A recent stream of news coming out of Egypt’s central bank seems to represent a disturbing trend of expanding control in areas better left to the private sector. But one decision, if carried through, is definitely positive.
Last week, the bank sent jitters through the banking community with a decree that no managing director of a private bank could serve more than nine years, a move widely regarded as improper interference in a decision that should be left to the boards of directors.
Meanwhile, the prominent businessman Naguib Sawiris accused the central bank’s governor, Tarek Amer, of improperly plotting to block his plan to acquire the Egyptian investment bank C I Capital by encouraging state-owned National Bank of Egypt to put in a competing bid.
But alongside what looks like the ever-expanding tentacles of state control, Mr Amer announced the central bank would sell 20 per cent of the shares of state-owned Banque du Caire in an IPO before the end of 2016, as well as stakes in two other banks – United Bank of Egypt and Arab African International Bank.
Mr Amer said it would sell all of United Bank, owned 99.9 per cent by the central bank, to a strategic investor before the end of the year, and 40 per cent of Arab African, owned half by the central bank and half by Kuwait, on the stock exchange.
If the government indeed relinquishes control of these stakes, it would be great news, further pushing it out of an activity it had no business entering in the first place.
Banque du Caire was established in 1952 as a private bank, but not long afterwards, Gamal Abdel Nasser nationalised the entire sector, starting with British and French-owned banks, after the 1956 invasion of the Suez Canal zone. The Egyptian operations of two French banks, Crédit Lyonnais and the Comptoir National d’Escompte de Paris, later to become BNP Paribas, were folded into Banque du Caire, which itself was nationalised in 1961.
With his open-door policy starting in 1974, Anwar Sadat began liberalising the banking sector, letting nationalised banks form joint ventures with foreign-owned banks provided the Egyptian partner held 51 per cent.
In 1991, when Egypt agreed to a restructuring programme with the IMF, it promised to put at least one of its four main state-owned banks up for sale, a pledge it didn’t honour until it sold Bank of Alexandria in 2006.
After 30 years of state ownership, the four banks had fallen into deep decline, frozen in the 1950s. They lacked modern treasuries and risk-management departments, and were staffed with vast numbers of unneeded employees, some using 60-year-old typewriters to perform tasks that in most of the world had been taken over by computers.
Half their branches served no purpose. Employees meticulously recorded transactions on thousands of different forms, then transferred the data by hand into giant ledgers to be sent for storage in vast warehouses. ATMs were unheard of.
Banque du Caire, with its huge portfolio of non-performing loans, in 2000 became the test case for a plan to reform the state banks by bringing in private sector managers. A new chairman, Ahmed El Bardai, brought in senior management from the private sector and introduced an early retirement programme to reduce staff. He put many of the remaining superfluous staff to work lending to micro-enterprises.
The experiment was soon repeated in the other three state banks – Bank of Alexandria, Banque Misr and National Bank of Egypt.
The next step, begun in 2004 by the liberal government of Ahmed Nazif, was for the state to sell its stakes in Sadat’s joint venture banks, which by then numbered about 40. Almost all were soon sold, along with Bank of Alexandria, the smallest of the four state banks.
Meanwhile, in 2005, Egypt’s second-largest state bank, Banque Misr, took control of Banque du Caire and assumed its bad debts in preparation for its privatisation. The plan had been for the government to use the proceeds from the sale to clean up the bad loans of both banks.
But by this time there was a public backlash against privatisation. People thought the government was selling the crown jewels for peanuts. The sale of the bank was aborted, ostensibly because the government considered the price too low.
This was probably good news for the highest bidder, National Bank of Greece, but bad news for the Egyptian government, which lost out on a very good deal months before the 2008 global economic crash sent bank shares tumbling.
The announcement by the central bank that it is reviving the sale of state bank assets is a welcome sign that it may be withdrawing from the business of owning banks.