CAIRO: With major banks taking a severe beating by the global financial upheaval, experts say the Egyptian government lost out when it canceled the sale of Banque Du Caire ahead of the market crisis.
“The government lost when it postponed the auction [last June]. This was not the correct decision, and the bank should have been sold then, said Passant Fahmy, banking expert and senior consultant at Egyptian-Saudi Finance Bank. “Who is going to buy a bank now amid the current global financial turmoil?
Egyptian Prime Minister Ahmed Nazif said on Sunday the government has decided not to sell Banque Du Caire – Egypt s third largest state-owned bank – at this stage in light of the current global financial crisis.
We have decided not to sell at this stage because the circumstances are inappropriate, Nazif told a news conference in Cairo.
In hindsight, the lack of sale of Banque Du Caire looks misplaced because they could have received a price they will not now be able to receive for many years, commented Angus Blair, head of research at investment bank Beltone Financial.
In what could have been Egypt s largest privatization process since the sale of Bank of Alexandria in 2006, five regional and international banking players lined up on June 24 to bid for a 67 percent stake in Banque Du Caire. However, the government cancelled the sale, saying bids were too low. The government explained it rejected the top bid because it was $200 million lower than its reserve price, equivalent to $1.6 billion.
“The sale is now postponed indefinitely, Fahmy added. “However, this postponement is necessary given the current world crisis.
She pointed out that investments across the board, and not only in banking, are going to clatter down. “Foreign direct investments (FDI) pose millions of question marks in the coming period. No one knows how they will move or where they will go.
Next option left for the government, she explained, is to try to effectively run the bank rather than restructuring it. “To restructure the bank is to sell it. What matters now is to direct banks to the benefit of the national economy.
Fahmy added that the government has previously attempted to restructure Banque Du Caire, however, it was not very successful. “They tried to merge it with Banque Misr, and it was not effective.
In a bid to tackle Banque Du Caire’s debt and non-performing loans, the government embarked in 2005 on reform plans before the official sale process, aspiring to clean up the bank’s portfolio and ultimately sell it at a good price. Under the management and supervision of Banque Misr, the government announced it succeeded to cover 40 percent of the bank’s stumbled loans portfolio.
According to state reports, the bank was weighed down with deficit that bulks up to LE 12-14 billion, representing six times its entire capital. The bank’s non-performing loans constituted around 73 percent of gross loans.
Cabinet officials pointed out before the actual sale of the bank the only option was to sell it, as merging it with possible candidate Banque Misr would have been too costly (a whopping LE 20 billion).
“When the merger failed, they tried to sell, and that also did not work out, Fahmy said.