Egypt agreed on Monday to offer 80 percent of the country's third largest public sector bank, Banque du Caire, to a strategic investor in a major step forward for its long-running banking sector reform plan, a cabinet spokesman told AFP.
"Today the central bank agreed to sell off 80 percent" of Banque du Caire, cabinet spokesman Magdy Radi said after a meeting attended by Prime Minister Ahmed Nazif, Central Bank governor Faruq al-Oqda and other ministers. Egypt is in the midst of a major economic reform programme led by Nazif who in November 2005 announced that Banque du Caire would merge with Bank Misr, the second largest bank, to strengthen institutions.
Monday's announcement was the first indication that the bank would be privatised instead. "Last year the government was thinking of a merger but then experts revised the package when it was found that if we merge the new entity it would not be as strong as it could be," Radi said. "Next week there will be a meeting to get an expert house to valuate it by the end of the year," he added, indicating that the bank would follow the path of state-owned Bank of Alexandria which was sold to an Italian bank in October.
Of the remaining 20 percent of the bank's assets, five percent would go to employees and 15 percent would be offered on the stock market. Egypt's banking has long been dominated by four public sector behemoths which held half the assets of the country and more than 57 percent of the deposits, and had long been immune to experts' calls for their privatisation.
October's sale of 80 percent of the Bank of Alexandria, the smallest of the four, to Italian bank Sanpaolo IMI for 1.6 billion dollars in the country's largest privatisation deal, showed Egypt's new determination to reform. Originally Bank du Caire was to merge with Bank Misr to form Egypt's largest bank, but the plan was deemed unfeasible because of the large numbers of branches each bank had across the country, many practically on the same street.
"Bank Misr already has 540 branches... that means it will not use Banque du Caire's 220 branches," said Radi. Instead reforms were initiated to modernise the bank's internal operations before it was offered for sale. Despite their vast holdings, the public sector banks are notorious for bloated payrolls and outdated methods, as well as for non-performing sweetheart loans made to connected businessmen in the 1990s.
One local business magazine estimated that Banque du Caire is burdened by 12 billion Egyptian pounds (two billion dollars) in bad loans. Bank of Alexandria's sale only went through after the government paid off 1.2 billion dollars of that bank's unpaid loans owed to government companies. The decision to sell off the banks is part of Nazif's strategy to consolidate the banking sector by reducing the number of banks from 60 to 26.
The privatisation programme was part of a larger economic reform package introduced by his government. A banking law was ratified in 2003 and a series of reforms, which included integrating small private banks into their parent companies and reorganising public banks, was announced in 2004. The law also set a strict new capital.
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