The National Bank of Egypt, founded in 1898, had as a private institution the exclusive right to issue currency and act as the government's banker. In January 1961, although permitted to retain its commercial banking business, it was divested of its central banking function, which was given to the newly established Central Bank of Egypt. In 1957, when foreign banks refused to finance Egypt's cotton crop after the Suez Canal was nationalized, the government took over foreign banks and insurance companies. By the end of 1962, all banks had been nationalized. The number of registered banks dwindled to only four by 1971.
As of 1999, there were 69 banks operating in Egypt: 4 stateowned commercial banks; 29 commercial banks; 33 investment banks, and 7 specialized banks; including 20 foreign bank branches. The 4 state-owned commercial banks-the National Bank of Egypt, the Bank of Alexandria, the Banque du Caire, and the Banque Misr-dominate the sector due to their size in terms of assets, deposit base, and branches (an average of 200 branches each), accounting for 55% of the banking system's total assets. The Central Bank of Egypt supervises all banks in Egypt except for Misr African International Bank, the Arab International Bank, and the Egypt Export Development Bank. The national stronghold on the system becomes apparent when the public-sector banks' shares in joint-venture banks are taken into account, which reveals the big four to be holders of over 90% of the total assets of commercial banks. The dominance of the public sector is heightened if the National Investment Bank (NIB) is included. Holding the long-term resources mobilized by the social security system, the NIB possesses roughly 25% of total bank deposits. Private sector ownership accounted for less than 30% of the banking sector in 2002, while the total assets of Egypt's banks in the same year amounted to $72 billion.
In 1975, the public sector was allowed to perform transactions freely with all banks, which became largely free to exercise all banking functions. The government's "open door" policy toward banking permitted international banks of good standing to establish branches in Egypt and exempted those banks from regulations governing the control of foreign exchange. In 1991, foreign exchange rates were liberalized. In 1992 and 1993, laws were passed allowing foreign bank branches to deal in Egyptian currency. In order to bring the Egyptian banking sector into line with international banking norms, banking law 155 of 1998 established a legal basis for the privatization of the four public-sector banks, but by 2002 this process was just getting started.
The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $14.9 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $65.8 billion. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 11%.
Egyptians habitually have invested their funds in real estate, in foreign countries, or in gold. In June 1992, a comprehensive Capital Markets Law was passed, sparking a revival of the Cairo and Alexandria exchanges that had been dormant since 1961 nationalization. In 1994, Egypt had one of the world's best-performing stock markets, but the primary stock market remained thin. Most investors preferred to establish closed companies and to resort to bank loans. Stock trading in the secondary market was also limited. Nevertheless, Egypt's first corporate bond since 1951, issued by the German-Egyptian Hoechst Orient in May 1994, was almost three times oversubscribed. In 2001, the Egyptian stock market's capitalization was estimated at about $24 billion, and the volume of trading had dropped by 65% from 2000 levels.