Instructions No. (2) of 2023 Regarding the Amendment of Instructions No. (4) of 2022 Concerning Credit Concentration Risks

Instructions No. (2) of 2023
Regarding the Amendment of Instructions No. (4) of 2022 Concerning Credit Concentration Risks

Based on the provisions of Law Decree No. (9) of 2010 concerning Banks, particularly Articles (16, 72) thereof, and after reviewing Instructions No. (4) of 2022 concerning Credit Concentration Risks, and Instructions No. (7) of 2016 concerning the implementation of capital adequacy requirements in accordance with Basel II decisions, and in accordance with the powers delegated to us, and to achieve the public interest, we have issued the following Instructions:

Article (1)
Definitions

The following words and phrases shall, wherever they appear in these Instructions, have the meanings specified below unless the context indicates otherwise:
Original Instructions: Instructions No. (4) of 2022 concerning Credit Concentration Risks.

Article (2)
Amendment of the Provisions of Article (2) of the Original Instructions

The text of paragraph (1) of Article (2) of the Original Instructions is replaced with the following:
"The provisions of these Instructions aim to mitigate credit concentration and exposure risks at banks, in addition to enhancing the role of banks in supporting and encouraging economic development and financing essential infrastructure projects to provide a suitable economic environment."

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Article (3)
Amendment of the Provisions of Article (3) of the Original Instructions

The text of paragraph (1/t) of Article (3) of the Original Instructions is replaced with the following:
"Exceeding the exposure or credit concentration volume for a single person by 20% of the bank's capital base, classified as a systemically important bank, and exceeding 25% at the group of persons level in accordance with the provisions of Article (4) of the Original Instructions."

Article (4)
Credit Risk Mitigants

A new article bearing the number (3) bis is added to the Original Instructions, stipulating the following:
For the purposes of applying the provisions of Article (6) of the Original Instructions, the bank may use the following as credit mitigants:

1. Cash collateral against exposure or credit concentration.
2. Pledged shares against granted financing or credit, and subscribed bonds or instruments utilized within Palestine, subject to the following:
   a. They must be shares of companies listed on the Palestine Exchange index and pledged as first-ranking collateral in favor of the bank. b. Seventy percent (70%) of the market value of the shares shall be calculated.

Article (5)
Group of Persons Acting Together or Sharing a Common Interest

A new article bearing the number (4) bis is added to the Original Instructions, stipulating the following:
For the purposes of determining interconnection and common relationships among a group of persons acting together or sharing a common interest based on economic dependence, exposure to a single person exceeding 5% of the bank's capital base shall be taken into account.

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Article (6)
Amendment of the Provisions of Article (5) of the Original Instructions

1. The provisions of paragraph (1/b) of Article (5) of the Original Instructions are replaced with the following:
   "A minimum of 10% of off-balance sheet items of the bank and in accordance with the credit conversion factor used for calculating regulatory capital adequacy requirements."
2. The provisions of paragraph (1/t) of Article (5) of the Original Instructions are replaced with the following:
   "The value of credit risk mitigants shall be deducted from the numerator."

Article (7)
Facilities or Financing for Economic Activities and Facilities or Financing for the Government

A new article is added to the Instructions bearing the number (5) bis, stipulating the following:

1. Financing or credit granted, and subscribed bonds or instruments utilized within Palestine, directed towards financing the following activities, shall be weighted at 100% if it exceeds 20% of the capital base of a bank classified as systemically important and 25% for other banks:
   a. Agriculture (fish farming projects, red meat and fattening, medicinal herbs, land reclamation, poultry farming, livestock and cattle breeding, beekeeping and honey production, agricultural greenhouses for producing various vegetables and fruits). b. Industry (production lines, food industries, animal feed, leather and footwear manufacturing, stone and marble production, furniture, spinning and weaving).
   c. Renewable energy, water treatment plants, waste recycling, and energy efficiency improvement projects.
   d. Technology (research and development, consulting and training, software development and production, service exports, technology incubators, infrastructure projects). e. Health sector (hospitals, medical services, pharmaceutical industries).
2. Without prejudice to what is stipulated in Article (6) paragraph (5) of the Original Instructions, subscription to Palestinian government bonds or instruments issued in accordance with the provisions of Articles (13, 14) of Public Debt Law No. (24) of 2005, aimed at financing capital and developmental expenditures, shall be weighted at 20% for the purpose of calculating the regulatory capital adequacy ratio.
3. Credit granted to the Palestinian Government that does not exceed the bank's paid-up capital shall be weighted at 20% for the purpose of calculating the regulatory capital adequacy ratio.
4. Credit granted to the Palestinian Government that exceeds the bank's paid-up capital shall be weighted at 100% for the purpose of calculating the regulatory capital adequacy ratio.

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Article (8)
Amendment of the Provisions of Article (6) of the Original Instructions

1. The provisions of Article (6) of the Original Instructions are amended by adding a new paragraph bearing the number (1) bis, stipulating the following:
   "In the event the Monetary Authority approves the bank's request to renew facilities or financing that exceed the maximum limits stipulated in the Original Instructions, the bank may refrain from weighting them at 200%, provided that the bank submits a plan to rectify credit concentrations and exposures and the Monetary Authority approves the plan."
2. The provisions of Article (6) of the Original Instructions are amended by adding a new paragraph bearing the number (6) bis, stipulating the following:
   The bank may refrain from submitting a request for approval from the Monetary Authority to grant financing or a facility in the following cases:
   a. If the financing or facility is secured by 100% cash collateral. b. If the credit concentration or exposure constitutes less than 10% of the capital base after taking into account eligible mitigants and conversion rates related to indirect credit.
   c. If no modifications are made to the conditions of the approval granted by the Monetary Authority to renew financing or facilities that are below the percentages specified in Article (3) paragraph (1) of the Original Instructions.
3. The provisions of paragraph (4) of Article (6) of the Original Instructions are replaced with the following:
   "Unexecuted facilities and financing shall be added to the credit concentration and exposure ratio for the purpose of granting additional approvals, and the Monetary Authority's approval for unexecuted facilities or financing shall automatically lapse if not executed within a maximum period of (90) ninety days from the date of the Monetary Authority's approval."

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Article (9)
Repeal of Conflicting Provisions

All provisions conflicting with these Instructions are repealed.

Article (10)
Implementation and Enforcement

All competent authorities shall, each within their respective jurisdiction, implement the provisions of these Instructions, which shall apply from the date of their issuance.
Issued in Ramallah on: 19 / 01 / 2023 AD

Dr. Firas Malham
Governor
[Signature]

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