Q: How has the Egyptian banking sector performed in recent years?
A: It has shown noticeable resilience in a tough operating environment. Measured by total assets (other than the Central Bank of Egypt [CBE]), banking activity grew by 24% at end-June 2021, compared to a growth rate of 16.2% and 8.6% at the ends of June 2020 and 2019, respectively. Total bank deposits increased by E£1.05tn ($66.81bn) to reach E£5.75tn in June 2021, growing by 22.3% compared to a growth rate of 17.2% and 12.3% in June 2020 and 2019, respectively.
Meanwhile, credit facilities granted by banks amounted to about E£2.9tn, pointing to an increase in the size of these facilities by about E£703bn during fiscal year 2021, with a growth rate of 32%. It’s worth noting that the private business sector obtained about 60.5% of the total non-governmental credit facilities granted by banks in fiscal year 2021, thanks to the various central bank initiatives with subsidised interest rates.
In terms of soundness indicators, the loans-to-deposits ratio reached 50.8% in June 2021, despite the outbreak of Covid-19 — the highest in a decade. Non-performing loans fell to 3.5%, compared to 4.0% and 4.2% in June 2020 and June 2019, respectively, and capital adequacy ratio remained high at 19%.
In spite of the threats facing the foreign exchange position, the central bank maintained a decent level of international reserves, some $40bn, backed by remittances from Egyptians working abroad and sound external debt management by authorities to secure the needed finance.
Q: What do you expect for 2022?
A: The Egyptian banking sector is expected to keep up its robust performance in 2022, capitalising on the strong recovery of the Egyptian economy, which is forecasted to grow between 6.2% and 6.5% in fiscal year 2022, according to the latest release by the Ministry of Planning and Economic Development.
This is set to be fuelled by various monetary and fiscal measures supporting small and medium-sized enterprises (SMEs), manufacturing and the most affected sectors by the pandemic, as well as persisting infrastructure investments, a recovery in tourism and strong household spending backed by remittances from abroad. It will also be aided by the recovery of the global economy, which is expected to grow by 4.4% in 2022, according to the latest International Monetary Fund global economic outlook report.
We see a well-capitalised banking sector with high liquidity and a solid CBE monetary policy, and an increased sense of confidence in the Egyptian banking sector and the fast-paced digital transformation of banks, which has led to increased rates of financial inclusion and greater access to banking services.
Q: What are the main opportunities for banks in Egypt right now?
A: Enduring the 2007/08 global financial crisis, two revolutions and the current Covid-19 pandemic, the Egyptian banking sector has proven its robustness and is seen as having sizeable potential and great opportunities in terms of the continuous development of several mega projects and the applied economic reforms that have been enforced since 2016.
Other opportunities lie in the widespread need for business and retail financing, with different initiatives to stimulate consumption and investment, especially towards encouraging SMEs, as well as the CBE’s efforts towards digitalisation, with the value of electronic transactions growing exponentially due to the pandemic.
Egypt has a huge population, representing 26% of the population of the Middle East and north Africa region — two-thirds of which is still unbanked, leaving great room for expansion and financial inclusion.
Q: What has Banque Misr’s approach been during the pandemic?
A: Banque Misr capitalised well on the initiatives launched by the central bank and decisions of the Egyptian government, taken to preserve economic growth and business activity amid the pandemic.
We worked on enhancing financing for affected sectors, providing nano-loans and instant grants to microfinance, increasing off-budget operations and entering into partnerships with international organisations to enhance off-balance sheet financing and to secure foreign currency financing at competitive prices. For example, the bank concluded partnerships with the European Bank for Reconstruction and Development, International Finance Corporation, European Investment Bank, the Islamic Development Bank and the African Development Bank.
High-yield certificate of deposits of 15% were also issued in order to help customers obtain a good return on holding Egyptian pounds in these exceptional circumstances.
The bank also played a pivotal role in supporting national and strategic projects that help the Egyptian economy grow and reduce unemployment. Banque Misr is considered to be the largest arranger of syndicated loans to finance national and strategic projects. This role did not stop even in the midst of the crisis.
Also worth noting is that Banque Misr expended some E£3bn in the field of social responsibility in fiscal year 2020 and fiscal year 2021, with a strong focus on the healthcare sector.
On the operational level, and to reduce traffic in branches and facilitate transactions, Banque Misr strengthened its reliance on technology and used electronic customer service platforms such as WhatsApp Business and ChatBot. Our number of online banking users reached one million at the end of 2021 and the number of Banque Misr e-wallet subscribers totalled 1.6 million.
We also launched the ‘Express’ online loan application to finance small enterprises; in 2021, total loans granted reached E£15.3bn across 14,800 clients, where clients can apply for the loan and monitor its process without visiting the branch, and receive it within no more than five business days.
Q: What have been the most notable impacts of the new banking sector regulations?
A: The Egyptian banking sector has proven its soundness and resilience in tackling the Covid-19 crisis. This is thanks to the vital role played by the CBE, which has taken numerous proactive steps and regulations to contain the crisis, support the economy and ensure business continuity plans at banks.
On the other hand, the CBE instructions to prevent banks from paying cash dividends sought to enhance the banks’ capital and protect bank liquidity as the pandemic continued to affect the economy, in line with global measures taken at the time in other advanced economies.
Merger and acquisition activities in the banking sector have been very active, given the repercussions of Covid-19 on the general economy and its impact on banking performance. The CBE’s new banking law requires local banks to increase the minimum capital [from E£500m] to E£5bn, and increase the capital of foreign branches [from $50m] to $150m. This is expected to lead some banks either to merge and drive the creation of larger entities, or be subject to acquisitions.
The recent initiative that requires bank lending to include at least 25% to SMEs, up from 20%, will also contribute towards promoting financial inclusion. This will not only help diversify bank revenue streams, but also ensure against the risk of crowding out lending to the private sector during the recovery. The banking system’s exposure to the public sector remains high at over 50% of system assets, or around 65% of domestic credit.
Given the low interest rate environment and its impact on banks, the primary business segment has been penetrating other markets in order to diversify profitability and sustain market share. An obvious example is Banque Misr acquiring a 90% stake in CI Capital, in a bold move to drive expansion into non-banking financial activities such as microfinance, financial leasing, consumption leasing and real estate mortgage loans.
Q: In 2021 Banque Misr concluded its largest syndicated term facility. What was the significance of this move?
A: Banque Misr received approximately $1.2bn of demand — around 200% of the initial targeted amount — and upsized the facility twice, closing the syndication at $1bn with a final rollover ratio of 181%.
The syndication’s outcome demonstrates the financial resiliency of Banque Misr, and its recognition as an empowering arm to restore the macroeconomic stability and in upholding economic reforms in an expanding market, even during 2021’s turbulent conditions. The transaction also outlined the incremental appetite for Banque Misr from 22 banks in 11 countries, of which 12 new banks from the US, Europe, the Middle East, Africa and Asia were involved.
The economic disruption has revealed the importance of institutional funding functions in contributing to the pandemic recovery. Our financial institutions team worked to efficiently conclude one of the most prominent deals, financing in a dynamic framework and defying time constraints, while breaking the market’s benchmarks.
This transaction, interpreted in the economy as contributing towards financing corporates and infrastructure projects, fuels Banque Misr’s growth strategy while ensuring that we continue to act prudently in a demanding economic environment.
