Cairo, Egypt | 13 July 2023
In July 2023, the Central Bank of Egypt (“CBE”) released new regulations and licensing requirements for digital banks (the “New Regulations”). This pivotal development in the banking sector is set to revolutionize the landscape of digital banking services in Egypt and the wider region.
We will briefly touch upon the key highlights of the New Regulations:
- Licensing and Registration.
The regulations cover the licensing and registration of digital banks, as well as the supervision and oversight of their operations. Digital banks must comply with all CBE’s regulations and can take the form of either a joint stock company or a branch of a foreign bank.
- Capital Requirements.
Digital banks in the form of joint stock companies should have an issued and paid-up capital of no less than EGP 2 billion to carry out all banking operations, except for financing large corporations. However, they can finance large corporations if they increase their capital to EGP 4 billion. Branches of foreign banks should have a minimum capital of no less than USD 60 million.
- Shareholding Requirements.
The largest shareholder must be a financial institution with a proven track record in similar activities, holding no less than 30% of the total capital value.
- Feasibility Study.
Prospective digital banks are required to submit a detailed feasibility study. This study should include, inter alia, the identification of target segments, planned product offerings, information technology plans, and cybersecurity strategies and plans.
- Compliance
Digital banks are subject to the same rules and regulations applicable to traditional banks operating in Egypt. This includes laws and regulations related to anti-money laundering and combating the financing of terrorism. Additional requirements consistent with the nature of their operations may also apply.
- Deposit Maximum Limits.
The regulations set a maximum limit for deposits from a single operator and its affiliates at 1% of the total deposits, with a maximum amount of EGP 200 million.
- Large Corporation Credit Facilities.
Credit facilities to large corporations are prohibited, except for existing clients from medium-sized companies, if their annual business volume exceeds the specified value defined by the CBE. This prohibition remains in effect until existing facilities expire, and the total value of exempted facilities must not exceed 20% of the bank’s total credit facilities portfolio. Exceptions may be allowed by obtaining approval from the CBE, if capital requirements for larger corporations, referred to in paragraph 3 above, are met.
- Cancellation of Licenses.
The regulations also cover the rules and procedures for the cancellation of licenses and the cessation of operations, either partially or completely, for digital banks.
- Use of Digital Bank or Similar Term.
The regulations prohibit any unregistered entity from using the term “digital bank” or any equivalent in any language, whether in its private name, its commercial title, or in its advertisement.
- Digital Banking Agency.
The regulations also allow digital banks to use service providers as digital bank’s agents subject to the CBE’s approval. This provision is expected to significantly transform the fintech landscape in Egypt, as it opens up opportunities for fintech companies to partner with digital banks in the provision of innovative and disruptive fintech products.
- Vision of Cashless Society.
These requirements are in line with the country’s vision to transition to a less cash-dependent society and to create a supportive environment for the fintech industry. Digital banks are expected to develop and offer banking products and services remotely with high quality, catering to the needs of all segments of society, including micro, small and medium enterprises, and the youth. The aim is to facilitate access to these products and services in a quick and easy manner.
The introduction of these pivotal regulations marks a significant leap forward for the digital banking sector in Egypt, paving the way for increased competition, innovation, and enhanced accessibility in financial services. As we transition towards a less cash-dependent society, the opportunities for development and growth in the fintech industry are boundless. We believe that these regulatory advancements will not only empower digital banks to offer high-quality, remote banking products, but they will also empower FinTechs to participate in the digital banking ecosystem under the banking agency rules. The combination of these products and services, in our opinion, will cater to all segments of society, including micro, small and medium enterprises, and the youth, leading to remarkable financial inclusion.
For any questions or inquiries, please feel free to contact:
Mahmoud S. Bassiouny
Regional Managing Partner
Group Head of Finance & Projects