Strengthening Egypts banking and financial sector has been one of the chief targets of the reform process. Although much progress has been made, major changes are continuing to take place. In 1999, for example, the Egyptian Stock Exchange will undergo a complete technology overhaul that will put it on a par with modern exchanges around the world. The financial sector
including banks, the capital market and insurance companies represents 4.2 % of GDP and is growing at a rate of 9 %, which is greater than the economy at large. Since
1993, the government has stopped intervening directly in the financial system and is now using bonds and treasuries to control liquidity.
The Ministry of Economy is working on bank legislation to improve the infrastructure of the banking system and its relationship with the Central Bank. It is also working on legislation to guarantee the independence of the Central Bank in drafting monetary policy, and on rules to help the Central Bank monitor bank ownership. "We are bringing our legislation for the supervision of bank ownership up to standards with the rest of the world," stated Economy Minister Youssef Boutros Ghali .
Egypt will also finally begin privatization of one of its four large state owned commercial banks, known as the Big Four. Although Egypt has 64 banks, the Big Four, National Bank of Egypt, MISR Bank, Banque du Caire and Bank of Alexandria, hold the bulk of the banking systems total assets. Privatization of the state banks is considered to be overdue but political opposition still exists.
The first bank scheduled for privatization is either Banque Du Caire or Bank of Alexandria, with Bank of Alexandria considered the most likely candidate because it is smaller. Both have been undergoing valuations by an independent accounting firm since 1998, when the Peoples Assembly enacted legislation allowing private investment in public sector banks. "We started the evaluation of one of them and we are doing it with local companies first, the central audit agencies. Once we finish that, we are going to move to international investment banks to give us a proper evaluation of these institutions", says Boutros Ghali. The government has not yet indicated how much of the bank will be sold and whether the bank will be put up to investors on the stock exchange. Mohamed Abo El Fath , the chairman of Banque du Caire , believes the four big banks will be privatized very conservatively. "Capital will be increased by 10 % for one of the banks and it will be divided among small investors," says El Fath, a lifelong Egypt banker, who started working at Banque du Caire in 1955, two years before Egypt banks were nationalized. Banque du Caire was established in May 1952 as a private bank. Today Banque du Caire counts among its highest loans the recent $200 million financing for Egypts second mobile telephone network known as Click GSM. Last year the bank had gross profit of nearly 1 billion Egyptian pounds, or about $293 million.
In 1996 the government lifted the restrictions on majority ownership of joint-venture banks in Egypt by foreign banks. This decision, combined with upcoming privatization of the state banks, is creating much more dynamism and transparency. With the 5 % growth rate in the economy of the past few years, and the improvements in banking regulation, competition in banking will definitely increase. Egypt banks have modernized a great deal in the past two years. "All the banks are fully computerized. We have introduced ATM machines all over the Cairo, home-banking, credit cards." says Abo El Fath.
Among Egypts joint-venture banks, Egyptian American Bank is a joint venture founded in 1976, by state owned Bank of Alexandria and American Express Bank. It was listed on the stock market in 1996. Today about 20 % is in the hands of investors, 40 % is held by American Express and 35 % is held by Bank of Alexandria. It has total assets of $1.6 billion .and reported profit of about
$27 million in 1997. James Vaughn , managing director of EAB , says Egypt is a lot like other emerging markets that have been dominated by public sector banks. A lot of products and services have not been available for retail and corporate consumers. For this reason "Egypt is very much in the take off phase as far as banking products are concerned," says James Vaughn. EABs clients include multinationals like General Motors, ABB, Daewoo, Siemens and pharmaceutical companies that are attracted both by the developing consumer market and the development for export. Geographically Egypt has an ideal export location, so bankers see increasing growth in terms of corporate loans.
Another joint venture is Misr International Bank, established in 1975 immediately after the Open Door policy on foreign investment in banking was passed. Initially Bank of Chicago was an investor, but today the ownership structure includes Bank Misr, Banca di Roma, British Arab Commercial, Europe partners and Misr Insurance. Twenty percent are represented as GDRs. At Misr International Bank Mohamed Ozalp , senior general manager, expects there will be more strategic alliances, some mergers as well as acquisition activity developing in Egypt this year. "Banking is the backbone of the economy," he says. Until recently he said, all the borrowing needs were covered by local banks, but now with the size of the projects increasing foreign financing is coming in. The new Sidi Krier power station financing package is a good example of joint local and foreign financing.
Shayne Eliott, president of Citibank Egypt, says Egypt is an encouraging market for his bank because corporate customers are sophisticated and have a high demand for quality financial services. "They are pushing the finance sector to move along. That is a nice mix, rather than having to drag customers with you," Eliott said. Core clients include Procter & Gamble, Coca Cola and other multinationals. Eliott said that Citibank can double its own market share in 18 months, both because it is now small and because Citibank has a wide franchise in Egypt. Now mainly focusing on corporate banking, Citibank plans include launching credit cards and other consumer banking products. Eliott estimates there are only about 100,000 credit card users in Egypt even though there is a huge demand for credit. Over the last few years there has been an increase in demand for consumer goods and access to credit is not easy. Elliot says that most of the cards that are issued in Egypt at the moment must have cash collateral but Citibank will be offering traditional credit cards.
Although Egypts banking system is strong and well supervised, the governor of the Central Bank of Egypt, Governor Ismail Hassan , stresses that the Central Bank now faces a main challenge : keeping inflation down to the level of Egypts trading partners while at the same time achieving a reasonable real growth rate in the economy. The target for growth rate is to reach three times the population rate. "We are working on both fronts - to keep the population rate down, which is a long term policy, and to achieve increasing growth rate," he concludes.
Selected egypian banks results (in LE million) Source: MEED 1997