Financial Services sector

An Expert's View about Banking, Finance and Insurance in Egypt

Posted on: 28 Sep 2012

The Central Bank of Egypt is the government regulatory body responsible for setting and co-ordinating monetary, credit and banking policies

The Financial Services sector in Egypt In May 2011, the UK government added Egypt to the list of top 20 key High Growth Markets in the new UKTI strategy. Market overview The Central Bank of Egypt is the government regulatory body responsible for setting and co- ordinating monetary, credit and banking policies. It supervises firmly all foreign and local banks working in Egypt, which explains how this sector managed to escape the worst impact of the financial crisis. All bank transactions (letter of credit or transfers) during commercial deals are secured and guaranteed internationally. The financial services sector is a key component of the economy. The reforms undertaken in the past six years, in particular, have transformed the financial landscape and have partly helped shelter Egypt from financial contagion during the global crisis. The sector holds untapped potential in retail and commercial banking, insurance, mortgage finance and equities. Public- Private-Partnership (PPP) provides an opportunity for British companies to bid for the projects as well as for legal and consultancy work. Key opportunities There are opportunities for UK companies in the Egyptian financial services sector in the following areas: Banking The Egyptian banking sector has a lot of growth potential with its supportive regulatory environment, low penetration levels (only 10% of the population have bank accounts) and low loan-to-deposit ratio (about 50%). Small and medium enterprise lending and retail banking are growth opportunities in the market. Insurance Insurance premiums amount to about 1.1% of GDP leaving huge scope for growth. Growth in the life insurance business outstrips the non-life and much of this growth is driven by foreign companies. Given the low penetration levels, the market has a huge potential to grow but it also faces a number of challenges including low awareness levels, and lack of skills, particularly actuaries. Future market expansion will depend on reform of the health insurance and micro-insurance segments, the pension system and re-launch of bancassurance, which was stopped in 2009. Securities The Egyptian Exchange (EGX) is one of the highly regulated and most open securities exchanges in emerging markets with a strong core of diversified sectors. It is also one of the deepest in the region, with the most complete set of legislative, institutional and technological structures and the highest rate of compliance with international principles. Egyptian Financial Supervisory Authority. Member firms are classified according to the activities they are licensed to perform. All securities intermediaries can undertake cash transactions and over the counter trading. Other activities such as margin trading, short selling, electronic trading, intra-day trading and primary dealers require a special permit. Nile Stock Exchange (NILEX) An important milestone for the Egyptian market was the launch of a small cap bourse. Nilex, the first small cap market in the MENA region, was launched in October 2007 to give small and medium enterprises access to capital. Trading on Nilex actually started in June 2010. Currently there are 20 companies listed. Nilex will provide growth opportunities for SMEs, which account for nearly 90% of Egypt’s GDP. Mortgage Finance The Egyptian housing finance sector is growing but it remains underdeveloped with mortgages representing less than half a percent of GDP. Total mortgage lending reached LE4 billion ($666m) in June 2010, from LE16 million ($2.6m) in June 2005. About 47% come from mortgage finance companies and 53% from banks. The average interest rate for a mortgage is about 12.4%. There is also a mismatch between real estate demand and supply. While there is demand for housing among the middle-to-lower income segment of the population, much of the properties developed were targeted at the high- income consumers. Mortgage lending has a huge potential to grow and the country’s demographics (over 50% of the population below 25 years old) ensure there will be steady demand but there is a need for long- term, cheaper credit. The development of a strong bond market and securitisation will be crucial. Legal & Professional services The legal market in Egypt is dominated by a few full-service firms. There are approximately 122 prominent legal firms operating in Egypt. Most firms are small, employing 10 lawyers or fewer. Major firms tend to be based in the big cities of Cairo and Alexandria with a smaller but growing number in other expanding cities of Egypt. There are a few professional services firms leading the advisory services in Egypt. Assurance Services for listed firms is a major business in Egypt and a main driver in the economy, particularly influencing the financial sector and the advisory sector. The large professional services firms dominate the advisory services operation in Egypt. Audit work for listed firms remains a steady income stream. The 4 big multinational names are KPMG, Ernst & Young, PriceWaterhouseCoopers & Deloitte. International firms do not have a strong presence on the ground, with the exception of Trowers & Hamlins in association with Nour Law Office, SNR Denton – formerly Denton Wilde Sapte – and DLA Matouk Bassiouny, which all practice in collaboration with local practitioners. Opportunities in the Egyptian market for law firms include Corporate Finance, M&A compliance, Banking regulatory reform, Infrastructure Projects, Construction, Commercial Contract Law, Dispute Resolution, intellectual property and overseas listings. Latest export opportunities in the Financial and Professional Services sector Latest export opportunities in Egypt Getting into the market Egypt is an attractive market that can offer major business opportunities to informed traders and investors. Trade and investment between the UK and Egypt is promising. However it is not always an easy market. A successful entry into Egypt will be determined by the quality of the information and advice upon which the decision to enter is based. Continued success is also dependent upon the ability to navigate the laws and practices of Egypt. The Egyptian market requires careful study and a sustained sales effort. There is strong competition from other exporting countries. Price and credit terms are a deciding factor when obtaining contracts, though quality is increasingly important. Back-up servicing facilities and the supply of spare parts is also important. Having a local partner can be vital to successful penetration of this market. There are several reasons for this. Firstly, given the continuing bureaucracy, a local partner can shepherd the foreign business through the delays and obstacles. Secondly, foreign companies require a local agent to bid for government tenders. Thirdly, as the Egyptian market becomes more sophisticated there is a growing demand for after sales service, which a local agent can convincingly provide. British companies wishing to develop their business in the Egyptian market are advised to undertake as much market research and planning as possible in the UK. More about doing business in Egypt Contacts Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits through our chargeable Overseas Market Introduction Service (OMIS). To commission research or for general advice about the market, get in touch with our specialists in country - or contact your local international trade team. ξ John Franck, British Embassy Cairo. Tel: (00202) 2791 6000 or email: Wafaa Saad, British Embassy Cairo. Tel: (00202) 2791 6000 or email: UKTI Events UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows. Latest events in the Financial and Professional Services sector Major Events Euromoney - The Egypt Conference 25 - 26 Sep 2012 Useful links More about OMIS and other UKTI services for exporters
Posted: 28 September 2012

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Financial Services sector   By UK Trade & Investment Africa Business & Industry   By Afribiz Division, Conceptualee, Inc.