The Central Bank of Egypt (CBE) has introduced a new package of supervisory regulations governing banks’ investments in corporate bonds and securitisation bonds, as part of its ongoing efforts to monitor developments in the banking sector and strengthen the management of risks associated with such investments, thereby reinforcing the safety and stability of the banking system.
In a circular issued to banks, the CBE said its Board of Directors had approved a comprehensive set of regulations that banks must comply with when investing in bonds. These include adopting clear internal investment policies that establish maximum limits for total bond investments relative to both credit and investment portfolios, as well as concentration limits by economic sector and by issuing and originating companies.
Under the new rules, banks are required to set a minimum acceptable credit rating of no less than BBB- for bond investments and establish maximum maturity limits. Investments in corporate bonds and securitisation bonds must also be included within total credit exposures when calculating single obligor limits and exposures to connected parties.
Banks must also prepare a comprehensive assessment before investing in any bond issuance. The assessment should identify potential risks and evaluate their impact on expected cash flows, while also assessing the creditworthiness of issuing or originating companies based on available financial and non-financial information.
To strengthen oversight and governance, banks are required to establish ongoing monitoring mechanisms for bond performance and prepare quarterly reports for submission to their Risk Committees before the committees’ recommendations are presented to the Board of Directors.
The regulations further require banks to obtain a certificate from their external auditor confirming that the issuing or originating company complies with the maximum debt service-to-monthly-income ratio for individuals, as stipulated in the CBE circular issued on 19 December 2019, where applicable.
The Central Bank also stipulated that securitisation bonds issued by real estate development or mortgage finance companies must be backed by properties that have already been delivered to purchasers.
In addition, banks must obtain a letter from the Financial Regulatory Authority (FRA) before granting or renewing credit facilities or executing securitisation transactions for companies under the FRA’s supervision. The letter must confirm that the company is in good regulatory standing and is not subject to any regulatory violations or administrative measures.
The new framework also requires banks to obtain prior approval from the Central Bank before granting credit secured by bonds issued by companies or institutions. Banks must submit a comprehensive cash flow analysis relating to the issuing entity or the originator of the securitisation portfolio and are prohibited from investing in bond issuances for which they have already provided guarantees.
The CBE has granted banks a six-month grace period to align their positions with the new regulations and comply with all related requirements.
Source: Original Article
