Cablegate: Cbe Governor El Okdah Updates Ambassador On Goe Financial

VZCZCXYZ0048
RR RUEHWEB

DE RUEHEG #5392 2411353
ZNR UUUUU ZZH
R 291353Z AUG 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0950
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0190

UNCLAS CAIRO 005392

SIPDIS

SIPDIS
SENSITIVE

STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA
USAID FOR ANE/MEA MCCLOUD AND DUNN
USTR FOR SAUMS
TREASURY FOR NUGENT AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/TALAAT

E.O. 12958: N/A
TAGS: ECON EAID EFIN ETRD EINV EG
SUBJECT: CBE GOVERNOR EL OKDAH UPDATES AMBASSADOR ON GOE FINANCIAL
SECTOR REFORM PROGRAM

Sensitive but Unclassified. Not for Internet distribution.

REF: A. Cairo 5337
B. Cairo 5001
C. Cairo 5287

1. (SBU) Summary: In addition to the request for a DVC reported in
Ref. A, CBE Governor El Okdah provided the Ambassador and USAID
Mission Director Ellis an overview of the current status of GOE
financial sector reform efforts during their August 23 meeting. EL
Okdah noted that privatization of Bank of Alexandria was well
underway, as was the merger of Banque du Caire with Banque Misr.
CBE was in the process of settling the remaining LE 19.1 billion in
non-performing loans (NPL) held by the public banks. After
settlement of the NPLs, CBE planned a capital injection for the two
public banks that will remain, Banque Misr and National Bank of
Egypt. He estimated that the total cost for the financial sector
reform, including NPL settlement, would be LE 50 billion. End
summary.

2. (SBU) El Okdah was animated as he explained in detail the GOE's
financial sector reform program. Regarding privatization of BOA, he
noted that the bank's LE 6.9 billion ($1.2 billion) in NPLs had been
settled in February and offers from the six short-listed bidders
were due September 28 (Ref. B). Surprising even his own staff, El
Okdah stated that the offers would be opened, evaluated and a winner
decided on the same day, in a meeting of the Cabinet Economic
Committee. Bidders have been asked to provide two items of
information in the offers: 1) the number of shares to be purchased
(must be between 75-80%), and 2) the offered price per share. The
two lowest bids will be cancelled and the highest bid announced.
The remaining bidders will be allowed one half hour to offer a new
bid exceeding the highest bid. The winner will be announced,
according to El Okdah, the first week of October.

3. (SBU) El Okdah said he hoped to obtain LE 10 billion ($1.7
billion) from the sale of BOA. The proceeds from the sale would
then be used to help settle the remaining LE 19.1 billion ($3.3
billion) in NPLs held by the other public banks. He explained that
the total LE 19.1 billion has been divided into NPLs owed by the
private sector and those owed by public enterprises. Private sector
NPLs have been further divided into three tiers: 1) loans below $1
million, 2) loans between $1-50 million, and 3) loans above $50
million. CBE has already settled 48% of the private sector NPLs,
all from the third category, i.e., loans above $50 million. Of the
48% that have been settled, CBE has collected on 20% and rescheduled
the remaining 28%. In the case of public sector NPLs, El Okdah
stated that, in addition to proceeds from sale of BOA, revenue
generated by other privatizations, such as the petrochemical
companies AMOC and MIDOR, would be used to settle the remaining
NPLs.

4. (SBU) Once BOA is privatized and the NPL issue resolved, El
Okdah said CBE plans to inject capital into the two public banks
that will remain, Banque Misr and National Bank of Egypt. He stated
that the capital injection, approximately LE 30 billion ($5.3
billion), would come from a variety of sources, including proceeds
from issuance of the third mobile phone license (Ref. C), revenues
from additional public enterprise privatizations, loans from the
World Bank (WB) and the African Development Bank (2 loans of $500
million each), and U.S. economic assistance funds.

5. (SBU) Comment: El Okdah was extremely proud of CBE's record of
reform in Egypt's financial sector, and was clearly looking for
acknowledgement of how far Egypt's financial sector has come since
he took office in December 2003. The IMF's July 2006 Article IV
consultations produced a generally optimistic report, and the WB and
African Development Bank loans also signs of confidence in the
GOE's, and in particular CBE's, management of Egypt's economy.
Acknowledgement from the U.S., however, has not been as forthcoming,
an oversight that could be remedied by quick resolution of the
outstanding issues in the DSP-II Monitoring Program.
RICCIARDONE

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