Global Investment House – Egypt Economic & Strategic Outlook – Banking Sector- The banking sector in Egypt is continuing its restructuring process with the aim of increasing its robustness and enabling it to perform competitively on a regional and international level. The government has undertaken a series of reforms to strengthen the banking sector. The reform steps taken by the government includes addressing asset quality problems, increasing minimal capital requirements, privatization of public sector banks and consolidation of small private banks. Currently, the Egyptian banking sector consists of 41 banks, down from 61 in 2004, with 3,116 branches. This number fell as the government has expressed its intention to consolidate the sector because it felt that the number of banks in Egypt is very high, with few of these banks having enough capital to be competitive and most facing a larger risk of collapsing should borrowers fail to pay back large sums of money.
The mortgage financing market in Egypt continues to evolve. A newly established government institution, the Egyptian Company for Mortgage Refinance (ECMR), will enable the mortgage finance companies to offer more competitive terms. The expansion of the mortgage financing industry has been helped since 2005 by a lowering of property registration fees from 12% to 3% of the purchase price (or a maximum flat fee of LE2,000) and property taxes from 46% to 10%. A new law is also making it easier to prove ownership of property, which facilitates the use of assets as collateral. The entry of new mortgage lending companies should establish a more competitive residential housing market and challenge the traditional shortcomings of informal lending agreements and (mostly) unregistered property trading.
Growing at a CAGR of 12.9% between 2002/03 and 2006/07, the Egyptian banks’ aggregate assets reached LE937.9bn, mainly driven by the 78.6% hike in the balance with banks in Egypt as well as the 71.4% surge in the balances with banks abroad. Both balances’ share in total assets increased from 25.5% previous year to 36.4% in 2006/07. The Egyptian banks’ consolidated assets in 2006/07 grew by a healthy 23.2% over 2005/06 figure. For the first time since 2002/03, the securities and investments in treasury bills account dropped in 2007 along with an increase in the total credit facilities offered by banks in Egypt.
As the spread between the lending rates and the treasury bills rates widened, the banks were encouraged to increase their lending facilities. In 2006/07, the securities and investments in treasury bills account dropped by 9.2%, the same rate by which the loans and discount balances rose. The non-government sector accounted for the lion’s share, 92.5%, of the total credit facilities distribution in 2006/07. Out of the non-government share from the total lending portfolio, 72.7% were in local currency reaching LE237.8bn. The industrial sector accounted for 31.3% of the total credit facilities granted in 2006/07. The services sector came in second with a share of 26.3%, followed by the households and external sector at 23.7%. The total credit to non-government sectors in local currencies grew by only 4.5% during 2006/07.
As for the credit facilities in foreign currencies granted to the non- government sectors, again the industry sector had the highest share at 41.2%. Also, the services and trade sectors followed with 36.4% and 13.2%, respectively. It is worth noting that the growth of lending facilities in foreign currencies rose to reach LE89.3bn in 2006/07, an 18.4% rise over 2005/ 06 figure.
Deposits, which rose by 14.3% in 2006/07 to reach LE650.0bn, are the primary source of financing for the Egyptian banks. They account for 69.3% of the total banking sector liabilities. The banks deposits grew at a CAGR of 12.7% between 2002/03 and 2006/07. The reform program initiated since 2005 has been to able impact the banking sector positively. After the successful privatization of Bank of Alexandria, there are plans to privatize Banque du Caire, Egypt’s third largest bank, by mid-2008. JP Morgan has been selected from a group of 14 institutions to advise the government on the sale. The government has indicated that it will retain ownership of the National Bank of Egypt and Bank Misr, the country’s two remaining state-owned banks.
The steps taken by the government have resulted in huge interest from a large number of foreign investors, who wants to enter the Egyptian market through the acquisition route since the Central Bank of Egypt (CBE) has not been willing to issue any new licenses. Lebanon’s Blom Bank and Bank Audi Saradar, France’s Credit Agricole and Greece’s Piraeus Bank are some of the foreign lenders that have bought stakes or acquired Egyptian lenders from the private and public sectors. Gulf lenders, such as the National Bank of Kuwait who acquired El Watany Bank of Egypt by the end of 2007, have also been vying to snap up stakes in Egyptian lenders as they seek to take advantage of Egypt’s booming banking industry.
