Finance and Banking

A new banking law (law n°88-2003 of 15 June 2003) has unified all Egyptian banking regulations. It was enacted in accordance with the international prudential standards of the Basle II agreements and contributes to strengthening of the Egyptian banking structure by improving prudential ratios and governance rules.

The new law definitely gave rise to mergers and acquisitions so that banks could meet new minimum capital requirements by July 2005. Moreover, the new law abolished the distinction between commercial, business, and specialized banks. Initial capital is now EGP 500 million minimum for a bank and the capital adequacy ratio at least 10 percent. For foreign bank branches, the minimum capital requirement is $50 million or equivalent in a convertible currency.

Also under way are a restructuring plan for liabilities (non recoverable loans) and bank recapitalisation, with the financial and technical assistance of international donors. Another recent modernisation effort is introduction of free flotation of the national currency vis-à-vis the dollar. The Central Bank of Egypt (CBE) is responsible for supervision, control, and regulation of the banking sector and for issuing licences. The country’s banking network is relatively dense and currently counts 53 banks: 27 commercial banks (of which four are State owned) with 1375 branches, 23 investment banks (including 12 foreign branch banks) and 3 specialised banks.

The banking system (excluding the CBE) is dominated by the four state-owned commercial banks, the Misr Bank, the National Bank of Egypt (NBE), the Bank of Cairo and the Bank of Alexandria, which accounted for some 60 percent of banking assets in 2003. The Bank of Alexandria, the fourth-largest commercial bank in Egypt, has been selected as the first state-owned bank to be divested, with privatisation scheduled for early 2006 at the latest. All state-owned banks have been instructed to sell their holdings in joint-venture banks. Foreign banks can open representational offices in Egypt, with activity limited to market analysis and identification of investment possibilities. There are 26 representational offices of foreign banks currently operating in Egypt. Subsidiary companies of foreign banks are mainly Arab and European (BARCLAYS, HSBC, Credit Lyonnais, BNP and GP). And the Natexis Bank has a representational office.

In November 2004, there were 21 insurance companies, 614 private pension funds, 3 state-owned insurance funds, and 5 insurance consortia.

Gross premiums of Egypt’s insurance companies amounted to EGP 4,036 million in 2003/04. The Government has sold majority shares in two companies to foreign investors. Four insurance companies (three direct insurance companies and Egypt’s only reinsurance company) remain state-owned, their combined market share in 2003/04 exceeding 70 percent. Authorities have indicated that privatisation is planned for mid 2006, following valuation (completed) and restructuring.

The legal framework for Egypt’s insurance sector is laid down in legislation governing insurance activities (law 10/1981, amended by law 156/1998), which allows up to 100 percent foreign ownership of Egyptian insurance companies. It also allows foreign companies to establish representational offices to advertise and promote life and other kinds of insurance. However, they may not sell their services through representational offices. Minimum capital required for incorporating an insurance company is EGP 30 million. State-owned insurance companies are also being restructured, with a view to privatisation.

The Cairo and Alexandria Stock Exchange (CASE) is Egypt’s major stock market, one of 2005’s top performers. After stabilisation of the sector, more than 744 companies were traded in 2005 (vs. 1110 in 2001) but with higher market capitalization (EGP 235 billion vs. 11.3 billion in 2001), driven by privatisation of a number of banks, the sale of public shares in some State owned companies, such as Sidpec (petrochemicals) and Amoc, Egypt Telecom (20 percent of shares) and the oil company MIDOR, which led growth in the Case 30 index. Foreign holdings increased from 16 percent in 2001 to 27.5 percent in 2004 and 30 percent in 2005. The Government has taken various measures to bring Egypt’s capital market closer to international standards. Capital market regulation is well advanced in adopting best practices and the stock market is enforcing higher standards of corporate governance. Companies listed on the CASE are required to conform to international accounting and disclosure standards. New listing and delisting rules have been issued for stricter standards and quality at listed companies. A new electronic trading system has been installed and the clearing/settlement system upgraded.

Lastly, the Egyptian Stock Exchange has joined the International Stock Exchange Union and signed an agreement in December 2005 with the Dow-Jones Index in order to create the Dow-Jones CASE Egypt Titans Index, a blue-chip index composed of Egypt’s largest companies. This index is to be launched in 2006.

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