Egypt’s central bank announced earlier this month that shifting to a Basel II capital adequacy framework will be the main focus of the next wave of banking reforms.
Central Bank Governor Farouk El-Okdah said Egypt will begin implementing a new phase of Basel II, which aims to create an international standard for banking regulations, such as stipulating a minimum amount of capital banks need to allocate to guard themselves against operational risks.
The upcoming reforms will also focus on specialized banks owned by the state and the development of financing for small and medium enterprises (SME).
Basel II falls under the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, which usually meets in Basel, Switzerland.
The first phase of Basel II was implemented in Egypt between January and June 2009, focusing on enhancing the skills of bankers and setting the foundation for coming phases.
The second phase, which began this past July and will run through June 2011, is the most crucial part of the Basel platform and will see strong coordination between Egyptian banks and banking authorities to effectively implement Basel II rules.
Phase three of Basel II will be carried out from July to December 2011, where banks will be introduced to a new mechanism for gathering and storing data under the CBE’s supervision.
The country’s banking sector has been lauded for its resilience during the global economic crisis, which many attribute to reforms undertaken over several years.
El-Okdah’s announcement came after a meeting with Marc Franco, ambassador of the European delegation in Cairo. Earlier this year, a ?3 million program was announced between the National Bank of Egypt and the European Commission to support modernizing the CBE’s rules, policies and practices in the area of banking supervision.
The two-year program, to be implemented over three stages, will set out to strengthen banking supervision, contribute to the CBE’s efforts to enhance the stability of Egypt’s banking system and help bring Egyptian banks in line with the Basel II framework.
The program partners the CBE with other central banks, including Bulgarian National Bank, Czech National Bank, the Central Bank of the Federal Republic of Germany, the Bank of Greece, the Bank of France, the Bank of Italy and Romanian National Bank.
Getting started
On its part, the National Bank of Egypt (NBE), one of two public banks, began a large-scale information gathering process which requires customers to provide information ranging from marital status to housing conditions.
A top management official a the NBE who spoke on condition of anonymity told Daily News Egypt that it’s taken a considerable amount of time and effort over the past three months to prepare for NBE for Basel II.
“Since Tarek Amer [NBE’s chairman] took over, he put this as a priority, the source said.
“One of the controversial components [of the reform] is that each branch is required to have a minimum portfolio, and with NBE’s extensive network, that might lead to competition between branches located in the same geographic zones, the source said.
Egyptian banks are falling behind their Gulf counterparts in compatibility with Basel II rules, Passant Fahmy, a veteran banker, told Daily News Egypt.
Basel II rules, which seek to better align capital requirements on banks’ risks, are currently applied only in Europe. While the US has plans to implement the rules, it has yet to come up with a firm timetable.
The NBE program is expected to be complete by the end of December 2011, Fahmy said, adding that Egypt’s private banks are ahead of public banks in working towards Basel II compliance.
According to Monir Hindy, finance professor at Tanta University, implementing Basel II requires a clear and stable credit policy, it requires banks to know their customers well, and a thorough check on capitalization.
Fahmy said, “If we [the Egyptian banking sector] want to be integrated into the international financial system, we have to be compatible with these rules.
To read the other stories in our monthly special focus on Egypt s banking sector, click here:
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