The latest amendments to Egypt’s Capital Market Law, recently approved by parliament, are credit positive for the country’s banks, according to a statement issued by the credit rating agency Moody’s on Monday.
According to the statement, the amendments will improve and deepen Egypt’s financial markets and investors’ ability to hedge, making the country a more appealing investment destination for foreign
investors.
Furthermore, the amendments are credit positive for banks because the increased capital markets activity will raise banks’ income from their debt capital markets business while also providing funding options.
The law’s amendments include the introduction of futures trading, a commodities exchange,
allowing the establishment of privately-owned stock exchanges, and reducing listing fees to 0.002% from 0.005% to encourage smaller companies to list on an exchange. The amendments also facilitate sukuk issuances, set higher penalties for violations of the law, and set up a federation for non-banking financial companies, similar to the Federation of Egyptian Banks.
According to the statement, Egypt’s capital markets are underdeveloped relative to other African peers. Egypt ranks 14th among the 17 African countries in the Barclays Africa Group 2017 Financial Market Index, which uses a variety of parameters, both qualitative and quantitative, to record the openness and attractiveness of countries across the continent to foreign investment.
Moreover, the statement indicates that government issuance dominates Egypt’s debt market and listed equities are few. Listed corporate debt issuances accounted for 0.5% of listed bonds and the market cap of listed corporations accounted for 20% of the 2017 GDP. Additionally, only 32 entities were listed
on NILEX, the exchange dedicated to small and medium enterprises (SMEs), as of October
2017.
Although Egypt is the largest Arab country by population, its sukuk market is inactive, something the authorities are aiming to address with the revised law.
