The Central Bank of Egypt (CBE) has issued new rules for funding financial leasing companies. In a letter to banks, the CBE said that the total direct and indirect credit facilities and investments in the securitisation portfolios of financial leasing companies should not exceed 5% of the bank’s total loan portfolio. Moreover, the total direct and indirect credit facilities and investments in the securitisation portfolios of a single leasing company should not exceed 1% of the bank’s total loan portfolio.
The CBE emphasized the need to specify the purpose of the funding, whether it is for financing new financial leasing contracts or refinancing existing contracts from the company’s resources. It also required the banks to follow up on the proper use of the funding by obtaining all the documents related to the contracts being financed.
The CBE also stated that the main source of repayment for the funding should be the cash flows generated from the financial leasing contracts financed by the bank and that the repayment schedule of the funding should match the repayment schedule of the financial leasing contracts.
It urged the financial leasing companies to conduct a thorough study of the customers and the parties involved in the contracts and to assess their financial viability and ability to repay. It also warned the banks against granting credit facilities to financial leasing companies to finance a limited number of customers.
Furthermore, the CBE prohibited the banks from granting credit facilities in foreign currency to financial leasing companies unless they are linked to an import operation, and the customers have sufficient foreign currency sources to repay. The banks also have to verify that the financial leasing companies comply with the rules and regulations issued by the Financial Regulatory Authority.
The CBE said that these rules apply to new funding from the date of issuance and that the existing investments that exceed the limits should be gradually reduced according to their maturity dates. The banks have to submit a corrective plan to the supervisory sector within three months, as well as a quarterly report on the status of their investments.
