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Banks provide backbone of stability

Article - August 18, 2015

Facing post-revolution economic meltdown, Egypt’s banks were key to its survival and are today the lynchpins in its recovery.  As confidence returns to the economy, the sector is now well-placed to engineer unprecedented and widespread growth.


The political turmoil that Egypt suffered over recent years could, and perhaps should, have destroyed the country’s economy. And yet it didn’t.

Egypt in fact managed to wriggle itself out from under potential economic collapse when the country seemed to be facing almost insurmountable challenges.

Many point to the characteristic resilience of the Egyptian people as a reason for the country’s survival. Others to the fast-action of President El-Sisi’s government when it came to power last year.  

While it is arguably down to a combination of factors as to why we are today seeing a great Egyptian comeback, none of it would have been possible without the country’s ever steady banking sector.

Spearheaded by the Central Bank of Egypt (CBE), the robust banking industry’s capacity to endure the debilitating economic impacts of two revolutions (and four Presidents) in little over three years, as well as the global financial crisis of 2008, is quite incredible to say the least.  

The strength of the sector owes to a process – led by the CBE – of consolidation, privatization and increased foreign ownership realized in the early 2000s.

This regulatory reform produced banks that were at times arguably the healthiest out of the developing markets around the world over the past decade, and so, when 2011 and the first Egyptian uprising hit, the country’s banks kept a steady ship – with many continuing to post good profits.  

Indeed Egypt’s banks provided a much-needed backbone to the country during this testing time. Now, with the country’s fortunes slowly being reversed as investor confidence returns to its economy, the sector is well-placed to engineer further widespread economic growth the likes of which Egypt has never seen before.

The recent Egypt Economic Development Conference (EEDC) has highlighted just how much ambitions have changed over recent months.

The EEDC, which took place in March, presented 120 projects, including more than 10 so-called megaprojects that straddled across both public-led and public-private partnerships. Inevitably, Egypt’s well-regarded banking sector was essential to the success of this process.

The Ministry of Investment has already allocated more than 30 projects totaling in excess of $20 billion to investment banks, and the belief is the strategy will help power the country’s economic growth over the medium to long term.

“I believe that initiating mega projects in the country is the best way to lead and kick-start the economy and create employment,” says Mohamed Naguib Ibrahim, Chairman and Managing Director of SAIB, ranked as Egypt’s 10th largest institution with plans to expand from 15 branches to more than 40 by 2017.

“Establishing large national infrastructure projects in Egypt will contribute to solving the unemployment problem of the country, and the Suez Canal Expansion Project is a very good example.”

On top of this, the SAIB chairman says that the potential of the banking market can be reached through developments such as those discussed at the EEDC, with projects helping to drive investor confidence and further reflect the strength of the Egyptian banking sector around the world.

“Both local and foreign investors, who want to do business in Egypt, have total confidence in the banking system,” says Mr. Ibrahim.

“Our banking sector is one of the best in the world when it comes to reserves, loans and other financial aspects.” 

Keeping the trust

Such confidence is bolstering growth opportunities, which are widespread across industries, and the banking sector is preparing for expansion of its own across both its retail and commercial operations.

Hisham Okasha, Chairman of the National Bank of Egypt (NBE), believes that while the industry has undoubtedly been central to Egypt’s resurgence following the upheaval of recent years, retaining this trust has been vital.

“The Egyptian banking sector has proved robust and withheld one stress test after the next since the global financial crisis of 2008,” he says.

“This is because our main deposit base is from the retail industry. 70% of the deposit base in the banking sector comes from households. 

“Looking at Europe’s balance sheets, loans to deposits are 120-150%,” he continues. “In Egypt, it’s different because people put their savings in the bank as they have trust in the banking sector.

This confidence was more clearly represented over the last four years when there was huge political and social turmoil.

Yet, people kept trust in the banks, kept their money in the banks, and now we have around 1.6 trillion EGP ($204 billion) of deposits, and 70% of them are as individuals. This is what gives Egypt’s banking sector stability.”

What’s more, the belief displayed in the banking sector from investors at the recent EEDC summit in March has already begun to pay off further.

The credit rating agency Moody’s upgraded the country’s prospects in April, notching up five major Egyptian banks ratings from CA1 to B3.

“The support we received from the attendees at the EEDC showed unanimous international backing for Egypt, which was translated into the mega-projects that were announced,” says Mohamed El Alfy, Managing Director of Engineering and Investment at the Housing & Development Bank.  

Access to finance 

Though Mr. El Alfy believes that such support is beneficial to Egypt’s growth in the relative short term, he says that one of the main challenges going forward is how to change the culture of banking in the county – one where only a minority of people have bank accounts and work in the informal economy.

By increasing financial services to both citizens and businesses, Mr. El Alfy says that the private sector will be the main driver of Egyptian growth in the future.

“Unfortunately, Egypt is over-banked but under-served. You have almost 40 Egyptian banks operating almost 4,000 branches over Egypt, and you have around 10 million bank accounts with a lot of people having multiple accounts.

This leaves a huge gap in the market,” he explains. “Many businesses transactions happen outside the banking sector, so you need to work on the awareness of banking. Everything is moving towards formalizing the economy.” 

One way in which the Housing & Development Bank is going about this is through its partnership with telecoms giant Vodafone to provide mobile banking – a method that has seen the number of people with access to banking increase dramatically throughout the Middle East and Africa over recent years.  

The bank also has plans to expand from its current 60 branches to more than 100 in two years time, largely off the back of booming demand in the real estate sector. 

Chairman of NBE, Mr. Okasha, agrees that extending access to finance, especially in extending services to the country’s many small and medium size enterprises (SMEs) – a large portion of which operate informally – will be a key catalyst for the extended success of banking and the wider economy in the future.

“SMEs are one of the National Bank of Egypt’s strategic targets as there is a plan to increase our portfolio to 25 billion EGP ($3.2 billion) in the following two years,” he explains.

“Enlarging the GDP of the country by formalizing the informal sector is a key contributor to the banking sector.”

Formalizing the economy this way is just one of the many developmental needs that Egypt is calling for as the country embarks on what is a new chapter in its history.

This new Egypt, says Mr. Okasha, is one of opportunity. There are prospects for growth wherever you look, and thus, openings for the banking sector too.

“Undoubtedly, a country with a population of 94 million requires real development. You are looking at opportunities in infrastructure, energy, housing and all other sectors that follow, such as the food processing industry, which encompasses a very large and real economy. With such a population and a strategic location for logistical purposes, such as passage through the Suez Canal and the main ports of Egypt, the key elements for potential growth are formed. This entails fertile ground for the growth of any economy. The potential for growth in Egypt is huge, and that has been perceived by investors.”

“The Egyptian banking sector has proved robust and withheld one stress test after the next since the global financial crisis of 2008. People kept trust in the banks, kept their money in the banks, and now we have around 1.6 trillion EGP ($204 billion) of deposits”

Hisham okasha, 
Chairman of National Bank of Egypt (NBE)

Banking on investment 

Attracting further global investment to Egypt’s banking sector will also facilitate increased growth rates, and NBE plans to build on an existing $600 million international bond it first offered in 2010 which was three and a half times oversubscribed.

Another bond is now being prepared to build on the confidence shown by investors, the majority of whom came from the likes of Asia, Europe and the Arab Gulf region. 

Egyptian potential has also enticed foreign companies such as New York-based investment firm Concord Group, which is a leading fund manager of Egyptian securities.

Mohamed Younes, Chairman at Concord International Investments, oversees a fund of around $2 billion and believes the banking sector is well-placed to uncover huge potential in Egypt, partly because of its diversified economy and large consumer base.

“If you put the populations of the Gulf countries together (other than Saudi Arabia), they are smaller than Cairo. They are like villages with one industry, oil, and no domestic market of any size.

Others look at Egypt and think that it is a poor country with no resources except very nice beaches, nice markets, and a very enterprising population. People don’t use critical thinking in looking at those things,” he says.

That sort of viewpoint seems to be shifting rapidly however, as foreign investors review the opportunities available and the ability of the country’s banking sector to facilitate them. 

Cementing further international ties between Egypt’s banks and the global investment community will indeed be vital for continued growth and SAIB’s Mr. Ibrahim says that while the reforms of 2003 have ensured a solid banking industry, the country must now look outward for further opportunities.

“The banking sector in Egypt is solid, yet we still need to develop ourselves more to handle the increasing challenges the sector is facing every day,” he asserts. 

The Egyptian financial industry has sailed through turbulent waters with remarkable success over recent years, and it is this strength which is now delivering the stable base for further expansion and more diversified economic growth.

Challenges do exist though, not least dealing with the complications of red tape.

“Bureaucracy is a very important issue that goes back a very long time. It involves the laws, policies and culture and to handle those issues one has to think outside the box,” says Mr. Ibrahim, adding that such changes will be vital to encourage continued investment.