Egypt adopts new measures to reduce consumer loans and diversify banks' client base

Ahram Online , Tuesday 12 Jan 2016

CBE passed ordered stricter limits for banks on consumer loans, lending to a single client, and investing in money market funds

Tarek Amer
Tarek Amer chairman of National Bank of Egypt (Photo: AFP)

Egypt’s central bank (CBE) announced new measures to limit retail and consumer loans and to encourage banks to expand their client base, in an attempt to control credit risk and delinquency rates.

The new regulations stipulate that the total installments of a personal, car or a non-mortgage housing loan not exceed 35 percent of the client’s monthly net income, a move that aims to secure debt repayment, according to circulars were published on the bank’s website on Monday.

Consumer loans in Egypt have come to make up 50 to 60 percent of certain banks’ total lending portfolio, according to the Central Bank's statement.

One banker told Ahram Online that the current condition of the Egyptian economy, with fallen tourism revenue and Foreign Direct Investments compels the CBE to impose new limits on lenders to guarantee their financial stability.

“The CBE is the banking sector’s watchdog and the latest regulations represent its point of view, I hope it to be fruitful,” Ismail Hassan, Chairman and Managing Director of Misr Iran Development Bank told Ahram Online in a telephone interview on Tuesday.

Egypt’s Net International Reserves (NIR) stood at $16.445 billion by end of December.

The CBE also gave a 3-year grace period for banks to limit their loans to a single client to 15 percent of the bank's Tier One capital down from 20 percent previously. The move aims to expand the banks' client base and mitigate the risks of lending to a select few large clients. 

It also cut the total sum that banks can invest in money market funds to 2.5 percent of their total deposits in local currency from 5 percent previously, a move bankers say could reduce their holdings of Egypt's high-yielding government debt, Reuters reported.

The new regulations could help boost lending to small and medium-sized enterprises and eventually GDP growth, Senior Economist at Signet Institute Angus Blair said by phone. 

On Monday, the CBE required lenders nationwide to allocate 20 percent of their total loaning portfolio for SMEs over four years, with interest rates below 5 percent to back
an ambitious plan by President Abdel-Fattah El-Sisi to assist smaller businesses with total estimated LE200 billion. 

Short link: