Chapter Two: Instructions for Applying the International Financial Reporting Standard (9) Section Three: Instructions Regarding the Application of the Standard During the Coronavirus Crisis

First: Application of the International Financial Reporting Standard (IFRS 9) in Light of the Current Crisis 1:

Egyptian Accounting Standard No. 30 permits banks to issue abbreviated quarterly financial statements according to the Standard for the Year 2015 (Periodic Financial Statements), provided that complete annual financial statements are prepared by the end of December 2020 for banks whose annual financial statements end on December 31 of each year, and by the end of June 2021 for banks whose annual financial statements end on June 30 of each year.

Regarding the 6-month credit deferral period for customers issued pursuant to Circular Letter dated March 15, 2020, and subsequent circular letters thereto, this period shall be excluded when calculating the cessation of payment period and shall not be considered an indicator of significant increase in credit risk, without prejudice to the bank's responsibility to evaluate its credit portfolio to maintain its quality and assess its customers' repayment capacity.

Second: Review of Models Used in Calculating Expected Credit Losses 2:

In light of what the coronavirus crisis has demonstrated regarding the necessity for each bank to conduct studies and analyze the overall risks associated with that crisis and to develop plans to address unexpected crises and their impact on the bank.

And within the framework of the Central Bank's keenness on the financial stability of banks and verifying the quality of assets and the correct accounting of expected credit losses during crises, it has been decided that banks shall do the following:

• Review the models (Models) used in calculating expected credit losses and identify the elements that were not taken into account when designing these models (factors unseen) and verify the integrity of the methodology used in calculating expected credit losses.
• Verify the measurement of the quality, adequacy, and efficiency of information systems, and the current and prospective information used in designing models (Models).

1. Circular letter dated May 5, 2020, regarding the application of the International Financial Reporting Standard (IFRS 9) in light of the corona crisis.
2. Circular letter dated September 21, 2020, regarding the review of models used in calculating expected credit losses.

Each bank shall submit to the Central Bank, within one month from the issuance of the instructions, an audit report from the Audit and Risk Committees on the results of the review of the models used in calculating expected credit losses, including the amendments made to those models and their impact on the bank's credit portfolio after calculating (ECL) according to the review results.

Third: Temporary Amendment to the Treatment of Non-Performing Loans for Small and Medium Enterprises:

In light of the continuing repercussions of the coronavirus crisis and its impact on various economic sectors, specifically on the ability of small and medium enterprises to meet their obligations to banks, which may increase the likelihood of accumulating debts and defaults on them, and with the aim of alleviating the burden on this segment of companies, supporting them to continue working and production, and preserving employment, the Board of Directors of the Central Bank of Egypt, in its meeting held on December 7, 2021, decided to implement the following provisions for a period of 18 months:

A- Regarding Small and Medium Enterprises:

1. Customers shall be classified in Stage 3 in case of non-compliance with contractual conditions, in case of receivables equal to or exceeding 180 consecutive days (instead of 90 days according to current instructions).

2. For customers previously classified in Stage 3 due to receivables equal to or exceeding 90 days, they shall be upgraded to Stage 2 if the receivables are less than 180 days, with the continued retention of expected credit losses calculated for these customers.

3. Customers shall be upgraded from Stage 3 to Stage 2 in case of meeting all quantitative and qualitative elements specific to Stage 2 and settling the accrued/deferred returns (as applicable) and regularizing payments for 90 days.

The Board of Directors of the Central Bank of Egypt, in its meeting held on June 13, 2023, extended the application of the above provisions (1 and 3) until the end of June 2024, and the Board also decided in its meeting held on June 25, 2024, the following:

3. Letter from the Governor of the Central Bank dated December 14, 2021.

4. Letter from the Governor of the Central Bank dated June 14, 2023.

5. Letter from the Governor of the Central Bank of Egypt dated July 1, 2024.

6. The gradual phasing out of the exception regarding the classification of customers from the small and medium enterprise sector into Stage 3 during a period of 18 months until the end of December 2025, such that this category of customers shall be classified in Stage 3 in case of non-compliance with the contractual conditions for credit facilities granted to customers as follows:

   • Existence of receivables equal to or exceeding 180 consecutive days until the end of December 2024.
   • Existence of receivables equal to or exceeding 150 consecutive days until the end of June 2025.
   • Existence of receivables equal to or exceeding 120 consecutive days until the end of December 2025. This will result in the classification of customers in Stage 3 when receivables equal or exceed 90 consecutive days starting from January 2026.

7. Extending the application of the provision regarding the upgrade of customers from Stage 3 to Stage 2 in case of meeting all quantitative and qualitative elements specific to Stage 2 and settling the accrued/deferred returns (as applicable) and regularizing payments for 90 days, until the end of December 2025.

B- Regarding Small and Medium Enterprises - Regular in Payments as of December 31, 2019 - and whose default resulted from the repercussions of the crisis:

These customers must be upgraded from Stage 3 to Stage 2, with emphasis on continuing to calculate expected credit losses on the basis of Stage 3, until the customers meet all upgrade conditions according to the amendments mentioned in clause (A) above, so that expected credit losses can be calculated on the basis of Stage 2.

With the necessity to act in accordance with the circular letter issued on September 14, 2020, requiring banks to restructure credit facilities for customers after studying their financial position and cash flows, with the aim of reaching a suitable facility structure for their current repayment capacity, with emphasis on the possibility of banks using some alternatives to support customers, which include (i) increasing the duration of facilities, (ii) restructuring the due installments, (iii) granting a grace period for the customer's position, and other alternatives available to banks.