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Cablegate: Opic Considering Low Cost Mortgage Program in Egypt

VZCZCXYZ0002
RR RUEHWEB

DE RUEHEG #0278 0441350
ZNR UUUUU ZZH
R 131350Z FEB 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 8152
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0378

UNCLAS CAIRO 000278

SIPDIS

SIPDIS
SENSITIVE

STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND RILEY
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG

E.O. 12958: N/A
TAGS: ECON EFIN EG
SUBJECT: OPIC CONSIDERING LOW COST MORTGAGE PROGRAM IN EGYPT

Sensitive but Unclassified. Please protect accordingly.

1. (SBU) OPIC has been trying for several years to provide
financing to Egypt's mortgage market. As part of that effort, OPIC
VP Robert Drumheller visited Cairo February 5-6 to discuss an OPIC
proposal to guarantee a loan to a local bank to provide low cost
mortgages to Egypt's nascent mortgage market. While liquidity is
not a problem in the Egyptian banking system, the rates that banks
must charge are quite high for the average consumer, and an OPIC
guarantee would likely result in lenders being able to lend at
slightly lower rates than currently prevalent in the market. Low
income borrowers are an increasing portion of the market, as they
are given an up-front cash subsidy from the government if they
qualify financially.

2. (SBU) Drumheller met with representatives from Commercial
International Bank (CIB), Egypt's largest private bank and the only
one with significant U.S. ownership. The CIB reps responded
favorably to the guarantee proposal, but asked that OPIC consider
providing a loan, rather than a guarantee. Drumheller agreed to
provide CIB with a proposal for a direct loan of approximately $200
million for 20-25 years, which CIB would then either offer as
low-interest, 20 year mortgages directly to "category C" (families
earning under LE 18,000/year, about $3300) customers, or
alternatively, act as an agent and re-lend the money to other banks
(most likely the state-owned banks) and/or mortgage finance
companies which would then offer the low cost mortgages. The logic
of the latter scheme is that the state-owned banks have more
branches and greater contact with category C customers than does
CIB. CIB agreed to provide OPIC with a feasibility study for
raising money under the loan guarantee scheme that OPIC originally
proposed.

3. (SBU) Drumheller also met with USAID-funded Egyptian Financial
Services Project contractors to discuss property registration. The
registration process is still quite complicated, but the time
required for registration has been cut from up to 10 years to
approximately 6-9 months, at least in the new urban communities,
which are serving as pilots for the new registration system, before
it is implemented in older areas of Cairo and other large Egyptian
cities.

4. (SBU) At a lunch with representatives from the Egyptian Mortgage
Refinance Company, the Egyptian Housing Finance Company, the Arab
Land Bank, Benchmark Capital Corp., Piraeus Bank and the Ministry of
Investment, all of the guests expressed interest in the OPIC
proposal to inject the mortgage market with low-cost, long-term
liquidity, and discussed several possible ways OPIC could structure
the loan, bearing in mind that any deal would have to involve an
U.S. entity, per OPIC rules. The main question the bankers asked,
as did CIB management, was what the interest rate for the loan would
be. The rate would have to be low enough to make the OPIC loan
attractive to whatever entity ultimately receives the proceeds.

5. (SBU) Drumheller also met with Lobna Helal and Atef Ibrahim, Sub
Governors of the CBE, to discuss how CBE could assist in "swapping"
the dollars that OPIC has to loan for Egyptian Pounds. Ibrahim was
receptive to the idea of CBE involvement in a possible swap, and
agreed to consider how it could be done, once OPIC has provided CIB
with an actual loan proposal. The next step is for OPIC to come
back to CIB with a loan proposal.

6. (SBU) Comment: While OPIC's cost of funds are significantly
lower than the typical rate obtainable by Egyptian banks, the
ultimate cost of the loan remains to be seen. OPIC's rate will
likely be attractive, but for the loan proposal to be successful,
the rate will have to be lower than prevailing market rates, after
the intermediary lenders have taken their spreads.
RICCIARDONE

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