Political turmoil in Egypt has highlighted the awkward situation of a Cairo-based bank that falls outside of Egyptian control: the Arab International Bank (AIB). It is suspected that heavy outflows were transferred from this bank since the 25 January popular revolt took place.
On Monday, Muslim Brotherhood lawyer Mamdouh Ismail filed a lawsuit with the General Prosecutor against AIB, calling for a freeze on transactions and transfer of assets, saying he has learnt the bank was given orders to transfer large sums of money abroad.
The lawsuit came as fears spread that businessmen and ex-ministers who allegedly prospered under the Mubarak regime might find ways to flee with their money abroad. The finger of suspicion is pointing at the AIB as many believe the bank falls outside the supervision of the Central Bank of Egypt (CBE).
On Wednesday and Thursday, five former officials appeared before prosecutors to face charges of squandering public money and seizing state land, including former Housing Minister Ahmed El-Maghrabi, former Minister of Tourism Zuhair Garana, former Minister of Trade and Industry Rachid Mohamed Rachid, and former National Democratic Party member and steel magnate Ahmed Ezz. The freezing their bank accounts was approved.
Meanwhile, after 15 days of violence, the CBE said last week it would limit cash withdrawals by individuals but allow unlimited transfers abroad when banks reopen Sunday, after a week-long closure caused by the political unrest. This ruling does not apply to AIB. According to its statute, the AIB not only falls outside the authority of the CBE, it is also exempted from taxation, exchange controls, and the auditing and accounting regulations deemed pertinent for domestic banks.
Ismail accuses former prime minister and AIB Chairman Atef Ebeid, who was appointed by former President Hosni Mubarak shortly after being removed from his position as prime minister, of involvement in the transfer of funds of "corrupt businessmen and officials" abroad in "unknown and obscure" banking operations. He also called for an investigation to be opened into "suspicious and dubious" decisions taken in the current circumstances.
"No ministers or big businessmen are depositing accounts in the AIB," Ebeid said in his first reaction to such claims in interview with Al-Shorouk newspaper. On the contrary, he said, "Some 90 per cent of its balance comes from small depositors."
Ebeid also denied claims that AIB is used as a doorway to cash laundering, adding "The desire for personal revenge is behind such allegations."
Two years ago, ex-parliament members Abu El-Ezz El-Herreiry and Gamal Zahran demanded AIB close to end its corruption. "The bank is turning into a giant octopus that is going to swallow public money," El-Harreiry said in an article entitled "A request for terminating the Arab International Bank" published in Al-Youm Al-Sabea website on 11 June 2009.
"The confidentiality the chairman imposes on bank clients, accounts and the volume of transfers makes the bank a doorway for all manner of crimes," he added.
As it may not carry out transactions in Egyptian pounds, unlike other Egyptian banks, AIB does not hold a portfolio of local currency treasury bills, and so it invests its liquidity with local and foreign banks. It also has a sizeable and marketable investment portfolio.
AIB's significance also comes from the fact that it owns 46 per cent of Société Arabe Internationale de Banque (SAIB) as well as a 37.7 per cent share in the Suez Canal Bank. AIB also holds equity stakes in real estate or other business projects. The bank operates seven branches in Egypt, reflecting the predominantly wholesale nature of its business, but also obtains a substantial amount of customer deposits from individual clients.
The AIB was established under international treaty by five Arab sovereigns in 1974 as an Egypt-based offshore banking unit. The principal shareholders remain the Arab Republic of Egypt and the State of Libya with a 38.76 per cent shareholding each, followed by Abu Dhabi with 12.503 per cent, Qatar with 4.984 per cent, and Oman with 2.49 per cent,
Capital Intelligence (CI), the international credit rating agency, at the beginning of this week downgraded AIB's long term and short term foreign currency ratings to "BB+" and "B" respectively, from "BBB-" and "A3".
According to CI's rating methodology, the rating action on AIB's foreign currency ratings captures the constraint imposed by the revised sovereign rating.
The weaker credit rating of the sovereign also drives the downward adjustment of the bank's support rating, reflecting the diminished ability of authorities and shareholders to provide support in case of need in the current environment.
AIB's financial strength rating will be subject to downward pressure due to the disruptive effects of the current political and social upheaval on the bank's operations.
It is also expected that the deterioration in the operating environment may affect the bank's inherent financial condition, including its liquidity, asset quality and financial performance.