In brief: banking regulatory framework in Egypt

Regulatory framework

What are the principal governmental and regulatory policies that govern the banking sector?

Law No. 194 of 2020 issuing the new Central Bank and Banking Sector Law published on 15 September 2020 (the Banking Law), replacing the old Banking Law No. 88 of 2003, is the primary source of legislation that regulates banking matters (noting that its executive regulations (if any) have not been issued at the date hereof). According to the Banking Law, the Central Bank of Egypt (CBE) is the regulatory authority of the banking sector and its board of directors formulates the banking and monetary policies of the Arab Republic of Egypt. The underlying principles for CBE policies applicable to banks mainly revolve around the stability of the banking and monetary sector, transparency in reporting and dealing with the CBE, adequate risk managements policies, free competition, corporate governance and protection of depositors’ rights.

What are the defining characteristics of a bank to be caught by the banking laws and regulations? Is non-bank fintech regulated differently?

The ‘bank’ is defined under the Banking Law as the companies and branches of foreign banks licensed to undertake ‘banking activities’ in accordance with the Banking Law. The banking activities comprise any activity, receiving deposits or obtaining funds, and investing those monies to grant financing or credit facilities, or participate in the capital of companies, and undertake all what is considered as banking activity by reference to prevailing customs. ‘Digital banks’ are now recognised under the Banking Law.  

Generally, any natural or juristic person not registered in accordance with the Banking Law may not undertake banking activities.

Consumer finance fintech companies are considered non-banking financial activities, falling under the aegis of the Financial Regulatory Authority (FRA).

Do the rules vary depending on the size or complexity of the banking institution?

Any ‘bank’ in the sense of the Banking Law is subject to the same rules, noting that entities engaged in microfinance activities are subject to the supervision of the FRA and not the CBE, and ‘digital banks’ are likely to have different applicable rules than conventional banks, upon the issuance of the Banking Law’s executive regulations and directives applicable to digital banks. For example, the Banking Law considers the possibility that the CBE’s board of directors can exempt the specialised and digital banks from minimum capitalisations requirements.  

Regarding the minimum capital and legal form of banks, the CBE’s board of directors has the right to grant a preliminary approval to any establishment to obtain a licence to undertake banking activities if the following conditions, among others, are met:

• they take the form of an Egyptian joint stock company, or a branch of foreign bank; and
• the issued and paid-in full capital of the bank is not less than E£5 billion, save for foreign banks branches in Egypt, where the capital should not be less than US$150 million or its equivalent in the free-floating currencies.

Summarise the primary statutes and regulations that govern the banking industry.

From a general perspective the Banking Law is exhaustive and aims to cover all banking and ancillary activities. Egyptian banks have a grace period of one year (the CBE board may extend this period for other period or periods not exceeding two years) to comply with the provisions of the Banking Law.

In essence, the Banking Law revolve around the following subjects:

• expanded CBE supervisory and regulatory role;
• financial and monetary stability;
• data privacy and security;
• clarification and organisation of process for taking collateral;
• consolidation of the government’s approach of generalising cashless payments (in tandem with Law 18 for 2019 regarding cashless payments);
• instalation of a dispute resolution mechanism;
• acknowledging mutual supervision of foreign central banks on foreign banks operating in Egypt;
• outsourcing arrangements;
• clear permissibility of repo transactions;
• capitalisation requirements; and
• creation of a licensing regime for fintech and e-payments’ activities.

The CBE’s directives are explanatory in nature and aim to provide more details and further regulates the practical aspects of the banking sector.

Which regulatory authorities are primarily responsible for overseeing banks?

The CBE is the regulatory authority responsible for overseeing banks, exchange companies, credit rating and guarantee agencies, and operators of payment systems.  

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

Deposits are not directly guaranteed by the government. However, the Banking Law provides for a Guarantee of Deposits Fund, which has its independent legal personality and budget, still, however, a CBE affiliate.

On a separate but relevant note, 10 per cent of all the clients’ foreign currency deposits at local banks are to be deposited by banks at the CBE.

Regarding branches of foreign banks in Egypt, an unconditional guarantee from the headquarters covering all the deposits of the branch, creditors' rights and all the other obligations of the branch must be submitted to the CBE governor, among other documents, to obtain a licence from the CBE.  

On government ownership interest in the banking sector, we note that the largest Egyptian banks are currently government owned, but banks owned by the state are generally subject to the same rules applying to other banks. Free competition is a constitutionally guarantee principle, as prescribed in article 27 of the Egyptian Constitution.

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

The qualification as ‘affiliate’ is elaborated under the Banking Law as companies in which the bank, either directly or indirectly, controls its financial and operational policies, or has an ownership quota exceeding 50 per cent of its shares or voting rights.

Generally, the Banking Law lists the prohibited activities for banks, including the entry into a partnership or companies limited by shares as a partner, and to transact in the movables or immovables market by either purchase, sale or exchange, except in specific cases. If an affiliate provides non-banking activities, it would be subject to the supervision of the FRA.

What are the principal regulatory challenges facing the banking industry?

Although the regime for taking security has been simplified and clarified in the Banking Law, there are still some time and execution constraints for taking security (in particular with regard to real estate mortgages). Also, Egyptian banks in many cases see their business opportunities limited as a consequence of the CBE’s single obligor limits.

Are banks subject to consumer protection rules?

Stricto sensu, banks are not subject to the Consumer Protection Law No. 181 of 2018; however, the CBE is competent to protect the clients’ rights and the following powers in this regard are: (1) fix plans and work programmes to protect the clients’ rights (2) spread the banking and financial culture between citizens; and (3) receiving complaints from the clients of the authorised entities under the Banking Law (eg, banks). Further, the board of directors of the CBE issues regulations directly dealing with clients’ rights, and there is a specific unit within the CBE is established for this purpose. Furthermore, the CBE is vested in protecting and improving the competition and prohibit monopolistic practices.

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

We do not anticipate a material legal and regulatory change soon given that the Banking Law was recently issued on 15 September 2020. We anticipate the issuance of CBE circulars and board of directors resolutions implementing the Banking Law and covers some of the pending issues such as crypto currency dealing.

Law stated date

Give the date on which the information above is accurate.

14 February 2021.