Sir / Chairman of the Board of Directors

Greetings,

We refer to the resolutions of the Banking Supervision Committee dated January 17, 2018, and the Board of Directors resolution dated January 28, 2018, instructing banks to prepare the following financial statements according to IFRS 9:

For banks whose financial year ends on December 31, 2018, the first financial statements prepared after January 1, 2019. For banks whose financial year ends on a date other than December 31, the first financial statements prepared after January 1, 2019.

We also request that banks prepare the following financial statements according to the provisions of this standard and the instructions for preparing the comparative financial statements prepared by banks during 2018. We note the following in this regard:

The application of the comprehensive instructions of IFRS 9 on all banks operating in Egypt and supervised by the Central Bank of Egypt, including foreign banks operating in Egypt, applies to their individual, separate, and consolidated financial statements.

Regarding the implementation of the expected credit loss (ECL) model, banks are required to validate the models used for calculating ECL. This validation must be performed by a function independent of the model development team to ensure the accuracy and effectiveness of the models used. Banks must also ensure that the models used for calculating ECL are robust and that the models are validated before the bank's final approval of the financial statements.

Regarding the implementation of the ECL model, banks must establish a dedicated team for ECL modeling, including a validation function, and ensure that the models used for calculating ECL are robust and validated.

(1)

The business model(s) determine the cash flows that the bank expects to realize.

The business model determines whether cash flows will result from collecting contractual cash flows, selling financial assets, or both.

It is noted that the business model is not determined by management's intentions for an individual asset (held for trading), but rather reflects how a portfolio of financial assets is managed and how its performance is evaluated. The business model applies to a group of assets rather than individual assets. The business model determines the stage in which the asset is classified based on credit risk.

We would like to emphasize that the Board of Directors (or its delegated committee for foreign banks) is responsible for approving the following:

1. Approving the implementation of the instructions and ensuring compliance with them.

2. Appointing a committee responsible for implementing the instructions, which must include at least:

   • A committee responsible for determining the business model(s) and the classification of financial assets and liabilities into stages based on credit risk.
   • A committee responsible for calculating Expected Credit Losses (ECL) for assets classified in Stage 2 and Stage 3.

3. Appointing a Business Models and Modeling Team (BM) responsible for implementing the instructions, including:

   • A team responsible for modeling credit risk parameters (PD, LGD, EAD) to calculate ECL.
   • A team responsible for validating the models used.

4. Ensuring that the models used are documented and approved.

5. Ensuring the adequacy of resources for the implementation of the instructions.

6. Ensuring that the Board of Directors is regularly informed about the implementation of the instructions.

Please ensure that all regulatory requirements applicable to the bank are met.

We request your attention to this matter and take the necessary measures to ensure its implementation.

And God knows best.

Please send the electronic copy to: IFRS9.committee@cbe.org.eg

We appreciate your cooperation.

Sincerely,

Central Bank of Egypt "Instructions for Implementing the International Financial Reporting Standard (9)" (IFRS 9) Please provide a copy of these instructions to the bank's external auditors.

The Central Bank of Egypt

Contents

Scope of Application.

General Provisions.
First: Classification and Measurement
1 - Financial Assets
2 - Financial Liabilities .
1 - Hedge Accounting .
4 - Derivatives that do not qualify for hedge accounting	17. .
1 - Scope of Application/Expected Credit Loss
2 - General Framework for Implementing the Standard .
2 - Measuring Expected Credit Risk (ECL)

Third: Governance and Internal Control Requirements. Fourth: Disclosures Required Accounting Entries

Scope of Application

The instructions for implementing the International Financial Reporting Standard (IFRS 9) apply to all banks and foreign bank branches operating in Egypt and supervised by the Central Bank of Egypt, including foreign banks operating in Egypt, on their individual, separate, and consolidated financial statements.

General Provisions

Banks must disclose in their financial statements ending December 31, 2018 / June 2019 that they will apply the requirements of the International Financial Reporting Standard (9) "Financial Instruments" starting July 1, 2019, in accordance with the instructions of the Central Bank of Egypt, noting the differences in application from existing standards and the potential financial effects resulting from the application.

Financial instruments recognized in the comparative financial statements shall not be remeasured; the matter is limited to reclassifying financial assets and liabilities comparative figures to be consistent with the presentation style of the financial statements upon first-time application of the standard.

When preparing financial statements in accordance with the requirements of these instructions, it is necessary to comply with the disclosure requirements of the International Financial Reporting Standard (7) and its amendments (Egyptian Accounting Standard No. 40).

The rules for preparing and presenting financial statements for banks and their subsidiaries issued by the Central Bank of Egypt on December 16, 2008 shall apply, except as otherwise provided in the instructions, and reference shall be made to Egyptian Accounting Standards for matters not specifically addressed in the rules and instructions.

The Central Bank of Egypt shall deduct the specific provision for financial assets recognized by the Central Bank of Egypt from the value of financial assets on the Central Bank of Egypt's balance sheet, while the provision related to loan commitments and financial guarantee contracts and other liabilities shall be treated as other provisions of the financial institution.

Banks may not consider guarantees and letters of credit issued by the Egyptian Government and the Central Bank of Egypt for local currency outstanding claims.

Local currency debt instruments issued by the Egyptian Government must be excluded from the measurement of expected credit losses.

For the Loss Given Default (LGD) rate for assets held by banks in Egypt and foreign branches and assets held by the Central Bank of Egypt, including Egyptian government securities and treasury bills, a rate of 45% LGD shall be applied.

The calculation of the provision for impairment must cover the burden/reversal of the specific provision for financial assets and other liabilities, except: (4)

• Deposits with banks due within one year from the balance sheet date
• Current accounts with banks.
• Balances with the Central Bank of Egypt in local currency.

Banks must consider the reclassification of financial instruments into the three categories defined by the Standard (9) (Amortized Cost, Fair Value through Other Comprehensive Income, Fair Value through Profit or Loss) once at the beginning of application to achieve consistency with the application of the Standard.

And compliance with the requirements of the Standard as stated in the instructions, especially regarding the measurement and reclassification processes.

Banks must not modify the existing rules for calculating expected credit losses unless approved by the Central Bank of Egypt and its external auditors.

In case of non-compliance with this, positive differences resulting from the modification shall be recorded from the General Risk Reserve account (as will be mentioned later) as a deduction from distributable net profits.

From the beginning of application, the Central Bank of Egypt (supervisory office) must approve the Internal Capital Adequacy Assessment Process (ICAAP) report in accordance with the instructions issued in this regard, taking into account the effects of applying these instructions on the capital adequacy standard.

For the purpose of calculating the capital base (Tier 2 capital), the consideration shall be equal to the amount of required provisions compared to debt instruments/loans and credit commitments included in Stage 1 (1 Stage) and an amount not exceeding 1.25% of the sum of risk-weighted assets for expected credit risk according to the Standardized Approach.

The bank's internal management must monitor the periodic independent assessment (at least quarterly) of compliance with policies and procedures related to the implementation of the standard's requirements under these instructions, especially regarding the policies and procedures adopted for classifying financial assets and liabilities, the adopted criteria, and the methods for calculating expected credit losses, Loss Given Default (LGD), and default probabilities.

Embedded derivatives shall not be separated from the host contract if the host contract represents a financial asset that can be classified as a financial asset under the International Financial Reporting Standard (9).

(5) Considerations for preparing financial statements from the beginning of application:

The First Day of Application:

On the date of initial application, the following reserves are merged into a single reserve named General Risk Reserve:

• Specific credit provision
• General banking risk provision
• Provision for Standard (9) risk.

In case the specific provisions calculated in accordance with the requirements of these instructions exceed the provisions calculated under the previous instructions until December 31, 2018 / June 2019 (provisions), the excess shall be deducted first from the General Risk Reserve, and in case of insufficiency, the excess shall be deducted from retained earnings or accumulated deficit.

In case the specific provisions calculated in accordance with the requirements of these instructions are less than the provisions calculated under the previous instructions until December 31, 2018 / June 2019, the General Risk Reserve shall be increased by the difference, and in all cases, the balance of the General Risk Reserve shall not be touched, except with reference to the Central Bank of Egypt.

The balance of this reserve is allowed to be included in the bank's capital base (Tier 1).

Subsequent Application Periods:

The instructions of the Central Bank of Egypt regarding the assessment of customers' creditworthiness and the issuance of provisions dated June 6, 2005 shall continue to apply as follows:

In case the provisions calculated in accordance with the creditworthiness assessment exceed the specific provisions calculated in accordance with these instructions, the excess shall be credited to the General Banking Risk Reserve (after establishing the legal reserve) and shall be reflected in net profit and equity, and in case of insufficient net profit, this reserve shall be from retained earnings.

In case the specific provision calculated in accordance with these instructions exceeds the provisions calculated in accordance with the creditworthiness assessment, the excess shall be returned to retained earnings to the extent previously established as the General Banking Risk Reserve.

First: Classification and Measurement

Business Model(s):

• The business model is defined as the manner in which the bank manages its financial assets to generate cash flows.

• Each bank must prepare, document, and adopt the Business Model(s) (Models Business) in accordance with the requirements of the International Financial Reporting Standard (9) and in line with the bank's strategy for managing financial assets as follows:

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