Privatization process aimed at banking continues
CAIRO: Thirteen European, Arab and Egyptian financial institutions are expected to submit their technical valuation for buying a 75 percent to 80 percent stake in Bank of Alexandria (BOA) by the end of the first week in July. They will also submit their preliminary financial bids to the Central Bank of Egypt (CBE) in four to six weeks time. Accordingly, bidders will be short-listed and the winner will be announced by the end of next November.
Currently, the banking sector is at the center of the new government’s reform agenda and is expected to witness further privatization as part of a five-year reform plan for the banking industry that began two years ago, according to an Egypt National Investment Reform Agenda workshop that was held in May 2006. The overhaul of the banking industry, which represents around 80 to 90 percent of the total Egyptian financial sector, is due to the fact that the industry is not performing as efficiently as it could. Profitability has been about 0.5 percent on assets over the last years; non-performing loans officially exceeded 20 percent of total loans in 2004 and less than two thirds are provisioned.
To date, while the state’s shareholdings in 12 out of 17 joint venture banks have been sold, including 33.8 percent in Egyptian American Bank (EAB) and a sale of MIBank, the privatization of the banking sector has been slower than the overall progress of the privatization process.
The sale of state-owned banks was first forecast for 1998, when the banking industry was dominated by four state-owned banks that accounted for 80 percent of commercial deposits in the country. Yet, as of 2005, more than 60 percent of the market was controlled by the state, through direct ownership or participation.
The government’s plan was to privatize 38 joint venture banks, sell BOA, as one of the four state owned banks, and therefore force the country’s weak banks to be taken over by stronger institutions.
In the history of bank privatization in Egypt, the planned sale of BOA is one of the most significant in banking reform. As of 2005, BOA became the fourth largest commercial bank in Egypt when measured by total assets and customer deposits. As of February 2006, under International Financial Reporting Standards, BOA recorded total assets of $6.9 billion, customer loans of $1.4 billion, customer deposits of $5.4 billion and shareholders’ equity of $0.8 billion. Given these figures, the recent positive performance of the bank has garnered high interest in the sale from both domestic and foreign institutions.
According to the Ministry of Investment, which is co-coordinating the sale of the bank, and being advised by Citigroup Corporate and Investment Banking, proceeds from the sale will be used to settle public sector debts worth LE 19.2 billion to the National Bank of Egypt, Banque Misr and Banque du Caire.
A dividend of LE 2 billion will be paid to the bank’s existing shareholders in April 2006. Also, 5 percent of BOA’s share capital will be available to the bank’s employees as part of the privatization process. Furthermore, any residual shareholding (15-20 percent) in the bank will be sold by way of an initial public offering on the Cairo and Alexandria Stock Exchange (CASE) once the sale has gone through.
Among the European bidders are HSBC, BNP Paribas, National Bank of Greece and ABN Amro. Among the Arab banks bidding, are the Arab Bank, Bank of Mashreque, Kuwaiti Commercial Bank, and CIB from Egypt.
According to the Ministry of Investment, those banks wishing to qualify must fulfill certain criteria established by both CBE, as the regulator of the Egyptian banking sector, and the ministry.
According to CBE and the ministry, a prospective bidder must be an established financial institution, possess a commercial banking license and have sufficient resources and expertise to ensure that the bank is financially and commercially strong post privatization. Parties that wish to bid as a consortium should note that a consortium must include one member who is a “qualifying purchaser, a third party that intends to acquire a shareholding in excess of 51 percent of the shares in the bank.
