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We may soon see a bank-led rush on the country’s finance sector, as the Central Bank of Egypt expands the list of companies in the sector that are exempt from a previous 40% cap on how much equity banks can own, according to a decision reviewed by EnterpriseAM. The decision was taken in light of “current market developments and the emergence of several companies operating in new financial activities.”
The updated list of financial companies that are now exempt spans several sectors, with securities firms, mortgage companies, securitization companies, factoring and leasing businesses, ins. companies, bureau de changes, money transfer services, payment companies, consumer finance activities, SME financing businesses, and fintechs offering non-bank financial services.
Why this matters: Letting banks own more than 40% of these companies will really allow them to put their full financial weight and industry know-how behind them, former Blom Bank Egypt deputy managing director Tarek Metwally tells EnterpriseAM. Having the bank’s name alongside fintechs offering new services will also help add credibility and support adoption amid the spread of digital financial services, he added.
The CBE will by extension see its oversight of these companies increase as banks increase their stakes, which could help limit any potential undermining of market stability, former Industrial Development Bank chairman Maged Fahmy tells us. Because banks are already firmly under the supervision of the central bank, greater bank ownership of fintechs and other financial companies would extend this regulatory umbrella to a wider part of the market, Fahmy added. “With transactions through fintech companies increasing rapidly, it was necessary to take this step to strengthen the sector and tighten oversight,” he added.
What’s next? Expect to see a wave of acquisitions by banks targeting fintechs, money transfer companies, and businesses that specialize in lending to SMEs, Metwally tells us. The new rules are also expected to persuade banks to open up new subsidiaries and investment arms to expand in these sectors.
