This morning, potential requirements of the new Banking Act have been circulated in the news, which entail:
- Raising the minimum capital for commercial banks to EGP5.0 billion, up from a current EGP500 million. And USD150 million for foreign banks.
- Paying a maximum of 1% of net profit towards an industry development fund.
- No terms limits for heads of the banks and board members.
Note that the new Banking Act has not been approved by the cabinet yet. Once approved by cabinet, the bill will move to the House of Representatives for committee review and a vote in the general assembly, which is expected to happen before the end of May 2019.
Capital requirements could trigger a wave of profit retention and M&As
Capital requirements for commercial banks could rise tenfold to EGP5.0 billion under proposed amendments to the Banking Act and USD150 million for foreign banks. A lot of banks would need capital increase with the exception of COMI and QNBA. However, some banks have their total equity above the minimum so we could see them use their retained earnings to beef up paid in capital. Others, whose equity is below the required minimum, could opt for mergers, acquisitions or rights issue. We see EGBE and CANA as potential candidates. But it depends on the timing when the law will come into effect.
If the law is approved, the CBE may give banks up to three years to comply and, by that time, all banks under our coverage that fall below the required minimum would have already built an adequate capital base from profit retention, except for CANA.