Palestine Monetary Authority (PMA) Issued Instructions of Counter Cyclicality Reserves

The PMA has issued instructions to all banks operating in Palestine to configure a reserve to counter-cyclical (Counter Cyclicality Reserves). Dr. Jihad Al-Wazir Governor of the PMA, added that the issuance of these instructions come in the context of the continuing efforts of the PMA in order to promote capital formation of the banks and add to the safety and stability of the banking system in Palestine, to increase the ability of banks to cope with various risks facing the banking sector in light of the increased geopolitical risks and to mitigate significant increase in the credit portfolio, which grew in 2010 by 29.2% compared with the year 2008.

These instructions included asking banks to establish a new reserve called Counter Cyclicality Reserves, through allocation of 15% of the bank's net profits annually with effect from Dec. 31, 2010 until the balance of this reserve become equal to 20% of the paid-up capital.

These instructions also required to include this reserve in the Tier one capital, and to be disclosed in the disclosed reserves, banks shall not use this reserve in any way without obtaining the prior approval of the PMA.