 |
Al-Ahram Weekly 8 - 14 June 2000 Issue No. 485 
|
||
Published in Cairo by AL-AHRAM established in 1875 |
| ||
|
Al-Ahram Weekly 8 - 14 June 2000 Issue No. 485
|
||
| Published in Cairo by AL-AHRAM established in 1875 |
| ||
Egypt Region International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Loans and groans
By Aziza Sami
While the government has acknowledged its own contribution to the current liquidity shortage, the banking sector has been less forthcoming in shouldering its share of blame. Yet the vast sums loaned to just a few major clients, and subsequently tied up in speculative, high-risk ventures, seriously exacerbated the shortage. And so ill-advised were many loans that the banks now find themselves facing the threat of major defaults. Recent news that a group of businessmen have formed a consortium whose aim is to sell-off assets, along with debts, have sent shivers through the banking sector.
Shaken, the banks have been keen to tighten credit, though they have exhibited markedly less enthusiasm to allow any significant rescheduling of debts, leaving the government to attempt to redress the situation. Two week ago, in response to increasing pressure from business, the government made public its commitment to lowering interest rates and rescheduling debts, though no further details were revealed.
Such events have highlighted structural deficiencies within the sector that need to be addressed with increasing urgency.
The Central Bank of Egypt (CBE) has consistently failed to exercise its prerogatives in regulating the credit activities of the major banks -- one result of that failure being the threat of defaults now faced by public sector banks. Yet, neither has the CBE been allowed to act with any degree of the necessary autonomy. Despite statements by both the Prime Minister Atef Ebeid and Minister of Economy Youssef Boutros Ghali that the government has refrained from interfering with the activities of the Central Bank, since the new government assumed power last October, the CBE has effectively been placed under the supervision of the minister of economy and must report to him. The situation is unprecedented, and hampers the role of the Central Bank, the country's foremost monetary institution, required to formulate monetary and credit policies divorced from political control.
The situation of the four major banks also needs to be redressed. In comparison with their local and foreign currency deposits, they remain inadequately capitalised, leaving them vulnerable. Yet to date, the government has given no indication that it will examine the possibility of increasing the capital of public banks, since this would almost inevitably entail partial privatisation and stock market flotation, a suggestion put forward by Mahmoud Abdel-Aziz, the former chairman of the National Bank of Egypt that met with a deafening silence in government circles.
The administrative inefficiencies of public sector banks are another issue that should concern the government. They appeared to have peaked last May when the NBE was criticised in the courts for failing to collect bonds on their maturation, the court verdict coming after a suit filed by an investor had taken several years to be investigated. The court of appeals required the NBE to pay the value of uncollected bonds to Prince Sadruddin Agha Khan.
Such administrative bungling, obviously, acts only to undermine government endeavours to attract investors.
Compounding the opacity of government policy towards the banking sector, last week the minister of economy distanced himself from earlier statements concerning the privatisation of banks, announcing that no steps would be taken in this direction "as long as the sentiment of the man of the street is against the matter."
Confusion in the sector has also been exacerbated by the fact that several appointees to key positions on the boards of the public sector banks are effectively on probation. Their appointments are supposed to be confirmed after an assessment of their performance, a tactic that does not lend itself to stability or the implementation of the necessary long-term planning.
Mismanagement within credit departments must also be tackled. Assessment of credit-worthiness needs to be stringently standardised, and the responsible executives must base decisions only on the financial viability of projects.
