The text of the New Bank Law aims to raise the minimum capital of banks operating in the Egyptian market to EGP 5bn up from the current EGP 500m, while branches of foreign banks in Egypt must raise their capital from $50m to $150m. Banks will have a three-year grace period to comply, as per the new law.
According to a senior official at the Central Bank of Egypt (CBE), the move aims to increase the soundness and efficiency of the capital base of banks in the face of potential risks, and will enhance their ability to compete with other banks regionally and globally.
The Egyptian market has 33 banks and five foreign branches, of which only six banks have capital over the requirements of the New Banking Law, and 27 banks need to increase their capital, in addition to the branches of foreign banks, in order to meet the requirements of the law, if it shall pass in its current form.
The list of banks which are in compliance with the New Banking Law include The National Bank of Egypt, Banque Misr, the Commercial International Bank, QNB ALAHLI, the Arab African International Bank, and the Arab International Bank.
Banks which need to increase their capital in line with the new law include Banque du Caire, AlexBank, the Misr Iran Development Bank, the ABC Bank, the Housing and Development Bank, the Suez Canal Bank, the Industrial Development Bank (IDB), United Bank, the Abu Dhabi Islamic Bank, Baraka Bank, Blom Bank, and Bank Audi.
The list also includes Ahli United Bank, HSBC, Attijariwafa Bank, Credit Agricole, Emirates NBD, EG Bank, UNB Egypt, the Export Development Bank of Egypt, Faisal Islamic Bank, SAIB, the Arab Investment Bank, Al Ahli bank of Kuwait, and NBK-Egypt.
The Agricultural Bank of Egypt (ABE) and the Egyptian Arab Land Bank (EALB) will need to support their capital base after the restructuring of both banks.
The list also includes five branches of foreign banks, namely Mashreq, the First Abu Dhabi Bank, Citi Bank, and the National Bank of Greece-Egypt, which has made it out of Egypt on time by selling its assets to Bank Audi.
The increase of banks’ capital in 2003 led to many banks leaving the market at the time, through mergers and acquisitions (M&A).
For his part, banking expert, Tarek Metwally, said that the text of the New Bank Law requiring the increase in the capital of banks and branches of foreign banks operating in Egypt coincides with the implementation of the current reform programme, and the state’s direction to launch major projects.
He added that the current capital of banks–with the exception of a limited number of major banks–does not correspond to the size of the current economy and the volume of investments presently required as funding, which requires significant capital.
Metwally expected mergers between some banks which are unable to increase their capital and reconcile their situation with the New Banking Law, as well as acquisitions by other banks.
This was confirmed by Maged Fahmy, head of the IDB, whose capital is only EGP 500m.
Fahmy explained that once the bank has finished its deferred losses file, the bank’s main owner, the Ministry of Finance, will be asked to increase the bank’s capital to comply with the New Banking Law.
He added that if the owner refused to pump the required increase into the bank’s capital, there are several other options, including the merger of the bank or the acquisition by another bank, or even enlisting the bank on the Egyptian Exchange (EGX).
The new banking draft law excluded the digital banks and banks which engage in specific types of SMEs financing, known as Tier 2 banks, from the minimum capital limit of EGP 5bn, Gamal Negm, deputy governor of the CBE old State-run MENA news agency on Saturday.
He added that other banks such as the Industrial Development Bank, the Agricultural Bank of Egypt, the Export Development Bank Of Egypt, and the Egyptian Arab Land Bank, are not specialised banks, and will not be excluded from the capital minimum limit because they carry out all banking activities permitted by the CBE.