Chapter One: Credit Granting Controls

Section Seven: Controls Specific to Financial Leasing

First: General Controls

In light of the provisions of Article 10 of Law No. 95 of 1992 concerning the Central Bank of Egypt and the Organization of Banking Activities, and its amendments, the Central Bank of Egypt has determined that the activity of financial leasing is considered a banking activity to be carried out by banks, subject to the conditions and controls specified in this chapter.

Second: Controls for Financing Financial Leasing Companies

The Board of Directors of the Central Bank of Egypt, in its session held on February 20, 2024, decided to adopt the following controls that banks must comply with when financing these companies:

1. The total exposure of the bank to financial leasing companies (general and specific) in the country of the bank's headquarters shall not exceed 5% of the bank's own funds, and the exposure of the bank to a single financial leasing company (general and specific) in the country of the bank's headquarters shall not exceed 1% of the bank's own funds. This is without prejudice to the provisions of Article 10 of the Executive Regulations of Law No. 88 of 2003 concerning the Central Bank of Egypt.

2. The bank shall not grant loans to financial leasing companies for the purpose of granting loans to lessees, unless the bank is aware of the lessee's identity, the bank has a direct contractual relationship with the lessee regarding the loan, and this is through the bank's internal controls and procedures, or the bank is aware that the financial leasing company has disclosed the lessee's identity to the bank in the same manner.

3. The bank shall ensure that the total exposure of the financial leasing company to its own funds does not exceed 10%, in light of the following: a. The total assets of the financial leasing company do not exceed 10% of its own funds.

   b. The financial leasing company must maintain liquidity in the form of cash or deposits with the bank, representing at least 10% of its total assets.

4. The bank shall ensure that the financial leasing company does not exceed 100% of its own funds in leasing assets, unless the bank is aware that the lessee has insurance covering the leased asset.

5. The bank shall ensure that the financial leasing company does not exceed 10% of its own funds in exposure to a single lessee, unless the bank is aware that the lessee has a guarantee from a bank or financial institution, or has deposited securities with the bank.

6. The bank shall ensure that the financial leasing company does not grant loans to lessees except in cases where the bank is aware that the lessee has a guarantee from a bank or financial institution.

7. The bank must be aware that the financial leasing company complies with the conditions and controls specified in the Circular Letter No. 1 dated August 20, 1997 (Circular Letter No. 1 dated January 25, 1996) issued by the Governor of the Central Bank of Egypt, dated February 29, 2024. In light of this, the financial leasing company must disclose the identity of the lessee to the bank, and the bank must ensure that the financial leasing company does not exceed 10% of its own funds in exposure to a single lessee.

These instructions apply to new facilities starting from the date of the circular letter. With respect to item (1), existing exposures exceeding the prescribed limits shall be reduced gradually according to the maturity of the existing exposures, accompanied by a corrective plan submitted to the Office Supervision Sector within 3 months, as well as a quarterly report clarifying the status of these exposures.