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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. 148a-UAR

APPRAISAL OF A

DFC PROJECT

BANK OF ALEXANDRIA

ARAB REPUBLIC OF EGYPT

May 30, 1973

Development Finance Companies DivisionEurope, Middle East and North Africa Region

This report was prepared for official use only by the Bank Group. It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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ABBREVIATIONS

BOA - Bank of Alexandria

IBE - Industrial Bank of Egypt

SSPIS - Special Services to PrivateIndustrial Sector

GOIndr - General Organization for Industrialization

CBE - OentraL Bank of Egypt

ARAB REPUBLIC OF EGYPT

APPRAISAL OF A FIRST PROJECT TO ASSIST

BANK OF ALEXANDRIA

TABLE OF CONTENTS

Page No.

BASIC DATA i.- ii

SIUMMARY iii - iv

I. INTRODUCTION 1

II. BOA's ENVIRONMENT 1

Economic Environment and Recent Economic Performance 1Economic Planning and Policy Orientation 2Institutional Aspects; The General Organization for

Industrialization 3Industrial Trends 3Industrial Finance 4Financial Environment and BOA's Role as a Mixed Bank 4Cost of Credit in Egypt 6

III. THE COMPANY - ORGANIZATION, POLICIES AND PROCEDURES 7

A. Bank of Alexandria as a Whole 7

Background of Establishment, Legal Status andOwnership 7

Organization 7Board of Directors and Management 7Staff 8Functions and Procedures 8Supervisi4n by The Central Bank 8Audit 9

B. IBE's Merger With BOA 9

C. SSPIS -- BOA's New Development Banking Unit 10

Organization, Policies & Procedures 10Management and Staff 11TrainingProject Appraisal 11Project Supervision 12BOA's Disbursement Procedures 12Procurement and Import Licenses 12

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Page No.

IV. RESOURCES, OPERATIONS, FINANCIAL PERFORMANCE 13AND POSITION

Resource Position 13Equity 13Deposits 1Other Resources 4Characteristics of BOA's Commercial Banking Activities 14Term Lending Operations 15Evaluation of Loan and Equity Portfolio 15

BOA as a Whole 15Quality of Short-Term Operational Portfolio 15Quality of Term Loan Portfolio 16

Financial Performance and Position 16Earnings Record 16Financial Position_ 16

Implicatior of BOA being a Mixed Bank 17

V. BOAtS PROSPECTS 19

The General Setting and Industrial InvestmentPerspective 19BOA's Business Outlook; Commercial Banking Activities 19Term Lending 19Projected Profitability and Financial Position 20

VI. THE IDA CREDIT 22

The Amount of the Credit and its Use 22Terms of the Credit to the Government and to BOA 22

VII. CONCLUSIONS AND RECOMMENDATIONS 23

Conclusions 23Recommendations 23

LIST OF ANNEXES

1. Decision-Making Process for Industrial Investment

2. Exports of Industrial Private Sector

3. Organization Chart and Organizational Structure - BOA

4. Board of Directors - BOA

5. Highlights of Internal Policies and Procedures forCommercial Banking - BOA

6. Balance Sheet as of October 1, 1971 - Former IBE

7. Organization and Procedures - SSPIS

8. Policy Statement - SSPIS

9. Trend of Deposits - BQA

10. Characteristics of Commercial Banking Activities - BOA

11. Audited Income Statements, 1969-1972 - BOA

12. Ratio Analysis, 1969-1972 - BQA

13. Audited Balance Sheets, June 30, 1969-December 31, 1972 - BOA

1h. Liquidity and Reserve Requirements in Egypt; BOA's Liquidity Position

15. Major Assumptions for 5-year Financial Projections - BOA and SSPIS

16. Projected Income Statements and Ratio Analysis - BOA as a whole

17. Projected Balance Sheets - BOA as a whole

18. Projected Cash Flow Statements - BOA as a whole

19. Notional Projected Income Statements - SSPIS

20. Estimated Disbursement Schedule for Proposed Credit

BANK OF ALEXANDRIA

Basic Data

1. Year of Establishment: 1957.

2. Other Significant Dates:

1864 Anglo Egyptian Bank established in London toexpand its activity in Egypt.

1925 Anglo Egyptian Bank merged with other Britishbanks into Barclays Bank DCO.

1956 Sequestration of Barclays Bank DCO, Egypt.

April 16, 1957 Establishment of Bank of Alexandria.

April 17, 1957 Barclays Bank DCO taken over by Bank of Alexandria.

July 1961 Nationalization of all banks in Egypt.

October 1963 Merger of the Import and Export Bank and Banquedu Nile with Bank of Alexandria.

October 1, 1971 Merger of the Industrial Bank of Egypt and theSavings Bank of Monsoura with the Bank ofAlexandria.

3. Ownership: (December 31, 1971)Paid-in share capital of LE 3.0 million (1.5million shares with a nominal value of LE 2 pershare) fully owned by the Central Bank of Egypt.

. Bank Group Financing: None.

5. Financial Performance:

a. Financial Position (1968-1971 as of June 30; 1972 as of December 31)

(x LE '000 million)

1968 1969 1970 1971 1972

Total assets 169.1 176.3 190.4 183.0 264.9of which:commercial loan portfolio 61.5 61.6 63.8 71.7 161.8term loan portfolio - - - - 10.6equity portfolio 0.1 0.1 0.1 0.1 0.1

Net worth as stated in balance sheet 5.0 5.1 5.4 5.7 7.4Long-term debt - - - - 3.5

b. Financial Results (in %)(x ZEIE'OO)

1968 1969 1970 1971 1972

Earnings before interest,provisions and tax as % ofaverage total assets 2.9 3.3 3.4 3.4 3.9

Profit before tax as % ofaverage equity 50.8 54.0 59.6 56.4 53.0

Administrative costs as % ofaverage total assets 1.1 1.2 1.2 1.1 1.2

Stated reserves as % ofyear-end operationalloan portfolio (short-and long-term) anddiscounts outstanding 6.1 6.1 6.6 5.3 4.6

Book value as % of par 238 259 270 287 247

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ARAB RE'UBLIC OF BaYPT

APPRAISAL OF BANK CF AIWDRIA

SUMMARY

i. The Egyptian Government requested in 1970 Bank Group finance forthe Indastrial Bank of Egypt (IBE). Shortly thereafter IBE was merged withthe Bank of Alexandria (BOA) as part of a reorganization of Egypt's banks.This step was undertaken because IBE had proved weak. BOA provides exclus-ively, commercial banking and term financing to industry of Egypt. It isthe intended recipient of the proposed credit.

ii. Egyptian industry includes a large textile sector and more recentlydeveloped steel, engineering and chemicals plants. Most industry has beennationalized since the early 1960's. More recently the Government hasencouraged private enterprise to re-enter manufacturing. Industry hasmaintained a steady output under very adverse conditions in recent years,characterized by acute foreign exchange stringencies. Imported equipmentand goods are extremely scarce.

iii. Prospects for industrial growth are reasonably favorable providedforeign equipment were more readily available. BOA is intended to be theprincipal source of term finance to the private sector. BOA is a wellnanaged and competent commercial bank. Some training will be needed howeverto improve term financing capabilities and BOA is seeking the Bank Group's help.

iv. BOA has a good financial position and portfolio. Once BOA obtainsthe necessary resources to finance asoe imports, it could help to pramote afairly substantial growth of private sector industry. The Gavernment willcontiime to finance most of the public sector industry investments directly,though BOA will have a complementary role.

v. The centralized planning system for industry relies essentially onadministrative decisions for the allocation of resources. Interest rateshave no real allocative function in the public sector and are low.Nevertheless, IDA resources would be lent to ultimate beneficiaries at aneffective cost of 9i% p.a., excluding charges.

vi. BOA would be a first time recipient of Bank Group financee Itsfinancial position, business outlook, and the indications that it will developinto an effective term finance institution, make BOA a suitable and credit-worthy recipient of such support. An IDA credits to be relent to BQA, in anamount of $15 million is recammended. It would help BQA carry projectedforeign exchange commitments through 1974.

vii. The proposed IDA credit would be lent to Egypt on standard terms*It would be relent to BOA at an effective cost of 7% p.a., for up to 1? years.IDA would enter into a project agreement with BOA. A "free limit" would beset at $100,000 and the "aggregate free limit" at $4 million.

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viii. BOA wmld stipulate that in using short-term resourcea for long-term lending it winl pay dae attention to maintaining a suand liquidityposition. BOA would also undertake to consult with the Association it. DO&sterm portfolio equals six times its not worth, with a view to reachingunderstanding on any needed additions to BOA's equity base.

ix. BOA has agreed to lend the proceeds of the credit in such a waythat at least half of the creditflnancee private sector projects and tospread the credit over a relatively large number of medium and small sizeprojects.

ARAB RUBLIC OF B3YPT

APPRAISAL OF

BANK OF ALEXANDRIA

I. INTRaDucTION

1.01 In September 1970, the Egyptian Government requested Bank Groupfinance for the Industrial Bank of Egypt (IBE). During the subsequentreorganization of the domestic banking system IBE was merged, in October 1971,with the Bank of Alexandria (BOA). The latter became the largest commercialbank in Fgypt. Under the now banking system, BOA is to operate as the only"mixed" bank in the country; e.g., providing, in addition to coonnrcialcredit, term-financing for productive enterprises primarily in the privatesector and, to a limited extent, in the public sector. In late 1971 theGovernment renewed its request for Bank Group finance for BOA. This reportappraises BOA for a first line of credit from the Association to be usedfor term-financing of productive enterprises.

1.02 Other industrial projects which IDA is presently considering finan-cing: are the first phase of a rehabilitation program for the cotton ginningindustry, which has been appraised; a fertilizer project and possibly acement project.

1.03 This report is based on the findings of visits to Egypt byMr. S. Ahmed (Consultant) in July 1971, by Messrs. PolLan and Piek (IBRD)in January 1972, by Messrs. Pollan, Piek, El Fishawy, Chanmugan and Pottker(IERD) in November/becember 1972 and by Messrs. Piek, Chamugan and Haji (IFC)in March 1973.

II. BOA'S ENVIRONMENT

2.01 Economic Eivironment and Recent Economic Performance . A review ofEgypt's econony may be found in a report entitled "Current Economic Positionand Prospects of the Arab Republic of Egypt" (EMA-56a), distributed to theExecutive Directors under R73-16 on January 23, 1973.

2.02 Egypt's GNP at current market prices was $210 per capita in 1970/71:among the lowest in the Mediterranean area. In 1960/66 the econqr achieveda real growth of 6% annually, nearly reaching the ambitious Plan target of7%. Following a severe balance of payments crisis in 1966, the 1967 war, andrising defense spending (15% of GNP by 1969/70) there was a serious setback

in economic development. However, after 1968 the economW recovered: GDPgrowth in 1969/71 averaged about X annually, partly helped by aid fromother Arab coantries. Nevertheless, Erpt's balance of payments situationrenains a critical constrainte In 1971/72 the current accounts deficitreached HE 106 moLlion. At December 31, 1972 Erpt's short-term foreignexchange liabiJities exceeded foreign exchange assets by &E 245 million.The continu.ing scarcity of convertible exchange has resulted in seereshortages of spare parts. Altogether, there was a low level of investment --in recent years, only 12% of GDP.

2.03 Economic Planning and Polic Orientation. In the past decade,Egypt's econc; was transformed from a predoM y private enterpriseecono-qy to a centrally-controlled system with largely Government-ownedenterprises. Market forces have in the main been displaced by direct con-trols. The emphasis on central planning is likely to contime. A Five-Year(1973-77) Plan is currently under discussion in the Government. Reportedlythe new Plan calls for arnnal investments in public sector industry of aboutME 190-220 million -- roughly one-third of proposed tatal investments,about the same proportion as in the past decade.

2.04 The various nationalization laws included provisions for curpensationfor the nationalized properties. In the case of foreign properties, mostof the claims had been settled by the end of 1969. Egyptian natiornals werecompensated in most cases in the form of Government bonds.

2.05 Since the nationalization of all major industrial units and banksin the early sixties, public sector industry has dominated industrialactivity accounting now for about 75% of the value of industrial output.Nationalizations of enterprises occurred ad hoc until 1967 bat not sincethen.

2.06 There are no clear-cut sectoral demarcations between State andprivate industries. Private enterprises mainly consist of small-scaleindustrial units and artisan-type activities: but there are also asizeable mnber of firms with 200-300 workers, particularly in textiles.The private sector is strong in woodworking and leather industries. Italso accounts for about 20-25% of the output in the textile, food, chemicaland engineering industries.

2.07 The Government has recently made statements that there will beno further nationalization or sequestration of existing private enterprises,and that it intends to give the private sector "broader scope" for develop-ment. Early last May the newly-formed Government announced its plans tocreate a promotional center for private sector industry. Also the recentlyestablished Arab International Bank for Trade and Development, and theestablishment of free trade zones are designed to encourage foreign privateinvestment in Egypt. Furthermore, private business representatives andGovernment officials expect that existing impediments on private initiativewill be gradually reduced.

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2.08 Institttional Aspects the General Organization for Industrialization 1/In Egypt, over 50 "General Organizations" control, under the supervisionof the respective ministries, operations and investment decisions of publicsector enterprises. As to industry, decision-making is centralized inthe General Organization for Indastrialization (GOIndr) chaired by theMinister of Indlustry. All public sector industrial investments, and allprivate sector investments exceeding LE 8,000, are subject to GOIndr'sapproval. The depth of GOIndr's appraisal seems to differ greatly betweenpublic and private investment projects. For the latter, GOIndr's involve-ment appears limited basically to a check on the consistency of a privateentrepreneur's investment project with governmental allocations of imported,or scarce domestic, industrial production materials.

2.09 GOIndr appears to have competent leadership and its staff guide-lines for appraising public sector investment projects are comprehensive.They cover most of the topics, including economic considerations, relevantto a judgment on the soundness of each investment proposal. But the BankGroup has only a scant knowledge of how GOIndr Is final decisions are made.

2.10 Industrial Trends. Accelerated industrialization is a majorobjective of the Government since the mid-1950's. In Egypt's first Industri-alization Plan (1957) the Goverrment took upon itself to establish resource-based industries such as iron and steel and petroleum extraction. Investmentsfor import substitution were often not aimed at achieving optiimz prodLctivity.In the past three years, industrial development became more capital intensive,focussing on iron and steel, oil extraction and some chemicals -- altogetherabout 70% of industrial public sector investment. Annual industrial invest-ment hovered recently around ME 125 million with more than 90% going to thePublic sector.

2.11 Since the 1960's, value added in industry rose at an averageannual rate of about 6% in real terms. In the past three years, this ratewas nearly 10%. The share of industry in GDP was 23% in 1971. The recentemphasis on heavy industry has not yet significantly changed the structureof output. Cotton yarn and textiles still account for 21%, and foodindustries for 19% of the total; of the remaining 60%, the more recentlyestablished resource-based industries take up 20%; iron-ore extraction andiron-and-steel mamfacturing 10%; and engineering and electrical goods about30%. Egyptian industry is heavily concentrated in the Cairo/Helvan area.Substantial industrialization is projected near Aswan, mainly inelectricity-based industries.

2.12 Egypt's industrial capacity was at times considerably under-utilized.Factors were the premature establishment of large units unable to producefor export (e.g., steel) and shortages of imported raw material and spare parts.

1/ A review of the decision-making process in Egypt affecting industrialinvmestment and the related responsibilities of various public agenciesis given in Annex 1.

Shortages of local raw materials apparently were a lesser problem.Capacity utilization appears to have improved in the past year or two,parl,e she to some easing of import restrictions. But under-utilizedcapacity persists, mainly in chemicals and in metal manxfacturing andtransforming indlstries. Also, there has been a backlog of rehabilit-ation and modernization, particularly in the private sector, because ofconvert,ible foreign exchange shortages.

? 13 yt's exports of manufactures, I/ one-third in cotton yarnand textiles, increased from BE 82.0 million to 6E 110.0 million in theperiod 1968-71 -- accoanting for about 40% of total comuodity exports.There have been slight increases in the share of exports of shoes,beverages and read;y-mde wear. The only significant changes in the pastdecade were the doubling of exports of petroleum products. Althoughstill relaively small, private sector exports of manufactures, as shownin Annex 2,, increased by ovaer 50% in the past four years to ME 17.6 millionir. 1971/72. Leather products, textiles and ready-made wear tcake thelargest share.

2.154 Industrial Finance. There are no well substantiated figures onthe sources iofindustrialnvestment financing. In the public sector, mostof the investments are financed by the enterprises themselves and by theTreasury. Commercial banks., through renewals of overdrafts, play some rolehowever. The private sector seems, in recent years, to have relied largelyon self-generated funds, some term loans from the former IBE, and to alesser extent, on renewable bank overdrafts.

2.1 5 Public sector companies allocate, in addition to depreciationallowances, on average about 20% of their net income to reserves. It is notclear from the available statistics to what extent reserves and depreciationallowances are kept within the coMpanies, are transferred to generalorganizations or to the central government. Resources transferred directlyto the State are pooled in a central Investment Fund for reallocation toindustry. In 1970/71 such transfers were about LE 50.0 million -- somewhatless than half the public sector investments in indastry that year. Theycame mainly from the textile, food and chemical industries.

2.16 Financial BErvironment and BOA's Role as a Mixed Bank. The Governmentowns and conr rough 7the Central Bank of Egypt (CBE), the commercialbanks in Egypt. But banks have a high degree of independence in their day-to-day management. Credit expansion is closely controlled by the CBE. In thepast three years, despite a restrictive credit policy adopted by the CBE, bankcredit expanded at an annual rate of between 8 and 10%, with heavy Governmentborrcwings absorbing most of the expansion. CBE's restrictive credit policymade for a high liquidity of Fgypt's commercial banks: The actual aggregateliquidity ratio is over 45%, compared with a minimum liquidity ratio of 30%,set by the GBE.

1/ Excluding cr ' si' and bleached rice.

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2.17 In late 1971, the Government promulgated a law which reorganizedthe domestic banking system. The law became effective in July 1972, andreduced the number of commercial banks to four, assigning to each of them asclients, general organizations and related public sector firms. Each bankcaters to firms with the same "basic economic function". Under the newsystem BOA is responsible for the financing of "productive"' enterprises(including industrial, agricultural processing and handicrafts).

2.18 The private sector, while left free to deal with any bank forcommercial facilities, must -- for industrial term borrowing -- deal withBOA. Most private industry is expected to come anyway to BOA for comercialfacilities. On July 1, 1972, following the transfer of the various accountsamong the banks, BOA's short-term operational portfolio (which now includesthe important textile sector) doubled to LE 186.o million and the net increasein deposits was about BE 20.0 million.

2.19 Following the take-over of IBE, BOA operates as the only mixed bankin Egypt. So far, CBE has not laid down any term financing regulations forBOA in view of the relatively small share of term loans in BOAls portfolio; 1/but it is expected to do so when BOA's term lending becomes more sizeable.(See paragraph 4.16)

2Q20 GOIndr's predominant function in investment decisions and budgetaryfinancing of most public industrial investments will limit BOA's role infinancing investments in public sector industry. The Government does notintend to involve BOA either as an appraisor or as manager of special $undsfor public sector investments. The Government envisages on2ly "a complementaryrole" for BOA, meaning that public sector firms, and the general organizationssupervising them,could approach BOA if the Government is unable to provideneeded investment funds. Thus public sector firms with investment projectsalready approved by GOIndr and put on the waiting list by the Treasury, canchoose betwrqn (i) applying to BOA for term-finance -- at an interest rate of6.5% p.a., - and (ii) postponing the implementation of their projects untilfinance becomes available from the Government. At present, Government foreseesBOA's involvement to remain marginal, say less than 5% of annual public sectorinvestments in industry. BOA itself wants, at first, to go slow in this field,while it develops its term financing capabilities.

2.21 BOA can reject public sector firms' investment proposals if they donot meet BOA's own investment criteria. But a rejection by BOA would not preventGOIndr from proceeding with a planned investment by having it financed from theTreasury. However, GOlIdr has assured BOA that BOA will have the opportunity tosuggest changes in a public sector project submitted to it for term financing.BOA's influence in the shaping of public sector projects is likely to developonly gradually.

2.22 In the Private sector there is immediate scope for BOA to perform anormal development banklng fu:nction. The general policy setting is improving.

1/ In the meantime, BOA has applied to CBE to obtain some of the privilegeswhich were granted to the former IBE; i.e.,(i) the right to float bonds,(ii) a preferred right, over any other creditors, of seizure on term-loanclients' assets in case of their liquidation and (iii) exemption from stampduties and registration fees.

2/ For local currency loans.

But BOA's effectiveness in this area will depend on its success in gainingthe confidence of private industrialists who remember nationalization. Thefact that BOA has succeeded in retaining a large degree of independence fromthe Government, and the good reputation of BOA's management, augur well forBOA's ability to attract private sector clients. Also, the prospect that BOAwill dispose over untied foreign exchange from an IDA credit is likely togreatly facilitate this task.

2.23. Cost of Credit in Egyp. Egyptian low prohibits individuals andinstitutions trom charging interest in excess of 7% per annum. EgyFptianinterest rates have remained unchanged over a long period of time. Banksnormally change between 6 and 7% per amnum (excluding banking charges of bet-ween 0.5 and 1% per annum) for all credits except cotton financing, for whichthere is a preferential rate of 5-A4%. Interest rates are 2-4% on time depositsand X on regular savings accounts. Other savings instruments, e.g., variousgovEnmeital savings cetIftcates, yield returns of 5% and ae exmpt bran income tax.

2.24 There are indications that an interest rate held at 7% underestimatesthe real cost of capital in Egypt. Although prices are controlled, inflationarypressures in the past few years appear to have been considerably in excess ofthe officia,lg recorded rise in the consumer price index of about 3-4%aImall,y. on capital prarided in a form giving access to igorted goodsinterest rates often exceed considerably the legal ceiling. 2/

2.25 Wile interest rate in Egypt are low, higher rates would not neces-sarily lead to inproved resource allocation. In Egypt, interest rates do notperfom the function nor are they considered tools of resource mobilization andallocation. in Egypt's centrally planned econozq, where maximizing returnsfrom scarce resources has played only a minor role in industrial investment,decisions to adjust tae pricing system and the criteria for investment wouldalso be needed to brine abot improved allocation of resources by way ofmarket prices. The autho-!.Ar,< appear to have recognized the benefits ofreducing excessive Governmei t;onrols. Also, there is some awareness ofadverse effects on resource aLlocation from past price policies.

2.26 Foreign exchange continues to be a very scarce resource and since BOAwill be operatirg in both the publir^ and the private sector its interest rate"iiould move in the direction of more f'l0LUy reflecting the real cost of itsresources. Therefore, the Egyptian Government and BOA have agreed. to take theBank's current Isnding rate as a basis for determining the costf c the proceedsfrom the IDA credit to BOA's sub-borrowers. On this basis, and allowing for areasonable spread, BOA would charge an effective cost of 9.5% per annim (ex-cluding banking charges) on foreign exchange loans, (See also paragraph 6,05).

1/ According to a recently published study by a parliamentary committes,thecost of living in the Cairo area went up by 12.5% in the period January-December, 1972, with prices for such consumer goods as fruits, vegetablesand dress material having increased by 40%, 26% and 22% respectively 0

2/ The CBE allows the banks to pass on to borrowers borrowing costs higherthan 7% on short- and medium-term funds borrowed abroad. In the case ofthe proposed credit to BOA this practice cannot be followed since thecredit would be made available to BOA through the Government, which, ofcourse, is itself subject to the legal interest ceiling.

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III. THE COMPANY - ORGANIZATION, POLICIES AND PROCEDURES

A. Bank of Alexandria as a whole'

3.01 Background of Establishment, Legal Status and Ownership. BOA is thesuccessor to Barclays Bank D.C.O. in Egypt which was sequestrated in April 1957.The establishment of BOA, as a joint stock company, and its takeover of BarclaysBank D.C.O. occurred the same month. In July 1961, BOA and all other banks inEgypt were nationalized. Since that date, BOA took over two commercial banks:In October 1963, the Government-owned Import and Export Bank and Banque du Nil,and in October 1971, two specialized banks: IBE and the very small Savings Bankof Mansoura.

3.02 As of December 31, 1972, BOA had a paid-up share capital of LE 3.0million, denominated in 1.5 million shares each with a par value of LE 2.0; CBEowns all of BOA's shares. BOA's paid-up share capital had remained unchanged at£E 2.0 million until October 1971, when it was increased to LE 3.0 millionfollowing the takeover of IBE.

3.03 Organization. BOA has recently introduced a new organization structureoccasioned by the 1971 banking law. The new organization chart shown in Annex 3,has been approved, as required, by the Central Agency for Organization andManagement. A brief explanation of the main functions of BOA's head office de-partments in Cairo and Alexandria are given in Annex 3. BOA has a large networkof branches - 80 as of December 31, 1972: 24 in lower Egypt, 19 in Cairo, 8 inAlexandria, and 29 in Upper Egypt.

3.04 Board of Directors and Management. As in most public sector units,all Directors are full-time officers of BOA. The absence of outside representa-tion on BOAls Board is an Egyptian perculiarity which is unlikely to change. Thesystem has worked well in the case of BOA.

3.05 BOA's Board is ccmposed of nine menbers (see Annex 4). The Chairmanand four Directors are appointed by Presidential Decree for indefinite periods.The other four members are elected by BOA's staff for a renewable term of twoyears; in practice, these elected Board members are recruited from among BOA'smiddle management. Mr. Abdel Al Ghaffar bas been Chairman since 1967. As BOA'schief executive, he plays a dominant role in the running of BOA, providing itwith competent and energetic leadership. Mr. ahaffar has held various importantgovernmental positions, most recently as Chairman and Managing Director of theArab Land Bank. The present management team is composed of experienced com-mercial bankers, some of whom were trained in Barclays. Messrs. El Bayoumii andNoureddin -- second and third, in line of seniority in BOA -- head BOA's majordepartments. hTke Chairmah reliea heavily on both.

j/ For discussion of SSPIS, BOA's new development banking unit, see paragraphs3.17 - 3.27.

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3.o6 The Board usually meets once a month, and decides on all importantmatters including major credit applicLtions. The Board makes its decisions bya majority vote, with the Chairman casting the deciding vote in case of a tie.lt appears that decisions by the Board -- working like a Loan Committee -- aretaken in a business-like manner and that the CBE, while directing BOA's generalorientation, does not interfere in day-to-day management.

3.07 Most departments heads in BOA's head office and the branch managershave a long record of satisfactory performance within the institution; thereare still some 250 managers and senior professional employees who have workedwith Barclays.

3 .08 Staff. BOA has some 3,500 staff members, of whom approximately2 . ,uO are professionals, including 125 managerial staff. Staff increased by2b, since 1969, while BOA's assets grew by 30%. BOA estimates that, due to thereorganization of the banking system, its professional staff will have to in-crease by another 15% in the next two years. Other public organization in Egyptregard DOA as a reservoir of well-trained financial experts and have recruitedsome BOA staff members. But in the past few years BOA's staff turnover has beenlow. BOA's management emphasizes staff training at all levels through profes-sional courses at various institutions, and through BOA's internal trainingprograms which seem to be of good quality.

3.09 Functions and Procedures. The objectives of BOA are very broadly de-fined in its Articles of Association as "undertaking all comercial bankingactivities of whatever type". Following the banking reorganization, BOA's ob-jectives were broadened to include "the financing, through loans and advancesfor short, medium and long periods, of all productive units in the industrialand agricultural sectors". There will likely be no investing in equity. BOAdoes not have a formal policy statement for its comnercial banking activities.But its internal guidelines and instructions, summarized in Annex 5, appear wellconceived, emphasize prudence, and are being followed in practice.

3.10 Criteria and procedures for processing credit applications and forobtaining adequate securities for credit commitments are very strict -- largelybased on Barclay's standards. Procedures for follow-up of all accounts by headOffice through monthly reporting by branches seem equally effective. Headoffice and branch managers have some latitude in their credit decisions; thecredit limits seem appropriate. (For details see Annex 5).

3.11 Supervision by the Central Bank. Under Egyptian law, the CBE has super-visory powers normai for a central bank. In addition, in its capacity as GeneralOrganization for Banks, it also controls certain aspects of BOA's operations ofa kind elsewhere reserved to shareholders or a Board in a joint stock company,including the right to approve the yearly budget and any important changes in theorganizational structure and internal policies and procedures.

3.12 BOA is required to submit fortnightly to the CBE up-to-date statisticson BOA's liquidity position. Audited year-end accounts have to be submittedthree months thereafter. The CBE also carries out, from time to time, a fullinspection of each Egyptian commercial bank similar to a yearly audit. BOA waslast inspected directly by the CBE in 1966; no date has been fixed for GBE'snext inspection.

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3.13 Audit. In 1965 the Government promulgated Law No. 44/65, requiring allpublic sector economic units, including banks, to be audited by special depart-ments attached to the General Organization under which the particular unit isplaced. These departments are responsible to the Central Agency for Accountancywhich, in turn, is directly responsible to the Egyptian Parliament and thePresident of the Republic. Law 44/65 has been implemented for all economic unitsexcept banks because the Agency presently lacks the expertise required for auditingcommercial banks. The auditing law will eventually be applied to commercial bgnks,although highly unlikely in the next two years or so. The authorities have agreedthat BOA will continue to be audited by qualified, independent -- though notnecessarily private -- auditors, acceptable to the Association.

3.14 BOA's current auditors, appointed two years ago, are Mr. H.M. Rhagheb,senior partner of Rhagheb El Gamal & Co., and Mr. M.K. Saleh, partner ofS. Barsoum & A.M. Abdel Aziz. Mr. Rhagheb, an accountant chartered in GreatBritain, is the senior of the two. Mr. Rhagheb's qualifications, experience andprofessional standing are such as to perform satisfactorily as principal auditorof BOA. He has done satisfactory audits of BOA. The audit programs, work-schedules and audit reports, are submitted to the Central Agency for approval andcomment.

B. BtE's Merger with BOA

3.15 In the last few years before the take-over, IBE was only a marginalterm lender to industry engaging mainly in short-term accommodations and renewalsof overdrafts to small private enterprises -- as much as 90% of IBE's businessin 1970-71. IEE's financial position was poor when BOA took over: The debt/equity ratio had reached 8.1 and an official committee appointed "to reassess thenew worth of IBE for the purpose of the merger with BOA" found that IBE's sharecapital of £E 1.5 million had been impaired by about £E 90,000.J

3.16 The Government did not want to strengthen IBE. Rather, it concludedthat the merger would provide Egypt with an institution of greater organizationaland financial strength to engage actively in development financing principally inthe private industrial sector. The poor condition of the former IBE and the Go-vernment's wish to concentrate all of Egypt's banking services in four commercialbanks favored this course. There are advantages in putting at the disposal of anew development banking unit BOA's ample local resources, its extensive andeffective branch network and, in general, the competence of BOA's management andthe efficiency of its organization. 2/ In addition, account was taken of theregard in which BOA is held by the authorities, the important public sectorentities and by the private sector.

1/ It would appear, however, that the Committee's assessment has been over-conservative and that the take-over price for IBE of about £E 1.4 millionunderstated IBE's real net worth by about LE 200,000. (IBE's balance sheet,as approved by the committee, is given in Annex 6).

j The CBE, in its 1971 comparative analysis of the commercial banks, identifiedBOA as "superior to the other commercial banks in the field of banking ser-vice" (Figures on CBE's comparative analysis are given on page 3 of Annex 12).

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p. Special Services to Private Industrial Sector (SSPIS) --BOA'snew Development Banking Unit

3.17 Organization, Policies and Procedures. BOA has created a new Depart-ment -- SSPIS -- to carry out its term lending activities, as well as to under-take some commercial banking activities in the private sector. SSPIS isdirected by a General Manager who reports directly to the Chairman. WhereasBOA presents itself towards third parties as one Bank, it is setting up aseparate SSPIS staff and separate internal accounting systems for its term-financing and camercial banking activities.

3.1d BOA's review of the former IBE's organization revealed a weak internalstructure and, in general, inadequate policies and procedures. But there weresome capable staff members in IBE, who are now in BOA. The Central Agency forOrganization and Management has approved, without any amendments, the organizationchart for SSPIS. The set-up of the Department, shown in Annex 7, as well as itslinkages to BOA, are well conceived and appear to fulfill the requirements of aneffective mixed banking institution. The building up of SSPIS as an effectiveorganization will take time. SSPIS's management, new itself to this task, islikely to be hard-pressed at the outset introducing SSPIS's middle-management andprofessional staff to the ways of industrial term financing. BOA has requestedtechnical assistance from the Bank Group in improving SSPIS's appraisal work andin training SSPIS staff (aee paragraph 3.214). The competence of BOA's managementand staff inspire confidence that high professional standards will be attainedeventually.

3.19 An important feature of SSPIS's structure is to actively engage BOA'sbranches in private sector term financing. They will be supervised by two orthree centrally located main branches. For the time being none of the brandheswill be involved in the processing of public sector applications wihich must besubmitted directly to the head office. In line with BOA's commercial bankingpractices, branch maragers will have sme discretionary limits for term-loans upto three years; all applications for loans over three years will be reviewed anddecided upon by the head off i'e The proposed limits are low: £E 3,000 perclient for regional branches and 5E 5,000 per client for the main branches. Giventhe expected strict supervision by the head office these limits seem acceptableand could act as incentive for branoh managers to pursue actively private seetorfinancing. Further details on SSPIS s procedures are in Annex 7.

3.20 BOA is now in the process of iplementing the structure, procedures andstaffing of SSPIS. Pending the inauguration of SSPIS's new structure, its mana-gement has been instructed to carry on the former IBE's regular business, but notto caivass for new business.

3.21 BOA's Board recently adopted general policy guidelines for term-lendingoperations (see Annex 8); they are essentially directed towards maintenance ofsound appraisal standards, diversification of lending operations and financialprudence criteria. BOA may amend these general guidelines as it gains experiencewith its term lending program and has agreed to consult with the Association onany proposed amendments before they are put into effect.

3] The name appears restrictive since SSPIS will undertake term-lending bothin the private and the public sector.

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3.22 Management and Staff. Mr. Abdel Hamid Ahmed Kabodan, SSPIS's newlyappointed General Manager, was until recently one of BOA's Assistant GeneralManagers. He has been with Barclays Bank and then BOA since 1948. He is amature manager with good financial and business experience. While Mr. Kabodanhas wide experience as a commercial banker, his ability to manage developmentfinancing activities is still untested. He is, however, familiar with the con-cepts and purposes underlying development banking. He is likely to run SSPIScompetently.

3.23 Appointments of a Deputy General Manager and Department Heads areplanned before July 1, 1973. The quality of BOA's middle management gives rea-sonable assurance that a competent management team for SSPIS can be formed fromamong BOA's present staff resources. Initially, about 40 staff members may haveto be placed in SSPIS. Good SSPIS staff candidates are available -- some of thecapable hold-overs of the former IBE, but in majority experienced BOA staff.There should be no problem in filling these positions.

3.24 Training. BOA's management wants SSPIS to draw as much as possible onother term financing institutions' experience. Various forms of training indevelopment banking have already been arranged, for instance, on-the-job trainingfor four senior professionals with two development finance companies associatedwith the Bank Group: ICICI in India and TSKB in Tarkey. More programs of thistype are likely to follow. BOA is also very interested in training from EDI.

3.25 Project Appraisal. Some term-financing experience brought in from IBEcan be used by SSPIS. But IBE paid little attention to assessing projects' tech-nical and economic viability. These are therefore prime areas for improvement.They should be quite attainable for BOA staff, qualified as it is.

3.26 There are other aspects of SSPIS's future project work which SSPIS aimsto resolve. First, BOA must be careful in building up relations with GOIndr,particularly as to cooperation and any division of labor, in financing publicsector investment projects. While it would be appropriate for SSPIS in its earlystages to take advantage of GOIndr's appraisal work, BOA must build up and relyon its own capacity as quickly as possible. Given the attitude of GOIndr'sChairman, GOIndr seems quite willing to cooperate with BOA. Second, SSPIS has tolearn how to deal with developmental aspects of investment projects, in additionto considerations of creditworthiness. SSPIS will have to build up strength andsee to it that economic considerations weigh in investment decisions throughappropriate economic appraisals. SSPIS contemplates making internal economicrate of return calculations for the more sizeable term-loan applications. BOAwill concentrate its economic analysis on private sector projects while buildingits expertise. For public sector projects, BOA will initially only review theeconomic analysis undertaken by GOIndr. Third, SSPIS realises that it has tobuild up capable technical staff. Hitherto, outside professionals were calledin whenever there was a technical problem, but in these cases the focus waslargely on the asset value of machinery and checks on the appropriate installationof equipment. BOA's management has decided, to add at least three engineers tothe three presently employed. j/ Fourth, a special problem is the usually poor

3] BOA is also thinking of organizing an advisory technical committee fromamong senior engineers and managers in public sector companies and otherinstitutions to give ad hoc advice on the engineering aspects of investmentproposals.

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quality of clients' accounts, compounded by the fact that most private enterprisesoperate as sole proprietorships and partnerships whose internal flow of funds isdifficult to monitor. SSPIS intends maintaining strict standards for clients'accounts. At the same time, it plans to assist applicants, whenever feasible, inimproving their accounting system.

3.27 Project Supervision. BOA intends to operate an effective end-use sys-tem for term lending, both as a source of up-to-date information on client'sperformance, as a tool to help borrowers, and to provide feed-back to appraisalstaff. It is not easy in Egypt to obtain private entrepreneurs cooperation insubmitting operational and financial data to a Goverment-owned institution.SSPIS supervision of its industrial term borrowers will, however, be facilitatedby client knowledge. coming from BOA's commercial activities.

3.28 BOA's Disbursement Procedures. Normally, BOA disburses against docu-mentation (supplier's invoice, bills of lading, insurance policy, etc.). Eachdisbursement requires the authorization of the head of the Supervision Department.Disbursements are generally made to the supplier of the equipment of goods. Costsof civil works are reimbursed on the basis of the Department's reports, usuallyfor work completed. Overall, BOA has a well-run disbursement system and similarstandards can be expected for SSPIS.

3.29 Procurement and Import Licenses. All public and private entities must,by law, obtain an import license for all goods and equipment requiring paymentin foreign currency. Typically,before the license is granted, importers are re-quired to submit competitive offers to one of the statutory decision committees,depending on the type of goods involved. Imports can only be undertaken throughthe state-owned foreign trade corporations. The preparation of tenders andreceipt of competitive bids are undertaken by one of these corporations. Thecommittee's decision on the choice of goods to be imported is transmitted to theMinistry of Industry. This Ministry in turn issues the import permit afterascertaining the availability of foreign exchange and the priority of the foreignexchanges quota assigned to that industrial sector. The centralized screeningof proposed equipment imports seems to work reasonably well.

3.30 In the case of the imports to be financed out of the proposed IDAcredit, it is expected that identical procedures will be followed. However, thespecific license application tp the Ministry is to indicate the IDA line-of-credit as the source of foreign exchange. Thus, there is no need for the Minis-try to go through the foreign exchange quota priorities. The authorities haveconfirmed to IDA that, whenever BOA and the decision committee concerned haveapproved a project, and to the extent IDA concurs in the project, the authoritieswill promptly make available the import license for the project.

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IV. RESOURCES, OPERATIONS, FINANCIAL PERFORMANCE AND POSITION

4.01 Resource Position. Deposits, most of them short-term, make up thebulk of BOA's resources. In 1971, following the nerger with IBE, BOA tookon long-term borrowings for the first time. Shown below is a sunmary ofBOA's resources as of December 31, 1972, before distribution of 1972 profits.A percentage breakdown as of Jane 30, 1970 and 1971 is shown for comparison.

Jane 30December 31, 1972 1971 1970

Net worth 7,,421 2.6 2.9 2.7Provisions 18,361 6.5 6.5 5.5Outstanding term borrowings 3,500 1.2 - -Deposits 240,505 84.9 86.8 88.2Sundry creditors 8,363 3.0 2.8 2.5Unappropriated profits 5.,156 1.8 1.0 1.1

283,306 100.0 100.0 100.0

BOA's principal resources are discussed below.

4.02 Equity. As of December 31, 1972, BOA's net worth as stated inthe balance sEeet, stood at LBE 7,421 million and included a paid-in sharecapital of LB 3 million and reserves of LBE 4,421 million. However, thesefigures understate BOA's real net worth: BOA follows very conservativepolicies in creating provisions for bad debts and other contingencies 2J/.Tax authorities treat BOA's generous provisions in full as tax-free expenses.BOA, in consultation with its auditors, has estimated provisions in excess ofneeds which could be regarded as part of BOA's equity. On this basis, BOA'snet worth as of December 31, 1972, before distribution of 1972 profits, wasat least BE 18.0 million, as follows:

1/ In accordance with regulations issued by the CBE, BOA is changing itsfiscal year from July 1 -- June 30 to calendar years. The periodJuly 1 -- December 31, 1972 is an interim period and has been auditedseparately.

2/ Provisions for "bad and doubtfult" loans, for instance, are made not onlyfor the full amount of "bad and doubtful"f loans outstanding but alsoagainst loans which are suspected of possible future arrears.

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Stated net worth per Balance Sheet: (LE millions)

Capital 3.00Reserves 4.42 7. g

Provisions EstimatedIn Books Requirel Excetla

Doubtful debts 9e52 4X52 5.00For losses on securities 0o61 o.16 0.45Pensions & retirements 0.34 0e34 -For emergencies 0.59 0.39 0.20Against losses in Gaza 1.01 0.41 o.60Taxes 3.20 2.90 0.30 6)

Fixed Assets

Real estate-aarrent value 5.00In books at o.56 4-44

18.Iil

An important emponent in the real net worth of BOA is the current "Namaktvalue" of real estate owned by BOA which is currently œtated at LE 0.56million BOA's management and the auditor estimate that BOA's real est4evalues vary between BE 10 to LE 15 million. For the above, a lo figure oa,E 5 0 million was taken.

4.03 Deposits. BOA's deposits from public and private sources grew atan annual average of over 9% in recent years. BOA's share of all depos d$ain Egypt remained constant at about 23%. Demand deposits were about 454savings accounts about 15% and term and other deposits made up abomt 40 oftotal deposits with 'BOA as of December 31, 1972. Largely due to the banks'reorganization, BOA's deposits rose sharply in 1972 to LE 240.5 milin 140%more than at year-end 5 >71 A fuller analysis of the trend of BOA's 4osLKtsis 1n Annex 9.

04-OL Ot1her Resources. BOA hnad rediscount facilities with the CM,, t.-cent,ly at BE 16.0 mil-lion, bat has not used them in the last few years. Nowthat, the National Bank of E;Upt is responsible for the financting of fore4gntrade, BOA 's foreign currerircy balances are ixaignificant.

4.05 Characteristics of BOA"s Commercial Banking Activities. :n tCn postthree years ttivagh Jun2 BOA' operational short -terB portfoiso gmfrom BE 61.6 minlion to BE 96.2 million -- almost 20% annually. BOA'scoamnercial activities are summarized in Annex 10.

4.06 In accordance with normal commercial banking practice, BOA is pre-pared to renew overdrafts under certain conditions. Renewable overdrafhs srmostly used to finance temporary working capital needs. NoCUlTly, BOArenews such overdrafts only if the borrower settles its account at least oncea year. In addition, BOA has renewed several overdrafts which financse lwatlt.

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Such overdraft facilities should be regarded as de facto term financing.BOA has not kept a systematic record of this type of financing, butestimates the outstanding amount at approximately LE 10.0 million. SinceBOA can now provide straight term leziding, it may, in consultation withborrowers, convert smme of these overdrafts into term loans.

4.07 Tern Lending Operatioas. In the period October 1, 1971 - March 31,1973, SSPIS processed a substantial. nmuber of projects, all in the privatesector, but for a small total amount: BE 3.5 million mainly to small-scaleentrepreneurs in textiles and metals. The great majority of SSPIS' loanswas for medium term (less than 5 years). BOA has until now focussed on themerger with IBE and has not yet made any sustained attempt to canvass forterm business.

Evaluation of Loan and Equity Portfolio

4.08 BOA as a Whole. As of December 31, 1972, BOA had a net operationalportfolio of LE 161.W "illion, constituting about 63% of total assets. Non-operational investments and miscellaneous assets amounted to 7% and cash andnear cash to 30% of the total.

4.09 Quality of Short-Term Operational Portfolio. BOA, as said, iscautious and wants good security. It has been quite conservative in thesetting of ceilings on overdraft facilities. As a result of its conservativeapproach, BOA's short-term portfolio overall seems sound. The banking re-organization resulted in a drama.Yc increase in BOA's short-term credit port-folio; i.e., by BE 89.7 million - raising BOA's portfolio to BE 185.9 millionon July 1, 1972. Ninety eight new industrial public sector companies wereadded, most important among them the spinning and weaving sector taking up28% of BOA's commercial portfolio on Decenber 31, 1972. While there is con-siderable room for modernization, taking its existing equipment into account,overall standards of performance in Egypt's textile industry appear reasonablyacceptable. Approximately 16% of total textile output, or LE 60.0 million,was exported in 1970/71, nearly one-third to convertible currency countries.Electric and electronic industries took up 17.0% of BQA's commercial portfolio,and food products 11.5%. Further details are in Annex 10. BOA has had nodifficulties with the sectors represented in its portfolio for some time.Unless there is a major upheaval in these sectors this situation should on thewhole continue. The total amount outstanding in "bad and doubtful" loans ofLE 4.5 million on December 31, 1972 constituted only 2.5% of total operationalportfolio, most of it adequately secured. BOA's actual losses on its commercialportfolio have been negligible ( on the average less than LE 40,000 per yearin the past five years).

1/ These accounts were taken over by BOA at their book value. Provisionsmade against these accounts by the banks from which the accounts weretransferred have been placed with the CBE in blocked accounts. In caseof write-offs, BOA can avail itself of these funds. Furthermore, theoriginal banks are required to supplement the funds placed with CBE,should write-offs on the accounts transferred to BOA exceed the totalamounts of provisions.

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h.10 Quality of Term-Loan Portfolio. As noted in footnote 1 on page 9,write-offs on the term-loan portfolio of LE 7.4 million taken over from theformer IBE appear to have been valued on a conservative basis. As a result,BOA's present term-loan portfolio is sound.

Financial Performance and Position

4.11 Earniggs Record. While BOA's earnings performance has been goodhistorically, no clear trend has been distinguished in the past four years.Overall, BOA has been operating within a comfortable 5% spread despite itshigh exposure in low-yielding liquid assets. Also administrative expenseshave been relatively low (1.2% of average total assets in 1972). Write-offshave been negligible. In 1972, net profits, as percentage of aver-age networth (including excess provisions) was 21.8%. BOA's audited income statementsfor 1969-1972 ake shown in Annex 11. Annex 12 gives ratio analyses of BQA4sfinancial perfohmance.

4.12 BOA's shareholders (CBE) are entitled to receive 75% of BOA's yearlynet profit, after decudtion of fixed appropriations for reserves and certaincompensations. The remaining 25% of BOA's yearly net profit so determined ac-crues to BOA's staff. BOA's yearly pay-outs have been high -- between 80% and90% of net profit, after appropriation of reserves, in the past four years,.Since the appropriation of net profits of public sector units is regulated bythe Government, there is little that BOA -ca do t-o increas ethe percentage ofploughing back profits. BOA's provision policies, which have the endorsementof the CBE, have the effect of mitigating the high pay-out requirements. If

excess provisions are added back to yearly net profits, the pay-out ratio wasapproximately 6S% in the past four years. In view of the pay-out regulations,BOA intends to take conservative provisions even more emphatically for itsterm loans to build up an miple net worth cusion.

4.13 Finangial Position. Annex 13 shows BOA's audited balance sheets for1969 througlh Detember 31, 1972. The following summary table illustrates BOA'shigh liquidity as mentioned in paragraph 2.16.

As of Jiue 30, 1269 1970 1971 1972

1. Deposits and other short-term liabilities 145,518 160,757 156,310 186,558

2. Liquid assets j 129,599 144,804 101,109 157,6803. Liquidity ratio

(2 as % of 1) 89. 1% 80.1% 64.7% 84.5%

However, because of the sharp increase of BOA's operational portfolio, the liqui-dity ratio dropped Sharply, to 45.5% as of December 31, 1972.

4.14 On December 31, 1972 BOA had contingent liabilities totalling aboutLE 195 million, including £E 70 million for letters of guarantee issued andLE 125 million for documentary credits. Approximately 90% of BOA's guaranteebusiness relates to public sector enterprises; here BOA is always fully coveredby counter guaranteesof the general organizations. For the private sector, BOA

j Including excess liquidity, deposited with the CEE, of £E 30.0 million andLE 59.0 million in 1971 and 1972 respectively. As of December 31, 1972 excessliquidity with the CBE had dropped to LE 10.0 million.

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restricts its guarantee business to the larger firms it knows well; privatesector guarantees are invariably covered by cash or collateral. BOAts criteriafor issuing guarantees are very strict: Clients' obligations stemming from theirnormal working capital requirements are not eligible since this would relievethe beneficiary from going through the discipline of obtaining a normal overdraftfacility from BOA. In view of the safeguards obtained by BOA, one should notexpect adverse effects on BOA's financial position from its guarantee business.

4.15 Altogether, BOA's financial position is strong. Provisions largelyexceed any foreseeable losses. BOA's record of collections has been excellentand actual losses have been negligible.

4.16 Implications of BOA being a Mixed Bank. As noted earlier, BOA, un-like many large commercial banks in other countries, has not done any medium tolong-term lending. Indeed for the foreseeable future the great majority of itsbusiness will continue to be of a commercial nature. At present, CBE does notintend to lay down any special rules, taking into account BOA term financing.Nevertheless, BOA and CBE have stated that if and when long-term project finan-cing becomes a significant part of BOA's business, increasing attention will bepaid to the implications of this for maintaining BOA's sound financial positionas a public deposit bank in Egypt. This is basically the responsibility of CBE.Given the structure of the ownership a d control of the banking system in Egypt,the maintenance of BOA's overall financial soundness is reasonably assured.From this perspective it is useful to note that the BOA situation is not ana-logous to most other Bank DFC operations. In the latter, the Bank is not onlyusually involved in a substantial part of the DFC's business but has also, inthe absence of financial supervision and policies imposed by government agencies,been de facto the principal source of general financial controls for theseinstitutions.

4.17 CBE's financial policies followed to date have been quite conservative.As detailed in Annex 14, liquid assets must be maintained at 30% of commercialbanks' liabilities as defined by CBE. Banks must also maintain a net cash balancewith CBE equivalent to about 18% of-their short-term liabilities. BOA has agreedthat it will use its short-term resources for the financing of its future termlending program only insofar as the use of such resources is compatible withthe maintenance of a sound financial and liquidity position for BOA as a publicdeposit bank. To that end BOA will monitor its liquidity position closely andmaintain a satisfactory balance between the maturities of its own obligationsand those of the loans it makes. BOA intends eventually, in consultation withthe Association, to set an appropriate and prudent limit for using short-termresources for its term-lending operations (actual medium- and long-term lendingis likely to remain well below 10% of total deposits in the next five years orso; a prudent percentage). CBE has, of course, the authority to impose controlsof its own, should it find desirable to do so.

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-r1 tf3 Consideration has also been given as to whether some form of debt/equity limitation is appropriate for an institution such as BOA, i.e. a com-mercial bank with some long-term lending activities. Here again the CBE doesnot intend to now impose such a limit on BOA. For the time being it will con-tinue, quite rightly, to focus on liqaidity. Indeed, in the Egytian circums-tances and given the context of BOA's overall business operation, a debt/equity limit seems prima facie unsuitable for BQA since short-term depositspredominate and a definite ceiling on deposits cannot be set sensibly. Tothe ex,tent, however, that BOA's role shifted radically from a commercial bankto a long-term financier, one would have to ensure that the capitalization ofBOA remains adequate. Appropriate limits are extremely difficult to defineor establish at this point. Consequently, it was agreed between BOA and theAssociation that, should a marked change in BOA's activities take place, i.e.a medilumi- long-term loan portfolio increasing to as much as six times BOA'snet worth as stated in the balance sheet, there will be consultation betweenTDA and BOA on BOA's permanent capital base with a view to reaching an ander-standing on additions to BOA's equity base if and when, in IDA's view, such isneeded. The understanding with BOA provides for a safeguard against an in-i'lati:on of BOAts equity base, if BOA's excess provisions were to be capitalizedor fixed assets revalued.

In sumiary, BOA exists in a unique environment and it is thereforedifficult to evaluate its portfolio in terms of its intrinsic soundness. Finan-cially it appears to have a very sound portfolio. Also,traditional financialtests applied to other DFCs are not applicable in the case of BOA. But BOA'sexisting financial management and CBE controls have been conservative and,given the additional undertakings mentioned above, BOA's creditworthiness shouldbe assured for the proposed IDA Credit as BOA moves into the term financingfield.

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V. BOA'S PROSPECTS

5.01 The General Setting and Industrial Investment Perspectives. Theoverriding determinant of Egypt's current economic performance and prospectsis undoubtedly the Middle East conflict. NevertheleBs, the Egyptian econonycontinues to have areas of considerable strength. In comparison with manyless developed countries, Egypt is relatively favored with human and naturalresources. While Egypt's long-range prospects are favorable, prospects in the nearfuture for approaching the targeted 6i average annual GNP growth are less promising.-Obstacles are Egypt's heavy defense burden, the scarcity of convertible foreignexchange, and the inflexible nature of the centralized decision-making process.

5.02 Egypt's industry has good potential for future growth. The authoritiescount on it to remain the leading sector in the country's development. In thedraft 1973-L977 Plan, industry is given highest priority, claiming one-third oftotal Plan investments of LE 3 billion. The Plan recognizes, in principle, theneed for quick-yielding projects, but the largest investments, are scheduled asbefore for heavy, capital-intensive projects such as steel.

5.03 Egypt should be able to develop a wide range of industries. It has alarge domestic market. There are also good industrial export prospects where Egypthas a demonstrated comparative advantage -- textiles, food products, leather andsome engineering goods. Also, the country has a great potential for tourism develop-mnent. As a result of oil and gas discoveries, prospects are good for new resource-based industries, e.g., fertilizers, cement and petro-chemicals, and for electricity-baned industries since completion of the Aswan High Dam. Offsetting these prospectsis the fact that a large number of industries, particularly the cotton ginning,textile and food industries, badly need modernization.

5.04 Altogether, there should be a sizeable demand for industrial investment.The bulk of industrial investments is likely to continue in the public sector. Butcircumstances favor the private sector to play gradually a growing role, particularlyin textiles and engineering products.

5.05 BOA's Business Outlook: Comercial Banking Activities. BOA has estimatedthat its short-term credit portfolio will grow by between 4% and 5% in 1974 to 1977,reaching nearly LE 210.0 million ($535 million) in 1978. This compares with 6u%annual GNP growth target in the 1973-1977 Five-Year Plan and an average growth ofBOA's operational portfolio of almost 20% in the past three years. BOA's conmercialbusiness forecast seems modest and attainable.

5.o6 Term Lending It is difficult to definitively project SSPIS's term-lending activities in the next few years. IBE's performance is a poor indicator,as it had been starved of resources. Furthermore, BOA has so far focused on thedetails of the merger and the internal reorganization and has not yet made anysustained attempt to canvass for term business. Second, the unfavorable investmentclimate intil 1969-1970 and the chronic shortage of foreign exchange have heldback private investors. Third, although the Government suffers from a persistent

;L/ See report No. R73-16, dated Tlecember 30, 1972.

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shortage of investment resources, the magnitude of BOA's term financing Of publicsector industry will for some time to come, be determined largely by Goafrnmentdecisions. 1&ile it has not been possible to quantify the pent-up demand forterm financing because of these circumstances, some yardsticks can be detelopedto support the expectation that the need for term financing is substarLtial.

5.07 For the private sector, there are tentative Plan figures for the period1973-77 which put annual gross industrial investment between LE 4 and 5 aillion peryear. These figures represent what the planning authorities consider feasible inlight of extremely constrained resource availabilities. Neither do they recognizethe authorities' recent more liberal approach to private enterprise. It is probablymuch better tp gaam that private sector investment will be at leasas muck in thenext Plan period, if not more, as in recent years, when available data suggest thatannual private industrial investment was about LE 10-12 million.,(,eeeparagraph 2.10).This estimate is supported by actual private sector investment licensing by GOIndrwhich in the past two years, was between UE 10 and 20 million. Furthermore, GOIndrreports that a substantial pipeline of private license applications are pending.Altogether, with the reservatlon.9 stated, an aiinual volume of private sector invest-ment in industry ranging between LE 10 and 15 million is a plausible prospect. WithBOA having the term lending monopoly it must be expected to finance between 30 and:40% of these investments provided it has appropriate resources.

5.08 As to the public sector. some preparatory work has been done byGOIndr. Although further planning work is needed, the present expectation isthat over the next two years public sector projects may seek roughlyWE 4 million of foreign exchange financing from BOA and about as much in localcurxrency. The assumption is made that these figures w;ll rise gradually over theremainder of the plan period.

5.09 If resources were available, then it would be plausible at this time toproject BOA's term lending commitments as follows in the period 1973-77 (roundedfigures; details on forecast Term-lending operations in Annex 15, page 5).

Local Currency 173M 1974 1975 1976 1977- Private Sector 100 1,550 l,920 2,030 2m O-- Public Sector 1 200 2 120 2320 2,980Total Local. Currency 5 76 1 77 5,320Foreign Currency- Private Sector 1,420 3,090 3,830 4,150 4,600

Public Sector 1 350 2 400 2,650 2 990 6m'otal Foreign Currency 2,770 9 6,480 77,9960

T. ta` Comni'omitents 4,670 9,160 10,720 11,810 13,280

5.10 Projected Profitability and Financial Position. To monitor its situationand performance, BOA would keep internally separate accounts for its coimercialbanking and term financing. The following analysis is, however, based on BOA'soverall situation.

1/ Assuming SSPIS new structure will be in place by July 1, 1973.

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5.11 Major assumptions underlying BOA's five-year financial projections(1973-1977) are given in Annex 15. They rest on the business forecast inparagraphs 5.05-5.09. BOA will continue to earn a comfortable spread of about5% on its commercial banking operations. Profits after tax and provisions areexpected to increase to almost TX 6 million in 1977. The return on average statednet worth would remain stable at about 50%. hdministrative expenses are forecastto increase to about I0 3.7 million by 1977 remaining constant at about 1.1% asa percentage of average total assets. Provisions, established conservatively,would increase from IE 1.8 million in 1973 to IE 2.5 million in 1977. This levelappears prudent and provides ample protection. Projected income statements andratio analysis are shown in Annex 16.

5.12 BOA's projected balance sheets and cash flow statements are shown inAnnexes 17 and 18. Total assets would grow by about 30% in the five-year periodto LE 355.8 million at the end of 1977. During this period, BOA's term loanportfolio would increase from 3% to almost 10%, i.e. about LE 37 million, of totalassets. Term debt would increase from 0.5:1 to only 2.1:1 at year-end 1977.Annual interest payments would remain below 45% of BOA's annual profits beforefinancial expenses. Principal repayments to the Government on foreign exchangeborrowings would not start until 1975 and would amount to only about LE 1.5million by 1977.

5.13 To illustrate SSPIS's future financial performance, notional projectedincome statements are given in Annex 19. With more expensive foreign exchange termborrowings, SSPIS's spread would gradually decrease over the next five years to

½% in 1977. Administrative expenses would gradually decline as a percentage ofaverage term loans outstanding, to 1.1% in 1977. If term business were less, dueto insufficient foreign exchange resources, SSPIS's income prospects would not bematerially worse.

- 22 -

YI. THE IDA CREDIT

6.01 The Amount of the Credit and Its Use. The projected term lending figurescontain a sizeable element of foreign exchange lending, for which needs are acute.Indeed, some of the projected local financing may not even materialize unless itwere suitably matched with foreign exchange finance. Private sector industry,which has been starved most for imported equipment, would proportionately take upmore foreign exchange finance than the public sector which have alternative re-sources allowing equipment imports from Eastern European countries.

6.02 BOA will have ample local currency resources for its term lending.Availabilities during the five-year period are unlikely to fall below LE 45 million.As to foreign exchange, both Government and BOA look to IDA since BOA has no suchres,rces at this time. For the eighteen months through 1974 the gap to transactprojected foreign exchange commitments amounts to approximately $ 21 million. Sincethe implementation of SSPIS' setup may initially experience some delay, financingof approximately two thirds, or $ 15 million, of theprojected need is recommended.It would be prudent to limit IDA financing of BOA to this amount and the period ofapproximately 18 months until more experience has been gained both with SSPIS andthe demand for term-financing. (The $ 15 million figure is not reflected in thefinancial projections which are based on demand per se). The credit is expected tobe disbursed as shown in Annex 20.

6.03 The IDA credit would be available both for replacements and new capacity.BOA would make an adequate appraisal of the investment project whatever the size ofthe individual sub-loan. Term loan appraisals would not be limited to the specificequipment required so as to avoid turning the operation into a maintenance importcredit for industry. BOA has agreed to lend the proceeds of the credit in such away that at least half of the credit finances private sector investment projects.BOA would also spread the credit over a relatively large number of medium and small-size projects.

6.04 Terms of the Credit to the Government and to BOA. The mDA credit wouldbe lent to the Government on normal IDA terms. The credit would be relent under anagreement between the Government and BOA satisfactory to IDA. On-lending would befor up to 17 years exclusively for investment projects and carry an effective costto BOA of 7% p.a., equal to the legal interest rate ceiling in Egypt. I/ TheGovernment will assume the foreign exchange risk.

6.05 Agreements have been reached with the Government and BOA that BOA willlend the proceeds of the IDA credit at an effective cost of 9-1/2% to its termborrowers, excluding banking charges. This level has been arrived at essentiallyby adding a reasonable spread (2-1/2%) for BOA on the effective cost BQA would payto the Government.

2] In view of the legal ceiling of 7%, it was considered impracticable to attemptto persuade the Government to make an exception to the law to accommodate anadditional 1/4g, with a view to having the Government's onlending rate conformto the Bank's current lending rate.

- 23 -

VII. CONCIUSIONS AND RECOMMENDATIONS

Conclusions

7.01 Industry has developed considerably in Egypt and is likely to remainthe leading sector in the next few years. Much of the capacity built up so farreflects Government investments in the last decade. Achieving self-sufficiencyhas been a major objective which will continue to have weight. There was lessemphasis on obtaining optimum scales end efficiency. Investment decisions inpublic sector industry are centralized in the Government, which also has a stronginfluence over investments in private enterprise. While the bulk of future industrieinvestments will, in the main, involve the State, there are signs that theGovernment is now giving private industry more latitude to develop.

7.02 Egypt has a well developed network of financing institutions, includingBOA which from hereon will carry both commercial and term financing responsibilitiesin industry. The former IBE had reached a point where the Government felt that itsstrengthening would have proved an unrewarding task. Therefore, the merger of theIBE with the financially strong and competently run BOA was a good move. At themoment BOA is still in the process of setting itself up to do a proper term financingjob. Its own institutional strength, the preparatory work already undertaken and thepeople likely to be involved, provide a promising base that BOA, through SSPIS,will run a reasonably effective operation.

7.03 Under the institutional arrangements, BOA would have immediate scope toassist private industry. The scope would be more limited in the public sectorwhere BOA would, provide funds complementary to direct Government financingof State industry. BOA will have to be careful in building up a good workingrelationship with GOIndr, the agency now in charge of industrial development. Butthere are good chances that BOA will be left free to make investment decisions, inthe public sector, on business considerations.

7.o4 BOA is a well managed and well organized commercial bank with a long andsatisfactory record of experience. It has a sound financial structure and position.Its commercial business outlook is good. BOA also has good prospects to undertakea sizeable volume of term lending if it can acquire resources to lend for equipmentimports. BOA is likely to have the needed resources in local currency.

7.o5 Investment allocations in Egypt are steered by administrative fiat andnot by price. Interest rates, which are low, play a marginal role in demandmanagement and allocative policies. As set out in para. 2.26 there are, however,several reasons why BOA and the authorities have agreed with the Bank Group tohaving BOA charge a more realistic interest rate on the use of an IDA credit, ifmade.

Recommendations

7.06 BOA would be a first time recipient of Bank Group finance. Its financialposition, business outlook and the indications that it will develop into an effectiveterm finance institution make BOA a suitable and creditworthy recipient of an IDAcredit Estimated resource requirements for BOAts import financing are about $21million through the end of 197h. The first credit for BOA, as explained in para-graph 6.02, should however, be set at $15 million. The proceeds of the proposedcredit would be used by BOA to finance the CIF cost of imported goods.

- 24 -

7.07 The proposed IDA credit should be lent to Egypt on standard terms. Itshould be relent to BOA on agreed terms stated. in paragraph 6.04. IDA will enterinto a project agreement with BOA containing those provisions, other than thoserelating to the making and repayment of the IDA oredit, normally applied to Bankloans to development fiance companies. The "free limit" sbould be set at $100,000and the 'aggregate free limit" at $4 million. BOA should stipulate that it willlend the proceeds of the IDA credit at an effective cost of 9½% p.a. excludingcharges, and that in using short term resources for long-term lending it will paydue attention to maintaining a sound liquidity position. BOA should furthermore,undertake that it will consult with IDA if BOA's medium-long-term portfolio equalssix times BOATs new worth as stated in the balance sheet, with a view to reachingunderstanding on additions to BOA's equity base if anid when, in IDA's view, suchis needed. The understanding wii h BOA shou41d also provide for a safeguard againstinflation of BOA's equity base, jf its excess provisions were to be capitalizedor its fixed assets revalued.

ANNEX I

Page .1of .2

ARAB REPUBLIC OF EGYPT

Decision-making Process for Industrial Investment

1. General. Decision-making for industrial investment in Egypt's publicsector takes place at three different levels: (i) by the President and theCabinet, (ii) by the respective Ministries, and (iii) by the General EconomicOrganizations and, to some extent,- by the public firms themselves. Egypt hassome 50 General Economic Organizatiorns dealing with the economy as a whole, ofwhich ten are concerned with industry. These holding-type organizations areunder the overall supervision of their respective Ministries. Public firms(industrial and otherwise) are, in turn, under the guidance of their respectiveGeneral Organizations. In other words, these General Organizations act as linksbetween public firms and the Ministries. The role of the Government in invest-ment decisions in the private sector is outlined in paragraph 8 of this Annex.

2. General Organization for Industrialization (GOIndr). GOIndr is abranch of the Ministry of Industry. GOIndr has advisory functions in industrialdevelopment and is in charge of coordinating the action of the ten differentGeneral Organizations mentioned above within the framework of Egypt's economicplans and of the yearly budget. The GoIndr is reBponsible for carrying outappraisal studies of all industrial sector projects, and plays an active role inidentifying and preparing new projects.

3. GOIndr has a Board of Directors representing the various Ministries(in the person of either the Minister or Undersecretary). The Chairman of theBoard of Directors is the Minister of Industry. Day-today management has beendelegated to a full time professional, Dr. Taher Amin. GOIndr is divided intonine departments, corresponding to the different branches of industry. Eachdepartment includes specialists in their respective technical fields. GOIndrhas a total staff of about 1,000 of which over 200 are involved in the iden-tification, preparation and appraisal of projects; its yearly budget forresearch in the field identification of new projects is about £E 1.0 million.

4. Public Sector Investments. In general, industrial investments arefirst proposed to the GOIndr by one of the ten General Economic Organizations.GOIndr carries out an initial screening of the projects submitted to it toassess how the project fits in the overall economic plan. If its initial findingis positive, the General Organization concerned is asked to submit a fairly ela-borate appraisal report to GOIndr. The General Economic Organization concernedand GOIndr (and the firm itself in case of an expansion) work together in thepreparation of the appraisal report. The appraisal report includes an assessment-- both on a five- and ten-year perspective - of the forecast demand for theproducts to be produced by the firm. Before the appraisal report is submittedfor approval to the Ministry of Industry, it is reviewed by the Director of theCentral Department for Technical Studies and Research and by Dr. Amin himself.In 1971 some 70 projects were appraised.

AXNNE1page 2 of 2

5. After approval by the Ministry of Industry, the project is studied bythe Cabinet's Planning Committee, headed by the Prime Minister and includingthe Ministers of Finance, Economy and Foreign Trade Planning and Industry. ThePlanning Committee allocates the funds available in the budget among the priorityprojects in different economic sectors. To appreciate the importance of thePlanning Committee in investment decisions, one should consider that thesedecisions are taken in the context of an indicative overall development plan. Asa result, funds often must be allocated to the different sectors of the economy on apragmatic basis. Nevertheless, the Planning Committee seems to attempt tomaintain a balance between well established long-term targets (as established inthe five year plans) and Egypt's short-term requirements. Appropriation forthe project in the budget takes place after approval of the Planning Committee.

6. For its own initiated projects, GOIndr is also in charge of followingup the particular project throughout the construction period and during threemonths of initial operation.

7. A matter of special interest is the degree of freedom enjoyed by thepublic industrial firma in using their own cash-generated funds for investmientpurposes. Normally, depreciation allowances, provisions and allocations toreserves (the latter are predetermined by the Government) are left to the firms.But profits accrue, by law, to the State (75%) and the firm's employees (25%).The 75% of the surpluses accruing to the State reportedly enter into an Invest-ment Fund. The Investment Fund is apparently used as a balancing item in thebudget, meaning that other sectors can, and often do, benefit from the surplusesreceived by the Investment Fund.

8. Private Sector Investments. Private sector enterprises or investmentsabove LE &,000, must obtain a license from GOIndr (Law 21, 1968), before theycan be established and carried out. Thus, practically all private industrialprojects have to be approved by GOIndr. GOIndr's involvement is limitedbasically to a abeck on the lonsistency of the entrepreneur's investment planwith the Government s own inv6stment plans. The entrepreneur must fill out aauest-ionnaire which is first reviewed by one of GOIndr's nine specialized de-partments; if the department concerned recomraends approval, the project isreviewed by a committee headed by Dr. Amin. (Dhis committee includes membersf the ten General Organizations for Industry and an official. from the Federation

of Industries, which represents both public and private sector industries). Thecommittee looks0 closely into the project's needs for raw materials; these needshave to fit into the overall allocation for raw materials reserved for theprivate sector. If the project has a foreign exchange component (investments orraw materials), it also needs an import license from the Ministry of Finance,Economy and Foreign Trade. The processing of private sector applications normallytakes less than two months.

E4ENA/DFCJaniary 26, 1973

ANNEX 2

ARAB REPUBLIC OF EGYPT

Exports of Industrial Private Sector

(x E 'oo0)

Industry 1 968/t9 1969/70 1970/71 1971/72

Weaving and Clothing 1,748 2,539 2,972 14,h22

Foodstuffs 1,076 830 691 588

Chemical 557 892 1,915 1,763

Metallurgical 201 85 121 194

Leather 4,905 5,648 5,867 6,o43

Woodworking 1,51l 2,057 3,527 2,641

Handicraft Products 1,214 1,116 1,0h7 1,733

Building Materials 18 7 15 17

Other 35 13 40 27

Total 11,268 13,187 16,195 17,h28

E1ENA/ DFCMarch 30, 1973

AliN 3

ODAAUZZATIPl CH AlrAND OIMlIZ&ATmIMIL SMUCTDIRI OF BANK OF AL .ANmD Page 1 of 1

I. Organimation Cbart

DGeral AssamlBoard of Dirzmtora of

The Ceontral Bmk

Board of Direotors

Denaral H ger F.eefra rrl Hngerl

Sin Mter of Can aztMmbrond Mober oftie Board V.c Board t BoardH.H. I Baooe A.l.A. oae LIM. ZLUIIE

L Deputy eneral GDepoty OmerelLInager !Nager__ _ __ L 5 El Din Nourad V0a4nt

Depute General tditat OuerHMager nerA.F. BOirW. 1 Vo T

1 5ouritV | | edioaa Af_-Dept. fair Dept.|

0 .ral M se l|:.A . .aeerl one

=ma1n"d ro

|Dt 0Z1 AU otherOerw vnt | | II Z1 Noboe | | ~~~~~~~~~~~~~~~~Vant

M/ M ' Orwgidation Chart IS TM in ine 9.

ANNEX 3Page 2 of 4

II. Organizational Structure

Main functions of Head Office Departments

A. Service Departments

1. Department for Organization and Administration

- Preparing studies on the Bank's organizational structure.- Participating in establishing and amending of work schemes.- Preparing and updating training schemes and supervising

their execution; management of the Bank's training center.

2. Department for Plaiming and Budget

Preparing the Bank's budget and analyzing its futureresource needs and their utilization; following up onimplementation of the budget.

- Preparing monthly financial position data and other statisticaldata.

- Formulating policies for increasing the Bank's savings accounts.

3. Department for Financial Affairs

Preparing the Bank's annual financial statements and keepingthe Central Accounts, Ledgers and Statistical Registersconcerning the Balance Sheet and Tnccmne Statement items.Keeping registers and analysis ledgers concerning the HeadOffice's financial activities.Checking the daily movement between the branches.

4. Department for Administrative Affairs

- Following up with the branches on findings of InspectionDepartment.

- Undertaking studLes on the internal working schemeswith a view to improving the Bank's services.

- Following up on general instructions concerning administrativeaffairs.

- Participating in the preparation of studies on the establishmentof new branches.

5. Board of Directors' Secretariat

- Preparing memoranda for the Board of Directors and othermajor Committees of the Bank, and following up on the resolutionsissued Ln connectlin therewith.

- Preparing draft decisions and instructions to be issued bythe Chairnma and following up on their dissemination.

- Analyzing - s?r,-da and reports submitted by the Head Officedep.e. ~ ~to the nanagement and recommending appropriatea c,-, -. r3,Qru taha Board.

ANNEX 3Page 3 of i

6. Department for Economic Research

- Preparing research studies on local and foreign economic mattersrelevant to the Bank's operations.

- Publishing a quarterly economic bulletin and an internal monthlyreview.

- Participating in the preparation of the Bank's annual report.

7. Inspection Department

- Inspecting the Branches and Head Office departments to ensureproper application of instructions, analyzing discrepanciesand proposing means of adjustment or improvement.

- Undertaking internal control by means of examining theaccounts and vouching the entries relating to past trans-actions.

- Undertaking a general audit of the Bank's operations to ensureconformance with adopted working schemes.

- Participating in the study of internal regulation schemes andexamining proposals for their improvement.

- Carrying out spot checks and surprise inspections of Branches.

8. Legal Departments (Commercial Banking and Term Lending)

- Drawing up credit contracts and their notarization.- Representing the Bank in all legal matters and giving legal advice.- Carrying out investigations and supervising the application of

laws and regulations affecting the Bank's business.- Investigating client companies' statutes and legal status, and

giving legal advice on the ownership of securities.

The functions of the following Service Department are self-explanatory:

9. Department for Personnel Affairs10. Complaints Department11. Department for Premises and Supplies12. Security Department13. Medical Affairs Department

B. Operational Departmentsl/

1. Credit Department

- Formulation of the Bank's credit policy and dissemination ofthe necessary instructions pertaining thereto.

- Analyzing applications for credit facilities that are beyondthe Branch managers' permitted limits, and preparing recommendationsfor appropriate action and decision.

- Following up the adequacy of isecuri{ies for extende creditfacilities.

_- BAls MHead ofrice departments for commercial banking activities only;the development banking departments are discussed in Annex 7.

ANNEX 3Page o of 1

2. Follow-up :jpartment

- Analysing the Financial position and financial performanceof cltent companies. (For public sector companiesthe rqports are sent to the company itself the supervisingPublic Organization, and the Central Bank.i

- Following up the above analysis with the client companies.

3. Department for Promotion and Public Relations

- Promoting the Bank's services and conducting its publicrelations.

- Coordinating the recreational and social activities ofthe Brnk's personnel.

Deprtm for1oreiRations

- Establishing and strengthening relations with foreign corres-pondents, exchanging banking facilities with them and followingUp the Bank's activities through them.

- Follaoing up the implementation of instructions, issued bythe General Administration for Exchange Control and otherauthorities, relating to foreign exchange and foreign tradeoperations.

EMA/DFCJanuary 20, 1973

ANN1A LiPane 1 of 2

BANK OF ALEXANDRIA

The Board of Directors(Situation as of December 31, 1972)

I. Appointed Members.

Name and Position Date & Mode of Appointment Previous Experience

Ahmed Abdel Al Ghaefar - 6.2.67 - Presidential Arab Land Bank:Chairman 59 Decree of 1967 Chairman & Managing

Director

Mohamed Mostafa Central Bank ofEl-Bayoumi - General Egypt: ManagerManager & Member of the 51 4.10.70 - Presidential (2 years)Board Decree of 1971 Bank of Alexandria:

.kneral managerW4 yeara)

Mostafa Mohamed 48 5.2.66 - Presidential Bank of Alexandria:Noureddin - General Decree of 1966 Taxation DepartmentManager & Member of Manager (2 years)the Board Assistant General

Controller(2 years)Assistant GeneralManager (6 years)

1/Ali Mohamed Ali Hussein - 4,10.71 - Presidential Ministry of EconomyGeneral Manager & Member 54 Decree of 1971 & Foreign Trade:of the Board Under-Secretary

Bank of Alexandria:General Manager andMember of the Boardsince 4.10.1971.

Mostafa Mohamed 4.10.71 - Presidential Ministry of EconomyEl-Missary 54 Decree of 1971 and Foreign Trade:

Under-SecretaryBank of Alexandria:General Manager &Member of the Boardsince 4.10.1971

II. Elected Members.

Ibrahim El-Nahas - 14.9.64 - Election Bank Misr, SaudiAssistant General 60 Arabia: ManagerManager (5 years)

Import & ExportBank of Egypt:(26 years)Bank of Alexandria:Director of Admin-istrative Dept(3 years)

1/ Seconded by the Government for three yearteaching assighment in Iraq; seat vacant.

ANNE 4tPage 2 of 2

Name and Position, Age Date Xode t Previous Experience

Kamal Abdou Abdel Gaber - 14.9.64 - neout±Q Bank of Alexardria:Manager, Inspection 44 Assistant Manager,Department Cairo Branch

(4 years)

Kamel Mohamed Saleh - 29A1.1t69 - Sleetion Bank of Alexandria:Manager, Musky Branch 55 Manager, Sherif

Branch (3 years)

Ibrahim El- Dessouki 7B466 - l.ction Bank of Alexandria:Ismail - Manager,, 49 Assistant Manager,Port Said Branch Sh&nif Branch

(4 years)

EMiNA/DFCJanuary 8, 1973

ANNEX 5Page 1 of 4

BKNK OF ALEXANDRIA

Highlights of Internal Policiesand Procedures for Commercial Banking

I. Credit Policies

1. Each credit application must be carefully analyzedtaking ihtoaccount various criteria set by the Head Office, to ensurethat the credit falls within the Bank's general credit policy.The Bank does not engage in the financing of operations of aspeculative nature.

2. Judgments on the financial standing of the applicant are basedon information obtained from various sources, which must be up-dated periodically. Client companies must provide periodicallyfinancial statements of a nature and with a frequency to bedetermined by BOA.

3. In the case of applications for renewals and/or increases ofexisting facilities, special criteria are to be applied toassess the results of the custamer's accounts with BOA (movementof the account; percentage of bills paid, unpaid or returned tocustomer; value of goods delivered and value withdrawn;doumentary credita opened and docuents negotiated,etc.).

h. Utilisation of the credit facilities may under no circumstancesexceed the authorized limits unless an waiver has been obtained.

5. At present, the following credit limits apply:

Credit Limits Sanctioning Power by:

LE 200,000, of which LE 70,000 in blank _/ Chairman of the Board-/£E 100,000, of which LE 35,000 in blank General Manager, Credit Department

(Alexandria) and General Managerin charge of Cairo Branches

LE 35,000, of which LE 5,000 in blank Deputy General Manager, CreditDepartment

LE 20,000, of which LE 4I,000 in blank Assistant General Managers,Credit Departm.ent

LE 15,000, of which LE 3,000 in blank Head of Credit AdministrationLE 15,000, of which £ZE3,000 inr.blank Managers of Main Branches /LE 7,500 - 12,000 (depending on senibuity),of which LE 750 - 1,000 in blank Managers of A BranchesLE 1,000 - 5,000, of which LE 750 in blank Managers of B and C BranchesLB 500, of which LE 200 in blank Offices and Agencies

1/ i.e. without a legally enforceable security.2/ The Chainman may exceed these limits in special cases, provided that the sanction

is presented for approval at the next Board meeting.2/ BOA's branch offices are classified, according to the volume of business and

territory and the population covered, into:Main Branches (3) A Branches (9) B Branches (19)C Branches (42) Offices (1) Agencies (6)

ANNEX 5Page 2 of 4

6. W,hen accepting bills for discount and/or for pledge, satisfactoryinformation on the financial standing and morality of allparties of the bill must be obtained. Bills must represent genuineoperations relating to commercial activities. Advances may not exceedthe margins of security set for the various types of bills.

7. For advances granted against merchandise, the Bank requires amongother things that:

a) The merchandise to be held as security is notof a perishable nature, its prices are stableand a reasonable period for storage is fixedaccording to its nature.

b) The Bank has effective possession and controlof the merchandise, or it ia held by anindependant acceptable third party for account ofthe Bank.

c) The Bank's charge on merchandise is absoluteagainst both client and third parties.

d) The merchandise is insured against risks of fireand robbery with benefits ceded to the Bank.

e) The merchandise is valued at the lower of marketprices or invoice prices, and a reasonablemargin is maintained at all times.

8. For advances to cantractors, oession of contract are mrelyregarded as an indication of the iarco of paymntj in auchcases the Bank normally insists on collateral as security.Separate accounts must be opened for each contract ceded to theBank. Strict regulations are applied for immediate follow-upwith the customer and third parties concerned, in case anydelay occurs in the periodical payments to be made under thecontract.

9. Except in very special cases, the Bank does not provideguarantees for commercial debts.

10. In the appraisal of applications for Letters of Undertakingthe following guidelines must be taken into account:

a. Adequacy of applicant's financial means tojustify any unsecured portion of the Letterof Undertaking.

b. The facility should be within the scope ofprudent banking risks (that is, not overlapwith the risks to be undertaken by the company).

c. The collateral advantages derived from theaccount must justify the granting of thefacility.

ANNEX 5Page 3 of .

d. The business in respect of which the undertakingis issued should be and remain concentratedwith the Bank.

The Bank invariably insists upon a full cash cover whenever a demandfor implementation of the guarantee seems probable. In certain casesa lower cover is accepted but the cash must be augmented by period-ical additional payments until a 100% cover is realized.

II. Head Office Controls over Facilities Granted

1. Branch Offices must submit to the Head Office weekly (for Accountsover ME 100,000) or fortnightly(for Accounts up to LE 100,000)return sheets of accounts held with the Branch Office, commentingseparately on:

a. Accounts which at any time during the precedingperiod covered by the return have been in excessof authorized limits.

b. Accounts which have been in violation of stipulatedconditions.

c. Accounts for which limits have expired.

Returns on these accounts must present:i) the maximum liabilities during the period

at the least favorable position;ii) the cause and expected duration of any

irregularity;andiii) the sources from which settlement is expected.

2. Branch Offices must submit by the 15th of each month a past-due bills report, giving details on any bills discounted that areoverdue, including overdue interest and other liabilitiesoutstanding in the name of the discounter. At the end ofeach month a report must be submitted covering bills takenfor ary individual drawee (or maker in case of PromisoryNotes) for amounts in excess of:

i) 3E 1,500 for Main Branchesii) LE 500 for all other Branches

These reports must include details on the total bill maturitiesduring the month covered by the return, together withpercentages of unpaid or extended bills or of bills withdrawnby remitters or discounters.

3. Branch Offices must submit semi-annually a full record ofcustomer accounts in excess of the authorized limit, indicat-ing such aspects as:

ANNEX 5Page 4 of 4

a) Customer's name, occupation and capital

b) Limits sanctioned and expiry dates

c) Liabilities outstanding

d) Security stipulated a.-d margins under thelimits ssnctioned

e) Nature of security actually held: guarantees givenby third party (bills, statistics for past six monthsshowing total maturities and percentages unpaid orextended); tangible security (merchandise and produce,proterties mortgaged, stocks and shares)

f) Rates of interest and ccinission for al1 classesof facilities

g) Statistics of account for last six months andthe previous year

h) Remarks relating to the account and its conduct;any irregularity in the account

Accounts below reporting limits are aggregated as follows:E 2000 for Main Branchbs

LE 1,500 for A Branches3z 500 for all other Branches

4. Bad and Doubtful Debts Reports:Full reports, drawn up in accordance with specific guide-lines, must be submitted for each bad or doubtful accountas of March 31 and September 30, and, at irregular times andon short notice, as notified by the Head Office.

5. A Failure Form must be submitted to the Head Office for eachclient who is unable to meet his obligations to BOA or whoappears to be in difficulty. This form is also submittedfor any account where:

i) interest is to be suspendedii) legal action is being taken or has been threatened

iii) through error or omission, the Bank is involved inactual or contingent losses or claim

iv) legal action is taken against the Bank

Liabilities for which a Failure Form is submitted are furtherprocessed for liquidation.

EMENA/DFOJanuary 8, 1973

ANNEX 6

FORMER INDUSTRIAL BANK OF EGYPT

Balance Sheetas of October 1, 1971

(as approved bZ the Government Committee)(x LE '000)

Assets

Cash and banks 225Accounts receivable 577Accrued income on loans 546

Current Assets 1,348

Government bonds )and other illiquid ) 1,183investments )Loans and advances 13,606Less: Provisions -Loan portfolio (net) 13,607Fixed assets (net) 177(including assetsacquired on account (101)of loan default)

Total Assets 16,31h

Liabilities & Equity

Accounts payable 792Dividends Payable 76

Current Liabilities 868

Term borrowings:Bonds 7,500Renewable short-term )accommodations ) 6,097from commercial banks )

Total term borrowings 13,597Provisions for taxes )and staff indemnities ) 439Provision for decrease )in investment value )Share capital 1,500Reserves and surplus(accumulated losses) (90)Met worth 1nh10

Total liabilities equity 16,314= ===

EMENA/DFCJanuary 5, 1973

Annex 7Page 1 of 3

SPECIAL SERVICES TO PRIVATE INDUSTRIAL SECTOR (SSPIS)

ORGANIZATION AND PROCEDURES

Organization

1. The proposed Organization Chart, on page 3, calls for three operational andtwo Head Office Departments and for the creation of special term lending sectionsin at least two main branches. For the time being there will be no special termlending sections in the approximately 20 branches which are expected to be involvedin SSPIS's activities. Twrm lending sections, under direction of the branch managerin the main branches will, however, closely supervise these branches.

2. SSPIS' organizational structure has been drawn-up in anticipationof growth. Not all of the units may be needed at the outset. For instance,SSPIS may decide to combine initially the legal work into two or three sectionsinstead of the five shown in the Chart. But BOA's management has preferred toget the approval of the Central Agency for Organization and Management for the"ideal" set-up of SSPIS so as to avoid having to go back to this agency lateron to obtain approval if additional operational sections were needed.

Procedures

I. Appraisal Work

i) Projects below Discretionary Limit

3. BOA's policy of granting branch managers a discretionary limit belowwhich they can commit the BOA will also apply to SSPIS. On present thinking --but these proposals are still to be approved by the Board -- thediscretionary limits will apply only to term-loans below threeyears; loans beyond that term will be appraised and processed directly by theHead Office. Neither will discretionary limits apply to public sector lendingwhich will be handled directly by the Head Office. As for SSPIS financingactivities other than term-lending (hire-purchase, installment-sale and working-capital financing of artisans etc.), BOA's normal credit limits will apply-(see for breakdown, page 1 of Annex 6).

4. BOA's management is thinking of the following discretionary limits forterm-loans up to three years:

Cairo and Alexandria branches BE 5,000 per clientRegional Branches BE 3,000 per client

ii) Projects above Discretionary Limit

5.,- Regional branches must submit applications over their discretionary limitto the main branches or to the Head Office, depending on the amount involved: onein the Cairo area (located in the former IBE building), one in Alexandria, andprobably one in Asyut, a medium-sized town located in Upper Egypt. Each of thesemain branches will be responsible for the full appraisal of applications below theirown discretionary limit for term-loans. Applications beyond that limit must be

Annex 7Page 2 of 3

passed on for appraisal to the Head Office; the-mair branches must make surethat the applications have been satisfac-torily completed.

6. In view of the relatively low discretionary limits of the branches,the bulk of the decision-making for SSPIS' industrial lending program will cometo the Head Office.

7. The Section Chie-" Credit will have primary responsibility for theprocessing of term-loan applications in the Head Office. The three technicalsections in the Department for Term-Lending will make separate contributions onthe economic, technical and financial aspects of the appraisal but the SectionChief Credit will have final responsibility for the appraisal report to besubmitted for approval by the Manager for Term-Lendingf. who in turn submitsreports with a recommendation through the Deputy General Manager to the GeneralManager. The next step is a Loan Committee (similar to a development financecompany's Executive Committee). Projects the General Manager rejects are to benotified every three months with an explanation to the Loan Committee.

8. The envisaged Loan Committee normally will meet once a week, and willlikely be composed of:

i) General Manager of SSPIS and/or Deputy General Manager(Chairman of the Loan Committee)

ii) Manager of the Term Lending Department

iii) Manager of the Follow-up Department

iv) Legal Advisor, SSPIS

v & vi) Two senior officers of BQA.

The Loan Committee will make its decisions by majority vote, with the Chairmancasting the deciding vote in case of a tie.

9. 'Th.e General Manager of SSPIS will report periodically to the Chairman ofBOA's Board on investment decisions. On present thinking, the Committee will havediscretionary power to approve term loans up to LE 100,000 per client. All loansover BE 100,000, and all loans, irrespective of amount, which raise BOA's totalexposure in a single company above LE 100,000 must be submitted for approval, togetherwith the Loan Committee's recommendation, to BOA's Board.

II. Management Information and Internal Accounting System

10. BOA is working out a system to provide SSPIS' management with up-to-dateinformation on such aspects of BOA's term-lending operations as (i) lists ofprojects under study and pending commitments, (ii) progress reports on disburse-ments for approved loans, (iii) early identification of problem projects in BOA'sterm-loan portfolio, (iv) monthly reports on arrears, and (v) appropriate feedbackto SSIPS' Term Lending Department of information gathered by the Follow-up Department.

11. BOA is also setting up separate internal accounting systems for itsterm-financing and commercial banking activities.

D4EN.A/DFCh~ril 10, 1973

SPFCIL SUEtG ¶S ¶V EI EVATS INStUL SaM (MSPmI)

GANMATlION GNRT,. ANPage 3 of 3

Oenerol Nma.ae

Dep|l5' General Hn e

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tanager of t. Menage? Gm*s of IS~M osw Contracts m; o liceoio Small

Total rdto (legal Dtanoe a

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Dorroallog S oPrro 8aAPyoffl aprof PLof I MproIl e |tI Prote Staff

~~~~~~~~~~~~VfoIMrm io 2o snntaff 11 fr

~~~~~~~~~Staf ega i.on Gal Sr[ecion Galef -9 eotio GF de fr

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7 ata1 2 I

Section lGtef7a97SSFIS Staff, 2G0 9

1973

ANNEX apage 1 of 2

BANK OF ALEXANDRIA

Policy Statement for Term-Lending Operationsas Approved by the Board on April 23, 1973

Goals.

1. Supporting industrial production through the financing of investmentswhether in the form of establishing or modernization factories or in the formof expanding existing factories.

2. Investigating methods of investment according to the needs of societyand in cooperation with the competent governmental bodies.

Scope of Long-term Lending Operations

a) Scope of Financing.

1) Financing shall be confined to projects which contribute to the economicdevelopment of the State.

2) Financing shall include enterprises of both the public and private sectors,after their securing necessary governmental licenses, and in accordancewith the laws and regulations.

b) Investment and Financial Policy.

1) SSPIS shall select projects on the basis of their economic, technical,financial, and administrative soundness, and also on the basis of theextent of the usefulness of the project to the balance of payment ofthe State and with a view to extending financing to the largest possiblegeographical area.

2) SSPIS shall endeavor to cause the financing to include diversified projectsin different industrial sectors.

3) SSPIS shall take into account that its financing of a project shall notexceed a certain portion, to be determined by the Board later, of thefinancing demands of the project.

4) With the exception of special cases, SSPIS shall not grant to an enter-prise loans which would exceed 25% of their paid in capital and reserves.

5) In long and medium-term lending operations, SSPIS shall normally securereal securities or any other acceptable securities, the value of whichshall not be less than 75% of the amount of the loan.

6) Repayment periods for medium and long-term loans shall not usually exceed15 years with a grace period of 1 to 3 years.

ANNEX $page 2 of 2

7) Bank of Alexandria shall take into account that the aggregate amoUnt ofthe louns it shall obtain would not exceed 10 times the amount of thecapitaj and the rights of shareholders. This limitation shall not applyto the loans obtained by the Bank for ordinary commercial operatiQns orto inter banks facilities.,

Other AssistaMe to Productive Enterprises,:

1. The activity of SSPIS shall not be confined to the provision of variousloans to enterprises but shall extend to the provision of advice, when requested,in the administrative, economic and financial spheres, with a view to raising thestandard of industrial development in the State. To that end SSPIS shall endeavorto build up the required expertise.

E14ENA/DlFCMay 1, 1973

ANNEX 9

Page 1 of 3

BANK OF ALEXANDRIA

Trend of Deposits and Interest Rates

1.. Interest Rates

Under Central Bank regulations, all commercial banks pay the sameinterest rate on the various types of deposits as follows:

Demand Deposits: no interest, no charges

Time and Notice Deposits:

i) Private Sector:

15 - 30 days 2% per year30 - 90 days 2;s per year90 - 180 days 3% per year

180 - 1 year 3A% per yearover 1 year 4% per year

ii) Public Sector:

A1U periods 2% per year

Savings Accounts

The interest on Savings Accounts is 3½% per year. BOA also offersa lottery system with a basic interest of 3% per year, and thepossibility to increase it to 4%.

2. Trend of Deposits

See analysis page 2 of this Annex.

i) Breakdo,m by Tpe of Depodt; Public Versus Private Sector(June 70- December 31, 1972; LE'000)

1971 1972

I Ila IV I TV I _ II III IV D ec,mbor 31, 1972

In s I as III aasI as II as Total oI as II as Total or I as II as Total of

Pablic % Private % per total Public % Private % par total Public % Private pr total Public Private

Typo of Deposits Sector or AI qetr of TT Type. deosi Seetor of III Sector of III TvDe deposits Sector of III tr III Tpe deposits Vector Sector Total

Demand Deposits 58,957 71.1 23,931 28.9 82,888 46.6 51,537 66.9 25,401 32.1 76,938 45.3 60,j92 66.9 29,865 33.' 90,257 44.4 N.A. N. A. 109,373

Time Deposits 43,651 76.9 13,097 23.1 56,748 31.9 36,691 74.9 12,257 25.1 4d,948 28.8 49,383 78.1 13,832 2'.9 63,2'5 31.1 N.A. N.5A. 77,667

Other Depodit_l/ 23,301 95.7 1,042 4.3 24,343 13.8 26,145 96.3 998 3.7 27,143 16.0 26,262 88.7 3,344 11.3 29,506 '4.6 N.A. N.A. 31,087

Savings Acoounts - - 13,747 100.0 13,747 77.7 - - 16,878 100.0 16,878 9.9 - - 20,242 100.0 20,242 9.9 N.A. NM. 22,376

Total: 125,909 70.8 51,817 29.2 177,726 100.0 p14,373 67.3 55,534 32.7 169,907 100.0 36,037 66.9 67,283 33.1 203,320 100.0 134,644 105,775 240,503

T The bulk of thue depositS consist of cash-covers against Letters of Guarantee isaued

by BOA.

ANNEX 9Page 3 of 3

Average annual net growth per type of deposit during the 1970-72 period was as follows:

TMe of deposit

Demand deposits 4.4%

Time deposits 5.7%

Other deposits 10.8%

Savings accounts: 23.6%

ii) Breakdown by Depositing Entity; as June 30 (XME'000)

1970 1971 1972

% oftotal

Amount deposits Amount % Amount %

1. Public and Private sectorproductive enterprises 119.7 67.4 112.4 66.2 125.7 61.8

2. Private small-scale industryand private individuals 38.3 21.5 42.0 24.7 47.2 23.2

3. Public sector generalorganizations 2.5 1.l4 3.5 2.1 3.9 1.9

4. Central Government entities 12.2 6.9 8.1 4.8 19.7 9.7

5. Miscellaneous 5.0 2.8 3.9 2.2 6.8 3.4

Total 177.7 100.0 169.9 100.0 203.3 100.0

iii) Breakdown by TyPe of Business of Depositing Ehtity (Items 1 and 2 underBreakdown ii) only); as of June 30 (XIVOOO)

1970 1971 17Amount 1 % Amunt M % Amount _

Industrial 134.9 85.4 134.8 87.4 154.4 89.1

Connercial 14.4 9.1 12.5 8.1 12.2 7.1

Services 5.4 3.4 4.4 2.8 4.5 2.5

Agriculture 3.3 2.1 2.7 1.7 2.2 1.3

Total: 158.0 100.0 154.4 100.0 172.9 100.0

EMENA/DECJanuary 20, 1973

ANhN IP

BANK OF ALEXANDRIA

Characteristics of Commercial Banking Activities(June 30, 1969 - June 30, 1972J

(LE '000)

i) Portfolio outstanding by type of borrower

Type of Borrower 1969 1970 1971 1972

Amount _ Amount Amount L Am

Public and privatesector companies 41,608 67.5 43,283 68.9 'c,$6c 69.2 64,290 74.8

Financial institutions 10,700 17.4 11,200 17.8 15,50" 21.6 17,100 19.9

Public sector generalorganization 480 0.8 900 1.4 296 O.i. 566 o.6

Private sector small-scale entrepreneurs(craftsmen, etc.) 8,813 14.3 7,01 11.9 6,284 8.8 4,019 4.7

Total 61,601 100.0 62,854 100.0 71,640 100.0 85,975 100.0

Of which - in public rsector 52,300 84.9 51h,200 86.2 48,600 67.8 55,100 64.1

- in priva.e Isector 9,301 15.1 8,654 13.8 23,04O/ 32.2 30,875 35.9

Total 61,601 loo1. 62,8514 100.0 71,640 10oo. 85,975 100.0

ii) Portfolio outstanding by economic activity of borrower_/

Sector 1969 1970 1971 1972

Amount _ Amount Amount _ Amount p

Industry 43,600 85.7 44,100 85.J 149,100 87.5 65,Loo 9L.9

Agriculture 320 o.6 212 o.L 310 0.6 316 o.5

Trade 4,500 8.8 4,900 9.5 4,700 8.&L 2,800 )i.1

Services 964 1.9 797 1.5 570 1.0 329 o.5

11iscellaneous 1,517 3.0 1,645 3.2 1 L6o 2.5 - _rotal 50,901 100.0 51,6514 100.0 56,1140 100.0 68,075 100.0

1/ Private sector ine]udes parts of loans and advances to financial institutions -errrentto the private sector.

2/ Excluding loans to financial institutions for which no breakdown by sector is available.

i!4bNA/DFCAp.ril 23. 1>'73

ANNZX 11

bANK F ALIEXAliRTI

Audited Income Statementa June 30, 1969-jun 30. 972 and July 1. _1972-Deowber 31. 1972X _ _ M ~~~~~~B _OU

July 1 - Decawbar 31. 19

1969 1970 197t 1921

Income

Interest on dePoite 205 463 643 755 ) 200Income ftom non-operational

inrestj2,ts 600 805 549 1,012 643 1,286 4D 1.213 ) 185 385

Interest on loans end discounts h,594 4,521 4,253 6,093 ) 5,48SCosedesions, fees nd other

chargea 2 218 2,852 2'984 3,170 )1233

TotlInon e 7,618 8,386 8,523 10,476 ) 7,106

Financial costs

Interest paid on deposits 1,784 2,116 2,116 2,470 1,501Intrent paid on long temr

borrovir g-Comlssiona aid fas 1.784 _ 2116 _ 2.116 _ 2,470 53 1 251

Operating Kxpenaes

Salariea 1,402 1,451 1,493 1,749 961Other operatirg expenses 624 2,026 6 2.150 2 331 1.292

Operating Incorm 3,8C9 4,120 6,275 5,518 4,260

Provisions- for possible losses on

operational pwrtfolio 760 651 897 1 ,490 500

- for otker possiblee,3pensea 342 1.102 350 1.001 24 1,6 512 2,002 354 854

Gross earnings 2.706 3.119 323 6 3,406

Taxation al1osence 477 8a0 1,353 191 1,572

Not Profit 2.279 t.776 1.834

Acpprpriattoi

1A reserve 111 114 99 255othr rerves 223 227 17C 421Dividends 1.895 1.938 1l 2,649

2,229 2,279 1,776 3,325

1/ Under Central Bek reguIations, all oommreldl banks are requlred toallocate yearly not profita* as ollowUs

Source Purpose

i) 5% of ,t profit to Statutocy reaerve

ii) 10% of Mut profit to Genral reserves

ii1) 5% of paid-up capital to Central Bank and Staff

iv) iO% of rest (nst profits Central Bank to coverminus i-iii) to supervision id manaammst ooats.

v) Rest (net profits minus i-itv) To be distributed betWeen CentralBank end BDA staff as follai

.75% Central Bsk-25% Bo.SWtf

B y law defined as lbring, sinuo (a) xpm-sse, (b) depreoiation,(c) pro'Iliona for bad and doubtful loans aM for taxation, net of write-offs.

3 This percentage to be reduced to 5% whsen total equity exceeda 10% oftotal deposita.

Broken down oa follows.10 Paid out in cask5% kept in blorked account for local services

10% kept in blocked account for central services.The blocked acconta are kept with the Central Dank and can be used tar staff remunerationof firms whiob are in the construotion period or are realising loss"e due to externalcircumstances.

IENA4/DFFCJanuary 10, 1973

ANNEX 12

Page 1af 3

BANK OF ALEXANDRIA

Financial Performance (1969 - 1972)

Ratio Analysis

I. Ratios of Profitability.

1. Total Earnings before Interest, Provisions and Taxas % of Average Total Assets

1969 : 3.3% 1971 : 3.4%1970 : 3.4% 1972 : 3.9%

2. Operating Income as % of Average Total Assets

1969 : 4.1% 1971 : 3.9%1970 : h.0% 1972 : 4.5%

1/3. Net Profit as % of Average Net-worth

1969 : 20.6% 1971 : 14.1%1970: 19.7% 1972 : 21.8%

4. Net Profit, plus Portion of Yearly Provisions PepresentingReserves, as % of Average Equity

1969 : 26.7% 1971 : 19.4%1970 : 24.9% 1972 : 29.7%

5. Net Profit as % of Year-End Share Capital

1969 : 111.4% 1971 : 88.8%1970 : 113.9% 1972 : 110.8%

II. Average Rate of Growth

1. Average Annual Rate of Growth of Profit beforeTax and Provisions (%)

1969 : 6.4% 1971 : 3.8%1970 : 8.2% 1972: 29.1%

III. Financial Earnings and Margins

1. Gross Income less Financial Costs as % of Average Total Assets

1969 : 3.5% 1971 : 3.4%1970 : 3.-L6 1972 : 3.9%

1/ Including excess provisions.

ANNEX 12Page 2 of 3

2. Income from Non-Operational Investments and Operational Loansand Operational Loans and Discounts as s of Average Non-Operational Investments and Operational Loans and DiscountsOutstanding

1969 7.0% 1971 : 8.0%1970 : 7.5% 1972 : 9.0%

3. Income from Non-Operational Ivet as% of Ave rageNon-Operational Investmnents

1969 1.3% 1971 : 2.9%1970 : 1.7% 1972 : 3.8%

4& Financial Cost a Average Deposits and Borrowings Outstanding

1969 : 2.0% 1971 : 2.3%1970 : 2.3% 1972 : 2.h%

IV. Administrative Costs

1. Administrative Costs as % of Average Total Assets

1969 ; 1.2% 1971 : 1.1%1970 : 1.2% 1972 : 1.2%

V. Reserves

1. Reserves plus Provisions as % of Year-End _perational LoanPortfolio and Discounts Outstanding

1969 : 27.1% 1971 : 26.8%1970 : 28.1% 1972 : 2h.8%

ANNNEX 12Page 3 of 3

VI. Comparative ratio analysis by CBE

BOA Highest/Lowest ofother Commercial Banks

1. Commissions and fees as % of total income 30.6 25.5

2. Operating expenses as % of total income 46.5 52.2

3. Salaries and wages as % of total income 18.5 23.0

14. Annual provisions and appropriations toreserves as % of total income 23.9 16.8

5. Productivity:i) Total income: total number of

employees LE 2,832 LE 2,56oii) Total income: total wages LE 5,410 LE 4,342

iii) Net Profit: total wages LE 1,580 LE 1,320

VII. Share Capital

1. Book Value as % of Par Value of Share Capital

1969 : 259 1971 : 2871970 : 270 1972 : 2147

VIII. Pay-Out

1. Total Pay-Out as % of Par Value of Share Capital

1969: 94.7% 1971 : 71.7%1970: 96.7% 1972 : 101.9%

2. Total Pay-Out as % of Net-Earnings plus Portion of YearlyProvisions Representing Appropriations to Hidden Reserves

1969 : 65.6% 1971 : 58.2%1970: 67.1% 1972 : 67.6%

EMENA/DFCJanuary 25, 1973

AlNNEX 13

BANK OF ALEXANDRIA

Audited Balance Sheets, June 30, 1969-December 31, 1972

(£Z '000)

1969 1970_ 1971 December 31, 192

LSSEES

Liquid AssetsCash 3,823 5,o48 5,672 8,711Central Bank of FP4t; currenit

accournt 56,579 76,738 67,349 46,799

(of which excess liquidity)' 2. (30.000) (10,000)

Short-term assets 60,402 81.786 7,3,21 55,510

Local banks 14,161 16,0149 27,173Foreign banks and correspondents 9,585 7,797 4,886 5h321Temporary inestments 34,018 22,287 12,752 13,

of whicht (Government securities) (12,901) (12,960) (9,495) (12,421)(Debentures and other securities) (21,117) (9,327) (3,257) (1,681)

Sundry debtors 9.32o 10.917 15762418697 65

Loans, advances and discounts 61,601 62,854 71,640 161,E48

of which:Term loans - (10,600)

Discounts to specialized banks (10.79) (11 200) (ISA0Q) (16,100)

(Provisions for losses) (10,071) (11,001) (12,778) (18,361)Net Fixed Assets 1,425 1,284 1,295 563

Government bonds required by law 373 6 1Total Assets 13___14

Contingent AssetstQmP99we'.t acceptance liabi24ty) 113,341 134,858 139:040 196,677

LIABILITI1 MND EQ-UIT-Dnemand and Short Term Deposits 64,817 75,794 72,595 109,375Customers' Accounts in Foreign

Oarrenqr 8891 7,094 5,501Total Deposits 73,708 82,888 76,938 114,876

- fixed (over 6 months) 57,826 56,748 48,948 77,667- Savings accounts 12,575 13,747 16,878 22,377

Other Deposits 19,542 89,9143 249314,838 92,969 25,585 125,629

Sundry Creditors 5,388 5,0o42 5,570 8,363

Long-term borrowings - _ 3,500 2/

Net Profit before distribution 2 228 2_ 2,77 1,776 5,156

Th1,27 18,4 - 772£

Shnre C-apital 2,000 2,000 2,060 3,COO

Reserves 3,069 3,403 3,745 4,421

Total Equity 5,069 5,403 - 5,745 7.421

Total Liabilities and Equityr 176.336 190,448 182,998 2 ,945

Contingent liabilities 113,341 134,858 139,o4o 196,677

(Liabilities oh acceptances)

/1 Under Central Bank regulations, BOA's excess liquidity is to be kept ina separate account - withdrawable on demand - with the Central Bank, atan interest rate of 1.5% per year.

2 During period July 1, ].971-December 31, 1972Apri 1973April 1 973

ALiNhi 14Page 1 of 2

BANK OF ALEXANDRIA

Liquidity and Reserve Requirements in Egypt,

The Bank of Alexandria's Liquidity Position

I. Liquidity Ratio:

The Central Bank requires commercial banks to maintain net liquidassets of not less than 30% of total outstanding liabilities,as definedbelow. Banks are required to show the ratio on the first and lastThursday and at the end of each month.

BOA's liquidity positionas at 6/30/72, according

Formula to Central Bank's Formula( E'ooo)

i) Liquid Assets

1. Cash 5,8642. Balances with Central Bank 37,4513. Gold -4. Uncleared effects 7,6155. Treasury Bills6. Bills discounted(When maturity does not

exceed three months, must bear at leasttwo commercial signatures)

7. Government securities and securitiesguaranteed by the Government,valuedat the lower of market value or book

value 13,6478. Due on banks 1/ 24,43Z9. Total Liquid Assetsr 1 - 8 9,01410. Less - Loans guaranteed by above assets:

A - From C.B.E.B - From Commercial BanksC - From Others -

11. Net Liquid Assets = 9 - 10 89,014

ii) Liabilities

12. Checks, drafts,etc., outstanding 2,82713. Net due to banks 2,26914. Deposits in local currency 181,46215. Un-cash covered value of letters of

guarantees issued 33,58516. Total liabilities = 12 - 15 220.143

iii) Liquidity Ratio; Net liquid assets (11) as % 4043%of total liabilities (16)

At the end of December 1972 BOA's liquidity ration,as ccnputed above, had dropped to 31.3%.

1/ Excess liquidity deposited with the Central Bank isexcluded from lirl.id n8set.s in the rcompltation of theratio. The Central Bank regards these funds asinvestmients.

ANNgX 14Page 2 of2

II. ARes iwe Requirem'ents

Commercial banks are required to maintain at all times an actualnet balance with the Central Bank equal to a varying percentage of theaverage daily balance of deposits, dues to banksand checks and drafts.outstanding. The percentages, since 1962, are as follows:

During October 17.5%During November-

January 15%During February 17.5%During March-September 10%

The weighted average cash reserve ratio is therefore 18.3%.

In the period 1968-71, BQA's actual average cash reserve ratio wasas follows:

1968/69: 26. 8/1969/70: 36.4%1970/71: 46.4%

Following the banking reorganization, the cash ratio dropped toapproximately 22% in September 1972 and to approximately 16% in December1972.

EMENA/DFCJanuary 20, 1973

ANNEx 15Page 1 of 5

BANK OF ALEXANDRIA

Major Assumptions for five-year Financial Projections

A. Commercial Banking Activities

I. General

No changes during 1973-1977 in the following regulations:

a) Interest and commission rates as set atpresent by the Central Bank of Egypt.

b) The cash reserve ratio.

c) The liquidity ratio.

d) Appropriation of net profit as defined in Law 14/1965for commercial banks as presently applied (See footnote1; Annex 11).

e) Tax rates as presently applied.

II. BOA

1. BOA budget figures for the year ended 12/31/73 as approved byBOA's Board; notably:

a) Change of fiscal years from June 30 toDecember 31;

b) Balance Sheet figures as of June 30, 1972,have been amended to incorporate newaccounts transferred to and from BOA inaccordance with Presidential Decree No.2422/71 following reorganization of thebanking system.

2. No retirement on bonds issued by the former IBE of £E 3.5 millionoutstanding at June 30, 1972.

3. National loans due during 1973-77, to be reimbursed by the Stateat maturity.

4. BOA's deposits are expected to grow by about 30% in the 5-yearperiod, as follows:

ANNEX 15Page 2 Of 5

(LE million)Actual Projected

1/ December 31June 30 July3

TYpe of Deposit 1972 1972 1972 1973 1974 1975 1976 1977

Current Deposits 94.4 108 112 116 123 131 140 149(average annual growrthof 7%)

Time Deposits 63.1 63 71 77 80 83 86 89(average annual growthof 3%)

Savings Deposits 20.2 20 21 22 24 26 29 32(average annual growthof 10%,

Other Deposits 22.4 29 29 30 31 32 33 34Total: 200.1 220 233 245 258 272 288 304

5. No changes in paid-in share capital of LE 3.0 million.

6. No changes in yield on i) temporary investments in national loansand bonds, e.g.- Investment Fund 1981 : 2.1%- Palestine Loan : 3.5%- National Develop-

ment Loan : 3.0%- National Institute

Bonds 1971-1976 : 2.3%- National InstituteBonds 1973-1978 : 2.3%

ii) other temporary invstments, e.g.- Credit Foncier Bonds: 2%- General Organization : 3%

for ReconstructionBonds : 2%

iii) investments required by law, e.g.- holding with Central

Bank : 2.1%

7. On the basis of projected credit expansion in 1973-1977 Plan and taking intoaccount BOA's role since the reorganization of the Banking system, BOA'sshort term credit facilities are expected to grow by about 30% during1973-1977, as follows:

1/ Amended after posting of companies' accounts, transferred toor fron the bank on 7/1_

ANNEX 15Page 3 of 5

Type of Client Actual (U million)

Public Sector Jul.y 1, Projected: December 31.

Credit facilities to sectors 1972 1972 1973 1974 1975 1976 1977originally financed by BOA 48 48 51 53 55 58 63Credit facilities to product-ive sectors transferred toBOA on July 1, 1972:

- Spinning and weavingsector 42 45 50 50 51 52 54

- Other productive sectors 46.3 46 49 52 55 59 64

136.3 T3-9 10 T1 1i71 T9 11-

Credit facilities to PrivateIndustrial Sector 37.9 38.5 41.3 42.6 43.3 45.1 46.3

Total: 174.2 177.5 191.3 197.6 204.3 214.1 227.3

8. Interest received on average outstanding balance as follows:i) 'Gredit facilities to

Public Sector : 6%Private Se¢tor: 6.5%

ii) Lines of credit tospecialised banks : 5% and 5%

iii) Excess reserve withCentral Bank : 1.5%

iv) Lines of credit toSSPIS : 2.25%

9. Interest paid on deposits on average outstanding balance,as follows:

- demand deposits : -- time deposits : 3%- savings accounts 3.5%

10. Interest paid on local currency borrowings (bonds issued by former IBE) : 3%.

11. Salaries and other operating expenses:average annual increase of approximately 5%

ANNEX 1SPage 4 of 5

B. SSPIS' Term Lending Activities

As sumDtions

1. Interest rate on loans: Foreign currency loans: 9.5%Local currency loans: 6.5%

2. Charges and fees. 0.75%

3. Advisory services: small charges may be levelled in appropriatecases; income from this source has been ignored.

4. Yield on short-term investments: 2% (average).

•. Interest rate on borrowings:

i) Local currency lines of credit from BOA: 2.25%Term: Composite repayment schedule reflectingrepayments by sub-borrowers.

ii) IDA cred-it 7%. Term: Composite repayment schedule tothe Government reflecting repayments by sub-borrowers.

6. Approvals, commitments/ and disbursements: Figures based onprojected demand; e.g., ignoring resource constraints.

7. Relationship between approvals, commitments and disbursements:

i) Approvals: As per forecast given on page 5 of this Annex.

ii) Commitments; 60% of approvals (net of cancellations) willbe committed in the year of approval, 40% in the followingyear.

iii) Disbursements: 35% of commitments will be disbursed in theyear of commitment, 60% in the following year, 5% in thethird year.

8. Average repayment period for loans: 7 years, including 2 years of grace.

9. Provisions for bad debts and losses: a notional 1% of outstandingloan portfolio has been entered. Write-offs have been estimated at 20%of annual provisions.

10. Personnel and general expenses: 10% of BOA's overall annual personneland general expenses.

11. Dividend: According to Egyptian regulations.

12. Durable assets: The acquisition of durable assets has been ignored in theprojections for SSPIS.

13. Projections for SSPIS show term lending only; e.g., any special short-and/or medium-term financing schemes, such as installment-sale financingor short-ter- "Inancing of artisans and craftsmen, have been ignored.

'1 Defined as 1c-v contracts signed by clients.

ANNEx 15Pagenf 5

Forecast of Term-lending Operations 1973-77(in LE '000)

1973 1974 1975 1976 1977

Approvals 1i

Local OurrencyPrivate sector 1,190 1,800 2,000 2,110 2,420Public sector 2,000 2,200 2,400 2,800 3,100

Total 3,190 4,000 4,400 44,910 5,520

Foreign CurrencyPrivate sector 2,360 3,575 4,000 4,250 4,830Public sector 2,250 2,500 2,750 3,150 00

Total 4,61o 6,075 6,750 7,400 8,330

Total Approvals 7,800 10,075 11,150 12,310 13,850

Commitments

Local CurrencyPrivate sector 714 1,556 1,920 2,026 2,336Public sector 1,200 2,120 2,320 2,640 2,980

Total 1,914 3,676 4,240 4,666 5,316

Foreign CurrencyPrivate sector 1,416 3,089 3,830 4,150 4,598Public sector 1,350 2,400 2,650 2,990 3,360

Total 2,776 5,489 6,480 7,140 7,958

Total Conmiitments 4,690 9,165 10,720 11,806 13,274

Disbursements

Local CurrencyPrivate sector 250 973 1,642 1,939 2,043Public sector 691 1,462 2,144 2,422 2,743

Total 941 2,435 3,786 4,361 4,786

Foreign CurrencyPrivate sector 496 1,931 3,264 3,904 4,290Public sector 473 1,650 2,436 2,757 3,103

Total 969 3,581 5,700 6?661 7,393

Total Disbursements 1,910 6,016 9,486 11,022 12,179

/1 Net of cancellations

EMENA/DFCApril 16, 1973

ANNEX 16Page 1 of 3

BANK OF ALEXANDRIA

Projected Income StatementsJanuary 1 - December 31, 1973-1977

INCOME 1973 1974 75 1976 1977

Income from non-operationalinvestments 257 256 250 195 150

Interest on Short-term advancesand discounts 10,600 11,270 11,783 12,308 13,02d

Interest on term loans 522 779 1,339 2,041 2,729Commissions and fees 1,849 1,864 2,031 2,200 2,425

Total income 13,228 14,169 15,403 16,744 18,332

EXPENSES

Financial costs:

Interest paid on deposits 3,087 3,200 3,350 3,520 3,710Interest paid on term borrowings

- domestic 105 105 105 105 105- foreign currency 34 193 512 909 1,316

3,226 3,498 3,967 4,534 5,131

Operating expenses:

Salaries 2,061 2,172 2,288 2,432 2,584Other operating expenses 922 931 950 979 998Depreciation 79 65 75 119 150

3,062 3,168 3,313 3,530 3,732

Operating income 6,940 7,503 8,123 8,680 9,469Provisions 1,807 1,952 2,129 2,322 2,518

Gross earnings 5,133 5,551 5,994 6,356 6,951Taxation allowance 939 730 1,071 1,024 1,074

Net Profit 4,194 4,821 4,923 5,334 5,677

2MENA/DFCApril 18, 1973

Page 2 of 3

Ratio Analyses

I. Ratios of Profitability

1. Total Earnings before Interest, Provisions and Taxas % of Average Total Assets

1973 3.8 1975 4.01974 : 3.9 1976 :4.1

1977 : 4.2

2. Operating Income as % of Average Total Assets

1973 2.6 1975 2.71974 : 2.6 1976 : 2.7

1977 : 2.8

3. Net Profit as A of Average Stated Net Worth

1973 52% 1975 50%1974 : 53% 1976 51%

1977 52%

II. Average Rate of Growth

1. Average Annual Rate of' Growth of Profit beforea .Provons %

1973 25.7 1975 : 8.21974 8.1 1976 6.8

1977 9.1

ANNEX 16Page 3 of 3

III. Financial Earnings and Margins

1. Gross Income less Financial Costs as % of Average Total Assets

1973 : 3.7 1975 : 3.81974 : 3.8 1976 : 3.8

1977 : 3.8

2. Income from Operational Short-term and Term Loan Portfolioas % of Average Operational Short-term and Term LoanPortfolio Outstanding

1973 6.2 1975 6.01974 : 5.9 1976 6.1

1977 6.2

3. Financial Cost as % of Average Deposits and Borrowings Outstanding

1973 : 1.3 1975 : 1.41974 : 1.3 1976 : 1.5

1977 : 1.6

IV. Administrative Costs

1. Administrative Costs as % of Average Total Assets

1973 : 1.1 1975 : 1.11974 1.1 1976 1.1

1977 : 1.1

V. Reserves

1. Reserves plus Provisions as % of Year-end Short-term and Term LoanPortfolio Outstanding

1973 3.8 1975 : 4.11974 4.0 1976 4.2

1977 : 4.3

EMENA/DFCJanuary 28, 1973

ANNEX 17BANK OF ALEXANDRIA

Projected Balance Sheets, December 31, 1973 -_1977(£9E '000)

Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec 31,.1973 .1974 1975 1976 1977

AssetsCash, Short-Term deposits 67,b20 75,122 53,420 93,468 96,620

and dues from banksTemporary investments 9,912 10,195 9,543 6,025 6,076Sundry debtors 9.352 10 152 105 10,952 11,552Total Current Assets 67,092 103,515 110,445 114,-24

Advances and discounts 173,200 179,500 106,250 196,000 209,250(of whichto the private sector) (10,600) (11,000) (11,bOO) (12,300) (12,800)

Lines of Credit toSpecialised banks 16,100 15,100 16,100 1d,100 16,100

Long Term loans:- local currency 7,259 8,641 11,1b6 13,820 16,123- foreign currency 969 4,550 10,057 15 809 21,154

Total Operational Portfolio 199,528 210,791 225,593 326,627Less: Provisions 17,946 19,342 20,b78 22,450 23,7 MTotal OperationalPortfolio (net) b1l,552 191,449 204,715 221,279 240,d42

n,quity Investments 1o6 106 1o6 1o6 106

Net fixed assets 578 578 570 570 576

Total Assets =262358 2 _7_602 3098014 33=?14=9 3551M

Liabilities and EquityDeposits - demand 116,000 123,000 131,000 140,000 149,000

- term 77,000 °0,000 63,000 6,000 89,000- savings 22,000 24,000 26,000 29,000 32,000

- other 30,000 31 000 32,000 33,0o0 34,000Total Deposits 275,000 272,000 218,000 304.000

Tax payable 939 730 1,071 1,024 1,074Dividends payable 3,339 3,835 3,909 ,252 4,691

Dues to Banks 1,000 1,500 2,000 2,500 3,000

Sundry Creditors 5,613 6,013 6,213 6,419 6,613256,091 270,078 285,195 302,195 319,378

Term borrowings: domestic 3,500 3,500 3,500 3,500 3,500foreign 969 4,550 10,057 15,809 21 154

Total Liabilities 260,560 278,12, 298,750321,5

Share capital 3,000 3,000 3,000 3,000 3,000Reserves 5,798 6,474 7,164 7,904 8,742Total liabilities and equity 269,355 257,602 305,914 332,408 355,774

EMENA/DFCApril 30, 1973

ANNEX 18

BANK OF ALEXANIRIA

Projected Cash Flow Statements 1973-1977(Years Ending December 31)

(LE '000)

1973 1974 1975 1976 1977

Sources

Profit before tax 4,194 4,821 4,923 5,334 5,877Add back non-cash chargest

- provisions 1,807 1,952 2,129 2,322 2,518- depreciation 79 65 75 119 150

Net increase in demand andterm deposits 12,000 13,000 14,000 16,000 16,000

Local currency loancollections - short term 18,700 214,300 29,500 37,000 44,500

Collections on term loans 1,053 1,053 1,2141 1,727 2,1483Decrease in noeoperational

investments 479 - 652 3,518 -

Increase (decrease)in duesto banks (500) 500 500 500 500

Increase in sundrs creditors,deferred items, etc. 200 200 200 206 1Q

Total Sources: 38,012 45,891 53,220 66,736 72,222

Uses

Increase in sundry debtors 100 800 400 400 600Local currency loan disbursements

- short term 33,900 32,600 39,750 51,000 62,750Disbursements - term loans 9141 2,435 3,786 4,361 4,786Increase in fixed assets 79 65 75 119 150Cliarges against provisions 526 456 523 315 556Tax 1,763 9339 730 1,071 l,M14Di.vidends -a572 3,339 a3 35 3909 _ 2

Total Uses: 33,881 40,634 49,099 61,175 74,118

Cash surplus (deficit) (4,131) 5,257 4;121 5,561 (1,896)

EPA/DFC

April 30, 1973

Annex 19

SPECIAL SERVICES TO PRIVA'TE INDUSTRIAL SECTOR (SSPIS)

Notional Projected Income Statements 1973-1977(Term Lending only)

1973 ,97i 195 1976 1K7

a:1teres or, oar. portfolio- 1T-h--l1 cirz'sv:v 1;,oan-. !i7,6 517 6L5 81.3 973- foreign currency laons 46 262 691; 1,228 1,756

Com-nissions and fees 35 69 82 89 10'Total I,~~~~~~~~~~~~~~~~~~J 2~~~~~,1,_3u

hCf * \'i j -

ITiterest -o-DaL line ofcredit B,A 165 178 223 282 337

Interest paid Gn forei,gncarrency 103ns 34 193 512 909 1s3J6

199 371 737 1,191 1,53OperRting }hbrjensesSala ries 206 217 229 213 258Cther opeiating expenses 9Z 93 95 98 100

310 32 37 3

Oerating Income 60 167 362 598 818Provision for bad debts 82 132 21L- 302 388

Gross earnings 2) 7 7 9

Taxation allowance 1/ - 7 28 56 82Net profit 2T 120 2 3

1/ @ 19% of -toss earnings

E 2:ZNA/DFCApril 12, 1973

Annex 20

BANK OF ALEXANDRIA

Estimated Disbursement Schedule for the Proposed IDA Credit

(in Thousands of US $)

1973

Fourth quarter 100

1974

First quarter 400Second quarter 800Third quarter 1,100Fourth quarter 1,800

1975

First quarter 2,,500Second quarter 3sOOOThird quarter 2,100Fourth quarter 1,400

1976

First quarter 700Second quarter 400Third quarter 300Fourth quarter 200

1977

First quarter 100Second quarter 100

15,000

EMENA/DFCApril 30, 1973