Back to the complete issue
Thursday, 17 October 2019

Lending by banks’ NBFI arms to count toward single obligor limits

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.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.