Egypt’s recent economic reforms top the agenda at the SWIFT Business Forum Egypt
The SWIFT Business Forum Egypt 2017 gathered almost 200 senior representatives from Egypt’s financial industry on 20 March to discuss recent economic developments, the challenge of meeting financial crime compliance requirements, the future of correspondent banking and how to tackle cybercrime.
Tarek Fayed, Sub-Governor at the Central Bank of Egypt, gave the keynote speech and stressed that recent reforms implemented by the Egyptian Government and Central Bank of Egypt are steering Egypt onto a better economic path.
“The Egyptian reform plan, which was supported by the International Monetary Fund (IMF), has set the Egyptian economy on the right course and led to extraordinary results. We have restored confidence from international investors, which has meant that we have covered the Egyptian bond issuance three times and the Egyptian stock market has increased by around 50%,” said Fayed.
The Egyptian reform plan, which was supported by the International Monetary Fund (IMF), has set the Egyptian economy on the right course and led to extraordinary results. We have restored confidence from international investors, which has meant that we have covered the Egyptian bond issuance three times and the Egyptian stock market has increased by around 50%.
Tarek Fayed, Sub-Governor at the Central Bank of Egypt
The first discussion looked at the impact of financial crime compliance regulation in Egypt. According a survey conducted in 2016 by the Arab Monetary Union, World Bank and IMF, 39% of participant banks in the Arab region, including Egypt, indicated that they have experienced a significant decline in the scale and breadth of their correspondent banking relationships as a result of de-risking.
El-Sherif Abd El-Razek, General Manager & Group Head of Global Compliance and Corporate Governance at the National Bank of Egypt, outlined the phenomenon of de-risking. He noted that with the creation of the Financial Action Task Force, regulation was put in place to combat anti-money laundering and terrorist financing. Many banks around the world faced huge penalties as a result.
“Banks began to reassess correspondent banking relationships,” said El-Razek. “Many reduced these relationships and deactivated accounts. However, when banks have efficient policies and systems in place, it is less likely that they will be de-risked.”
Mohamed Hesham Attia, Head of Compliance and Corporate Governance at Blom Bank Egypt, stressed that in Egypt, transparency has always been top of the agenda; the regulator is very strict in enforcing it.
“Even before correspondent banks requested it, we were monitoring our ‘know your customer’ processes and ensuring complete transparency,” said Attia. “This helped us maintain our correspondent banking relationships.”
Tarek Fayed, Sub Governor at the Central Bank of Egypt, added that the Central Bank took proactive measures to ensure all banks remained compliant. “The Central Bank uses supervisory tools and follows a methodology,” he said. “We proactively monitor and supervise to ensure that our banks are in line with international guidelines such as Basel 3. We are ahead of the game and taking a constructive approach.”
Light at the end of the tunnel
Dr. Fakhry El Fiki, Chief economist at the University of Cairo, gave an overview on Egypt’s economic outlook.
He noted that the economy suffered as a result of political instability from 2011-2015 due to the 2011 revolution and from ‘’65 years of experimentation’’ previously; foreign reserves were severely depleted as a result and public debt reached around 85% of GDP.
In mid-2014, the government attempted to address the country’s financial imbalances, El Fiki said. However, despite some radical restructuring including tax reforms, fuel hikes and a more flexible exchange rate, the economy failed to recover. By the end of 2016, the International Monetary Fund gave Egypt a warning that it would not deal with a country whose reserves are not big enough to pay off its international commitments.
In November 2016, Egypt agreed on an Extended Fund Facility with the IMF to finance its three-year Economic Reform Programme. This comprises three major elements: aligning financial imbalances, structural reforms and reinforcing the social protection network.
“There is light at the end of the tunnel; we are at the beginning of our recovery,” said Dr. El Fiki. “The situation is still critical. However, tourism is recovering which is an added value, and by reinforcing the social protection network people will not bear the burden of these reforms.”
Correspondent banking – room for improvement
The traditional correspondent banking model is under pressure due to increased customer expectations and the arrival of innovative and disruptive technologies, which offer an alternative model for payments.
However, Mohsen Rashad, General Manager & Head of Financial Institutions at Arab African International Bank, argued that the correspondent banking model has proven its value over the last decades.
“We need to recognise that it has a number of advantages,” said Rashad. “It is widely available, is safe and secure, and is highly capable of processing a large number of payments. Despite de-risking, the volumes are still growing and demand continues to exist.”
We need to recognise that it has a number of advantages. It is widely available, is safe and secure, and is highly capable of processing a large number of payments. Despite de-risking, the volumes are still growing and demand continues to exist.
Mohsen Rashad, General Manager & Head of Financial Institutions at Arab African International Bank
Sayonara El Asmar, Deputy Chief Operating Officer & Head of Bank Operations at Credit Agricole, agreed that the current model works, but asked whether it entirely addresses customer needs. “FinTechs are moving faster than banks, especially in consumer technologies,” she said. “We need to align, catch up and adapt our processes. While we cannot change our system entirely, we need to start working in a different mode. The rules are changing.”
Leo Punt, Deputy Chief Executive EMEA at SWIFT, agreed that there is room for improvement.
“We need to capitalise on the benefits of the current model and take it to the next level,” said Punt. “SWIFT has therefore launched the SWIFT gpi (global payments innovation) initiative in cooperation with its community. It is designed to improve the customer experience in correspondent banking by providing faster, same-day transactions, increasing transparency and predictability and providing end-to-end tracking of cross-border payments.”
SMEs the future of Egypt
“In November 2016, the Central Bank of Egypt decided to liberalise the exchange rate according to mechanisms of supply and demand. The country’s financial system illustrated its strength in the months thereafter by absorbing the impact of the flotation and still creating EGP56bn in profits since November 2016.”
Tinawi added that floating the exchange rate has created a flow of dollars from the shadow economy into the official market.
“We have seen increased growth,” he continued, “and as a result we will see banks gradually shifting their concentration from government securities to financing investment. As the economy improves, we will begin investing more in SMEs and corporates. SMEs are the future of this country.”
The growing threat of cyberattacks has never been more pressing and this risk will not go away. There will be more attacks and some will inevitably be successful, said Sido Bestani, Head of Middle East, Turkey & Africa, SWIFT.
Abeer Khedr, Information Security Director at the National Bank of Egypt, stressed that the industry needs to treat cyber threat as multi-dimensional. “We cannot just think about external cyber risk; we have to think about our users, customers and third parties on top of the hackers that are developing their techniques – day and night. We must have parallel plans to take care of external threats but also provide education campaigns for our users and customers.”
Leo Punt, Deputy Chief Executive, EMEA, SWIFT, agreed that the challenge is huge. “Cybercrime is a business in itself,” he said. “Groups of criminals use each other’s malware or build on other attack plans.”
As a response to this and to support its community in the fight against cybercrime, SWIFT set up its Customer Security Programme (CSP). “The CSP aims to improve information sharing throughout the community, enhance SWIFT-related tools for customers and provide control and assurance frameworks,” said Punt. “We are also sharing best practices for fraud detection and enhancing support by third party providers.”
Hussein El-Nakeeb, General Department Manager, Central Bank of Egypt, stressed that the Central Bank is also working closely with commercial banks by providing guidance on risk management and safe communication. It is also testing banks’ systems.
Egypt’s development on track
Bank ABC Egypt’s Tinawi closed the Business Forum on an optimistic note. “Egypt has huge potential and we are on track. The Central Bank has implemented long-term reforms for the financial sector and we have the capacity to attract more international investment in the future.”
Egypt has huge potential and we are on track. The Central Bank has implemented long-term reforms for the financial sector and we have the capacity to attract more international investment in the future.
Akram Youssef Tinawi, Managing Director & CEO of Bank ABC Egypt