CBE sets regulations for financial leasing companies financing

CAIRO – 3 March 2024: The Central Bank of Egypt (CBE) has implemented measures to restrict the financing provided by banks to financial leasing companies. These measures aim to ensure that the total grants and investments in securitization portfolios of the leasing companies do not surpass 5 percent of the banks' overall portfolio of loans and credit facilities. 

 

Furthermore, the CBE has specified that the total direct and indirect credit facilities and investments in the securitization portfolios of a single financial leasing company should not exceed 1 percent of the bank's total loan and credit facility portfolio. 

 

These regulations were established by the CBE's board of directors during its session on February 20, 2024. The primary objective is to enhance control over financing for leasing companies and mitigate associated risks. 

 

The CBE emphasizes that the purpose of the funding must be clearly defined, whether it is for financing new financial leasing contracts or refinancing existing contracts using the company's resources. Banks are required to diligently monitor the appropriate utilization of the funding by obtaining all relevant documents related to the financed contracts. 

 

Repayment for the funding should primarily come from the cash flows generated by the financial leasing contracts financed by the bank. It is crucial to align the repayment schedule of the funding with that of the financial leasing contracts. 

 

Financial leasing companies are urged to conduct a comprehensive assessment of their customers and involved parties to evaluate their financial viability and repayment capacity. Banks are cautioned against providing credit facilities to financial leasing companies for a limited number of customers. 

 

Additionally, the decision prohibits banks from extending credit facilities in foreign currency to financial leasing companies unless they are linked to import operations and the customers have sufficient foreign currency sources for repayment. Banks must verify compliance with regulations set by the Financial Regulatory Authority.