Impact of Globalization on the Banking Industry of Egypt

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Introduction

The banking sector is rendered to be the most important economic sector and is the most responsive and influential towards changes whether on an international or national basis (Kenaway, 2010). In the last two decades, the banking industry in Egypt has undergone various changes. The increasing trend of international trade had a deepening impact on the need to globalize banks. There have been imposed extensive regulatory changes, advancements in information as well as banking technologies along with an increase in the integration of international financial institutions and markets. This has created new challenges and opportunities for the banking industry. Although, these have provided an expanded opportunity to the banking industry; however, the completive pressure on the global banking arena has also increased. With the existence of banks in this increasingly globally competitive environment, there is a direct link between performance and efficient operation.

Banking in Egypt

Egypt has experienced a procedure of continuous development as well as the reform of the banking system so as to improve the performance level as well as its role in the national economy. This new phase came after various phases experienced by the Egyptian banking system. The era after the revolution of 1952 to the beginning of the 1970s, there was a stage of nationalization and the integration of Egyptian banks.

The result of this was the establishment of large scale banking units and the entire banking sector comprises one central bank and 4 commercial banks owned by the public sector along with few specialized banks. From 1974 to the advent of the 1980s, the implementation of the open door policy allowed foreign banks to operate in the country. In accordance with this, the mechanism performance and the banking policy handling at this stage had an impact by the increasing level of competition between the banks and the increasing funding within the banking system to that of the private sector. Since 1997, until now there have been made various revolutions for making the banking industry globalized through the efficient application of the rules governing financial controlling and supervision (National Bank of Egypt, 2001).

PESTLE Analysis of the Impact of Globalization on the Egyptian Banking Sector

PEST analysis is considered to be a useful strategic tool in order to understand the growth and decline, the business position as well as the potential and direction of the operations (Kotler, 1998). PESTLE analysis is very useful for the strategic analysis, business and product development, market planning as well as for making researches. Moreover, this analysis is also very useful when any company decides to enter into a new industry of operations as well as in new countries.

Political and Governmental Factors on Banking (Egypt)

Under generic conditions, the Middle East and Egypt, in particular, experienced abnormal changes within its governmental and political cabinets. For example, the Tunisian president fled to the Kingdom of Saudi Arabia after being in power for 23 years. Moreover, Hosni Mubarak stepped down as the president of Egypt after several weeks of protest in the capital as well as in other cities of the country after being in power for 30 years. The change in the policies of the government is unavoidable because the existing policies are inefficient and allow a huge number of citizens to suffer from basic services and human rights. This instability in political and governmental factors will have a direct effect on business transactions and the money in the economy will flow more freely.

Political Changes:

Furthermore, there is also a need to determine all political changes which can impose an impact on the banking industry in the country. Egypt is a democratic republic where the laws are more concerned with the health and safety of the citizens such as environmental workplace and labor laws. If there occurs any amendment within the legislation in the policies of the cabinet, presidential authorities, parliament bylaws as well as in governmental and federal laws with respect to responsibilities and authorities will have a direct effect on the banking industry of the country.

Political Instability in Security and Safety (Egypt)

Another political factor that greatly impacts the banking industry in Egypt is the instability in security and safety in some areas of the country, particularly after the Hosni Mubarak regime. This affects the business environment directly and the number of foreign banks investing in the country declined at a significant rate.

Economic Factors on Banking (Egypt)

Economic factors are influenced by political and governmental decisions. The country has experienced rapid changes in the price of its import and export bill along with frequent changes in its tax and currency exchange rates. Since these factors have both opportunities and threats; it can affect the banking industry directly as well as indirectly.

The growth rate of Egypt is growing significantly and the provision of safety and security in doing business is being better at an overall basis. Since the main issue of the banking sector is related to capital markets which tend to define the alternative types of funding requirements of the companies; it falls within the control of the government which is subject to change in economic conditions. For example, when the interest rate changes it will have a direct effect by inflation and international economies even though the rate is fixed by the central bank.

Socio-Cultural Factors on Banking (Egypt)

Companies needs to understand the change in demographics with respect to the changes in the population structure by regions, age, affluence, and number of working population which can greatly impact the demand on not only for particular [products and services but, also on the whole, for example, the rate of unemployment is between 20-40% since 2006 whereas, the growth rate of population is around 2.5%. this will increase the threat to existing products however, the opportunities for market differentiation and segmentation may emerge as well.

Globalization has its effect on a cross-cultural basis which includes changes in trends, habits, customs, values, etc. these changes can take place in various ways, for example, media and can affect the purchasing intention of the people. The dawn of the 21st century opened borders for multinational corporations to enter the country and there have been drafted various policies so as to attract foreign investors which will have a direct effect on the social and cultural life of the country.

Technological Factors on Banking (Egypt)

The development and advancement in technological aspects especially, the development of the Silicon Valley companies has greatly affected the banking sector. The banking sector in the country needs to operate with advanced technology in terms of retrieving and saving data and information for its products and services like ATM cards. Moreover, there are many banks who have been suffering from hacking attempts and have lost millions of dollars along with bearing on their image which has turned negative. Under such circumstances, the Egyptian banking system should acquire the world-class security system and implement an advanced internet service so as to improve customer confidence.

Legal Factors

Although there are corporate governance laws listed in the Stock Exchange of the country; however, there are still certain drawbacks in the legal protection of investors, especially for small investors. This became a big threat for businesses as the rights and equitable treatment of the shareholders, responsibilities of the board; ethical behavior of the companies as well as the disclosure of transparency is unclear in the Egyptian legal system for both private and public sector companies. This leads to problems in investing in the country because of lacking legal structures.

Environment Factors

Investing and providing support in green projects is the basic environmental factor that will enhance the image of the banking sector amongst the stakeholders thereby, attracting more investors and customers. In addition to this, the conservative perspective towards making the environment better in both governmental and non-governmental organizations are crucial factors that affect the banking sector in Egypt.

 

Recommendations:

  • The country needs to work upon its regulatory framework which requires the homogeneity of the controlling forms within different types of banks operating in Egypt that need to be considered. Restructuring towards universal banking and the public policy should be transparent and should have clear and set deadlines for enforcement and accountability purposes.
  • The level of corporate governance, as well as the management level in banks, also needs to be improved. The government should implement the discipline of private markets to be the major component of the regulatory regime in addition to strong enforcing mechanisms and good rules.
  • The banking sector should focus more on new advertising mediums from where millions of customers can obtain information about the product and services offered by these banks. In other words, the banks should incorporate a complete and efficient IT system so as to manage and retrieve data that can be effective in developing a proper customer relationship management system thereby, understanding more about the customers and improving services.
  • Banks should work upon the communication skills of the employees along with increasing their level of general knowledge related to the preferences and culture of their customers. In general, various training and development programs should be designed so as to upgrade the staff level of willingness so as to serve the customers at a higher level.

 

 

 

References


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2020-01-10T22:18:35+00:00