The Central Bank Amends Its Initiat

The Central Bank of Egypt (“CBE”) issued a recent circular through which it amended its initiative in support of non-performing companies (the “Initiative”) that it launched last month. The amendment extends the Initiative six more months till the end of the current year, allowing for in-kind payments of debts and setting a timeframe such that customers must pay at least 20% of their outstanding debts before July of this year while the remaining of the 50% of their debts are to be paid before the end of the year if they are to enjoy the Initiative’s benefits.

Background

On 12 December 2019, CBE launched its Initiative in support of 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, regardless of whether judicial procedures have been initiated against them or not.[1] As per the Initiative, if the customer pays at least 50% of the outstanding debt before the end of the Initiative’s period (which was set on 30 June 2020), and as per the agreement reached between the customer and the lending  bank, the customer’s name shall be removed from the negative list held by the CBE and the Egyptian Company for Credit Rating (I-Score) in addition to the removal of any restrictions concerning the debt and the freeing of the guarantees attached to it. In addition, all court cases against the customer would be dropped.

CBE’s Amendments to the Initiative

Subsequently, on 8 January 2020, CBE issued a circular amending the Initiative such that it is now valid until 31 December 2020 and that in-kind payments are accounted for.[2] In other words, 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 enjoy the benefits of the Initiative as mentioned above. Although the Initiative’s benefits remain the same, the amending circular clarifies that the dropping of all court cases in specific is to occur as soon as an agreement is reached between the customer and the lending bank on the payment terms. In addition, CBE sets in the circular a timeframe for the payment of the 50% threshold to qualify for the benefits of the Initiative: At least 20% of the debts must be paid before 30 June 2020 while the remainder is to be made before the end of December 2020. CBE also reiterates in its circular that banks must avoid resorting to courts unless fraud by customers has been proven. Banks must also conduct credit studies before granting loans and they must avoid excessively obtaining personal guarantees from customers; instead, payments of debts must be mainly through each project’s revenues. Finally, CBE also instructs banks to avoid relying on checks as collateral and to instead obtain promissory notes.   [1] CBE Circular dated 12 December 2019 on the non-performing loan initiative for companies (ORR 9 & 10), available through this link (in Arabic). [2] CBE Circular dated 8 January 2020 amending the non-performing loan initiative for companies (ORR 9 & 10), available through this link (in Arabic).