When Atef Ebeid became Egypt’s prime minister in November last year and gave responsibility for the banking sector to Youssef Boutros Ghali, former economy minister and IMF staffer, the cheers could be heard across Cairo. Here at last was an administration that understood how the financial markets worked and would sweep away the old guard holding up the modernization of the industry.
No one was more pleased – or so it seemed – than Mahmoud Abdel Aziz, the chairman of the National Bank of Egypt (NBE), the country’s largest bank. An old friend of Ebeid, he had been calling for the sector to be reformed for years and was an enthusiastic supporter of privatization.
In an up-beat interview with a local paper just after Boutros Ghali’s appointment, he predicted a “faster rhythm” to the pace of change and stated that it was his ambition to end his career by overseeing the sale of shares in state-owned NBE.
Many bankers speculated that the first head to roll would be that of Ismail Hassan, the 60 year old governor of the central bank. Earlier in the year, Hassan had been widely criticized, notably by Aziz, for restricting access to dollars in order to prop up the Egyptian pound – an act that made it difficult for foreign investors to repatriate capital.
But in January 2000 Aziz announced that he was stepping down from NBE to concentrate on the chairmanship of the country’s largest private sector bank, the Commercial International Bank of Egypt (CIB). Hassan, meanwhile, was reappointed as governor of the central bank.
According to an article published by The Egyptian Gazette, relations between the two men had been poor for some time. Indeed their rivalry had begun to divide the government with Ebeid supporting Aziz, and Kamal El Ganzouri (the previous prime minister) standing up for Hassan.
Many local analysts dismiss the article as gossip mongering arguing that Aziz (who recently turned 60) had been due to retire anyway. But its publication in a state-owned newspaper, and the continuing survival of Hassan, does indicate that the new government is not as united as had been previously believed.
Aziz is not, however, the only senior banker to have stepped down in recent months. Earlier this year, Ahmed Al Baday (formerly of Citibank) became chairman of Banque du Caire. The government is now believed to be looking for new heads for Misr Bank and The Bank of Alexandria, the country’s two other state-owned banks.
But hopes that such changes herald the beginning of privatization within the sector could be premature. “The current government considers its banks as the jewels in the crown,” says Morris Helal, a banking analyst at rating agency Capital Intelligence. “It’s important to remember that at one point Egypt’s dominant banks were majority foreign owned until most were nationalized in the 1960s. Hence, public resentment of foreign ownership runs deep.” Last year there was a brief run on Bank of Alexandria deposits when there were rumours that it was about to be sold.
But the new senior executives could still have a considerable impact on the way such banks are run. Egypt’s four state-owned banks currently operate in much the same way as they did in the 1960s. Almost all work is done manually. There is very little credit analysis and .their product range is limited.
Given new management, analysts figure, this could change. Favoured corporates would have to pay realistic rates of interest on their loans. This would encourage more of them to issue bonds, as well as freeing up capital to lend to small and medium sized companies that have historically been starved of money. They might even start to offer retail clients higher interest rates on long-term deposits or even mortgages.
Private sector bankers are focused, however, on other things. ABN Amro, which has been looking for an acquisition in Egypt for 18 months, appears to have finally found something to its taste. Last month, a team of senior bankers from Amsterdam arrived in Cairo. Vries Pons, the bank’s country manager, is keeping quiet but there is speculation that he could be looking at Misr International Bank. Meanwhile, shares in Al Watany Bank have also risen sharply in recent weeks following talk that Standard Chartered, Deutsche Bank and Citibank are interested in taking it over.
