Banking reforms gain new impetus

17 September 2004
President Mubarak on 11 September approved a five-pronged strategy for reforming the local banking sector, which will see the smallest local banks absorbed by their parent companies, the sale of minority government stakes and the creation of a centralised body to oversee the settlement of non-performing loan (NPL) cases. 'Banking sector reform has been promised without substantial delivery for many years, but the explicit presidential mandate, along with the reformist nature of the new government, makes us confident that this time it is really going to happen,' says a local analyst.

The first element of the reform will see six local state-affiliated banks folded back into their state parents. These are Commerce & Development Bank, El-Mohandes, Islamic International Bank for Investment, Misr Exterior Bank, Nile Bankand United Bank of Egypt. The move follows legislation passed in 2003 setting minimum paid-up capital for banks at £E 500 million ($80.6 million) - a regulation with which the six banks are unable to comply.

The second part of the reforms will see the establishment of a central arbitration committee over the next two-three years at the Central Bank of Egypt (CBE) to adjudicate banks' NPL cases. Most eagerly awaited of the plans is the long-delayed sale by Cairo of minority stakes in local banks, starting with MIBank, which is 26 per cent owned by Bank Misr, and Egyptian American Bank, which is 33 per cent owned by Bank of Alexandria.

Further down the line, the plan to restructure the four state banks has been revived, over a three-four-year timeframe, while the government has also committed itself to strengthening the regulatory powers of the CBE.

Banking reform has been on the agenda for many years, and there have been sporadic signs of movement, such as new financial sector legislation in late 2003 and the sale of the government's 40 per cent stake in Cairo Barclaysto Barclays Bank in March, creating the first wholly-owned subsidiary of a foreign bank in the country. Progress has been generally slow. However, since the reformist cabinet of Prime Minister Ahmed Nazif came to government in July, several long-awaited reforms have come to fruition (MEED 30:7:04, Cover Story).

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