EGYPT Law and Practice Contributed by: Mahmoud S. Bassiouny, Iman Nassar, Habiba Gamaleldin and Israa Mostafa, Matouk Bassiouny
All banks operating in Egypt (except for branch - es of foreign banks) are required to maintain a minimum capital ratio of at least 10% of their risk-weighted assets to mitigate any credit, mar - ket or operational risks. This applies to banks on a consolidated basis, including any group companies that undertake banking activities or financial institutions (except for insurance com - panies) in which banks or their related parties own more than 50% of their equity rights, or any other controlling percentage. The capital basis, as defined by the CBE regu - lations, consists of two tiers. Tier 1 comprises the core capital (common equity) and additional capital (additional going concern). The core capital consists of ordinary shares representing the issued and paid-up capital, in addition to retained earnings or losses and any reserves (eg, legal and capital reserves). This core capital excludes any treasury shares, intangible assets, receivables from securitisation transactions, pension benefits, deferred recov - erable tax assets and investments in insurance and financial companies subject to certain per - centages. The core capital is also adjusted to exclude certain provisions made for reserves of generic banking, foreign currency discrepancies and cash-flow risks, among other things. The additional capital consists of preferred shares, interim profits or losses, minority rights and the discounted value of any shareholder loan calculated based on the interest rate of treasury bonds. The supplementary capital must comply with certain guidelines, including: • it has to be issued and paid up in full; • it has to rank behind depositors and creditors in the event of liquidation; and
• it has to be unsecured and uncovered by the right-holders. Identification of Systemically Important Local Banks in Egypt In addition, the CBE has regularly followed the developments and updated rules issued by the Basel Committee on Banking Supervision, including an initiative to conduct a study in 2017 to identify the systemically important local banks in Egypt. In order to do this, the CBE assigns a relative weight for certain indications, including the aggregate exposure used in calculating lever - age, aggregate deposits, assets held with other local banks, liabilities due to other banks, volume of payments settled, assets held with offshore banks, and liabilities due to offshore banks. The CBE then assigns five categories of sys - temically important banks based on the above criteria. These banks have more requirements on their additional capital to ensure a higher loss absorbency ability. The additional capital requirements for systemically important banks range between 1.25% for category 5 and 0.25% for category 1. The criteria for identifying the sys - temically important banks are revisited regularly by the CBE in case of any market developments within periods that do not exceed three years. The CBE has also issued several circulars con - cerning the requirements of a minimum capital conservation buffer and the maintenance of cer - tain liquidity coverage ratios, in addition to other rules to mitigate concentration risks and interest rate risks related to trading books of banks. All banks in Egypt, except for branches of foreign banks, are required to comply with the ratios specified by the CBE to manage their credit, market and operational risks.
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