CBE Revisits Its Tourism-Related In

The Central Bank of Egypt (“CBE”) recently published three circulars targeting the bolstering of the tourism sector in Egypt given its integral role in the national economy. Collectively, the circulars allow the deferral of tourism-related debts and loan premiums under the umbrella of two CBE initiatives that are now valid until 31 December 2020. They also increase the allocated funds for the renovation of tourism facilities and transportation fleets to EGP 50 billion and they launch the CBE initiative supporting non-performing tourism companies provided they have debts of EGP 10 million or more and pay at least 50% of their debts before 31 December 2020. These changes went into effect as of 8 January 2020.

Background

Since the late 2015, CBE launched several important initiatives addressing the tourism sector, which has especially slumped since 2011. These included:

1. The CBE Tourism Support Initiative

The CBE’s initiative to support the tourism sector was originally launched in March 2013 and then revamped in February 2016 as a result of a series of meetings between CBE and representatives of the tourism industry. It essentially allows for the deferral of debts owed by companies working in the tourism sector to banks for three years and as such is applicable to any requests of deferral for tourism-related debts within the initiative’s operations. The deferral applies to long- and short-term loans and overdrafts. As per its amendment in 2016, the Tourism Support Initiative was valid until February 2017. However, the initiative has been extended several times since its launch, the last of which was until the end of December 2019.

2. The CBE Tourism Employees Initiative

This is a similar initiative that was launched in December 2015 to support employees in the tourism sector, allowing them to defer payments related to personal loans and mortgages for six months, starting October 2015, without any penalty interest. This only applies to clients who had performed on their obligations up to 30 September 2015 and who worked in a specified list that includes hotels, tourism projects, travel agencies, tour agencies, and restaurants in tourist areas. As with the Tourism Support Initiative, the Tourism Employees Initiative was renewed several times since it was launched, the last of which was until the end of 2019.

3. The CBE Tourism-Related Renovations Initiative

In February 2017 and following meetings with investors in the tourism industry, CBE launched yet another initiative but this time to provide financing to tourism companies for the renovation of tourism facilities, including hotels, and tourism transportation fleets. In particular, CBE allocated EGP 5 billion for such renovations to be made available to clients who had performed on their obligations up to 31 December 2016 at a simple diminishing interest rate of 10% and for a loan period of no more than 10 years. As per the initiative, banks are to only finance up to 75% of the total renovation costs. In addition, CBE specified that 75% of the total renovation costs must be through locally manufactured products and that the renovation must comply with the Ministry of Tourism’s criteria.

The New CBE Circulars

All dated 8 January 2020, the CBE circulars amend the abovementioned sector-specific initiatives in addition to launching a new initiative, as follows:

1. The CBE Tourism Support Initiative: Extension[1]

As per the new amendments, this initiative has now been extended for an additional year, until the end of December 2020. During this period, any requests for the deferral of tourism-related dues will be accepted for three years at most. The circular extending this initiative also reiterated that the Tourism Support Initiative’s provisions are meant to function as guidance for the banks, which are obliged to perform individual assessments for each application.

2. The CBE Tourism Employees Initiative: Extension[2]

The grace period on loan payments due from tourism employees has also been extended, as the Tourism Employees Initiative is now running until the end of December 2020. Accordingly, banks may defer payments related to personal loans and mortgages for six additional months from the due dates without any penalty interests but only for clients who had performed on their obligations up to 30 September 2019. The CBE circular on the matter also allows deferring the loan payments for clients who had already benefited from this initiative since its launch in 2015.

3. The CBE Tourism-Related Renovations Initiative: Replacement[3]

In its circular on the matter, CBE announces the replacement of the previous Tourism-Related Renovations Initiative with a new one. While most of the provisions of the new initiative do not drastically differ from their predecessors, the main changes include a tenfold increase in the allocated funds from EGP 5 billion to EGP 50 billion, at a 10% diminishing interest rate, and an increase in the loan period from 10 to 15 years. In addition, the initiative can now apply to non-performing clients as well as performing ones, but it may not apply to blacklisted clients. Finally, the requirement of sourcing 75% of the renovation through local manufacturers has now been removed and the method for calculating the CBE’s compensation to banks for the interest rate margin has been changed.

4. The CBE Initiative in Support of Non-Performing Tourism Companies[4]

CBE also decided on extending the support to non-performing tourism companies by launching an initiative to support them, which is almost identical to its initiative to support non-performing companies that was launched on 12 December 2019. The latter initiative benefits corporations with non-performing loans (of credit categories 9 and 10) whose balance of debt on 30 September 2019 was less than EGP 10 million. As per the initiative, if the customer pays at least 50% of the outstanding debt before the end of the initiative’s period (i.e., before 30 June 2020), and as per the agreement between the customer and the lending bank, the customer’s name shall be removed from the negative list held by CBE and the Egyptian Company for Credit Rating (I-Score) in addition to the removal of any restrictions concerning the previous debt and the freeing of the guarantees attached to it. The initiative was then amended on 8 January 2020 such that it is valid until 31 December 2020 in addition to other amendments. As for the tourism sector in specific, CBE issued a circular launching a similar initiative that targets non-performing corporations operating in the tourism sector whose balance of debt is at least EGP 10 million. Accordingly, customers making payments (in cash or in kind if the latter is accepted by the bank) of at least 50% of their debts before 31 December 2020 shall be removed from the banned list in the CBE and the I-Score Company in addition to the other benefits of the initiative which are identical to those mentioned above, including the dropping of all court cases against them as soon as they agree with the banks on the payment terms.   [1] CBE Circular dated 8 January 2020 extending the tourism support initiative and the initiative of retail facilities for employees in the tourism sector until the end of 2020, available through this link (in Arabic). [2] CBE Circular dated 8 January 2020 extending the tourism support initiative and the initiative of Rfor employees in the tourism sector until the end of 2020, available through this link (in Arabic). [3] CBE Circular dated 8 January 2020 on the initiative to support the renovation of hotels, floating hotels and transportation fleets, available through this link (in Arabic). [4] CBE Circular dated 8 January 2020 on the non-performing loans initiative for companies working in tourism sector, available through this link (in Arabic).