On 27 October 2022, the Central Bank of Egypt (the “CBE”) issued a circular (the “Circular”) (i) amending the CBE circular dated 7 June 2009 regulating FX Forwards transactions carried out by banks; and (ii) repealing the CBE circular dated 1 March 2007.
Below are the key highlights of the Circular:
Amendments to the CBE circular dated 9 June 2009
According to the Circular, banks are allowed to carry out FX Forwards and FX Swaps transactions for their corporate customers, provided that such transactions are carried out for the purpose of covering the customers’ financial positions resulting from any of the following commercial operations that are carried out by the same bank:
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- Letters of credit;
- Collection documents;
- Suppliers’ facilities;
- Repatriation of foreign shareholders’ profits with a determined date; and
- Proceeds of exporting goods and services that are received by the bank’s customers, provided that the bank obtains evidence that the transaction is for commercial purposes.
According to the Circular, banks are further allowed to undertake FX Forwards and FX Swaps transactions with local banks for non-speculative purposes.
Repealing CBE circular dated 1 March 2007
The CBE repealed the circular issued on 1 March 2007 prohibiting the undertaking of Non-Derivable Forward Exchange transactions for clients, whether banks, institutions or individuals. According to the Circular, banks are allowed to carry out non-deliverable forward exchange transactions (“NDFs”) for corporate clients only (not individuals), provided that the purpose is to cover clients’ positions resulting from any of the commercial transactions previously referred to in the first section and which are carried out through the same bank, taking into account that the permission to carry out such operations are for non-speculative purposes.
Said NDFs shall be carried out with local banks for non-speculative purposes. Settlement of these transactions must be in the local currency only.
The Circular further confirmed that banks are only allowed to provide financings in foreign currencies after ensuring that the client has sufficient sources for repayment in foreign currencies.
Market Reaction
This Circular comes after the CBE’s decision to move to a durably flexible exchange rate regime in order to solve the importation problem.
