CBE Bans Credit Facilities for Capital Increases, Dividend Payments

Egypt’s central bank issued a series of binding directives to all banks operating in the country, prohibiting the use of credit facilities to finance corporate capital increases, dividend distributions, and employee stock incentive programs, in a move aimed at tightening oversight of lending practices and ensuring credit is directed toward productive economic activities.

The measures were approved during a meeting of the Central Bank’s Board of Directors on June 17, and reinforce previous regulatory circulars issued in 2003 and 2021 concerning the governance of bank lending and credit allocation.

Under the new instructions, banks are prohibited from granting credit facilities or short-term credit lines to finance the capital contributions of companies under establishment, including funding intended to cover the legally required 25% initial capital contribution. The restrictions also extend to financing capital increases for existing companies.

In a further tightening of lending rules, the Central Bank barred banks from providing credit to clients for the purpose of financing cash dividend distributions to shareholders or employees. The prohibition also covers financing employee stock ownership and incentive share programs.

The regulator emphasized that all lending decisions must be linked to clear, specific, and identifiable purposes that are fully aligned with the actual business activities of borrowers and consistent with established banking regulations and market practices.