Selling public banks to foreigners is not the panacea for all the sector's woes, as Rehab Ahmed finds out The banking system is one of the key constituents of any strong economy. In Egypt, it has witnessed many structural alterations since the institution of the first bank in 1856, and the appearance of private sector and joint venture banks in the 1970s. Over and above, the banking sector has been undergoing reforms, privatisation and mergers since 1991. "Two years ago, there were 61 banks in Egypt," says Salwa El-Antari, general manager of the Research and Strategic Planning Sector at the National Bank of Egypt (NBE). "As part of the banking reforms carried out by the Central Bank of Egypt (CBE), bank mergers and acquisitions eliminated both small banks and non- performing ones since neither could contribute efficiently in developing the economy." According to 2007 figures, there are 39 banks operating in Egypt, with the share of state- owned banks dropping to 41 per cent of total local capital and assets. Moreover, it is expected that the percentage of local domination of banks will recede from 73 per cent to 50 per cent after the sale of Banque du Caire. Hence, El-Antari predicted, the percentage of foreign banks will increase from 27 per cent to 50 per cent. Mustafa El-Said, head of the Economic Committee at the People's Assembly, called for deliberation before rushing to privatise government-owned banks and handing them over on a silver platter to foreigners. "Foreign banks champion retail policies to achieve maximum profits and minimum losses," according to El-Said. Profits are transferred outside the country and hence do not benefit the economy. Those in favour of selling state-owned banks point to the inefficient administration of these financial institutions and crippling bureaucracy. "The issue is not who owns the bank," countered El-Said, "but how competently it is run." He argued further that all foreign banks in Egypt depend on Egyptian human resources. Former CBE Deputy Governor Faika El-Refaie agrees, saying that most foreign banks are only interested in implementing the agendas of their overseas headquarters, instead of developing the Egyptian economy. Hence, they encourage consumption patterns by either issuing credit cards to Egyptians or financing multinational corporations. Historically, continued El-Refaie, foreign banks operating in Egypt were never of much benefit to the country. For example, at the end of the 19th century foreign banks drove Egyptian companies to bankruptcy and forced them to sell their assets. In the late 1930s, foreign banks worked on weakening Banque Misr and forced it to stop financing local industries. Furthermore, they refused to fund the High Dam and developing industries in the 1960s. On the other side of the spectrum, there are those who are glad for the selling spree. In 2006, the government sold 80 per cent of Bank of Alexandria (BA) to Italy's San Paolo and kept 20 per cent in public hands. BA Chairman and Managing Director Mahmoud Abdel-Latif is proud that in two years the new administration succeeded in radically overhauling the bank and computerising all operations. "After privatisation, BA succeeded in attracting many Italian businessmen to invest in Egypt," Abdel-Latif revealed. "Moreover, it funds many small, micro and medium enterprises to employ bank staff instead of dismissing them." In order to achieve a balance in the sector between state-owned, public and private banks, economic analysts have presented many alternatives to selling state-owned banks to one foreign investor. El-Refaie suggested the merger of NBE with Banque Misr to form one solid state-owned entity capable of competing with multi-national banks. It would also be a financial institution which would protect the Egyptian economy in times of crisis. For her part, El-Antari said state-owned banks have no other option but to develop and perform better. "I recommend that at least 30 per cent of the private banks owned by strategic foreign investors should be listed on the Egyptian stock market," she suggested. "That way, its performance could be easily monitored." She also underlined the importance of a strong CBE capable of supervising and regulating the operation of foreign banks in Egypt. "In order to have the best of both worlds," proposed Abdel-Latif, "perhaps it would be better to combine state ownership with private administration."
