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CBE Defers Tourism Debts

CBE Defers Tourism Debts
On 23 February 2016, the Central Bank of Egypt (“CBE”) announced that it will support the deferral of debts owed by companies working in the tourism sector for three years. The initiative is valid for one year, and is applicable to any requests of deferral for tourism-related debts. The decision to support the deferral of debts came as a result of a series of meetings between the CBE Bank and representatives of the tourism industry, in which the parties agreed on the necessity of establishing a special unit for restructuring debts and coordinating between banks and the tourism industry.[1] The CBE’s decision is an amendment to the March 2013 initiative it launched to support the tourism sector.
Background
On 13 March 2013, the CBE launched the “initiative to support tourism” (the “Initiative”) to contain the crisis that faced and is still facing the embattled tourism sector. The initiative focused specifically on supporting credit facilities provided to customers for the purpose of financing a number of tourism activities, namely hotels, travel agencies, ground transportation, and food and beverage activities in touristic areas. The initiative is directed at performing and non-performing customers, excluding debtors of restructured and disputed loans.[2] In addition to deferring debt payments, the initiative permitted the lowering of interest rates on tourism debts without requiring a minimum rate, noting that this should not cause debtors to be dealt with as settlement customers. The CBE had extended the application of the Tourism Initiative in December 2014[3] and again in December 2015.[4] The latest extension stretched the initiative to June 2016.
Latest Amendment - Deferring Debts
The CBE's latest amendment of the Initiative allows banks to defer all debt payments related to the tourism sector (specifically the above-mentioned activities) for a period of three years. The deferral applies to long and short-term loans and overdrafts. The amended Initiative also allows debtors to capitalize due interests on the principal of the loan, which means that debtors will be able to pay their interest at a later stage without being considered non-performing. It is to be noted that the phrasing of the latest amendment to the Initiative was permissive rather than obligatory. The amended initiative “allows” banks to defer all financial dues, in contrast to the original phrasing of the initiative, which held that financial dues “shall” be deferred. The CBE has not clarified the effect of this minor difference in the phrasing of the initiative. The amended Initiative also directs banks not to calculate interests on late payments for the three year duration during which debts will be deferred. The Initiative highlights two further points in relation to deferral of debts:
  • The amended Initiative provides protection to clients who had been regularly repaying loans up until 13 March 2013 (launch date of the original Initiative) and who wish to take advantage of the three-year debt deferral. The Initiative states that these clients shall not be classified as non-performing clients, a classification which may affect their credit rating and their ability to access other sources of finance.
  • The CBE will not require banks to set aside additional provisions for deferred debts. This means that banks will not have to set aside sums of money to cover potential losses from the non-performance of debts. While it did not oblige them to do that, the Central Bank allowed banks to set such provisions aside for more than three months within the three-year deferral period.
Notably, the original phrasing of the Initiative included a provision allowing banks to reclassify non-performing clients as performing clients retroactively up to January 2013. The latest amendment does not include this provision. The CBE’s amended Initiative applies for a period of one year, in which any application to defer debts for a period of up to three years will be accepted. The initiative also clarified that its provisions are meant to function as guidance for the banks, who are obliged to perform individual assessments for each application.
Conclusion
The amended Initiative is an important step in the effort to support the tourism sector in Egypt. The sector faced numerous difficulties over the last years, not least of which the crash of the Russian plane on 31 October 2015. The CBE is especially attentive to the needs of the tourism sector, which can be seen through its adoption and extension of this Initiative, in addition to the “initiative to support employees in the tourism sector” in December 2015. The latter Initiative allows employees in the tourism sector to defer payments related to personal loans and mortgages for six months starting October 2015. The employee initiative applied only to clients who had performed on their obligations up to September 2015. On another hand, the successive extensions of the Initiative show that the CBE is unable to revive the tourism sector on its own. The sector suffers from a myriad of other problems, some of which are structural and some are interlinked to deficiencies in other sectors.   [1] CBE Circular, dated 23 February 2016 amending the initiative to support tourism, available through this link. [2] CBE's initiative to support the tourism sector, dated 13 March 2013, available through this link. [3] CBE Circular, dated 25 December 2014 extending the initiative to support tourism until June 2015, available through this link [4] CBE Circular, dated 11 June 2015 extending the initiative to support tourism until June 2016, available through this link.
On 23 February 2016, the Central Bank of Egypt (“CBE”) announced that it will support the deferral of debts owed by companies working in the tourism sector for three years. The initiative is valid for one year, and is applicable to any requests of deferral for tourism-related debts. The decision to support the deferral of debts came as a result of a series of meetings between the CBE Bank and representatives of the tourism industry, in which the parties agreed on the necessity of establishing a special unit for restructuring debts and coordinating between banks and the tourism industry.[1] The CBE’s decision is an amendment to the March 2013 initiative it launched to support the tourism sector.
Background
On 13 March 2013, the CBE launched the “initiative to support tourism” (the “Initiative”) to contain the crisis that faced and is still facing the embattled tourism sector. The initiative focused specifically on supporting credit facilities provided to customers for the purpose of financing a number of tourism activities, namely hotels, travel agencies, ground transportation, and food and beverage activities in touristic areas. The initiative is directed at performing and non-performing customers, excluding debtors of restructured and disputed loans.[2] In addition to deferring debt payments, the initiative permitted the lowering of interest rates on tourism debts without requiring a minimum rate, noting that this should not cause debtors to be dealt with as settlement customers. The CBE had extended the application of the Tourism Initiative in December 2014[3] and again in December 2015.[4] The latest extension stretched the initiative to June 2016.
Latest Amendment - Deferring Debts
The CBE's latest amendment of the Initiative allows banks to defer all debt payments related to the tourism sector (specifically the above-mentioned activities) for a period of three years. The deferral applies to long and short-term loans and overdrafts. The amended Initiative also allows debtors to capitalize due interests on the principal of the loan, which means that debtors will be able to pay their interest at a later stage without being considered non-performing. It is to be noted that the phrasing of the latest amendment to the Initiative was permissive rather than obligatory. The amended initiative “allows” banks to defer all financial dues, in contrast to the original phrasing of the initiative, which held that financial dues “shall” be deferred. The CBE has not clarified the effect of this minor difference in the phrasing of the initiative. The amended Initiative also directs banks not to calculate interests on late payments for the three year duration during which debts will be deferred. The Initiative highlights two further points in relation to deferral of debts:
  • The amended Initiative provides protection to clients who had been regularly repaying loans up until 13 March 2013 (launch date of the original Initiative) and who wish to take advantage of the three-year debt deferral. The Initiative states that these clients shall not be classified as non-performing clients, a classification which may affect their credit rating and their ability to access other sources of finance.
  • The CBE will not require banks to set aside additional provisions for deferred debts. This means that banks will not have to set aside sums of money to cover potential losses from the non-performance of debts. While it did not oblige them to do that, the Central Bank allowed banks to set such provisions aside for more than three months within the three-year deferral period.
Notably, the original phrasing of the Initiative included a provision allowing banks to reclassify non-performing clients as performing clients retroactively up to January 2013. The latest amendment does not include this provision. The CBE’s amended Initiative applies for a period of one year, in which any application to defer debts for a period of up to three years will be accepted. The initiative also clarified that its provisions are meant to function as guidance for the banks, who are obliged to perform individual assessments for each application.
Conclusion
The amended Initiative is an important step in the effort to support the tourism sector in Egypt. The sector faced numerous difficulties over the last years, not least of which the crash of the Russian plane on 31 October 2015. The CBE is especially attentive to the needs of the tourism sector, which can be seen through its adoption and extension of this Initiative, in addition to the “initiative to support employees in the tourism sector” in December 2015. The latter Initiative allows employees in the tourism sector to defer payments related to personal loans and mortgages for six months starting October 2015. The employee initiative applied only to clients who had performed on their obligations up to September 2015. On another hand, the successive extensions of the Initiative show that the CBE is unable to revive the tourism sector on its own. The sector suffers from a myriad of other problems, some of which are structural and some are interlinked to deficiencies in other sectors.   [1] CBE Circular, dated 23 February 2016 amending the initiative to support tourism, available through this link. [2] CBE's initiative to support the tourism sector, dated 13 March 2013, available through this link. [3] CBE Circular, dated 25 December 2014 extending the initiative to support tourism until June 2015, available through this link [4] CBE Circular, dated 11 June 2015 extending the initiative to support tourism until June 2016, available through this link.