Egypt: Strenghtening Banking Supervision
This project was initiated by the Central Bank of Egypt (CBE) in 2003, at a time when the financial sector in Egypt was dominated by the banking system, which accounted for more than 60 percent of the financial system’s assets. The banking system was comprised of 57 banks, and this included 28 commercial banks of which, four were state-owned, 26 were investment banks (11 joint venture banks and 15 branches of foreign banks), and three were specialized banks. The banking sector was dominated by state owned commercial banks, which accounted for more than 51 percent of the banking system’s assets. Although private and joint venture banks were growing, many were relatively small with modest branch networks. The dominance of state owned banks did not encourage sector reform, and left a market that was highly concentrated and lacking in competition.
The Central Bank of Egypt had been making efforts to improve the soundness of the banking system. It had worked on four main fronts, some of which were recommended by the FSAP (2002):
Based on the request and the recommendations made by the FSAP team, the CBE submitted a proposal for FIRST funding to assist in strengthening aspects of CBE prudential regulations and supervision of banks in the areas of connected lending, large exposures and market risk assessment e.g. exposures to fluctuations in equity or currency values or interest rates.
The main project benefits were full implementation of recently issued regulations on connected lending, large exposures, and market risks and more comprehensive collection and analysis of banking data. Successful implementation of the technical assistance would complete most of the outstanding recommendations of the FSAP and would bring the CBE more closely into full compliance with the Basel Core Principles.
Projects with training components are, in principle, an excellent fit for FIRST in view of its objectives. However, they must be funded and executed in an environment in which the training can succeed. At the time of the project, the CBE had no overarching training program. As such, any training provided to the examination staff was an ad hoc event rather than as part of a managed structure to promote sustainability.