Egypt mulls amendments to banking oversight, governance laws

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The Central Bank of Egypt’s (CBE) board of directors have agreed to study possible amendments to Law 88 of 2003, which governs the regulatory body and the country’s overall financial sector.

According to the state-run Al-Ahram, the board saw a need to address shortcomings that have emerged over the past years as well as reconsider the CBE’s goals to make it more compatible with the needs of society.

The draft amendments should take four months to prepare in consultation with a group of banking experts, led by Ziad Bahaa El-Din, former head of the Egyptian Financial Supervisory Authority.

CBE Governor Farouk El-Okdah told Al-Ahram that the proposed amendments would revolve around three main issues, first of which deals with governance inside the CBE itself as well as state-owned banks, addressing conflicts of interest that may exist internally.

El-Okdah also said the new regulations will better define the roles and responsibilities of boards of directors, including the board of the CBE, as well as the application of good governance practices when dealing with public funds.

After Egypt’s financial sector weathered the storm of the financial crisis in 2008, another blow came with the revolution that resulted in the ousting of former president Hosni Mubarak. Protests that lasted 18 days brought the whole economy to a standstill, and when banks reopened, they were closed again shortly after due to wage related workers’ protests. Now the financial sector is facing allegations of corruption and mismanagement, severely hindering the momentum of progress the sector has seen in past years.

Yet after a cautious rebound by the stock market and a sense of renewed confidence in the economy, many feel that the time to continue reforms is now.

Mostafa Hodieb is president of the International Management and Finance Academy in Cairo and former President of the Arab Academy for Baking and Financial Sciences, with more than 25 years of experience in the financial sector. He spoke with Daily News Egypt about his views on the proposed reforms and the road ahead.

“This is an important step and it should have happened a long time ago,” said Hodieb of the proposed changes.

He described El-Okdah’s tenure at the CBE as one with consistent and effective monetary policy, keeping optimum exchange and interest rates, as well as productive and profitable running of public banks. These proposed amendments, he said, are needed to complete the reform process.

Some members in the current board of directors of the CBE also work as external auditors for banks which the CBE supervises, a clear conflict of interest. “This decision is a clear indication that the CBE is clearly willing to reform even its own structure and board, and if this happens this will benefit the whole sector,” he said.

The second of the proposed amendments, according to El-Okdah, is the facilitation of regulations and legal issues regarding debt and bankruptcy to prevent banks from being negatively affected by long legal disputes with debtors.

For Hodieb, this would encourage the judicial and economic legal system to move faster in resolving these issues by immediately referring cases of bankruptcy to court without necessary approval by the CBE, which was the case before.

The third point represents a review of the Central Bank’s authority over banks and how to have more effective control. Hodieb said, “The regulations for supervision that were present in El-Okdah’s tenure had not been seen for decades. They have been a supervisory force that has propelled the banking system forward and kept it secure at the same time and I expect this to continue in the wake of these new amendments even though we still don’t know what they are.”

When asked what he thought was next for financial sector reform, Hodieb said the main priority now should be to encourage support for small and medium enterprises.

He cited by comparison that “97 percent of projects in Dubai are SMEs and 80 percent of the American economy is made up of SMEs.”

“This is how countries develop and grow their economies and create employment and the CBE should help create a suitable environment for this,” he added.

There are many ways to do this but that the CBE can start by easing regulations for SMEs to access financing, providing incentives for banks by using credit policies and cooperation with the Social Fund for Development.

“I am very optimistic for the next period, but people have to start working and less protesting,” he said.

“The whole world looks to us as idols now, and everyone is willing to help us with aid and investment; particularly investment, as the bourse has shown investors how stable our economy is.

“The change of leadership has demolished the corruption and bureaucracy that had been barriers to investment for years, and reforms like these proposed changes in the financial sector show the political will and motivation for progress,” he said.


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