By: Ahmed Haggag and Noha Eissa

The new banking law 194/2020 was issued and published on 15 September 2020 (“New Banking Law”). This new law is set to achieve several key goals, in particular, to ensure that Egypt’s banking system keeps pace with international standards of best practice and to ensure that the required legal framework is in place so as to allow for and facilitate the development and modernisation of the payments system. This is an essential pillar in achieving the Government’ s economic expansion plan driven by increased financial inclusion and digital transformation. In this alert, we explain changes in respect of collateral, dealings in foreign currency and digital banks.

Click here to view our first alert on Payments, Fintech & Electronic Evidence.

Stay tuned for our next alert in this series on the New Banking Law: Alert#3: Banking M&As – The Implications of the New Banking Law on M&A Transactions.

1. The Securities Regime:

• The New Banking Law designated the Central Bank of Egypt (the “CBE”) as the competent authority for granting licenses to Egyptian banks, foreign banks and international financial institutions to allow these entities to obtain commercial enterprise mortgages (article (106) of the New Banking Law). Previously, article (10) of Law 11/1940, cancelled by the New Banking Law, granted this licensing authority to the Minister of Trade and Industry. The licensing process through the CBE is expected to be much easier and faster than previously, given the practical approach of the CBE and its familiarity with dealing with banks and financial institutions. It is unclear whether existing license holders will need to obtain a new license from the CBE or whether the old licenses will continue to apply. Clarification on this point is expected over the next few months. The New Banking Law provides a grace period of 1 year from the date of issuance for entities to comply. We therefore anticipate that institutions requiring new licenses from the CBE will also benefit from such a grace period of 1 year.
• Foreign banks are now explicitly allowed under the New Banking Law to obtain real estate mortgages in Egypt (article (108)). Historically, obtaining a real estate mortgage by foreign banks was a very burdensome process and was almost impossible to finalize and enforce. The main reason being that there was no explicit provision allowing foreign banks to obtain real estate mortgages in Egypt and accordingly the Notary Public (the entity with which the real estate mortgage is registered) used to restrict the ability of foreign banks to obtain real estate mortgages. It is explicitly clear in the New Banking Law that the cap on the registration fees of mortgages applies on foreign banks and guarantors (article (108)). This issue was controversial under the old law and there are precedents in practice where the Notary Public refused to apply the cap on foreign banks or guarantors because they were not explicitly mentioned under the old law. There is no place for such argument now.
• The general principle of law, that a borrower will only be released from a debt in an amount proportionate to the proceeds realized by enforcement of the real estate mortgage, is confirmed in the New Banking Law (article (108)).

2. Digital Banks:

• The concept of digital banks is introduced in the New Banking Law. Digital banks are banks which provide banking services through digital channels or platforms using modern technologies (article (1)).
• Digital banks are subject to the general rules governing banks in Egypt under the New Banking Law, including obtaining a license from the CBE before exercising any activity. In order to obtain such license, the digital bank must be incorporated as an Egyptian joint stock company or branch of a foreign bank, so the digital bank must have physical headquarters. In addition, the CBE’s board of directors can exempt digital banks from the minimum capital requirement, which is EGP 5 billion (article (64)).

3. Repatriation of Funds:

• It is evident that the New Banking Law is intended to widen the CBE’s authority. Some matters are left for the CBE’s board of directors to decide instead of being regulated by the executive regulations of the old law (for instance, the rules and regulations of the foreign currency market and the rules governing dealings in foreign currency or undertaking any foreign currency transactions, including money transfers inside or outside the country).
• The New Banking Law stipulates that any dealings in Egypt must be in Egyptian Pounds. Historically, the old banking law required only dealings in “goods and services” to be in Egyptian Pound, which opened the door for argument that certain transactions, which are neither related to goods nor services, are not subject to this restriction, such as lease agreements. The new provision settles this issue so that all dealings in Egypt have to be in Egyptian Pound, including lease payments. However, the New Banking Law excludes any cases provided under international treaties, other laws or CBE decrees (article (212)).

We are here to help. Feel free to reach out to our Banking & Finance team if you have any questions or need assistance in navigating these difficult times.

To download the full article, click here.