Fathy El-Sebai, the chairperson of the Housing and Development Bank (HDB), said that his bank’s small- and medium-sized enterprises (SMEs) loan portfolio reached about EGP 1.357bn at the end of September.
El-Sebai added that these projects currently account for about 10% of the total loan portfolio of the bank, and there is a plan to increase it to 20% by the end of the four-year initiative, set by the Central Bank of Egypt (CBE) at the beginning of this year.
It came during a press conference held by the leaders of HDB last week on the sidelines of the graduation ceremony of the first batch of the bank’s employees who received a course in “credit and financing of SMEs” in collaboration with the FA Group company headed by former BE governor Mahmoud Abou Eloyon.
According to El-Sebai, the bank believes that SMEs form a huge sector, which includes millions of projects, but its financial coverage is very limited. Despite the sector’s great role in Egypt’s development, it has not attracted enough attention from government agencies which grant approvals, licensing, and trade records as well as other measures.
He stressed that the CBE initiative launched in January 2016 is very important in order to provide funds for this sector at a low cost, particularly after interest rates rose dramatically following the flotation of pound.
He said that the bank always seeks to benefit from the huge data base owned by the Social Fund for Development (SFD) and the Egyptian Banking Institute regarding the SME sector. It is also very important to convince the owners of these projects to enter into the formal market, because many of them still prefer to work outside this market.
El-Sebai revealed that the bank’s mortgage portfolio amounted to EGP 3.2bn at the end of November.
He continued that the bank injected EGP 2bn under the CBE initiative to finance the housing projects for low- and middle-income individuals. About 24,000 people have benefited from this funding. The HDB also injected roughly EGP 1.2bn in other mortgage projects away from the CBE initiative.
Sebaey predicted the real estate sector will be affected by the flotation of the pound and the increase of interest rates at banks; however, this effect would be temporary until the market absorbs these increases in real estate prices.
The mortgage finance cost outside the CBE initiative reached 17% and 18%, which is considered a high cost, and those who want to buy real estate or invest in this sector should be patient until the interest rates decrease again or until they can afford the high cost, according to El-Sebai.
He added that the high interest rates are normal in light of the state and the CBE’s keenness to face inflation, but that it will be temporary to avoid affecting the economic growth rate targeted by the state.
Most real estate companies have suspended sales of residential and administrative units after the flotation of the pound. It could affect the growth in this sector by about 11% in 2017, compared to growth rates of 15-16% before this decision, according to El-Sebai.
He pointed out that the political stability helped the economic situation to develop significantly, supported by major national projects launched by the government, which were criticised by some people at that time.
He added that about 4,000 construction companies returned to work again in the last period, after being stalled since 2011. Many of these companies have a lot of ongoing contracts and are not accepting any new projects at the moment.
On the other hand, El-Sebai said that the bank’s proceeds of foreign exchange increased to $4m and $5m per day, compared to tens of thousands before the flotation decision. He continued that the bank had covered the imports of all basic goods that need US dollars during the first week of the flotation decision.
El-Sebai denied rumours that the banks increased dollar prices to keep up with the unofficial market, stressing that this market no longer exists.
He added that the dollar is now controlled by supply and demand, and when the bank needs dollars to cover customer requests it increases the purchase price of the dollar to attract customers. When the bank does not receive many requests for dollars it cuts its price, similar to the other banks operating in the Egyptian market.
El-Sebai noted that the current price of the dollar against the pound is exaggerated, and that the average price of the dollar, from his point of view, is EGP 13.
He added that it is difficult to determine when the dollar will settle at the aforementioned level, pointing out that this depends on the banks’ proceeds in dollars and their ability to meet the needs of their customers.
A large part of the dollar-denominated proceeds at the bank comes from local customers’ sale of their cash dollar, while the rest comes from exchanging the existing dollar deposits in banks with pounds. In addition, some customers use the money acquired from selling dollars in banks in selling savings certificates with high return rates, according to El-Sebai.
He noted that the bank has issued, like other banks, savings certificates with a yield of 16-20% after the flotation of the pound. However, the bank has decided to stop issuing the 20% certificates due to the difficulty of using its proceeds in a way that covers its returns.
The bank collected nearly EGP 550m from the 20% certificates in a few days, while the 16% certificates collected netted them less than EGP 500m.
HDB is discussing the acquisition of one of the largest private exchange companies operating in the Egyptian market, in order to diversify the bank’s activities and to enter into new investments. Moreover, the bank has recently acquired one of the leasing companies that had been out of service, as the bank seeks to pump in new liquidity to get it up and running again, according to El-Sebai.
El-Sebai confirmed that the bank does not consider selling its shares in any of the companies it is currently involved with, especially real estate companies.
The bank has various shares in Al-Oula and Sakan Developments, and the two companies are showing promising results and are expanding well, El-Sebai said.
HDB’s expansion plans will not be affected by the decision to float the pound. El-Sebai said he expects a significant amount of activity in the bank in the coming period once economic growth strengthens as a result of the steps taken within the economic reform programme.
He noted that the bank has reached its maximum capacity for financing certain sectors, such as real estate; however, the bank still has opportunities for expansion in other sectors, such as tourism and industry.
The bank’s officials met with many investors who want to invest in New Administrative Capital project and they expressed the bank’s willingness to finance investors’ projects, according to El-Sebai.
He pointed out that the delinquency rate at the bank currently reached about 5.5%, compared to about 12% from 2011 to 2013, and it is expected to decline significantly in the coming period due to the increase in economic growth.
He added that repayment rates on personal loans at the bank are very high, as most of these loans are collected through converting salaries at the bank.
The bank is keen to continue to perform its role in serving the community by providing support for many projects of social responsibility, such as the “Long Live Egypt” fund, the slums development projects, Nile University, and a number of hospitals. He pointed out that the size of the bank’s donations to these parties reached about EGP 25m in 2016.