CBE grants ABE deposit of EGP 4bn for 10 years

The Egyptian Agricultural Bank's losses fell from EGP 1.084bn at the end of June 2016 to EGP 70m the next year

The Central Bank of Egypt (CBE) allocated the Agricultural Bank of Egypt (ABE) a EGP 4bn deposit to be repaid interest-free in ten years, according to Elsayed Elkosayer, Chairman of the ABE.
In a statement, Elkosayer told Daily News Egypt that the CBE deposit comes within the framework of its keenness to help the ABE cover the funding gap it is currently suffering from, and help it play its role in serving Egyptian farmers.
The CBE had previously granted the ABE a ten-year bond worth EGP 2.5bn, to be repaid without interest, until the bank's further needs were fully evaluated.
According to Elkosayer, a specialised office is expected to prepare a diagnostic study of the bank within two months, and determine the funding gap needed to complete the restructuring to reposition the bank towards financial independence.
He added that the bank had suffered large losses in recent years, amounting to about EGP 6bn, and the erosion of its capital in full, which requires considerable support to be restructured and put on track again.
"The ABE seeks to obtain the appropriate funding, from the World Bank or the CBE, in addition to getting its dues from the Ministry of Finance (MOF), which amounts to about EGP 4bn, in order to correct its situation and reduce its losses, to generate revenues that enable it to spend on the development process and play its role in the service of the Egyptian farmer to the fullest," Elkosayer said.
He explained that the restructuring plan also includes the development of the technological infrastructure of the bank, which may cost more than EGP 1bn, and is expected to take about 3 years. The ABE aims to provide the best modern banking services, including the expansion of its electronic service system to serve its customers, who are farmers and their children, particularly when it comes to payments and remittances, and the deployment of an ATM network and POS terminals.
The ABE owns 1,210 branches and banking units throughout the republic, including 20 Islamic branches, which the bank seeks to increase to 30 branches.
The technological development of the bank differs from the restructuring plan, and the latter's cost is much higher, leading the bank to seek funding from international financing institutions, including the World Bank.
Negotiations are ongoing to complete a previously-discussed USD 500m grant for the restructuring, and are being led by Tarek Amer, governor of the CBE and Sahar Nasr, the minister of investment and international cooperation, Elkosayer said.
The World Bank indicated that to provide such support, certain conditions must be met. The Agricultural Bank should have its own law issued, and it should be merged into the Central Bank, becoming an entity within it. Such a request has already been submitted to the CBE.
Concerning the bank's debts with the MOF, which amounts to about EGP 4bn, Elkosayer said that there is full coordination with that ministry, in cooperation with the Central Bank and the prime minister to reach solutions in this matter in the near future.
He pointed out that there was a recent negotiating session at the CBE under the patronage of Lubna Hilal, deputy governor of that institution, and was attended by the vice minister of finance, during which the matter was reviewed.
Elkosayer said he had earlier held talks with Prime Minister Sherif Ismail to discuss the possibility of converting the MOF's debt into investments in treasury bills and bonds, if not given in cash.
This debt was created as a result of the state's support for farmers, whether through previous initiatives to eliminate farmers' debts, or to support the result of the difference between the low interest earned by the farmer and the real market interest.
Elkosayer stressed that the executive management of his bank is exerting its utmost effort to complete the restructuring plan, which began with the approval of the new bank law, and the conclusion of the merger process with the Upper Egypt and Lower Egypt banks.
According to Elkosayer, coordination with the CBE is currently underway to finalise the bank's main system and the merger with the Upper Egypt and Lower Egypt banks before the end of this year, expected to be completed after the Central Bank approves the ABE's new board of directors.
Previously, there were the Development and Agricultural Credit Banks for Upper and for Lower Egypt, and the Principal Bank for Development and Agricultural Credit (PBDAC), which supervised the two banks from its headquarters in Cairo.
"The restructuring plan of the ABE includes modifying the organisational structure of the bank, separating the support and business sectors, as well as injecting the bank with some external expertise to enable it to perform its role correctly," according to Elkosayer.
He added that this plan is in tandem with supporting the capital base of the bank, establishing basic infrastructure and technology to help it launch, and training its employees on the new services it will provide.
According to Elkosayer, the bank is also keen on retrieving its dues from customers defaulting, indicating the bank's management is seriously examining bad debt files, and branches have been granted more authorisation to address such issues quickly.
He further pointed out that the bank successfully dealt with about 18,000 such cases, amounting to EGP 1bn, thus reducing the volume of the bank's troubled debt from EGP 4bn, representing about 20% of the its loan portfolio, to about EGP 3bn billion pounds, 15% of the portfolio.
Elkosayer said that the bank aims to reduce the size of bad debts to 10% of the total loan portfolio in 2018, and then eventually to 7%.
Debtors owing less than EGP 10,000 represent about 60% of the total number of defaulters in the ABE.
"The volume of losses achieved by the bank fell from EGP 1.084bn at the end of June 2016 to only EGP 70m by the end of June 2017. The bank is expected to begin making profits in 2018," Elkosayer said.