Capital Market law amendments are positive credit for banks

Moody's Investors Service said that law amendments in the Capital Markets Act that the Egyptian parliament voted on last Thursday, is credit positive for banks because the increased capital market activity will raise banks’ income from their debt capital markets business while also providing funding options.

Last Tuesday, the Egyptian parliament passed law amendments to the Capital Markets Act that will deepen the financial markets in Egypt by facilitating sukuk issuance and investors’ ability to hedge, making the country a more appealing investment destination to foreign investors.

“The law’s amendments include the introduction of futures trading, a commodities exchange, allow the establishment of privately owned stock exchanges, and reduce listing fees to 0.005% from 0.002% to encourage smaller companies to list on an exchange,” Moody’s added in a report.

Moody’s clarified that the amendments also facilitate sukuk issuance, set higher penalties for violations of the law and set up a federation for non-banking financial companies similar to the Federation of Egyptian Banks.

The report noted that Egyptian capital markets are underdeveloped relative to other African peers.

“Egypt ranks 14th among the 17 African countries in Barclays Africa Group 2017 Financial Market Index, which uses a variety of parameters, both qualitative and quantitative, to record the openness and attractiveness of countries across the continent to foreign investment,” Moody’s pointed out.

“Although Egypt is the largest Arab country by population, the sukuk market is inactive, something the authorities are aiming to address with the revised law,” the report stated.