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Egypt – 45
Egypt
2006 At a Glance
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1.Overview of the Financial System
M E D I T E R R A N E E
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Source: AfDB, IMF, UNCTAD, UNDP, UN Population Division
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Population (mn)
75.4
Population Growth (annual %)
1.9
Official Language
Arabic
Currency
Egyptian Pound (EGP)
GDP (Current US$ bn)
107.7
GDP Growth (annual %)
6.8
GDP Per Capita (US$)
1,428
FDI, net inflows (US$ mn) (2005)
5,376
External Debt (US$ mn)
31,300
External Debt/GDP (%)
29.2
CPI Inflation (annual %)
4.1
Exports of goods and services (% of GDP)
31.3
Gross Official Reserves (US$ bn)
22.5
Gross Official Reserves (in months of imports
8.9
UNDP HDI Ranking
111
L
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0 km
100
200
300
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Sovereign Ratings
Long
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Currency
Foreign
Currency
Fitch
BBB
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S&P
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Moody’s
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Ba1
down. Accordingly, a new Central Bank and Banking
The total assets of the Egyptian financial sector
Sector Law was passed in June 2003 granting the
are estimated at LE 990 bn at end of the fiscal
central bank enhanced autonomy and the legal
year 2005/06, representing about 230% of GDP.
framework for conducting monetary policy based on
At 14.6%, the average annual compound growth
inflation targeting. The framework for monetary policy
rate of financial system assets during the period
was enhanced in 2005 as the CBE established
2001-2005 has been significantly above the year-
a monetary policy committee. In contrast with the
on-year growth rate of GDP. Starting in 2004, the
system of a single Supervisor, the regulatory function
Government of Egypt embarked on a broad reform of
and supervisory structure of the financial system
the financial sector, to be implemented over the period
comprise different supervisory agencies, namely: the
2004-2008.
CBE for the banking sector; the Egyptian Insurance
The reform programme was designed along four
Supervisory Authority (EISA) for the insurance sector
main pillars: (i) introducing a comprehensive and
and private pensions; the Capital Market Authority
transparent Monetary Policy Framework; (ii) improving
(CMA) for the capital market; and the Mortgage
the functioning of the Foreign Exchange Market;
Finance Authority (MFA) for the mortgage industry.
(iii) implementing a Banking Sector Reform; and
The CBE which reports directly to the Office of the
(iv) strengthening the Non-Bank Financial Sector.
President, while the other two regulatory bodies
The Central Bank of Egypt (CBE) is moving
report to the Ministry of Investment.
towards a policy of inflation targeting. The ability of
the central bank to run an independent monetary
Bank and Non-Bank, Financial Sector
policy is therefore important if it is to keep inflation
The central bank has regulatory authority over banks
46 – Egypt
operating in Egypt; it also acts as the exclusive
Chark Insurance Company and the National Insurance
note issuer and has responsibility for the conduct
Company, which together control over 75% of the
of monetary policy. The banking sector dominates
insurance business, while the state-owned Egyptian
the financial sector, accounting for over 80% of the
Reinsurance Company is the only company providing
sector’s total assets. As of 31 December 2006, the
reinsurance services.
banking sector had total deposits of EGP 569 bn
Egypt has both mandatory and supplementary
with a loan to deposit ratio of 57%. It comprises 43
pension programmes. The mandatory programme
licensed banks, down from 57 in 2004. The sector
has two pension systems managing five defined
will further consolidate as, in conformity with the new
benefit schemes. The supplementary system or
Banking Law, the CBE has significantly increased the
private pension funds are supervised by EISA. As of
minimum capital requirements for banks from EGP
June 30 2005, there were 618 private pension funds
100 mn to EGP 500 mn for domestic banks, and from
with reserves equivalent to EGP 14.5 bn, with 95%
USD 15 mn to USD 50 mn for branches of foreign
of their assets invested in government bonds (67.4%)
banks. The objective of the CBE is to further reduce the
and bank deposits (27.6%).
number of operating banks to 34 by the end of 2007.
E
Following the privatization of the Bank of Alexandria
Capital Markets
(one of the main measures of the on-going reform of
The Alexandria stock exchange was established in
the financial sector), three state-owned commercial
1883 while the Cairo stock exchange was established
banks - the National Bank of Egypt (NBE), Banque
in 1903. The two exchanges merged later to form the
Misr (BM), and Banque du Caire (BdC) - account
Cairo and Alexandria Stock Exchanges (CASE). The
for about 48% of total deposits. In the near future, as
Capital Market Law No. 95 of 1992 established the
part of the banking sector reform, Banque du Caire
Capital Market Authority (CMA) as an autonomous
and Banque Misr are planned to be merged, thereby
regulatory agency and provides for the free entry
creating the country’s largest banking institution, at
of foreign financial services companies. As of 31
par with the National Bank of Egypt by assets, but
December 2006, the market capitalization was
well ahead in terms of number of branches.
USD 93.6 bn with 595 companies listed. The stock
The Insurance sector is regulated and supervised
market offers a variety of products including equities
by the Egyptian Insurance Supervisory Authority
(common and preferred stocks) and certificates on
(EISA). EISA has the authority to license and de-
the CASE 30 and GDR (Global Depository Receipt)
license insurance undertakings, the approval of
that allow Egyptian companies to access international
directors and senior management of insurance
markets. The performance of the stock exchange is
companies, and the supervision of their activities.
tracked by two main indices:
Foreign investors can acquire 100% of the shares
• CASE 30 Price Index, which includes the top-30
of an Egyptian insurance company. The Egyptian
companies in terms of liquidity and activity. It was
insurance industry is still small and its contribution to
launched on January 2, 1998 with a base value of
the financial sector and the economy is well below
1000 points and was valued at around 7000 by
its potential, given the size of the Egyptian economy
end of the year 2006; and
and its level of development. For instance, the total
• Dow Jones CASE Egypt Titans 20 Index,
assets of the insurance industry as at end of June
introduced in April 2006; it represents blue-chip
2005 were EGP 20 bn, representing only 3.9% of
stocks traded on the CASE which are selected
GDP. While there are 20 insurance companies in
based on rankings by float-adjusted market
Egypt, the sector is dominated by three state-owned
capitalization, sales/revenue and net profit.
insurance companies: Misr Insurance Company, Al
The foreign investors’ share of the market has
Egypt – 47
been growing steadily since the inclusion of Egypt
2. Fixed Income Markets
in the Morgan Stanley Capital International (MSCI)
The Capital Markets Authority (CMA) is the regulatory
emerging market and world indices in 2001.
body responsible for approving the issuance of
The Government of Egypt has estimated that a total
securities. The first bond issued by the government of
of 5.3 million housing units will need to be constructed
Egypt was in May 1995. A Primary Dealers System of
between 2005 and 2017, of which an estimated
debt management introduced by the Government in
3.7 million units for low-income households. The
July 2004 authorizes a number of financial institutions,
development of a market-based residential mortgage
including banks and bond dealers, registered with the
finance sector is necessary to shift the burden of
Ministry of Finance (13 to date), to underwrite primary
housing finance from the government budget to
issues of government securities and actively trade them
the financial markets. An enabling environment has
in the secondary market through sale, purchase and
been created by the establishment in July 2004 of
re-purchase agreements of the securities. This system
a new Mortgage Finance Authority (MFA) which has
has fostered the establishment of a proper yield curve
a mandate to regulate and supervise the mortgage
reflecting actual supply and demand for government
market, along with the establishment of an Egyptian
debt. There are no limitations on the participation of
Liquidity Facility (ELF). The latter will serve as a
foreign investors in Egyptian bond markets. The debt
market-based mechanism for extending mortgage
segment of the capital market has a market capitalization
refinancing loans of medium-term duration to eligible
of EGP 52 bn (end of year 2005) which constitutes 10%
residential mortgage lenders in the primary market.
of GDP, with a total of 58 outstanding issues, composed
Furthermore, a Guarantee and Subsidy Fund (GSF)
of 35 government bonds and 23 corporate bonds.
is being established, pursuant to the provisions of the
Mortgage Law, as a market-oriented and financially
Government Securities
sustainable institution for administering housing
The Central Bank of Egypt started issuing T-bills in
subsidies to the poorer sections of the population.
1991. The continued increase in the Government’s
Micro-finance programmes have existed in Egypt
funding needs (infrastructure spending, budget
since the mid-1960s. Most micro-lending services
deficits) has led to a rapid growth in the domestic
are delivered through governmental and non-
bond market. In January 2006, total outstanding T-
governmental organizations. The demand is largely
bills amounted to almost EGP 125 bn, 20% of GDP,
unmet. It is estimated that the country’s micro-finance
of which 364-day T-bills accounted for 80%. The
industry currently reaches only about 5% of the more
Government also issues and lists bonds on the Cairo
than two million potential borrowers.
Stock Exchange, maturing between three and twenty
years, with either fixed or floating rate coupons. The
Government of Egypt Yield Curve (Dec 2006)
11.1
10.9
10.7
2025 T-bond (EGP 1 bn issued in 2005 and currently
yielding around 11.5%) remains the longest tenor
in the market. In 2001, the first Egyptian sovereign
bond issue denominated in a foreign currency was
10.5
launched for an amount of USD 1.5 bn. The Central
% 10.3
Bank auctions T-bills/bonds on behalf of the Ministry
10.1
of Finance and the results are approved by the Ministry
9.9
and announced on Reuters’ page CBEY. T-bills have
9.7
9.5
Source: Central Bank of Egypt
three types of auctions: Thursdays for 364-day,
Sundays for 91-day, and Mondays for 182-day bills.
All T-bills are settled on the following Thursday.
48 – Egypt
Non-Central Government Issuance
capitalization of corporate bonds is EGP 4,350 bn. A
Outstanding corporate bonds account for less
list of outstanding corporate bonds is provided in the
than 20% of the market size. The current market
next table, as at 31 March 2007.
Outstanding Non-government Debt
Issuer
Issue Date-Maturity
Amount (EGP)
Coupon
Issuers
October 1999-2007
340,000,000
12.25%
Orascom Holding Hotels
November 2000-2007
100,000,000
13.00%
Egyptian Cement Company (1st Tranche)
November 2004-2011
500,000,000
11.75%
Telecom Egypt (1st Tranche)
February 2005-2010
1,000,000,000
10.95%
June 2005 - December 2011
243,750,000
11.75%
March 1999-2009
150,000,000
DR less 1.5%
July 2004-2011
460,000,000
LIBOR + 1.5%
February 2005-2010
1,000,000,000
DR + 0.7%
Orascom Construction Industries (2nd Tranche) June 2005 - December 2011
243,750,000
DR + 1.5%
Orascom Construction Industries (3rd Tranche)
June 2005 - December 2011
840,937,500
LIBOR + 1.5%
January 2006 - Dec 2010
86,1000,000
11%
June 2006 - June 2013
500,000,000
DR + 0.5%
Straight Bonds
Egyptian Company for Mobile Services
Orascom Construction Industries (1st Tranche)
Floating Rate Bonds
Egyptian Arab Land Bank
Egyptian Cement Company (2nd Tranche)
Telecom Egypt (Second Tranche)
E
Securitization
Contact
Egyptian Arab Land Bank
Clearing and Settlement
in January 2003. This allowed the Egyptian Pound
All clearing is done through Misr for Clearing,
to float outside its former official trading band of
Settlement
(MCSD),
+/- 3% around an average official rate of EGP
established in October 1996. Government securities
4.51 / 1 USD. An inter-bank FX market was introduced
are settled T+1 and corporate bonds at T+3. Day
in January 2005. Accordingly, the Central Bank buys
count basis for the bond market is 365 days.
and sells FX daily at the average exchange rate set by
and
Central
Depository
banks in the previous trading day. The spread between
3. Foreign Exchange
the Central Bank’s buying and selling rates is about
As part of the ongoing financial sector reform, the
0.5%. Offshore banks can place Egyptian deposits
peg exchange system has been abolished and a
with local banks. Over the years 2005 and 2006,
foreign exchange inter-bank market has been officially
the foreign-exchange spot market interbank average
launched in December 2004. After more than a
daily volumes are around USD 200-300 mn, up from
decade of nominal linkage to the USD, the Central
USD 65 mn. Buying and selling of Egyptian Pounds
Bank of Egypt ended the Egyptian Pound’s peg to
from and to local banks (forwards and outrights) is
the USD and introduced a new exchange rate regime
permitted for current account transactions.
Egypt – 49
EGP per unit of USD (Year End)
6.Key Contacts
7
• Capital Market Authority
6
Mailing Address: P.O. Box 618, Cairo, Egypt
5
Other Address: 20 Emad Eldin St., Cairo, Egypt
4
Tel: +20-2-574-1000/3333
Fax: +20-2-579-4176
E-mail: [email protected]
Web: www.cma.gov.eg
3
2000
2001
2002
2003
2004
2005
2006
Source: Bloomb erg
• Cairo and Alexandria Stock Exchange
Mailing Address: P.O. Box 358,
4.Derivatives
The derivative market is limited and transaction-
Mohamed Farid, Cairo, Egypt
specific. There is a swap and forward market but it
Other Address: 4A, El Sherifien
Street, Cairo, 11513-Egypt
is fairly illiquid. It is mainly based on opportunistic
Tel: +20-2-392-8698
quotation that does not exceed maturities of three
Fax: +20-2-392-4214
years. Foreign exchange forwards and swaps can only
E-mail: [email protected]
be transacted on the back of a commercial transaction.
Web: www.egyptse.com
There is no foreign exchange option market and the
• Central Bank of Egypt
interest rate swap market is virtually non-existent,
31 Kasr El Nil Street, Cairo, Egypt
with no established inter-bank money market pricing
Tel: +20-2-393-1514
reference.
Fax: +20-2-392-6361
E-mail: [email protected]
Web: www.cbe.org.eg
5.Investment Taxation
There is no tax on interest earned from government
bonds or Treasury bills. Publicly listed bonds’ coupons
and capital gains are tax exempt. Issuers are also
exempt from paying stamp duties.