The economy took yet another beating this year as the list of loan defaulters continued to grow Click to view caption A handful of this year's Ramadan soap operas had one thing in common. They had at least one protagonist, a businessman, who had defaulted on bank loans because he was either corrupt or his business could not hold up against the economic slowdown any longer. The writers of the soaps had been quick to grasp the talk of the town and portray it in their work. Almost every day this year another businessman's name was added to the list of runaways or those whose property was being sequestrated for failing to pay back bank loans. It was not just a matter of their businesses coming to a standstill and the subsequent loss of jobs, but also the effect of the unrepaid loans on the banking sector in general. The size of these debts, to date, remains a big question mark. While experts have placed debt defaults at around 14 per cent of LE350 billion in total loans, the estimates of some business associations believe that defaults stand at 60 to 70 per cent of loans. In the meantime, Central Bank of Egypt (CBE) Governor Mahmoud Abul-Oyoun, is adamant in not giving an exact figure. He has also assured us, time and again, that defaults are not beyond the banking sector's capacity to absorb. Nonetheless, what really brought the issue to the surface was the initiative launched by Prime Minister Atef Ebeid this summer. This signaled that the troubles ran far deeper than at first thought. The initiative was intended to encourage loan defaulters, especially those who fled, to come forward and settle, by offering them a non- repayment grace period, reduced interest rates on debts, new credit lines to save their businesses from bankruptcy as well as a hold on any legal action to be taken against them. However, the initiative does not seem to have borne fruit. At the end of September, President Mubarak himself announced its end because the response of loan defaulters "came short of what was required". That left bank managers with the freedom to refer uncooperative defaulters to the Prosecutor- General. This has not solved the problem. The issue remains that big sums owed to banks may, ultimately, be unretrievable. Nonetheless, Abul-Oyoun, asserted that the banks had provisioned well and would not be affected. Since 1991, the banking system has begun applying international standards to issues of debt. These impose quantitative calculations when considering which debts are actually irregular. Accordingly, banks have to make loan-loss provisions; that is, money put aside from a bank's profits. As a result of this, loan-provisions stand at some LE36 billion today. Even for well performing loans, provisions of one per cent are made. However, in the long run, experts have complained that these provisions take away from the profits of shareholders. Nonetheless, despite the fact that the banks have covered their backs, the issue of defaulters has highlighted the Egyptian banking sector's problems. The CBE has toughened its supervision of Egyptian banks. According to Abul-Oyoun, it will soon be issuing a new set of regulations governing credit. Among the reasons blamed for the multiplying number of defaults was mismanagement by banks and a lack of supervision and follow-up on loans. The loan defaulters are just another symptom of the Egyptian economy's slow down. Experts have said that many of those who defaulted on their loans did not do so intentionally. When the markets came to a halt and sales dropped as a result of the slowdown, those businessmen could not continue to pay their dues. Moreover, even those who wanted to liquidate their assets to pay off their debts have failed for lack of buyers. By Niveen Wahish
