Maximum Limits of Bank Investments with One Client, Associated Parties, and Related Parties

Cairo, in:

Mr. Chairman of the Board of Management

Greetings,

I would like to refer to Article (56) of the Central Bank, Banking and Monetary Authority Law issued by Law No. (88) of 2003, which stipulates that the Board of Directors of the Central Bank shall establish rules for the supervision and oversight of banks and the controls related to their activities in accordance with the provisions of this Law, while observing international banking customs, including the maximum limits of investment with one client, parties associated with him, and parties associated with the bank.

I am pleased to inform you that in the field of implementing the above, the Board of Directors of the Central Bank issued the following decisions at its meeting held in February 2006:

First: The maximum limits of the bank’s investments with one client and associated parties: ------------------ "In the field of implementing the provisions of Articles (51), (56), and (71) of the Central Bank, Banking and Monetary Authority Law issued by Law No. (88) of 2003, every bank shall observe the following:

• The maximum limit of the bank’s investments with one client - clients with whom associated clients exist - shall be 20% of the bank’s capital base (First Limit).

• The maximum limit of the bank’s investments with the client and associated parties shall be 25% of the bank’s capital base. Associated parties are those over which the client exercises actual control according to the concept stated in Article (51) of Law No. (88) of 2003 (Second Limit).

• The maximum limit for associated parties with investment in any of them exceeding 10% of the bank’s capital base shall be eight times this base (Third Limit).

• The maximum limit of total investments in non-associated clients and associated clients shall be subject to the following conditions:

The First and Second Limits apply to new bank investment cases arising after the date of this decision. For existing cases, banks are granted a grace period of three years from that date to regularize their status, with the limits during this grace period as follows:

Year	First Limit	Second Limit	Third Limit
First Year (2006)	20%	25%	Eight times the bank's capital base
Second Year (2007)	25%	27%	Eight times the bank's capital base
Third Year (2008)	30%	30%	Eight times the bank's capital base

The conditions for associated parties are as follows:

• The bank must have a credit policy approved by its Board of Directors, including the basis for evaluating the creditworthiness of clients, based on the principles established by the Board of Directors of the Central Bank on May 24, 2005.

• The bank may increase the First Limit for new and existing cases at the end of the third year to 25%, and for the second and third years to 30% instead of 27%, and 25% instead of 20% for the client and associated parties respectively.

• The Second Limit for new and existing cases at the end of the third year may be increased to 30% instead of 25% for the client and associated parties.

• Acceptance of the bank's credit policy by the Central Bank.

• The credit rating grade must not be less than the [Grade] category.

• After the expiration of the stipulated grace period (three years) by the Board of Directors of the Central Bank, an additional grace period may be granted to regularize the status of cases where banks agree to arrange settlements for their debts, on a case-by-case basis.

• The rules regarding the definition of the bank’s capital base, the definition of the bank’s investments, and the concept of the client and associated parties shall continue to apply according to the Board of Directors of the Central Bank decisions dated August 22, 1996, and November 10, 2002.

• Each bank shall submit a quarterly statement to the Central Bank (Supervision and Oversight Sector) indicating its compliance with the stipulated limits, according to the form prepared for this purpose, accompanied by a memorandum including the status of clients for whom the bank has increased the stipulated limits in accordance with the provisions of item [Number] of this decision, as well as the justifications for granting such increases.

• The importance of complying with banking rules and customs and the provisions of the Central Bank and Banking and Monetary Authority Law issued by Law No. (88) of 2003 and its amendments and executive regulations in the field of granting, implementing, and following up credit, including following up the use of credit for its specified purposes."

Second: The maximum limits of the bank’s investments with parties related to the bank and their associated parties:

"Every bank shall commit to the following:

• The bank is prohibited from providing financing, overdrafts, credit facilities, or guarantees of any kind to major shareholders who are natural persons not represented on the bank’s Board of Directors and their associated parties. Associated parties of major shareholders who are natural persons are defined as their spouses, children, or relatives up to the second degree, or any entity in which these individuals, their spouses, children, or relatives up to the second degree are partners or shareholders and exercise actual control over it, or are members of its board of directors in a personal capacity.

• The maximum limit of investments with one client and associated parties from major shareholders who are legal entities not represented on the bank’s Board of Directors shall be as follows:

  • For a joint-stock company with a public offering: 10% of the bank’s capital base, provided that the total investments of the bank with these companies do not exceed [Percentage] of the bank’s capital base.
  • For a joint-stock company with a closed offering and a partnership company: 10% of the bank’s capital base, provided that the total investments of the bank with these companies do not exceed [Percentage] of the bank’s capital base.

• The authority to grant such credit shall belong to the bank’s Board of Directors, and the Board shall regularly monitor it.

• Associated parties of one client from major shareholders who are legal entities are defined as the parties over which the client exercises actual control, according to Article (51) of Law No. (88) of 2003. Actual control for a natural or legal person is defined as owning any percentage that enables them to appoint the majority of the Board of Directors members or control in any manner the decisions issued by their Board of Directors or to control the decisions issued by their General Assembly.

• Major shareholders are defined as any natural or legal person who owns alone or together with associated parties 10% or more of the bank’s issued capital.

• For the bank’s senior management (General Managers, Sector Heads, and members of the highest executive committees, excluding the Chairman and members of the Board of Directors), financing obtained by them according to the bank’s regulations for employee loans shall be treated, and their associated parties shall be treated, on the same basis as the bank deals with third parties.

• The bank shall deal with its subsidiary companies on the same basis as it deals with third parties.

• Regarding investments with one client and associated parties from major shareholders (not represented on the Board of Directors) exceeding the stipulated limits, banks are given a period of one year from the date of approval by the Board of Directors of the Central Bank to regularize their status.

• Each bank shall submit a quarterly statement to the Central Bank (Supervision and Oversight Sector) indicating its compliance with the stipulated limits."

Please be kind enough to alert to the compliance with the above.

Accept my highest regards,

Mahmoud Abdel Aziz Mahmoud

Limits / Ayman