Circular dated January 11, 2016 regarding the concentration of banks’ credit portfolios

Mr. Chairman of the Board of Directors of the Bank

With reference to the instructions of the Central Bank of Egypt regarding the maximum limits of employment with a single client and his related parties issued on February 7, 2006, and the Central Bank of Egypt's policy towards encouraging banks to expand the customer base and work on diversification, and noting the concentration of banks' credit portfolios in a limited number of large companies, which may expose the banking sector to concentration risks, the Central Bank has decided in its meeting held on January 6, 2016 the following:

First: Amending the decision of the Board of Directors of the Central Bank of Egypt regarding the maximum limits of employment with a single client and his related parties mentioned above, as follows:

1. Reducing the maximum limit for the bank's employment with a single client - clients for whom there are no related parties - from 20% to 15% of the bank's capital base (the first limit).

2. Reducing the maximum limit for the bank's employment with the client and his related parties from 25% to 20% of the bank's capital base (the second limit). Related parties are defined as those under the concept of actual control by the client as stated in Article (51) of the Central Bank, Banking and Monetary Institutions Law issued by Law No. (88) of 2003, with the rest of the instructions issued remaining in force unless otherwise specified.

Banks are granted a period of 3 years to regularize their status regarding the above.

Second: In the event that the total credit facilities granted to the top 50 clients and their related parties at the bank exceed 50% of its credit portfolio, the following shall apply:

1. The risk weight shall be increased on the value of the excess when calculating the capital adequacy criterion as follows: a. 200% if the mentioned ratio ranges from more than 50% up to 70% of the bank's total credit portfolio. b. 300% if the mentioned ratio exceeds 70% of the bank's total credit portfolio.

2. Regarding branches of foreign banks, it is noted that the value of the excess shall not exceed half of the capital base.

Banks are granted a period of one year from the date of application of this item to regularize their status.

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

And please accept the highest respect,

Gamal Naguib