Dear Sir / Chairman of the Board of Directors

Bank

Greetings,

Recently, the Central Bank of Egypt issued initiatives aimed at encouraging banks to finance small and medium enterprises (SMEs), starting on December 7, 2015, by issuing a unified definition for these companies and establishments based on annual revenue size and workforce size, across the banking sector.

These initiatives were followed by the initiative issued on January 11, 2016, concerning granting credit facilities to micro, very small, and small enterprises at a low interest rate of 5% (declining simple interest), with special attention given to important economic sectors, and exempting banks from the mandatory reserve ratio for the full value of credit facilities granted to these enterprises, in addition to requiring banks to allocate 20% of their credit portfolio to finance SMEs over a period of 4 years.

Finally, the initiative issued on February 22, 2016, which includes granting credit facilities to medium enterprises operating in the industrial and agricultural sectors at a low interest rate of 7%, by allocating an amount of 5 billion pounds to banks to finance new machines, equipment, or production lines for a maximum period of 10 years, with a maximum amount of 20 million Egyptian pounds per client.

Based on the discussions held with banks and in light of changes in exchange rates, and to facilitate their operations, the Board of Directors of the Central Bank of Egypt issued a decision at its meeting held on December 28, 2016, stipulating the following:

Clause (2) of the Circular dated January 11, 2016 (a copy is attached) is amended to read as follows:

"Modifying one of the criteria for claims on small enterprises related to the 'Client' according to supervisory standards, and giving it a risk weight of 75%, to apply only to micro and very small enterprises - excluding small and medium enterprises - with a maximum annual sales volume of less than 20 million Egyptian pounds (instead of an annual sales volume of 10 million Egyptian pounds), while the rest of the other criteria mentioned in the instructions remain in effect without modification."

Please be kind enough to alert regarding the need to take the necessary action to implement the aforementioned decision.

Yours faithfully,

Gamal Naguib

2

Dear Sir / Chairman of the Board of Directors

Bank

Greetings,

In the context of the special attention the Central Bank of Egypt pays to small and medium enterprises by facilitating access to bank financing to drive production and achieve sustainable development, as these companies and establishments are the pillar through which new job opportunities are created, unemployment rates are reduced, income levels are improved, and GDP is increased, the Central Bank of Egypt has deemed it appropriate to issue the following instructions to create a suitable environment to enhance financing opportunities for these enterprises and remove obstacles they face, while applying international best practices compatible with the current market conditions.

These instructions come as a complementary step to the issuance of the new definition for small and medium enterprises according to the decision of the Board of Directors of the Central Bank of Egypt at its meeting held on December 3, 2015, to set a minimum threshold for the credit portfolio of these enterprises and alleviate financing burdens by making it available to this sector at low interest rates.

Furthermore, this reflects the Central Bank of Egypt's trend towards reducing the high risks faced by banks when financing these enterprises by developing the guarantee mechanism provided by the Credit Risk Guarantee Company to cover part of the risks associated with financing this sector, which has a positive impact on capital requirements and thus on the cost of financing.

This is in addition to paying special attention to training by strengthening the role of the Egyptian Banking Institute in preparing specialized programs for those managing these enterprises to qualify them to manage their projects efficiently and deal with banks, in addition to organizing more specialized programs for employees in this sector in banks, as well as cooperating with ministries and concerned authorities, such as the Industries Union and the Ministry of Trade and Industry, to develop this sector of companies and establishments.

In recognition of the efforts made to encourage banks to grant loans and credit facilities to small and medium enterprises, and to continue these efforts, the Board of Directors of the Central Bank of Egypt decided at its meeting held on January 6, 2016, the following:

1. Increase the portfolio of loans and credit facilities (direct and indirect) for micro and very small enterprises - and small and medium enterprises - according to the definition issued pursuant to the decision of the Board of Directors of the Central Bank of Egypt at its meeting held on December 3, 2015 - to reach a ratio of not less than 20% of the total credit facilities portfolio of the bank within four years from the date of issuance of the instructions.

2. Modify one of the criteria for claims on small enterprises related to the 'Client' (mentioned in Clause 9/1/2/3-A of the decision of the Board of Directors of the Central Bank of Egypt issued at its meeting held on December 18, 2012, regarding 'Instructions on the Minimum Standard for Capital Adequacy' in the framework of implementing Basel decisions) to apply a risk weight of 75% only to micro and very small enterprises - excluding small and medium enterprises - according to the definition issued pursuant to the decision of the Board of Directors of the Central Bank of Egypt at its meeting held on December 3, 2015, instead of an annual sales volume of 7 million pounds, while the rest of the other criteria mentioned in the instructions remain in effect without modification.

3. Allow banks to deduct the full value of direct loans and credit facilities granted in Egyptian pounds to micro and very small enterprises only from the basis of the 10% reserve ratio, subject to the following conditions:

   a. The lending rate to these enterprises must not exceed 5% (declining simple interest).

   b. Special attention should be given to important economic sectors, especially industrial enterprises and those producing intermediate components for industry or import substitutes, as well as labor-intensive activities, with attention given to innovative idea projects and export-oriented projects. Taking into account the geographical and sectoral distribution of these enterprises to try to reach as many of them as possible across governorates.

   c. The deduction applies to Egyptian pound balances from direct loans and facilities (debtor balances) without contingent liabilities, for:

   1. Loans and credit facilities granted to new clients starting from January 1, 2016.
   2. Increases in existing loans and credit facilities, considering balances as of December 31, 2015, as the basis for calculating the value of the increase subject to the aforementioned deduction.
   3. For existing loans and credit facilities previously granted to the same enterprises before this date, the exemption from the reserve ratio denominator continues to apply according to the decision of the Board of Directors of the Central Bank of Egypt issued at its meeting held on December 16, 2008, taking into account the new definition of these enterprises issued pursuant to the decision of the Board of Directors of the Central Bank of Egypt at its meeting held on December 3, 2015. New facilities are not allowed to be granted to repay existing ones to benefit from the new pricing.

4. Each bank is required to establish specialized organizational units for financing and providing banking services to small and medium enterprises, and to pay sufficient attention to developing training plans and enhancing the skills and expertise of those managing them.

5. Emphasizing the importance of the role of the Egyptian Banking Institute, institutions affiliated with the Ministry of Trade and Industry, all state training capacities in this field, in addition to the Arab Organization for Industrialization, in preparing specialized programs for those managing small and medium enterprises to qualify them to manage their projects efficiently and deal with banks, in addition to organizing more specialized programs for employees in this sector in banks.

In order to monitor the implementation of the aforementioned decision of the Board of Directors of the Central Bank of Egypt, banks must submit a specific timeline for implementing this decision to the Supervision and Inspection Sector of the Central Bank of Egypt, with a maximum deadline of the end of February of the following year.

It is worth noting that ways to stimulate financing for micro enterprises will be addressed separately later.

Please be kind enough to alert regarding the need to take the necessary action to implement the aforementioned decision.

Yours faithfully,

Tarek Amer