* Delays to letters of credit for state food purchases
* Government source acknowledges admin problem
By Maha El Dahan and Sarah McFarlane
ABU DHABI/LONDON, May 8 (Reuters) - Egypt's financial crisis is hindering payments for food commodities as banks and traders say some of the funding problems which first surfaced early last year are re-emerging.
Subsidised food is considered essential to heading off social unrest in the world's biggest wheat buyer, a nation that has seen protests lead to the removal of two Egyptian presidents in the past three years.
Traders and bankers said tight foreign currency reserves, combined with the Central Bank taking a particularly cautious approach to allocating these funds, were slowing payment procedures for food bought by state entities.
"Egypt's political turmoil since 2011 has affected the country's foreign currency reserves because of the fall in tourism and foreign direct investment," said Mohamed Tousson, head of structured trade finance at Ahli United Bank's Egypt subsidiary.
"This forced the central bank to take drastic measures to direct its available funds to the strategic commodities, food-related items and medicine," he added.
Some traders said a government election due later this month in the most populous Arab nation was also slowing down administrative processes across government.
Bankers and traders said that although there were delays, there had not been any defaults.
"We may face some delay to allocate sufficient foreign currency necessary to cover the clients' trading business, depending on the size of the transaction, but at the end of the day they are met," Tousson added.
Egypt's foreign reserves were at $17.489 billion in April, down sharply from their pre-2011 revolution level of around $36 billion.
Egypt imports around 10 million tonnes of wheat a year to feed its 85 million people with the cheap subsidized bread that they expect, but in 2013, shrinking foreign exchange reserves pushed imports to their lowest in five years. Imports have since returned to more normal levels.
While food commodities are top priorities for spending, traders are experiencing some delays with letters of credit being issued for goods they supply to state buyers, including the General Authority of Supply Commodities (GASC).
GASC was not immediately available to comment.
"There are now several shipments that are ready and waiting on their letters of credit that have been delayed for over a month in some cases," one Cairo-based trader with close knowledge of the matter told Reuters.
When any of the state tenders are awarded, the firm selling the commodity asks for the issuance of a letter of credit from one of Egypt's state-owned banks, which is then confirmed with its own bank.
Egypt's central bank provides the cover to the Egyptian state banks.
Traders say that despite approvals by the finance ministry given to local banks to release money, on some occasions final Central Bank approval had not been granted within the usual timeframe.
"They could be trying to prioritise what they will spend their foreign currency on but it's not clear why they are not giving approvals in time," a second Cairo-based trader said.
Central Bank officials were not immediately available for comment.
Traders do not usually ship wheat until they have opened importers' letters of credit.
Traders said there had also been delays after tenders by the state-owned Food Industries Holding Company and Meditrade, both of which bought vegetable oils on behalf of GASC.
"Payments in some cases are seven to eight weeks later than would normally be expected," one European trader said.
"The problem is delaying several ships and involves several large trading houses. No reason has been given and there are no visible problems with the commodities."
Egypt's cash-strapped government spends around a quarter of its budget on food and fuel subsidies. The food subsidies cover sugar, rice and vegetable oils, as well as wheat.
"We are continuing to confirm letters of credit selectively," said Karel Valken, global head of trade and commodity finance at Dutch bank Rabobank.
"We have never experienced any delay in the repayment although we do sometimes (have the) experience that it takes more time to get the letter of credit issued."
Rabobank is working with commodity trade houses supplying goods to Egypt's state buying entities.
Should delays persist, some trading houses may choose to avoid Egyptian tenders, or they could add a risk premium to the prices they offer.
"As Egypt is such a big importer of commodities, I think the risk premium will be the most likely course," the second Cairo-based trader said. (Additional reporting by Michael Hogan in Hamburg, Maggie Fick in Cairo and Sybille de La Hamaide in Paris; Editing by Veronica Brown and Keiron Henderson)