Central Bank Initiatives to Support

On 12 December 2019, the Central Bank of Egypt (“CBE”) announced two initiatives, the first to support industrial projects in view of their importance in achieving sustainable economic growth,[1] and the second to encourage projects with non-performing loans to reschedule their debts and come back to a productive.[2]

The Initiative to Support Industrial Production

This initiative avails 100 billion Egyptian Pounds to support Egypt’s industrial sector by offering funding at an annual declining rate of 10% in the form of new credit facilities to industrial companies that fulfil the following conditions:

• The company has to be performing on its previous debts;

• Its annual turnover must be between 50 million and 1 billion Egyptian pounds including that of its related parties;

• The new credit facilities must be used to finance working capital, machines, equipment, and new production lines with the aim of increasing the productive capacity;

• The new funding may not be used to repay previous credit;

• Priority should be given to companies active in fields of export, import substitution, or new and renewable energy;

• In case a company defaults on the repayment of the new credit facility it shall be removed from the initiative and will have its interest rate reviewed in accordance with its agreement with the lending bank.

The letter issued by CBE with respect to this initiative clarified that the banks that participate therein should be compensated every three months by CBE and that such compensation shall equal the difference between the discount rate +2% -10%, i.e. the discount rate minus 8%. The letter also stated the initiative shall come into effect from 12 December 2019.

The Initiative to Support Non-Performing Companies

As for the other initiative, it benefits companies and other personalities with non-performing loans, whether judicial procedures have been initiated against them or not, provided they fulfil the following conditions:

• The balance of the debt without interest on September 30, 2019 should not exceed 10 million Egyptian pounds;

• The customer must pay no less than 50% of the outstanding debt;

• An agreement must come in place between the customer and the lending bank determining the amount of outstanding debt that shall be forgiven by the bank according to the terms the accepted by the latter.

Once such agreement has been reached with the bank the defaulting customer shall have its name removed from the negative list held by CBE as well as the Egyptian Company for Credit Rating (I-Score), shall have any restriction concerning the previous debt removed, and the guarantees attached to it freed up. This initiative shall into force from the date of its announcement, 12 December 2019, until 30 June 2020.

Conclusion

There is no doubt that the two initiatives by CBE to support industrial production and defaulting projects come at a very good time in order to encourage economic activity and revive productive projects especially following the big decline in interest rates over the last year. It is, however, worth noting that from a legal point of view there is a big difference between the two initiatives with respect to their compulsory nature. Whereas the first initiative which supports industrial activity relies on CBE’s use of its own resources in order to cover the difference between the market interest-rate and the subsidized one, in the second initiative CBE can only encourage banks to negotiate and settle their outstanding debts with the clients while respecting the authority of each bank in determining the terms of settlement and the amount of debt to be forgiven, all of which is in accordance with the law and does not represent an intervention by CBE in the credit decisions of each bank according to its policies. Nevertheless, the success of the two initiatives will depend not only on credit available to industrial and defaulting projects or opportunity to reschedule, but also on improvements that must be made in the conditions and environment of investment in order for such projects to succeed and avoid the problems and obstacles which may have led to their default in the first place.   [1] CBE Circular dated 12 December 2019 on the private industrial sector initiative, available through this link (in Arabic). [2] CBE Circular dated 12 December 2019 on the non-performing loan initiative for companies, available through this link (in Arabic).