Banking in Egypt

Published 14 March 2019 by Sherif Saad Law Offices

Profiting from the nation’s increasing economic stability over the past year, Egypt’s banks have enjoyed both rating upgrades and continued profitability. Thanks to an ambitious government development strategy, new investment legislation, and banking & finance law firms, the project economics pipeline is turning to form after a period of muted activity in Egypt. Elsewhere on the corporate loan book, competition is heating up to serve a mostly untapped retail segment and the nation’s challenging, but potentially worthwhile, small and medium-sized enterprise segment.

In addition to having the most significant banking areas in the North African region, Egypt’s is also one of the most successful. In more recent times, banks have made clear profits on high-yielding government securities following the 2011 change, while a developing macroeconomic environment and the flotation of the local currency point to another robust production for the sector in 2017. Though, various challenges are facing domestic banks, such as questionable new banking law and a strong lending target to small and medium-sized businesses set by the regulator. Both of these problems are connected to the goal of redefining the role of the banks in Egypt’s broader economy. This is a prominent problem in the context of the growing interest in raising financial inclusion across society.

The banking industry in Egypt is one of the oldest and most significant industries in the nation that plays a significant part in the development process in Egypt. It has been developed by the “Open Door Policy,” selected in the mid-seventies when international banks were permitted to proceed with their work in Egypt, aiming the consistent growth with an active role for the private sector in improving the economic production. To achieve the goals of this system, the banking and financial law firms in Egypt was issued, stating the variety and operation of the three types of banks:

1. Commercial Banks

A commercial bank is a sort of financial system that provides services such as taking deposits, making business investments, and offering essential investment outcomes to serve public and industry, ensuring economic and social security and sustainable extension of the economy.

2. Business and Investment Banks

Investment banking is a particular kind of banking related to the creation of money for other organizations, governments, and other objects. Investment banks help new debt and equity agreements for all types of businesses, aid in the marketing of securities, and contribute to promoting organizations and dividends, improvements and broker trades for both companies and private investors. Investment banks also guide issuers about the issuance and installation of stock.

Foreign banks are listed as business and investment banks as their idea is to raise long term supplies on the international financial markets and to promote financing.

3. Specialized Banks and Financial Institutions

All specialized banks are state-owned which are allowed to provide long term investment in the fields of finance and credit for industry, farming, housing, and rural improvement. They mainly cater to the requirements of the private sector and depend on their fundraising on obtaining from financial systems.

Also, banks working in Egypt can as well be classified into the public sector, the private sector and joint investment depending on its control. Banking system comprises 39 banks, six of which are state-owned, and the other 33 are investment banks. If you want to know to learn more about these banks and financial laws, you can contact Sherif Saad, one of the professional banking & finance law firms in Egypt

Legal Framework

The Banking Industry Framework in Egypt is divided into two types of Laws; Banking Laws and Anti-Money Laundering Laws. The CBE is filled with coordinating the movement of the banking sector, as well dealing with the daily contracts and clearances of all licensed banks, which it carries out according to the Banking Sector and Money Law No. 88 of 2003 and its various supplements. Since 2004 it has driven a process of banking sector reform, which is executed in two broad phases. The first phase involved sector security. The CBE set about increasing minimum capital elements, setting higher capital adequacy ratios, introducing steps to improve asset quality and establish more stable provisioning management.

The process of financial development in Egypt cannot be defined as a successful one, particularly during the first decade of the 21st century. In spite of the high market growth rates achieved in some years during the estimated period; though, this period has observed high rates of unemployment, expansion, and poverty. Where the performance of financing the process of economic development is considered the primary determinate of the conclusion of this process in any market, as it permits the market to grow while supporting the two wrongs of any economy, unemployment, and inflation, at secure and stable measures; this calls for considering the efficiency of financing the expansion process in Egypt and its main constraints.

The long-awaited flotation of the Egyptian pound has increased the sector’s opportunity, as the results of foreign-currency inflows are rising loan growth and trade-finance project. Banks are also profiting from the interest rate hikes started in late 2016 and 2017, achieving higher yields on Treasury bills and corporate credits; though, higher interest rates perform a difficulty in terms of cost of supplies, depending on their deposit arrangements.

While banks are well placed to handle external or domestic clashes, downside uncertainties are visible at the starting of 2018: if high inflation rates continue, interest rates increase further, or the CBE’s process of economic change is stalled, the percentage of NPLs could improve. On the regulatory front, the final version of the new banking law firm in Egypt will have a significant impact on industry development in 2018. The theme of financial inclusion is likely to continue to be prominent, as the CBE asserted in 2017 that it would priorities broadening the banked population and reducing the country’s reliance on cash transactions. To this end, the financial law firms Egypt will be supporting the use of mini-branches, mobile payments, and internet banking. There are encouraging signs that other banks are targeting untapped sectors of the market too. CIB also has announced it is considering establishing a new mortgage subsidiary that would specialize in extending loans to low-income citizens.