Regulatory Alerts2017-04-03
Added · Updated
Circular dated April 3, 2017 regarding the mechanism for compensating the return price difference for the tourism, companies, and medium-sized enterprises initiative
The Central Bank of Egypt establishes the compensation mechanism for banks regarding the interest rate differential for the tourism initiative (5 billion EGP at 10% return) and the medium-sized enterprises initiative (10 billion EGP at 12% return). Banks must provide financing from their own resources at the specified rates and calculate monthly compensation based on the difference between the applied rate and the one-night lending rate plus 1%. Compensation is deducted from banks' balances at the Central Bank if they fail to comply with the instructions.
Dear Sir / Chairman of the Board,
Greetings,
With reference to the letter from the Governor of the Central Bank of Egypt dated February 21, 2017, regarding the initiative for replacing and renewing accommodation hotels, floating hotels, and tourist transport fleets, which made available an amount of five billion pounds at a return rate of 10% (declining simple return) through banks to study each case individually and take a decision regarding it, specifically banks regarding the compensation for the return price difference, through the Central Bank of Egypt, based on the following:
One-night lending return rate %1+ - %10
And with reference to the circular letter dated March 5, 2017, regarding the financing of companies and small and medium-sized enterprises, specifically item three of that letter, which included making available an amount of 10 billion pounds (in tranches) through banks at a return rate of 12% to be used in granting short-term credit facilities to finance working capital for medium-sized companies operating in the industrial, agricultural manufacturing, and new and renewable energy sectors only, with due care and priority given to those companies operating in the export or import substitution field, and compensating banks for the return price difference, through the Central Bank of Egypt, based on the following:
| Return Rate |
|---|
| One-night lending |
| %1+ - |
| %12 |
I have the honor to insert below the mechanism that will be followed to compensate banks for the return price difference:
-
The necessary financing for customers who meet the criteria of these initiatives will be provided through the banks' own resources at return rates of 10% or 12% depending on the case.
-
The return will be recalculated by applying the compensation mechanism mentioned for each initiative separately on the user of facilities through the month via the automatic system of each bank, with notifying the Operations Sector of the Central Bank of the compensatory value for each initiative at the end of each month.
This, and in light of the above, I would like to emphasize that the return rate applied to the aforementioned initiatives is a declining simple return and includes a commission on the maximum debit balance.
I would also like to point out that compliance with the instructions and verification of data correctness will be monitored by the Supervision and Inspection Sector. In the event of non-compliance with the general framework of the aforementioned initiatives, the value of compensation and its returns will be deducted from your balances at the Central Bank.
For what is above, please accept my highest respect.
Gamal Naguib