Regulatory Alerts2022-01-01
Instructions No. (8) of 2022 Concerning the Countercyclical Capital Buffer
The Palestine Monetary Authority issued Instructions No. (8) of 2022 mandating licensed banks to establish a countercyclical capital buffer calculated as a percentage of risk-weighted assets, initially set at 0.50% based on 2021 study results. Banks must maintain this buffer exclusively using Common Equity Tier 1 instruments, continuously monitor compliance, and submit restoration plans with timelines if shortfalls occur, while facing potential dividend restrictions for non-compliance. The directive repeals previous conflicting regulations, requires full financial disclosure starting June 2023, and sets a compliance deadline of March 31, 2023, with implementation effective immediately upon issuance.
Palestine Monetary Authority PALESTINE MONETARY AUTHORITY
Instructions No. (8) of 2022 Concerning the Countercyclical Capital Buffer
Pursuant to the provisions of Decision-Law No. (9) of 2010 Concerning Banks, particularly Articles (33) and (72) thereof, and in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following Instructions:
Article (1) Definitions The words and phrases appearing in these Instructions shall have the meanings assigned to them below, unless the context indicates otherwise: Countercyclical Capital Buffer: A percentage of risk-weighted assets ranging between (0-2.5%).
Article (2) Scope of Application The provisions of these Instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business.
Article (3) Calculation of the Countercyclical Capital Buffer
- The bank shall establish a countercyclical capital buffer in accordance with the rate determined by the Palestine Monetary Authority.
- The Palestine Monetary Authority shall notify the bank of the decision regarding the rate within a sufficient period of up to twelve months prior to the actual implementation date.
- The bank shall add the countercyclical capital buffer to the minimum capital adequacy requirements, provided that the buffer is met using Common Equity Tier 1 (CET1) instruments.
- The bank shall continuously monitor compliance with the countercyclical capital buffer requirements to ensure compliance at all times. In the event the buffer falls below the specified rate for any reason, the Palestine Monetary Authority shall be notified directly, and a plan with a timeline to restore the said buffer shall be submitted. The Palestine Monetary Authority reserves the right to impose restrictions on dividend distribution to address the shortfall.
- The countercyclical capital buffer shall be calculated as a percentage of risk-weighted assets annually, where it amounts to
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Palestine Monetary Authority PALESTINE MONETARY AUTHORITY
0.50% based on the study results for the year 2021. 6. The bank is prohibited from utilizing amounts allocated to the countercyclical buffer item, except for capitalization, and only after obtaining prior written approval from the Palestine Monetary Authority. 7. The bank shall disclose in its interim and final financial statements, starting from the June 2023 reporting period, its countercyclical capital buffer, including at a minimum the calculation mechanism as a percentage of risk-weighted assets and the rate prescribed by the Palestine Monetary Authority for this buffer.
Article (4) Repeal of Conflicting Provisions
- Instructions No. (13) of 2019 Concerning the Countercyclical Capital Buffer are hereby repealed.
- Any provision conflicting with the provisions of these Instructions is hereby repealed.
Article (5) Implementation and Enforcement The provisions of these Instructions shall apply as of the date of their issuance, and banks shall be required to establish the countercyclical capital buffer no later than 31/03/2023.
Issued in Ramallah on: 08/08/2022 AD
Dr. Firas Malham Governor
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