Circular dated December 14, 2021 regarding the regulatory framework for writing off non-performing debts

Cairo on: December 14, 2021
To: Chairman of the Board of Directors
Bank of Egypt
Greetings,

In light of the Central Bank's interest in the quality of assets of the banking sector, and in order to unify the practices followed by Banks regarding the management and write-off of non-performing 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, has approved the following:

Banks must ensure that their internal policies include specific rules and procedures for the write-off of non-performing debts, which must include the following as a minimum:

1. Confirmation of what was stated in the instructions for applying 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 non-performing customers and the formation of provisions and subsequent circulars for them.

2. Regarding credit facilities fully covered by cash guarantees and their equivalents (which consist of savings containers such as deposits and certificates of deposit, treasury bills, and government bonds...), it is necessary to quickly liquidate these guarantees upon default and commit to not exceeding the account of delinquency days for the period that leads to classifying the customer as non-performing in repayment.

3. It is necessary to write off credit facilities (including the covered part of the facility) after a maximum of 3 years from their classification as non-performing, 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 non-performing (a maximum of two times for any of them), the following is done:

1-4 In the event that the customer becomes regular, leading to their upgrade to regular classification stages, the customer is removed from the scope of application of debt write-off according to what is stated in item 3 above.

2-4 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 non-performing in repayment is considered when calculating the three years for debt write-off or writing it 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 non-performing debts during the periods stipulated for debt write-off.

6. Debts are written off by a decision of the Bank's Board of Directors (or by whoever replaces them regarding branches of foreign banks) after presenting to the Risk Committee a study by the Bank's concerned departments, including its legal department, as well as presenting a detailed study on non-performing facilities to the Board of Directors periodically, in order to ensure the quality and efficiency of risk management and monitoring systems in the Bank.

7. It is necessary to continue recording written-off facilities in the Bank's statistical records, reviewing them, and conducting analytical studies regarding them, which include, for example, the geographical distribution and economic sectors of these customers to identify the reasons for default, and presenting them to the Board of Directors periodically every three months at the maximum, after presenting to the Risk Committee, and monitoring them according to the periods specified by the Bank in its internal policy to collect the largest possible amount of their value, according to.

8. Banks are granted a regularization period of 18 months from the date of issuance of the instructions, during which they review all existing non-performing credit facilities and write them off as stated in the instructions.

Please be kind enough to direct compliance with the aforementioned decision.

And accept the highest respect,

Tarek Amer