The Central Bank of Egypt (CBE) has been following an expansionary monetary policy. How do you assess the CBE's policy and the degree of autonomy that it exercises in managing Egypt's monetary policy and exchange rates? The CBE's decision to discount interest rates was not made randomly, but in line with a number of well-studied decisions to best optimise current market conditions and facilitate access to credit. Although the Egyptian pound regressed by almost 15 per cent of its value against the US dollar in 2013, the impact could have been worse if the CBE had not proactively become involved in controlling the market and organising several dollar auctions throughout the past year. Recent actions such as cracking down on foreign exchange offices that were selling dollars at above market level rates have also aided in mitigating further devaluation of the currency. A positive outtake from this is also the effect on year-on-year gross exports, where we have seen a nine per cent uptake in gross exports (from $26.5 billion in 2012 to $28.86 billion in 2013) due partially to the weakened currency making Egypt a more attractive trading partner and in addition to renewed trade agreements with major European and Asian markets. We appreciate the fact that the CBE has generally been exempted, within the possible limits, from the political struggles the country has seen in the past few years. The implementation of monetary policy, in addition to formulating rules that regulate banking market operations and adopting measures that should protect the local currency, have all helped protect the banking sector as well as keep the economy floating. The CBE has proved over the past three years that it is one of the most efficient regulating bodies worldwide through its ability to manage crisis. If we look back at the global economic crisis of 2008, we will note that Egypt remained largely untouched, due to the heavily regulated banking sector and the fact that our market remains heavily under-credited. Gulf markets such as Dubai and Kuwait were not so fortunate, with large credit losses and a large downfall in housing prices. If you compare the situation in Egypt with other countries that saw revolutions, you find that one of the main pillars of stability has been the financial market. There have been some concerns regarding the weakening of trade in emerging markets. How do you see the potential impact of such a development on the exchange rate? Egypt is a big country with very strong financial points/fundamentals. The Egyptian banking market is one of the most qualified markets to achieve breakthroughs over the upcoming period, especially under conditions of political and security stability. Any impacts on the Egyptian pound due to the current crises are expected and can be overcome. GDP growth rates for the first nine months of 2013 reached 2.3 per cent, as against 1.8 per cent in 2011. While we are looking forward to reaching the pre-Revolution levels of 2010 (5.4 per cent and over seven per cent in 2008), we feel that this will be achievable with a more stable environment. We cannot deny that the Egyptian economy in the last three years has gone through difficult challenges that have negatively affected our foreign currency monetary reserves. However, we are positive that the Egyptian economy will be able to overcome these challenges with continued support from the Gulf Cooperation Council (GCC) and the global community. Egypt also shares the characteristics of emerging markets, which have the unique advantage of having generally weaker currencies, lower labour and material costs and a wealth of startups and entrepreneurs, allowing them to be more competitive on the international scene. Egyptian banks are investing heavily in treasury bonds instead of in the wider economy. How do you see this trend? And how much does AlexBank invest in such bonds? With the slowdown in economic activities after the 25 January Revolution, banks had to diversify their investments among different assets and investing in treasury bills was considered one of the attractive assets classes from a risk/return perspective due to their high liquidity nature and attractive yields. AlexBank has an exposure of around LE10.5 billion in treasury bills and treasury bonds. It will continue to invest in treasury bills as part of the Bank's strategy to diversify its investment and manage its liquidity. Most importantly, it is a reflection of the Bank's commitment to the Egyptian economy. The current yields are considered low compared to previous years, which is a healthy sign that reflects the market's perceptions of the future of the Egyptian economy and its strength. At the end of 2011, our Bank's investment in treasury bills and bonds moved from LE5.6 billion to LE10.5 billion, but we don't want to increase this level too much. This is less than the rate of investment of other banks in Egypt in such bonds. One of the main positive points for the Bank in Egypt, especially in 2011/12, was the revenues from the interest on treasury bills that helped the bank perform well. In 2013, the contribution from treasury bills decreased in relation to that from business. We want to maintain the same level of investment in treasury bills, but we also want to increase the loan deposit ratio of the Bank to help the economy by lending to corporate companies, SMEs and retail companies. AlexBank planned to venture into Islamic banking. How do you evaluate investing in such a sector given the current situation, especially after the toppling of Muslim Brotherhood rule and the ousting of former president Mohamed Morsi? When selecting a market or segment to enter, we have to make sure that there is a sufficient level of market attractiveness and that we have a competitive advantage in this market, irrespective of political considerations. If we feel that there is sufficient demand in this market or that we can carve a niche for ourselves in it, we will proceed. We have a lot of interest in this initiative, given that we've seen numerous Islamic banks enter the market and do fairly well. We are studying the best-fit solution and will select the best time and approach to enter the market. However, it is too premature for us to set a date or concrete strategy yet. AlexBank was one of the first Egyptian government banks and it continues to be the only privatised one since it was sold to the Intesa Sanpaolo group in 2006. The Bank also witnessed a number of strikes after the 25 January Revolution. How does its management deal with issues relating to its employees and restructuring? As you know, the 2011 Revolution rippled into many micro civil strikes across Egyptian organisations and banks, both in the public and private sectors. AlexBank was no exception; however, I can safely say that the Bank managed very well and successfully handled the issue in a structured manner in direct collaboration with the CBE. By April 2011, AlexBank, which had experienced a top management change, concluded meetings with the committee of staff representatives with an agreement witnessed personally by Hisham Ramez, the current CBE governor who was the deputy governor at that time. This agreement represented a roadmap that AlexBank has adhered to and finalised. The roadmap covered many aspects, including collective increases for the entire payroll of more than 5,500 employees and reaching above 110 per cent increases for some roles. Soon after the agreement and together with the staff union of AlexBank, the new management worked to set up, with transparency, a full salary and work-level structure for the Bank to guide all compensation and benefits activities, including simplification and enhancement of allowances schemes and transparent merit criteria and mechanisms based on performance and individual contributions. This took place along with an organisational project that simplified and clarified the organisational structure of the branch network, setting clear objectives for every role to increase autonomy and significance. The inequality of salaries has been one of the issues laid on the table. Employees who were recruited after the Bank was privatised have received bigger salaries than those who were recruited before the Bank's privatisation. How is this problem being addressed? Through the agreement that the Bank's management signed with the employees union after the 25 January Revolution, salaries were more or less increased by 100 per cent and in some cases more. We identified the importance of maintaining the total income of the staff, in both its fixed and variable aspects, distinguishing the elements of performance and productivity regardless of hiring before or after privatisation. Today, the Bank functions based on a salary and work-level structure that relates remuneration to specific roles that are also comparable to the market. To revise compensation for specific roles, the reference point is the skills and capacity to perform the role for all employees. AlexBank is also a regular participant in major compensation and benefits surveys in the market in order to ensure competitiveness. Our salary and work-level structure has embedded transparent mechanisms in order to increase the total income of staff and not only through work-level promotion. Balancing the total income of the staff is also a factor guiding our profit-sharing scheme, allocating the profit-sharing distributable by law to all staff, with a portion distributed based on performance and contributions to the macro goals of the Bank. AlexBank still faces accusations of alleged corruption in its sale to the Intesa Sanpaolo Group. Do you see indications that these lawsuits will end soon? The Egyptian framework allows anyone or any entity to file lawsuits as they wish. Similar lawsuits have overshadowed different sectors throughout past years, as they have been filed against most institutions and companies. We have absolute confidence in our legal conditions and all the procedures that were followed in the Bank's sale and privatisation. Moreover, we are totally confident of the integrity of the Egyptian judiciary. The Egyptian government has been on the alert against random lawsuits that run after investors in all sectors, ruining the investment environment. Thus, the government has repeatedly affirmed that it is doing its best to further protect investors and provide them with all the required assurances, aiming to encourage the injection of more investments, instead of capital exit or resorting to international courts, which in turn could defame the Egyptian investment climate in this critical period that requires cooperation and coordination among all efforts to drive the economy forward and achieve development. The latest verdict that advocated the privatising of a company due to its correct legal position in the purchase transaction may drive investors to proceed with new purchase deals and start new companies in Egypt. This is a signal that the country trusts foreign investors that value Egypt for profit. How do you evaluate the Egyptian political situation and its impact on the investments of Intesa Sanpaolo in Egypt? Do you expect further expansion for Intesa Sanpaolo in Egypt or further shrinkage? Over the last three years Egypt has seen instability, and as a banker I saw many investments either ceasing, or not coming at all. But the last government gave many positive signals to the world with the implementation of the political roadmap and plans for investment in many sectors, such as infrastructure and the environment. In the light of security, stability and investors' strong interest in pumping their money into the Egyptian market, a real economic improvement will be seen little by little. If economic stability and security are maintained, the country has the potential to gradually improve investments in the tourism and real-estate sectors. Intesa Sanpaolo has a promising outlook for the Egyptian market as one of the most attractive markets in the region, and we continue to invest in Egypt through our staff, branches and infrastructure and by providing vital credit to the market. We have a very strong investment plan in this country, more than LE100 million per year, and this is a very strong signal. The Bank's parent company is investing a lot of money in Egypt. Egypt features many unique benefits and investment opportunities, especially in the banking sector that promises enormous growth opportunities taking into consideration the huge population that remains highly under-banked with only around 10 to 12 per cent penetration of the eligible market. Also at AlexBank we have the unique advantage of being geographically located in almost every governorate in Egypt. We remain committed to Egypt for the long term and will continue to compete fiercely as one of the leading market players. We believe that our experience in Egypt will see more success than in other similar markets, especially as many Arab and Gulf countries are keen on supporting the Egyptian economy. We expect moderate to high growth rates in Egypt, accompanied by political and security stability in the coming period. How would you compare the experience of the privatisation of the Bank of Alexandria with similar investments undertaken by Intesa Sanpaolo in other countries? AlexBank is ranked number four in terms of operating income and number three in terms of pre-tax income throughout the group as of the third quarter of 2013, and we are aiming to be ranked number one in three to four years' time. The Bank's return on equity (ROE) is high at around 15 per cent. The return on investment (ROI) is not as high, but our aim is to become the first subsidiary in the group. Currently, Slovakia is ranked the first, followed by Croatia and then Serbia. Compared to other countries that have undergone political and economic turmoil, Egypt has a strong market that has impressively overcome many consecutive crises, in addition to being a market which has tremendous potential. Thus, the Italian Intesa Sanpaolo Group sees this as being a highly attractive market.
