CBE restructures investing money in banks

Shrinking bank investment in investment funds, lowering maximum level of loans' amounts can be granted for one customer, directing them toward SMEs

The Central Bank of Egypt (CBE) issued a number of important decisions Monday to restructure money investment in banks and direct investments towards funding the small and medium enterprises (SMEs).
CBE launched a programme Sunday to fund 350,000 SMEs with a value of EGP 200bn over the next four years.
Within this programme, CBE decided to lower the maximum level of loans the banks can grant to a single debtor from 20% of the bank's capital base to 15%. CBE also decided to lower the maximum capital granted to debtors and parties related to them from 25% of the bank's capital base to 20%.
According to Egyptian law, parties related to the customers are the parties controlled by them, such as a number of companies with different activities completely controlled and managed by this customer. CBE gave the banks three years to bring their positions in alignment with this new decision.
According to CBE, these new instruction attempt to accomplish a similar aim as the CBE's attempt to encourage banks to widen and diversify their customer base.
CBE said it found that the banks' credit portfolios are granted to a small number of large companies, which may expose the banking sector to undue risk while also depriving many smaller companies with investment funds.
The CBE's efforts aim to redistribute funds beyond the 50 customers and parties that currently hold over 50% of the total credit facilitations and over 50% of the capital base of the branches of foreign banks operating in Egypt. CBE gave one year to the banks to align their position with this decision.
In the same context, CBE decided to decrease the total amount banks invest in the money market funds they launch from 5% to 2.5% out of the banks' total pound deposits or 50-fold the maximum of the bank's contribution to the money market funds they launch, which is 2% of the funds' seed capitals, whichever is less.
CBE ordered the banks that exceeded these levels to stop subscriptions for the money market funds, for current and new customers, until applying these instructions.
As for the programme CBE launched to support the small and medium projects, it ordered banks to increase the loans portfolio and direct and indirect credit facilitations to SMEs. This would make them not less than 20% of the total credit facilitations of every bank over four years, starting from the date the instructions were issued.
CBE demanded banks Monday to give concern to the important economic sectors, especially the companies and industrial entities and the companies that produce intermediate components or alternative products to the imported ones.
It called on banks to take into consideration the geographical and sectorial distribution of these companies and entities to reach the largest possible number of them throughout the governorates.
It also ordered banks to establish administrative units specialised in offering funds and banking services to SMEs.
CBE mentioned the importance of the Egyptian Banking Institute's roles, bodies affiliated to Ministry of Trade and Industry, and the Arab Organisation for Industrialisation in making a programme to qualify those responsible for SMEs. This would make them able to manage their projects successfully as well as deal with the banks.