Circular dated January 3, 2018 regarding the recognition of the credit risk company’s guarantee

Cairo: January 3, 2018

Dear Sir / Chairman of the Board,

Bank Tahya, greetings,

Continuing the initiatives issued by the Central Bank of Egypt to encourage financing for micro, small, and medium-sized enterprises (MSMEs), which included obliging banks to allocate 20% of their total credit portfolios to finance these entities, and based on the importance of the role of credit risk guarantee companies in covering the risks associated with this type of financing, especially projects that lack adequate guarantees, a mechanism for dealing with the Credit Guarantee Company (CGC) was studied to benefit from its expertise in this field. Accordingly, the Board of Directors of the Central Bank of Egypt, in its meeting held on December 13, 2017, approved issuing a guarantee worth 2 billion Egyptian pounds to the Credit Guarantee Company in exchange for the company issuing its guarantees to banks to cover part of the risks associated with financing small and medium-sized enterprises.

In light of the above and the regulatory instructions issued regarding the minimum capital adequacy ratio standard under the implementation of the Basel Accords regarding recognized guarantees and sureties in the Simple Approach, issued on December 18, 2012, specifically to mitigate credit risks, as well as the instructions regarding the assessment of customers' creditworthiness and the formation of provisions, issued on May 24, 2005, regarding guarantees that are considered when forming provisions, the Board of Directors of the Central Bank of Egypt, in its meeting held on December 27, 2017, approved the following:

1. When calculating the capital adequacy ratio, the guarantee of the Credit Guarantee Company is recognized by banks, with the portion covered by that guarantee receiving a risk weight of 20%. As for the portfolio covered by the guarantee letter issued by the Central Bank of Egypt to the company, it is assigned a risk weight of zero.

2. Regarding Item Five of the Circular regarding the bases for assessing customers' creditworthiness and forming provisions, issued with the approval of the Board of Directors of the Central Bank of Egypt in its meeting held on May 24, 2005, the guarantee of the Credit Guarantee Company is added to the guarantees considered when forming provisions, by excluding the portion covered by that guarantee from the balances of facilities granted to customers.

3. Banks operating in Egypt must commit to applying these instructions as of the end of December 2017.

Please be kind enough to alert regarding taking the necessary action in this regard.

Accept my highest regards, Gamal Nagm