Circular dated February 21, 2019 regarding the rules and procedures for the real estate financing initiative for low-income people

Cairo, February 21, 2019

Dear Sir,

Chairman of the Board of Directors
Bank

Greetings,

With reference to the Central Bank’s Real Estate Financing Initiative issued on February 19, 2014, and subsequent circulars, the latest of which was the circular dated January 28, 2019, regarding the restriction of the said initiative to low-income financing only, I would like to inform you that the continuation of the initiative for low-income customers who are granted financing after the January 2019 demand will be in accordance with the attached rules and procedures, taking into account the following:

1. Providing the necessary real estate financing for customers who meet the initiative’s conditions through the banks’ own resources (without providing treasury guarantees) at the interest rates specific to the low-income segments (5% or 7%) for a maximum term of 20 years.

2. Compensating banks for the interest rate differential based on:
   Central Bank’s Main Operation Rate (Corridor-Mid) + 2% - Interest Rate specific to low-income (5% or 7%).

3. It is not permitted to change the interest rates applied to customers after disbursement and throughout the loan term.

4. Notifying the Commercial Operations Sector of the Central Bank of the compensation amount during the first week of each month starting from the month following disbursement.

I would like to emphasize in this regard that when reviewing the financing decision, you must take what you deem necessary in light of your credit policy, while adhering to all credit granting controls issued by the Central Bank of Egypt.

Please be so kind as to alert your staff to take the necessary action in this regard.

Yours faithfully,

Gamal Naguib

Rules and Procedures for the Real Estate Financing Initiative for Low-Income People

1. Banks receive applications from low-income individuals through the Social Housing and Real Estate Financing Support Fund, as this initiative applies only to all units available through the Fund.

2. The compensation for the interest rate differential {Central Bank’s Main Operation Rate (Corridor-Mid) + 2% - Interest Rate specific to low-income (5% or 7%)} covers the following:

   • Commission on the maximum debit balance.
   • Administrative expenses, returns, and other commissions.
   • Valuation and mortgage expenses and any other expenses (e.g., insurance).
     Taxes and stamp duties apply according to prevailing laws, with the confirmation that the final interest rate applied to the customer is 5% or 7%.

3. Conditions for Beneficiary Customers:

   • Must be of Egyptian nationality.
   • The customer is not entitled to benefit from the initiative more than once, regardless of any real estate loans obtained or to be obtained by the customer outside the framework of the initiative.
   • The maximum monthly income limit for customers and the maximum price limit for the financed unit are determined by the Board of Directors of the Social Housing and Real Estate Financing Support Fund.

4. Each bank conducts the necessary credit study according to its policy and obtains credit approvals, meeting all conditions, guarantees, or documents that enable the bank to complete mortgage procedures and then disburse to customers, subject to the following minimums:

   • Conducting an inquiry about customers, including inquiry through the Egyptian Credit Bureau to ascertain the customer’s previous dealings with the commercial sector, in addition to confirming that the customer has not obtained financing under the initiative.
   • Upon the bank’s approval of the loan value to the General Administration of Credit Risk Aggregation at the Central Bank of Egypt and the Egyptian Credit Bureau, it is necessary to continue segregating initiative customers through the codes previously notified to banks.
   • Providing a digital scoring system for customers in accordance with creditworthiness assessment and provisioning standards, in addition to the additional standards mentioned in the letter dated March 6, 2014.
   • Obtaining a first-degree mortgage or depositing the guarantee, taking into account the decision of the Minister of Housing, Utilities, and Urban Communities No. (100) for the year 2014.
   • Adhering to the unified conditions for low-income financing issued pursuant to the circular dated November 27, 2016.

5. Customer data is registered in the electronic system for registering initiative customers to strictly control the customer’s purchase of only one unit under the subsidized real estate financing system, so that the information of the customer obtaining credit approval from one bank is instantly available to all other parties, and it is required that other banks refrain from dealing with him under the initiative from that moment onward.

6. Regarding families, the data of the spouse connection is entered and updated after submitting documents proving a change in the customer’s marital status through the bank that granted the loan.

7. In case the customer wishes to sell the unit or make early repayment, the support amount in the interest rate is refunded from the date of disbursement until the date of sale/early repayment according to the following:

   • The difference between the subsidized interest rate and the interest rate is calculated by applying a lending rate of 5% above the final lending rate for low-income, and then the difference is refunded to the Central Bank according to the percentages in the attached table.
   • No early repayment commission is applied.

8. The bank is entitled to apply a default interest rate of a maximum of 2% above the final lending rate for the customer on overdue installments. In case the bank approves the customer’s request to reschedule the debt, pricing is done according to the initiative rates at the date of disbursement.

9. Exemption of the disabled and families of martyrs from the army and police (relatives up to the second degree) from the applicants for reserving residential units in social housing projects from the application of the maximum income limit condition.

10. Within the framework of the initiative, paragraph (a) of Item Six of the creditworthiness assessment and provisioning standards for customers, which relates to the rules governing the determination of the fair market value of real estate collateral and commercial establishments, is amended so that the fair value of the assets subject to mortgages is determined at least once every five years instead of three years.

11. Valuation can be conducted by the Housing Ministry or the New Urban Communities Authority for the financed units, or by real estate appraisers listed in the lists of expert houses registered with the Central Bank of Egypt. It is also possible to rely on real estate appraisers previously notified to banks, pursuant to Item Six of the Central Bank Board of Directors’ decision dated February 18, 2014, as a means to reduce the cost of real estate valuation.

12. Confirmation of what was stated in the Central Bank of Egypt Board of Directors’ decision dated April 4, 2006, regarding the amendment of the creditworthiness assessment and provisioning standards issued by the Council through reducing the general risk provision for real estate loans for the purpose of purchasing or renovating residential units from 3% to 1%.

13. The Supervision and Inspection Sector conducts periodic follow-up to verify the extent of banks’ compliance with what was presented and the quality of the portfolio formed within its scope, and to verify the correctness of the data entered into the system and those that will be returned on the forms that will be notified to banks subsequently.

Note: The evaluation must be recent and reflect the present value of the unit.

Table: Support Refund Calculation

Loan Term (Years)	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
1	100%
2	100%	100%
3	100%	100%	100%
4	100%	100%	100%	100%
5	100%	100%	100%	100%	100%
6	90%	100%	100%	100%	100%	100%
7	80%	90%	100%	100%	100%	100%	100%
8	70%	80%	90%	100%	100%	100%	100%	100%
9	60%	70%	80%	90%	100%	100%	100%	100%	100%
10	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
11	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
12	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
13	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
14	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
15	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
16	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
17	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
18	0%	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
19	0%	0%	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
20	100%	100%	100%	100%	100%	90%	80%	70%	60%	50%	40%	30%	20%	10%	0%	0%	0%	0%	0%	0%

Support Refund Calculation Table

Loan Term	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
1	100%
2	100%	100%
3	100%	100%	100%
4	100%	100%	100%	100%
5	100%	100%	100%	100%	100%
6	90%	100%	100%	100%	100%	100%
7	80%	90%	100%	100%	100%	100%	100%
8	70%	80%	90%	100%	100%	100%	100%	100%
9	60%	70%	80%	90%	100%	100%	100%	100%	100%
10	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
11	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
12	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
13	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
14	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
15	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
16	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
17	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
18	0%	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
19	0%	0%	0%	0%	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	100%	100%	100%	100%
20	100%	100%	100%	100%	100%	90%	80%	70%	60%	50%	40%	30%	20%	10%	0%	0%	0%	0%	0%	0%