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FRA Issued Capital Adequacy Standards for financial leasing and factoring companies

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  •   Dr.Omran: Capital Adequacy Standards sets the minimum capital adequacy to meet credit and operational risks for financial leasing and factoring companies
  •   Dr. Omran: Capital Adequacy Standards  for financial leasing and factoring  companies  aim at  facing  the risk  of  granting credit to a limited number of individuals and ensuring diversification in financing productive and service sectors
  •   Dr.Omran: a period of two to three years to meet the requirements of applying capital adequacy standards for financial leasing and factoring companies

Within the framework of FRA’s regulatory role to ensure the safety and stability of non-banking financial markets and enhance the efficiency of their transactions, FRA’s BOD approved the issuance of capital adequacy standards for financial leasing and factoring companies. The said standards will enhance the ability of companies to provide financing through credit risk management and facing operational risk management according to the best international practices of credit risk measurement methods.

Dr. Mohammed Omran, FRA’s Chairman explained that capital adequacy of financial leasing and factoring companies is considered as the main pillar of the safety of its financial position and helps in increasing levels of confidence in these companies and its ability to perform its role. He added that the adequacy of the company’s financial resources to meet its obligations in due dates is the backbone of this financing activity.

Dr. Omran noted that the issuance of Capital Adequacy Standards aimed at maintaining the ability and capabilities of financial leasing and factoring companies to practice their activities efficiently. He added that the issuance of these standards also aimed at achieving the objectives Financial Leasing and Factoring Law, primarily providing financing for productive and service projects, especially for small and medium enterprises.
FRA’s Chairman said that the standards were approved by the Board of Directors at its last meeting by the end of 2018. He stated that the standards determine the minimum capital adequacy to measure the ability of financial leasing and factoring companies to hedge the risks associated with granting credit and operation. The standards define a minimum limit to be available in the capital base of financial leasing companies. This includes paid-up capital, other property rights, supporting loans provided by shareholders which are attributed to the assets of financial leasing company besides, weighting the value of these assets according to the risk of granting or using them and a margin to cover operational risk.

FRA’s BOD also considered it important to provide adequate financing for financial leasing and factoring companies, which allowed the company to obtain loans equivalent to (9) times the capital base of these companies.

Dr. Omran added that with the aim of broadening the base of clients dealing with financial leasing and Factoring activities, the standards addressed the risks of investing in corporate funds by granting financing to a limited number of individuals. The standards set a maximum limit for each client compared to the financing portfolio granted by the companies. The expansion of clients’ base was not limited to individuals, but extended to the concern of the multiplicity of production and service sectors financed by the companies by setting a ceiling for financing granted to a certain sector.

FRA’s  Chairman clarified that in the framework of ensuring the fact that  the financial statements of financial leasing and factoring  companies are reflecting  their financial positions fairly, capital adequacy standards set the minimum amount of the company’s revenues to be deducted as allocations  to meet loan repayment delays pursuant  to the duration of delay. In addition, the said standards specified the conditions that must be met for loan execution and exclusion, these loans that are difficult to be  collected from the corporate loans portfolio. On the other hand, the standards stressed that the maturity of loans obtained by the company shall not exceed the maturity of loans obtained by the client. In addition, FRA’s BOD includes a liquidity standard that is required to meet the Company’s outstanding obligations.

Dr. Omran stressed that in order to provide sufficient adequacy  for financial leasing and factoring companies and maintain a proper application of capital adequacy standards, FRA’s BOD decided to allow a period not exceeding three years to meet implementation requirements starting from the date of decision’s issuance.
 

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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