In Brief: Market Climate and Politics for Financial Services M&A Activities in Egypt

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Market climate and politics

Market climate

How would you describe the current market climate for M&A activity in the financial services industry in your jurisdiction?

Thanks to the government’s hard work over the past few years to improve the business environment in the country, Egypt has managed to attract more foreign direct investment (FDI) in multiple sectors, including the financial services sector. This achievement is supported by multiple international recognitions as follows:

  • Egypt was recognized as one of the top five global destinations for new FDI in 2016, with Cairo also ranked among the top 10 cities hosting start-ups in 2016.
  • South Africa was also replaced by Egypt as the second highest project ranked destination in the Middle East and Africa (MENA) region, registering a 60% increase from 85 to 136 projects according to the FDI 2020 report.
  • Egypt is also placed at the top of all MENA countries ranked in terms of capital investment in 2020 by acquiring 12% capital investment with a total value of US$13.7 billion, where financial services are among the top five sectors in 2019.

The current market climate in the banking sector in Egypt can be broadly described as Bloomberg aptly said that “a windfall of profit for Egyptian banks is ripening the industry for acquisitions.” If only there were more willing sellers.

We now have in Egypt 38 banks operating in Egypt, including nearly 21 regional and international banks.

The last license issued by the Central Bank of Egypt (CBE) approving the registration of a new bank in Egypt was issued to Arab International Bank on June 5, 2012. Since that date, in addition to public entities and international banking institutions operating under a special international instrument (for example, the International Monetary Fund (IMF), the World Bank Group and the French Development Agency (AFD)), it has not been possible in Egypt for a new bank to to operate in Egypt by obtaining a brand new license and currently the only possible way to operate in Egypt is to acquire an existing bank registered with the CBE. Over the past 10 years, we have made a number of significant acquisitions in the banking sector in Egypt, including the following major acquisitions:

  • the acquisition of National Société Générale Bank – Egypt by Qatar National Bank Alahli in 2013;
  • the acquisition of BNP Paribas Egypt by Emirates NBD in 2013;
  • Commercial International Bank’s acquisition of Citibank Egypt’s private retail banking portfolio in August 2015;
  • the acquisition of Barclays Bank Egypt by Attijariwafa bank in 2017;
  • the pending acquisition by First Abu Dhabi Bank of Bank Audi Egypt in January 2021;
  • the recent acquisition by the Arab Banking Corporation of Bahrain of BLOM Bank Egypt in January 2021; and
  • the acquisition of Arab Investment Bank by the Sovereign Wealth Fund of Egypt and EFG Hermes Holding SAE in May 2021;
  • the acquisition of National Société Générale Bank – Egypt by Qatar National Bank Alahli in 2013;
  • the acquisition of BNP Paribas Egypt by Emirates NBD in 2013;
  • Commercial International Bank’s acquisition of Citibank Egypt’s private retail banking portfolio in August 2015;
  • the acquisition of Barclays Bank Egypt by Attijariwafa bank in 2017;
  • the pending acquisition by First Abu Dhabi Bank of Bank Audi Egypt in January 2021;
  • the recent acquisition by the Arab Banking Corporation of Bahrain of BLOM Bank Egypt in January 2021; and
  • the acquisition of Arab Investment Bank by the Sovereign Wealth Fund of Egypt and EFG Hermes Holding SAE in May 2021.

However, non-banking international financial institutions do not face the same challenges and limitations above, as they can still apply for new licenses from the Financial Regulatory Authority (FRA) for the majority of non-banking financial activities.

In our opinion, the major key players in the banking sector include (1) National Bank of Egypt and Bank Misr at the government level, where they both have made many efforts to improve their services and gain recognition in Egypt. , (2) Commercial International Bank and Arab African International Bank at the local and regional level where they mainly compete to attract corporate clients, and (3) last but not least, HSBC at the top of the high-end international banks in Egypt where it has the most advanced online banking services on the market.

The most notable key players at the non-bank financial institution level are, in our opinion, EFG Hermes, Beltane, HC Securities & Investment and CI Capital.

Government policy

How would you describe the government’s general policy on regulating M&A activity in the financial services sector? How was this policy implemented in practice?

In general, a distinction should be made between banking and non-banking financial services. In this regard, it is not permitted in Egypt to carry out banking activities in Egypt without being licensed and registered with the ECB. This restriction covers all activities consisting in receiving deposits, providing refinancing, loans, facilities, contributing to the share capital of local companies as well as any other activity considered as a banking activity according to banking custom, on a regular and regular basis. as a main activity. activities of any person carrying out these activities. However, this restriction does not apply to (1) legal persons governed by public law which carry out any of the said banking activities within their scope of incorporation; and (2) international financial institutions entitled to do so in Egypt under a special law or international treaty (eg IMF, World Bank Group and AFD).

Anyone violating the above restriction shall be liable to imprisonment for 24 hours to three years or a fine of not less than 5,000 Egyptian pounds and not more than 50,000 Egyptian pounds.

Non-banking financial services mainly cover all activities related to:

  • securities, namely capital markets;
  • insurance, reinsurance or insurance brokerage activities;
  • mortgage financing activities;
  • leasing activities;
  • securitization and factoring activities; and
  • microfinance.

Each of these areas is subject to special and intensive regulation where the FRA is empowered by law to regulate and supervise these areas where no one may engage in any of these activities without obtaining the required licenses, approvals or authorizations from the FRA .

The policies of non-banking and banking financial services are very strict and implemented in practice.

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