The Egyptian banking sector is trying to clean up its loan defaulter portfolios Earlier this week, the board of directors of Banque Misr approved terms for the settlement of unpaid loans with businessman Rami Lakah, one of the few remaining businessmen with whom banks are negotiating to put an end to a story that has claimed victims on all sides. Jamil Halim, Lakah's lawyer, who is in charge of the settlement with Banque Misr, stated that the bank's board approved the final version of the settlement of Lakah's debts. "A final settlement has been rewritten and is ready for signing within days," said Halim. According to the final settlement Lakah will pay LE165 million of a total of LE734 million in cash. The rest will be paid over the coming eight years. Lakah fled the country in 2001 to dodge an estimated LE1.2 billion in unpaid bank debts. The past two years have seen initiatives by Egyptian banking management to settle disputes with various heavy weight defaulters. Today, serious negotiations are in their final stages between banks and defaulters to settle and repay bad loans. Several high-profile cases have ended in trials and prison sentences for a number of businessmen as well as banks officials who authorised the loans. The cases have dragged on since the early 1990s. Negotiations often came to a dead end because of defaulters' refusal to pay additional sums borne from interest rates and administrative expenses and commissions. Lakah, who now lives in France, is one of the latest cases banks are trying to settle. Last week businessman Magdi Yacoub was released after spending several years in jail. Only days after his release, Yacoub met with Banque Misr's board of directors to confirm terms for the settlement of his outstanding loans. Yacoub will be repaying LE135 million upfront and an additional LE500 million in assets. Another LE200 million will be repaid over a seven-year period. Yacoub has also been quoted as saying that he is in the process of settling some LE125 million in debt to the Egyptian Arab Real Estate Bank and LE40 million to Al-Mohandes Bank, which was taken over by Banque Misr. Atef Fayez, legal advisor to Yacoub, lamented the fact that banks continue to accumulate interest rates, commissions and administrative costs, saying that such procedures are inconsistent with legal measures that should be taken by the banks. He pointed out that commissions and administrative expenses should only be charged if the account is open; once an account is closed because of the cessation of payments by a customer, such expenses should not be added on. But Hafez Ghandour, board member of the National Bank of Egypt, said that the calculation of added interest and commissions and administrative expenses are subject to strict rules and guidelines of the Egyptian Central Bank, to ensure balance between the interests of banks and customers alike. Ghandour noted that some defaulters do not provide proper documents during the negotiations process. He added that some submit papers to prove they defaulted on loans at an earlier date, to avoid paying further charges on loans. This only leads to prolonging the settlement process. A report issued in March by the Central Auditing Agency, evaluating the performance of the Central Bank along with public, commercial and specialised banks for the financial year ending 30 June 2007, revealed serious irregularities. The report showed that banks had often given loans exceeding 20 per cent of their capital. The report also said that some customers got loans and facilities before meeting the requirements of credit approval. Around 61 clients got LE93 billion in loans, without adequate safeguards. Furthermore, the report showed that the National Bank of Egypt, Banque Misr and Banque du Caire had between them some LE32 billion in bad loans. Meanwhile, specialised banks such as the Land Bank and the Industrial Development Bank had LE10.5 billion in bad loans. The report also showed that more than 15 Egyptian banks have expressed concern about 750,000 traders after they have ceased paying around LE2 billion in obligations to these banks. By Mohamed Ezz
