THE WEEKLY

Thursday 14th Jan. 2016 Issue # 2

THE CENTRAL BANK OF EGYPT ISSUES NEW REGULATIONS

The Central Bank Of Egypt (CBE) issued a number of regulations regarding encouraging banks to finance Small and Medium Enterprises (SMEs), concentration of banks’ credit portfolios , debt burden ratio for retail customers and amendments to the Money Market Funds regulations .

Encouraging Banks To Finance SMEs The CBE launched a comprehensive initiative inclusive of: Directing banks to increase finance provided to Very Small, Small and Medium enterprises with the goal to have SMEs accounting for not less than 20% of banks’ total loan portfolios within the next four years. Interest rates on loans provided to Very Small and Small Enterprises (whose annual revenues range from EGP1 million to EGP20 million as per the new definition of the CBE) should not exceed 5% (annual decreasing rate). In return, banks will be permitted to reduce their level of required reserves held at the CBE by an amount equivalent to the value of local currency loans extended to these enterprises.

Concentration Of Banks’ Credit Portfolios The CBE issued new amendments encouraging banks to increase and differentiate their customers’ base which included: Decreasing the maximum value of loans directed to one client- with no related parties- from 20% to 15% of the bank’s tier 1 capital ,and from 25% to 20% of tier 2 capital for a client and its related parties . Banks will have three years to comply with these new regulations. The CBE also required banks whose total credit facilities provided to their 50 largest clients and their related parties exceed 50% to 70% of their total loan portfolio to increase the risk - weighting for these assets to 200% when calculating the capital to risk weighted assets ratio and to 300% for amounts exceeding 70% .

IN THIS ISSUE...

The Egyptian Parliament Back After 3 Years Inflation Up In December 2015 EGAS Sign Deal With LNG Companies Steel Prices Decrease In January 2016 China To Lend Egypt USD 1 Billion

A WORLD OF REAL POSSIBILITIES

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Concerning branches of foreign banks in Egypt, the excess credit extended to their 50 biggest clients should not exceed 50% of their capital base. Banks will have only one year to comply with the new regulations.

Debt Burden Ratio For Retail Customers The CBE obliged banks to limit the aggregate monthly installments of any retail client “for credit cards, car loans, personal loans” to 35% (up to 40% in the event of the customer holding a mortgage) of his total net monthly income after deducting all taxes and social security installments compared to the current ratio of 50% to 60% in some banks.

Amendments To The Money Market And Fixed Income Funds Regulations The CBE limited the total size of the banks’ investments in money market and fixed income funds to 2.5% of the bank’s total deposits in local currency down from 5% earlier or 50 times the bank’s maximum total investments in its owned money market funds or 2% of its tier-one capital, whichever is lower. Banks exceeding the above limit will not be able to issue new certificates for either existing or new customers till complying with the decided limit. “These regulations come within the framework of the state’s interest in pushing the production cycle, achieving sustainable development through reviving the SME’s sector as it is considered the cornerstone for creating wide range of job opportunities for youth, decreasing unemployment, lifting up income levels, along with increasing the GDP and encouraging Egyptian exports” “The banks should give priority to main economic sectors especially the industrial companies ,intermediate goods manufacture with high value added ,labor intensive industries ,exports oriented companies and innovation and entrepreneurship” The CBE Press Release CBE Official Website January 2016

THE EGYPTIAN PARLIAMENT BACK AFTER THREE YEARS After more than three years of suspension since the parliament was dissolved in 2013, the Egyptian parliament reconvened on the 10th of January 2016 in its first session. The parliament consists of 596 members, of which 448 were elected as independents, 120 from parties, and 28 members were appointed by the President. During the session, Ali Abdel-Al, a constitutional law professor, was elected to be the president of the parliament . The parliament members will have only 15 days to ratify more than 330 laws and legislations that have been issued since the dissolving of the last parliament. “The commencement of the parliament after more than 3 years of political instability will restore investor confidence during 2016. Parliamentary appointment of a cabinet and approval of a clear economic program will expedite the reform pace and encourage rebounding foreign inflows in 2016” CI-Capital Research Egypt Daily 11th January 2016

Annual headline inflation increased in December 2015 to register 11.06% compared to 10.13% in December 2014, with a slight decrease compared to 11.08% in November 2015. The average headline inflation for the year 2015 inched up to register 10.4%. up from 10.1% in 2014. The Egyptian Natural Gas Holding Company (EGAS) signed an agreement with a number of gas companies including the Algerian Sonatrach, the Russian Gazprom and the Swiss Vitol, for importing 80 shipments of Liquefied Natural Gas (LNG) during 2016. The agreement worth USD2.5 billion to USD3 billion where Egypt will receive 1 billion cubic feet of natural gas per day.

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Major Steel producers in Egypt reduced their prices for January 2016 for the second consecutive month, encouraged by the decrease in world prices of steel where Ezz Steel, one of the biggest players in the steel market (with market share of more than 50%), lowered their prices per ton by around EGP540 since end of November 2015, while Beshay and Solb Misr companies (market share of about 30%) decreased their prices by EGP300 and EGP350 per ton respectively during the same period. Average steel prices are currently hovering around EGP4,550 to EGP4,660 per ton. China will provide Egypt with a concessional loan worth USD1 billion to finance the establishment of sanitation networks in around 250 Nile Delta villages specially in Gharbeya and Monofya governorates, where the construction works will be undertaken by the Chinese construction company Gezhouba. “The ministry is working on facing the sanitation problems specially in villages to upgrade the coverage ratio which doesn’t exceed 15% currently” Mostafa Madbouly Housing Minister Arab Finance 11th January 2016

Daily Transfers from Egypt to China through Western Union were reduced from USD7,500 per transaction to USD3,000. The decision aims at reducing unnecessary imports from China which stood at USD8.9 billion during the first 9 months of 2015 up by 17% compared to the same period in 2014. “We are targeting decreasing our import bill by 25% during 2016 compared to its level in the previous year after the measures taken by the CBE to curb irrational import operations, as we target decreasing the imports by USD20 billion in 2016 compared to USD80 billion in 2015” Tarek Amer CBE Governor Rueters 14th January 2016

Suez Canal revenues dropped by USD290 million to register USD5.2 billion in 2015 compared to USD5.5 billion in 2014, while the number of ships passing through the Canal during 2015 increased by 358 ships to register 17,483 ships compared to 2014. “The decline in the Suez Canal revenues last year is attributed to many factors related to Special Drawing Rights (SDRs) and the decrease in oil prices globally” Nagy Amin Director Of Planning & Research Dept. At Suez Canal Authority Reuters 13th January 2016

The Cassation court rejected the appeal of former president Hosni Mubarak and his two sons against charges of embezzling public funds in a case widely referred to as “the presidential palaces case”. The court affirmed the three years jail sentence to all of them and the repayment of EGP125 million to the state besides an additional fine of EGP21 million. “The Defendant will be deprived of special privileges and military medals and honors previously given to him, as well as from the exercise of political rights, holding public offices, and to be requested to testify before a court” Mahmoud Kebesh Pervious Dean Of The Faculty Of Law At Cairo University Al Borsa News 9th January 2016

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EGYPT AT GLANCE EXCHANGE RATES

13.00 12.00 11.00

14thJan. 2016

W/W

M/M

Y/Y

YTD

USD

7.81

0%

0%

8.9%

0%

EURO

8.50

1.3% -1.8%

-0.6%

0.8%

0.1%

-5.2%

3.4%

-2.6%

Sterling Pound 11.25

10.00 9.00 8.00 7.00 6.00 5.00 Jan-15 Feb-15 Mar-15

Apr-15 May-15 Jun-15 EGP per USD

* Average Buy & Sell Prices For ALEXBANK

Jul-15

EGP per Euro

Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 EGP per Pound Sterling

10000 9000

STOCK MARKET EGX

8000

14thJan. 2016 EGX 30

5,857.70

W/W

M/M

-15.4% -8.6%

Y/Y

YTD

-38.6%

-17.4%

7000 6000 5000 4000 Jan-15

Feb-15 Mar-15

Apr-15

May-15

Jun-15

EGX 30

TB’S AUCTION

Jul-15

Aug-15

Sep-15

EGX 70 (Rel.)

Oct-15

Nov-15 Dec-15

Jan-16

EGX 100 (Rel.)

INTEREST RATES

Auction Date

Maturity

10 Jan. 2016

91 Days

11.564

14 Jan. 2016

182 Days

10 Jan. 2016 14 Jan. 2016

Current* Previous**

Average Yield % Overnight Deposit Rate

11.851

9.25% Overnight Lending Rate 10.25%

8.75% 9.75%

+50 bp +50 bp

266 Days

12.070

Corridor Rate

9.25%

+50 bp

357 Days

12.094

* at December 2015

9.75%

** at January 2015

FX-AUCTION RATES Auction Date US $

14th Jan. 2016 7.7301

5thJan. 2016 7.7301

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The Colossi of Memnon, Luxor, Egypt

T : +2 02 2399 2000 E : [email protected] Head of Research Emil Eskander [email protected]

Research Manager Hemat El Masry [email protected]

Senior Associate: Sahar Ezz El Arab [email protected]

Research: Omar Ismaeil [email protected]

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