Banks must loan to SMEs
In a Jan. 9 speech, President Abdel Fattah el-Sisi said he had asked the Central Bank to enable financing for youth-run small businesses, aiming for banks to offer LE 200 billion in financing to small and medium enterprises over four years. The following day, the Central Bank announced new regulations aimed at boosting loans to SMEs to 20 percent of banks’ portfolios. Such loans will be limited to a 5percent interest rate, far below government bond yields and rates on local currency deposits. In order to encourage participation in the program, banks will be allowed to deduct the value of these low-interest loans from their reserve requirement, effectively creating a new pool of money from which they can make loans. The CBE said it also plans to introduce mechanisms to help reduce small companies’ credit risks. Sisi and Central Bank Governor Tarek Amer said the loan program should enable the launch of 35,000 firms and the creation of 4 million jobs. The response from credit rating agencies was less positive, with Fitch expressing concern that the regulations “could weaken the quality of loans extended by Egyptian banks in the medium term.”
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