Banking Sector

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Improving Budget Classification
Privatization and Consolidation of the Banking Sector
The banking sector privatization program aims at the
complete divestiture of 100% of state ownership in one
state-owned bank - namely Bank of Alexandria (BOA) - and
the divestiture of all state-owned banks (SOB) holdings in
joint venture banks, in this regards, the pre-sale preparation
phase for the privatization of Bank of Alexandria has been
finalized, among the accomplished tasks in this regards are
the following:
•
Cash settlement through the National Investment
Bank of all non-performing loans owed by public
enterprise entities to BoA amounting to L.E 9
billion.
•
Full divestiture of BoA's non-core investments.
•
The announcement for soliciting expression of
interest end of March 2006.
The GOE has improved the budget classification according
to the International Monetary Fund (IMF) 2001 GFS
(Government Finance Statistics) Classification; this system
aims at ensuring more consistent reporting during the
year.
The adoption of the new classification distinguishes between
the economic, administrative, and functional classification.
There is a clear distinction between revenues, expenditures
and financing transactions, as well as between transfers
and exchange transactions. The fiscal policy stance is
monitored on the basis of the cash/surplus deficit and the
overall fiscal balance.
Banking Sector
As for the divestiture of SOB holdings in joint venture
banks, 12 out of 17 holdings were divested including the
holdings in the five largest joint venture banks namely
Cairo Barclays, National Société Générale Bank (NSGB),
Misr International Bank (MIB), Commercial International
Bank (CIB), and Egyptian American Bank (EAB). The five
remaining holdings are expected to be transacted before
the end of 2006.
The banking sector plays an important role in the field of
circulating the money needed for investment, as it plays
the mediating role between savings – represented mainly
by households - and the investors.
Out of this respect, GOE is implementing a restructuring
program which aims at strengthening the sector in order
to enable it to face the increasing global and regional
competition effectively, and help achieve the targeted
economic growth. Among the steps undertaken throughout
this reform program are the following:
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Banking sector
2002/2003 - 2004/2005
Year
Number of
banking branches
(Branch)
Moreover, a team of qualified bankers and lawyers have
been assigned the task of managing the Conciliation &
Arbitration Administration process, under the umbrella of
the BRU. The process has been communicated to all banks
that are operating in Egypt, and started to deal with some
cases that have been presented.
Number of
banks (Bank)
2002/2003
2582
62
2003/2004
2783
61
2004/2005
2847
59
Restructuring of Public Sector Banks
A detailed restructuring plan has been prepared by the BRU
to implement a complete structural and financial reform
of the state owned banks, and it was presented to stateowned banks’ Senior Management during January 2005 in
the form of standardized templates to simplify and unify the
restructuring approach of the banks in order to control and
monitor their achievements and adherence to target dates.
Source: Central Bank of Egypt.
Non-Performing Loans (NPL) in Egyptian Banks
A NPL Management Unit was created under the umbrella
of the Banking Reform Unit (BRU) with the aim of setting
a national policy for dealing with NPLs, setting up a NPL
data base, monitoring recovery efforts, and introducing a
conciliation/ arbitration mechanism for NPLs.
The plan is designed in two phases, one of which deals with
the hiring and appointment of key management positions,
together with their supportive units and experts, whereas
the second phase emphasizes on time lined actions/ targets
to put the banks on the right track, this phase is to be ended
in 2008.
CBE has adopted a mechanism for dealing with multi lender
NPL critical cases to reach a settlement agreement with
BRU, which acts as a mediator.
Non-Performing Public Enterprises’ debt in Bank of
Alexandria amounting to L.E 6.9 billion was paid in cash
in January 2006 by the Ministry of Finance in order to
accelerate the bank’s privatization process.
Mechanism for resolving the Non-Performing Public
Enterprises’ debt in the remaining 3 state-owned banks is
presently under review together with the Ministry of Finance
and, Ministry of Investment.
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Acquisitions in Banking Sector
August 2005- June 2006
Buyer
Seller
Audi sal - Audi
Saradar Group
Cairo Middle
East Bank
Misr American
Bank
Misr Romania
Bank
MIB
Credit Agricol
BLOM Bank
NSGB
Upgrading of Banking Supervision
Value
Acquisition
(L.E million)
(%)
94
99.7
1637
56.2
498
84.2
2204
90.7
The Central Bank of Egypt (CBE) has embarked on a
project to upgrade the Banking Supervision Capabilities
with the following objectives:
•
Establishing a proactive future-oriented and highly
analytical bank supervision framework that meets
International Standards.
•
Developing and upgrade the necessary specialized
skills and knowledge among staff to meet current
and anticipated challenges, particularly in the area
of risk management with special focus on credit
risk
•
Shifting from a compliance based (rule-based) and
statistically oriented supervision to a risk-based
supervision.
•
Creating an improved management information
system (MIS) within Banking Supervision in order to
provide the quality and timeliness of data required
by a risk-based supervisory regime.
Source: Ministry of Finance, Monthly Financial Report, July 2006.
As for the Merger of Banque du Caire with Banque Misr, it
will take place in two phases, the first one deals with the
legal and technical merger, and is planned to be completely
implemented in 2006; through an international management
consultant (Lloyds TSB), whereas the second phase implies
a restructured new bank operating in accordance with the
international best practices, and this is to be done by the
end of 2008.
Memorandum of understanding and a protocol were signed
in November 2005 with the European Central Bank and
four of the Euro System National Central Banks (Deutsche
Bundesbank, Banque de France, Banca D’Italia and Bank
of Greece) to provide a 2 year technical assistance program
for the upgrading of the CBE Banking Supervision, allowing
for the use of new banking tools and methodologies. The
program started in December 2005 with two main phases:
Regarding the Audit of the four largest state owned banks,
a full audit review of the 4 commercial state-owned banks
is being formulated by international audit firms, according
to International Financial Reporting Standards (IFRS),
with a main focus on asset quality and identification of
the provisioning gap. Within the same context, Bank of
Alexandria’s audit has been finalized and the remaining 3
banks audits are near completion.
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Phase 1 focused on conducting a comprehensive
diagnostic analysis of the current banking supervision
practices, and designing a development plan in
line with international best practices, this phase
was completed in March 2006, the assessment
report was discussed and the recommendation for
the development plan was approved during the 1st
steering committee meeting in March 2006.
Insurance Sector
Insurance premiums as a percentage of GDP
increased to reach 1.1% in FY 2004/2005, compared
to 0.85% in FY 2003/2004.
Total insurance gross premiums increased by 11.2%
to reach L.E 4.797 billion in 30th June 2005,
compared to L.E 4.314 billion in 30th June 2004.
Phase 2 will focus on developing and implementing
appropriate supervisory tools and methodologies.
Total claims paid by insurers increased by 40.3% to
reach L.E 2.777 billion in FY 2004/2005, compared
to L.E 1.98 billion in FY 2003/2004.
Source: Ministry of Investment.
Insurance Sector
administrative structure of the sector.
Insurance benefits society by allowing individuals to
share the risks faced by others, and it also serves many
other important economic and societal functions, as well
as providing the capital through contractual savings,
that communities need to quickly rebuild and recover
economically
Also, steps are taken to restructure the sector, and implement
the privatization programmes for insurance and reinsurance
companies, to increase the sector’s attractiveness for
savings and investments, especially long-term ones. For
this purpose, a reform strategy to develop the sector and
its funds has been formulated.
Moreover, insurance can play an important role in the
overall strategic-planning process. In the context of a longterm gifting strategy, life insurance proceeds - for example
- can be used to “equalize” legacies among active and nonactive members of the next generation.
Regarding the regulatory reform of the sector, the
government of Egypt regulates the insurance sector at
large. It sets the overall targets and policies designed to
promote and develop the sector.
The Egyptian Ministry of Investment is aware of the
importance of the insurance sector. Out of this respect,
the Ministry is working to improve the legislative and
The Egyptian Insurance Supervisory Authority (EISA)
is charged with overseeing the solvency of insurance
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