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Egypt’s Housing and
Development Bank (HDB) and state-owned Egyptian Arab Land Bank (EALB)
are being restructured with an eye toward a possible merger within the
two next years, the head of the two banks said.

Chairman Fathy
El-Sebai completed a capital increase at HDB earlier this year that
reduced the government’s stake to between 62 and 64 percent and is in
the final stages of restructuring EALB, Egypt’s fourth-biggest state
bank by assets.

“I have a strong
feeling there is the viability for them to merge and add more value to
the two institutions,” Sebai told Reuters in an interview.

However, the ultimate decision whether to merge them was the government’s and not his, he added.

A combined entity would be Egypt’s sixth or seventh biggest commercial bank in both the state and private sector.

Sebai is among a
group of bankers brought in by the government from the private sector
in the early part of the decade to reform state banks.

These include Bank
of Alexandria, which was sold in late 2006 to Italy’s Intesa Sanpaolo,
and Banque du Caire, whose planned privatisation in June 2008 was
aborted after offers did not meet the government’s minimum price.

At the time of the
Banque du Caire offering, many Egyptians criticised the government’s
privatisation programme, saying assets were being sold off too cheaply,
and since then the government has not tried to sell any other major
state assets.

Free float

HDB’s 450 million
Egyptian pound capital increase boosted the bank’s free float to
between 36 and 37 percent from 10 percent, Sebai said.

“This was the idea, to make a kind of a privatisation, not for an anchor investor, but for the public, for everybody.” The bank,

whose capital is
now 1.15 billion pounds, will use the new funds to install an advanced
IT system and expand its branch network to 100 by the end of 2013 from
57, he added.

Sebai said EALB’s
restructuring had been more complicated because much of its lending had
been to tourism and residential projects that stalled when an Egyptian
real estate bubble ended early in the decade.

“The owners didn’t want to put more money in the tourist projects and the banks also stopped funding,” he said.

EALB shareholders
agreed in 2005 to delay plans for merging with HDB until EALB’s
finances could be straightened out. Sebai plans to finish the bank’s
restructuring by June 2012.

“The target is to have the bank ready for the merger, which can be done at any minute by the shareholders,” he said.

“But my plan is to
finish the restructure process and finish all the problems in the bank
to be ready now, either to continue to stand alone or to merge.” Sebai
said rising property values meant HDB’s loans, mainly in mortgages and
credit to individuals,

have been profitable despite a slow judicial process to gain control of homes when borrowers default.

HDB’s assets were 17.85 billion pounds at the end of December, while EALB’s assets were about 20 billion at end-June.