The Financial Regulatory Authority (FRA) agreed to amend the financial solvency standards applied to mortgage finance companies, according to the authority’s Chairperson Mohamed Omran.
The amendment covers the issuance of a regulatory procedure to adjust mortgage finance activity.
It aims to be consistent with the amendments contained in the financial solvency standards for financial leasing and factoring activities, as well as the standards of financial solvency of consumer financing activity. This comes as a prelude to building a unified format that allows financing companies to combine more than one financing activity subject to the FRA’s supervision.
Omran said that a stress test should be conducted to measure the potential impact in the event of applying the amended solvency standards on mortgage finance companies.
At the end of July 2020, mortgage finance companies recorded a total value amounting to EGP 6.7bn, compared to EGP 5.6bn in July 2019.
The results showed that no mortgage finance companies were harmed by the application of the proposed criteria, with the exception of the provision for irregular balances.
Omran added that according to the dialogue conducted with representatives from real estate finance companies, the FRA agreed to establish allocations for irregular balances in real estate assets similar to financial leasing activity.
Three scenarios, including basic, medium and pessimistic, were designed to financing grants, namely for real estate, financial leasing and factoring. They aim to measure the risk factors for the impact of solvency and low financial liquidity rates.
The results of the scenarios revealed that the financial solvency of the financing companies was affected by the moderate level. At the same time, the results of the scenarios affected by liquidity rates and financial hardship were acceptable risks to some extent.