الهيئة العامة للرقابة المالية

• By adhering to Basel III standards, non-banking finance companies (NBFCs) align with global practices and significantly enhance their financial stability. This framework is crucial for ensuring business sustainability and fulfilling obligations, as it empowers these institutions to effectively manage risks and withstand shocks.
• This new mandate introduces a trial implementation period, effective January 1, 2026. It is scheduled to fully replace all previous rules on this matter beginning January 1, 2027.
• The new standards are designed to strengthen the resilience of non-banking finance companies against credit, operational and market risks, thereby mitigating the negative impacts of future economic fluctuations and shocks.
• The standards were issued following extensive discussions with all relevant stakeholders, ensuring their implementation is met with broad understanding and support.

FRA Board of Directors, led by Chairman Dr. Mohamed Farid, has issued resolution No. 137 of 2025, introducing new financial solvency standards for non-banking finance companies (NBFCs). For the first time, these standards will be in line with Basel III standards. This move is a key part of FRA’s strategy to bolster the financial strength of these companies and enhance their ability to withstand risks and market disruptions. Ultimately, this supports FRA’s core mission of maintaining financial stability across non-banking markets and institutions.

The new standards are designed to improve the resilience of non-banking finance companies against credit, operational and market risks. By reducing the negative impact of economic volatility and shocks, the rules ensure that these companies have enough liquidity to meet their short and long-term obligations and cover potential losses. This will ultimately boost the safety and stability of the entire non-banking financial sector.

To ensure a smooth transition, FRA has mandated a trial period. Companies must begin a trial implementation of the new standards on January 1, 2026, submitting detailed quarterly reports to the Authority. The new standards will officially become effective and replace all previous rules on January 1, 2027.

The new resolution requires all non-banking finance companies to take the necessary steps to comply with and implement the new standards. This includes preparing a detailed action and staffing plan, as well as setting up the electronic systems needed to apply the new rules. Companies must notify the Authority as soon as these preparations are complete.

To achieve alignment with “Basel III” standards, the Authority has introduced a new set of financial solvency standards specifically for the microfinance sector. Furthermore, it has updated the existing standards for other key areas, including real estate financing, financial leasing, factoring, consumer finance and SMEs finance. A critical change introduced by this resolution is the addition of a risk buffer and a counter-cyclical buffer to the capital adequacy calculation. These new standards are designed to account for the impact of economic and business cycle fluctuations on these companies.

The Capital Adequacy Reporting standard is a financial solvency tool that measures company’s ability to handle the risks associated with its activities, particularly credit risks. The risk buffer is an extra layer of capital designed to act as an additional safety cushion, helping a company cover potential risks that are unexpected or larger than usual. This is a crucial element for dealing with exceptional events and sharp market fluctuations.

The counter-cyclical buffer (CCyB), on the other hand, is designed to ensure that the financial sector’s capital requirements consider the broader macroeconomic environment. Its main goal is to reduce significant swings in the amount of financing available in the sector, ensuring that financial institutions can continue to fund economic activities. By preventing excessive credit provision, it helps avoid a shortage of financing during economic crises, allowing the sector to continue its role and reducing the likelihood of widespread systemic risk.

Additionally, the resolution introduces significant amendments to several key areas of risk management. For operational risk, the new calculation now encompasses all items on the income statement, moving beyond a simple percentage of profits to better account for potential losses from internal failures, human error and unforeseen events. To bolster market risk and liquidity, the new capital adequacy standard explicitly includes market risk, and the Authority has both amended short-term liquidity ratios and introduced a new long-term liquidity indicator. This ensures companies can meet all their obligations by properly matching the maturities of their assets and liabilities.

The Authority has bolstered financial solvency standards by requiring the calculation of provisions for rescheduled balances and settlement portfolios. It also introduced amendments to address individual and sectoral concentration risks. Companies that exceed the stipulated concentration ratios will now have to calculate an additional capital requirement. This measure aims to safeguard financial solvency and prevent risks associated with overexposure to a single economic sector during periods of market fluctuation.

Furthermore, debt write-off provision has been significantly updated. Companies can now write off debts once a set of conditions is met, eliminating the previous 18-month waiting period. This new process requires a resolution from the board of directors and a memo from the credit department that details the debts and the reasons for the write-off. Additionally, the company must form a provision for the full value of the amount. A crucial part of the new policy is the requirement for a report from a registered auditor. This report must verify that the company’s accounts are in good order, the debt is tied to its core business, the corresponding amount was previously recorded in company’s accounts and the company has made serious but unsuccessful attempts to collect the debt. If a company later collects any portion of a written-off debt, it must be recorded as revenue in the year of collection. This amendment took effect upon its publication in the official newspaper, “Al-Waqaei Al-Masriya.”

FRA emphasizes that these new financial solvency standards are part of its comprehensive strategy to develop the non-banking finance market. The primary objective is to enhance the sector’s ability to achieve sustainable growth and withstand economic fluctuations. By introducing these standards, FRA aims to promote financial discipline and ensure the soundness of financial positions across the sector. This will contribute to a more robust and efficient finance sector, better equipped to support the national economy and stimulate investment.