Amer starts second term in CBE by launching three initiatives to support industry, medium income housing

Hossam Mounir
12 Min Read

Tarek Amer, governor of the Central Bank of Egypt (CBE), started his second term by launching three initiatives in coordination with the government to support industry and medium income housing.

Last Wednesday he held a press conference with Prime Minister Moustafa Madbouly to announce the details of the three initiatives.

Madbouly said that they are related to industry and that these directives come straight from the president in order to support the sector as a locomotive of growth.

He pointed out that the industry funding initiative aims to fund already existing industries that want to expand, by providing them with EGP 100bn and 10% declining interest.

He noted that the funding will cover all existing industries, giving priority to industries that currently require high importation for production requirements.

He explained that a large number of factories has the ability to expand but lacks the funds to buy new machines and workers, stressing that the initiative was discussed and a lesser interest was chosen.

According to Madbouly, the second initiative is about dealing with troubled factories that have hauled operation. He explained that it includes a programme to remove lots of burdens and allow owners to restart operation.

He added that the third initiative is related to the real estate sector for medium income families. Noting that the state gave great attention over the past period to social housing and people living in slums.

He explained that this is where the idea of the programme came from, with a support value of EGP 50bn as these units are provided with a small interest rate that encourages medium income families.

For his part, Amer said that the government discussed over the past few months ways to stimulate job growth, increase exports, and produce local goods as alternatives for imported goods.

He added that CBE decided to allocate EGP 100bn so banks may provide credit facilitations to medium and large indsutrial projects whose sales reach a maximum of EGP 1bn, allocated to funding investment goods or funding operating capital with a declining 10% interest rate, depending on the needs, with priority given to alterative industries or export industries.

Amer explained that the new initiative would cover 96,000 industrial establishments, describing it as a big step in which the Ministry of Finance and the CBE bear a great sacrifice, as they will cover the cost difference between the current interest rate on loans and the new announced interest rate for the beneficiaries of the initiative.

The Governor of the Central Bank indicated that this initiative comes four years after the launch of the initiative to finance small projects with a value of EGP 200bn, at 5% interest, and that this initiative achieved good results, as it provided credit facilities to 86,000 small projects.

According to Amer, the total loans granted to the industrial sector in Egypt amount to EGP 432bn for 182,000 industrial establishments, and that the new initiative will be a big boost for the industrial sector. He urged all Egyptian banks to join this initiative, saying, “We will not be satisfied until we are assured that the industrial sector in Egypt is making huge steps forward.”

He also discussed the initiative to exempt distressed factories from accumulated interest, which included 5,184 factories and have issues with banks, saying, “We have been reviewing the problem of troubled factories over a period of six months, and we will direct banks to exempt these factories from accumulated interest.”

He said that the size of these interests over the past years amounted to EGP 31bn.

He pointed out that the government’s initiative to exempt troubled factories from the accumulated benefits gives new opportunities for these institutions to start again.

“We decided to remove these companies from the negative lists of the CBE, provided that they pay 50% of the principal’s value, and therefore these companies and factories will be able to return to dealing with the banking system again based on their suitability, study, and the viability of their projects, without any backgrounds that hinder them from working,” according to Amer.

He pointed out that the original debt for all troubled companies is EGP 6bn.

He also discussed the mortgage finance initiative for medium housing, as EGP 50bn were allocated to it initially, at a rate of 10%, and the installment is one 20 years.

In this regard, Amer pointed out that the volume of mortgage financing on the budgets of Egyptian banks is very small, and therefore there is a great scope for increasing real estate financing over the budgets of Egyptian banks, and this initiative will contribute to the growth of the real estate market, which is one of the more important sectors, and will work to reduce its burdens through a longer period of repayment.

Amer stressed that the banking sector is in a very good place, enabling it to provide any funding required for the planned development, and that these initiatives will be a good start.

He added that the three initiatives will be implemented by state-owned banks and joint ones where the state has stakes, and he urged foreign banks to review with their main centres outside Egypt to join the initiative.

For his part, Mohamed Abdel-Aal, a member of the Suez Canal Bank Board of Directors, said that these three initiatives launched by the CBE in cooperation with the government, are a continuation of the previous presidential initiatives, which were adopted by the CBE, within the framework of the economic reform programme.

He added that the form in which these initiatives were launched reflected the existing and real coordination between the government, as one entity and a funding body for these initiatives.

According to Abdel-Aal, there is a close relationship between the launch of these initiatives and the success of the monetary policy reform programme, explaining that had it not been for the success of monetary policy to contain inflation and thus reduce interest, initiatives would not be launched with low interest rates.

He pointed out that those initiatives, just as they will benefit the sectors they target, such as, will also benefit the banks.

He explained that directing bank money to finance the industrial sector or mortgage financing is a better alternative for investing in government debt instruments, as this improves the ability of the banking system to exploit the liquidity available, which in turn leads to an improvement in the ratio of loans to relatively low deposits.

Abdel-Aal pointed out that the three initiatives are integrated in their impact, and unite to achieve added value, which is to create jobs, reduce unemployment rates, and increase growth rates to the targeted rates of 6.4% during the coming period.

He pointed out that for the second time, the government and the CBE aim to dismiss troubled factories and restart their operation as well as solve their problems with banks away from lawsuits and courts.

With regard to the mortgage financing initiative for middle income individuals for which EGP 50bn were allocated, Abdel-Aal said that this initiative aims to encourage medium housing, after the state’s success in achieving good growth rates in distinguished and above-average housing.

He added that this initiative will encourage young people to own their own housing units. It will also activate the movement of real estate developers, especially medium-sized companies, as it will lead to a decrease in real estate prices that are currently exaggerated.

According to Abdel-Aal, the Industry Financing Initiative, for which EGP 100bn was allocated, targets industries that produce alternative goods for the goods we import, which will help to provide foreign exchange, and thus improve the balance of payments, and will also increase production and increase job opportunities, as well as increase economic growth.

For its part, Beltone investment bank assured that these initiatives will would be positively reflected on supporting the recovery of industrial investments and the role of the private sector in the economy as well as supporting the Egyptian Stock Exchange (EGX) as well as easing pressures on the pound.

The bank said in a report that these initiatives confirm support ing the recovery of investments in the industrial sector and the private sector, and represents the last stop for the Egyptian economic reform programme, indicating that the decision, along with the policy of reducing interest rates and reducing the price of natural gas to factories, would provide a breather for the industrial sector, and open ed the way for the growth of factories that achieve revenues less than EGP 1bn per year.

It added that the initiatives would ill also support the recovery of capital spending by the end of 2020, which is another positive indicator, which reflects the growth of investments led by the private sector, which leads to expectations of an improvement in the PMI by the second half of 2020, as well as reducing pressures on the local currency.

It explained that the initiatives of the industrial sector would ill reflect the strength of the local currency, indicating that the U.S. dollar may move in a narrow price range against the Egyptian currency between EGP 16 and EGP 15.90, while drawing an expectation of an improvement in the banks’ business volume, the improvement in the quality of the assets, and a neutral impact on the banks, while defaulting factories are exempt from paying the accumulated interest.

It emphasized the positive impact of the real estate financing initiative on the companies participating in the initiative, increasing competition in the interest rates offered and closing the financing gap in the secondary real estate market.

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