Egypt’s President Abdel Fattah Al-Sisi issued a decision on Monday renewing the tenure of the Central Bank of Egypt’s (CBE) Governor Tarek Amer for more four years until November 2023.
According to local bankers who spoke to Daily News Egypt, the renewal of Amer’s term in office did not come as a compliment, but it had strong reasons. The CBE, led by Amer, managed the files of monetary policy and exchange market successfully, which reflected positively on the performance indicators of the national economy as a whole.
When the name of Tarek Amer is mentioned, the decision which changed the course of the Egyptian economy always comes to mind. It is the floatation of the exchange rate conducted by Amer on 3 November 2016.
This decision was undoubtedly the boldest in the history of the Egyptian banking sector, if not in the history of the Egyptian economy as a whole.
It had positive impacts on the Egyptian economy, most notably the return of foreign exchange inflows to the Egyptian market again, and the entry of more than $200bn to Egypt over three years. Besides, the CBE achieved a big leap in terms of foreign exchange reserve, reaching its highest level following the floatation.
Amer was first appointed as the Governor of the CBE in November 2015. He has since led a development revolution within the bank and the banking sector as a whole.
In addition to the monetary reform, the CBE was keen on launching a series of initiatives to support the strategic sectors in the country, and support the development environment and investment climate.
Amer led Egypt’s successful negotiations with the International Monetary Fund (IMF) to obtain a loan of $12bn, which was a strong testimony to the recovery of the Egyptian economy.
This was not the first time that Amer has participated in a reform programme, as he also played a major role in the reform plan implemented in 2004-2008 when he served as the deputy governor of the CBE at the time.
Continuing the development of the banking system
The Agricultural Bank of Egypt’s Chairperson El Sayed El Kosayer said the renewal of Amer’s term confirms the political leadership’s confidence and satisfaction with Amer’s management of the monetary policy in the past four years.
He pointed out that Amer has now the opportunity to continue his successful path, and complete the development of the banking system, which was praised by all international financial institutions, especially the IMF.
He added that this decision also achieves stability and intensify coherence of the banking system, and supports its ability to serve the Egyptian economy and economic development. It also supports achieving financial inclusion and digital transformation in Egypt in accordance with the strategy of the state and the National Council for Payments.
The monetary policy file
Moreover, Maged Fahmy, chairperson of the Industrial Development Bank, said Amer deserves to serve another term.
He pointed out that Amer managed the monetary policy file efficiently, and the bold decisions he took, especially the decision to float the exchange rate, had positive effects on the Egyptian economy as a whole.
Fahmy added that Egypt is now witnessing a stable exchange market, a low level of inflation, and a trend towards cutting interest rates to encourage investment.
According to Fahmy, Amer should work in his second term at the CBE to complete the banking reform programme, especially after the successful drafting of the new banking law. He added that he should continue to target inflation rates, in addition to resuming the reduction of interest rates to stimulate the economy.
Amer was re-chosen for the difficulty of coming period
According to Mohamed Abdel Aal, a board member of the Suez Canal Bank, the reason for re-choosing Amer for another term was not only due to President Al-Sisi’s satisfaction, the local and foreign banking sectors’ admiration of Amer, or even the risks he took without hesitation to achieve economic growth. According to Abdel Aal, the main reason is the difficulty of the upcoming stage that requires Amer’s experience and management skills.
He pointed out that the coming period would be the most difficult for Egypt’s economy. It is the stage of stabilising the positive impacts of the economic programme, which are often difficult to achieve, as was the case in many emerging countries.
Abdel Aal believes that there are eight old and new files that will define the second term of Amer, to ensure the strict implementation of the new Banking Law after the Parliament’s approval.
He added that these files also include maintaining the gains of the economic programme, the most important of which is controlling price stability under the targeted inflation rate and focusing on pushing and supporting the monetary policy that stimulates economic growth.
According to Abdel Aal, achieving exchange rate stability following the floatation policy based on the supply and demand mechanism is also an important file. In addition, the CBE implemented important initiatives that are effective in increasing employment rates for young people, while giving preferential advantage to initiatives to support entrepreneurs, applications of transformation, and financial technology.
“There may be deeper coordination with the monetary policy committee to advance the financial inclusion programme and bring the informal economy into the formal economy,” Abdel Aal said.
He added that the CBE’s governor is also required to maintain the growth of the foreign exchange reserve with an enough rate to secure importation needs for at least nine months, as well as a reasonable real interest rate (the nominal interest adjusted for the rate of inflation), which achieves the objectives of the monetary policy and the interests of depositors from the household sector and investors. Amer will also supervise the moving of the headquarters of the CBE to the New Administrative Capital.
Abdel Aal expects a rapid improvement in the exchange rate of the Egyptian pound after the renewal of Amer’s tenure, with a new price level close to EGP 15.5 per US dollar. He also expects the interest rate to stabilise at its current levels until the new year, where a further decline of 200 basis points is expected during the first half of the new year.
Five bold decisions and measures
Amer took a series of decisions and measures during his first term, topped by floatation and drafting the new banking law:
Floatation of the exchange rate
The most difficult and important decision for Amer was the decision to liberalise the exchange rate on 3 November 2016, and therefore to eliminate the parallel market.
That decision contributed to the US dollar returning to official channels, in addition to the abundance of foreign liquidity at banks and the growing cash reserves.
Banks directed to support SMEs
The CBE also obliged banks operating in the Egyptian market to allocate 20% of their credit portfolios to support small and medium enterprises (SMEs), aiming to inject EGP 200bn for these projects within four years with a facilitated interest.
Lifting restrictions on foreign currency transfer
In 2017, the CBE cancelled the instructions issued in February 2011 regarding the maximum transfer limit of $100,000 or its equivalent per customer once a year, which has already been applied to Egyptian individuals and companies, except for transfers related to import transactions, dues of foreigners resulting from their investments in Egypt, and remittances of foreign companies operating in Egypt. This confirmed that the entry and exit from the Egyptian market is safe for investors.
United Bank offered to a strategic investor
In the light of transparency and preventing conflicts of interest, the CBE decided to offer the United Bank to be sold to a strategic investor. The bank chose the consortium of EFG Hermes and Evercore to act as a financial advisor in offering a stake to a strategic investor in the 99.9% share capital of the United Bank.
The selection came after the trade-off between five offers for a group of the largest companies working in the field of financial consulting and promotion to accomplish many tasks. Their tasks included the promotion of the deal to a selected group of prestigious financial institutions, the preparation of a preliminary fair value study for the United Bank, in addition to the representation of the CBE and the United Bank before potential acquirers.
New Banking Law
The CBE, headed by Tarek Amer, has finalised the draft of the new banking law. It aims to implement the best banking practices globally, as the CBE has used international financial institutions, in addition to reviewing banking laws in various countries to get acquainted with the latest legal applications and regulations followed by international banks.
Six initiatives led by Amer
During his tenure as the CBE’s Governor, Tarek Amer succeeded in stimulating economic growth, launching several initiatives following the decision to liberalise exchange rates, led by the SME and Real Estate Finance Initiative. He supported the tourism and industry sectors, adopting policies that support financial inclusion and developing systems for electronic payments in coordination with the National Council for Payments.
Mortgage Finance Initiative
The initiative was launched by CBE in February 2014, to provide long-term financing with decreasing subsidies for low, medium, and above middle income at 7%, 8%, and 10.5%, respectively, benefiting more than 200 thousand families, with a financing volume of EGP 20bn.
The CBE allocated EGP 10bn to the initiative as a first tranche. After it ran out, it added a second tranche of the same value. In February, the CBE installed new controls on the initiative, limited to financing only low-income people. This came after consuming the entire first and second tranche, estimated at EGP 20bn.
Amer also succeeded in adopting the initiative to support small and medium enterprises launched by the CBE with the directives of Al- Sisi in January 2016. The CBE obliged banks operating in the Egyptian market to allocate 20% of their credit portfolios to support small, medium, and micro enterprises (MSMEs), aiming to pump EGP 200bn for them in four years, with an interest rate of 5%.
In May 2019, Amer decided to approve the addition of banks’ shareholdings in the direct investment funds targeted at small startups within the 20% of the bank’s total credit facilities to MSMEs under the instructions issued in this regard.
Tourism Sector Support Initiative
CBE launched several initiatives that serve the tourism sector and its employees. The bank decided to launch an initiative to finance the replacement and renovation of tourist and hotel facilities worth EGP 5bn in February 2017, with banks providing 75% financing at a 10% interest rate, up to a maximum of 10 years, according to the customer’s credit study.
In December 2018, the bank also decided to extend the validity of its initiative to support retail facilities related to the tourism sector until the end of December 2019, during which banks will be allowed to carry over the dues of consumer loans and mortgages for personal housing for an additional six months from the due date. This is provided for regular customers working in the tourism sector.
Nile Pioneers Initiative
In February 2019, Amer also launched the Nile Pioneers initiative, purposed to support the growth of small businesses and encourage the establishment of startups in targeted economic sectors using modern technology and providing technical and administrative support, in continuous coordination with all concerned partners in the economic system.
The initiative is implemented by Nile University in accordance with a five-year agreement with CBE, in cooperation with the Micro, Small and Medium Enterprises Development Agency (MSMEDA), the Ministry of Planning, the Academy of Scientific Research and Technology, banks, and the Egyptian Banking Institute.
Financial inclusion initiatives
The CBE also declared 27 April to be the Arab Financial Inclusion Day through cooperation with the Board of Governors of Central Banks and Arab Monetary Institutions. The Central Bank allowed banks to be present outside their branches in remote areas across different regions of Egypt. During the Financial Inclusion Week, lots of products are made available for customers and they get the chance to open new accounts without expenses or a minimum limit.
In June 2019, the CBE’s FinTech and Innovation Unit launched the first financial technology platform in Egypt “FinTech Hub”
The platform supports and connects all parties of the financial technology system, including innovative financial technology entrepreneurs, financial institutions, financial technology service providers, experts, and investors, thereby fostering entrepreneurship in Egypt.