CAIRO — The Central Bank of Egypt (CBE) has launched an initiative to help some struggling companies and individuals repay their loans and regain their credit standing, which in turn will help banks resolve nonperforming loans.
The initiative covers companies whose nonperforming loans don't exceed 10 million pounds (around $558,500), as well as individuals' loans, excluding credit card balances. Participating customers who repay 100% of their loan principal by the end of this year will be exempted from all accrued and unpaid interest — an amount totaling 16.8 billion Egyptian pounds ($938 million as of July 10).
According to a June 27 CBE statement, more than 3,500 companies and individuals will benefit from the initiative through eight banks: the National Bank of Egypt, Banque Misr, Banque du Caire, the Export Development Bank of Egypt, the Egyptian Arab Land Bank, the Agricultural Bank of Egyptian, the United Bank of Egypt and the Industrial Development and Workers Bank of Egypt. CBE implemented the initiative June 27, targeting customers who are serious about settling their debts and can return to economic viability.
Medhat el-Sherif, undersecretary of the parliamentary Commission for Economic Affairs, told Al-Monitor by phone, “The CBE’s initiative will have a positive impact because of the large number of beneficiaries that it targets, especially [small- and medium-sized enterprises (SMEs)] with limited debts.”
Sherif said the measure will secure liquidity for banks by recovering amounts that otherwise would have been lost. This, he added, will enable banks to lend money to other customers, achieve gains through interest and help grease Egypt's economic wheels.
But Sherif expressed concerns about those customers who won't be able to settle their debts by the Dec. 31 deadline.
Cairo University economics professor Rashad Abdu told Al-Monitor the CBE initiative is convenient, especially considering that some customers have been affected by factors beyond their control. Chief among these reasons is the government’s decision to float the Egyptian currency in November 2016. That decision was part of an agreement with the International Monetary Fund to lend Egypt $12 billion over three years. The deal also called for increasing the value-added tax from 10% to 13%.
Abdu also noted concern for customers who are no longer able to repay the loan principal. There might have been better alternatives for them, he said. The CBE could have offered troubled but economically viable customers soft loans — loans with favorable conditions such as low or no interest rates. This, he said, would have allowed companies to operate again, buy raw materials and bring their products to market.
Abdu also said the CBE could have gone into partnership with some troubled customers by assuming shares of their businesses, allowing customers to salvage their companies or projects, and repay their debt.
United Bank of Egypt Chairman Ashraf al-Qadi said in a July 3 statement published by Alwafd newspaper that the initiative has great significance for the banks involved, as it will reduce the funds they must earmark for nonperforming loans. This, he added, increases the banks’ abilities to channel such funds to SMEs and sustainable development plans that benefit the Egyptian state.
Ehab al-Dessouki, head of the economics department at Sadat Academy for Management Sciences, praised the initiative as a step that will help strengthen the economy and help companies that have faltered recently due to factors beyond their control, such as floating the currency.
“It's necessary to examine debts on a case-by-case basis to have them rescheduled based on a well-thought-out strategy that respects the deadline set by the initiative,” Dessouki added.
The initiative stipulates that banks and customers must renounce litigation. It also says banks shall completely remove participating borrowers' names from the credit watchlists of the CBE and the Egyptian Credit Bureau.
Parliament member Khaled Mashhour said in a June 28 press statement that the success of the initiative will depend in part on selecting participants by considering why they failed to repay their debts. Companies should be selected based on the importance of their roles in supporting the Egyptian economy. After all, the CBE’s burden should not increase for no reason, he said.
Sahar al-Damati, former vice president of Banque Misr, said in a June 28 statement that the initiative is one of the best put forward by the CBE. This step, she noted, halts interest accrual, which often greatly exceeds the loan principal. Most of the companies benefitting from the initiative are SMEs, Damati added, which shows the CBE is breathing new life into this sector.