The recent regulatory measures by the Central Bank of Egypt (CBE) have posed significant challenges for financial leasing companies seeking access to debt markets. These measures are aimed at overseeing the financing provided by banks to this sector.
According to sources, the issuance of securitization bonds to financial leasing firms has halted following the implementation of the CBE’s controls. Additionally, about 13 financial leasing entities have postponed their securitization offerings planned for the current and upcoming months.
The reluctance of banks to participate in these bond offerings has effectively halted the securitization activities of these companies, as they heavily rely on bank financing for their operations. A key issue is that most banks have already reached the 5% ceiling set by the CBE.
The CBE has imposed a cap on financing operations, stipulating that the total direct and indirect credit facilities, along with investments in securitization portfolios of financial leasing companies, should not exceed 5% of a bank’s total loan and credit facility portfolio.
These companies face threats to their ongoing viability as obtaining the necessary financing becomes increasingly difficult. A February report by the CBE stated that the combined direct and indirect credit facilities, plus investments in the securitization portfolios of any single financial leasing company, must not exceed 1% of a bank’s entire loan and credit facility portfolio.
Furthermore, the CBE has emphasized its policy of not providing foreign currency credit facilities to financial leasing companies unless tied to an existing import transaction and the customer possesses adequate foreign currency reserves for repayment.
It is crucial to specify the purpose of the credit facility, whether for funding financial leasing agreements or for refinancing from the company’s capital. The bank is responsible for monitoring the utilization of funds to ensure they serve the intended purpose.
Lastly, the CBE has instructed banks to verify that the primary repayment source for financed financial leasing contracts is the cash flow generated from those agreements.
Managing Director of Credit Village, Roberto Sergio has more than 20 years of experience in NPL and distressed debt in the Italian and International market. He is the editor of the NPL column in Credit Village Magazine and the director of Credit Village's National NPL Market Observatory.