The state is the main player in the banking sector, exercising great influence through its ownership of the two largest commercial banks: National Bank of Egypt and Banque Misr (which acquired the third state bank, Banque du Caire, in 2006). Until November 2006, when it was sold to an Italian investor, the fourth-largest bank, Bank of Alexandria, also was state owned. Most foreign banks have entered the market through joint ventures with these state-owned banks, although successful joint-venture banks have been increasingly turned over to private control, either through stock-exchange offerings or as subsidiaries of foreign banks. The state sold its stakes in many of these bank joint ventures in fiscal year 2005/06 (ending June 30th) as part of its privatisation programme. The government was scheduled to sell another 15% of Bank of Alexandria by the end of 2007, but postponed the sale until the second half of 2008. It was also supposed to privatise 67% of Banque du Caire, but postponed the privatisation after only one day of bidding.Banking practices in Egypt are conservative, and available services are relatively basic, particularly in retail banking. But the industry is becoming more sophisticated as foreign-run joint ventures introduce new products, management practices and credit standards. Moreover, the hiring of former private-sector managers to run the public-sector banks has helped instil a focus on customer service. Credit-card use is growing, but Egypt remains largely a cash economy. There have been several government programmes to encourage more Egyptians to use bank accounts and credit cards, such as paying civil-service salaries through bank accounts.With the Egyptian government running higher deficits (largely because of the increase in oil prices and other social spending), Egyptian banks have been lending more to the government. Saddled by high rates of non-performing loans (NPLs), the banks have been cautious lending to the private sector since 2000. However, statistics from the central bank on domestic credit show that in the year to April 2008, domestic credit had increased by E£67.9bn, net claims on the government grew by E£30.4bn and net claims on the private sector grew by E£19.9bn. Major private banks such as Commercial International Bank (CIB) have announced ambitious plans to increase the contribution of retail lending to their portfolio—in CIB’s case, to 35% by 2010. EFG-Hermes, a brokerage and analysis firm, said in June 2008 that lending among Egypt’s banks grew by 20% compared with the previous year. Some banks, like National Societe Generale Bank, have also shown particular interest in project finance, notably in petrochemicals.As at July 2008 Egypt had not been severely affected by the global credit squeeze causing economic hardship throughout Europe and North America. This largely reflects a combination of surging economic growth, strong consumer spending and record levels of foreign investment. Denzil Lawson, the Middle East regional director for MasterCard, told reporters in April 2008, “Egypt is insulated from what is going on outside the region, like the sub-prime crisis. The picture for Egypt is very healthy.”Nonetheless, there are some disincentives to lending to the private sector. Highly publicised loan scandals in recent years, some resulting in prison sentences for senior bankers, have made many bankers leery about lending, even where adequate collateral exists.Because the sector is over-banked, the Central Bank of Egypt (CBE) has a highly restrictive policy on new entrants to the market—foreign or domestic. In September 2004 the government announced a five-year banking-reform plan designed to implement Law 88 (see below) and streamline the bloated sector. The plan would reduce the number of banks from more than 50 to just 21, through mergers. However, there were 52 banks and branches of foreign banks operating in Egypt at end-December 2007, according to the latest information from the CBE.Unified Banking Law 88 of 2003 introduced more-thorough measures for checking creditworthiness and stricter rules for provisioning against NPLs. The law has strengthened the banking sector by raising minimum-capital requirements from E£100m to E£500m for local banks, and from US$15m to US$50m for foreign banks with branches in Egypt. The law originally required the banks to boost their capital to these minimums by July 1st 2004, but the CBE extended the deadline by one year, to July 1st 2005. Smaller banks had been hoping that the central bank would extend the deadline further and were surprised when it did not. Indeed, four non-compliant branches of foreign banks were closed for failing to increase their capital. Other banks and investors took this as a sign that the CBE was serious about banking reform.One reason banks and other lenders were over-cautious in their lending policies (aside from bank loan scandals in the late 1990s) was the absence of credit-rating agencies. The CBE is now working with banks to develop a credit-scoring institution, and the first credit bureau, Egyptian Credit Bureau (Estailam) funded by 30 banks, was established in September 2005. The CBE raised the Egyptian Credit Bureau’s profile in June 2008 by announcing that, henceforth, all banks and mortgage companies would have to rely on the bureau’s newly formed “I-Score” to investigate the credit history of their clients and would no longer be able to access the CBE credit database. The I-Score Programme exchanges credit information on borrowers with banks, mortgage finance companies and leasing companies. The Credit Bureau has a database of 2.2m customers, including 27,500 small and medium-sized enterprises. The CBE will monitor banks and mortgage companies to ensure compliance with the new rules. One important result of the new credit-rating services was movement on mortgage finance.The passage of Capital Markets Law 95 in 1992 sparked a revival of the Cairo & Alexandria Stock Exchanges (CASE). After strong performances in 1994–97, the stockmarket declined, reflecting the slowdown of the government’s privatisation programme as well as difficult times in global financial markets. Only in late 2003 and early 2004, following the devaluation of Egypt’s currency, did the CASE see a return to the values and volumes of trading seen in the mid-1990s. One immediate reason for the revival of the stockmarket in 2003 was the optimism of Western institutional investors that the war in Iraq would create new business opportunities for Egyptian companies in the region; for instance, Orascom Telecom, one of the most important stocks traded on CASE, won a mobile-telephony licence for central Iraq.Since then, booming oil prices and the subsequent increased investment from the Gulf, along with the reformist policies that Ahmed Nazif’s government implemented in 2004, have driven the CASE. In addition, the stabilisation of the Egyptian pound and the elimination of the black market in late 2004, in particular, have boosted general investor confidence in Egypt.By June 2008 the CASE 30 was close to its previous high of 10,516.03 (in December 2007), by closing at 10,317.91 points, led by strong performances in the real property and construction sectors. Market analysts say the CASE remains vulnerable to the panic of inexperienced retail investors, who tend to switch their investment portfolio cyclically between the stockmarket and real-property investment. The corporate-debt market is slowly expanding, and recent long-term sovereign issues are setting benchmarks for corporate debt. Egyptian National Oil Company issued its first note based on future oil sales in late 2005. The three tranches of notes (rated AAA by Standard & Poor’s because of credit enhancements associated with the notes) will mature in 2010 and 2011.In June 2008 the People’s Assembly approved amendments to Capital Markets Law 95/1992, which aims to increase the supervisory power of the Capital Markets Authority. The government says the amendment will strengthen the securities market by reducing the minimum nominal share value to ten piasters (100 piasters make up an Egyptian pound) instead of one Egyptian pound in order to widen the investment base and increase the flexibility of transactions. It will now be easier for corporations to issue securities to be traded on the stockmarket. The amendment also increased penalties for violating the law to a fine of E£20m for serious offences.For more information, see the most recent Economist Intelligence Unit report Country Finance Egypt.


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