Circular on Accounting for Investments in Subsidiaries and Associates by Cost or Equity Method

Mr. Professor/ Bank Cairo: April 29, 2025

Greetings,

With reference to the rules for preparing and presenting financial statements of banks, and the bases of recognition and measurement approved by the Board of Directors of the Central Bank of Egypt in its meeting held on December 16, 2008, and what it included when preparing the bank's separate financial statements that investments in subsidiaries or affiliates are measured at cost, and with due regard to compliance with those rules and not for banks to apply any treatment of balances or specific transactions not mentioned in it before studying and approving the treatment or transaction by the Central Bank of Egypt.

In the context of the Central Bank of Egypt's monitoring and studying of the amendments to some provisions of Egyptian accounting standards, pursuant to the decision of the Prime Minister No. 636 of 2024 issued on March 3, 2024, which included an amendment to the Egyptian Accounting Standard No. (17) "Separate Financial Statements", which included the following:

• Allowing the option to use the equity method as explained in the Egyptian Accounting Standard No. (18) (Investments in Associates) when evaluating investments in subsidiaries and affiliates in the separate financial statements, and the entity must apply the same accounting treatment to each category of investments.
• The entity must apply from the beginning of the annual reporting periods that begin on or after January 1, 2024.
• The entity must apply the amendments contained in the standard retrospectively in accordance with Egyptian Accounting Standard No. (5) "Accounting Policies and Changes in Accounting Estimates and Errors" with the recognition of the cumulative effect of applying the equity method to Retained earnings or losses at the beginning of the financial period in which the entity applies this model for the first time, to the nearest financial period possible without incurring undue cost or time.

In light of the above, the Board of Directors of the Central Bank approved in its meeting held on April 16, 2025 the following:

Banks should prepare separate financial statements applying all Egyptian accounting standards, and the bank may account for investments in subsidiaries and affiliates either at cost or using the equity method as explained in the Egyptian Accounting Standard No. (18) Investments in Associates, and the same treatment should be applied to all the bank's investments in companies subsidiaries and affiliates, and if the bank chooses the equity method, the result of the application is approved by the bank's auditors, and if realized retained earnings at the start of the application may not be distributed only after referring to the Central Bank.

In addition, if the bank chooses to account for investments in subsidiaries and affiliates using the equity method, the disclosures in the separate financial statements should disclose the balances of those investments at cost as well for comparative analysis, with a copy of this letter provided to the bank's auditors.

With best regards,

Tarek El-Khouly