CBE Tightens Rules on Banks' Investments in Corporate, Securitization Bonds

The Central Bank of Egypt (CBE) has introduced new regulatory requirements compelling banks operating in the country to adopt comprehensive internal policies governing investments in corporate bonds and securitization bonds, as part of broader efforts to strengthen risk management amid rising exposure to debt instruments.

According to a circular issued by the CBE, banks must establish board-approved policies and internal controls that define clear investment limits and risk parameters. The move comes as the central bank continues to monitor developments in the banking sector and the steady growth of banks' investments in debt securities.

Under the new framework, banks are required to set maximum exposure limits for bond investments relative to both their credit and investment portfolios. They must also establish sector-specific exposure caps, limits on investments linked to individual issuers, and minimum acceptable credit ratings of BBB for eligible bonds. In addition, institutions are expected to define maximum investment maturities within their internal policies.

The central bank further instructed lenders to ensure that investments in corporate and securitization bonds are included within existing single-borrower and related-party exposure limits. Before committing funds, banks must conduct comprehensive credit risk assessments, including evaluations of an issuing company's financial strength and its ability to meet future debt obligations.

To reinforce ongoing oversight, the CBE has mandated continuous monitoring of bond performance indicators. Banks will also be required to prepare quarterly reports detailing the results of these reviews, which must be submitted to each bank's Risk Committee before recommendations are presented to the board of directors.

The circular introduces additional safeguards for investments in securitization bonds. Banks must obtain a certificate from the issuing company's external auditor confirming compliance with the maximum debt-to-income ratio stipulated under regulatory requirements. Furthermore, securitization bonds issued by real estate development or mortgage finance companies must be backed by residential units that have already been delivered to their purchasers.

For investments in corporate bonds, the CBE also requires banks to secure a letter from the Financial Regulatory Authority (FRA) confirming that the issuing company—and all entities under its supervision, fully complies with applicable regulatory standards. The letter must also verify that the issuer is not subject to any outstanding violations or significant administrative measures that could materially affect its operations.