Home MoneyBanks El Atrebi : Two-Year Plan To End Nonperforming Files & Provisions Gap

El Atrebi : Two-Year Plan To End Nonperforming Files & Provisions Gap

by Amwal Al Ghad English

Director of the Egyptian Arab Land Bank, Mohamed El Atrebi, revealed the three main axes of the Bank’s strategy for the next two years. The Bank is targeting to end EGP 700 million nonperforming cases, liquidating of EGP 2.6 billion EGP portfolio assets which became owned by the Bank after settling bad debts, while the 3rd axis is to diversify the Bank’s credit portfolio where real estate and tourism sectors represent 80%.

He affirmed that the merger plan with Housing and Development Bank (HDB) was to create a huge mortgage body destined to acquire 40% of the of mortgage and real estate development market in Egypt.

Adding that two main reasons were behind the merger’s cancellation, the first reason was the amount of non performing debts in EAL’s portfolio and the second reason what that the country is owning 100% of the bank’s share, unlike HDB of which great part is privately owned through stock.

How do you see the merger’s cancellation of both EAL and HDB after many prefacing procedures for years?

The merger plans with Housing and Development Bank was seen as a way to create a huge mortgage body which would acquire from 40% to 50% of the of mortgage and real estate development volume in Egyptian Market.

Valuation processes revealed a great volume of non performing debts in the EAL bank’s portfolio and a significant lack of necessary provisions.

Besides, there is a difference in ownership structure between both banks; EAL is totally owned by government while some of Housing and Development Bank shares are listed in the stock market meaning that it is partially owned by individuals.

Therefore, cancelling the merger was a right decision and is not considered a bad step of former administration.

What about the bank’s strategy in the upcoming period?

EAL bank has set a strategy for the next two years, which is based on three axes. The first is ending with nonperforming cases where some of them are from nineteen’s. The Bank took serious steps towards solving this problem as the Bank’s administration approved settling EGP 700 million debts for some insolvent customers after studying each case separately in accordance with the each circumstances, besides taking into consideration the turmoil Egypt witnessed especially that most of the loans in the Bank offered are for real estate and tourism sectors, which were affected negatively the most.

The second axis is liquidating the real estate assets portfolio, in value to EGP 2.6 billion, which became owned by the Bank after settling some debts, especially that Central Bank of Egypt does not allow retaining the asset portfolio for more than five years.
The Bank will liquidate these assets using untraditional ways such as partnership with state-owned real estate companies or investment bodies which will continue to develop the Bank’s projects and then will sell it so as to increase returns. This way is an alternative for auctions.

The third axis is diversifying loans and credit facilities portfolio so as to lessen the credit risks rather than focusing credit on a certain sector especially that the Bank ‘s credits are focused by 80% on real estate and tourism sectors which were affected negatively the most after January 25th revolution. In addition, the Bank is going to expand in opening documentary credit balances so as to facilitate external trade procedures for its customers.

What is the total volume of bad debts? Do you have any plans to decrease it?

The Bank’s bad debts are guaranteed by god provisions, the main problem is that 80% of the Bank’s portfolio is focused on real estate and tourism sectors which were affected negatively the most after the revolution. However, the Bank will settle all bad debts in return for assets or cash by the end of 2013.

The Bank categorized insolvency portfolio and analyzed each case separately, then the Bank will settle the debts either by setting agreements or filing lawsuits, but we favor the first.

What are the most important assets transferred to the Bank?

The Bank owns lands and projects in attractive sites in Ain El-Sokna and resorts in El-Shorouk City. We are currently studying partnership with state-owned contractors companies such as Arab Contractors Company in order to establish huge projects on these lands. Besides, the Bank sold 11 land lots in last January in a public auction in which the Bank achieved high profits.

Do you seek for government’s support to solve the provisions gap?

Central bank of Egypt has been always a key supporter for the Arab Land Bank as there are monthly meeting with supreme administration to follow up EAL’s performance as the latter had already received an EGP two billion supportive loan from CBE in 2011 at 0% interest rate, which was partially directed to finance the deficit in provisions.

How did the current circumstances affect the bank’s assets sales?

The events that took place after the revolution greatly affected the sales of whole real estate market as well as all the economic sectors. However, we expect that the assets, EAL Bank planned to sell, will be valued at EGP 900 million. In addition, we expect that there will be a boost to mortgage market in the upcoming period as there will be stability after the upcoming presidential elections.

Many investors & businessmen bought lands with unfair prices amid former regime,

In your point of view, what is the optimal way to deal with such cases?


Acquiring lands with unfair prices is the former regime’s fault as the investors and businessmen took these lands in accordance with the regulations and laws set by the former regime. Therefore, these settlements shall be done without violating contracts so as to return confidence in Egypt’s market and boost real estate market which will attract investments in value to billions as there is a high demand on real estate market in Egypt.

Did the bank’s branches in Jordan and Palestine achieve good results?

Jordan’s branch was restructured and developed to achieve great profits reach 3 million dinars (EGP 30 million) and we will restructure and develop the bank’s branch in Palestine, as we hope to achieve great profits during the coming year.

What do you expect from the bank’s results during the current fiscal year?

Due to the allocations deficit there will be casualties, although we hope to achieve great profits during 2013.

What are the reasons led CAO not to ratify the bank’s budget for the last fiscal year?

The Central Auditing Organization has objected before, but the matter was discussed. And there is cooperation, between the bank, CAO and the Central Bank, around finishing the budget ratification of the last fiscal year 2010-2011, during the coming month.

Do you study any cooperation to offer “Islamic” products?

Cooperation is always welcomed with banks having Islamic license to offer products according to the Islamic law; especially after the Central Bank approval during the coming period.

Do you expect that Central Bank of Egypt (CBE) will give an Islamic banking license for commercial banks in the upcoming period?

If CBE sees that there is an increasing demand from banks, it will respond to their demand, especially that there are no big differences between Islamic banking and commercial banking.

You executed two securitization processes; Do you plan for similar processes?

We have to wait for the suitable time especially that the two processes we executed were guaranteed by Ministry of Finance. Besides, securitization culture is still lacking in Egypt.  If market is stabilized and improved, the Bank may launch a marketing campaign. This move will also contribute in decreasing the Bank’s insolvency portfolio and bridge the provisions gap.

What has become of the negotiations the Bank entered with a group of Arab and foreign investors to establish a real estate fund?

These negotiations are still going on. The Bank held meeting with Arab and foreign investors to establish a real estate fund. The Bank is studying to share in this fund with 30% and with a 100% in assets value. This move will provide the Bank will achieve cash in value to 70% of the project value. However, the investors are waiting the political and security statuses in Egypt to be stable.

What is the value of the Bank’s loan and credit facilities portfolio? And what is the Bank’s target growth rate for the current fiscal year?

Loan and credit facilities portfolio rose to EGP 14 billion by the end of 2011 and we target increasing it by EGP 2 billion, to reach EGP 15 billion by the end of the current fiscal year ended on June 30th 2012. The Bank offered credit facilities in value to EGP 200 million in the past four months. However, the Bank is taking a cautious credit policy as we do not finance a customer without assuring a 99% guarantee especially that we do not want to increase the Bank’s insolvency portfolio.

Real estate investors claim that banks ceased financing them since 2008 …. Is that true?

Banks are not against financing any sector. However, if a project was found unfeasible, with high risks or weak cash flows, the financing of that project would be impermissible. On the other hand, a sound real estate project sticking to terms of conditions and enjoying high cash flow would be indeed granted the banks’ approval to finance especially if it was an affordable housing project. Banks often tend not to finance the luxury housing projects due to their sluggish demand. 

What are the main sections EALB intends to extend their financing to avoid credit concentration risks?

Previously, EALB’s main focus was on financing sectors of tourism and of real estate, but now the two sections are currently lacking a strong demand. Hence, the bank intends to enhance their financing of small and medium enterprises for a number of sections such as trade, electricity, pharmaceuticals, iron, cement and others so that there would be a balanced credit portfolio. Yet, the bank must first confirm the availability of necessary financing factors, the feasibility of the project and clients’ good solvency and high cash flow so that paying back would not be halted.

Moreover, EALB intends to continue providing mortgages as the real estate sector will still have high growth rates within the coming period. The mortgage provided for the sector has not exceeded L.E 4 billion. 

Most banks chose to increase the returns from their saving schemes so as to attract more liquidity, has the EALB taken this step?

The EALB is the first bank to offer saving schemes of best interest prices. Consequently, the bank has managed to attract L.E 1.5 billion, to have a more-than-expected raise of L.E 1 billion. The main advantage of having EALB’s saving certificates is that these certificates are exempted from the Central Bank’s regulations of 14% required reserves set for the clients’ deposits. Hence, banks could expand in its saving accounts so as to make use of investing in various banking products.

Do you target opening new branches within the current fiscal year?

The bank already owns a good network of branches that reaches 26 branches covering all over Egypt, so it is not the bank’s main priority during the current stage to open new branches; Priorities are for strengthening the portfolio, cleaning it, and achieving high profits.

How do you see the effect of decreasing the Egyptian credit rating on the banking sector?

Decreasing the state’s credit-rating means that the state is incapable of borrowing from abroad, or issuing new bonds in the global markets, so the state will relay greatly on the local banks in order to cover the budget deficit, and this will result in increasing the revenues of the local debt tools, and raising the cost of money, as well as affecting the external banks’ transactions such as opening documentary funds and guarantee letters, and spreading the absence of confidence between foreign investors, regarding taking the decision of investing in Egypt, which results in the decrease of the size of employment.

How do you see the continuous decline in the Egypt’s foreign cash-reserves?

This decline will continue, as long as the balance of trade records a negative growth rate, due to the decrease in all of U.S Currency sources, then the Dollar may witness an increase because of the scarcity of foreign currency in the current phase.

But the political stability will be followed by an economic stability, as well as resuming of growth and increasing the Egyptian Dollar- sources through Tourism, exports, and direct foreign investments.


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