Egypt agreed Monday to offer 80 percent of the country’s third-largest public sector bank, Banque du Caire, to a strategic investor, a cabinet spokesman said.
“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.
Nazif announced in September 2005 that Banque du Caire would merge with Banque Misr, the second-largest bank, to strengthen both institutions. Monday’s announcement was the first indication that it would be privatized instead.
“This is very surprising news. I am shocked,” said Simon Kitchen, an economist with the Cairo-based CI Capital investment bank.
“It has been preparing for a merger for nearly two years now and so now expecting it to stand on its own two feet is a bit of stretch,” he added, noting the bank’s large number of non-performing loans (NPLs).
Radi said that last year the plan was to merge the two banks but this changed when it was decided there were would be too many redundancies.
“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,” he 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, 5 percent would go to employees and 15 percent would be offered on the stock market, he said.
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 its deposits, and had been immune to experts’ calls for their privatization.
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 in the country’s largest privatization deal showed Egypt’s new determination to reform.
“There is a lot of foreign interest in buying Egyptian banks,” acknowledged Kitchen. “But [the government] is not going to get anywhere near what it got for Bank of Alexandria.
“I still think there is a lot of work to be done on the NPLs and also on the management,” he added. “It was on the brink of collapse.”
The plan to merge the banks was deemed unfeasible because of the large numbers of branches each had, many practically on the same street.
“Banque Misr already has 540 branches … that means it will not use Banque du Caire’s 220 branches,” said Radi.
Instead in January, Banque Misr acquired the other bank and initiated a series of reforms to fix its internal operations before offering it 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 ($2 billion) in bad loans.
Bank of Alexandria’s sale only went through after the government paid off $1.2 billion of its unpaid loans owed to government companies.
Kitchen attributed the government change in strategy to greater foreign interest in investing in Egypt, whose economy is finally growing after years of stagnation – and to the bottom line.
“They made a very nice amount of money in the fiscal year that just ended from privatization and that kept the deficit down. If they sell another one of these things that will help the deficit as well,” he said.
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 privatization program 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 reorganizing public banks, was announced in 2004.
Radi said that for now the government would retain ownership of Banque Misr and the massive National Bank of Egypt, by far the largest bank in the country with around Â£E132 billion in assets – around a fifth of the national total.