Financial Crime World

Insolvency and Resolution Framework for Egyptian Banks

Overview

The New Banking Law in Egypt outlines a comprehensive framework for insolvency, recovery, and resolution of banks. This framework is designed to ensure the stability of the banking system and protect depositors’ interests.

Role of the Central Bank of Egypt (CBE)

The CBE has been designated as the authority responsible for regularizing the status of banks in financial distress. The CBE has wide powers to initiate the resolution process if it determines that a bank is in financial difficulty.

Criteria for Resolution

The CBE may initiate the resolution process if one or more of the following conditions are met:

  • The financial position of the bank concerned is poor, or the interests of depositors are at risk.
  • The bank fails to meet its liabilities in respect of depositors or other creditors.
  • The bank’s liabilities exceed the value of its assets.
  • The value of the bank’s shareholders’ rights is decreased in comparison with the allocations that should be formed.
  • The bank fails to have access to funding resources or the financial markets.
  • The bank fails to adhere to the limit of the capital adequacy ratio or the liquidity ratio, or any other applicable supervisory ratios determined by the CBE’s board of directors.
  • The value of the bank’s assets or profits significantly decreased in a way that threatens its ability to operate.
  • The bank is relying on exceptional and onerous financial resources to conduct its normal course of business.
  • The banking license has been canceled pursuant to Article 173 of the New Banking Law.
  • The bank fails to undertake the procedures related to early intervention prescribed under Article 147 of the New Banking Law.
  • A branch of a foreign bank fails to meet its liabilities as well as those of the bank’s head office, and the competent authority in the state of its head office does not issue a decision to settle the bank’s status within the period determined by the board of directors of the CBE.

Resolution Process

The resolution process includes:

  • The distribution of any profits or any other form of capital distribution to shareholders or others is suspended.
  • Disbursement of due payments to senior executives is suspended, except for those related to businesses or services determined by the CBE.
  • Any lawsuits filed by creditors against a bank subject to resolution are suspended for a period of 90 days as of the date on which the bank’s financial distress was announced.
  • The CBE may reschedule all or part of the dues owed by a bank for a period not exceeding 60 days, except for clients’ deposits and dues related to payment and settlement systems.
  • The application for early termination of financial contracts to which the bank subject to resolution is a party is suspended according to certain regulations.

CBE Powers

The CBE may undertake various procedures without obtaining approval from shareholders, creditors, or debtors:

  • Dissolving the distressed bank’s board of directors and appointing a delegate to carry out management activities.
  • Fully or partially suspending the bank’s operations or certain activities.
  • Reducing the nominal value of the bank’s shares or the number of issued shares.
  • Recapitalizing the bank by issuing new shares or any other tradable securities.
  • Reducing the value of some of the bank’s liabilities or converting such liabilities to shares in its capital or an interim bank.
  • Terminating or amending any provisions of any contract or debt securities to which the bank subject to resolution is a party.
  • Assigning all or some of the rights, liabilities, and assets owned by the distressed bank to another bank or an interim bank.
  • Merging the distressed bank with another bank or transferring its title to shares.
  • Filing civil lawsuits claiming compensation or in order to recover any monies, such lawsuits will be filed against any of the shareholders or senior executives, or the employees of the distressed bank.