Egypt’s banks need to set aside additional capital for credit concentration risks
New requirements from Central Bank of Egypt on management of portfolio concentration risk: Commercial banks are now required to set aside additional capital above the base requirement to hedge against concentration risk in their loan portfolios, according to new CBE guidelines (pdf). The ratio for each bank will depend on measurements of key concentration measures, which are either based on extending too much credit to borrowers in a single sector (sectoral concentration) or to a single borrower (individual concentration). Risk management departments also need to develop a clear policy tackling these risks.
The central bank has also made it easier for lenders to factor real estate invoices: Another regulatory decision taken by the central bank yesterdayinvolves excluding real estate bank factoring from a ceiling recently applied to personal debt collection, according to a circular dated 7 April (pdf). This means that banks that collect payments from customers of real estate developers who have factored receivable assets (i.e. postdated checks or invoices for installments) will not adhere to the recently mandated maximum debt-to-income ratio for personal loans. The maximum ratio set in 2016 specified that the value of interest payments for consumer and housing loans must not exceed 35-40% of the borrowers income.