Egypt unlikely to sell big banks soon: World Bank

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By Alexander Dziadosz | June 30, 2010 6:30 AM EST

Egypt is unlikely to sell its big state banks in the next few years in the wake of the global financial crisis, meaning financial reform will focus on long-term systemic changes backed by $1.5 billion of World Bank loans, a World Bank economist said.

Huge losses suffered by international banks and planned changes to capital and liquidity rules, such as Basel III, have made it harder for many financial institutions to make large acquisitions, Middle East and North Africa Lead Financial Economist Sahar Nasr told Reuters in an interview.

"If you are going to privatise, you would be looking for big tier-one banks to buy. Even if Egypt is willing, which tier-one bank is ready as we speak to buy a bank in an emerging economy?" Nasr told Reuters last week in comments cleared for release on Monday.

The first phase of an Egyptian financial reform programme begun in 2004 included selling one big bank, the Bank of Alexandria, and stakes in private banks. The sale of state-owned Banque du Caire was scrapped in 2008 after officials said offers were too low.

The government has since shifted to smaller steps, like drafting laws to reform pensions funds and regulate micro-finance and micro-insurance providers.

"Supervision and regulation, both for banks and non-banks, is key. It's one of the lessons we've learned from the global financial crisis," said Nasr.

The reform programme has also helped establish the country's first credit ratings bureau, clear up public sector debt and pass laws to help small firms secure loans.

This year the World Bank assigned its third $500 million loan to support the programme.

BOOSTING LENDING

Bolstering regulation and developing tools like micro-finance and mobile money transfers could help spur economic growth and make Egypt more attractive for foreign investment, Nasr said.

"You already have a sound, well-performing system. You just want to make sure that this system caters to more people."

The current phase of the programme, set to end in 2012, also aims to strengthen financial institutions outside the banking sector, such as mortgage lenders, and regulatory bodies like the Egyptian Financial Supervisory Authority.

Education is another priority. In some cases, lending in Egypt has been held up because small companies could not fill out applications correctly, Nasr said.

Addressing this could help small firms grow, broaden banks' portfolios, and boost lending. Egypt's average loan to deposit ratio is well under 60 percent, according to the central bank.

"It's a supply and demand story. It's not just 'Why isn't the financial sector lending, or why are they so conservative?' I think there is a lot to be done on the demand side, too."

Early reforms also aimed to clear up debts owed by public sector companies to state banks, giving the banks more space to lend. Egypt's investment minister has said the old debts would be settled by June 30.

State-owned National Bank of Egypt and Banque Misr, Egypt's first- and second-biggest banks by assets, said they had agreed to accept real estate in exchange for much of the debt.

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