Banking and Financial Sector in Egypt: Challenges and Reforms

The Egyptian banking sector is characterized by a public-sector dominance, with the Central Bank controlling the banking system and setting monetary policies. The sector has been plagued by problems such as high levels of non-performing loans, stifling bureaucracy, and massive overstaffing, leading to a liquidity crisis since 1998. The government has implemented various reforms, including the introduction of a new banking law, Law 37, in June 1992, and the removal of restrictions on foreign banks holding a majority stake in joint-venture banks in June 1996. Despite these efforts, the sector remains overbanked, and Central Bank policy is highly restrictive with regard to new entrants.

Key Takeaways:

• The Egyptian banking sector has a public-sector dominance, with the Central Bank controlling the banking system and setting monetary policies.
• The sector has been plagued by problems such as high levels of non-performing loans, stifling bureaucracy, and massive overstaffing, leading to a liquidity crisis since 1998.
• The government has implemented various reforms, including the introduction of a new banking law, Law 37, in June 1992, and the removal of restrictions on foreign banks holding a majority stake in joint-venture banks in June 1996.
• The sector remains overbanked, and Central Bank policy is highly restrictive with regard to new entrants.
• Commercial banks are the most important subsector, holding about 78% of total assets of the banking industry.
• The four state-owned commercial banks dominate the sector, accounting for nearly 57% of total assets, and holding 70% of deposits and 59% of loans.
• The private-sector commercial banks have gradually increased their market presence, accounting for 18.9% of credit services by 2000, compared with 7.6% in 1995.
• Egypt's main stock exchange, the Egyptian Stock Exchange, has one of the world's worst-performing stock markets in an emerging market peer-group, with a fall of 31.2% in 2001.
• Foreigners were buyers in 17% and sellers in 16% of transactions (in terms of value traded), compared with 25% and 17% respectively in 2000.
• The 30 most liquid companies account for around 80% of value traded.
• The fixed-income market remains small, with 29 corporate and 28 government bonds outstanding, making the E 18.2bn bond market 16% of total stock and bond market capitalisation.
• The domestic insurance market was closed to foreign companies until May 1995, but Law 156 of 1998 allowed the privatisation of public-sector insurers.
• The Egyptian Insurance Supervisory Authority (EISA) needs approval from investors taking a stake of more than 10% in public-sector insurers.

Statistics:

• The Egyptian banking sector has 62 banks operating in Egypt, with 28 commercial banks, 31 investment and business banks, and three specialised banks.
• The four state-owned commercial banks dominate the sector, accounting for nearly 57% of total assets, and holding 70% of deposits and 59% of loans.
• The private-sector commercial banks have gradually increased their market presence, accounting for 18.9% of credit services by 2000, compared with 7.6% in 1995.
• The sector has a liquidity crisis since 1998, with banks under informal Central Bank pressure to limit exchange-rate fluctuations and restrict credit facilities to importers.
• Officially, non-performing loans stand at around E 50bn, or 14% of total loan exposure in the banking system.
• The fixed-income market is small, with 29 corporate and 28 government bonds outstanding, making the E 18.2bn bond market 16% of total stock and bond market capitalisation.
• Annual premiums account for just 1.1% of GDP.
• The market remains closed to foreign insurance intermediaries, but some liberalisation of the sector in recent years has led to the entry of a number of major international insurers.

Sources:

• The Economist Intelligence Unit
• Egyptian Financial Group (EFG) index
• Hermes Index
• Morgan Stanley Capital International (MSCI) emerging market free index
• Country Profile