On Site Supervision

The main objective of the Onsite department is to apply effective & efficient best practices supervision standards through implementing a highly qualified controls systems based on a risk approach, which aims the following:

  • Assess the financial condition of banks and the risks associated with current and planned activities.
  • Evaluate the integrity and effectiveness of risk management systems.
  • Ensure the soundness of the internal control systems and the compliance with the regulation of Corporate Governance issued by the CBE.
  • Communicate inspection findings and plans with banks’ management and directors in a clear and timely manner.
  • Seek commitments from bank's management to correct significant deficiencies in a timely manner.
  • Follow up with banks and verify that significant deficiencies have been corrected.

The supervision process is carried on the total number of banks working in Egypt counted (39 banks) as per an annual supervision plan, taking into consideration the bank's conditions, surrounding risks, and the compliance of the bank in taking corrective action plans in the time defined by Central bank of Egypt .

Types of Inspections:

There are three types of inspection missions: 
  • Comprehensive inspection: includes all banks' activities.
  • Quantitative inspection: includes areas with a highly risk issues.
  • Specific inspections: includes special missions to ensure that banks are complying with the regulations issued by the Central bank of Egypt.

Inspection Methodology

The banking supervision process depends on a control system that includes a mixture between the CAMELS rating system and the Risk Assessment. 

  • The risk assessment system:

This process assesses the quantitative and the qualitative risk inherited in banks such as " Credit Risk, Market risk, Operational and legal risk, Strategic risk ,Reputation risk , Liquidity risk and any other risks ....." in addition to assessing the bank's management system and its efficiency and the quality of risk management .

In order to prepare a risk matrix for each bank including a quantitative risk assessment, risk volume (high –medium or low), risk trend (Increase – steady – decrease) and the way of managing risk (strong – weak) besides the ability of the bank to follow up these risks accurately.

The CAMELS rating system:

This system relies on assessing bank's performance (strong- satisfactory - fair - marginal - unsatisfactory) through five elements as follows:

  • C stands for Capital Adequacy
  • A stands for Asset Quality
  • M stands for Management Quality
  • E stands for Earnings Quality
  • L stands for Liquidity and Funding
  • S stands for Sensitivity to Market risk

All the items above are validated through on-site inspections , modifications are made to CAMELS model prepared by the off-site department according to the results of the on-site inspection and the effectiveness of the internal control of the Bank and the existing and potential risks.

Inspection Phases

Phases of the inspection process are:

Pre-inspection Phase:

This phase is considered to be a highly important phase, in which the examination process covers all bank's data, for the purpose of:
  • A Comprehensive view of the bank.
  • Identifying the high-risk areas in bank.
  • Identifying the inspection scope and sample.
  • Identifying the inspection needs.

Execution of this phase is done through the coordination between the onsite department and all the other supervision and control sector departments.

On-Site phase:

This phase includes the examination of bank's activities, the internal control system, management information system, and bank's strategy evaluation and the risks resulting from it and the bank's capability to address and manage these risks.

Post Inspection phase:

This phase includes preparing final reports and executive summaries about the inspected banks, meeting with the Bank’s board of directors to discuss the report's final findings and setting the corrective action plan which will be followed up by the offsite department. Moreover, the Off-site department is provided with the CAMELS model after validating its components in accordance with the On-site inspections' results to be taken into consideration in determining the final assessment of the bank which is then presented to the top management of the Central Bank of Egypt