CAIRO: The National Bank of Egypt this week announced that it would accept a $400 million loan to increase its capital.
The move is partially a response to the current financial crisis and partially a move to fulfill Egypt’s commitments as a signatory to the 2004 Basil II Accord.
An additional $100 million of the loan is going to Al Ahlia Insurance Company, which is owned by the state, also to boost its capital.
“A lot of banks have problems with loans and capital adequacy, said Suha Najjar, managing partner at investment bank Pharos Holding.
But this loan should help not only improve the banks capital standing but also allow it to loosen credit on the market.
“Eventually, banks should be able to expand their loan books if they’re adequately capitalized, Najjar said.
Banks have struggled in the current economic climate and Egypt, like much of the rest of the world, has seen credit tighten, and consumers have found it harder for them to get a loan.
In the context of the broader crisis, though, Egypt has persevered better than most.
Analysts agree that Egypt, as a developing economy, was less connected to many of the largest international banks that proved the genesis of the credit freeze.
This latest loan, which will come from the World Bank, is part the bank’s effort to get to 18 percent capital adequacy, Najjar said.
The effort is in keeping with Egypt’s broader aim of reforming its national banking and financial systems through a series of sweeping changes to be implemented between now and 2012.
By attempting to boost its capital adequacy, the bank will likely inspire confidence in the banking system. This economic crisis around the world has been, in part, a crisis of confidence.
The US economy has seen the failure of some of its largest banks and fears abound that others could soon follow. By accepting this loan, the National Bank of Egypt will find itself taking a step back from the precipice of insolvency that so many banks around the world find themselves approaching.
In the months following the start of the economic crisis, bank executives confirmed that consumers were pulling their money from private banks and instead choosing to invest it in public banks like the National Bank of Egypt.
This showed more than ever that state banks are a critical fallback in times of financial trouble and it reiterated the importance of national banks to the continued solvency of the Egyptian system.