EGYPT: An Introduction to Banking & Finance

A Digital Transformation Strategy 

The digitalisation of the banking and monetary sectors has been at the forefront of legislative reform worldwide, with governments imposing measures to expand access to financial services to underserved segments of the population.

The Central Bank of Egypt (the “CBE”), the regulatory authority tasked with supervising Egypt’s banking and monetary regimes, has adopted a similar approach through a digital transformation strategy. As part of this strategy, the CBE has introduced various regulatory reforms that are in line with the CBE’s overarching agenda of:

i. creating a robust electronic payments infrastructure with a more diversified set of electronic payment methods being made available;

ii. expanding the usage of electronic payment methods across the various segments of the population; and

 iii. achieving financial inclusion.

The CBE Law 

To this end, the new CBE law no. 194 of 2020 (the “CBE Law”) has, amongst other things, introduced the regulatory regime governing Payment System Operators and Payment Service Providers. Entities wishing to provide payment services within Egypt must obtain the requisite licenses and abide by the relevant CBE regulations.

In addition to the reforms introduced by the CBE Law, the CBE has issued several circulars to transition Egypt into a cashless economy. These circulars include a circular issued March 2023 and regulating payment card tokenisation services on electronic device applications (the “Tokenisation Circular”). The Tokenisation Circular effectively allows, subject to specific requirements and approvals, contactless payments to be made utilising tokens generated through electronic devices’ applications, including applications such as Apple Pay and Samsung Pay.

Furthermore, the CBE has recently issued a circular, dated July 2023, on the licensing, registration, and regulatory framework of digital banks in Egypt. This circular represents an unparalleled shift towards an entirely automated banking system in Egypt. As part of this transformation, digital banks are authorised to provide all banking services traditional banks offer following the CBE Law and all circulars, regulations, and rules published by the CBE. According to current market knowledge, at least 1 (one) bank operating in Egypt has successfully obtained the digital bank license, with an additional 9 (nine) banks currently applying for the requisite license.

Government-led Devaluations 

Another significant development has been implementing a series of government-led devaluations and a floating exchange rate. The devaluations, the last of which took place in March 2024, have greatly influenced the availability of foreign currency for both businesses and individuals and have, therefore, had repercussions across various business sectors, particularly those heavily reliant on imports. In response to this shortage and in an attempt to eliminate the black market, the CBE has introduced several regulatory measures to control the distribution of and dealing with foreign currency. Amongst the most notable measures are the limits on foreign currency withdrawals from banks and ATMs. Individuals and businesses face daily and monthly caps on the amounts they can withdraw to prevent hoarding and ensure a steady, albeit limited, supply of foreign currency for essential transactions.

Foreign Currency Transfer 

Additionally, the CBE has implemented strict controls on foreign currency transfers abroad. Foreign currency transfers require prior approval, and applicants must provide substantial justification for their foreign currency needs. Despite these constraints, the CBE has shown some flexibility in its approach to foreign exchange controls with the gradual stabilisation of the Egyptian Pound (“EGP”) against the USD.

Economic Stimulation 

Moreover, the CBE has lifted recently certain restrictions to stimulate economic activity. For instance, limits on foreign currency withdrawals have been partially relaxed, allowing for greater access to foreign currency for businesses and individuals. Additionally, the approval process for some foreign currency transactions has been streamlined, facilitating smoother operations for entities needing to conduct transactions in foreign currency. Businesses currently face fewer restrictions when:

i. making withdrawals from accounts held in a foreign currency; and 

ii. making transfers abroad in foreign currency.

The overarching goal remains stabilising the EGP, reducing inflation, attracting foreign direct investments, and ensuring economic stability.

Lending Trends and Activities 

With respect to lending trends and activities and given the continued scarcity of foreign currency, major banks operating in Egypt continue to channel funds in local currency into real estate projects as a strong defensive sector of the Egyptian economy. International financial institutions continue to show support and confidence in the Egyptian economy, with credit lines extended to Egyptian banks for on-lending to non-banking financial services companies operating in Egypt under the umbrella of the Egyptian Financial Regulatory Authority (the “FRA”), the regulator of the non-banking financial sector.

Several major Egyptian services and manufacturing companies are showing interest in expanding into African, Sub-Saharan and Saudi markets. The move is amid efforts to support revenues in foreign currencies and utilise newly relaxed access regulations in such regions. Egyptian banks are showing a strong appetite to support such an expansion trend, and as a result, we are likely to see more Egyptian banks expanding regionally.

Expansion of Non-banking Financial Sector 

The non-banking financial sector is also expanding following the issuance of new regulations by the FRA organising digital identity, smart and digital contracts and registers. This step was largely welcomed by the market players and complements the developments in the fintech space. The CBE is also contemplating a new digital identity regulation in the banking industry, including E-KYC and innovative forms of financing such as crowd and rotation funding.

A Resilient Financial Sector 

The new regulations in the banking and non-banking finance space have rendered the finance industry in Egypt quite resilient. Coupled with the Egyptian government’s newly announced direction to allow more private sector involvement and streamline investment access, in addition to the funds generated from the Ras El Hekma project investment, we expect the next few months to see notable development in finance market conditions.