Banking: First signs of the shake-up

29 October 2004
Banking sector reform sits high on the new government's agenda, and in late September the cabinet approved a masterplan intended to force some long-awaited consolidation of the sector. The move follows legislation passed in 2003 setting minimum paid-up capital for banks at£E 500 million. Outside the stated aims of the masterplan, the Central Bank of Egypt on 15 September approved the merger of the local branch of American Express with Egyptian American Bank (EAB), its 40 per cent-owned local affiliate, and the merger of the local Credit Lyonnais branch with Credit Agricole Indosuez.

'This is clearly an attempt to consolidate a fragmented system,' says an international banker based in Cairo. 'Their eventual stated aim is to reduce the 62 banks down to 21, but more immediately, and more importantly, they have set 30 June 2005 as the final date for banks to meet capital adequacy targets. Originally they provided for three one-year extensions, and now the first deadline has passed they really want to push this through.'

The main provisions of the masterplan include:

The merger of the six smallest commercial banks with larger institutions by October 2004. The central bank in September approved the merger of Misr Exterior Bank with state-owned Banque Misr, making it the first of the six state-affiliated banks to be folded back into their parent companies. The other five banks slated for merger are Commerce & Development Bank, El-Mohandes, Islamic International Bank for Investment, Nile Bank and United Bank of Egypt.

Reinforcing the regulatory powers of the central bank, including establishing a central arbitration committee to adjudicate banks' non-performing loan (NPL) cases.

The sale of minority stakes in a number of local banks, including Misr International Bank (MIBank), in which Banque Misr has a stake, Commercial International Bank (CIB) and EAB.

Financial and organisational restructuring of the four state banks over a three-to-four-year timeframe.

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