ANNEXE II

TERMS OF REFERENCE FISC FINANCIAL Component 2 Assistance for the Restructuring of the National Bank of Egypt
1. BACKGROUND INFORMATION........................................................................................1 1.1. Beneficiary country................................................................................................1 1.2. Contracting Authority............................................................................................1 1.3. Relevant country background................................................................................1 1.4. Current state of affairs in the relevant sector.........................................................1 1.5. Related programmes and other donor activities:...................................................2 2. CONTRACT OBJECTIVES & EXPECTED RESULTS........................................................3 2.1. Overall objectives..................................................................................................3 2.2. Specific objectives.................................................................................................3 3. ASSUMPTIONS & RISKS..................................................................................................4 3.1. Assumptions underlying the project intervention...................................................4 3.2. Risks......................................................................................................................5 4. SCOPE OF THE WORK....................................................................................................5 4.1. General..................................................................................................................5 4.2. Specific activities...................................................................................................7 A Revised HR Function including policies, procedures, and systems.......................11 Detailed Scope of Work.............................................................................................12 DETAILED SCOPE OF WORK & DELIVERABLES.............................................................15 4.3. Project management...........................................................................................20 5. LOGISTICS AND TIMING................................................................................................20 5.1. Location...............................................................................................................20 5.2. Commencement date & Period of execution........................................................20 6. REQUIREMENTS............................................................................................................21 6.1. Personnel............................................................................................................21 6.2. Office accommodation.........................................................................................24 6.3. Facilities to be provided by the Consultant (within the fee rates).........................24 6.4. Equipment...........................................................................................................25 6.5. Incidental expenditure.........................................................................................25

FISC Financial - Terms of reference 7. REPORTS.......................................................................................................................25 7.1. Reporting requirements.......................................................................................25 7.2. Submission & approval of progress reports.........................................................27 8. MONITORING AND EVALUATION..................................................................................27 8.1. Definition of indicators.........................................................................................27 8.2. Special requirements...........................................................................................27

Acronyms CASE CBE CMA EC FATF IMP GoE GDP IFC IMF JSC MENA NIP PCM PSB SMEs ToR 1 UNDP USAID Cairo & Alexandria Stock Exchange Central Bank of Egypt Capital Market Authority European Commission Financial Action Task Force Egypt Industrial Modernization Program Government of Egypt Gross Domestic Product International Finance Corporation (World Bank Group) International Monetary Fund Joint Steering Committee (for Components 1+2). Middle East and North Africa National Indicative Programme Project Cycle Management Public Sector Banks Small- and Medium-sized Enterprises Terms of Reference United Nations Development Program United States Development Agency for International

Also known as Request For Proposals - RFP

FISC Financial - Terms of reference

1. 1.1.

BACKGROUND INFORMATION Beneficiary country

Arab Republic of Egypt 1.2. Contracting Authority

The European Commission represented by the Delegation of the European Commission in Egypt, on behalf of the Beneficiary Country. 1.3. Relevant country background

Egypt has a diversified economy; the trade, finance and insurance sectors combined amount to 22% of GDP. Egypts banking and financial sector is in transition and needs to be upgraded in order to sustain economic reforms, to promote Cairo as a regional financial hub and to stimulate inward investment. The contribution of the sector to Egyptian GDP and to private sector growth remains substantially below potential. The new reform-minded Egyptian government, appointed in the summer of 2004, has reconfirmed the priority status of financial sector modernisation. The EU-Egypt Association Agreement, now in force, foresees the gradual liberalisation of capital flows, which in turn requires reinforcement of the Egyptian financial sector and capital markets. In order to contribute to the modernisation of the Egyptian financial sector, the Government of Egypt and the European Commission signed the Euro 15 million FISC Financial Financing Agreement in September 2004. FISC Financial will primarily provide technical assistance under three Components. Component 2 is dedicated to supporting the restructuring of public banks; this contract is to provide assistance for the restructuring of the National Bank of Egypt. 1.4. Current state of affairs in the relevant sector

The Egyptian financial sector is in transition. Key legislation to encourage financial sector reform has been approved or is in the pipeline. New products are starting to appear and international calibre managers are increasingly present at the top of the larger institutions. An important step forward was achieved in early 2004 with the removal of Egypt from the Financial Action Task Force (FATF) list of uncooperative countries. Nevertheless, progress on the ground remains slow. Many categories of potential customers are not being adequately served, including SMEs2. As a result, the financial sector contribution to Egyptian GDP and to private sector growth remains substantially below potential.

There are currently 55 licensed banks in Egypt. Despite growth in non-bank financial intermediaries over the past decade, the sector remains dominated by the
2

Small and medium-sized enterprises

Page 1

FISC Financial - Terms of reference

Big 4 public commercial banks and three specialized public finance institutions. Indicators show that the 4 largest public banks still control 5055% of banking assets, although their combined market share has declined by around 10% over the past decade as foreign players purchased stakes in Egyptian joint-venture banks. Despite the recent rejuvenation of senior management, the Big 4 public banks are to varying degrees - still burdened with excess staff, lack of management skills in middle/lower levels, weak profitability, obsolete technology, outdated systems and/or underdeveloped product ranges. Furthermore, it is recognized that the balance sheets of these banks contain a high percentage of non-performing loans (in some cases exceeding 25%), a legacy of the directed lending policies of an earlier era . The need for the State, as shareholder, to provide regular re-capitalisations continues to represent an important drain on the national accounts.
3 4

Consolidation within the banking sector is underway for example, the acquisition of Misr Exterior Bank by Bank MISR in 2004. Further consolidation amongst the joint-venture banks and the closure/merger of weaker banks is planned. As regards banking supervision, the late 1990s witnessed an evolution of the role of the Central Bank of Egypt (CBE), which issued a number of new prudential regulations. In 2003 a new Banking Law was promulgated, requiring all banks to increase their capital to LE 500 million. The Governor and Board members of the Central Bank of Egypt were changed at the end of 2003, at which time a second Deputy Governor was appointed with responsibility for restructuring the banking sector. Continued improvements in banking supervision are necessary in order to provide an optimum environment for public bank restructuring.

1.5.

Related programmes and other donor activities:

A number of programmes currently being implemented in Egypt have relevance for FISC FINANCIAL. Significant initiatives include: Industrial Modernisation Programme (IMP) The EC-funded Industrial Modernisation Programme for Egypt contains a budgetary support component, to be delivered in 2 tranches. One chapter is dedicated to Financial Sector Soundness and Restructuring (eg new banking legislation, anti-money laundering measures, steps towards gradual privatisation of State-owned banks). The Industrial Modernisation Program also provides direct technical assistance to the Egyptian SME sector, which inter alia will increase awareness amongst companies of banking products and services relevant to their needs. In addition, the EC has prepared two sister projects, FISC Rural and FISC Social, which promote financial intermediation in agricultural and socially deprived
3 4

National Bank of Egypt, Bank MISR, Banque du Caire, Bank of Alexandria Provisioning for NPLs is another problem area. According to an IMF report published in April 2004, NPL provisioning in the Egyptian banking sector is less than 62% of recorded NPL as at September 2003.

Page 2

FISC Financial - Terms of reference

contexts (i.e. different beneficiaries to FISC Financial, which addresses mainstream banking and finance issues). North Africa Enterprise Development (NAED) Managed by the International Finance Corporation (IFC part of the World Bank Group), this regional initiative provides advisory services and training modules to local banks in order to promote effective SME lending. The programme also supplies direct technical assistance to SMEs, and promotes non-bank financial products such as venture capital, leasing and factoring. The initial funding pool included France, Switzerland, Belgium, Italy as well as the IFC. USAID funded programmes As a major donor in Egypt, USAID has been active in the financial sector, including supporting the development of capital markets and the activation of the mortgage market. The Small and Micro Enterprises Development Programme has developed a pilot scheme in association with Banque du Caire, providing lending training to bank personnel as well as support for a loan monitoring system. Other Donors The International Monetary Fund is assisting Egypt with strategic advice on monetary policy, risk assessment, and financial sector regulation. The World Bank helped to draft a new law on Real Estate Financing. The UNDP is providing support for training on SME lending. Italy is providing on-going advice to the Central Bank of Egypt, and the United Kingdom and the USA have provided training to support anti-money laundering measures. 2. 2.1. CONTRACT OBJECTIVES & EXPECTED RESULTS Overall objectives

The overall objectives of the FISC Financial project, of which this contract will be a part, are as follows: Modernisation of the Egyptian financial sector (Banks and Regulators) in order to meet the challenges of globalisation and to support private sector growth in the Egyptian economy. Introduction - or reinforcement - of international standards and best practices as regards the governance, regulation and operation of the Egyptian financial sector. Specific objectives

2.2.

The objectives of this Contract are as follows:

a.

To organise activities and supply services under Component 2 of FISC Financial, in order to achieve the overall objectives listed above.

Page 3

FISC Financial - Terms of reference b.

To promote the development and imbedding of effective Risk Management Strategy and Policy methodology within NBE, including appropriate hierarchy, reporting systems and procedures. To ensure that Risk Exposure Levels are accurately identified and quantified across all major business lines (corporate, SMEs, correspondent banking, retail, treasury, investment) and that standardised daily and monthly reporting to line managers and General Management is implemented.

c.

d. To ensure that NBE management develops a comprehensive strategy for dealing with bad and doubtful debts, so as to reduce the percentage of nonperforming loans in the consolidated balance sheet by 70% over 3 years.
e.

To provide confidential, operational advice and guidance to NBE senior management in the field of Human Resources, notably as regards organisational structure and job descriptions in all business areas, so that weaknesses and gaps are addressed, and bottlenecks overcome. To provide confidential, operational advice and guidance to NBE senior management in the field of Management Information System and Information Technology, notably as regards credit control and management accounting. To ensure effective internal communication with NBE management and other stakeholders, so that internal support for restructuring activities is maximised. To provide accurate and timely reports to the supervisory authorities, as required.

f.

g.

h.

3. 3.1.

ASSUMPTIONS & RISKS Assumptions underlying the project intervention A stable macro economic environment in Egypt and sustained political will within the Government of Egypt to modernise the financial sector and to support concrete initiatives for reform. Progress in parallel to project activities towards wider legislative and regulatory reforms in order to create a stable environment in which local and foreign companies, financial institutions and investors may operate. A structural solution to the problem of non-performing loans contracted by Egyptian state-owned enterprises during the life of the FISC Financial programme. A strong and stable senior management team at the NBE, working in close co-operation with the project Experts and the Egyptian authorities.

Page 4

FISC Financial - Terms of reference

Availability of substantive Human and Management resources within the NBE to support restructuring and reform, to include an effective communications policy directed at external and internal stakeholders. Continued improvement in banking supervision in Egypt. Risks Changes in government economic policy, particularly as regards reform of the financial sector, could cause the project to lose focus and momentum. Failure to provide a structural solution to the problem of non-performing loans contracted by Egyptian state-owned enterprises will delay a return to sustainable profitability. Internal resistance to restructuring and change within NBE. An absence of accompanying legislative and regulatory reforms will reduce the impact of the project.

3.2.

4. 4.1.
4.1.1.

SCOPE OF THE WORK General

Project description

Effective financial intermediation is a key requirement for sustained economic growth. FISC Financial will complement initiatives financed by the EC and by other donors to improve the operating environment for Egyptian business and industry. The programme consists of three (3) Components:

Component 1: Support to the Central Bank of Egypt (i) Financial Sector Supervision (ii) RTGS System Component 2: Restructuring of selected Public sector Banks: (i) National Bank of Egypt (NBE) (ii) Bank Misr

Component 3: Support to the Capital Market Authority (with a Focus on Corporate Governance)

This Contract forms part of Component 2 of FISC Financial and will focus on the restructuring of National Bank of Egypt

Page 5

FISC Financial - Terms of reference

COMPONENT 2: Restructuring of selected Public sector banks. The Egyptian Authorities have designated two large public sector banks including National Bank of Egypt (NBE) - as beneficiaries of operational restructuring support under this Component. Sustained on-site expertise and advice will be provided to assist banks in the operational phases of restructuring. Coaching will be provided to bank senior management to ensure that appropriate strategies exist and are being implemented in key areas (including risk management), that restructuring goals remain coherent and that implementation occurs in a logical sequence.

4.1.2.

Geographical area to be covered

Activities provided under this contract will take place in Egypt, primarily in the Greater Cairo area. The headquarters of National Bank of Egypt is currently located at 1187 Corniche El Nil, Cairo, Egypt.
4.1.3. Target groups

The operational beneficiary under this Contract is National Bank of Egypt, an Egyptian bank with headquarters in Cairo and a branch network throughout Egypt. NBE is the largest of the Big 4 Egyptian public banks in terms of assets and plays an important role in the national economy.

"Big 4" Egyptian Banks: Total Assets 30 June 2002 and 2003
140.0 Fisc Financial Component 2

120.0

100.0

80.0

60.0

40.0

20.0

0.0

LE Billions

National Bank of Egypt

Bank MISR 30/06/2002

Banque du Caire 30/06/2003

Bank of Alexandria

Page 6

FISC Financial - Terms of reference

"Big 4" Egyptian Banks - Assets as a % of Total - 30/6/2003

12% Bk Alex

15%

Banque du Caire N.B.E.

43%

National Bank of Egypt Bank MISR Bank MISR Banque du Caire Bank of Alexandria 30%

Sources: Annual Reports 4.2. Specific activities

Component 2 of FISC Financial will make available resources for the support to two large public sector banks that have already embarked upon a modernisation and or/restructuring plan without prejudice to the Governments commitment to privatise selected public sector banks under other EU supported programmes. Should one of the two banks (NBE or Bank Misr) be privatised during the course of implementation of Component 2 of FISC Financial, any unused budget resources may be re-allocated to the other beneficiary public bank. Activities under this Contract will require the following approach and techniques :

Providing on-site expertise, advice, coaching and training to assist National Bank of Egypt management and staff in the operational phases of restructuring, covering key aspects of banking operations according to evolving priorities and needs. The expertise required by NBE will also involve the drafting of strategies, recommendations and implementation plans by the Consultant for the operational areas concerned. Assisting NBE senior management in verifying - on a regular basis - that agreed restructuring strategies are being implemented in all areas (ie no

Page 7

FISC Financial - Terms of reference

major areas have been overlooked). Furthermore, assisting NBE senior management in ensuring that restructuring goals remain coherent and that implementation occurs in a logical sequence. To this end, the consultant will prepare time charts and tables for each key operational area, so that restructuring can be regularly monitored in a standard format.

The Consultant will be required to review existing management information data and to advise NBE on ways to improve the quality and quantity of relevant indicators (eg return on equity, return on assets, earnings per employee, expenses per employee, liquidity, foreign exchange exposure). The Consultant will produce sensitivity analyses as required, including as regards financial market risks and scenarios (eg foreign exchange risk, interest rate risk, equity-price risk.).

Specific expertise will be provided in the following three areas (A, B and C). During the inception phase the Beneficiary will provide specific input on the expected deliverables for each of the three areas

A. Risk Management
Phase 1 : Diagnosis, Gap analysis, and Recommendations This phase will entail a scoping exercise and design of a capacity building programme as well as a confidential review and assessment of Risk Management (Credit, Market and Operational risks) within the National Bank of Egypt from a number of perspectives and across key business lines in order to provide NBE with a detailed assessment of the restructuring, capacity building and training needs in the core business lines as indicated in the below matrix: Perspectives (A) Risk Strategy, Policy, Procedures & Controls
(Credit, Market & Operational risks)

(B) Risk Exposure levels

(C) Risk Managers Hierarchy and Job descriptions

(D) Systems & Information Technolog y

Business Lines
(risk categories):

Corporate Banking SMEs Retail Banking Treasury / ALM Trading Investments

1 5 9 13 17 21

2 6 10 14 18 22

3 7 11 15 19 23

4 8 12 16 20 24

Page 8

FISC Financial - Terms of reference

The review and assessment will cover all of the above 24 areas. Key strengths and weaknesses in risk management will be identified. Where relevant, reference will be made to readiness for the Basle II capital adequacy regimes. Analysis of product pricing risk/reward - should also be included, the review will conclude with concrete, written recommendations for action to NBE to improve Risk Management at all levels (structures, methodologies & procedures). A full diagnosis of the existing risk management functional unit/organization versus best practice should also take place. Detailed findings and recommendations for the respective areas along with qualitative assessment - with a clear measurement and illustration of existing versus best practice should be produced. In this context, the tasks of the Consultant will include: Identifying, analyzing and summarizing - using a standardised methodology - the risk levels across the main products, and business lines of the 100 largest risk exposures - groups - (excluding financial institutions / inter bank credit lines / public enterprises) and appropriate classification to be recommended and compared to existing provision and consequently identifying exact provision gap. Identifying, analyzing and summarizing - using a standardised methodology inspired from the above matrix - the (A) Risk Strategy , Policy, Procedures and Controls B) Risk exposure level of NBE with respect to (1)Corporate banking (2)SMEs (3)Retail banking (4)Treasury/ALM (5)Inter-bank and correspondent banking and (6) Investments (hereafter known as the 6 key Business Lines). Identifying gaps in risk strategy and policy that may weaken the approach to risk management currently adopted by NBE and/or impedes preparations for the Basle II regime and to make recommendations for change. Identifying and analyzing - using a standardised methodology inspired from the above matrix - the (C) Risk Managers Hierarchy and Job descriptions within each of the 6 key Business lines.

Identifying gaps in the organizational structure and/or insufficiencies in individual job descriptions and to make recommendations for change. Identifying sources of (potential) human error, omissions, work overload or bottlenecks as regards the processing of risk management information, and to make recommendations for change. Identifying and analyzing - using a standardised methodology inspired from the above matrix - (D) Systems and Information Technology with respect to the 6 key Business lines.

Page 9

FISC Financial - Terms of reference

A detailed study of credit control should be undertaken, and the relevant management accounting (non-accrual) loan documentation and tools examined. Sample visits to NBE branches will be required, in order to gauge the effectiveness of procedures, and communications between the lending officers and credit control departments. investigated. Treasury and funding operations should also be

The Consultant should express a written opinion on the quality of the key risk management reporting documents, and verify if back-up or independent reporting systems exist. Specific issues to be fully examined under one or more of the 4 Perspectives indicated in the matrix (A,B,C,D) shall include but not be limited to: Credit applications, approval, lending and monitoring processes; Existence/effectiveness of internal credit rating systems; Monitoring of trading limits; Portfolio concentration / analysis; Early warning systems and stress testing; Collateral evaluation process; Use of industry studies / sector analyses; Delegated lending authorities / limits; Methodology for dealing with non-performing loans; (x) Workouts department (focusing on organization, qualification, & responsibilities) and procedures; Investment portfolio review; and investment process and guidelines. Review of Asset & Liability Management functions and its effectiveness; Exceptional identification system (e.g. credit lines expired or exceeded); Pricing methodology / formula; (xv) Review and recommend risk management organization structure & HR requirements to implement best practice. (xvi) Review and recommend credit administration organization structure & HR requirements to implement best practice. (xvii) Review the adequacy of Market and operational risk functions and related issues in terms of processes & procedures in order to control, monitor, & measure inherited risk. (xviii) Adequacy of reporting system & MIS with regards to risk management and control. The consultant will summarize in writing towards the end of this Phase - the main strengths and weaknesses of NBE in the field of Risk Management. They will be required to think laterally, and will have the freedom to focus in depth on problem areas, whilst providing a cursory review of areas that appear to be operating satisfactorily (NBE will provide some guidance in this respect).

Page 10

FISC Financial - Terms of reference

Moreover, the necessary actions, processes, and recommended for implementation in an action plan format.

procedures

will

be

Phase 2 : Implementation of a recommended Capacity Building Programme

On the basis of this assessment, the Consultant will conduct meetings with NBEs senior management to present the output of the review and assessment together with a recommended action plan to address identified weaknesses in Risk Management - with reference to anticipated Basle II requirements - in order to ensure a common understanding and to reach agreement on the outline of the Capacity Building Programme. The recommended Programme should include (but not limited to): (i) On-the-job training to NBEs management and staff at branch, regional office and/or head office level. (ii) Seminar training to NBEs - management and staff at branch, regional office and/or head office level; seminar training may be intra-institutional; and should be interactive, thus requiring the preparation and follow-up of case-studies; all seminar training should be well documented with course material relevant to the Egyptian context. (iii) Restructuring of risk function within NBEs organization to reflect an upgraded focus and management of this function. (iv) Streamlining/reengineering of policies and procedures manuals relevant within the Egyptian context (v) Development of a credit rating system (vi) Development of a retail scoring system (vii) Recommend software packages for managing the whole risk function (RFPs of said software packages should be prepared).

Implementation of the recommended capacity building programme as mutually agreed with NBEs senior management.

B. Human Resources
This components aims at contracting consulting services to upgrade the current Human Resources Infrastructure and practices with the bank and deliver the following:

A revised organization plan for NBE Management with managerial job descriptions and a migration plan from current to proposed structures. A Revised HR Function including policies, procedures, and systems.

Page 11

FISC Financial - Terms of reference

Detailed Scope of Work 1. Studying the Strategic Plan of the Bank The Strategic Plan of NBE specifies market objectives as regards the expansion of current services to more customers, the introduction of new services and financial instruments, and the extension of the branch network. A key objective of the proposed expansion is for NBE to develop into a regional player in the Middle East. In order to implement this strategy, the bank is planning - or has initiated - several projects. As these projects and studies will impact the current organization, the consultants will need to familiarise themselves with these initiatives. The Human Resources function has an important contribution to make to achieve the overall objectives of the Strategic Plan. Inputs to HR under this contract must respect the cultural roots of NBE in Egypt. Outputs (deliverables) will be specified in the annual work plans for the programme but will include a strategic plan Study for Human Resources and organisational charts in both English and Arabic. 2. Studying the Current Bank HR Operations Review of the current practices (policies and procedures) of the HR activities and conduct a diagnostic study of these practises to upgrade them to industry standards whilst taking into consideration the particularities of Egypt and the NBE Corporate culture. The following should be addressed: Staffing o Assessment & Budgeting o Recruiting o Hiring o Employee On- Boarding Manpower planning o Performance assessment o Career Path and Career Management o Job grading o Skills Management & Certification Tracking o Training Administration Manpower Deployment o Employee Scheduling o Shift & Vacation Bidding o Workload Planning o Compliance and coverage management o Corporate Governance aspects for directors Manpower Tracking o Time & Attendance o Leave Management o Policy Administration o Job & Budget Status

Page 12

FISC Financial - Terms of reference

o Employee Record keeping Employees Welfare o Medical system o Cafeteria and meals o Clubs & Entertainment Employee Rewards & Incentives o Payroll Processing & Administration o Payroll Tax Filing o Benefits Enrolment & Administration o Compensation Planning o Employee Awards Safety and Security Employee and Labour Relation o Intermediary between the Bank and its labour o Designing discipline and grievance handling system o Employee indoctrination (political , Cultural ) Human Resources Research and Information System o Providing a human resource information base o Designing and implementing employee communication system o Developing and reporting employees and employments statistics

3. Recommend a Revised Organization Using the NBE Strategic Plan and the HR strategic plan Study as springboards, the consultants will be required to develop and submit a revised Bank Organization Plan consisting of:

Organisational Structure (overall, departmental and branches) Management Posts, Roles and Positions Qualification and Skills definition for management profiles; Implementation plan for the recommended organization structure

For every management position in the organization chart, it is necessary to determine the work content, the workload expected, the number of posts in the position and the qualifications, skills/ experience required to perform the job. In particular;

Job evaluation to determine the value of each position, then suggest the best ways to staff and remunerate the position. The required position should be compared with sample incumbents in the current hierarchy. A career path for senior leadership positions should also be developed.

Implementation of the Plan has to be phased so as to avoid disruption to the current activities of the bank. The restructuring will normally first address existing bank operations, prior to introducing new structures and activities. The Plan will

Page 13

FISC Financial - Terms of reference

determine the necessary pre-requisites, and the order of tasks to be accomplished. The Plan must take into consideration the culture and the realities of the Egyptian environment. 4. Developing Detailed HR Functional Descriptions and Policies In light of the in-depth assessment of the current HR functions and activities within the bank as well as international practices, the consultant will develop, add or revise a detailed functional description for every HR activity accompanied with the guiding policies regulating the said function. In this context, detailed HR functions description and policy is a high level statement in the bank developing: beliefs, goals and objectives together with the general means for their attainment for a specific area. Deliverables The consultant is expected to deliver the following document: HR Functional Description, including objectives, mission, relationships within the overall organization, key performance indicators, and policies governing each the HR activities at large and each function in particular (whenever applicable). The document will have to be of public access to all employees. The document will have to be published electronically so as to allow for updates.

5. Developing an HR Procedures Manual (in Arabic) Procedures as viewed from the bank spell out the specific steps to implement a policy or a guideline and describe the tasks that must be completed in a specific order. Starting from the existing HR manual (in Arabic), new procedures will have to be developed or aligned in view of the new organization and in the light of the devised functions and approved policies. Some procedures will be discarded and replaced with state-of-the-art procedures involving automation (eg recruitment procedures via the internet). 6. Implementation Supervision To ensure implementation of recommendations and functions as prescribed in the above activities, the consultant will this will include: Hands-on as well as class-room type training of relevant HR staff on said functions, policies, procedures, practices and systems. This will include real case studies as well to ensure the HR staff and users are fully oriented with reengineered practices.

Page 14

FISC Financial - Terms of reference

Revision or further alignment of reengineered procedures as a result of real life implementation practice. The modernization of the recommended HR function, policies and procedures will require the procurement of relevant IT solutions (applications). The consultant will develop a series of RFPs for these requirements and accordingly, supervise the selection and acquisition of these applications/systems to meet the prescription, functional and user descriptions outlined.

C. Information Technology and MIS

Objectives This component aims to upgrade NBEs existing Management Information System / Information Technology at large and the core banking applications in particular. This will entail the analysis of the current status of automation at NBE, gap analysis, feasibility of replacements, vendors/products assessment, total cost of ownership (TCO) of the new core banking system, and Return on Investments of the new systems. IT Infrastructure Background The NBE environment consists of 3 IBM mainframes Z/800, two of them with sysplex environment in a centre, and the third in another centre for disaster recovery. The operating system is IBM z/OS. The terminals at our branches are connected to the mainframe through routers, hubs and switches. All services related to customer service in branches are automated while some head office departments are partially automated. Most applications are developed in-house and some applications are ready-made applications such as accounting system, securities (BSP), dealing room (OPICS/CONDOR+) and ATM (OASIS) DETAILED SCOPE OF WORK & DELIVERABLES The project phases will be divided into three main Phases: Phase 1: Mobilization, Current Status Assessment and Gap Analysis Phase 2: Development of the RFP and Vendor Selection Phase 3: Implementation Supervision The execution of Phases Two and Three will depend on the outcome of Phase One and the banks decision based on that outcome: Phase 1: Mobilization, Current Status Assessment and Gap Analysis 1. Mobilization:

Page 15

FISC Financial - Terms of reference

During this phase the Consultancy firm will identify key strategic issues to be considered during the project, it will confirm project objectives, scope and approach. The Consultancy firm will finalize work program and submit a detailed project time plan including responsibilities, start and completion dates, and deliverables. The Consultancy firm will confirm project team members, and the two Parties will develop and agree on the approval process. Deliverables: A detailed list of requirements from NBE and timings. A detailed time plan for the project. An agreed upon approval process for different deliverables. A finalized project team members with time commitments. 2. Survey of the Existing IT Platform at the bank: The consulting firm will conduct a survey of the existing hardware and software platform at the bank, especially the set of software packages and functionalities perfomed by each of these packages. The Consultant will perform an assessment of the overall situation of software packages interactions and interfaces between these packages and the existing accounting package at the bank. A special attention will be given to assess the available accounting package at bank. Deliverables: A high level architecture of the exisitng NBE IT environment. This architecture will identify major applications, sources of data, interfaces, hardware infrastructure and network topography. 3. Proposed Future IT Architecture: The consulting firm will use the results of Phase III to develop a proposed IT architecture for NBE. This architecture will identify major applications, interfaces, infrastructure tools and software, hardware and network topography required to support NBEs current business and projected future business opportunities. The proposed architecture should take into consideration the investment which NBE has made recently in hardware and network platforms and the latest trends in technology internationally. Deliverables: A high level proposed architecture to support NBEs projected business needs. This architecture will identify major applications, sources of data, interfaces, hardware infrastructure and network topography. 4. Gap Analysis of the IT Environment at NBE: A study to assess the gap between existing NBE systems, and the IT architecture required to support the Banks future business plans. In doing so, the consulting firm will review the relevant business processes at NBE, Document, confirm and prioritize major strategic, functional and technical requirements and obtain approval, and suggest modifications/ ammendments that must be discussed by the appropriate NBE authorities.

Page 16

FISC Financial - Terms of reference

The consulting firm will make a detailed review of the current accounting package available at NBE and determine its capability to fulfill the requirements of the Bank. A counterpart team from NBE will particiapte in this phase to facilitate the consultant's job during this phase, and to acquire experience in the performed tasks. Deliverables: A Gap Analysis Report between proposed IT architecture and current NBE systems. Proposed contents are specified below; o A migration plan for moving NBE from the existing systems to the proposed architecture. o Identification of all major projects including preliminary time and cost estimates. o Identification of major architectural constraints within the existing NBEs systems which would constrain NBEs ability to pursue major business opportunities. o Assessment of the impact of the proposed architecture on the NBEs IT department in terms of skill sets and resources required o The gap analysis report must take into consideration that NBE does not intend to introduce major changes to its hardware and networking platforms in the near future. o The gap analysis report must contain enough detailed description of business processes to make it feasible for international core banking vendors to identify those gaps and quote accurate financial offers for their project implementation phases. If the consulting firm needs any special requirements to carry out this phase in an effective way, this must be stated clearly in the offer or well in advance of the start of this phase. o The consulting firm might consider including an Arabic speaking business consultant in its team to facilitate the survey component of this phase. 5. Preliminary Assessment of External Vendor Solutions against Proposed IT Architecture. This assessment will take into consideration NBE strategy, the proposed IT architecture, the available platform at NBE (especially the hardware and networking platforms), the available budget allocated for the modernization projects at NBE,and the expected time frame for the modernization process. This phase will comprise a high-level assessment of potential products/vendors which potentially meet the Banks requirements. This phase will present different alternatives for the sought solutions and give pros and cons (including one time and ongoing costs) for each of them. These alternatives include recommendations either to modify/upgrade the current applications, the purchase of a new Internationally-Proven Banking Package, the use of middleware and the use of other software products including data warehouses. A counterpart team from NBE will particiapte in this phase to facilitate the consultant's job during this phase, and to acquire experience in the performed tasks.

Page 17

FISC Financial - Terms of reference

Deliverables: A report assessing alternative vendor solutions for implementing the proposed IT architecture at NBE. The report will present different alternatives for the sought solutions and give pros and cons of each of them. A Comparative study among the available products/vendor's which might serve the Bank requirements. This report will also include some similar case studies of Banks of similar sizes that encountered modernization efforts recently. Phase II: Development of the RFP and Vendor Selection Implementation of this Part will depend on the outcome of Part One and the decision of NBE based on that outcome. It will include the following activities; 1. Development of a Request for Proposal (RFP). The Consultant will develop an RFP for the required solution resulting from the findings of the previous phases. A counterpart team from NBE will particiapte in this phase. Deliverables: An RFP stating the technical and functional requirements for the sought solution for NBE. An Evaluation criteria for the solutions to be submitted. An estimate value for the sought solution. A time plan for the implementation of the solution. 2. Evaluation of vendor responses and selection of the most appropriate vendor. The Consultant will participate in the evaluation and selection process for the prospect vendor based upon the vendor responses. The selection process will be carried out according to NBE's rules and regulations, therefore, the Consultant must familiarize himself by those rules prior to the commencement of this phase in order to avoid any unexpected rule violations. It is expected that the main technical input in the selection phase will be contributed by the Consultant, however, counterpart team from NBE will participate in the technical evaluation as well. Deliverables: A technical evaluation report stating the technical standing of the submitted offers as a response to the RFP. A techno-financial evaluation report stating the final standing of the submitted offers as a response to the RFP, and a recommendation for the procurement of the selected solution with recommended terms and conditions. Phase III. Implementation Supervision

Page 18

FISC Financial - Terms of reference

The consultant is responsible for coordinating with the vendor/system integrator to supervise the implementation of the acquired IT/MIS Solutions as well as quality assuring the implantation outcomes with the business and technical requirements predefined in the gapping and user requirements exercises. This supervision will cover: Detailed implementation planning and overall project monitoring. PILOT planning, execution, testing, reporting, etc. Roll-out plan for Head Office, Branches, etc. Business and Technical staff training on implementation management whenever applicable (apart from application and systems-related training).

Page 19

FISC Financial - Terms of reference

4.3.
4.3.1.

Project management
Responsible body

The European Commission, represented by its Delegation in Egypt, will be responsible for managing this Contract. The Experts under this contract will coordinate with the European Commission Delegation in Egypt to ensure that activities contribute to the wider visibility of EC development co-operation with Egypt.
4.3.2. Management structure

Activities under this Contract will benefit from a Steering Committee (SC) including representatives from NBE, the Central Bank of Egypt and other relevant stakeholders. The European Commission Delegation in Egypt (EC Delegation) will participate as an observer. The SC will meet at least every 3 months. The SC may decide to organize additional, extraordinary meetings if deemed necessary. The SC will oversee activities on a strategic level: Review and approve Component Work Plans and Reports; Where appropriate, provide guidance to the Team Leader; Initiate budget re-allocations if justified. Coordinate activities with other ongoing donor-funded projects in the sector, to obtain synergies and avoid overlaps; The Team Leader will be called upon to make presentations to the Steering Committee, notably for the submission of Work Plans and Reports for review and approval.

5. 5.1.

LOGISTICS AND TIMING Location

Services provided under this Contract will primarily be delivered on the premises of NBE in Cairo, Egypt including at the headquarters building (1187 Corniche El Nil, Cairo). Visits to selected branches and/or affiliates of NBE in other parts of Egypt will also be required. 5.2. Commencement date & Period of execution

The contract duration is 36 months. Please refer to Articles 4 and 5 of the Special Conditions for the actual commencement date.

Page 20

FISC Financial - Terms of reference

6. 6.1.

REQUIREMENTS Personnel
Key experts

6.1.1.

All experts who have a crucial role in implementing the contract are referred to as key experts. The profiles of the key experts for this contract are as follows: Key Expert 1: Team Leader (Long Term) minimum 620 working days A Team Leader, who will be an International Expert, will be required for the major duration of this contract. The Team Leader will be an experienced financial sector professional, combining technical expertise in commercial banking with strong management, communication and administrative skills. In addition to his/her management duties, the Team Leader is expected to provide technical guidance and inputs in the strategic area of Risk Management. Qualifications and skills

University Degree in a relevant discipline (economics, management, accountancy, banking and finance, commercial law). A relevant Masters degree or professional qualification would be welcomed but is not obligatory; Fluent English and experience of writing detailed reports in English; Excellent communication and interpersonal skills;

General professional experience

A minimum of twenty years of work experience in commercial and investment banking, including significant experience in OECD countries (Europe, North America.); At least seven years of work experience in large international banking organisations having commercial activities in several countries;

Project management experience - leading a team of professionals is obligatory;

Previous work experience with international development donors (EC, World Bank, EU Member States, USAID, ) is desirable.

Specific professional experience

At least ten years experience in risk-management related areas (control of lending, credit analysis, market risk supervision, operational risks management, treasury limits, financial control, internal audit, investment). Previous work experience in bank restructuring/advisory or bank risk management, either at senior level within a bank or as an external consultant;

Page 21

FISC Financial - Terms of reference

Demonstrable familiarity with the design and critical paths of bank risk reporting systems (but is not required to be an IT/computer expert). Previous work experience in the Middle East or North Africa is preferred but not obligatory.

Key expert 2: Human Resources Expert - minimum 200 working days (of which
a minimum of 100 days to be provided within the first 6 months of this contract).

Qualifications and skills

University Degree qualification;

plus

Human

Resources

professional

Fluent English and experience of writing detailed reports in English; Excellent communication and interpersonal skills;

General professional experience

A minimum of fifteen years of work experience in human resources. At least ten years of human resources work experience within the banking and finance sector (eg in a large commercial or investment bank);

Specific professional experience

Demonstrable familiarity with the design and implementation of Human Resources policy for a large, commercially-orientated organisation, including job descriptions, staff evaluation methodologies, compensation grids and staff incentive programmes. Familiarity with the Middle East and/or knowledge of Arabic would be welcome but is not obligatory.

Key expert 3: Management Information (MIS) / Information Technology (IT) Expert - minimum 200 working days (of which a minimum of 100 days to be provided
within the first 6 months of this contract).

Qualifications and skills

University Degree plus a professional qualification relevant to MIS / IT. Excellent communication and interpersonal skills;

General professional experience

Page 22

FISC Financial - Terms of reference

A minimum of fifteen years of MIS / IT work experience, including significant experience in an OECD country (Europe, North America); At least ten years of MIS / IT work experience in a banking and finance environment (eg within a large commercial or investment bank);

Specific professional experience

Demonstrable project experience in needs analysis, design, development and implementation of MIS / IT systems in large financial sector organisations; Familiarity with the Middle East and/or knowledge of Arabic would be welcome but is not obligatory.

Experience of integrating MIS/IT solutions within existing systems;

Note that civil servants and other staff of the public administration of the beneficiary country cannot be recruited as Key Experts.
6.1.2. Other Experts

CVs for experts other than the Key Experts are not examined prior to the signature of the contract. They should not have been included in tenders. The Consultant shall select and hire Other Experts as required, in line with the specific activities described in paragraph 4.2 of these Terms of Reference and as confirmed by work plans approved by the Steering Committee. On an indicative basis only, the following profiles are likely to be required:

Short term Experts in risk management; Short term Experts in credit analysis and control of lending; Short term Experts in treasury management; Short term Experts in foreign exchange; Short term Experts in implementing international capital adequacy benchmarks (Basle I and II); Short term Experts and Advisors in Human Resources and Compensation; Short term Experts in MIS / database management; Short term Experts in Internal Audit

For these short term assignments, at least 60 % (sixty percent) of working days must be provided by International Experts, each having a minimum of 15 years professional experience. Some short term Experts will need to be fluent in Arabic. For each Expert recruited, the Consultant must indicate whether they are to be regarded as long-term/short-term, international/local and senior/junior so that it is clear which fee rate in the budget breakdown will apply to each profile. For the purposes of this contract, international experts are considered to be those whose

Page 23

FISC Financial - Terms of reference

permanent residence is outside the beneficiary country while local experts are considered to be those whose permanent residence is in the beneficiary country. The Consultant should pay attention to the need to ensure the active participation of local professional skills where available, and a suitable mix of international and local staff in the project teams. All experts must be independent and free from conflicts of interest in the responsibilities accorded to them. The selection procedures used by the Consultant to select these other experts shall be transparent, and shall be based on pre-defined criteria, including professional qualifications, language skills and work experience. The findings of the selection panel shall be recorded. The selection of experts shall be subject to approval by the Contracting Authority. Note that civil servants and other staff of the public administration of the beneficiary country cannot be recruited as Other Experts.
6.1.3. Support staff & backstopping

The Consultant will be required to provide support and backstopping for all activities, notably in the case of the temporary or unforeseen absence of Experts. In addition, Experts in the field should benefit from technical support from the Consultant when required. The backstopping costs and the costs of support staff (including local administrative and secretarial staff) are considered to be included in the fee rates. The Consultant must provide a local secretary for the Team Leader.

6.2.

Office accommodation

NBE will provide furnished office accommodation (desks, chairs) in Cairo of a reasonable standard for each of the Key Experts listed in paragraph 6.1.1. Office accommodation of a reasonable standard for Other Experts working on the contract is - where necessary - to be provided by the Consultant. The cost per square metre must be in line with the prevailing local market rate for office accommodation of a reasonable standard. NBE will also make available meeting rooms in Cairo to all Experts on an ad hoc basis, as required. 6.3. Facilities to be provided by the Consultant (within the fee rates)

The Consultant shall ensure that Experts are adequately supported and equipped, including as regards portable computers and mobile telephones. In particular the Consultant shall ensure that there is sufficient administrative, secretarial and interpreting provision to enable experts to concentrate on their primary responsibilities. It must also transfer funds as necessary to support its activities under the contract and to ensure that its employees are paid regularly and in a timely fashion.

Page 24

FISC Financial - Terms of reference

If the Consultant is a consortium, the arrangements should allow for the maximum flexibility in project implementation. Arrangements offering each consortium partner a fixed percentage of the work to be undertaken under the contract should be avoided. 6.4. Equipment

No equipment is to be purchased on behalf of the Contracting Authority / Beneficiary Country as part of this service contract or transferred to the Contracting Authority / beneficiary country at the end of this contract. Any equipment related to this contract which is to be acquired by the Beneficiary Country must be purchased by means of a separate supply tender procedure

6.5.

Incidental expenditure

The Provision for incidental expenditure covers the eligible incidental expenditure incurred under this contract. It cannot be used for costs which should be covered by the Consultant as part of its fee rates, as defined above. Its use is governed by the provisions in the General Conditions and the notes in Annex V of the contract. It covers:

Travel costs and subsistence allowances for missions undertaken by Experts within Egypt (ie outside of the greater Cairo area) as part of this contract and as foreseen in the Work Plans approved by the Steering Committee; Contributions towards the direct cost of organising external seminars in Egypt (eg rental of conference rooms), foreseen in the Work Plans approved by the Steering Committee;

The total Provision for incidental expenditure for this contract is 250.000This amount must be included without modification in the Budget breakdown. Any subsistence allowances to be paid for missions undertaken as part of this contract from the base of operations in the beneficiary country must not exceed the per diem rates published on the Web site http://europa.eu.int/comm/europeaid/index_en.htm at the start of each such mission.

7. 7.1.

REPORTS Reporting requirements

The Beneficiary and the European Commission attach high importance to the quality and clarity of Work Plans and other technical documents to be produced by the Consultant. The following documents will respect the Project Cycle Management (PCM) approach and will be produced by the Consultant in accordance with European Commission guidelines:

Page 25

FISC Financial - Terms of reference

Document

Purpose/content Strategic Plan over the life of the programme. Annual activity plan, updated every 12 months. A quarterly review of activities of the previous 6 months, with reference to the Overall and Annual Component Work Plans. Short monthly status report (1 2 pages only) Required as part of project evaluation stage.

Timing of publication Start of Programme (S) S, S+12 months S+24 months S+3, S+6, S+9, S+12

Overall Component Work Plan (OCWP) Annual Component Work Plan (ACWP) Component Progress Report (CPR)

Executive Brief Final Report

Every month End of programme

The Team Leader is responsible for preparing an Overall Component Work Plan (OCWP) for activities under this Contract. The OCWP is a strategic document which must be submitted to the Steering Committee for comment and approval within 25 working days from the start of this Contract. The OCWP is intended to ensure ownership by stakeholders and also to assist long-range planning. If necessary, the OCWP can be updated from time to time. At a more operational level, the OCWP will be implemented according to approved Annual Component Work Plans (ACWP). The ACWP will be prepared /updated every 12 months by the Team Leader and subsequently submitted for approval by the Steering Committee. The first AWCP must be submitted to the Steering Committee for approval within 40 working days from the start of this contract. A Component Progress Report (CPR) must be submitted every three months by the Team Leader to the Steering Committee for approval. The CPR will contain a comprehensive summary of activities over the previous three months, with reference to the Overall and Annual Component Work Plans, and should also outline main activities for the following 3 months. Three months before the end of TA operations, the Team Leader will oversee the preparation of a Final Report, summarizing activities since inception and evaluating in detail the impact of the Programme in view of its objectives and expected results. The European Commission shall be entitled to request specific reports from the different technical assistance teams and to request modifications to report formats. In addition to the above reporting requirements, a monthly Executive Brief (1 or 2 pages only) will be transmitted by the Team Leader to the Steering Committee

Page 26

FISC Financial - Terms of reference

and the EC Delegation. It will summarise the main ongoing activities in each area, highlighting any problems and outlining objectives for the coming month. For the purposes of this Contract, Work Plans and Reports will be written in English. The use of graphics and charts is expected. Invoicing Invoicing by the Consultant will be on a six monthly basis (maximum of 2 times a year), as follows: Immediately following the submission of a Component Progress Report, the Consultant should submit an invoice for the previous six months. An updated financial statement must be annexed to each Report, containing details of the time inputs of the experts and of the incidental expenditure. Following submission of the Final Report for the Component, the Consultant should submit a final invoice, at the end of the period of execution. An updated financial report must be submitted with the Final Report, containing details of the time inputs of the experts and of the incidental expenditure. The Consultant must also provide an audit certificate (as defined in Article 30 of the General Conditions and in accordance with the template in Annex VI of the contract, confirming the final certified value of the contract).

7.2.

Submission & approval of progress reports

Three copies of the progress reports referred to above must be submitted to the Project Manager identified in the contract. The progress reports must be written in English. The Project Manager is responsible for approving the progress reports. 8. 8.1. MONITORING AND EVALUATION Definition of indicators

Suitable quantifiable indicators (qualitative and quantitative) will be agreed between the Contracting Authority and the Consultant to measure the validity, usefulness and efficiency of project activities, and the resulting progress towards expected results. Examples of Indicators that may be required include: 8.2. Targeted reductions in the levels of non-performing loans Improved Return on Equity (RoE) Improved Return on Assets (RoA) Establishment of sustainable management information systems Special requirements

Not applicable.

Page 27

FISC Financial - Terms of reference

Page 28