Analysis of Financial System of Egypt

INTRODUCTION
It is a country in North Africa officially known as the Arab Republic of Egypt. It is the 15th most populous country in 71 the world and the second most populous in Africa after Nigeria. The 79 million people live on 40,000 square kilometers. The Egypt of today is a complex social and political entity, and one that faces a struggle against poverty, population growth and authoritarian government on the road to equitable human development. Egypt's GDP growth rate slowed between 2000 and 2003, averaging only around 3.5 percent per year, mainly because of external shocks such as security-related events, the aftermath of the September 11th attacks, and the war in Iraq. However, worldwide recovery and devaluation of the Egyptian pound enabled the country to reach a higher growth rate of 4.1 percent in 2004, 4.5 percent in 2005 and estimates for 2006 close to 6 percent (according to the CIA/EIU), stimulated by greater demand in the tourism sector and resumption of investment. Egypts main revenues are generated by tourist receipts (US$ 6.4 billion in 2004-2005), remittances from workers living abroad (US$ 4.3 billion), fees for using the Suez Canal (US$ 3.3 billion), and oil exports (US$ 1.2 billion). The Central Bank of Egypt (CBE) is responsible for supervision, control, and regulation of the banking sector and for issuing licences. The countrys banking network is relatively dense and currently counts 40. The banking system (excluding the CBE) is dominated by the three state-owned commercial banks, the Misr Bank, the National Bank of Egypt (NBE), the Bank of Cairo. These four banks accounted for some 60 percent of banking assets in 2003. The Cairo and Alexandria Stock Exchange (CASE) is Egypt's major stock market, one of 2005s top performer. The Egyptian Capital Market is considered the real mirror for the Egyptian economy as for the changes and developments it undergoes, and it is one of the oldest capital markets in the region. The legal framework of the Egyptian capital market consists of several elements aiming at enabling the CMA to assume an effective role in investor protection, market organization and maintaining constant development of its legal framework. Substantial progress was made in 2005 in the areas of tax reform, management of public finance, monetary policy, privatization, and restructuring of the financial sector.

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Analysis of Financial System of Egypt

EVOLUTION OF BANKING IN EGYPT

During the first phase 1856-1956 the banking system was highly deregulated and dominated with foreign commercial banks that offered short term credit mainly for the cultivation and trade of cotton. The close relationship between the operating banks and the cotton market made them highly vulnerable to the severe and sudden fluctuations in its trade due to external shocks, e.g. the American Civil War, the great depression, the two World Wars, etc. The credit market was largely unstable during this phase with large numbers of banks collapsing and the existence of hit and run banking. This phase witnessed also three important events as far as banking development is concerned, first the evolution of central banking since 1898 with the issuance of banknotes by the NBE which was followed by several decrees enforcing its functions as banker and advisor for the government and, to some extent, bank of banks. The second was the establishment of specialized credit institutions in 1902 and then in 1931, to provide the agricultural sector with moderately priced credit and competing with commercial banks and money lenders. The third was the emergence of Banque Misr in 1920 as the first Egyptian-owned bank. The bank was a universal one but was more concerned with the establishment of a diversified industrial base. The second phase that covers the period 1957-74 is characterized by the Egyptianisation of foreign banks in 1957 as a result of the Suez Crisis of 1956, and then the entire nationalization of the banking system in 1961 which initiated the adoption of central planning. As a result of merging and liquidations of banks the number of operating banks declined from 27 banks in 1961 to ten banks. The functions of the central bank were enforced by the banking law of 1957 and the CBE was established as an independent institution in 1961. This period also observed unsuccessful sectoral and functional specialization policies which had to be abolished. In the third phase 1974-1991, the banking system was partly liberalized according to the Infitah policy. Foreign and private banks were allowed into the banking system and the number of banks increased substantially from 7 in 1974 to 81 banks in 1991. Despite this increase which was reflected in a rise of branches, the banking density remained modest and competition was frail. The financial reform program, which started in 1991 with -2-

Analysis of Financial System of Egypt

extensive coordination with the IMF and the World Bank, marked the end of the third phase and the start of the fourth phase. We have shown that the Egyptian banking system during the 1980s and 1990s, despite the partial liberalisation measures of the Infitah and the more comprehensive financial reform measures under ERSAP suffered from various problems. Entry barriers, absence of an adequate exit mechanism, and preferential treatment of the public sector banks are the main difficulties that impede the development of the banking system. The emphasis of the financial reform program, in its early years of the 1990s, was primarily on the liberalisation of some of the financial variables and the introduction of prudential measures compatible with the international reform. Very recently, attention is being given to the development of the structure of the banking system and improving competition between the banking units.

CATEGORIES OF BANKS IN EGYPT

1. 2. 3. Public Sector, Private & joint venture, or Foreign according to ownership Specialized banks

1. Public Sector Commercial Banks: There are also four public sector commercial banks and whose volume of business constitutes a significant share in total bank transactions. The four public sector commercial banks are the largest operating banks in Egypt in terms of balance-sheet size, accounting for nearly 50 percent of total bank assets. They have a significant market share in retail and corporate banking services through large branch networks and close relationship with state-owned companies. They are also major participants in the equity capital of most joint-venture banks. The public sector banks are mandated to divest their shares in the joint-venture banks with a maximum ownership of 20 percent. By end-June 2000, the public banks ownership was above 20 percent in eight (out of twenty three) joint-venture banks whose privatization was planned to be complete by the end of the same year.

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Analysis of Financial System of Egypt

2. Private Or Joint Venture Private & joint venture as well as foreign banks (operating through branches) are private sector institutions established under investment law. Foreign banks are all registered as business and investment banks as their envisaged role is principally to raise long-term funds on the international financial markets and to promote investment. In addition, there are banks which are established under special laws and which are not registered with the Central Bank of Egypt (CBE). The private banks play a less dominant role in the market for loanable funds and focus on trade-related financial services to the private business sector. They have showed a preference to finance working capital and trade activities whose transactions normally require short term credit and result in quicker and more secure returns. In practice, the portfolio behavior of the private commercial banks and of the business and investment banks is virtually the same. The private banks are seeking ways, however, to further diversify their loan portfolio and assets as opposed to focusing on trade finance. They have recently reassessed their financial services and widened their retail base with a view to meet their clients demand for personal loans, mortgages, insurance products, individual retirement plans, and credit cards. 3. Specialized Banks: Specialized banks are state owned and are assigned the task of providing long term finance for real estate, agricultural and industrial development. They mainly cater to the needs of the private sector and depend in their fund raising on borrowing from financial institutions.

MAIN SOURCES OF FINANCING IN EGYPT

There are two formal sources of domestic financing in Egypt: via 1. 2. The banking system and The emerging securities market.

Offshore banks operating in Egypt and the country's local banking system remain the main source of financing for both trade and projects.

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Analysis of Financial System of Egypt

CENTRAL BANK OF EGYPT

The Central Bank of Egypt (CBE) has improved the Egyptian banking systems in the following ways: 1. Introduction of laws giving more independence to the CBE, and an electronic signature law 2. Regulation of connected and related party lending 3. Management reforms of the three public sector banks, making clear the responsibilities of managers and boards of directors 4. Development of an automated credit risk information system (CRIS), from which participants would be able to gain online access to clients' credit profiles.

OBJECTIVES, ROLES AND FUNCTIONS OF CBE:

The main objectives and functions of the CBE are as follows: Realizing price stability and the banking system soundness, and setting the objectives of the monetary policy, in agreement with the government, through a coordinating council. Formulating and implementing the monetary, credit & banking policies. Issuing banknotes and determining their denominations and specifications. Managing liquidity in the national economy. It may conduct open market operations. Influencing the banking credit in a way warranting the fulfillment of the actual needs of the different aspects of economic activity. Supervising the units of the banking sector. Managing the gold and foreign exchange reserves of the State. Regulating and managing the foreign exchange market. Supervising the national payments system.

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Analysis of Financial System of Egypt

Recording and following up Egypt's external debt (public and private).

CBES REQUIREMENTS FOR OPENING OF NEW BANKS:

The CBEs reluctance to issue new licenses is reflected in the high entry costs, which are excessive by international standards. The minimum authorized capital for new banks is set at E 100 million, of which E 50 million has to be fully paid up (E denotes Egyptian pound; theses figures are equivalent to about US$ 30 million and US$ 15 million, respectively). For branches of foreign banks, however, the minimum authorized capital is set at US$ 15 million or the equivalent in other major currencies.

BANKING STRUCTURE IN EGYPT:

As referred to appendix (I), the banking system comprises of 40 banks. This includes 37 commercial banks, 3 of which are state-owned (public banks) and include National Bank of Egypt, Banque Misr and Bank of Cairo. , 27 private banks and joint venture banks and 7 are off-shore banks foreign banks), and three specialized banks. Although private and joint venture banks are growing, many remain relatively small with few branch networks. Egypts banking system has undergone major reforms since the 1990s and today we are faced with a liberalized and modernized system which is supervised and regulated according to internationally accepted standards. However, Egyptian banks are still behind other Western banks in supplying a good range of mortgage products to their clients.

RANKING OF EGYPTIAN BANKS:

As referred to appendix (II), In 2005 according to assets and Tier 1 capital value National bank of Egypt ranks first among Egyptian banks having US $ 1.1 billion capital, US $ 22.7 billion total assets, and 0.16% of return on assets. Banque Misr ranks second with US $ 0.53 billion capital, total assets of US $ 14.7 billion and 0.21% return on assets. Banque Du Cairo ranks third having US $ 0.48 billion as a capital, US $ 7.3 billion total assets, and 0.25% on return of assets. Arab international bank ranks fourth among Egyptian banks with capital of US $ 0.47 billion, total assets of US $ 3.7 billion

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Analysis of Financial System of Egypt

and 0.66% as return on assets. Commercial International Banks ranks fifth with US $ 0.3 billion, total assets of US $ 4.5 billion and 2% return on assets. Major shareholdings and Market share for the major banks can be seen from appendix (V)

MAJOR BANKS

1. National Bank of Egypt: Oldest and largest public bank Having 405 branches within country NBE ranks 243rd among top 1000 world banks and 3rd among Arab banks. Bank have total assets of L.E. 225 billion, deposits of LE 174 billion, loan and advances of LE 75 billion, and investment of 52 billion NBE is engaged in personal and corporate banking.

2. Banque Misr It is first Egyptian bank to be wholly owned by Egyptians Ranks first in total no. of branches and second in terms of total assets among other Egyptian banks Awarded the Best provider of Money Market Funds for Africa & middle East for the year 2009 Bank has established 180 companies Having market share of 16.15% Client base amounting to 5.7 million Paid-up capital of EGP 3.4 Billion Local branch network of 474 branches Engaged in corporate banking, retail banking and Islamic banking

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Analysis of Financial System of Egypt

3. HSBC bank of Egypt Its a multinational bank, established in 1982 Having branch network of 67 branches, 13 units and 244 ATMs. Having assets of US $ 2527 billion in year 2008 In 2001, 2003, and 2005, the banker magazine named it Bank of the year in Egypt. 4. Faisal Islamic bank : Its a first Egyptian Islamic bank and commercial bank Bank officially starts its operations in 1979 Company provides various Mudaraba operations to CBE As of December 2008, it operated through 23 branches and having total assets of EGP 23815.9 million and total liabilities of EGP 22365 million

AGGREGATE FINANCIAL POSITION OF BANKS

As mentioned in appendix (III), the aggregate financial position of banks (excluding the CBE) amounted to LE 1.1 trillion at the end of March 2008, with a rise of 17.6 percent during the reporting period, compared with 15.5 percent in the previous corresponding period. Deposits mounted by LE 93.9 billion or 14.4 percent during the period, posting LE 743.8 billion or 67.4 percent of aggregate financial position at the end of March 2008. The local currency deposits accounted for 79.0 percent of the total increase in deposits. This was indicative of the higher propensity to save in LE rather than in other currencies. Banks expanded their lending activity by LE 40.7 billion or 11.5 percent to LE 394.5 billion at the end of March 2008.

NON-PERFORMING LOANS (NPL) UNIT AT BANKS

"NPL Management Unit" was established at the CBE. Public and private sector banks were instructed to establish similar independent workout units. The NPL Management Unit at the CBE has taken the necessary procedures to ensure the activation of these units at banks. -8-

Analysis of Financial System of Egypt

The NPL database was set up in the public and private sectors and has already operated. The NPL Management Unit updates and analyzes the data on a monthly basis. The Unit monitored the workout units at banks, which have made settlements of 92 percent irregular debts (excluding the nonperforming debt of the public enterprises sector), including recoveries of 43 percent (36 percent are cash recoveries) from 1/1/2004 to 30/6/2008. It was finally agreed with the Ministry of Investment on the value of nonperforming debt of public enterprises to the four state-owned banks (LE 26 billion). In January 2006, an amount of LE 6.9 billion was repaid in cash to the Bank of Alexandria, and thereafter, cash repayments of LE 9.1 billion were made to the National Bank of Egypt, Banque Misr and Banque du Caire in December 2006. In addition, it was agreed to repay the remaining debt (LE 10 billion) to the three state-owned banks from the privatization proceeds before the end of 2008. The Conciliation and Arbitration Administration at the CBE is in charge of managing the conciliation and arbitration mechanism in accordance with the prescribed rules and regulations. This mechanism aims at expediting final NPL settlements between banks and NPL customers within a period not exceeding 4 months.

BANKING CRISIS
When all the major economies of the world have been adversely hit by the financial crisis, the banking industry in Egypt remains largely stable, reflecting its relative isolation from and resilience to the global crisis. Egypt has shown considerable progress in the banking sector reforms over the years. The central banks NPL management plan has helped banks to settle around 90% of total outstanding NPLs. With the rapid merger and acquisitions in the recent past, the banking sector has become more strong and efficient.

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Analysis of Financial System of Egypt MONETARY STIMULUS:

At the onset of the crises, the CBE has affirmed that it continues to guarantee all deposits in the banking sector. Though this is formally promulgated by law, this move came to prevent possible panics or runs on deposits. Meanwhile, the rapidly changing global economic landscape has painted a mixed picture about the required policy action. First, the global inflationary wave during 2007/08 signaled that monetary policy would maintain a non-expansionary stance to avoid pressures stemming from possible demand driven inflation. As such, the Central Bank increased the overnight deposit and lending rates for its corridor system by 275 basis points over six successive times. Later, as inflationary pressures subsided, and as pressures from the current global financial turmoil filtered into the domestic economy, CBE resorted to cutting the corridor spread rates by 250 basis points over three consecutive Monitory Policy Committee (MPC) meetings from February to May 2009, narrowing down the corridor by 50 basis points during the last meeting. CBE cited the decline in inflation on the back of a sharp decline in international commodity prices, softening in growth momentum as external demand decrease, and grim outlook shed by the global financial turmoil as the drivers behind it recent policy rates cuts. The CBE also reiterated that it will continue to take the necessary measures to cushion the effect of the global crises on the domestic economy provided that this does not conflict with its primary objective of price stability. It is worth noting that annual headline CPI inflation continued to decline in May 2009, reaching 10.2% and recording a cumulative drop of 13.4 percentage points since its peak in August 2008. Further, CBE board decided to exempt banks' deposits, equivalent to the size of the loans extended to finance Small and Medium Enterprises (SME) from the 14% legal reserve requirements. Facilitating finance to SMEs, known for their labor-intensive nature, is intended to help economic activity and employment. The package also included banning corporate sector investment in financial instruments of more than 3-year maturity to encourage private sector to reinvest their residuals. It is worth noting that, in addition to the measures taken by the CBE, Egypt's two largest state-owned banks are set to launch a LE 10 billion initiative of retail banking to stimulate private household consumption. Such funds will be allocated to the finance of personal loans, car loans, and purchase of durable goods.

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Analysis of Financial System of Egypt

RISK AND RISK MANAGEMENT

1.

Interest rate risk:

The value of some financial instruments fluctuates due to the fluctuation in the interest rates related thereto. The bank follows some procedures to minimize this risk such as: Correlating between the interest rates on borrowing and lending. Determining interest rates in consideration with the prevailing discount rates on various currencies. Monitoring the maturities of financial assets and liabilities with its related interest rates. 2. Credit risk:

Loans to customers and banks, financial Investments 9bonds), due from banks, rights and obligations from others, are financial assets exposed to credit risk which result in these parties inability to repay in part or in full the loan granted to them at maturity. The bank adopted the following procedures to minimize the credit risk: Preparing credit studies about the customers before dealing with them and determining credit risk rates related thereto Obtaining adequate guarantees to reduce the risks resulting from insolvency of customers. Monitoring and preparing periodic studies about customers in order to evaluate their financial and credit positions and estimate the required provisions for non-performing loans. Distribution of loans portfolio and due from banks over various sectors to avoid concentration of risk. 3. Foreign currency risk:

The nature of the banks activity requires the bank to deal in many foreign currencies which expose the bank to the risk of fluctuation in exchange rates. To minimize this risk, the bank monitors the balances of foreign currency positions according to Central bank of Egypt instructions in that respect.

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Analysis of Financial System of Egypt

EGYPTIAN STOCK EXCHANGE:

The Egyptian Exchange is one of the oldest stock markets established in the Middle East. The Egyptian Exchange traces its origins to 1883 when the Alexandria Stock Exchange was established, followed by the Cairo Stock Exchange in 1903. As of the 1st of March 2009, the EGX launched a new price index (EGX 70) to measure the performance of the most 70 active companies, after excluding the 30 companies that constitute EGX 30 Index. Moreover, the EGX changed the name of CASE 30 Index to EGX 30 to match the new legal name of the Exchange, namely "the Egyptian Exchange (EGX)" replacing the former one (Cairo and Alexandria Stock Exchanges). In addition, EGX started to calculate EGX 30 index in terms of US dollar along with the local currency to neutralize the effect of exchange rate fluctuations, and to provide investors with a more clear vision of the Egyptian market performance.

PRODUCTS TRADED IN EGYPTIAN STOCK EXCHANGE:

Bonds: (government & corporate bonds) Stock: (preferred & common stock) Structured products: (securities, options, debt issuance, commodities) Funds: (close ended funds) Exchange traded funds:

TRADING SYSTEM:
The trading system at EGX has perceived gradual development from an outcry system (prior to 1992) to an automated order-driven system. As a result of the growth in business, the Exchange got hold of a proven and scalable system conforming to international standards and up to date technology. In its endeavor to keep abreast with the latest technological advancements, based on its vision to become the financial hub and investment gateway in the Middle East and North African (MENA) Region that best serves its stakeholders, EGX has upgraded its trading platform to OMX high performance "X-Stream" solution, and launched it on 27 November 2008, replacing the old trading system "EFA Horizon". -12-

Analysis of Financial System of Egypt

X-stream is designed to support the increasing volume of trading on EGX as well as the simultaneous trading multiple product classes including equities, debt, commodities, ETFs, futures and options in both an exchange traded and cash/OTC/derivatives environment. X-stream has the capacity to meet the future needs of EGX. Moreover, EGX offers an in-house developed OPR program that deals with the IPO's and private placements before execution in the market. This program facilitates orders' registrations and cancellations, assures accurate calculations of the allocation percentages and enables the market to absorb efficiently the surge in the amount of placements.

TRADING PROCEDURES AT EGX:

Before investors can trade listed or un-listed securities on the Egyptian Exchange (EGX), investors must open a trading account with one of the licensed members or brokerage firms by the Capital Market Authority. Investors can only buy or sell shares through licensed member firms. All investors must open accounts with custodians, which are mainly banks and few member firms, in order that EGX can check on line their outstanding balances prior to any sale transactions. All members trading in listed or unlisted securities (stocks, bonds, closeended mutual funds) on EGX must trade via EGX Trading System (CTS). Members must record their customers orders immediately after receiving them. Recording includes the details of the order: order number, security name, client account number, quantity and exact time that the order was received etc. Members must ensure that the securities being sold are available before execution of the orders and if members are buying securities, they must ensure that the necessary funds are available before the execution of the trade. Trading starts with an order given by a client or customer to the member firm to buy (or sell) a specified number of shares of a given company at a specified price.

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Analysis of Financial System of Egypt

This order will be queued into EGX electronic trading system terminal either at EGX trading floor or the members premises. The order is then sent through the trading system to EGX central computers. An order confirmation is immediately routed back to the member firm.

THE CYCLE OF ANY TRANSACTION:

Client want to buy or sell a stock or bond Consult and contact the brokerage firm Formulate order ,specify price, quantity and type of security to be purchased or sold The brokerage firm contacts their floor broker, and give him the buy/sell order At Time T Order is processed through the stock exchange At Time T Misr For Clearing, Depository And Central Registry handles the Clearing, Settlement of the shares or bonds At Time T, T+1, T+2 Brokerage firm receives the transcripts of ownership or the physical shares themselves Brokerage firm gives the bookkeeper of the client the physical shares or the transcripts of ownership

The factors used to determine the queuing and matching priority of orders are as follows: Price, the order with the best price has the highest queue priority. Cross, the lowest priority is given for matching an order of the same buyer and seller broker. Time, at a single price level, time of entry of an order governs its priority on a First in First Out (FIFO) basis. Special Term, orders with the least trading restrictions will be given priority over orders with greater restrictions.

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Analysis of Financial System of Egypt

PRIMARY DEALERS IN STOCK EXCHANGE

Primary dealers in trading system includes: Barclays Bank - Egypt (S.A.E), HSBC BankEgypt, National Bank of Egypt, Citibank, Banque Misr, Banque du Caire, Bank of Alexandria, Arab African Bank, Misr Iran Development Bank, Credit Agricole Egypt, Commercial International Bank- Egypt, Arab Bank Ltd, Suez Canal Bank, National Societe Generale Bank, Export Development Bank of Egypt.

EGYPTIAN STOCK EXCHANGE

As referred to appendix (VI), total no. of listed companies at Egyptian Stock Exchange are 333 out of which one company is listed in temporary table 213 companies are registered under unofficial tables and 119 are listed in official table; with total 22430 million shares with nominal value of their capital is LE 149587 million and market value of capital LE 463644 million in year 2009. Appendix (VIII), tells us about the shares transaction at stock exchange for the period of 2007/2008 and 2008/2009. In year 2007/2008, 12667587 transactions take place in Egyptian pound with 21775522 thousand volume traded of 550194 million value, Whereas in year 2008/2009, 12853288 transactions take place in Egyptian pound with 30642746 thousand volume traded of 256223 million value.

Bond Market:
Appendix (IX), tells about the activity of bonds transactions & mutual funds documents on the stock exchange. In year 2007/2008 the no. of transactions were 1100 in Egyptian pound with total traded volume of 23172111 units and having traded value of 23941406 thousands, whereas in year 2008/2009, number of transactions were 24100 which are very much high than previous year. The volume of traded bonds is 102846338 units and having 28014154 thousand as value traded. In year 2007/2008 the no. of foreign currency transactions was only one whereas in year 2008/2009 the no. of transactions have increased to 9 with traded volume of US $ 1300 units and having traded value of US $ 128000. there is no trading of mutual funds document for both of the time period.

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Analysis of Financial System of Egypt

MARKET CAPITALIZATION
Overall Market Summary:
As referred to appendix (X), market summary tells us about the total market capitalization of secondary market which is LE 467,837,495,847 at 18/02/2010. Market summary also state the total volume i.e. 77,413000 with 1,231,283000 of value for listed and 31,934000 with 31,934 thousand volume and having 913,919 thousand of value for

OTC
Appendix (XI), tells us about the detailed picture of market summary at 18/02/2010. this table include the value, volume and trades for the listed, stocks, PD bonds, other bonds, funds, OTC, bonds, deals, orders. Appendix (XII), tells us about the gainer and decliner of listed stocks. This table suggests that out of 168 listed stocks 38 listed stocks have gain whereas 124 are decliner and 6 remains unchanged.

Sector-Wise Market Summary:

As referred to appendix XIII, sector-wise summary states that retail have 0.79% of total value, 1% of total volume, 0.30% of total market capitalization. Oil & gas have 0.19% of total value, 0.09% of total volume, 0.86% of total market capitalization. Travel & leisure have 3.82% of total value, 8.01% of total volume, 3.42% of total market capitalization. Industrial goods and services have 5.06% of total value, 12.73% of total volume, 6.14% of total market capitalization. Like vise banks have 3.85% of total value, 1.24% of total volume, and 10.55% as total market capitalization. As referred to appendix VII, The breakdown of market capitalization by sector denoted that finance, insurance and real estate came in the forefront, attracting the largest number of investors, with a relative importance of 43.8 percent at the end of March 2008, up from 34.9 percent at the end of June 2007. By contrast, the relative importance of the services sector retreated from 18.6 percent at the end of June 2007 to 14.8 percent at the end of March 2008, manufacturing from 31.1 percent to 29.3 percent, and transportation, communications, electricity, gas and healthcare from 13.4 percent to 10.0 percent. -16-

Analysis of Financial System of Egypt TOP FIVE GAINER COMPANIES:

As referred to appendix (XIV), top five companies includes Cairo Development and Investment with 43.30% change in the value of its stock, Suez Bags with 5.16% change, Arab Aluminum with 4.91% change, Development & Engineering Consultants with 3.31% change in its stock price, Modern Shorouk Printing & Packaging with 3.25% change in its stock value remains the top gainer companies in Egyptian stock exchange as at 18/02/2010.

TOP FIVE LOSER COMPANIES:

Appendix (XV), tells about the top 5 loser companies which includes: Societe Arabe Internationale De Banque (SAIB) with -14.74% change, Northern Upper Egypt Development & Agricultural Production with -13.96% change, Alexandria New Medical Center with -9.27% change, Cairo Educational Services with -5.07% change, and South Cairo & Giza Mills & Bakeries with -4.47% change in its stock price.

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Analysis of Financial System of Egypt

CONCLUSION

The Egyptian economy was well placed to weather the effects of the global financial crisis, thanks to the economic reform program, adopted since 2004, with figures revealing strong economic activity. The Egyptian economy is, however, expected to show a slower growth rate as a result of the decline in the international trade & external demand. Banking structure comprises of 40 banks out of which 37 are commercial banks (3 stateowned banks, remaining 34 are private) and 3 are specialized banks. The Central Bank of Egypt (CBE) is responsible for supervision, control, and regulation of the banking sector and for issuing licences. The banking system in Egypt is a cornerstone of its financial architecture and evidently plays a crucial role in overall economic development and growth. During the 1990s, at the time of Egypts Economic Reform and Structural Adjustment Program (ERSAP), banking performance was unable to keep pace with other sectors. Sluggish privatization progress, market recession and an outflow of nonperforming loans all led to a state of imbalance in the banking system by the start of the decade. Egyptian Stock Exchange (EGX) is oldest stock exchange. After a blockbuster 2007 calendar year for the Egyptian Exchange (EGX), the merged and rebranded Cairo and Alexandria Stock Exchange. Along with the regulatory developments, the Cairo & Alexandria Stock Exchanges (CASE) is continuously upgrading its trading system to accelerate processing and increase the volume of transactions.. EXG has approximately LE 460 billion market capitalization. Luckily for Egyptian companies, the global credit crisis does not threaten the appetite of generally underleveraged Egyptian society. However, it was observed that banking and financial reforms in Egypt has taken place. One could also regard these reforms as though the country was trying out new strategies to better the financial sector in the country. One notable point in this regard is that the country has always adopted that extra cautious attitude pertaining to the financial sector, in fact all the sectors of the economy.

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Analysis of Financial System of Egypt

RECOMMENDATIONS

Egyptian Banking System needs subjective assessment of bank asset quality as there is need to strengthen institutional standards and accountability in the auditing profession.

Restructuring procedure is slow, Egyptian banks need to accelerate the restructuring procedure.

CBE needs defining appropriate corporate governance practices for privatised banks and monitoring the privatization process to ensure banks remain adequately supervised.

The state owned banks will need to continue improving their performance with respect to nonperforming loans if they are to become a lucrative investment in case of privatization. This hinges on the extent to which Egyptian government will be prepared to absorb the burden of bad debts in the banking system.

Need to properly implement the banking and financial Reforms.

Need to work on and make improvements in financial reforms as the changing need of time because there is always room for improvement.

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Analysis of Financial System of Egypt

REFERENCES

MENA-OECD Investment Programme, Egypt National Investment Reform Agenda Workshop; Privatisation Session: Reforming State Owned Banks Draft Background Document: May 17, 2006

www.cbe.org.eg/ Economic review: Vol. 49 No. 3, 2008/2009: by CBE EGX Annual Report 2008 (www.egyptse.com) Central bank of Egypt: Annual Report, 2007/2008 U.S. Library of Congress (http://countrystudies.us/egypt/80.htm) Central bank of Egypt; External Position of the Egyptian Economy; July/September 2009/2010; Quarterly Report; Volume (27)

On Bank Market Structure and Competition in Egypt by Mahmoud Mohieldin

http://finance.mapsofworld.com/financial-institutions/ Report on banking reforms, prepared by The Egyptian-British Chamber of Commerce; dated 22 July 2009

Incentive-Based Regulations and Bank Restructuring in Egypt; By Alaa El-Shazly, Cairo University

http://en.wikipedia.org/wiki/Economy_of_Egypt

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