Dear Mr. / Chairman of the Board of Directors

Bank

Greetings,

In the context of the interest that the Central Bank of Egypt attaches to companies and small and medium enterprises (SMEs) by facilitating access to banking finance to drive the production engine and achieve sustainable development, as these companies and enterprises 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 decided to issue the following instructions with the aim of providing a suitable environment to enhance financing opportunities for these companies and enterprises and remove obstacles they face, while applying international best practices that suit the current market conditions.

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

Furthermore, in addition to the Central Bank of Egypt's direction towards mitigating the high risks faced by banks when financing these companies and enterprises through 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 reducing capital requirements and thus affecting the cost of financing.

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

2

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

1. Increase the portfolio of loans and credit facilities (direct and indirect) for very small and small enterprises - according to the definition issued pursuant to the decision of the Board of Directors of the Central Bank of Egypt in 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 these instructions.

2. Modify one of the determinants of claims on small enterprises by assigning a risk weight of 75% related to the "client" (included in item 9/1/2/3 - A of the decision of the Board of Directors of the Central Bank of Egypt issued in its meeting held on December 18, 2012 regarding "Instructions on the minimum standard for capital adequacy" within the framework of implementing Basel decisions) to apply only to very small and 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 in its meeting held on December 3, 2015, instead of the annual sales volume of 7 million EGP, with the continuation of the application of the other standards included in the instructions without modification.

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

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

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

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

   1. Loans and credit facilities granted to new customers as of January 1, 2016.
   2. Increases in existing loans and credit facilities, considering the 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 companies and enterprises before this date, the exemption from the reserve ratio requirement continues to apply according to the decision of the Board of Directors of the Central Bank of Egypt issued in its meeting held on December 16, 2008, taking into account the new definition of these companies and enterprises issued pursuant to the decision of the Board of Directors of the Central Bank of Egypt in its meeting held on December 3, 2015. It is not permitted to grant new facilities 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, as well as 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 interact with banks, in addition to organizing more specialized programs for employees in this sector in banks.

This, with the aim of working to monitor the implementation of the above decision of the Board of Directors of the Central Bank of Egypt, banks must provide the Supervision and Inspection Sector of the Central Bank of Egypt with a specific timeline for implementing this decision, with a maximum deadline of the end of February next month.

It is noted that ways to stimulate financing for very small enterprises will be addressed separately later.

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

Accept the highest respect,
Tarek Amer