Dr. Bahaa Helmy
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Dr. Bahaa Helmy Writes: The New Draft Banking Law and the Public Interest

Dr. Bahaa Helmy Writes: The New Draft Banking Law and the Public Interest

The New Draft Banking Law ... and the Public Interest. Voices have risen and interests have clashed over the new draft banking law. The media and some satellite channels rushed to attack the draft law in order to protect the interests of certain current bank chairmen, who would be ousted by the law if the proposed limit on their term of appointment is approved, without discussing the other articles of the draft law, such as banks' capital, the rules for nominating and forming the board of directors of public-sector banks, and the strengthening of the Central Bank's powers, authority and independence, and the effect of all this on the banking sector. This leaves public opinion without a clear view of the reasons for amending the law and of the national interest. It is therefore important to shed light on some key points of the draft banking law, most notably what we previously addressed in our 2015 book “Foreign Investment in the Banking Sector”: the need to re-evaluate and increase the capital of banks and of foreign bank branches as set out in the current law issued in 2003, which no longer reflects the changes in global exchange rates and their effects on the banking market. The draft law is in line with our view on increasing bank capital, but it differs on the amount, setting it at EGP 1.5 billion instead of EGP 500 million, which does not at all reflect the current exchange rate of the Egyptian pound against the dollar. Moreover, setting capital in Egyptian pounds, as the national currency, without linking it to foreign currencies in light of the floating or liberalization of the exchange rate, is a form of rigidity that runs counter to the philosophy of legislation and its ability to keep pace with future changes. We therefore propose that a bank's capital be no less than the equivalent of USD 500 million in Egyptian pounds, half of it in hard currency, and that the capital of a foreign bank's branch in Egypt be no less than USD 750 million or its equivalent in hard currencies, in order to achieve the following objectives:

  • Raising banks' competitiveness and having weak banks exit the market, in keeping with the completion of the reform steps and with raising the efficiency of the banking market in line with international standards.

  • Keeping pace with rising global and national exchange rates.

  • Creating strong new banks through the merger or absorption of banks that are unable to regularize their situation.

  • Increasing the capital of banks and foreign bank branches leads to larger reserves to face any future crises.

    As for limiting the term of bank chairmen and setting new rules and conditions for appointing and forming bank boards of directors, this is consistent with the principles of governance. It is, moreover, an inherent right and competence of the State, represented by the Central Bank, which is entrusted with supervising and overseeing the banking system and its units, regulating monetary, credit and banking policies, holding the monetary reserve and confronting financial crises, in addition to being the administrative authority competent to oversee the implementation of the law and to prevent family takeovers of bank capital. The Central Bank should study the matter further with the participation of jurists and specialists, given the importance, sensitivity and large number of the amendments introduced in the draft law, and should put in place an advertising and media plan to explain the reasons and justifications for amending the law and the public interest the legislator seeks, namely placing the interest of the nation above those with private interests. The government must also set fiscal policies that are consistent and integrated with the monetary policies set by the Central Bank, in line with sound planning and forecasting of the future, given the importance of the law on the Central Bank, the banking system and money to the State and its sovereignty, to economic development plans and to the country's national security.