Trade Finance

With the exception of two banks exempted from Central Bank of Egypt (CBE) control by law or treaty, all banks in Egypt are subject to CBE supervision. The two exempted banks are the Arab International Bank and the National Investment Bank. According to CBE officials, a third bank, Nasr Social Bank, is currently in the process of exemption from CBE supervision. According to the Central Bank of Egypt (CBE), the Egyptian banking system consists of 61 banks:

  • 27 commercial banks

  • 31 investment banks

  • 3 specialized banks

In practice, however, the vast majority of these banks operate as normal commercial banks, although there are a few specialized banks (such as for agriculture and real estate). Four large state-owned banks (National Bank of Egypt, Bank Misr, Banque du Caire, and Bank of Alexandria), dominate the banking sector, with a 50% or larger share of all assets, deposits, and branches.

A number of much smaller joint venture (mixed state and private - often foreign - ownership) banks are much more efficient and profitable. There also are fully privately held banks and fully owned branches of foreign banks. Government shares in the joint venture banks were decreased in the 1990s; the government has publicly announced its intention to reduce its holdings in joint venture banks several times in recent years. In March 2004, state-owned Banque du Caire sold its 40% share in the joint venture Cairo Barclays Bank to majority shareholder Barclays Bank for LE 340 million ($55 million), the first significant sale of a government-owned share in a joint venture bank in at least three years. The new law reaffirms the government’s authority to privatize state-owned banks, an issue that has been an increasing topic of discussion in Egypt.

A consolidation that decreases rather than increases concentration of government ownership in the banking sector would be a healthy development. Laws passed in 1997 and 2003 provide a legal basis for the privatization of the four large state-owned banks and many donor agencies have urged the government to move ahead with this privatization. A new banking law passed in 2003 (Law 88 of 2003) and Presidential Decree (No. 64 for 2005) issuing the statute of the CBE, raised the minimum capital requirements for banks sharply (from LE 100 million to LE 500 million for domestic banks and from $10 million to $50 million for branches of foreign banks). Banks will have one year, extendable to three, to comply. It is likely that the new regulations will force a major consolidation of the banking system, as many smaller banks will not be able to meet the new capital requirements.

Foreign-Exchange Controls Affecting Trade

In January 2003 a more flexible exchange rate policy has been implemented and subsequently there has been a 25% depreciation of the pound against the dollar. By mid 2004 there were signs that Egypt’s foreign exchange regime is stabilizing, with the exchange rate gap between the legal and parallel markets narrowing to less than 1%, and almost non-existent, and the availability of foreign exchange increasing significantly.

The new banking law retains earlier provisions that allow individuals and legal entities to retain and transfer foreign exchange in Egypt and abroad and permit all banks to engage in all foreign exchange transactions. Prime Ministerial decree no. 506 of 2003, stipulating that exporters and other companies that earn foreign exchange must convert 75% of their foreign exchange earnings to dollars through the banks of their choice, was cancelled in mid December 2004.

A new profit repatriation system was announced by the CBE in June 2002 whereby sub- custodian banks are required to open two accounts for foreign investors (global custodians), a foreign currency account and a local currency one, which will be exclusively maintained for stock exchange transactions only. The two accounts will serve as a channel through which foreign investors will process their sale, purchase, dividend collection and profit repatriation transactions using the official exchange rates.

Trade Finance and Export Credit Guarantee

The local banking system and offshore banks operating in Egypt are the main source of finance for Egyptian exports. Export financing is usually short-term and is intended to cover the exporter's working capital during the production period. The period of financing ranges from between three to four months to as much as one year. Banks decline to finance long-term export contracts. The exporter may use loans to finance imported inputs or locally produced ones. Banks prefer to lend exporters the same currency they will receive in payment for its exports to reduce foreign exchange risk.

Banks may finance from 40% to 80% of the value of an export order, based on the form of a contract, shipping documents, insurance documents, or a letter of credit (L/C), and the credibility of the exporter. If the exporter is not well known in the market and does not have a proven track record, banks will request that the importer open an L/C to reduce their risk. Requesting an L/C constitutes an additional cost to the importer, which may reduce the competitiveness of Egyptian exports. On the other hand, creditworthy exporters are offered direct overdraft facilities.

Egypt has one export guarantee company, The Export Credit Guarantee Company of Egypt (ECGC), established by the Export Development Bank of Egypt, National Investment Bank, Misr Insurance Company, Al Shark Insurance Company, and Egyptian National Insurance Company. ECGC started operation in October 1993. It provides guarantees against importer's risk or political risk to Egyptian or foreign exporters who export products that are totally or partially produced in Egypt. "Importer's risk" is defined as the importer's inability to pay for the exported goods or his/her refusal to receive the shipping documents of exported goods, although the exporter fulfilled all obligations. ECGC's guarantee also covers political risk (non-commercial), which includes the following: cancellation of the importer's license by his/her country's authorities; refusal of entry of goods by the importer's government; denial of permission to transit a country's territory; seizure or confiscation of exported goods by the importer's country or the transit country; insolvency of a public-owned importer; or military actions or civil disturbances that affect the importer's assets. The guarantee, on the other hand, does not cover foreign exchange risk and risks pertaining to the nature of the goods.

Whenever ECGC receives a request for guarantee, it investigates the importer thoroughly. Based on the importer's financial status and estimated country risk, ECGC decides on a coverage limit and informs the exporter. The guarantee can reach up to 80% of the importer's outstanding debt. ECGC receives 0.5-2% premium depending on the importer's country and the product exported. The exporter can then sell the guarantee to his/her bank.