New Year's Eve merger THE TECHNICAL and legal merger of Egypt's second and third largest state-owned banks, Banque Misr and Banque du Caire, will take place on 31 December. Banque Misr Chairman Mohamed Barakat was quoted in Al-Ahram newspaper early this week as saying that a comprehensive restructuring plan was underway since the decision to merge was taken in September, 2005. The new entity, to be called Banque Misr, has a combined shareholder equity of LE6 billion, and combined assets worth LE160 billion -- probably making it bigger than the market leader, state-owned National Bank of Egypt (NBE). The merger comes as part of a massive overhaul in the local banking sector, engineered by Prime Minister Ahmed Nazif government and the Central Bank of Egypt Governor Farouk El-Okda. The plan focuses on radically reducing the number of existing banks from the previous 65 down to 25-30 banks, and improving their contribution to the national economy. Barakat noted that due to the relatively big size of the two banks' balance sheets, customer bases and branches, an international bid was arranged last year to choose advisors on both the restructuring and merging processes. The Dutch ABN AMRO was chosen to manage the restructuring plan which covered risk management, human resources and IT departments in the two banks. British Lloyds TSB was selected to arrange for the merger and put a management strategy for the new entity. Barakat stated that Banque Misr is currently working on restructuring its non-performing loans portfolio, and has agreed on rescheduling LE15 billion-worth of loans in addition to collecting LE4 billion in cash. But it seems that improving Banque du Caire's non-performing loans is moving at a slower pace. "Banque du Caire witnessed many positive developments, even before the merger decision," according to Barakat. "However, the defaulted loans and provisions problems are yet to be solved." He further revealed that a combined LE6 billion loan from both the African Development Bank and the World Bank will be used to finance the merging process. A chunk of LE4 billion will be used to increase Banque Misr's capital. Corridor rates unchanged THE CENTRAL Bank of Egypt's Monetary Policy Committee (MPC) left the corridor interest rates unchanged at 10 per cent for overnight loans, and at eight per cent for overnight deposits. The decision, taken during MPC's monthly meeting last week, will be reviewed at the next meeting on 2 November. An MPC press release attributed the current inflationary pressures to accelerated growth, especially in the sectors of manufacturing and real estate, in addition to the pass-through effect of the rise in prices of energy items in July. MPC said it will monitor developments and weigh the effect of these factors on future inflation. It signalled for the first time that "interest rate increases are highly likely at this juncture". MPC, which decreased interest rates in April, had been reducing rates since June, 2005. At the time, it established the corridor system, decreasing the overnight lending rate to 10 per cent from 12.5 per cent and the overnight deposit rate from 9.5 per cent to eight per cent. The rise in inter-bank rates and interest rates on government securities has fuelled expectations that the MPC may soon hike interest rates. However, last week's decision by the US Federal Open Market Committee to keep its interest rates unchanged bolstered the possibility of keeping local interest rates at the same level, in order to maintain a stable differential between EGP and USD deposit interest rates.
