Chapter Eleven: The Regulatory Framework for Writing Off Irregular Debts

In light of the Central Bank's interest in the quality of assets of the banking sector, and working to unify the practices followed by banks regarding the management and writing off of irregular debts in line with international best practices in this regard, which positively reflects on the asset quality indicators of the banking sector, the Board of Directors of the Central Bank, in its meeting held on December 7, 2021, approved the following:

Banks must ensure that their internal policies include specific rules and procedures for writing off irregular debts, which must include at a minimum the following:

1. Confirmation of what was stated in the instructions for implementing International Financial Reporting Standard (IFRS) 9 issued on February 26, 2019, as well as the bases for creditworthiness assessment and provision formation issued on May 24, 2005, regarding the classification of irregular customers and the formation of provisions and subsequent circulars for them.

2. Regarding credit facilities fully covered by cash guarantees and the like (which consist of savings vehicles such as deposits, certificates of deposit, treasury bills, and government bonds...), those guarantees must be liquidated promptly upon default, and the account must not exceed the number of days of delay that leads to classifying the customer as irregular in repayment.

3. Credit facilities (including the covered portion of the facility) must be written off after a maximum of 3 years from their classification as irregular, in the event that no restructuring or settlement is conducted with the customer.

4. In the event of conducting a restructuring or serious settlement with the customer classified as irregular (a maximum of two times for any of them), the following applies:

   1. In the event that the customer becomes regular, leading to their upgrade to regular classification stages, the customer exits the scope of application of debt write-off according to what is stated in point 3 above.
   2. In the event that the customer does not become regular in any of the restructuring or settlement, and does not lead to their upgrade to regular classification stages, the date of the beginning of the customer's classification as irregular in repayment is relied upon when calculating the three years for debt write-off, or it is written off immediately if the three-year limit is exceeded.

5. Banks must make the necessary effort to collect the largest possible amount of the value of irregular debts during the periods prescribed for debt write-off.

6. Debts are written off by a decision of the Bank's Board of Directors (or by whoever replaces it regarding branches of foreign banks) after presenting it to the Risk Committee for study by the concerned departments in the Bank, including its legal department. A detailed study of irregular facilities must also be presented to the Board of Directors periodically, to ensure the quality and efficiency of risk management and monitoring systems in the Bank.

7. Written-off facilities must continue to be recorded in the Bank's statistical records, and reviewed and subjected to analytical studies regarding them, which include, for example, the geographical distribution and economic sectors of these customers to identify the causes of default, and presented to the Board of Directors periodically every three months at the maximum, after presentation to the Risk Committee, and monitored according to the periods specified by the Bank in its internal policy. To collect the largest possible amount of their value, in accordance with

The Central Bank of Egypt Governor's letter dated December 14, 2021 1 1 8. Banks are granted a regularization period of 18 months from the date of issuance of the instructions, during which they review all existing irregular credit facilities and write them off as stated in the instructions.