This has been a difficult year for Egypt's banks. It started badly when a new law was passed plugging a tax loophole which had allowed banks to make money in their sleep. It permitted banks to deduct from their tax liabilities the charges they paid on their borrowings, while simultaneously exempting them from paying tax on interest earned on their investments in government securities. That ensured a bottomless pit of demand for government bonds, but it also encouraged banks to do little more than borrow funds and channel the proceeds back into government paper.
Cairo bankers concede that the law change made good sense, and can only be positive for the Egyptian banking sector in the long term. With almost 100 banks - though the four largest state-owned institutions account for some 75% of deposits - Egypt is almost comically overbanked. The closure of the loophole will almost certainly hasten the process of consolidation in the industry.
But in the short term bank stocks were hit hard, and none more so than the bellwether, Commercial International Bank (CIB). The bank was Egypt's first issuer of an international equity offering in the form of a GDR and is therefore often seen by overseas investors as a liquid proxy for the economy and the private sector as a whole.