The government's decision to sell Banque du Caire is stirring up a hornets' nest, according to Sherine Abdel-Razek The decision to privatise a state-owned entity should always be carefully considered and transparent. And if the entity sold is a 55-year-old state-owned bank employing 8,000 workers with a six per cent market share of overall deposits in the sector, preparation for the public to understand and approve the decision is another factor that should be added in. However, the decision to transfer Banque du Caire (BC), Egypt's third largest public bank in terms of asset value, lacked all these elements. The Cabinet recently unveiled plans to sell 80 per cent of BC to a strategic investor through an auction and float another 15 per cent on the stock exchange within a year. The decision took the public by surprise, as was the case in 2005 when BC announced it would merge with Banque Misr and then the latter announced in 2006 that it would instead acquire the bank. In the end these deals fell apart. In a press conference held early last week, CBE Governor Farouk El-Okda said the decision was not sudden, that it was decided six months ago; however, the parties involved opted to make it confidential as the decision involved negotiations with regional and African central banks in countries where BC has branches that Banque Misr had acquired. This justification was not accepted even by some National Democratic Party MPs. During a heated six-hour debate on the sale by a panel of members of the Budget and Economic Committee of the parliament and a number of MPs, the majority of the latter showed reservations on the sale starting with why the government took the decision and the possibility of the bank ending up in foreign hands. Zakaria Azmi, chief of presidential stuff and NDP MP, pointed out that the government is the reason behind the uproar against the sale. "The government is still not convinced it must prepare the public for this kind of decision." He pointed out that the whole story has to be revealed to the public which was told last year that merging with BM was the best solution for BC. Azmi asked why we are selling this bank if the financial results of last year showed that it is making profits. The state defended the move which is said to be based on the opinion of experts who first confirmed that the bank cannot continue on its own and had recommended merging it with Banque Misr. Youssef Boutros Ghali, minister of finance, explained that initially a merger was seen as the right step to take. However, after analysis, it realised that many branches of both banks were close-by, which means either shutting down some or let them negatively affect Banque Misr's operations. El-Okda estimated the sale price to be around LE14-15 billion based on the selling price of the Bank of Alexandria. The fear of privatising the bank or selling it to a foreigner has pushed many of its customers to withdraw their deposits. "On the first few days following the sale announcement we had up to 10-12 small customers withdrawing their deposits or coming to ask about safeguards in case the sale took place. We have fewer such customers now but still you feel an overall tension, said a front office employer in a BC branch in Heliopolis. The bank's chairman, Mohamed Barakat, on the contrary, stressed that the bank's deposits last Wednesday increased by LE72 million. A senior analyst in the research department of a public-owned bank who asked not to be named said that this statement in itself is worrisome: "what is the source of these deposits? Is it individual clients or companies who believe in the bank's sound performance despite the government's take all the time that it is mismanaged? This does not make any sense; most probably these deposits are transfers from the deposits in the Banque Misr and the National Bank of Egypt aiming at giving a positive image about the bank. The statement in itself is double edged, if the bank attracted all these deposits in one day, why are we selling it?" According to the government, the main reasons behind the sale are: lack of well qualified banking experts, overstaffing, weak control and risk management. In addition to the well known heavy non-performing loan burden. As usual, the idea of selling to a foreign investor is the most serious problem, since no local company could possibly raise the estimated LE12-15 billion cost. MPs attending last week's panel stressed that. They asked that foreign banks be excluded from the bidding. They even asked that the bank be sold through an Initial Public Offering that would include only Egyptians for fear that opening the door to more foreign ownership in the sector would eventually lead to the CBE losing the power to determine monetary policies or affect national security. Tarek Amer, deputy governor of the CBE, did not exclude the possibility that the BC could end up in foreign hands, and argued that foreigners owning a number of banks does not mean that the finance system is out of control. "If it was proven that a foreign bank was involved in malpractice, the law allows us to overrule it or change its administration, and even to recruit a CBE delegate to manage the bank." During the same session, Minister of Investment Mahmoud Mohieddin pointed out that public management of banks was a failure since state-owned banks lose one per cent of their market share annually due to the fierce competition. Such an attitude raises fears that the scenario might be repeated with both NBE and Banque Misr. El-Okda said on several occasions that the case of BDC is totally different as its non- performing loan portfolio, LE12 billion, is mainly owed by defaulted private companies or individual clients that have already fled the country and thus it is hard to settle these loans. As for Banque Misr and the NBE, 80 per cent of the loans are given to public sector companies, a problem the state was able partially to solve by acquiring a $1 billion loan from the World Bank. However, a report by the Central Auditing Agency on the performance of the three public banks for 2003-04 that has been reviewed by Al Masry Al-Youm reveals that the three banks have more or less similar problems. For example the NBE's New York branch has posted losses equivalent to 70 per cent of its capital while 32.5 per cent of its loan portfolio is concentrated with 28 clients. A similar situation is valid with Banque Misr where the report said that 39 per cent of the portfolio is owed to 20 customers which is a violation of the 30 per cent rule put by the CBE.
