4 instructions from the Central Bank to facilitate the banking customers with a return of collection

6:08 PM

Monday 14 September 2020

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I wrote – Manal Al-Masry:

The Central Bank issued new instructions to banks to coincide with the end of the 6-month period of postponing credit entitlements on customers during the current month of September, and the beginning of the banks’ collection of these benefits.

The central bank had instructed banks, in mid-March, to postpone the payment of credit entitlement installments to all customers for a period of 6 months from the date of issuance of the decision, as part of a package of measures to confront the repercussions of the spread of the new Corona virus.

The central bank said in the periodic book, issued on Monday, that these instructions come in light of the bank’s follow-up of the economic conditions and work to stabilize the banking sector, with the aim of continuing to support clients whose cash flows have been affected during the current crisis.

The central bank added that banks must adhere to the following:

1- Each bank must conduct a thorough review of the existing credit facilities, and study the position of all customers and their future cash flows, with the aim of determining the appropriate measures that will be taken to deal with them.

Al-Markazi pointed out that these measures should be in line with the ability of customers to pay, and without putting pressure on the liquidity of companies to enable them to continue their business, as well as individuals affected by their negative entry.

2- Banks ‘restructuring of clients’ debts with the aim of reaching a new structure of credit facilities commensurate with their current ability to repay while paying special attention to customers whose activities were affected during the previous period, provided that this is done through one of the following alternatives, for example, but not limited to:

– Increasing the duration of credit facilities.

Restructuring of installments due without calculating any fines.

Capitalization of the value of returns.

The possibility of granting a grace period to companies in light of the nature of their activities and future cash flows in a manner that does not affect their liquidity.

3- The necessity to adhere to the instructions issued on the basis for assessing the creditworthiness of clients and to form provisions issued by the decision of the Central Bank’s Board of Directors in its session on May 24, 2005, as well as the instructions issued on February 26, 2019 regarding the application of the International Financial Reporting Standard (IFRS9).

The Central Bank indicated the need to take into account that in the event of debt restructuring and regular payment – without the client having financial difficulties – this is not considered an indicator of the substantial increase in credit risk.

4- The necessity for each bank to study and analyze the overall risks associated with the current crisis, to conduct stress tests to determine the impact of the crisis on the credit portfolio, as well as on the various economic sectors, and to develop plans to deal with any potential losses.

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