The Central Bank of Egypt (CBE) will allow local banks to extend the period after which retail loans are classified as non-performing loans to 90 days versus the previous grace period of 30 days. The resolve came shortly after the CBE asked lenders on April 14 to allow retail borrowers to postpone installments on loans while exempting them from overdue payments on their non-performing loan provisions. Banks were also given permission to defer payments from all retail customers for January, February and March 2011 as long as no additional interest for those three months was added and delays did not go against the borrower's credit history. Some experts say the resolutions came just in time. “Today's circumstances are abnormal, the revolution took its toll over the past three months and will still be affecting some sectors of the economy throughout April,” said Essam El-Mallakh, chairman of banking think tank Lafferty Egypt. By giving retail borrowers some leeway before they could even request it, El-Mallakh said the CBE's decision is positive and will help banks as well as their clients throughout this shaky period in the country's economy. “Some people, like those working in tourism for example or factory workers have lost their jobs, consequently, these people's income will be affected so we can't put the blame on them completely,” he said. “It would be suffocating to give them bad credit history over something that is out of their hands.” Banks were closed for much of the 18-day uprising that toppled Egyptian president Hosni Mubarak, and the economy came to a standstill. After reopening for a few days, banks closed again unexpectedly due to workers' strikes. Operations have resumed in the past weeks but businesses are still struggling to keep their balance sheets in check, and loan repayments are usually the first sign of trouble. Despite the recent events, however, some bankers say that loan provisions were not negatively impacted as many had expected. “We were prepared for it, there was a low percentage of people who weren't able to pay back their loans right away,” said a head banker at Al-Ahly Bank who spoke on condition of anonymity. “But, it was actually below our expectations because there weren't that many layoffs.” Since banks usually lend to salaried staff from decent sizable companies or organizations, retail loans weren't affected at Al-Ahly or most banks, because most of these companies were stable enough to withstand the events of the revolution, he added. “Retail loan performance is ranging between 60-80 percent, which is very reasonable,” he said. “On average, we are seeing 70 percent productivity, which is good taking into consideration the country's events.” He also believes that since the resolution is coming from the central bank itself, it will benefit the local banks as well their clients. “Banks will still take interest, and as for reporting, the bank won't report the loans as non-performing,” he said. “It's just giving an extra chance for people to pay off and it won't impact the reserves of the bank because when your bank loans increase, you increase your reserves.” The CBE has also asked local banks to conduct stress tests on their loan portfolios. Banks usually run stress tests in order to see how they will perform through certain periods, such as during the economic crises for example, or in Egypt's case, the recent political turmoil. Al Ahly's head banker points out that this is a rather healthy move that should take place periodically in order to give banks insight on their capabilities. “Capital adequacy for banks in Egypt is good, this stress test will give us feedback that will strengthen bank portfolios,” he said. “In this case, the central bank wants to show their confidence in Egypt's banks during this period.”
