The Central Bank of Egypt (CBE) has issued a comprehensive set of rules governing banks’ financing of securities purchases on margin, in a move designed to strengthen oversight, mitigate risks, and preserve the stability and soundness of the banking sector.
In a circular sent to lenders, the CBE granted banks a six-month transition period to align their existing portfolios with the new regulatory framework.
Under the new rules, banks are required to establish internal policies—approved by their boards of directors—specifically covering margin financing activities. These policies must be subject to regular review and aligned with the regulations set by the Financial Regulatory Authority.
The framework obliges banks to define clear limits on margin financing, including an overall cap for such operations, as well as maximum exposure levels to a single client and to clients and their related parties within the total allocated portfolio.
Additional safeguards include caps on exposure to individual securities and sectoral concentrations within client portfolios, based on each bank’s risk appetite. The rules also stipulate that securities traded outside the EGX 100 index must not exceed 10% of a client’s total portfolio.
The regulations further outline procedures to be followed if these limits are breached. Banks must notify clients to reduce exposures—either by repayment or by posting additional collateral—within defined timeframes. Should clients fail to comply, banks are required to proceed with the sale of securities and the liquidation of collateral.
To enhance risk management, banks must implement automated systems, controls, and procedures capable of identifying, monitoring, and managing all risks associated with margin financing. This includes the daily revaluation of securities to ensure compliance with both internal limits and FRA regulations. The rules also require that the financed securities be held in custody with the same bank.
The CBE emphasised that all margin financing must be denominated in Egyptian pounds and restricted to securities issued in the same currency. Banks are prohibited from financing the purchase of their own shares, while clients are barred from using such facilities to acquire shares in companies where they are major shareholders or board members.
In terms of transparency, banks must disclose all margin financing facilities through the CBE’s credit registry system, as well as to credit information and rating companies, classifying these exposures as unsecured facilities in line with applicable regulations.
The central bank also reiterated compliance with its instructions issued on 20 June 2001, which restrict lending to securities brokerage firms to covering short-term settlement gaps between executed trades and client settlements.
It added that such facilities must be proportionate to the brokerage firm’s transaction volumes, with appropriate safeguards in place to mitigate associated risks—particularly regarding facility tenor and the provision of sufficient collateral to cover the firm’s obligations.
