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