Dr. Bahaa Helmy Writes: Banning Family Investment in Bank Capital

The Central Bank Law No. 88 of 2003 provides that no natural or legal person may own more than 10% of the issued capital of any bank, or any percentage that leads to control over the decisions of the bank's board of directors, enables the appointment of a majority of the board's members, or gives control over the decisions of the bank's general assembly – except with the approval of the Central Bank. The law set criteria for calculating the ownership of a natural person and criteria for calculating that of a legal person, whether Egyptian or foreign: a natural person's ownership includes what he owns plus what any of his relatives up to the fourth degree own, and a legal person's ownership includes what it owns plus what any member of its board of directors or any of its shareholders owns, or any other legal person under the actual control of the same persons. The calculation also includes the combined holdings of more than one natural or legal person between whom there is an agreement leading to actual control of the bank. The law also dealt with the case of ownership shares passing to a natural person by inheritance. Here we see that the Egyptian legislator has established a disciplined system for owning shares in the capital of banks, ensuring that banks are not controlled, in order to protect the State's economic interests and safeguard depositors' funds. We note that the law set rules and conditions for the Central Bank's approval to ensure that its decisions are not arbitrary: when examining applications to own bank capital, the Central Bank must take into account the following rules: (that there is no conflict between the applicant's interests and the bank's interests; studying the extent to which the ownership grants influential rights and actual control over the bank; examining the applicant's holdings in the bank in question and in other banks and financial institutions in Egypt; studying the applicant's ability and readiness to provide financial and technical support to the bank; that the ownership does not limit competition in the banking market or disrupt it; that the applicant meets the requirements of capacity, competence and practical experience; and that no judgment has been issued against him for a crime involving dishonor or breach of trust, or under the Anti-Money Laundering Law or the Central Bank Law). The law also specified the cases in which the Central Bank must reject an ownership application, namely (incorrect or incomplete data; if it would disrupt the banking market; the applicant's lack of banking experience, or a judgment of bankruptcy or for a crime punishable by law having been issued against him; or the applicant being a foreign bank not subject to the supervision of a competent authority in the country of its head office). The law gave the Central Bank the right to reject an application to register any bank if it conflicts with the general economic interest; the Central Bank thus has discretionary power to refuse to register a bank if this conflicts with the general interest of the State or would disrupt the banking market. It is clear from the above that the law has regulated the ownership of shares in the capital of banks and prohibited control of bank capital by relatives, whether Egyptian or foreign – what is known as preventing family investment from controlling banks – in order to preserve the stability of the banking market and in accordance with the general interest of the State.