Banks must merge to survive
Egypt, Economics, 4/15/2002

Bank mergers are hitting the headlines once again. Mergers are a way of creating a more efficient banking sector offering a better quality of service that is capable of coping with market fluctuations and risks, providing credit for customers and investors, and protecting depositor's money.

The issue topped the agenda at the meeting of the Board of Directors of the Central Bank of Egypt (CBE) last week. It was said that the CBE is actually considering the idea in preparation for its implementation.

Experts believe mergers amongst the smaller public sector banks are to be effected during the coming period.

"Successive governments have expressed their desire to merge banks in an effort to compete with international financial institutions and improve services for investors," Professor of World Economy at Cairo University, Ahmed el-Ghandour said.

"However, problems are hampering implementation such as the recent liquidity shortages, foreign exchange complications and the crisis ensuing from bad loans," he told el-Wafd newspaper.

"Banking experts are calling for well-designed measures to ensure the reform of monetary and fiscal policies. As ordained by the General Agreement on Tariffs and Trade (GATT), the financial sector will be open to international competition in 2005. Such merging is essential if the banking sector is to survive.

Benefits from merging include the increased capitalisation of banks, better management, expanded use of technology and diversification of services." el-Ghandour said.

Abdullah Tayel, Head of the Economic Committee at the People's Assembly (PA) and board chairman of a private bank in Egypt, said that there are certain international and domestic developments that has intensified competition.

"This should help to direct bankers in modifying the structure and improving the quality of services offered. Means of bank merging are varied but a policy is needed," he told el-Wafd newspaper.

"I have suggested forming four independent groups, the biggest of which is the public sector bank. After a while, public sector units merge with the private sector banks", he said adding that each bank must first study its debts accurately so as not to affect the process.

"Looking at the banking system as a whole and its performance over the past decade, one wonders just how ready this sector is to initiate and implement its own reform.

One might ask whether merging will become another oft-reiterated slogan," said Mahmoud Abdul Fadil, Professor of Economics at Cairo University.

"Before merging it is crucial that the banks demonstrate that they are reform-minded and are striving to be more competitive.

Meanwhile even though mergers have dominated discussions concerning the banking sector's future, this doesn't mean that the government's plan for privatisation has been shelved," he told the paper.

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