The government support of privatizing state-owned banks and the entry of several Gulf-based players have galvanized the banking sector in the past two years. Raising the professional standard of banks in Egypt has been a challenge that was met with strong public opposition. For decades, the banking system was dominated by four, low performing state-owned banks and a mixture of public-private banks. However, through mergers and acquisitions that number of private banks has been reduced from 61 to 40. In October 2006, the government sold an 80 percent stake of the Bank of Alexandria, one of the four state-owned banks, to Italian Saopaolo for $1.6 billion. In July 2007, it announced that its next goal would be to sell 80 percent of another state-owned bank, Banque Du Caire. The announcement was met with staggering opposition that accused the government of selling off public assets to foreigners. As a result, the government amended its decision and announced offering a 67 percent stake in the bank, 28 percent in an initial public offering on the Egyptian stock exchange, and the remaining five percent to employees. The government plans to auction the bank off in an international bid this year. This leaves the National Bank of Egypt and Banque Misr as the last two major state-owned banks. While the public may be dismayed by the sales, private banks welcome the competition, saying it will raise the performance standards of existing banks, who will want to retain their market share against new competitors. Due to the competition, banks are now offering a wider array of services, including more diversified housing and car loans, as well as an unprecedented focus on funding small to medium-sized enterprises (SMEs). With the current economic growth attracting many foreign investors to found new banks in Egypt, the Central Bank of Egypt rejected permission to allow the establishment of new banks, making it impossible for foreign banks to tap the Egyptian market except through the purchasing of Egyptian banks that are being sold. National Bank of Kuwait (NBK) won last August a bid to acquire a 51 percent stake in Al-Watany Bank of Egypt for $522 million. While in May 2007, Ahli United Bank Egypt made its official debut after the Bahrain-based bank bought an 89.3 percent stake of Delta International Bank for approximately LE 1.6 billion. Despite the doubling of total banking deposits, including government deposits but excluding the CBE, in the past five years, the government is still met with the challenge of increasing the number of people using banking services. At present, only 10 to 15 percent of the population have bank accounts and 4 to 5 percent use debit or credit cards. As a result, in June 2007 the CBE eased its restrictions on new branch openings and improved the application process to become more accessible to the public. The CBE now says that it does not refuse any applications and that it has reduced the time it takes to apply to a few days. Focus has also intensified on strengthening Egypt Post that is widely used in governorates for banking services. With 3,500 branches, it has the largest network in the country and more branches than all commercial banks combined. It is now upgrading its facilities to offer customers billing, salary and pension-paying services, in conjunction with Banque Misr. Egypt, however, still lags behind in the Islamic finance domain in comparison with its counterparts in the Gulf and Asia. Many banks had attempted to offer shariah-compliant funding, but demand was quite low and did not justify a full Islamic portfolio.
