Central Bank of Egypt issues instructions to manage operating risks at banks

Hossam Mounir
4 Min Read
The Central Bank of Egypt (CBE) has launched a new EGP 15bn initiative to finance the dual-fuel vehicle conversion plan, with a lump-sum return of 3%. In a Sunday letter to banks, the CBE said that the initiative aims to support the government’s ambitious, recently announced multi-year plan to replace car engines powered by traditional fossil fuels with dual-fuel engines that run on both petrol and natural gas.

The Central Bank of Egypt (CBE) has issued new instructions regarding the management of operation risks at banks working in the Egyptian market.

The CBE also said that it is continuously following up on and applying international practices in the field of banking supervision in the Egyptian banking system. This takes place by regular observation of the most important standards outlined by the Basel Committee.

This comes in addition to its work on updating and improving the supervisory instructions for implementing decisions and developments under the Basel II and III accords.

As part of its ongoing work on the domestic banking sector, the CBE is continuing to study the extent to which the accords can be appropriately applied to Egyptian banks, so that the risks they may face can be effectively managed.

At the same time, the CBE works to ensure that there are sufficient and appropriate levels of capital commensurate with the size and quality of risks at banks working in Egypt’s banking sector. This helps to further ensure the safety, stability, and effectiveness of the Egyptian banking system, and to reflect positively on the country’s economy as a whole.

In a statement on Tuesday, the CBE said that it had issued supervisory instructions, in December 2012, for the application of the minimum capital adequacy standard. This includes how to calculate operating risks, in accordance with the above decisions.

The Basel Committee on Banking Supervision, issued in December 2017, issued a set of final reforms for the applications of Basel III decisions, in continuation of the previously released framework.

The committee said that those reforms came with the aim of addressing deficiencies in the previous regulatory framework, which were evident by the multiple financial crises. The reforms were also designed to enhance the solvency of banks and their ability to face risks,  increasing confidence in the banking system.

It added that the committee proposed transitional periods for implementing the new standards, in order to ensure effective implementation by the supervisory authorities. It would also allow banks to prepare for the systematic implementation, through specific implementation dates for those reforms.

According to the CBE, these reforms include issuing a new and standardised method for measuring the capital needed to meet operational risks. This would to replace the four methods contained within the previous framework, with the new method of measurement being simplified and more understandable, and thus easy to implement.

The new method was expected to come into effect from 1 January 2022, but due to the novel coronavirus (COVID-19) pandemic, the date was pushed back by a year to 1 January 2023.

The CBE said that, in line with this step, its Board of Directors issued a decision on 27 December 2020 for Egyptian banks to adhere to the new method’s application. This would take place once it has been adapted to suit the Egyptian banking system, provided that banks complete the method’s implementation by a date no later than the end of 2021. This will come in line with the CBE’s strategy of implementing any new supervisory instructions.

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