Egyptian banks are unsure how to implement reform to adhere to the Central Bank of Egypt’s (CBE) new regulations on the capital conservation buffer ratio, stated Beltone Finacial Investment Bank in a report issued Tuesday evening.
The conservation buffer ratio is one of the regulations in the CBE’s Basel III rules. However, banks have not implemented the Basel III rules due to a lack of executive regulations, bank administrators told Beltone.
To adhere to the new restrictions, some banks may resort to reclassifying their capital base and amend their general reserve clauses.
The Commercial International Bank (CIB), Qatar National Bank Al Ahli (QNB-Al Ahli), Crédit Agricole Egypt (CAE), and the Housing and Development Bank (HDB) have not had to institute reform measures, as their conservation buffer ratios are between 14% and 16%, above the mandated minimum ratio.
The capital conservation buffer ratio is intended to strengthen a bank’s main capital base to ensure a bank can cover losses that may arise during periods of economic or financial crisis.
Banks can reduce distributed profits, buy back stock shares, or remunerate employees to bolster their capital conservation buffer ratio. The CBE’s requirements include assigning an extra part of the net annual profits to the capital conservation buffer so as to increase the buffer starting in January 2016 by 0.625% annually until 2019.
Thus, the minimum capital adequacy ratio has been set at 10.625% in 2016, and will be adjusted to 11.25%, 11.875%, and12.5% in 2017, 2018, and 2019, respectively.
Beltone pointed out that a number of banks will need to assign part of their net profit to comply with these rules because their capital adequacy ratios rest at 10%, such as Abu Dhabi Islamic Egypt (ADIB)
Beltone also pointed out that Al Baraka Bank of Egypt and the Egyptian Gulf Bank have adequate capital ratios below the market average of 13.2%. The Egyptian Gulf Bank recorded a 11.4% ratio and Al Barka Bank recorded a ratio of 11.6%, according to December 2015 data.