based on the decision of the Minister of Trade and Industry No. 126 for the year 2022 (attached 1), banks are required to exempt what is imported for personal use from the value of imports by any of the recognized payment methods and issue Form 4 8:

7. Circular letter dated August 30, 2017, regarding stopping the parallel issuance of Form 4 in both paper and electronic versions and relying on issuing the electronic form.

8. Circular letter dated March 8, 2022, regarding the Ministry of Trade and Industry's decision concerning import for personal use.

4

• Residues whose value does not exceed thirty-five thousand dollars or its equivalent in other foreign currencies, once every six months.

• Machines, equipment, and supplies belonging to projects owned by Egyptian companies and entities abroad.

• What is imported by embassies, consulates, liaison offices, and branches of international and regional organizations and those equivalent to them.

• Cases approved by the Minister concerned with foreign trade.

This is while observing the exemptions mentioned in the final article of the attached decision referred to above.

(9) Fourth: Import Operations Conducted via Direct Transfers:

In light of the trend of some customers to conduct their import operations via direct transfers to their foreign suppliers (which may cover either the value of advance payments for the import operation or the full value of the operation) upon the request of suppliers to ensure execution, and in many cases, the original documents related to the import operation are sent directly to the customer who may forward them to another bank to enable the release of the goods, making it difficult for the bank conducting the transfer to verify the seriousness and completeness of the import operation.

Therefore, in order to tighten control over this type of operations, banks must adhere to the following controls when executing direct transfers on the strength of import operations:

• Verify the validity of the import operation when executing the direct transfer on its strength according to the methods followed by the bank conducting the transfer.

• The execution of this type of request is limited to:

• Credit customers, observing the credit granting controls issued by the Central Bank in this regard.

• Commercial operations customers who have a good track record with the bank.

• The bank's customers, whether through a history of dealing or through Know Your Customer (KYC) procedures to verify the seriousness of these customers and the validity of their dealings.

• Add a condition within the direct transfer issued stating that documents related to the import operation subject to the transfer will be circulated through the bank conducting the transfer (mentioning the bank's name).

9. Letter from the Deputy Governor dated December 28, 2011.

• Entrust the Commercial Operations Department to execute direct transfers related to import operations to facilitate the follow-up of the arrival of their documents, and in case this is not possible, coordinate with the department executing direct transfers through periodic reports to facilitate the follow-up of the arrival of documents to the Commercial Operations Department, so that transfers for which documents have not arrived remain pending with the Commercial Operations Department.

• Obtain a written commitment from the customer - drafted by the Legal Affairs Department of each bank - stating that documents related to the direct transfer will be circulated through the same bank conducting the transfer.

• In case documents do not arrive within two months from the date of the transfer or the customer notifies of a shipping date and period in between, and after following up with the customer in this regard without success, which is considered a breach on their part regarding the seriousness of the import operation, the bank conducting the transfer must notify the Central Bank of Egypt of the customer and their group according to the Single Customer Exposure and Affiliated Parties issued by the Central Bank, so that the Central Bank can issue a circular to the banking system not to execute any similar instructions for the customer and group in the future.

• Under no circumstances shall banks accept Form 4 for documents arriving on the strength of a direct transfer (other than the release of goods) executed by another bank, with the necessity of directing the customer in this case to the bank conducting the transfer to complete the import operation with them.

Fifth: Import Operations Conducted on the Strength of Collection Documents and Received in the Customer's Name (10):

Referring to import operations conducted on the strength of collection documents received in the customer's name, which may sometimes be issued by the foreign supplier from several originals sent to the customer, and in light of the trend of some customers to direct the originals of documents arriving to them to more than one bank, which may result in duplication in executing the import operation and increased pressure on free liquidity resources.

Therefore, in order to tighten control over this type of operations, the following controls have been determined which banks must adhere to when endorsing these documents:

• Obtain a written commitment from the customer - drafted by the Legal Affairs Department of each bank - stating that documents related to the import operation have not been dealt with by any of the other dealing banks.

10. Letter from the Deputy Governor of the Central Bank of Egypt dated April 14, 2013.

• In case documents justifying the release of goods do not arrive - as mentioned above - from the customs authority within a month from the date of execution, and after following up with the customer in this regard without success, which is considered a breach on their part, the bank must notify the Central Bank of Egypt of the customer and their group according to the Single Customer Exposure and Affiliated Parties issued by the Central Bank, so that the Central Bank can issue a circular to the banking system to include the customer in the list of defaulters for import operations, thereby not executing any similar operations for the customer and group in the future.

Sixth: Standby Letters of Credit (11, 12):

(a) The importance of studying the market for imported goods and the possibility of declaring them, given the consequences of long storage periods such as increased storage and insurance expenses and bank returns.

(b) The necessity of having sufficient information about the status of goods in the market at the level when making credit decisions, as having a clear picture helps the bank make credit decisions based on sound principles.

(c) It is considered to assess the appropriateness of import requests submitted by manufacturers with their actual operating capacities, so that part of them is not used for trading, and banks should stay away from financing customers whose volume of operations does not match their capacities and own resources 13.

(d) Regarding local letters of credit opened for the account of customers, or commercial drafts discounted on the strength of those letters of credit, their seriousness must be verified by ensuring that the bank confirms actual dealing in the subject matter of the letter of credit between the customer and the entity specified in the letter of credit, so that the total volume of held letters of credit matches their activities 14.

Seventh: Governance of the Import Process and Activating the Pre-Shipment Registration System:

-1 In the context of the Cabinet's directives regarding the governance of the import process and activating the pre-shipment registration system which will be applied mandatorily starting from the beginning of March 2022, it has been decided to stop dealing with collection documents in executing all import operations and to work with standby letters of credit only, starting from the date of these instructions, with the exception of branches of foreign banks and their subsidiaries, and allowing banks to accept collection documents 15.

11. Meeting of the Governor of the Central Bank of Egypt with the heads of banks held on November 10, 1998. Letters from the Supervision and Inspection Sector dated June 28 and 30, 2010.

12. Meeting of the Governor of the Central Bank of Egypt with the heads of banks held on May 4, 1999.

13. Letter from the Governor of the Central Bank of Egypt dated November 16, 1999.

14. This decision has exempted shipments up to an amount of 500 thousand US dollars or its equivalent in other currencies for goods shipped before the issuance of this decision starting from October 27, 2022.

15. Circular letter dated October 27, 2022, regarding increasing the exemption limit for shipments from the decision on standby letters of credit dated February 13, 2022.

-2 In the same regard, the Central Bank of Egypt approved the following 16:

• The launch of an initiative to guarantee import operations for banks to cover the risks associated with issuing standby letters of credit issued by Egyptian banks starting from February 22, 2022. This initiative aims at bank customers who have a track record of importing through collection documents only and from the same bank.

• The Credit Risk Guarantee Company will guarantee the bank's portfolio under this initiative at a rate of 100% for the uncovered part of these letters of credit, and banks are exempted from the guarantee commission for 6 months from the date of activating the initiative.

• The Credit Risk Guarantee Company will provide banks with parameters and a framework for this initiative.

• Emphasizing the importance of banks' commitment to providing the Credit Risk Guarantee Company with the necessary data about this portfolio weekly according to the requirements to be shared by the company.

-3 And referring to the banks' inquiries regarding the Central Bank of Egypt's instructions issued on February 13, 2022 attached 2, a revised version of the inquiries and responses in this regard.

In light of what the Central Bank of Egypt announced regarding the trend towards the gradual cancellation of these instructions until their complete cancellation in December 2022, it has been decided to cancel the effect of the circular letter issued on February 13, 2022 18 and allow the acceptance of collection documents to execute all import operations.

16. Circular letter dated February 13, 2022, regarding the governance of the import process.

17. Circular letter dated October 27, 2022, regarding the response to banks' inquiries concerning standby letters of credit.

18. Letter from the Governor of the Central Bank of Egypt dated December 29, 2022.