Palestine Monetary Authority

Palestine Monetary Authority

Instructions No. (2010/3)

To all banks operating in Palestine
Date: Tuesday, May 11, 2010

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Subject: Financial Statements and the General Assembly of Banks

Based on the provisions of Chapters Four and Six of the Banks Law No. (2) of 2002, please find attached the following regulations:

• (1/3) Preparation of accounts and financial reports.
• (2/3) The General Assembly.
• (3/3) Preparation of financial statements and periodic statistical reports.

The provisions of these instructions shall apply from the date of their issuance, and all banks must rectify their status to comply with these instructions and take the necessary measures to ensure full compliance.

Supervision and Inspection Department
Palestine Monetary Authority

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487

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Palestine Monetary Authority

Palestine Monetary Authority

(1/3) Accounts and Financial Reports

(1/1/3) Banking and Accounting Systems in Banks

Based on the provisions of Chapter Six of the Banks Law No. (2) of 2002, banks must comply with the following:

1. Banks must have an automated financial and accounting system to record financial transactions immediately upon occurrence.
2. A financial system or regulation must be prepared and approved outlining the continuous cycle related to the execution of financial and banking transactions.
3. Written procedures must be established for the organized, secure, and legally compliant retention of books, records, tapes, and documents as stipulated in prevailing legislation.
4. Maintaining current and accurate financial books and records extracted from a sophisticated, credible, and reliable automated system that reflects the bank's financial position and accurately portrays the financial status of the bank and its branches.
5. The system must provide the necessary information for the following:
   a. Meeting the on-site and desk-based supervisory requirements of the Authority. b. Extracting the financial and statistical data required to meet the Authority's reporting requirements.
   c. Preparing interim and final financial statements in accordance with International Financial Reporting Standards (IFRS).
6. Ensuring the existence of periodic audit procedures on executed transactions to verify that their recording is done properly.
7. Providing the necessary technologies and mechanisms to verify the quality and accuracy of data submitted to the Authority, through automating submitted reports and providing a dedicated documentation guide.
8. The bank must use a banking system that allows for the extraction of reports in both Arabic and English.
9. The bank is prohibited from using a leased banking system.

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487

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Palestine Monetary Authority

Palestine Monetary Authority

(2/1/3) Preparation of Accounts and Financial Reports

All banks must comply with the following:

1. The financial year for all banks operating in Palestine shall begin on January 1 of each year and end on December 31 of the same calendar year.
2. Preparing its interim and final financial statements in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).
3. Adhering to the minimum disclosure required in interim and final financial statements according to the form approved by the Authority.
4. Review and audit of interim and final financial statements by an external auditor subject to the Authority's instructions.
5. Submitting to the Authority the reviewed interim (half-yearly) financial statements (hard copy and electronic copy) within a period not exceeding mid-August of the same financial year for review and approval for publication.
6. Submitting to the Authority the audited final (annual) financial statements (hard copy and electronic copy) within a period not exceeding two months from the end of the period (end of the financial year) for review, approval, and presentation prior to submission to the bank's General Assembly for ratification and approval.
7. The financial statements submitted to the Authority within the specified deadlines must be reviewed and audited as follows:
   a. The consolidated (combined) interim and final financial statements of the bank, including the separate financial statements of the bank and its subsidiaries and associates. b. The separate interim and final financial statements of the bank.
   c. The separate interim and final financial statements of subsidiaries and associates whose financial data must be consolidated with the bank's financial data as required by IFRS.
8. The following must accompany the interim and final financial statements:
   a. The Sharia Supervisory Board report for Islamic banks, after being signed by all board members. b. A copy of the Board of Directors meeting minutes in which the aforementioned data was approved.
   c. The external auditor's letter covering its requirements under Article (42) of the Banks Law as stipulated by the instructions regulating the relationship with the external auditor, as well as a copy of the auditor's letter to the Board of Directors ("Management Letter").
   d. Audited/available financial data for non-listed companies (in which the bank holds shares) that do not have market prices. e. The mechanisms the bank relied upon in valuing investment prices (bonds, shares, murabahas, etc.). f. A list of cases filed against the bank and the opinion of the bank's legal advisor regarding the adequacy of the provisions set aside for them. g. A list of foreclosed assets showing the value of the foreclosed asset, the date of acquisition, the market value of each asset, and the impairment value. h. A list of provisions that were written off and those that were reversed to income.
   i. A list of suspended interest that was written off and that which was reversed to income.
   j. A list of bad debts during the period.
9. The interim and final financial statements submitted to the Authority by the external auditor of the bank must additionally be signed by:
   a. The Chairman of the Board or his deputy in case of absence, and the General Manager of the local bank. b. The Regional Manager of the foreign bank's branches.
10. Submission of the bank's interim and final financial statements, reviewed and approved by the bank's external auditor and approved for publication by the regulatory authority in the home country, within a period not exceeding one month from the date of their publication in local newspapers in the home country.

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487

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Palestine Monetary Authority

Palestine Monetary Authority

(3/1/3) Approval of Financial Statements

1. Banks are not permitted to publish interim or final financial statements before their approval and ratification by the Authority.
2. Upon receiving the interim and final financial statements within the specified deadlines as mentioned in paragraph (2/1/3), the Authority shall take the following actions:
   a. Review and examine the financial statements, the external auditor's report, and other attachments. b. Verify compliance with the disclosure standards established by the Authority.
   c. Study the adequacy of provisions established by the bank.
   d. Verify the adequacy of disclosure in the consolidated financial statements prepared by the bank and that they represent sufficient disclosure for shareholders. e. Review the external auditor's letter to the Board of Directors and the management's responses. f. Study and analyze the external auditor's letter regarding the requirements of the Banks Law and the Authority's instructions. g. Review the explanations and disclosures in the financial statements, including related party transactions with the bank's subsidiaries and related party transactions with the bank itself.
3. The Authority shall issue a "Notes" letter to the bank to amend the financial statements, after which the bank must resubmit the amended and properly approved statements to the Authority within a specified period to enable the appropriate decision to be made.
4. Upon completion of the review and examination procedures for the banks' financial statements, the Authority shall issue approval for the publication and disclosure of the financial statements to the public.
5. Banks are committed to providing the Authority, within a period not exceeding two weeks from the date of publication approval, with a hard copy and electronic copy of the interim and final financial statements signed by the bank's management and accompanied by the external auditor's letter to the Board of Directors and management's response (the Management Letter).

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487

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Palestine Monetary Authority

Palestine Monetary Authority

(4/1/3) Publication of Financial Statements

Banks must comply with the following:

1. Publication of interim (half-yearly) financial statements and the external auditor's report no later than the end of September of the same year, after approval and ratification by the Authority.
2. Publication of final (annual) financial statements, the external auditor's report, and the Sharia Supervisory Board report for Islamic banks no later than the end of June of the following year after the data preparation period, after approval and ratification by the Authority.
3. Publication must be in at least two widely circulated daily newspapers issued in Palestine.
4. Publication of the bank's interim and final financial statements alongside the interim or final financial statements of its branches in Palestine.
5. Announcing the interim and final financial statements (Statement of Financial Position, Statement of Income, Statement of Changes in Equity, External Auditor's Report, and Sharia Supervisory Board Report for Islamic banks) in a prominent place in all its branches and offices for one month from the date of the Authority's approval.
6. Publishing the interim and final financial statements or the annual report on the bank's website, with the aforementioned data published for the last six consecutive years, including the last audited financial statements.
7. Retaining the aforementioned financial statements in microform (microfilm or other modern technology devices) for a period of no less than ten years.

(2/3) Convening the General Assembly

(1/2/3) Convening the General Assembly of Local Banks

Based on the provisions of Chapter Four of the Banks Law No. (2) of 2002, local banks must comply with the following:

1. No call for an ordinary or extraordinary general assembly or board meeting shall be made prior to obtaining the Authority's prior written approval.
2. Submit a request to the Authority to obtain its approval for convening the meeting according to the following procedures:
   a. The request must be submitted at least three weeks prior to the proposed meeting date. b. The request must be accompanied by the proposed meeting agenda, along with all documents and records related to the items on the agenda.
   c. If one of the agenda items is the General Assembly electing a new Board of Directors, the bank must attach to the request the names of the candidates for board membership.
   d. The request must specify the date and place of the meeting, with the General Assembly meeting place being in Palestine. e. In exceptional cases and after obtaining the Authority's written approval, the meeting may be held outside Palestine, provided that a video link is established between the meeting location in Palestine and abroad. f. The request must include an invitation for an observer to attend the meeting, and the observer shall have the right to submit any recommendations deemed appropriate to the General Assembly.
3. The Authority shall issue its approval for convening the General Assembly/Board and the agenda, and notify the bank thereof to complete the necessary legal procedures for convening the body, and the bank must invite a company observer to attend the meeting.
4. The General Assembly/Board shall be announced at least two weeks prior to the specified meeting date in two widely circulated daily newspapers issued in Palestine for three consecutive days, with the announcement including the date, place, agenda, and time of the meeting.
5. A written invitation shall be sent to all shareholders to attend the meeting fifteen days prior to the date of convening the Board/General Assembly, and the invitation announcement shall state the place, date, and time of the meeting,

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487

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Palestine Monetary Authority

Palestine Monetary Authority

and shall be accompanied by the agenda, the annual report on the bank's operations, and all data and attachments supporting the agenda items as required by law.
6. The call to attend the General Assembly/Board meeting shall be for shareholders entitled to vote in accordance with the prevailing Companies Law in Palestine.
7. The invitation form must specify the type of meeting (ordinary/extraordinary) in addition to the agenda items.
8. A shareholder in the bank may appoint another shareholder to attend any meeting convened by the General Assembly/Board on their behalf.
a. Proxy appointments shall be made as follows:
- Approved by the Authority, with the proxy form deposited at the bank's headquarters at least three days prior to the scheduled meeting date.
b. Appointing any person via a duly authorized power of attorney to attend the meeting on their behalf.
9. The proxy shall be valid for the agent's attendance at any meeting to which they are summoned. Their attendance as a guardian, trustee, agent of a bank shareholder, or representative of a corporate shareholder shall constitute legal attendance of the shareholder for the Board/General Assembly meeting, even if that agent, trustee, or representative is not a shareholder in the bank.
10. The external auditor shall be invited to attend Board/General Assembly meetings to read and discuss their report.
11. A report shall be submitted to the Authority regarding all decisions taken by the Board/General Assembly, along with a copy of the minutes of the ordinary or extraordinary meeting within two weeks from the date of convening.
12. Decisions of the Board/General Assembly shall not be considered effective until the Authority's written approval is obtained.

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487 E-mail: info@pma.ps www.pma.ps Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax: 08-2844487