Controls to achieve efficient administration and standards of banking policies
Egypt, Economics, 2/7/2003

The governor of the Central Bank(CB) Dr Mahmoud abu Al-Oyoun asserted yesterday that the issue of the good governance of companies comes at the top of the interests of the international business society and the world financial institutions, following events that occured during the last two decades.

He pointed out that both the International Monetary Fund and the World Bank, in tandem with the Economic Cooperation and Development Organization, cooperate in studying the mechanism of this concept and its effectiveness in the advanced markets and the rising ones as well.

This came in the opening session of the symposium organized by the Bank Institute under the title "the good governance from the bank perspective" in cooperation with the private international projects center.

The CB governor emphasized that the good governance is implemented through a number of legal regulations as well as accountancy,financial and economic rules helping the administration to control the performance of its job and to meet its responsibility towards shareholders, depositors, and society.

The Central Bank has taken many procedures in conformity with the main rules adopted by Bazzel committee. These include in this respect the legal frames regulating and monitoring banking systems besides laying down the adequate rules and mechanisms; how to implement and apply the banking sector laws represented in the limit of activity of banking units, the rate of liquidation and reserves. They also include efficiency of capital rate, assets and forming privatizations and the loaning policies.

The governor pointed out that concentration in the frame of the Credit Card is one of the sources generating problems in bank credit. In addition to that the cumulative exposure for those clients may represent one of the risks to the bank because they interdepend in an intermingled way in the financial aspects, as their potential resources in repayment are the same.

The governor pointed out that some of the countries impose special criteria of the minimum rate of the bank readiness towards one client ranging between 10% and 25% from the capital. In some legislations, the rate may reach a range between 30% and 40%. The committee of Bazzel recommends monitoring banks with an average of 25% as a minimum rate with the possible reduction in this average to 10% as it is possible from the practical aspect.

Officials monitoring banks may find it a necessity that banks submit reports on cases exceeding certain limits as 10% of the capital.

In this respect the Egyptian Banking law discussed many points: First: Each bank must inform the Central Bank of the situation of every client whose average exceeds the limited rate of his loans by the administrative council of the Central Bank, which is limited to 30% of the capital. The Central Bank must collect the financial situation for every client who exceeds the limited percentage towards the banking system as a whole. Those data must be available for the acting banks. As for loaning for the concerned parties, the concept of the concerned parties is not limited to the Mother Company or companies emanating from the bank or the ones situated in the same group.

This concept also includes both executive directors and officials in charge of the bank administration. A decision was made by the Central Bank administrative council last June to hold the acting banks committed to formulate a committee for internal verification and review.

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