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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 6 - 12 July 2000 Issue No. 489
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region Focus International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Tip of the iceberg
By Aziza Sami
The financial sector has reacted with further tremors to the Supreme State Security Court verdicts on the "loan deputies" case. While the sentences are commendable because they show that corruption -- when revealed -- will not be tolerated, the case still underlines the urgent need to examine whether or not Egyptian banks are operating according to sound financial principles.
Are we suffering from a "silent Asian financial crisis"? One businessman put it thus, referring to the spiralling effect of bad loans extended to speculative ventures, which caused the collapse of Asia's banking sector.
The government has sought to allay investors' fears by declaring this week that "all bank deposits are completely secure and guaranteed by the CBE. Minister of Economy Youssef Boutros Ghali also declared that the number of bad loans does not exceed five to seven per cent of bad loan provisions.
According to figures cited by the head of the Administrative Control Authority, LE4 billion in unrepaid loans are owed to the banking sector. These include LE1.6 billion incurred in the loan deputies case and an additional LE1 billion incurred by one businessman alone. Because they have been incurred through swindling, it is unlikely that they will be repaid.
Corruption, "administrative" interventions and "discretionary" decisions have played a large role in enabling the extension of credit to obviously non-viable projects -- a fact attested to by banking circles and members of the business community alike.
Millions of pounds in uncovered collateral have been extended to much publicised endeavours such as the Aswan iron and steel project. The state-owned Nasr Company for Import and Export has been embezzled by private investors. One businessman, the notorious "Dwarf," has reportedly fled the country with LE275 million.
The CBE is coming under fire in financial circles. Several of its own board members have admitted that it has consistently failed to exercise its prerogative in monitoring banks' lending practice. Uncertainty hovers over the four public banks whose chairmen were appointed last year, and who, nearing the end of their temporary tenures, will not extend credit when there is no guarantee that bad loans will be repaid. Most banks, therefore, are tightening their credit at a time of great need for banking sector leadership capable of taking the initiative and responding to investors' current desire for more credit. Statements by Prime Minister Atef Ebeid that the heads of the state-owned banks are "under probation" and that they have yet "to prove themselves" have done little to inspire confidence in the banks.
Rumours are rampant that several businessmen have fled the country with millions of pounds. This is because banking malpractice has been left to develop so far that the issue of bad loans can only be resolved through criminal courts and political pressure admonishing investors to return.
The government must restore trust between the banks and the public, but cannot do so unless sound credit practices are upheld, financially viable means of debt settlement reestablished, and bankruptcies supported. The banks must not depend on punitive measures to regain their dues.
