Dr. Mohammed Omran – FRA’s Chairman said that achieving the integration among various financing activities – under FRA’s supervision – was a main engine for FRA’s Board to approve amendments to the financial solvency standards applied to mortgage finance companies. FRA’s BOD issued decision No. 158 of 2020 on setting a regulatory procedure to prepare mortgage finance activity to be consistent with amendments to the financial solvency Standards for factoring, leasing and consumer finance. In this respect, a unified pattern will be prepared to allow finance companies to combine more than one financing activity under FRA’s supervision.
Dr. Omran pointed out that maintaining the safety and stability of units operating in non-banking financial markets led the Authority to conduct stress test. The said test measured the potential impact of applying the amended financial solvency standards for mortgage finance companies, which have a total value of 6.7 billion pounds at the end of July 2020, compared to 5.6 billion pounds in July 2019. The results indicated that none of the mortgage companies were affected by the application of the proposed standards except for provisions for irregular funds (doubtful funds and debt executions).
Dr. Omran added that according to the dialogue conducted with representatives of mortgage finance companies, FRA agreed to establish allocations for irregular balances in real estate assets similar to financial leasing activity.
Dr. Omran noted that FRA conducted stress test and scenario analysis – for the first time in the wake of the new Corona virus pandemic – to survey the financial stability of non-banking financial sector companies and to predict the impact of the crisis on the performance of this vital sector that provide financing and protection to the national economy. He added that FRA helped the non-banking financial sector to understand emerging risks and how to deal with credit risk and operational risk , take risks at the level of each company and direct its management to develop solutions to meet challenges in the short or long term.
Three scenarios were prepared including basic, medium and pessimistic scenarios to measure liquidity and solvency risks. The results of the scenarios revealed that the financial solvency of mortgage companies was affected by the moderate level. At the same time, liquidity rates and financial hardship were acceptable risks to some extent.