Securitization market faces challenges with financial leasing companies post-CBE regulations

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The Central Bank of Egypt’s (CBE) recent regulatory measures have led to significant hurdles for financial leasing companies seeking access to debt markets. These controls have been instituted to oversee the financing provided by banks to the sector.

Daily News Egypt has learned from sources that the issuance of securitization bonds to financial leasing firms has ceased following the implementation of the CBE’s controls.

Furthermore, approximately 13 financial leasing entities have put on hold their securitization offerings scheduled for the current and subsequent months.

The reluctance of banks to participate in these bond offerings has effectively brought the securitization activities of these companies to a standstill, given their reliance on bank financing for operations. A notable point of contention 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 aggregate direct and indirect credit facilities, along with investments in securitization portfolios of financial leasing companies, should not surpass 5% of a bank’s total loan and credit facility portfolio.

The ongoing viability of these companies is threatened, as acquiring the necessary financing to sustain operations becomes increasingly challenging.

A February report by the CBE indicated 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.

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 deemed essential to delineate the purpose of the credit facility, whether for funding financial leasing agreements or for refinancing from the company’s capital. The bank commits to monitoring the utilization of funds to ensure they serve the intended purpose.

Lastly, the CBE has instructed banks to verify that the principal repayment source for financed financial leasing contracts is the cash flow generated from those agreements.