Egypt's Commercial International Bank resilient in the aftermath of revolution

The uprising that led to the fall of president Hosni Mubarak in February sent Egypt’s economy plummeting. Gross domestic product (GDP), which had been growing at 5% a year, shrunk 4% on an annualised basis in the first quarter and manufacturing declined 12%. Official foreign exchange reserves dropped from $36bn to $27bn between January and June, as exports and tourism slowed.

Conditions were particularly tough for banks. Most were shut for almost 30 days following the start of major anti-Mubarak protests on January 25. And when they did reopen, the lack of security across the country meant it took more than a month for them to be fully operational.

Resilience

Despite this, Egypt's banking sector came through the first quarter of the year remarkably well. Commercial International Bank (CIB), the country's third biggest by assets and largest non-state-owned lender, managed to make profits after tax of E£308m ($52m). This was down from E£528m a year earlier, but was a far better outcome than many had feared and still amounted to a return on equity of 15% (compared with 30% in the first three months of 2010).

Hisham Ezz Al-Arab, CIB’s chairman and managing director, attributes this to the bank going out of its way to function as normally as possible during the crisis. “Even when banks were shut, we asked our officers to talk to their clients and find out if they needed any help, such as with paying salaries,” he says. “Our staff took risks, even delivering [wages] to factories with no security, no police. We felt it was our responsibility to make sure all workers were being paid, regardless of what was happening.”

Lending increase

CIB also opted to keep lending. Its assets grew by almost 5% between January and March, mainly due to an increase in corporate loans. And its existing clients were given breathing space, particularly in the large tourism sector, which accounts for 12% of GDP and was one of the hardest hit by the unrest.

“We did what we had done before following the terrorist attack [at Sharm el Sheikh in 2005],” says Mr Al-Arab. “We said: ‘We’ll postpone this year’s payments. You’ll only have to pay interest. Look after your business.’ It was a great relief [for clients], allowing them to concentrate on getting more customers in. It worked well before so we did the same thing this time.”

The bank eased concerns about its own position by updating investors on an almost daily basis. It also tried to make sure its ATMs were stocked with cash, lest retail customers fretted about the safety of their money.

The result was that CIB, far from experiencing a run, managed to increase its deposits during the first quarter of the year by 3% (they fell slightly in the overall market by 0.9%). “We had a very busy couple of days [after reopening] because people were short of cash,” says Mr Al-Arab. “But after a week, deposits started to build up. Even people who had kept money at home felt uncomfortable with that and started to put it in the bank.”

Uncertain times

Egypt is still in a precarious state. No date has been set for parliamentary elections, after which an interim military government will step down. And the diverse set of groups that felled Mr Mubarak’s government is divided over when a new constitution should be drafted and what it will contain.

The economy is also struggling. Investors remain wary: CIB’s shares were 36% lower in mid-July than at the start of the year, while Cairo’s stock exchange was down 28%. Tourists are yet to return and inflation is expected to rise about five percentage points to 15% this year, thanks to a widening fiscal deficit.

But Mr Al-Arab insists that in the long term Egypt will be better off for the revolution. He says the economy was “stagnating” under the previous regime and recalls how last year, at an internal meeting, he and his colleagues asked each other: ‘How on earth have we been growing as a country between 6% and 8% for the past seven years, and yet it’s not trickling down to the poor people or the small businesses?’

“The answer to that is favouritism,” says Mr Al-Arab. “It’s a very polite word for corruption.”

Turning point

This situation had led to growing political angst in the final few years of Mr Mubarak’s rule. Last November’s parliamentary elections, when the ruling party won 86% of the seats in a process widely condemned as rigged, marked a turning point. “It was like keeping the steam inside the cylinder and adding more steam,” says Mr Al-Arab. “Something had to give.”

Mr Al-Arab says that greater democracy and transparency will boost confidence in the economy, resulting in higher growth and more foreign investment. He adds that small companies, especially, should benefit as their expansion is hindered less by a corrupt bureaucracy and their overall business costs drop.

“I’m not saying that the favouritism and petty corruption will disappear [immediately],” he says. “It’s part of the embedded culture of the past 30 years. But with a solid leadership this should change over the coming one or two years.”