Bank Privatization in Egypt

There is a worldwide growing effort to reforming and privatizing banking systems. The main motivation behind such trend has been that public ownership of banks tends to be associated with financial repression, poorly developed banking system, higher interest rate spreads, slower financial development, and lower economic growth. Empirical evidence shows that public banks seem to generate enormous losses that impose a huge fiscal burden on the economies. Such problems that are inherent in banking systems dominated by public ownership have led many countries, including Egypt, to consider privatizing their public banks. In this context, this paper is introduced by going through the controversy regarding state ownership of banks in Egypt. The paper proceeds by an analysis of the structure of the Egyptian banking system. The second section assesses the performance of public banks versus private banks. The third section reviews the developments in the privatization of the banking system in Egypt. The fourth section highlights the economic and political issues that are hindering the implementation of the privatization program, in an attempt to identify a possible set of recommendations on how to accelerate the pace of the privatization process. The paper concludes by stating that privatization of banks is not a panacea in itself and to attain the benefits of privatization it has to be accompanied by stable macroeconomic conditions and a healthy regulatory and competitive environment.