CBE calls on banks to reconsider limits of credit they grant clients

Hossam Mounir
4 Min Read

The Central Bank of Egypt (CBE) called banks to reconsider the limits they have on credit facilities granted to companies to finance importations and working capital, so as to match the difference in the exchange rate since the pound’s flotation on 3 November 2016.

Last Thursday, the CBE issued regulations to banks on covering debts owed by companies resulting from the exchange rate difference, through which the CBE granted $420m to cover the debts of companies that owe less than $5m with sales of EGP 500m at most.

As for the companies that are not interested in benefitting from the initiative or do not meet the criteria, the CBE said that they will be granted an interest rate on their monetary coverage in local currency by the same overnight deposits—1%, which is now equivalent to 13.75%—adding that an interest will be applied on the credit owed by them in hard cash equivalent to the price of USD-denominated treasury bills in the latest issue at 3.62% per year.On 20 February 2017, the CBE met with the chairpersons of banks and representatives of investors to discuss temporary facilities granted by banks for some customers in foreign exchange, as well as the impact of the liberalisation of the exchange rate on the debts of these customers.

Following the meeting, the CBE conducted an inventory of the size of the debts these companies owed all banks. Through the inventory, the CBE concluded that most companies possess annual sales or business sizes below EGP 500m and require facilities of $5m at most.

A senior banker said that banks covered these facilities on 28 February 2017, in accordance with the parameters that have been agreed upon with the CBE.

The regulations posed by the CBE included allowing banks to not list any of the companies that received temporary facilities in foreign currency, including the troubled companies, and granting them a grace period to adjust, except if clients show no serous intention of paying.

According to the CBE, the companies that require at most $5m of annual sales or a business size of EGP 500m will be decided according to the latest account balance statements issued by its regulation and supervision department on 22 February 2017.

It explained that if one company deals with several banks, the CBE will instruct these banks to coordinate under the supervision of the bank that is owed the most by the company.

Moreover, each bank will conduct a credit study for each client individually to restructure their debts. The CBE noted that covering the gap in the monetary coverage for clients wishing to cover their temporary facilities through the initiative, which boosts the covering to temporary facilities ratio to 100% on the basis of the exchange rate on the day of implementation, will be done through banks giving their clients loans in Egyptian pounds based on each client’s study.

Furthermore, the CBE stated that a specific interest on facilities granted in local currency—during the first two years from the date of granting the new facility—will be set to a maximum of 12% without posing a fee on the interest.

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