Small and medium enterprises (SMEs) acquired 13% of loans’ portfolio at Industrial Development and Workers Bank of Egypt (IDBE) by the end of 2015. The bank’s plan is to increase SMEs’ loans to 20% by the end of 2016, according to El-Sayed Mohamed El-Kosayer, chairman and executive managing director of the bank.
El-Kosayer said, during his interview with Daily News Egypt, that the banking system is fully capable of funding SMEs. He added that the initiative launched by the Central Bank of Egypt (CBE) to fund these kinds of projects is promising and must be taken seriously by all sectors across the country.
According to El-Kosayer, the gap of allocations at the bank was completely bridged in 2015, and the bank’s net profits registered EGP 126m after taxes.
What is your opinion regarding the initiative launched by the CBE recently to support SMEs, and how can it succeed?
Usually, initiatives do not have an impact until a high-profile person or group takes it on. The president’s initiative for funding small, medium and micro enterprises indicates his awareness of how vital these kinds of projects are for eliminating issues of both poverty and unemployment.
CBE Governor Tarek Amer quickly translated this initiative into strategies that could be implemented. He set a unified definition for these projects, and then supported them with small interest rates. Moreover, he obliged banks to grant a minimum of 20% of their loans’ portfolios to these projects, and then allocated EGP 200bn to them over four years.
Such initiatives are very important. Funding 350,000 SMEs creates jobs for a minimum 1.75 million people. Of course, this is assuming that only five people will work in each project; therefore, this number could increase significantly. All governmental bodies should support this initiative in order to guarantee its success. For example, the projects should to be granted tax exemptions for several years, in accordance with the circumstances of each project, and also supported technically. Furthermore, these projects show be allowed to easily obtain the necessary licences and approvals; the government must also establish and activate the single-window system as bureaucracy is slowing down progress.
Supporting these projects requires establishing offices in governorates, as well as qualifying the owners of these projects to deal with banks. It would be better to have representatives from the banks in these offices.
There is a special role for both the Ministries of Industry and of Investment to develop a clear map of the industrial projects located in each governorate.
Supporting these projects requires a legislative system guaranteeing a safe exit from the market. Consequently, the bankruptcy law should be issued quickly. Moreover, legislation should also be issued to protect investments from banks supporting any customers who default. It would be unreasonable to pump new liquidity for defaulting customers, while the Tax Authority is simultaneously seizing these customers’ money, for example, which would result in withholding the banks’ money.
Is the banking system capable of implementing this initiative?
The banking system is completely capable of supporting SMEs. There are banks with significant experience in this field, especially public banks. They have well-trained and qualified staff to handle these projects.
There are several banks that have developed and launched products to fund this sector through simple procedures. In addition, these banks expanded their geographical presence in order to reach these projects’ owners in remote areas.
There are other banks currently qualifying themselves to carry out this role, and preparing their infrastructure in order to move forward with funding these projects.
The CBE’s initiative included pumping EGP 200bn to fund SMEs over four years. Will the banks be able to provide this amount?
The EGP 200bn figure was not arbitrary; I am sure that this figure was decided through careful calculation and will be obtainable by the banks, as they have a lot of liquidity. The volume of their deposits amounts to almost EGP 2tn, while their loans’ volume amounts to approximately EGP 800m.
What is IDBE’s position regarding funding these projects?
IDBE is capable of funding these projects efficiently, especially as it has previous experience in this field.
What is the volume of the loans granted by IDBE to these projects?
The SMEs’ loans portfolio at the bank amounted to approximately EGP 750m by the end of last December, equal to approximately 13% of the bank’s loans portfolio. We aim to increase this to 20% of the bank’s total loans portfolio by the end of this year, to align with the CBE’s initiative.
What are the most prominent indicators of the bank’s performance until the end of 2015, and what is the target for 2016?
IDBE had very good results in 2015 and, most importantly, completely bridged the allocations gap, which gives the bank more flexibility in negotiating with customers who have defaulted on their loans.
The allocations’ volume amounted to EGP 175m when I took office in September 2011, while the defaulted debts amounted to approximately EGP 1.8bn. Now, the allocations’ volume has increased to about EGP 1.3bn, and the defaulted debts are down to about EGP 1bn.
The bank registered net profits of EGP 126m after taxes in 2015. This is the result of preparing the work atmosphere at the bank in terms of infrastructure, the work of risks departments, internal oversight, governance, and other departments that help in supporting the bank.
By the end of 2015, the loans portfolio at the bank amounted to EGP 4.75bn. We aim to increase this by 20% in 2016. Meanwhile, the deposits portfolio amounted to approximately EGP 2.25bn, while the target is to increase it by 25% this year.
What about the volume of the non-performing loans at the bank?
When I took office in September in 2011, the non-performing loans were over 50% of the bank’s loans portfolio. Now, they amount to approximately 30%, and we aim to lower this to 10% by the end of the year.
There was a problem with the Accountability State Authority with regards to approving the bank’s budgets in previous years. Has this been resolved?
Yes, we have already approved the bank’s budgets for2010 and 2011 last March. IDBE’s fiscal year comes to an end in December, not in June, like public commercial banks.
We will approve the budgets for 2012, 2013, and 2014 this month. 2015’s budget will be approved by the middle of this year at the latest.
How much is IDBE’s capital now, and is there a plan to increase it?
The bank’s capital now amounts to EGP 500m, and there is a plan to increase it in order to absorb the losses for which payments have been postponed since previous years, and to preserve enough liquidity to increase the capital base. This will help IDBE grant more loans.
We are coordinating with the CBE regarding this issue. CBE Governor Tarek Amer asserted that he will support the bank and help it to play a larger role in funding the industrial sector. This was established during a meeting he held with investors of 10th of Ramadan City some days ago.
IDBE seeks to fund and serve different economic activities in order to become a comprehensive bank. However, being a bank established to primarily serve the industrial sector, it grants this sector about 55% of IDBE’s loans’ portfolio.
Previously, the CBE agreed to put the bank on its list of certified experts in the field of evaluating machinery, equipment, and buildings.
It has been reported that IDBE seeks to change its present name and trademark. Is this true?
There is already coordination with the CBE regarding the possibility of changing the bank’s current name. This is in order to improve the brand image.
What about IDBE’s plans to expand to new locations?
Currently, the bank has 17 branches; a new branch will be opened in Helwan area during the first quarter of this year. We also seek to open a branch in Quesna Industrial City, in addition to continuing the establishment of our headquarters in New Cairo.
Additionally, we are looking into establishing three mini-branches. This is to support CBE’s initiative to spread banks all across the country, in order to achieve financial inclusion.
