CBE Issues an Amendment Concerning
CBE Issues an Amendment Concerning Capital Conservation Buffer
On 17 April 2016, the deputy Governor of the Central Bank of Egypt ("CBE") issued a decision to amend one the criteria of the minimum requirement for capital adequacy, which has been applicable since December 2012 (the "Decision").[1]
The amendment is pertaining to the so-called "Capital Conservation Buffer". The said buffer is concerned with the need of the bank to form an allocation or additional defense line, to be deducted from the annual profits of the bank as part of the "first tranche of the capital base", hence it falls within the capital base of the bank.
The CBE Decision states that the Capital Conservation Buffer shall reach 0.625% in January 2016 and shall increase gradually until it reaches 2.5% in January 2019. According to this amendment, the total standard for capital adequacy of a bank, including the new Conservation Buffer, will increase from 10.625 in January 2016 to 12.5 in January 2019.
The Decision clarifies that the formation of a new Capital Conservation Buffer is originally from the annual profits of the bank. However, the bank may seek the CBE's approval to form the Capital Conservation Buffer from its core continuing capital, if it meets the Capital Conservation Buffer requirements.
Moreover, if the bank utilizes part - or all - of its new buffer, the CBE may impose restrictions on the bank concerning the distribution of annual profits so that it regains the formation of the required Capital Conservation Buffer.
Finally, the decision states that banks shall comply with the new instructions as of February 2016 in case they prepare their annual financial statements in December or as of July 1st, 2016 in case they prepare their annual financial statements in June.
[1] CBE Decision dated 17 April 2016, available through this link.
On 17 April 2016, the deputy Governor of the Central Bank of Egypt ("CBE") issued a decision to amend one the criteria of the minimum requirement for capital adequacy, which has been applicable since December 2012 (the "Decision").[1]
The amendment is pertaining to the so-called "Capital Conservation Buffer". The said buffer is concerned with the need of the bank to form an allocation or additional defense line, to be deducted from the annual profits of the bank as part of the "first tranche of the capital base", hence it falls within the capital base of the bank.
The CBE Decision states that the Capital Conservation Buffer shall reach 0.625% in January 2016 and shall increase gradually until it reaches 2.5% in January 2019. According to this amendment, the total standard for capital adequacy of a bank, including the new Conservation Buffer, will increase from 10.625 in January 2016 to 12.5 in January 2019.
The Decision clarifies that the formation of a new Capital Conservation Buffer is originally from the annual profits of the bank. However, the bank may seek the CBE's approval to form the Capital Conservation Buffer from its core continuing capital, if it meets the Capital Conservation Buffer requirements.
Moreover, if the bank utilizes part - or all - of its new buffer, the CBE may impose restrictions on the bank concerning the distribution of annual profits so that it regains the formation of the required Capital Conservation Buffer.
Finally, the decision states that banks shall comply with the new instructions as of February 2016 in case they prepare their annual financial statements in December or as of July 1st, 2016 in case they prepare their annual financial statements in June.
[1] CBE Decision dated 17 April 2016, available through this link.