Bank buyers bullish

Most Egyptian stocks may rate a "sell," but foreign interest in Egypt's banks is flourishing, writes Niveen Wahish
Lately, Egypt's banks have been working on their image. Not a day passes without some bank or other advertising in the papers: and not just to publish their financial statements. The banks are telling the world of everything from new services and savings schemes, to their slick, new-look brand. And as foreign banks enter the market, or expand existing operations, the sector is beginning to look rather lively.
Crédit Agricole Indosuez (CAI) has been eagerly touting its purchase of Crédit International d'Egypte (CIE) to all and sundry. That deal took place early this summer when CAI, along with El-Mansour and El-Maghraby groups, bought Crédit Commercial de France's 93.3 per cent stake in CIE.
Another bank shouting louder in Egypt is HSBC, which grew its stake in the Egyptian British Bank from 40 per cent to over 90 per cent in October 2000, renaming the whole acquired operation HSBC.
Société Générale also increased its stake in the National Société Générale Bank, to 51 per cent. And more deals are coming. American Express and the Bank of Alexandria announced in July that they will sell their stake in the Egyptian American Bank (EAB). British Standard Chartered Bank is the likeliest buyer. And although no details have yet been announced, insiders say the deal is "done."
Those contracts already concluded, and those still in the making show that, despite Egypt's doddering economy, foreign interest in Egyptian banks is alive and well. In fact, this is a good time to buy, says Amr Bahaa, head of treasury at Crédit Lyonnais. "Banks' shares cost half what they used to," he says.
The fashion for foreign ownership began in 1996, when the banking and credit law was issued, allowing 100 per cent foreign ownership of any local bank. Before then, foreign institutions were restricted to offshore banking, or minority stakes in joint-venture banks.
Egypt's government remains keen to divest its share in joint-venture banks, which has encouraged foreign buyers. Recent moves have given buyers another fillip. With the Central Bank of Egypt granting no more licences for new banks, banks for sale are a golden opportunity.
"It's an entry ticket into a society that, despite being "over-banked" is under- serviced, and where saving accounts for only a little over 15 per cent of GDP," says Bahaa.
"We have been looking at the Egyptian market for the past four years," says Adrien Pharès, managing director of CAI. His bank would even have taken the step of building in Egypt from nothing. "Had we been able to get a licence and establish our bank from scratch," he continues, "we would have done it."
But buying into an existing bank is the preferred way to enter the market. Gamal Muharram, chairman of the banking committee at the American Chamber of Commerce, points out that it saves the investor the trouble of setting up branches and establishing itself in the market. "They are buying a market share," he points out.
All this movement reflects investor confidence. Moody's Investors Service, in its annual report on Egypt's banking sector, argues that "the slowdown of the economy is affecting Egyptian banks' earning power, credit growth, and levels of loan delinquencies." But the report also notes, "the under-developed retail market may provide opportunities for selective growth in consumer and mortgage lending." In fact, as Shayne Elliot, former vice-president and Egypt desk head of Citibank was quoted in the "Emerging Egypt 2001" report prepared by the Oxford Business Group, as saying that "retail banking is one of the fastest growing sectors in the industry."
Citibank certainly thinks so. After operating for decades as a wholesale bank, it entered the retail market in mid 1999, and has become a big consumer lender.
Consumer service seems to lie at the core of foreign interest in Egyptian banks. A population of over 65 million is a magnet, especially when it is as under-serviced as Egypt's. Muharram points out that there are barely 400,000 credit cards in Egypt, but a potential market of 65 million. "Granted, incomes are low. But at least five million of the population could afford a credit card," he explains, adding, "we lack consumer financing; what we have is sale through instalments."
Consumer financing is one of the targets of CAI. "We have the ambition to develop individual banking," says Adrien Pharès, stressing that CAI's strategy for personal banking is well-defined in broad terms, but still needs to be fine-tuned in terms of concrete action.
"The purpose is to attract deposits and savings," he says. "In order to achieve that, we must offer the right products and services, the ones that are needed by our clients. And we have to assess the market and the legal framework."
Pharès is bullish. He thinks banking penetration in Egypt is only at 15 per cent of capacity, which indicates a huge potential for growth.
All this may promote private banks at the expense of the public banking behemoths that currently overshadow the market. The four public sector banks still have an edge over private sector banks, thanks to their network of branches. Together, they boast 913 branches: double the number of branches of all private and joint venture banks put together. And this network of branches is not their only advantage: figures reveal that, although private banks have snaffled some market share, the public banks still dominate.
But private banks have won ground. According to the "Emerging Egypt 2001" report, the four public sector banks today account for 57 per cent of total banking assets, 59 per cent of total loans and 70 per cent of total deposits. By comparison, 1998/99 figures showed the four public sector banks as accounting for 70 per cent of total assets, and 65 per cent of total loans.
According to the same report, today, the private sector accounts for 18.9 per cent of credit services. In 1995, it had only 7.6 per cent.
That share may increase further, after government shares in other joint-venture banks are put up for sale. Two prospective candidates for sale are Misr America International Bank (whose sale to the National Bank of Kuwait went sour last year), and the Misr Iran Development Bank, which is over 77 per cent owned by the state. The Cairo Far East Bank is another candidate, with state interest of 39 per cent. "Once there is a proper valuation of the banks on offer, there is always an appetite from foreign investors," comments Sherine Moussa, Chartered Financial Analyst at Flemings CIIC.
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