National Bank of Egypt (NBE) and Banque Misr, the country's first and second biggest banks by assets, said they had agreed to accept real estate in exchange for hundreds of millions of dollars in public sector debt.

Egypt has reduced the debts the firms owed to state banks, accrued since nationalization in the 1960s, to 8 billion Egyptian pounds ($1.5 billion) from 32 million only a few years earlier.

There has been an agreement ... with the public sector companies that we would take assets as settlement for the public sector debt, Banque Misr's Vice-Chairman Mohamed Ozalp told Reuters on Sunday.

National Bank of Egypt's Chairman Tarek Amer confirmed in an e-mail that his bank had also agreed to the real estate for debt exchange.

The two banks had formed a company to take receipt of the assets for later sale, Ozalp told Reuters. Both banks are owned by the government but are being run by bankers hired from private sector banks.

We're still in the process of looking at the various assets, and it will probably done in phases. It won't all happen at the same time. We'll examine the assets. If they're acceptable to us we'll take them, Ozalp said.

The Ministry of Investment, which controls a large portion of Egypt's state-owned companies, proposed the exchange in October, the minister, Mahmoud Mohieldin, told Reuters at the time.

We don't really have other sources but to swap debts by pieces of real estate, he said.

Banque Misr is owed just over 5 billion pounds of the 8 billion pounds, Ozalp said.

(Writing by Patrick Werr; Editing by David Holmes)

Egypt