Annual report2011 cbe

1. Central Bank of Egypt
Annual Report
2010/2011

2. Board Members
Governor and Chairman of the Board
Dr. Farouk Abd El Baky El Okdah
Deputy Governor
Mr. Hisham Ramez Abdel Hafez
Dr. Ziyad Ahmed Bahaa El Din Mr. Momtaz El-Said Dr. Ashraf Mohamed El-Sharqawy
Mr. Hassan Abdalla Mr. Tarek Hassan Aly Amer Mr. Abd El Salam El Anwar
Mr. Mohamed Kamal El-Din Barakat Mr. Hazem Zaki Hassan Mrs. Mona Zulficar
Dr. Mahmoud Abd El-Fadeel Hussein Mr. Aladdin Saba

3. A
Central Bank of Egypt – Annual Report 2010/2011
Preface
I have the honor to present the CBE Annual Report for FY 2010/2011. The
Report sheds light on the major domestic economic developments, especially
economic growth, inflation, the state budget, the balance of payments, and foreign
trade, besides reviewing the CBE's activities and the main monetary, credit and
banking developments.
On the domestic arena, the central event that marked FY 2010/2011 was the
outbreak of the 25 January Revolution and the Arab spring revolutions, which aspired
to change the political landscape and better the economic, social and political
conditions of the region, after the transition periods elapse and their aftereffects are
subdued. As far as Egypt is concerned, the major challenge is security instability
which cast its dark shadows on tourism, travel, and investment, and drove down
employment and production rates in a large number of factories. Unfortunately, such
repercussions coincided with the fallout of the turmoil in the neighboring Arab
countries, the credit crisis of the euro area, and the adverse world economic
developments. In this setting, real GDP growth (at factor cost) slowed to 1.9 percent
from 5.1 percent and, to 1.8 percent (at constant prices) from 5.1 percent. Obviously,
the decline intensified in Q3 (Jan./March 2011), where GDP at factor cost recorded a
negative 3.8 percent (against a positive 5.6 percent), and a negative 4.2 percent at
constant prices (against a positive 5.4 percent) due to the spillovers of the Revolution
in this transitional period.
The decisions of the Monetary Policy Committee (MPC) during FY
2010/2011 continued to be supportive of economic growth, and in line with the
overriding objective of the monetary policy (price stability). The MPC’s decisions
were tuned to this objective, keeping the overnight lending and deposit rates broadly
unchanged at 8.25 percent and 9.75 percent, respectively, and the discount rate at 8.5
percent in its eight meetings held during the reporting year. These rates remained in
effect at the time of preparing the report and just before the meeting held on 24
November 2011, where the MPC raised the lending rate by 100 basis points to 9.25
percent, the overnight lending rate by 50 basis points to 10.25 percent, and the
discount rate by 100 points to 9.50 percent. In March 2011, the MPC launched
regular repurchasing agreements (repos), to pump the necessary funds to banks that
are likely to face liquidity pressures. These operations bore an interest rate of 9.25
percent, which remained applicable until 24 November 2011, where it was increased
by 50 basis points to 9.75 percent.
Prompted by a resolute commitment to the banking reform program, the
CBE launched the second phase, after the success of the first phase that proved
effective in cushioning banks against the risks posed by spillovers from the global
financial crisis. In the reporting year; specifically at the time of the Revolution and in
its aftermath, the CBE responded with a number of decisions to regulate the banking

4. B
Central Bank of Egypt – Annual Report 2010/2011
activity and strengthen supervision over transfers abroad. Moreover, banks were
required to open accounts for donations from the country's stakeholders for social
responsibility projects (the Report will tackle this in further detail).
In the context of applying governance rules as one of the targets of the second
phase of the reform program, the CBE Board of Directors issued on August 23 2011,
its decree dated 5 July 2011, regarding banks' governance rules. Accordingly, banks
registered at the CBE are required to comply to the regulation by maximum 1 March
2012 as due date each according to the scope and complexity of its business, policies,
and respective risk management capacity.
At the time of preparing the Report at hand, Decree Law no. 125 was issued on
8 Oct., 2011, amending certain provisions of Law No. 88 of 2003 of the Central
Bank, Banking Sector and Money, to enforce governance rules and prevent any
conflict of interests pertaining to the CBE's Board of Directors. Accordingly, a new
board was formed to replace the former that served its term by end of November
2011. The new board comprised 9 members, instead of 15 (the CBE Governor and
his two deputy governors, a representative of the Ministry of Finance, the Chairman
of the Egyptian Financial Supervisory Authority; and four members with expertise in
financial, economic, and legal matters).
The aggregate financial position of banks (39 in number) reached LE 1.3
trillion as at the end of June 2011, with total equity of LE 81.1 billion, deposits of LE
957.0 billion, and investments in securities and bills of LE 474.2 billion. As for
financial soundness indicators, the capital adequacy ratio (capital/risk-weighted
assets) reached approximately 16.0 percent as at the end of June 2011, against a
minimum requirement of 10 percent. Profitability indicators showed an
improvement in 2010, as return on assets reached 1 percent, on equity 14.3 percent,
and net interest margin 2.3 percent (against 0.8 percent, 13 percent, and 2.2 percent,
respectively, in FY 2009).
Out of its belief that the ability of the foreign exchange market to satisfy the
financing needs of clients is a prerequisite for fostering confidence in that market, all
the more so during the Revolution and at its aftermath, the CBE has kept up its
effective and balanced management of the forex market, through the dollar interbank
system, to safeguard the market against any drastic volatility, especially after the
noticeable decline in foreign investments (direct and indirect) and the dramatic fall in
tourism revenues amidst the political unrest in Egypt. The weighted average of the
US dollar in the interbank market posted LE 5.9690 as at the end of June 2011,
against LE 5.8496 as at the end of January, signifying the depreciation of the LE
value by 2.0 percent; albeit lesser than expected by international institutions. Later,
the US dollar exchange rate posted LE 6.0319 as at the end of December (the period
is not covered by the report).

5. C
Central Bank of Egypt – Annual Report 2010/2011
Net international reserves (NIR) at the CBE were adversely influenced by
the events that the country witnessed in the second half of the reporting year. NIR
receded by US$ 8.6 billion or 24.6 percent in the year of the report, ending the year at
US$ 26.6 billion (against US$ 36.0 billion at end of Dec. 2010 and US$ 35.2 billion
at end of June). The decrease in NIR was heavily felt in the second half of the FY,
which bore witness to the repercussions of the recent events that came over the
country. Tourism receipts plummeted by 47.5 percent in the second half of the FY as
compared with the first half, and for the first time, the FDI recorded a negative figure
of US$ 65 million, and portfolio investments revealed a net outflow of US$ 7.1
billion. The drain on NIR continued at the time of preparing the report, pushing them
down further to US$ 18.1 billion at end of December 2011.
Transactions with the external world unfolded an overall BOP deficit of US$
9.8 billion (against an overall surplus of US$ 3.4 billion a year earlier). In the second
half of the FY (January/June 2011), the BOP ran an overall deficit of US$ 10.3
billion (against an overall surplus of US$ 571.7 million in the first half), on the back
of the Arab spring events in Egypt and the Arab region. The overall deficit in the
reporting year reflected the current account deficit that narrowed by 35.9 percent to
US$ 2.8 billion (against US$ 4.3 billion in the year of comparison), along with the
net outflows of US$ 4.8 billion of the capital and financial account (against net
inflows of US$ 8.3 billion). While the report is being prepared, the BOP registered an
overall deficit of US$ 2.4 billion in July/Sept. 2011/2012 (contrasted to an overall
surplus of US$ 14.7 million in July/Sept. 2010/2011).
Finally, I seize this opportunity to thank and pay tribute to the former members
of the CBE Board of Directors for their sincere efforts, noting that their term of office
came to an end by the time the amendments to Law No. 88 of 2003 were issued.
Also, I would like to extend my thanks to all the staff of the CBE and the banking
system for their efforts that enabled the banking system to continue performing its
role under the umbrella of development and modernization. May God help us serve
our dear country and further its progress and prosperity.
The CBE Governor
Dr. Farouk El Okdah

6. Contents of the Annual Report
Main Indicators of the Performance of Egyptian Economic
Sectors A-B
Executive Summary C-I
Chapter 1 Central Bank of Egypt
1/1 Monetary Policy 1
1/2 Reserve Money 3
1/3 Payment Systems and Information Technology (IT) 6
1/4 Domestic Liquidity and Counterpart Assets 10
1/5 Supervision Sector 14
1/6 Banking Sector Reform 20
1/7 Management of the Foreign Exchange Market and International
Reserves 23
1/8 Domestic and External Public Debt 24
1/9 Human Resources Development (HRD) 36
Chapter 2 Banking Developments
2/1 Financial Position 41
2/2 Deposits 44
2/3 Lending Activity 45
2/4 Cash Flows at Banks 47
2/5 Bank Performance Indicators 49
Chapter 3 Macroeconomic Developments
3/1 Gross Domestic Product (GDP) 53
3/2 Inflation 59
3/3 Consolidated Fiscal Operations of the General Government 64
3/4 Balance of Payments and External Trade 68
3/5 Non-Banking Financial Services Sector 89
Annex
Statistical Section 95

7. A
Central Bank of Egypt – Annual Report 2010/2011
Main Indicators of the Performance of Egyptian Economic Sectors
Fiscal Year
2009/10 2010/11
Real Sector
Real GDP growth rate at factor cost (%), 5.1 1.9
of which :
The share of the private sector (percentage) 4.0 0.8
Real GDP growth rate at market and constant prices (%), 5.1 1.8
of which:
Share of private consumption (percentage) 2.9 3.2
Share of public consumption (percentage) 0.5 0.4
Share of investment (percentage) 1.6 -0.8
Share of net external demand (exports of goods and
services - imports of goods and services) (percentage) 0.1 -1.0
CPI inflation (urban) July/June (%) 10.1 11.8
PPI inflation, July/June (%) 8.6 19.4
Financial & Monetary Sector
Domestic liquidity growth rate M2 (%) 10.4 10.0
Growth rate of time & saving deposits in local currency (%) 13.4 7.0
Growth rate of foreign currency deposits (%) (5.4) 11.9
Foreign currency deposits/ Total deposits (dollarization rate)
(%) 20.2 21.0
Private business sector credit/ Total credit (%) 42.1 36.2
Net claims on the government /Total credit (%) 42.0 49.0
Household sector credit/ Total credit (%) 12.0 11.1
Public business sector credit/ Total credit (%) 3.9 3.7
Change in private business sector credit/Change in total
credit (%) 27.4 (2.7)
Change in net claims on the government/Change in total
credit (%) 66.3 94.6

8. B
Central Bank of Egypt – Annual Report 2010/2011
Main Indicators of the Performance of Egyptian Economic Sectors
(contd.)
Fiscal Year
2009/10 2010/11
Change in household sector credit/ Change in total credit
(%) 10.3 5.5
Change in public business sector credit/ Change in total
credit (%) (4.0) 2.6
Net international reserves (US$ mn) at end of the period 35221 26564
NIR in months of merchandise imports 8.6 6.3
Banks’ Financial Soundness Indicators (FSIs), of which:
Capital adequacy ratio (%) 16.3 16.0
Nonperforming loans/Total gross loans (%) 13.6 11.0
Loan provisions/ Total nonperforming loans (%) 92.5 93.6
Return on average assets* (%) 0.8 1.0
Return on average equities* (%) 13.0 14.3
External Sector
Trade Balance/GDP (%) (11.5) (10.1)
Service Balance/ GDP (%) 4.7 3.3
FDI in Egypt (net)/GDP (%) 3.1 0.9
Net transfers/ GDP (%) 4.8 5.6
External Debt
External debt/ GDP (%) 15.9 15.2
Short-term external debt/Total external debt 8.8 7.9
External debt service/Exports of goods and services (%) 5.5 5.7
Budget Sector
Expenditure/GDP (%) 30.3 28.5
Revenues/GDP (%) 22.2 18.8
Total wages/Total public revenues (%) 31.8 36.6
Primary deficit**/GDP (%) 2.1 3.7
Overall deficit/GDP (%) 8.1 9.5
Gross domestic public debt/GDP (%) 73.6 76.2
* According to the latest audited financial statements for FY 2009 and 2010. The fiscal year ends on June 30 for public
sector banks and on December 31 for other banks.
** Overall deficit, excluding the interest payments.

9. C
Central Bank of Egypt – Annual Report 2010/2011
Executive Summary
The Annual Report for FY 2010/2011 highlights major international economic
developments and the CBE’s activity, along with the main monetary, credit and
banking developments. Also, the Report sheds light on the key domestic economic
developments, including economic growth, inflation, the state budget, balance of
payments and external trade.
In FY 2010/11, real GDP growth at factor cost slowed to 1.9 percent (from
5.1 percent a year earlier) and to 1.8 percent (from 5.1 percent) at market and
constant prices. The sectors that primarily underperformed were the manufacturing,
construction and building, finance, and communications and information. The
slowdown was intense in the third quarter (Jan./March 2011) in which real GDP
growth at factor cost slackened to a negative 3.8 percent (down from a positive 5.6
percent) and to a negative 4.2 percent (from a positive 5.4 percent) at market and
constant prices. This is traced to the events of the January 25th Revolution, and the
resultant disruption and instability of most economic sectors. However, GDP growth
increased in the last quarter of the year, recording a positive 0.3 percent at factor cost
and 0.4 percent at constant and market prices. The recovery was led by the better
performance of some sectors, especially agriculture and irrigation; transportation and
storage; wholesale and retail trade; and real estate activities.
Implemented investments at current prices fell by 1.2 percent (against a rise
of 17.6 percent in the year of comparison), to reach LE 229.0 billion. The decline was
mainly in the second half of the year, particularly in Q3 (Jan./March). Interestingly,
the private sector’s investments escalated by 15.7 percent (against 11.6 percent), to
register LE 146.6 billion or 64.0 percent of total investments in the reporting year.
The rise in the private sector's investments was specifically in the first half of the year
(14.8 percent), contrasted with 0.9 percent in the second half.
Reacting to the political changes in Egypt in the second half of FY 2010/2011,
which cast their shadow over the level of economic activity and the performance of
financial markets, and eventually over the available liquidity in the market, the MPC
(in its meeting dated 10 March, 2011) decided to launch weekly repo operations on a
regular basis under the operational framework of the CBE monetary policy, with a
maturity of one week and an interest rate to be set by the MPC in each meeting. The
aim is to provide adequate liquidity for banks that may face potential pressures on
their liquidity position. The Committee set an interest rate of 9.25 percent per annum
on repos, and the rate remained in effect till the end of June 2011. At the time of
preparing this Report, the Committee decided in its meetings on 21 July, 25 August,
and 13 October 2011, to keep the rate unchanged. Later, on 24 November, the MPC
increased the 7-day repos by 50 bps to 9.75 percent.

10. D
Central Bank of Egypt – Annual Report 2010/2011
Reserve money reached LE 251.0 billion at end of June 2011, up by LE 47.9
billion or 23.6 percent during FY 2010/11, well above the LE 28.0 billion and 16
percent of the preceding FY. Noticeably, 68 percent of the increase took place in the
second half of the year (Jan./June 2011). The bulk of the increase (roughly 80
percent) was in the currency in circulation outside the CBE, to meet the withdrawals
from deposit and client accounts during, and in the aftermath of, the Egyptian
revolution.
Domestic liquidity went up by LE 91.9 billion or 10.0 percent (as compared to
LE 86.2 billion and 10.4 percent in the preceding FY) ending the year at LE 1009.4
billion. The rise in domestic liquidity was reflected in the growth of money supply
and quasi money. Money supply scaled up by LE 34.7 billion or 16.2 percent and
quasi money by LE 57.2 billion or 8.1 percent. The pickup in quasi money was an
outcome of the rise in LE time and saving deposits by LE 38.4 billion or 7.0 percent
and in foreign currency deposits by LE 18.8 billion worth or 11.9 percent. Given
these developments, the dollarization ratio (foreign currency deposits/total deposits)
inched up to 21.0 percent at end of June 2011 (from 20.2 percent at end of June 2010
and from 19.0 percent at end of Dec.). While this indicates a partial shift to foreign
currency savings, especially in the second half of the reporting year, time and saving
deposits in LE continued to represent the bulk of banking deposits (69.4 percent) at
end of June 2011.
Out of its commitment to the banking reform program, launched in
September 2004, the CBE is currently executing the second phase of the program
(2009-2011). The main pillars of this phase are: preparing and implementing a
comprehensive program for the financial and managerial restructuring of specialized
state-owned banks; following up - on a periodic basis - the results of the first phase of
the restructuring program of the National Bank of Egypt (NBE), Banque Misr (BM)
and Banque du Caire (BdC), which revealed that the first phase of the reform
program had already borne fruit and positively affected their performance levels; and
fulfilling all requirements for upgrading the efficiency of these banks in financial
intermediation and risk management. The second phase aims also at applying Basel II
standards in Egyptian banks to enhance their risk management practices. The CBE's
strategy for the implementation of Basel II framework is based on two main
principles, namely simplicity and communication with banks, to ensure banks’
compliance with these standards. The strategy will be phased in over four stages. The
second phase of the reform program also aims at adopting an initiative promoting the
development and growth of banking services and access to finance especially for
small- and medium-sized enterprises (SMEs), as well as reviewing and strictly
applying the international governance rules of banks.

11. E
Central Bank of Egypt – Annual Report 2010/2011
In this respect, the CBE exempted banks' deposits - equivalent to the amount of
loans extended thereby to finance SMEs - from the reserve requirement ratio (14
percent). On the other hand, the CBE approved bank governance rules, which aim at
helping banks set/develop their governance systems. As such, each bank shall apply
these rules in accordance with the volume and complexity of its activities, and
strategy, as well as capacity for risk management. Banks were also given a grace
period till the 1st of March 2012 to put these rules into effect.
The second phase of the banking reform program has proceeded, after the first
phase was successfully implemented, where some voluntary and state-forced mergers
took place, decreasing the number of banks operating in Egypt from 57 at end of
December 2004 to 39 banks at end of Dec. 2008, and till the end of the reporting
year. Also, during the first phase of the program, state-owned banks were
restructured, and the problem of non-performing loans was addressed, as more than
90 percent of NPLs (excluding debts of the public business sector) were settled.
Furthermore, debts of the public business sector were fully settled and the CBE’s
Supervision Sector was upgraded.
Due to the exceptional circumstances that Egypt has gone through since the
beginning of the year, a number of decisions and measures were taken by the CBE to
regulate banking business and minimize potential risks. Salient of these decisions
were setting limits on transfers abroad and cash withdrawals by individuals. Banks
were also requested to submit weekly statements on loan balances, client deposits, the
local and foreign currency liquidity ratios; and daily statements on cash withdrawals
and deposits, and inward and outward external transfers. In the last quarter of the FY,
banks were provided with detailed regulations and procedures for applying the Board
of Directors’ decision regarding regulations for the limits of the concentrations in
local banks' investments with countries and financial groups and institutions abroad.
Furthermore, a plan was set to review the outstanding credit facilities of all customers
and their guarantees, given that the position of each customer shall be studied on a
case-by-case basis, taking into consideration the effect of the current crisis on
customers’ solvency and the quality of credit extended.
As for the tourism sector in particular, a six-month grace period (from Jan. to
June 2011) was extended for the installment payments due on customers thereof, to
subdue the negative effects on this sector. In addition, delay interest on deferred
installments will not be imposed, and this will not deem the facilities non-performing.
Moreover, out of social responsibility, the CBE required banks to open accounts at
their branches to raise donations for scientific projects and the eradication of squatter
areas.

12. F
Central Bank of Egypt – Annual Report 2010/2011
The financial position of banks operating in Egypt (excluding the CBE)
amounted to LE 1269.7 billion at end of June 2011, up by LE 49.0 billion or 4.0
percent. Deposits at banks grew by LE 64.5 billion or 7.2 percent (against LE 82.8
billion or 10.2 percent during the preceding FY), reaching LE 957.0 billion and
constituting 75.4 percent of the aggregate financial position of banks at end of June
2011. Lending and discount balances went up by LE 8.1 billion or 1.7 percent
(against LE 36.0 billion and 8.4 percent), ending the year at LE 474.1 billion. Banks'
investments in securities and bills escalated by LE 68.3 billion or 16.8 percent
(against LE 73.3 billion and 22.0 percent in the previous FY), to stand at LE 474.2
billion at end of June 2011.
The CBE issued the financial soundness indicators (FSIs) of the banking
system (i.e., capital adequacy, profitability, liquidity and asset quality). A follow-up
of banks’ compliance came up with the following:
- Capital adequacy: The capital/risk weighted assets slightly retreated to 16
percent at end of June 2011, from 16.3 percent at end of June 2010 (against a
minimum established ratio of 10 percent). Equities/assets declined as well, to
6.4 percent, from 6.7 percent. However, Tier 1 capital to risk-weighted assets
improved, registering 13.3 percent against 12.7 percent.
- Profitability: Relative to FY 2009, profitability indicators in 2010 improved:
the return on assets reached 1 percent, the return on equities 14.3 percent and
net interest margin 2.3 percent (against 0.8 percent, 13 percent and 2.2
percent, respectively).
- Asset quality: Non-performing loans/ total gross loans decreased to 11
percent at end of June 2011, from 13.6 percent at end of FY 2010, as state-
owned banks wrote off a number of non-performing loans. Concurrently,
provisions/total non-performing loans increased from 92.5 percent to 93.6
percent.
- Liquidity: Liquidity indicators improved, as liquidity ratios in local and
foreign currencies posted 55.3 percent and 51.1 percent, respectively, at end
of June 2011, against 44.7 percent and 40.6 percent, at end of FY 2010. This
reflected liquidity levels available at banks and their ability/willingness to
cater for clients' needs in order to stimulate the economy.
Moving to the payment systems and information technology (IT), the CBE
kept upgrading these systems to bolster the soundness and stability of the financial
system, reduce credit risks, expedite payment settlements, and ensure their reliability
and confidentiality. Such efforts virtually supported the financial stability in Egypt,
especially during the revolution. The Report tackles – in some detail – the main
measures that have been taken in this area.

13. G
Central Bank of Egypt – Annual Report 2010/2011
Attesting to the CBE's successful management of the foreign exchange
market through the dollar interbank system, the market - which proved resilient to
the repercussions of the global financial crisis- has gone another tough test, and again
it proved its robustness. The market managed to prudently and efficiently address the
crisis it had encountered in the wake of the events of the revolution, which was
associated with a noticeable reduction in the volume of foreign investments in the
second half of the reporting year. Such a prudent management proved effective in
protecting the Egyptian pound from sharp fluctuations. The weighted average of the
US dollar in the interbank market posted LE 5.9690 at end of June 2011 (against LE
5.8496 at end of January) with a decline of only 2.0 percent, lower than predicted by
international institutions. Later, the rate registered LE 6.0319 per dollar at end of
Dec. 2011. This ascertains investors' and dealers' confidence in the efficiency of the
foreign exchange system, a fact that is conducive to a stable and orderly trading
market, free from turmoil or fears. The profound confidence in the forex market also
helps cushion the negative effects of the crisis on the Egyptian economy and
strengthen the ability of the economy to recover. Overall, reviewing FY 2010/2011 as
a whole tells us that the rate of decline in the value of the Egyptian pound was all in
all 4.6 percent.
Amid the extraordinary events witnessed in the second half of the year, net
international reserves at the CBE shrank by about US$ 8.6 billion or 24.6 percent,
to end the year at US$ 26.6 billion, against US$ 36.0 billion at end of Dec. 2010 and
US$ 35.2 billion at end of June 2010 (the decline in Jan./June 2011 was by about
US$ 9.4 billion or 26.2 percent). Withdrawals from NIRs were mainly to make up for
the departure of many foreign investors from the market in the second half of the
year. Notwithstanding their contraction, NIRs covered 6.3 months of merchandise
imports at end of June 2011. At the time of preparing this Report, NIRs continued to
decline further, standing at US$ 18.1 billion at end of December, thereby covering
3.7 months.
In FY 2010/2011, Q3 (Jan./March), the Egyptian Exchange was closed from
28 January to 22 March 2011 (38 consecutive trading sessions) amid the
unprecedented events attending the January 25th Revolution and the months that
followed. Trading over the counter was also suspended till 28 March, following the
sharp decline in the benchmark index (EGX 30) by 16 percent on 26 and 27 January,
closing at 5646.5 points against 6723.2 points before the outbreak of the events. On
the first day of resuming trading (23 March), the index plunged by 23.5 percent (as
compared with its pre-revolution level), recording the third sharpest daily fall since
its launch on 2 Feb. 2003. The fall due to large sales of investors amidst growing
concerns of larger losses. On its part, the EGX undertook a number of exceptional
measures to bolster investors' confidence (Egyptians and foreigners alike) in the
market.

14. H
Central Bank of Egypt – Annual Report 2010/2011
Overall, the benchmark index (EGX 30) fell by 10.9 percent in FY 2010/2011,
to record 5373.0 points at end of June 2011 (against 6033.1 points at end of June
2010), owing to the political unrest associated with the January 25th revolution.
However, EGX 70 (index of small - and medium-sized enterprises) moved up by 19.3
percent to register 629.6 points, and so did EGX 100 by 7.1 percent to 972.9 points at
end of June 2011.
As regards public finance, the FY 2010/11 witnessed an increase of 7.1
percent in total expenditures, and a decrease of 3.2 percent in total revenues, affected
by the events and repercussions of the revolution. The overall deficit reached some
LE 130.4 billion, up by 33.0 percent compared with the previous FY, thus exceeding
the estimated figure for the year by 19.5 percent.
To address the consequences of the current events, the government took a
number of measures. The most important of which were (i) establishing an additional
budget appropriation of LE 10.0 billion to meet the basic requirements of subsidizing
food commodities in the subject year, (ii) establishing a compensation fund for
individuals and small and micro enterprises affected by these events, (iii) appointing,
on a permanent basis, some of the temporary-contract employees, (iv) raising the
number of beneficiary families of the social solidarity pension, (v) disbursing
exceptional pensions and compensations to the families of the revolution's martyrs,
and (vi) exempting those with overdue insurance premiums from paying delay fines.
According to the preliminary actual data of the consolidated fiscal operations
of the general government (administrative system - local administration - service
authorities) in FY 2010/11, total revenues reached LE 259.6 billion and total
expenditures LE 392.1 billion. Against this background, the cash deficit amounted to
LE 132.5 billion or 9.6 percent of GDP during the year. By adding the net acquisition
of financial assets (LE -2.1 billion) to that cash deficit, the overall deficit would post
LE 130.4 billion or 9.5 percent of GDP. Local financing sources, mainly banks’
subscriptions for treasury bills (LE 74.0 billion), were chiefly used to finance the
overall deficit, while an amount of only LE 5.0 billion was provided from external
sources.
Domestic public debt reached LE 1044.9 billion at end of June 2011(76.2
percent of GDP). It consists of the sum of net government debt, public economic
authorities' debt and that of the National Investment Bank (minus intra-debts of
public economic authorities and the government to NIB).
Moving to external transactions, the balance of payments ran an overall
deficit of US$ 9.8 billion, constituting 4.1 percent of GDP (against an overall surplus
of US$ 3.4 billion and 1.5 percent of GDP a year earlier).

15. I
Central Bank of Egypt – Annual Report 2010/2011
The current account deficit narrowed by 35.9 percent, to US$ 2.8 billion or 1.2
percent of GDP (against US$ 4.3 billion a year earlier). The decline came on the back
of a 5.3 percent retreat in the trade deficit to stand at US$ 23.8 billion, and a 25.6
percent increase in net unrequited transfers, on the one hand, and a 23.8 percent
decrease in services surplus, on the other hand. Capital and financial transactions
with the external world unfolded a net outflow of US$ 4.8 billion (against a net
inflow of US$ 8.3 billion), as data shows a reversal in portfolio investments from a
net inflow of US$ 7.9 billion, to a net outflow of US$ 2.6 billion. FDI (net basis) in
Egypt rolled back by 67.6 percent, registering US$ 2.2 billion (against US$ 6.8
billion).
The external debt increased by about US$ 1.2 billion. Its outstanding balance
(public and private) denominated in US dollar posted US$ 34.9 billion at end of June
2011, as compared with the end of June 2010. The increase was ascribed to the
appreciation of most currencies of borrowing versus the US dollar by an amount
equivalent to US$ 2.4 billion; the retreat in the balances of Egyptian government
bonds and notes issued in international markets (as part of those bonds and notes has
been purchased by resident entities at a value of US$ 242.0 million); and to net
repayments of loans and facilities in the amount of US$ 1.0 billion.

16. Chapter 1: Central Bank of Egypt
1/1- Monetary Policy
1/2- Reserve Money
1/3- Payment Systems and Information Technology (IT)
1/4- Domestic Liquidity and Counterpart Assets
1/5- Banking Supervision
1/6- Banking Sector Reform
1/7- Management of the Foreign Exchange Market and International
Reserves
1/8- Domestic and External Public Debt
1/9- Human Resources Development

17. 1
Central Bank of Egypt – Annual Report 2010/2011
Chapter 1
Central Bank of Egypt
1/1- Monetary Policy
Embracing price stability as the ultimate objective of the monetary policy, the
CBE seeks to bring inflation to an appropriate and stable level that helps build
confidence and sustain appropriate levels of investment and achieve the targeted
economic growth.
The CBE adopted the overnight interbank interest rate as the operational target
of the monetary policy, by applying a framework based on the corridor system,
within which the ceiling is the overnight interest rate on lending from the bank, and
the floor is the overnight deposit interest rate at the bank.
The decisions taken by the MPC in the eight periodic meetings held in FY
2010/2011 were responsive to the changes in inflation and the Committee's
assessment of inflationary pressures. In these meetings, the MPC decided to keep the
CBE key interest rates (the overnight deposit and lending rates) and the discount rate
unchanged at 8.25 percent, 9.75 percent and 8.50 percent per annum, in order. These
rates were kept applicable at the time of preparing this Report and till the meeting of
the Committee on November 24, 2011. In that meeting, the overnight deposit rate
was raised by 100 bps to 9.25 percent and the overnight lending rate by 50 bps to
10.25 percent. The discount rate was also raised by 100 bps to 9.5 percent.
In light of the political events in Egypt in the second half of the FY, which
influenced the pace of economic activity and the performance of financial markets,
and affected in turn the available liquidity in the market, the MPC (in its meeting on
10 March, 2011) decided to launch weekly repo operations on a regular basis under
the operational framework of the CBE monetary policy, to provide adequate liquidity
for banking system units that may face potential liquidity pressures. The MPC
assigned a maturity of one week for these operations and an interest rate to be set by
the Committee in each meeting. The interest rate on these operations was determined
at 9.25 percent per annum, and this rate was kept applicable till the meeting of the
Committee on November 24, 2011. In this meeting, the MPC decided to raise the 7-
day repo by 50 bps to 9.75 percent.
The following are the CBE’s key interest rates according to the MPC’s
decisions in its eight meetings held during FY 2010/2011:

18. 2
Central Bank of Egypt – Annual Report 2010/2011
Overnight Deposit Overnight Lending Lending &
Interest Rate Interest Rate Discount Rate
17 June 2010 8.25% 9.75% 8.50%
29 July 2010 Unchanged Unchanged Unchanged
16 September 2010 " " "
4 November 2010 " " "
16 December 2010 " " "
27 January 2011 " " "
10 March 2011 " " "
28 April 2011 " " "
9 June 2011 " " "
Given the excess liquidity at the banking system in the period starting July 1,
2010 till the end of January 2011, the weighted average of the overnight interbank
rate was close to the CBE overnight deposit rate. However, in light of the political
events that Egypt went through and their economic impacts on the money market, the
balance of excess liquidity at the banking system decreased. Accordingly, the
weighted average of the overnight interbank interest rate rose in the second half of
FY 2010/2011, hovering around the middle of the corridor. (see the following chart)
(٪) O/N Interbank Rate and Policy Rates
14.00
13.50
13.00
12.50
12.00
11.50
11.00
10.50
10.00
9.50
9.00
8.50
8.00
7.50
7
08
8
09
9
10
0
08
08
09
09
10
10
11
11
00
00
00
01
20
20
20
20
20
20
20
20
20
20
20
r2
r2
r2
r2
r
r
r
ne
ne
ne
ne
ch
ch
ch
ch
be
be
be
be
be
be
be
Ju
Ju
Ju
Ju
ar
ar
ar
ar
em
em
em
em
em
em
em
M
M
M
M
30
30
30
30
ec
ec
ec
ec
pt
pt
pt
31
31
31
31
Se
Se
Se
D
D
D
D
31
31
31
31
30
30
30
Overnight interbank Deposit facility rate Lending facility rate
The MPC's decisions led to a relative stability of the market interest rates+ on
deposits and loans, as the average interest rate on deposits with maturities of three
months posted some 6.6 percent per annum at end of June 2011 (against 6.3 percent
per annum, at end of June 2010). Concurrently, the average interest rate on loans of
one year declined to 11.0 percent per annum, from 11.1 percent per annum.
+
Data on interest rates (deposits and loans) were compiled, using the Domestic Money Monitoring System (DMMS)
launched in June 2010.

19. 3
Central Bank of Egypt – Annual Report 2010/2011
Open Market Operations:
The reporting year witnessed a decline in the outstanding balance of liquidity,
which the CBE had absorbed through its deposit acceptance operations. This was
largely attributed to the higher foreign currency sales by the CBE to banks. Within
the framework of open market operations, the balance of deposits accepted by the
CBE registered some LE 101.5 billion at end of June 2010, decreasing to some LE
83.1 billion at end of January 2011 and continued to gradually decline through the
rest of the FY. As an outcome of the repo operations launched by the CBE to pump
liquidity for some banks starting from March 2011, net open market operations
(absorption and injection) revealed liquidity-injecting operations of LE 14.5 billion at
end of June 2011.
1/2- Reserve Money
Reserve money reached LE 251.0 billion at end of June 2011, up by LE 47.9
billion or 23.6 percent during FY 2010/2011 (against LE 28.0 billion or 16.0 percent
a year earlier). The increase in reserve money was reflected in a growth in currency
in circulation outside the CBE by LE 34.8 billion and in banks' local currency
deposits by LE 13.1 billion.
Reserve Money and Counterpart Assets*
(LE mn)
Balances at End of Change During the FY
June 2011
2009/2010 2010/2011
Value Value
A- Reserve Money 250992 27967 47921
- Currency in circulation outside the
CBE 179096 17985 34843
- Banks' local currency deposits 71896 9982 13078
B- Counterpart Assets 250992 27967 47921
Net Foreign Assets 147197 18502 (43037)
Foreign Assets 156331 25550 (42274)
Foreign Liabilities 9134 7048 763
Net Domestic Assets 103795 9465 90958
Claims on the Government (Net) 102562 11998 21951
Claims on Banks (Net) 147 28676 (28863)
Net Balancing Items 1086 (31209) 97870
* Derived from the CBE’s balance sheet.

20. 4
Central Bank of Egypt – Annual Report 2010/2011
As for the components of reserve money, the currency in circulation outside
the CBE contributed most of the increase (72.7 percent), with a pickup of LE 34.8
billion or 24.2 percent in the reporting year (against LE 18.0 billion and 14.2 percent
a year earlier), to post LE 179.1 billion or 71.4 percent of reserve money at end of
June 2011. Moreover, banks' local currency deposits at the CBE augmented by LE
13.1 billion or 22.2 percent during the year (against LE 10.0 billion or 20.4 percent),
reaching LE 71.9 billion at end of June 2011.
The follow-up of the developments in reserve money in the reporting year
shows that 68.0 percent of the increase was concentrated in the second half of the
year (January/June 2011), namely, the period of January 25 Revolution and its
aftermath. During January/June 2011, reserve money scaled up by LE 32.6 billion or
14.9 percent. Rising by LE 25.9 billion or 16.9 percent, currency in circulation
outside the CBE made the largest impact during the said period, thus accounting for
74.3 percent of its total increase during the whole year. This was ascribed to the large
amounts of banknote issued by the CBE in response to the mounting withdrawals by
individuals of their deposits at banks, on the back of the circumstances and
aftereffects of January 25 Revolution.
The pickup in currency in circulation outside the CBE was due to the increase
in the balance of banknote issue by LE 33.9 billion or 23.2 percent during the
reporting year (against a rise of only LE 18.3 billion or 14.3 percent in the previous
FY) to reach LE 180.1 billion at end of June 2011.
Banknote Issue*
(LE mn)
At End of June Balance of Change during the Year
Banknote Issue Value %
2007 93499 14246 18.0
2008 112705 19206 20.5
2009 127912 15207 13.5
2010 146220 18308 14.3
2011 180118 33898 23.2
*Including subsidiary coins issued by the Ministry of Finance.
As for the components of the issue cover, the value of gold increased by LE 4.0
billion, as a result of its revaluation on 30 June 2011, to register LE 16.3 billion.
Likewise, Egyptian government bonds rose by LE 9.1 billion to LE 131.6 billion. In
addition, about LE 12.6 billion worth of foreign currencies and LE 8.2 billion worth
of foreign notes were added to the issue cover. Accordingly, the structure of the cover
at end of June 2011 was as follows: 73.2 percent as government bonds, 9.1 percent as
gold, 13.2 percent as foreign currencies, and 4.5 percent as foreign notes.

21. 5
Central Bank of Egypt – Annual Report 2010/2011
The breakdown of the currency in circulation outside the CBE by
denomination showed that despite the slight decrease in the relative importance of
large denominations (LE 200, LE 100 and LE 50) as a percentage of total currency in
circulation, they remained at a high level (90.5 percent against 92.1 percent at the end
of June 2010). This was largely due to the climbing relative importance of the LE 200
notes from 31.5 percent to 37.2 percent. By contrast, the relative importance of the
LE 100 and LE 50 notes declined from 60.6 percent to 53.3 percent. This mirrored
the increasing value of transactions associated with higher prices.
Currency in Circulation By Denomination*
(LE mn)
June 2010 June 2011 Change During the FY
Denominations Relative Relative
Value Importance Value Importance 2009/2010 2010/2011
Total 144253 100 179096 100.0 14.2 24.2
Banknote in
Circulation 143947 99.8 178772 99.8 14.3 24.2
PT 25 184 0.1 161 0.1 16.3 (12.5)
PT 50 292 0.2 302 0.2 (4.9) 3.5
LE 1 843 0.6 907 0.5 9.5 7.6
LE 5 1495 1.0 2654 1.5 18.9 77.5
LE 10 2844 2.0 2886 1.6 (2.3) 1.5
LE 20 5480 3.8 9672 5.4 (13.0) 76.5
LE 50 18704 13.0 22246 12.4 (18.3) 18.9
LE 100 68641 47.6 73269 40.9 12.8 6.7
LE 200 ** 45464 31.5 66675 37.2 49.0 46.7
Subsidiary Coins 306 0.2 324 0.2 6.6 5.9
* Representing the difference between banknote issue and cash at the CBE.
** The LE 200 note has been in circulation since May 2007.
The increase in the counterpart assets of reserve money in the reporting year
was attributable to the pickup in net domestic assets and the fall in net foreign assets.
Net domestic assets made a positive contribution to reserve money growth (44.8
percentage points), which was held back by the negative contribution of net foreign
assets (21.2 points).
During FY 2010/2011, net domestic assets at the CBE went up by LE 90.9
billion, against a rise of only LE 9.5 billion a year earlier, to reach LE 103.8 billion at
end of June 2011. The increase came as a result of the rise in the CBE’s net claims on
the government by LE 21.9 billion (due to the pickup in its claims on the government
by LE 39.3 billion or 26.2 percent, and in its deposits at the CBE by LE 17.4 billion
or 24.9 percent). Moreover, the net balancing items had an expansionary effect on
reserve money, as it went up by LE 97.9 billion shifting from a negative balance to a
positive one. This was mainly ascribed to the LE 99.4 billion decline in the deposits
accepted by the CBE under the open market operations (used by the CBE to absorb

22. 6
Central Bank of Egypt – Annual Report 2010/2011
excess liquidity). Furthermore, the CBE conducted Repo operations to inject liquidity
for banks as of March 2011, because of the changes in their liquidity position in light
of the higher foreign currency sales of the CBE to banks. The balance of Repo
operations registered LE 16.7 billion at the end of June 2011.
The CBE's net claims on banks decreased by LE 28.9 billion, as an outcome of
the decline in its claims on banks by LE 26.4 billion. The decline in CBE claims to
banks was, in turn, caused by its lower foreign currency deposits at these banks and
the rise in banks’ foreign currency deposits with the Central Bank by LE 2.5 billion
worth.
Net foreign assets at the CBE rolled back by LE 43.0 billion worth or 22.6
percent, against a rise of LE 18.5 billion worth or 10.8 percent, posting LE 147.2
billion worth at the end of June 2011. The decline was mainly attributed to the drop
of LE 42.3 billion worth or 21.3 percent in foreign assets at the CBE during the year
(against a rise of LE 25.6 billion worth or 14.8 percent a year earlier), to reach LE
156.3 billion worth at end of June 2011. On the other hand, foreign liabilities at the
CBE augmented by the equivalent of LE 0.7 billion or 9.1 percent during the year
(against a pickup of LE 7.0 billion worth) to stand at LE 9.1 billion worth at end of
June 2011.
1/3- Payment Systems and Information Technology (IT)
The CBE’s efforts to develop the payment systems and information technology
have been in progress, to bolster the soundness and stability of the financial system,
reduce credit risks, expedite payment settlements, and ensure their reliability and
confidentiality. The existence of a national payment system was instrumental to the
financial stability in Egypt, especially during the 25th of January Revolution, leading
as such to the stability of the banking system. In this respect, the following actions
were taken in FY 2010/2011:
Payment Systems
• Continuing to use the RTGS as a mode of interbank funds transfer and
liquidity management operations, and management of banks' legal reserve
requirements at the CBE. The average monthly transactions settled under the
RTGS system are one billion Egyptian pounds.
• Managing the disbursement of pensions via ATM debit cards, with the joint
efforts of the National Organization for Social Insurance (NOSI), CBE and
banks working in this project. Interestingly, while NOSI branches were closed
in the wake of the revolution, 90% of pensioners managed to disburse their
pensions via their cards and through banks’ ATM terminals.

23. 7
Central Bank of Egypt – Annual Report 2010/2011
• On the 1st of June 2010, the Direct Credit service in the national ACH became
officially operative by the Egyptian Banks Company (EBC). The number of
monthly transactions processed through this facility is about 200 thousand, and
a gradual increase is expected. Moreover, preparations for the launch of the
Direct Debit system are under way. It is planned that a pilot operation of this
service will start in the first half of 2012. Enlarging the electronic payments
base, these services will help speed up money transfers among individuals, and
in turn, increase the national product.
• Within the project of disbursing salaries of government employees by
electronic cards, more than one million bank cards were distributed for salaries,
and one million bank cards for pensions, in addition to other one million and
five hundred thousand cards for pensioners, to be disbursed from the outlets of
the National Organization for Social Insurance.
• The CBE, in cooperation with the Ministry of Finance, has been working to
shift to an electronic payment of government obligations, through banks within
the ACH operations. The project aims at improving the efficiency of
government procedures and tightening control over government payments.
This process is expected to come on stream in the first half of 2012.
• Currently, the CBE is preparing to join the ACH of the COMESA countries.
Recognizing their importance for the national security of Egypt, the project
aims at promoting trade with COMESA countries. In this context, the internal
rules and procedures of work at the CBE are under study. In addition, signing
the project-related agreements with COMESA and the Central Bank of
Mauritius is currently under way.
Information Technology
• The CBE is in the process of developing the database of banking sector units,
by setting up a data warehouse conforming to the international standards. The
warehouse is designed to help the CBE sectors to have access to accurate and
transparent reports, to be able to monitor the performance of the banking sector
units and make informed decisions.
• The establishment of a permanent Disaster Recovery (DR) site for the CBE is
on track, to be functional in emergencies as an alternative to the main center at
El-Gomhoria building. This is intended to ensure the continuity of IT services,
in a timely and accurate manner, taking into account that the DR site should
meet the international standards. The site is to be located in the CBE building
in Tanta and a study was approved for this purpose. The CBE in cooperation
with the project consultant are preparing the REP for the site preparation,
providing that another RFP will be issued for IT equipments.

24. 8
Central Bank of Egypt – Annual Report 2010/2011
• Given the mounting risks associated with the internet banking services, the
CBE embarked on a project that mandates the banks providing the services to
identify and assess the weaknesses and vulnerabilities of their data networks
that serve the internet banking systems and the website. Banks are also
required to review the design of information security systems, and conduct
security assessments with specialized companies. During this project, banks are
required to conduct Vulnerability Assessment, remediate the vulnerabilities,
conduct a penetration testing and submit the final results to the CBE. So far, all
banks have delivered the required reports to the CBE for analyzing the data
contained, and for issuing a final report with CBE recommendations. The
report is expected to be released very soon.
• The electronic “Auction Portal System” was introduced to automate the
procedures of bidding for Treasury bill and bond auctions, and the CBE’s
certificates of deposits (CDs). By virtue of this system, primary and secondary
dealers can bid online, according to specific regulations, via the secure and
private data network (Extranet) whereby banks and the CBE are inter-
connected.
• According to the plan of developing the IT systems that serve the Printing
House, assistance has been provided to the Printing House to migrate their IT
applications to be compatible with the other modernized systems in place at
the CBE. Recognizing that upgrading the IT infrastructure at the Printing
House is a prerequisite for developing the above -mentioned systems, the CBE
has proceeded with studying the upgrading of the infrastructure of the IT &
Communication systems serving the Printing House.
• Under the plan of developing the CBE branches and modernizing their IT
applications, the unification of the Bank’s accounting system is under
consideration, to be generalized in all branches (Alexandria, Mohandessin &
Port Said). For this purpose, preliminary steps have been taken, starting with
Alexandria branch and ending with Port Said branch as scheduled.
• Kasr El Nile Project: IT sector has participated in the design & supervision of
the IT infrastructure that serves the building.

25. 9
Central Bank of Egypt – Annual Report 2010/2011
1/3/1- RTGS and SWIFT Local Services
Data on local banking transfers under the RTGS system in FY 2010/2011,
applied as of mid-March 2009, showed an increase in the number and value of the
executed messages, registering 1248.7 thousand messages at a value of LE 15879.7
billion (against 1191.4 thousand messages and LE 13274.7 billion a year earlier). It is
worth mentioning that these transactions include banks' and clients' transfers,
operations of treasury bills, and Misr for Central Clearing, Depository and Registry
(MCDR), in addition to corridor operations and deposits for monetary policy
purposes.
RTGS and SWIFT Local Services in Local Currency
FY Change
Number of Messages Value of Transfers
Number Value
(Unit) (LE mn)
2007/2008 700668 3092401 175432 812203
2008/2009 897205 5294357 196537 2201956
2009/2010 1191374 13274677 294169 7980320
2010/2011 1248692 15879701 57318 2605024
According to the statistics of the CBE Automated Clearing House, included in
the RTGS since its launch, the number of exchanged cheques increased in the
reporting year to 13012 thousand (from 12994 thousand a year earlier). Likewise,
their total value edged up to LE 626.8 billion from LE 584.5 billion. As a result, the
average value per cheque inched up to LE 48.2 thousand from LE 45.0 thousand.
CBE Automated Clearing House Activity
FY Number of
Cheques Value of Cheques Change
(thousand) (LE mn) Number Value
2007/2008 11724 483113 11.9 35.4
2008/2009 12062 548038 2.9 13.4
2009/2010 12994 584546 7.7 6.7
2010/2011 13012 626757 0.1 7.2
Transactions executed in foreign currencies under the Fin-Copy system, via
SWIFT, showed an increase in terms of number and value. Executed transactions
reached 15.1 thousand in number, at a value of US$ 88.1 billion (against 12.2
thousand at a value of US$ 70.0 billion in the previous FY).

26. 10
Central Bank of Egypt – Annual Report 2010/2011
SWIFT Local Activity in US Dollar
During FY Value of
Change
Number of Transfers
Number Value
Messages (Unit) (US$ mn)
2007/2008 13925 105587 1855 26590
2008/2009 12365 83019 (1560) (22567)
2009/2010 12204 70008 (161) (13011)
2010/2011 15066 88052 2862 18044
1/4– Domestic Liquidity and Counterpart Assets
Domestic Liquidity went up by LE 91.9 billion or 10.0 percent in 2010/2011
(against LE 86.2 billion and 10.4 percent a year earlier), ending the year at LE 1009.4
billion. The rise was due to the growth in net domestic assets, meanwhile net foreign
assets dropped. The former increased by 13.2 percent adding to domestic liquidity
growth. Part of the liquidity was used by banks to purchase treasury bills in the
amount of LE 74.0 billion. On the other hand, net foreign assets decreased by 3.2
percent.
The pickup in domestic liquidity was reflected in the acceleration of money
supply and quasi-money. Money supply augmented by LE 34.7 billion or 16.2
percent (against LE 31.0 billion and 17.0 percent in the previous FY) reaching LE
248.7 billion at end of June 2011. Most of the rise in the reporting year came on the
back of the increase in currency in circulation outside the banking system by LE 32.7
billion or 24.2 percent (against LE 17.1 billion and 14.4 percent) posting LE 167.9
billion at end of June 2011. Notably, around three quarters of the rise (74.2 percent)
occurred in the second half of the reporting year, in which the currency in circulation
grew by LE 24.3 billion or 16.9 percent. This can be explained by the increase in the
banknotes issued by CBE to compensate the sudden withdrawals of deposits by
customers, in the wake of the circumstances and consequences of the 25th January
revolution.
Growth Rate of Domestic Liquidity by Component
%
20 Money Supply
Quasi-money
18 Domestic Liquidity
16
14
12
10
8
6
4
2
0
2007/2008 2008/2009 2009/2010 2010/2011

27. 11
Central Bank of Egypt – Annual Report 2010/2011
LE demand deposits at banks rose by only LE 2.0 billion or 2.5 percent (against
LE 14.0 billion and 21.6 percent) to LE 80.8 billion at end of June 2011. The increase
reflected the rise of LE 4.2 billion in the deposits of the private sector. By contrast,
deposits of the public business sector decreased by LE 2.2 billion.
Quasi-money accelerated by LE 57.2 billion or 8.1 percent (against LE 55.2
billion and 8.5 percent in the previous FY) to stand at LE 760.7 billion at end of June
2011. The pickup in LE time and saving deposits and in foreign currency deposits
was behind that rise. The former increased by LE 38.4 billion or 7.0 percent to LE
583.7 billion, representing 76.7 percent of quasi-money and 57.8 percent of total
liquidity at end of June.
Domestic Liquidity Components
End of June 2011
Local Currency Time
& Saving Deposits
57.8%
Foreign Currency
Demand Deposits
4.1%
Foreign Currency
Time & Saving
Money Supply Deposits
Quasi-money
24.6% 13.5%
75.4%
Noticeably, the surge in LE time and saving deposits of the household sector by
LE 52.1 billion exceeded the overall increase recorded in this type of deposits. The
increase in these deposits could have been larger, but for the decline in the deposits of
the private and public business sectors (down by LE 12.5 billion and LE 1.2 billion,
respectively). It is to be noted that in the second half of the year, LE time and saving
deposits retreated by LE 8.7 billion or 1.5 percent. The decline was particularly in the
deposits of the private business sector (LE 24.5 billion) and in those of the public
business sector (LE 2.2 billion). However, the decline was held back by the LE 18.0
billion rise in the deposits of the household sector.
Foreign currency deposits by all sectors increased by LE 18.8 billion or 11.9
percent (against a retreat equivalent to LE 9.1 billion or 5.4 percent) to reach LE
177.0 billion or 23.3 percent of total quasi-money at end of June 2011. The increase
was entirely achieved in the second half of the year, in which deposits scaled up by
the equivalent of LE 18.9 billion or 12.0 percent.

28. 12
Central Bank of Egypt – Annual Report 2010/2011
Against these developments, foreign currency deposits/total deposits
(dollarization ratio) inched up from 20.21 percent at end of June 2010 to 21.03
percent at end of June 2011. This reflected the propensity for saving in foreign
currencies, especially given the uncertainty about the LE fluctuations due to the
events in Egypt following the 25th January revolution. However, this trend is
somewhat limited, noting that LE time and saving deposits of the household sector
still accounted for the bulk (almost 65.8 percent) of total quasi-money at end of June
2011.
Contribution of Counterpart Assets to Domestic Liquidity Growth Rate
In the year ending June 2008 2009 2010 2011
Domestic Liquidity Growth Rate (%) 15.7 8.4 10.4 10.0
Net Foreign Assets (%) 12.8 (6.5) 3.4 (3.2)
Net Domestic Assets (%) 2.9 14.9 7.0 13.2
Domestic Credit rose by LE 117.5 billion or 15.2 percent in the reporting year
(against LE 79.9 billion or 11.5 percent a year earlier) ending the year at LE 892.8
billion. About three quarters of the increase (74.6%) was realized in the second half
of the year, as domestic credit moved up by 10.9 percent or LE 87.7 billion, of which
82.8 percent was directed to the government sector.
Domestic Credit by Sector (End of June)
LE bn
Household Sector
1000 Private Business Sector
900 Public Business Sector
800 Gov. Sector (Net)
700
600
500
400
300
200
100
0
2006 2007 2008 2009 2010 2011
Receiving around 94.6 percent of the rise in domestic credit, the share of the
government (including public economic authorities) increased/surged by LE 111.2
billion or 34.1 percent (against LE 53.0 billion or 19.4 percent) posting some LE
437.3 billion or 49.0 percent of total credit at end of June 2011. Such an increase
reflects the rise in banks’ holdings of government securities by LE 102.4 billion, and
in loans to the government by LE 30.7 billion, on the one hand and the pickup in its
deposits by LE 21.9 billion, on the other hand.

29. 13
Central Bank of Egypt – Annual Report 2010/2011
Credit disbursed to the household sector climbed by LE 6.4 billion or 6.9 percent
(against LE 8.2 billion and 9.7 percent) bringing its indebtedness to LE 99.2 billion or
11.1 percent of total domestic credit at end of June 2011. The share of public business
sector also picked up by LE 3.0 billion or 10.0 percent (against a decline of LE 3.2
billion or 9.5 percent in the previous year, due to the settlement of non-performing
loans) ending the year at LE 33.0 billion. Credit to the private business sector rolled
back by LE 3.1 billion or 1.0 percent (against an increase of LE 21.9 billion or 7.2
percent) lowering its debts to banks to LE 323.2 billion or 36.2 percent of total credit
at end of June 2011.
Relative Structure of Domestic Credit
(End of June 2011)
11.1
49.0
36.2
3.7
Gov. Sector (Net) Public Business Sector
Private Business Sector Household Sector
Net foreign assets at the banking system (denominated in local currency)
declined by LE 28.9 billion or 10.2 percent (compared to a surge of LE 28.3 billion or
11.1 percent), ending the year at LE 253.5 billion. Noticeably, the decline occurred in
the second half of the year, where net foreign assets fell by LE 51.8 billion. Yet, the
rise of LE 22.8 billion in the first half of the year had somewhat mitigated such a
decline, which came as a result of (i) the drop in net foreign assets at CBE by LE 43.0
billion (due to the LE 42.3 billion fall in its foreign assets, and the LE 0.7 billion rise
in its foreign liabilities) and (ii) the build up of net foreign assets at banks by LE 14.1
billion. The decrease in the CBE’s net foreign assets is traced to the necessary finance
the Central Bank had to provide to meet part of the foreign capital repatriation, in the
aftermath of the Egyptian revolution.

30. 14
Central Bank of Egypt – Annual Report 2010/2011
Foreign Asse ts & Liabilities of the Banking Syste m
at End of June
LE bn Foreign Assets
400
Foreign Liabilities
300
200
100
0
2007 2008 2009 2010 2011
Net balancing items exerted an expansionary effect on domestic liquidity of LE
3.3 billion. This was brought about by the increase in capital accounts by LE 24.3
billion, coupled with a decrease in inter-bank net credit and debit positions by LE
15.2 billion, and in net unclassified assets and liabilities by LE 5.8 billion.
1/5- Supervision Sector
Being the regulator of banks in Egypt, the CBE seeks to ensure the soundness
of banks’ financial positions and evaluate their performance from the perspective of
risk-based supervision. In addition, it ascertains banks’ compliance with the
established regulatory standards, including the minimum reserve requirement and
liquidity ratios, the maximum limits of a bank’s exposure to a single customer along
with his related parties, and exposures abroad, as well as the asset-liability matching
in terms of maturity and currency. This is in addition to a number of qualitative
standards that ensure the soundness of banks’ performance and the safety of
depositors’ funds, including governance rules; information systems efficiency rules;
and eligibility and competency criteria for officials and managers of key sectors at
banks.
The implications of the recent international financial crises bore out that the
instructions and reform policies adopted by the CBE to restructure banks, raise their
capital and strengthen their risk management systems were instrumental in containing
the effects of these crises. Moreover, the CBE had thoroughly monitored the financial
crises in many countries, especially in the euro zone, so as to be capable of making
immediate decisions - when necessary - to counteract the spillovers in due time.

31. 15
Central Bank of Egypt – Annual Report 2010/2011
Hereunder are the decisions taken by the CBE over the last quarter of FY
2010/2011 and the period that followed:
1. Providing banks with Quantitative Impact Studies (QIS) under Pillar II
regarding liquidity, concentration risks, and to launch pilot testing before
issuing related supervisory instructions.
2. Allowing banks –in response to the extraordinary events in the Egyptian stock
market– to reclassify financial assets held for trading from January 1st till the
end of June 2011.
3. Enhancing the bank’s concentration risk management through issuing a
regulation that sets exposure limits to countries, financial institutions (banks)
and financial groups abroad.
4. Requiring banks to open an account under the name of "Zewail City for
Science and Technology" to accept donations for this project, and another
account to raise donations for the eradication of slums. Received donations
shall be transferred to the two accounts created by the CBE for the same
purpose.
The CBE issued a number of instructions during FY 2010/2011, which are
mainly:
1. Underpinning and supporting the banking sector to help it face the current
event or current crisis through issuing a regulation that:
a. Offer special treatment to retail and corporate loans in light of the current
crisis.
b. Postpone the deduction of additional impairment on the excess of banks’
investments in non-financial companies over 40% of the company’s
issued capital.
2. Directing banks to decrease the concentration of loans and advances in the
form of overdrafts.
3. Extending cash cover exemptions on all meat, poultry and sugar imports – by
merchants (for trading purposes) or by government entities – from the 50
percent minimum cash cover requirement till end of December 2011.

32. 16
Central Bank of Egypt – Annual Report 2010/2011
4. Setting limits on transfers abroad and cash withdrawals by individuals, as well
as requiring banks to submit weekly statements on loan balances, client
deposits, and the two liquidity ratios and daily statements on cash
withdrawals/deposits, and inward/outward external transfers.
5. Postponing the consideration of requests from banks in Libya – submitted on
behalf of their customers – to liquidate their letters of guarantee issued for
investment projects, until the political landscape improves in Libya.
Seeking to enhance governance rules in the banking system, the CBE's Board
of Directors approved - on its session of 6 April 2004 –competency criteria for
chairmen, board members and executive managers of banks, to make sure that they
are qualified for their posts. Competency criteria were modified on 24 November
2009, where a new criterion was introduced, prohibiting any official to
simultaneously combine between two positions as a senior manager in a bank and a
member of the board of directors of another bank. The new criterion was applicable
to future nominations, with the exception of those banks entirely owned by a bank. It
intended to prevent any conflict of interests, in compliance with good governance
practices. In addition, interviews are made with the chairmen, deputy chairmen,
managing directors, executive board members of banks and executive directors to
ensure their eligibility for the positions they are nominated for, with a particular
attention being paid to candidates for risk- and compliance-related positions.
As for foreign nominees at banks (board members and executive directors), a
criterion was set, whereby the regulatory authority of the parent bank, or the last bank
the nominee has worked in (as the case may be) is to be consulted about that
nominee, to identify his/her eligibility for the vacant position. In this context, the
register of banks witnessed the addition of five chairmen, five vice-chairmen, three
managing directors, four executive board members, twenty six non-executive board
members, two specialized members, a regional manager for a foreign bank branch, a
regional deputy manager for another foreign bank, seven chief executive officers for
representation offices in Egypt, one general manager and one executive director in a
bank, and two executive directors at risk, compliance, credit, investment, treasury and
internal inspection departments.
In light of the study conducted on some of the banks' statutes relating to the
periodicity and location of board meetings of banks, the CBE Board of Directors
agreed, on its session dated 20 June 2009, to allow board meetings to be held outside
Egypt only once during the fiscal year on exceptional basis.
On the other hand, amendments to certain articles of the statute of eleven
banks, and the addition of 86 new branches of 24 banks were recorded in the register
of banks.

33. 17
Central Bank of Egypt – Annual Report 2010/2011
In line with the policy of the CBE that promotes the growth and geographical
expansion of banks by opening small branches, a number of standards and regulations
were proposed and are currently raised to the senior management for approval after
studying the experiences of several countries, such as the United States, Japan, China
and Saudi Arabia, to choose the most optimal and appropriate one for the Egyptian
market. The said branches shall provide a number of specific services. These are
exclusively the following:
• Conducting withdrawal/deposit operations, and currency conversion trans-
actions via ATMs.
• Receiving and sending requests to the concerned departments in the bank to
complete their procedures.
• Offering installment credit for the purchase of durable goods.
• Marketing and promoting bank products.
A benchmark of LE 10 million of a bank's core capital was set for each small
branch. The working hours of each branch shall be determined according to the
requirements of its location. Staff head count of each branch shall not exceed three
qualified persons.
The CBE is currently in the process of updating the rules of examining the
documents required from the houses of expertise (that are qualified for participating
in the evaluation of guarantees provided to banks) to be listed in the register of
houses of expertise at the CBE (63 houses of expertise were listed so far). This step is
bound to raise the efficiency and effectiveness of the credit decisions made by banks
to prevent the recurrence of the problem of nonperforming loans. Moreover, the
auditors authorized to audit the financial statements of banks shall be registered in a
special register, in conformity with specific criteria that ensure a satisfactory degree
of efficiency and expertise. 30 new auditors were recorded during the reporting year.
Recently, banks have been eager to provide e-banking services to keep pace
with the technological progress in this field. Such services are either traditional or
innovative (effected via electronic networks) and had been regulated earlier by the
rules issued by the CBE Board of Directors on 28 February 2002. Later, on 2
February 2010, the CBE Board of Directors approved the regulations governing the
operation of payment orders via mobile phones in Egypt. Furthermore, the CBE has
proceeded with updating the rules of internet banking, so as to reduce the risks
inherent in e-banking services.
It is worth mentioning that six banks were licensed, during the reporting year,
to introduce electronic bill payment service via the ATM and branches, in
cooperation with Fawry Company for Banking and Payment Technology Services.

34. 18
Central Bank of Egypt – Annual Report 2010/2011
The CBE allowed banks to participate in the establishment of the different
types of mutual funds, to cater for risk-averse investors who have cash money but
lack the necessary experience, know-how, or time to invest in such tools that yield
good returns. Nine banks were given approval to start procedures for establishing 11
new mutual funds.
In order to encourage individuals to save, registered banks were allowed to
issue saving systems of three years or more, with some privileges, to be able to raise
their market interest rates above the short-term interest rates. Also, banks were
permitted, during this year, to issue new saving vessels and to make adjustments to
the existing ones, with the aim of increasing the volume of medium- and long-term
savings, to help banks finance production and industrial enterprises.
To organize dealing in the forex market in Egypt and maximize savings
received from workers abroad, off-site supervisions are exercised on forex dealers,
and money transfer companies in Egypt, in accordance with the Law governing the
Central Bank, Banking Sector and Money Market.
In this respect, it is worthy to note that while the report is being prepared, three
new companies, and 24 branches were registered as currency exchangers, thus
bringing their total number to 448 nationwide.
Moving to tourism services, the CBE – pursuant to the above-mentioned Law –
has licensed shops within customs' areas at airports to sell in foreign currencies as
well as Egyptian pounds, to cover part of the State’s needs of foreign currencies and
encourage tourism. As such, nine shops in free zones were granted such a license,
bringing their total number to 79 shops at the end of the preparation period of the
report.
As part of the ongoing efforts made by the General Department for Credit Risk
Pooling to enhance the efficiency and transparency of the credit registration system,
the following steps were taken:
• An extensive meeting was held on 15 July 2010, attended by bank officials, to
discuss the data received by the department. The aim of the meeting was to
pinpoint the problems and difficulties facing banks when sending data, and the
precautionary actions to be taken in this respect, to ensure that informed credit
granting decisions be made.
• The provision of more detailed information on customers of judicial
procedures and settlements was considered. Also considered was separating the
debt settlement customers from those of rescheduling debt when notifying
banks of the positions of these customers, to set regulatory standards and rules,
and make modifications in line with the changes and conditions of the banking
sector.

35. 19
Central Bank of Egypt – Annual Report 2010/2011
In view of the current circumstances, the Department for Credit Risk Pooling
has continued to perform its usual duties. To elaborate, the Department receives
banks' statements on the volume of credit facilities granted thereby to customers, on
the CBE's website, prepares the aggregate positions of those customers, as well as the
memorandums to be presented to the senior management, and responds to the
complaints filed by bank customers pertaining to credit risk information.
As regards on-site supervision, the CBE made great progress with the
2010/2011 plan for the inspection of the banking sector units (banks) and currency
dealers. Under this plan, each bank is inspected (either in whole or in part) on an
annual basis, according to the level of its risks and the quality of its products and
activities. Moreover, an examination of certain issues is made, to help take immediate
corrective actions as deemed necessary, needless of waiting for the full inspection of
those banks to be carried out. In addition, the system of specialization-based
examination was adopted to enable bank inspection to be conducted by inspectors
specialized in the relevant activities (e.g. retail banking, market risks, IT, etc.). That
approach is meant to render the inspection process more effective and in-depth by
providing a thorough risk profile of the inspected bank. In this context, a core team
was formed to follow up and manage IT systems, in collaboration with off-site
supervision. The aim is to identify common risk areas at banks, especially those of
high incidence, and monitor progress on the execution of corrective actions.
Inspection reports made lately have helped to upgrade the risk management
framework in several banks and further the application of the international best
practices in this area.
Furthermore, the main concern as of February 2011 was to check on the
transfers made by Egyptian banks, guided in this respect by the relevant instructions
of the CBE - in cooperation with the departments concerned - in the aftermath of the
latest events that hit the country. Moreover, the CBE continued to update bank
inspection reports under the usual plan, taking into account the said circumstances.
On the other hand, the Supervision Sector at the CBE continued to cooperate
with the supervisory and judicial authorities in settling a number of money and
banking issues. Moreover, the Sector examines the complaints filed by bank
customers and provides the required banking expertise.