Circular dated June 16, 2020 regarding the initiative to finance the payment of salaries and wages for workers in the tourism sector, guaranteed by the Ministry of Finance

Cairo: June 16, 2020

Dear Mr. Chairman,

Greetings,

In light of the coronavirus crisis and its repercussions, which extended to the tourism sector leading to its complete stoppage and consequently the inability of companies to meet their obligations regarding salaries and maintenance works for facilities, and with reference to the initiative issued on January 8, 2020, under which an amount of 50 billion EGP was allocated to finance the replacement and renewal of accommodation hotels, floating hotels, and tourist transport fleets, and the subsequent circular dated March 23, 2020, which allowed banks within the aforementioned initiative to grant credit facilities repayable over a maximum period of two years and a grace period of 6 months starting from the disbursement date, during which returns are capitalized to pay salaries, wages, existing supplier obligations, and maintenance works.

Furthermore, in light of the Ministry of Finance's approval to issue a guarantee of 3 billion EGP to be used to provide further support to the tourism sector and its workers, the Board of Directors of the Central Bank of Egypt, in its meeting held on June 7, 2020, has decided to approve the issuance of a guarantee of the same value as follows:

Allocating a tranche of 3 billion EGP from the amount allocated for the initiative to finance tourism companies, totaling 50 billion EGP for the purpose of replacing and renewing accommodation hotels, floating hotels, and tourist transport fleets, according to the following specifications:

1. Issuing a commitment worth 3 billion EGP (in tranches) in favor of the Credit Risk Guarantee Company as a umbrella for guaranteeing the balances of guarantees issued by it in favor of banks to cover 100% of the value of loans granted to tourism sector companies within the aforementioned tranche.

2. Purpose: Granting credit facilities to all companies operating in the tourism sector, with the aim of: a. Paying the dues of tourism sector workers in the form of salaries and wages for three months starting from May 2020, provided that the client submits proof that May salaries have not actually been paid. b. Financing basic maintenance and operating expenses.

3. Return rate: 5% (calculated on a declining basis), including a commission on the highest debit balance.

4. Repayment period: Two years (including a one-year grace period and within it a 3-month withdrawal period).

5. The initiative's validity period ends upon the full exhaustion of the allocated tranche value (3 billion EGP).

6. Returns are capitalized during the withdrawal and grace periods.

7. 85% of loans granted to pay salaries and wages for workers who are actually insured shall be allocated, with a maximum of 15,000 EGP per worker per month, based on the payroll statements approved by the establishment, and not exceeding what is fixed in the income tax declaration forms and the company's balance sheet. The remaining 15% of the granted facilities shall be allocated to finance basic maintenance and operating expenses.

8. Banks shall be compensated for the difference in the return rate by the Central Bank of Egypt on the basis: Credit and Discount Rate + 2% - 5%, provided that the Banking Operations Sector of the Central Bank of Egypt is notified of the required compensation value during the first week of each month starting from the month following the disbursement.

9. The initiative applies to regular and irregular customers from companies practicing all the following tourism activities: a. Accommodation hotels, floating hotels, and tourism projects (except those intended for sale). b. Travel agency services, booking, and tourist tours. c. Land tourist transport. d. Restaurants and recreational activities in tourist areas.

10. Coordination is required between the Egyptian Banks Union and the Egyptian Hotels Chamber regarding the following as a minimum: a. The standards and conditions under which the value of loans for tourism sector companies under the umbrella of the initiative is determined. b. Determining the uses of expenditure to cover basic maintenance and operating expenses. c. Determining the period after which compensation will be provided. d. The conditions and procedures required by the Egyptian Hotels Chamber to apply for loans under the umbrella of the initiative.

11. Banks shall add salaries and wages to workers' accounts in tourism sector companies directly in the banks, or through payment cards or electronic wallets.

12. Obtaining confirmation that companies receiving financing have not reduced the number of employees or reduced wages during the period from the last December 2019 to the present date, through the accountants registered with the Central Bank.

13. Allowing companies benefiting from the initiative within the scope of the approved tranche (3 billion EGP) to benefit from the initiative for replacing and renewing accommodation hotels, floating hotels, and tourist transport fleets issued on January 8, 2020, without benefiting from its amendment issued on March 23, 2020.

14. In all cases, the client is not entitled to benefit from this tranche except through one bank only.

15. The bank must prepare the credit study and make the appropriate disbursement decision based on the documents available to customers.

16. Banks must obtain written consent from customers to notify the Ministry of Finance of the value of loans obtained under the initiative and default cases, if any.

17. The Office Supervision Sector of the Central Bank must be notified of detailed monthly data including the names of beneficiaries of this tranche, the amounts disbursed to them, and the disbursement date, as well as defaulting customers and the value of default.

It is also required to notify the Credit Risk Guarantee Company of the detailed data mentioned in item 17 above and any additional data requested by the company on a monthly basis, to monitor the use of the initiative through one bank via the company.

I would also like to emphasize what was stated in the circular issued on January 3, 2018, regarding the following:

1. When calculating the capital adequacy ratio criterion, a 0% risk weight is applied to the portfolio covered by the commitment issued by the Central Bank of Egypt to the company.

2. Regarding item five of the circular regarding the bases for evaluating customer creditworthiness and forming provisions, issued with the approval of the Board of Directors of the Central Bank of Egypt in its meeting held on May 24, 2005, the guarantee issued by the Credit Risk Guarantee Company against the Central Bank's commitment is relied upon when forming provisions, excluding the part covered by that guarantee from the balances of facilities granted to customers.

Please be kind enough to alert regarding taking the necessary action from this date, provided that the facilities granted under the aforementioned initiative are not used to repay facilities granted under the initiative issued on March 23, 2020.

Accept my highest regards,

Tarek Amer