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Banking law amendments for capital requirements could trigger profit retention, M&As: Pharos Pharos believes that the capital increase could trigger a wave of porfit retentions and mergers and acquisitiions.
Pharos Research said, on Wednesday, that Capital requirements for commercial banks could rise tenfold to EGP 5bn under proposed amendments to the Banking Law and $150m for foreign banks. Pharos believes that the capital increase could trigger a wave of profit retentions and mergers and acquisitiions. According to Pharos, a lot of banks would need capital increase with the exception of Commerical International Bank (CIB) and QNB Al Ahli. However some banks have their total equity above the minimum so we could see them use their retained earnings to beef up paid in capital. Others, whose equity is below the required minimum, could opt for mergers, acquisitions or rights issue, such as EG Bank and Suez Canal Bank. Furthermore, the report indicates that if the law is approved, the CBE may give banks up to three years to comply and by that time, all banks under our coverage that fall below the require minimum would have already built an adequate capital base from profit retention, except for Suez Canal Bank. The report indicate that CIB has a paid capital of EGP 14.585bn, and total equity of EGP 38.637, while QNB Al Ahli has a paid capital of EGP 9.795bn, and total equity of EGP 28.805bn, however it could receive support from Qatar National Bank. On the other hand, The potential requirements of the new Banking Act has been circulated also includes, potential requirements of the new Banking Act has been circulated. Pharos Research shows the impact of VAT on 1% of the industry development fund tax, will lead to between -1.5% to -5.10% reduction in fair value.
