REGULATION WATCH- CBE issues new regs to reduce bank lending risks: Restrictions placed on bank lending to corporate borrowers will now take into account loans made by non-bank affiliates (so-called NBFIs, or non-bank financial institutions). The measures are part of new CBE regulations (pdf) designed to diversify credit portfolios of commercial banks and reduce concentration risk.

What’s this restriction? Existing rules prevent commercial banks from lending more than 15% of their base capital to a single borrower— what’s called a “single obligor” limit in the trade. This limit rises to 20% when lending to more than one related party. These rules only apply to commercial banks, and place no new restrictions on the lending activities of their NBFI affiliates.

The new rules change this, bringing all lenders within the same regulatory framework. All NBFIs affiliated with a commercial bank will have to abide by the same requirements, prohibiting them from lending more than 15% of their capital base to a single client. Insurance companies will not be covered by the new regulations.

The new regs are part of a series of reforms to hedge against risk: CBE guidelines issued in March require commercial banks to set aside additional capital above the base requirement. The proposed Banking Act would also see banks face new minimum capital requirements, which would rise to EGP 5 bn, up from EGP 500 mn currently. Earlier changes addressed capital adequacy ratios and effective limits on personal borrowing.