Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (02) of 2015

Regarding Determinants and Conditions for Granting Credit

Based on the provisions of Law Decree No. (9) of 2010 regarding Banks, particularly Articles (13), (14), (15), (16), (38), (40), and (72), and in accordance with the powers delegated to us, and in the public interest, we have issued the following Instructions:

---

Article (1)

Definitions

The words and phrases appearing in these Instructions shall have the meanings specified below, unless the context indicates otherwise:

• Authority: Palestine Monetary Authority.
• Bank: Includes the bank and the Islamic bank as defined in the prevailing Banks Law.
• Foreign Bank: As defined in the prevailing Banks Law.
• Credit: As defined in the prevailing Banks Law.
• Consumer Credit: The loan/financing granted to individuals for the purpose of financing consumption needs or personal purposes.
• Person: Natural or legal person.
• Exposure: As defined in the prevailing Banks Law.
• Credit Concentration: As defined in the prevailing Banks Law.

---

Article (2)

Scope of Application

The provisions of these Instructions shall apply to all banks licensed by the Authority to conduct banking business in Palestine.

---

Article (3)

Transparency and Disclosure

The bank must clearly and transparently clarify all terms, conditions, and criteria for contracting with customers for all types of credit granted.

---

Article (4)

Determinants for Granting Credit

The bank is prohibited from doing the following:

1. Granting credit secured by the bank's own shares or debt instruments issued by it.
2. Granting credit for the purpose of purchasing the bank's own shares or debt instruments issued by it or its subsidiaries and affiliates.
3. Granting credit secured by shares of another bank without obtaining prior approval from the Authority.
4. Granting any credit for the purpose of covering share subscriptions.
5. Granting credit to settle the obligations of distressed customers with the bank or other banks, unless it is within the framework of restructuring, documenting, or enhancing collateral.
6. Granting credit for the purpose of using it outside Palestine without obtaining prior approval from the Authority.
7. Granting credit to any person whose debt has previously been written off, unless that person has fully settled that debt.

---

Article (5)

Conditions for Granting Credit

1. The bank must establish a policy for granting consumer credit for the purpose of purchasing a car, furniture, various household supplies, or for education, tourism, obtaining a credit card, or settling personal obligations, provided the following are observed:

   a. Ensuring the currency of the grant matches the currency of the borrower's income source. b. That the repayment period does not exceed seven years at maximum, except for credit cards.
   c. That the credit granted to finance the purchase of a car does not exceed 80% of the car's value.

2. The bank must adopt clear and practical overdraft controls, provided that the value of total demand overdrafts does not exceed 5% of the total credit facilities granted to the private sector by the bank, and that the overdraft period for any customer does not exceed (30) thirty days.

---

Article (6)

Financing Investment in Company Shares

1. The bank must obtain prior approval from the Authority when granting credit for the purpose of financing investment in shares of other banks.

2. The total value of credit granted to customers and securities companies for purchasing the bank's shares at any time must not exceed 10% of the total credit portfolio granted to the private sector held by the bank, and must not exceed 20% of the capital base.

3. The bank must comply with the following when granting credit for investment in shares:

   a. The shares must be issued by companies listed on the Palestine Exchange. b. The financial results of the issuing company must show profits according to the latest annual report, and there must be no uncovered accumulated losses.
   c. The subscribed capital of the company whose shares are to be financed must be fully paid.
   d. The percentage decrease in the share price of the listed company must not exceed 50% during the six months preceding the granting process. e. The credit allowed to be granted for financing share purchases must be in the form of loans only. f. The customer's contribution must not be less than 50% of the total value of the shares to be purchased, provided that one of the following guarantees is provided:

   1. Full pledge of the shares financed by the bank and the customer in favor of the bank.
   2. Providing other guarantees covering 150% of the value of the granted credit in case of non-pledge of shares.
   3. Providing guarantees amounting to 80% of the value of the granted credit in case of pledging only the shares financed by the bank.
   4. Providing guarantees in the form of cash securities covering 100% of the amount financed by the bank.

4. A special account for loans granted for financing share purchases shall be created within the loan system, named "Share Financing Loans Account".

---

Article (7)

Concentration Risks

1. No bank shall grant, renew, or modify credit to a person if it would lead to any of the following:

   a. The person's exposure size, after deducting the value of cash securities, reaches (10%) or more of the bank's capital base without obtaining prior written approval from the Authority. b. The person's exposure size or credit concentration exceeds (25%) of the bank's capital base.

2. The bank is prohibited from exceeding a total of credit concentrations as stated in paragraph (1) item (a) of this article four times the bank's capital base.

3. The bank must not exceed credit concentration granted in a specific economic sector by 20% of the total credit portfolio granted without obtaining prior approval from the Authority.

4. The Authority may consider the bank's exceeding of the exposure size or credit concentration stated in paragraph (1) item (b) of this article, depending on the risks of the bank and the person.

5. The Authority may request the bank to obtain adequate guarantees or increase them for any credit as authorized.

6. The bank must disclose credit concentration within the periodic financial statements submitted to the Authority.

---

Article (8)

Investment or Subscription in Bonds and Sukuk Issued in Palestine

1. Subject to what is stated in Article (7) of these Instructions, the bank must obtain prior approval from the Authority if it wishes to subscribe to or invest in bonds and sukuk, if the exposure to the person reaches (10%) or more of the bank's capital base.

2. The value of all bonds and sukuk in which the bank has invested must not exceed 25% of its capital base, and the value of non-traded bonds and sukuk must not exceed 5% of its capital base, provided that these bonds and sukuk:

   a. Are issued by a public joint-stock company registered in Palestine. b. Have a maturity period not exceeding seven years if non-traded.

---

Article (9)

Granting Credit to Non-Residents

1. The following cases are exempt from obtaining prior approval from the Authority when granting to non-residents:

   a. If the grant is in amounts less than or equal to ten thousand US dollars or its equivalent in circulating currencies. b. If the grant is in amounts exceeding ten thousand US dollars or its equivalent in circulating currencies and is used exclusively in Palestine.
   c. If the grant is secured by 100% cash securities.
   d. Credit granted to employees secured by their salaries, savings, and dues.

2. If the grant is under conditions contrary to those stipulated in paragraph (1) of this article, the bank must obtain prior approval from the Authority through a request containing the name of the credit applicant, their nationality, the credit amount, its purpose, the repayment mechanism, guarantees, and the interest rate.

3. The bank must disclose credit granted to non-residents within the periodic financial statements submitted to the Authority.

---

Article (10)

Bank's Responsibility

The bank must exercise due care to ensure that the credit is used for the purpose for which it was granted, obtain all documents and data from the credit applicant to verify this, and supervise its use exclusively for that purpose.

---

Article (11)

Purchasing Credit and Credit Decisions Taken by the Head Office of the Foreign Bank

1. The bank must obtain prior written approval from the Authority if it wishes to purchase or transfer credit from/to another bank not operating in Palestine, including purchasing or transferring credit to the head office of foreign banks.

2. The foreign bank must obtain prior written approval from the Authority if granting credit based on direct instructions from the head office.

---

Article (12)

Possession of Movable and Immovable Property in Satisfaction of Debt

The bank is prohibited from possessing share quotas or any movable or immovable property acquired in exchange for a granted or purchased credit that defaults and remains unpaid, even if the value of these properties exceeds the percentage specified by the Authority. In this case, the bank must dispose of this possession as follows:

1. Notify the Authority regarding the possession in satisfaction of debt within one month from the date of possession.

2. Dispose of that possession within a period of two years from the date of possession, provided that prior approval from the Authority is obtained before implementation.

3. Contrary to what is stated in paragraph (2) of this article, the bank may apply to the Authority to extend the possession period of immovable property by a maximum of three years, considering all possible measures to dispose of those properties.

4. If the bank fails to dispose of the possession within the time periods mentioned in this article, the bank must take a provision of 100% of the value of the possession and reflect it in the bank's final financial statements.

---

Article (13)

Write-off of Credit

1. The bank must comply with the following controls when writing off credit exceeding five thousand US dollars or its equivalent in circulating currencies:

   a. A minimum period of five years has passed since the credit defaulted. b. Exhaustion of all legal and administrative procedures and requirements undertaken by the bank to collect the credit.
   c. Approval by the Board of Directors of the local bank or the head office of the foreign bank after providing provisions of 100% to cover the amount to be written off.
   d. Notifying the Authority via an official letter regarding the details of the credit and its guarantees. If the bank does not receive an objection from the Authority to writing off this credit within (30) thirty days from the date of notifying the Authority, the bank may proceed with the credit write-off procedures.

2. The bank is obligated to obtain prior approval from the Authority before undertaking any procedures that would result in writing off a customer's credit before the five-year period has elapsed.

3. No credit at the bank may be written off, even after excluding its classification as related-party, without prior approval from the Authority.

---

Article (14)

Penalties

Anyone who violates the provisions of these Instructions shall be punished in accordance with Article (54) of Law Decree No. (9) of 2010 regarding Banks.

---

Article (15)

Repeal

1. Item No. (6/5) regarding credit and its provisions in Instructions No. (5/2008) issued on 2008/12/29 are repealed.

2. Circular No. (7/2012) issued on 2012/01/11 is repealed.

---

Article (16)

Implementation and Publication

All competent authorities shall, each within their respective jurisdiction, implement the provisions of these Instructions, and they shall apply from the date of their issuance.

Issued in the city of Ramallah on this Sunday, corresponding to 15 February 2015 Corresponding to 26 Rabi' al-Thani 1436 AH

Supervision and Inspection Department
Palestine Monetary Authority

---

Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487 Email: info@pma.ps www.pma.ps