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Sunday, 3 May 2020

Latest draft of the Banking Act is set to go to the House today; includes 1% industry development tax, appears to scrap proposed term limits on bank MDs

LEGISLATION WATCH- Latest draft of the Banking Act is set to go to the House today; includes 1% industry development tax, appears to scrap proposed term limits on bank MDs. The House Economic Committee has finalized amendments to a long-awaited overhaul of the Banking and Central Bank Act, clearing the way for the package to go up for a general assembly vote during the House of Representatives’ current term. Masrawy had a copy this weekend of what it says is the final text of the draft bill; here’s a rundown on what you need to know as it is presented to the House today:

A controversial 1% annual tithe on bank profits to endow an industry development fund remains in place, as we noted last month. Still, that’s substantially less than the 5% levy initially proposed in a 2017 draft of the bill.

Banks would have to set aside 0.5% of their deposits over a 10-year period to finance a new deposit insurance and emergency bailout fund.

Revisions to the act appear to have scrapped term limits for private-sector bank MDs previously included in article 118. As it now stands, the law does not outline term limits for board board members or MDs at private-sector institutions save to specify that bank boards will be elected by the general assembly every three years. This would resolve a major sticking point in earlier drafts of the law, which would have allowed the CBE to set limit terms for bank MDs and given it enhanced oversight over boards. The CBE will continue to have power to set competency requirements for executive board members, according to article 118.

The boards and chairmen of state-owned banks shall be appointed by the Prime Minister and will be subject to the same competency approval from the CBE.

The central bank has beaten back a bid by the Egyptian Competition Authority (ECA) to have a voice in regulating the sector. The revised draft of the bill leaves the central bank as the chief regulator of the sector after the ECA bid to be formally given oversight of fair competition in the industry, according to Youm7. The ECA had argued that the CBE’s role as a shareholder with board representation represents a conflict of interest. The CBE countered that “the special nature of the banking industry” means that it is the natural regulator of the sector.

Banks will have an easier time spinning off individual units under article 98 of the proposed law, giving them more flexibility to reorganize and restructure as they are now required to meet higher minimum capital requirement of EGP 5 bn.

Other amendments by the House Economics Committee worth noting include:

  • Introducing a direct debit mechanism to Egypt, which allows bank clients to schedule payments (such as for mobile phones or utilities) to automatically come out of their accounts.
  • Allowing people to leave the country with more than EGP 10k in local currency in their pocket. The amendments do not include the new limit, leaving it up to the CBE to decide how much you can carry. The limit on FX has been left unchanged at the equivalent of USD 10k.
  • Expanding the definition of government debt instruments beyond bonds and bills to potentially include any other instruments introduced by the government later.
  • Setting a capital requirement of EGP 25 mn for FX exchange companies, reducing by half the requirement set by CBE in previous drafts.
  • Imposing harsher punishments for FX black market dealing, including 3-10 year prison terms and fines of up to EGP 5 mn.
  • Establishing a grievances committee to appeal CBE decisions and penalties against banks.

Correction (03/05/2020): Boards and chairmen of state-owned banks are to be appointed by the Prime Minister without term limits. A previous version of this story incorrectly stated they would be serving two terms only.

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