Post by conflict on Apr 18, 2017 22:51:23 GMT 4
Banking industry in Egypt is one of the oldest and largest
industries in the region that plays a critical role in the
development process in Egypt. It has been expanded by the
"Open Door Policy", adopted in the mid-seventies when
foreign banks were allowed to proceed with their work in Egypt,
aiming the analytical growth with an effective role for the private
sector in promoting the economic performance. In order to achieve
the goals of this policy, the banking law was published, stating
the nature and operation of the three types of banks:
1-Commercial Banks:
A commercial bank is a type of financial institution that
provides services such as accepting deposits, making business
loans, and offering basic investment products to serve public and
business, ensuring economic and social stability and sustainable
growth of the economy.
2-Business and Investment Banks:
Investment banking is a specific division of banking related to
the creation of capital for other companies, governments and other
entities. Investment banks underwrite new debt and equity
securities for all types of corporations, aid in the sale of
securities, and help to facilitate mergers and acquisitions,
reorganizations and broker trades for both institutions and private
investors. Investment banks also provide guidance to issuers
regarding the issuance and placement of stock.
Foreign banks are registered as business and investment banks as
their vision is to raise long term funds on the international
financial markets and to promote investment.
3-Specialized Banks and Financial Institution:
All specialized banks are state owned which are assigned to
provide long term finance in the fields of investment and credit
for industry, agriculture, housing and rural development. They
mainly cater to the needs of the private sector and depend in their
fundraising on borrowing from financial institutions.
Also, banks operating in Egypt can as well be classified into
public sector, private sector and joint venture depending on its
ownership. Banking system comprises 39 banks, six of which are
state-owned, and the other 33 are investment banks.
- Legal Framework:
The Banking Industry Framework in Egypt is divided into two
types of Laws; Banking Laws and Anti-Money Laundering Laws.
The current applicable Banking Laws are:
- CBE Banking Sector and Money Law No.
88 for the year 2003 and its amendments:
Law No. 88 for the year 2003 is the Law dealing with the Central
Bank general provisions, purpose and powers, management, financial
system, and the relationship with the government. It also regulates
the banking system regarding the establishment of banks,
supervision on the administration bank, rules of possessing shares
in banks and control on the banks guaranteeing the deposits,
etc.
- Executive Regulations of the CBE
Banking Sector and Money Law. - Presidential Decree No. 17 for 2005
establishing the Coordinating Council.
The current applicable Anti-Money Laundering Laws are:
- Anti-Money Laundering Law:
The Egyptian Anti-Money Laundering Law No.80 for the year 2002
amended by Law No. 78 for the year 2003. Money Laundering is
defined as any conduct that may involve either the acquisition,
holding, disposing, managing, keeping, exchanging, depositing,
guaranteeing, investing, transferring, converting funds or
tampering with their value. If such funds are the proceeds of any
of the identified crimes of laundering funds with the knowledge of
that acts, provided that such conducts purports to conceal,
disguise or alter the nature source, location, ownership or any
interests therein, or change the true nature, or prevent the
discovery thereof or impede the identification of the perpetrator
of the crime.
It is prohibited to launder funds generated from crimes related
to deals in foreign currencies which are in violation with the
rules prescribed by the law, whether it is committed within the
Egyptian territories or abroad, provided that such crimes are
penalized by both Egyptian and Foreign laws.
- Executive Regulations of the
Anti-Money Laundering Law. - Presidential Decree no. 164 for
2002. - Prime Minister Decree no. 1599 for
2002. - Process of setting up a commercial
bank
Banking Business is any activity comprising the acceptance of
deposits, obtainment of finance and the investment of these funds
in providing finance and credit facilities and contributing to the
capital of the companies.
Any establishment desiring to exercise in the banking system
shall be registered in a specific register provided for this
purpose with the Central Bank upon the approval of its board for
obtaining a preliminary approval to take
procedures of establishing a bank according to the following
conditions:
1-The bank shall have one of the following forms:
A. An Egyptian joint stock company, all shares thereof being
nominal.
B. A public juridical person, comprising within its purposes the
exercise of bank works.
C. A branch of the foreign bank, the head office of which enjoys
a defined nationality and is subject to control by an exchange
authority in the state where the head office is located.
2- The capital issued and paid up in full shall not be less than
five hundred million egyptian pounds and the capital appropriated
for activities of the branches of foreign banks in the Arab
Republic of Egypt shall not be less than fifty million US Dollars
or their equivalent in free currencies.
3- The governor of the Central Bank shall approve the statute of
the bank and the management contracts to be concluded with any
party who shall be entrusted with its management. This provisions
shall apply to all renewal of modification of the statutes or
administration contracts.
On submitting the request to the Central Bank, parties shall
present a copy of the articles of association, stating the names,
nationalities and addresses of the founders, the shares of each
thereof in the capital, copies of the articles of association of
founders among the judicial persons, and a statement of the
percentage of shares to be floated for public subscription. As well
as the proposed name of the bank in both the Arabic and foreign
languages, providing it shall not be similar to the name of another
bank existing in Egypt.
The branches and agencies of the licensed banks shall be
recorded in the aforementioned register. Also, the approval of the
Board of Directors of the Central Bank shall be obtained before
starting the establishment of the branch or agency and before
opening it for dealing. Also, any bank may be merged into another
bank by virtue of a prior authorization from the Board of Directors
of the Central Bank.
The rule of owning shares in the Bank's Capital is stating
that no one is allowed to own more than 10% of the issued capital
of any bank or any percentage leading to actual control over the
bank.
Also, the concerned parties shall state the purpose and services
performed by the bank, its duration and its credit and investment
policies in addition to its polices of risks management.
- The Central Bank of Egypt (CBE):
The Central Bank of Egypt, has the major role in the banking
sector in Egypt, the CBE is a public legal entity that is subject
directly to the President of the Republic.
The CBE is the competent authority that shall act as a financial
advisor and agent for the government, act a governmental bank.
The government may assign the Central Bank to act on its own
behalf in issuing governmental bonds and bills of all types and
maturities. The bank shall extend consultation to the government in
respect thereof. Also, it extends financing to the government, upon
its request to cover the seasonal deficit on the General
Budget.
- Maintaining the Secrecy of
Accounts:
Bank secrecy principal that prohibits banks from providing
authorities with personal and account information about their
customers is a legally required principle in some jurisdictions,
except in certain conditions, thus, all the accounts and deposits
of the customers in the banks as well as their related matters
shall be kept secret and cannot be provided to anyone except with a
written permission from the owner of the account or any of his
successors or in accordance to a judgment issued from the
court.
The General Prosecutor may, upon the request of an official
entity or the concerned party, submit a request to Cairo Court of
Appeal to give a permission for reviewing or obtaining any data or
information connected with the accounts and deposits, on condition
that, this information might help in proving the fact in a crime or
misdemeanor.
One of the main roles of the Central Bank is to send the
information and data related to the indebtedness of the clients and
the credit facilities to the other banks, real estate financing
companies as well as the inquiry- making and credit classification
companies.
These companies shall be prohibited from revealing any
information or data concerning the clients, their accounts, the
things kept in trust for them, their safe deposit boxes or their
dealings with such banks and companies. These companies shall be
also prohibited from giving third parties access to the same
information or data in cases other than those authorized according
to the law. -Prohibition shall be to whoever receives or has access
by his job directly or indirectly, to the information and data
referred to without prejudice to the following:
a) Duties of the bank auditors and the functions legally vested
with the Central Bank.
b) Bank's obligations in issuing a certificate of reason for
stopping the payment of a check at the request of the entitled
party.
c) The rights of the bank, a real estate finance company or a
hire purchase company to disclose all or part of the data
pertaining to the client's transactions as needed to establish
the particular bank's right in a judicial dispute that has
arisen with a client over such transactions.
d) Legal stipulations and provisions regarding the Money –
Laundering regulations.
e) The information and data which the inquiry-making and credit
classification companies provide according to the rules of the
Board of Directors of the Central Bank.
- Dealing in Foreign Currency
Foreign companies operating in Egypt are facing difficulties in
transferring their money overseas, especially profits, in light of
the acute shortage of dollar resources in Egypt.
Businesses currently operating suffer from difficulty accessing
hard currency for business purposes, repatriating profits, and a
lack of long-term clarity about the rules governing currency
transfers. At the beginning of 2016, the Central Bank of Egypt had
lifted the dollar deposit limits on households and firms which are
importing priority goods in place since early 2015. Businesses
which are not operating in priority sectors, including
foreign-owned businesses, have continued to encounter significant
and shifting restrictions on dollar access as well as
importers.
- Remittance Policies
The Investment Incentives Law stipulates that non-Egyptian
employees, who are hired by projects established under the law, are
entitled to transfer their earnings abroad. Conversion and transfer
of royalty payments are permitted when a patent, trademark, or
other licensing agreement have been approved under the Investment
Incentives Law.
Banking Law No 88 for the year 2003 regulates the repatriation
of profits and capital. The government has repeatedly emphasized
its commitment to maintain the profit repatriation system in order
to encourage foreign investment in Egypt. The current profit
repatriation by foreign firms system requires sub-custodian banks
to open foreign and local currency accounts for foreign investors
(global custodians) which are exclusively maintained for stock
exchange transactions. The two accounts serve as a channel through
which foreign investors process their sales, purchases, dividend
collections, and profit repatriation transactions using the
bank's posted daily exchange rates. The system is designed to
allow for settlement of transactions in less than two days, though
in practice, some firms have reported significant delays in
repatriating profits due to ongoing currency controls.
Article by Merna G. Saad
Youssry Saleh & Partners