Two Egyptian banks look soon to be changing hands, reports Niveen Wahish Egyptians may soon have to learn some new banking brand names as a couple of French banks seek to sell their Egyptian units in a bid to shore up capital. After taking years to recognise National Société Générale Bank (NSGB) and BNP Paribas, Egyptians might now have to see them go. The banks, hard hit by the economic crisis in Europe, are selling their assets abroad to mend their balance sheets back home. Société Générale (SocGen) is in talks with Qatar National Bank (QNB) to sell its 77 per cent stake in its local subsidiary, NSGB, the country's second-largest private bank by market value. QNB is to begin due diligence on NSGB after receiving approval from Egypt's Central Bank. And BNP Paribas has also received approval by the Central Bank of Egypt to open its books for due diligence by a Qatari and a Moroccan bank. The due diligence review will investigate and assess the legal and financial fundamentals before a purchase offer is made. The exit of the French banks is an opportunity for anyone interested in investing in the Egyptian banking sector. Entering the Egyptian banking sector is not easy as the Central Bank of Egypt has for years stopped giving Greenfield licences. The only way for a new bank to enter the Egyptian market is through mergers or acquisitions. Were it not for the European economic crisis and the slowdown in the US, European and US banks would have been competing to acquire the assets that are being sold, according to Mahmoud Selim, executive director of investment bank HC. He pointed out that this competition was apparent in the past few years in several instances, such as with Al-Watany Al-Masry Bank, Bank of Alexandria and the terminated process of privatising of Banque du Caire, where European banks were aggressively competing on acquiring these assets. The economic situation in the West is an opportunity for an Arab bank such as QNB, which, according to Reuters, is keen to expand its footprint in the region and has been snapping up assets at a rapid pace. QNB is one of the largest Gulf Arab banks and is 50 per cent owned by Qatar's sovereign wealth fund. Since the revolution there has been a growing Qatari interest in the Egyptian market. Recently, Qatar pledged $18 billion in investment over the next five years. And while some fear that the economic interest is a façade for wanting to play a more influential political role in Egypt, Wael Ziyada, head of research at investment bank EFG-Hermes said, "We have more to worry about than hidden agendas. At the end of the day, investments will do as much as we allow them to do. And we will continue to have the upper hand." Ziyada pointed out that the Arab interest is a vote of confidence in Egypt. The immediate effect it had on the stock market is testimony to that. According to a 17 September note by EFG-Hermes, the announcement that SocGen was in discussion with QNB drove a rally in most Egypt banks. NSGB was up 26 per cent. Even Crédit Agricole Egypt (CAE), which is not for sale, rose 20 per cent since QNB's announcement. CAE is also a strong takeover candidate, according to EFG-Hermes, as the parent company Crédit Agricole targets asset disposals to shore up its capital position. "We believe there is a strong likelihood of further merger and acquisitions newsflow in the Egypt banking sector," the note said. Egypt's banking sector represents a strategic market for many Arab countries due to its favourable demographics and growth prospects, according to Selim. He pointed out that Egypt has a population that is expected to reach 95.5 million by 2016. Egypt's current population is the largest in the region, compared to the Gulf Cooperation Council's (GCC) largest population of 27 million in Saudi Arabia. And the population is young, with more than 50 per cent under the age of 25 years, thus ensuring strong future demand for the banking sector, Selim added. Furthermore, "the sector in Egypt is characterised by a low penetration rate of banking products whether on the corporate segment or the retail segment and is viewed as fertile compared to the other regional markets in the MENA region." It is estimated that only 10 per cent of the population has a bank account. Retail lending is less than 10 per cent of GDP, compared to 50 per cent or higher in developed markets. "They [Egyptian banks] are also considered a good investment because Arab countries have strong trade relations with Egypt and more than half of Egypt inward remittances are coming from the GCC; consequently there are a lot of synergies that could be derived from such investments in the banking sector," said Selim. Selim sees no clear implications of the change of hands in the banks. He also believes that the change in nationality of owners is not an issue; however, it might affect standards of service and the range of products offered, depending on the capabilities of each bank. "It could also potentially play in favour of other multinational banks in the market that could gain part of the market share of those exiting the market, especially from the business segment," he said. According to EFG-Hermes, QNB may need to offer 2.2-2.5 times NSGB's bank's book value to secure a deal, which would come to between LE12.3-13.9 billion for SocGen's 77 per cent stake. According to NSGB, the bank operates around 160 branches and is one of the largest banks operating in Egypt. Meanwhile, the BNP Paribas deal could bring in about LE2.4 billion. The bank has 70 branches.
