CAIRO: Hot on the heels of mergers and acquisitions (M&A), Egypt’s banking environment has moved from a below par sector with around 60 weak banks to a thriving one with 35 stronger banks.
Less than three years ago, Egypt had quite a weak banking sector with [numerous] banks [overburdened] with non-performing loans, said Adrien Phares, managing director of Credit Agricole Egypt. Now, via M&A, there is a fewer number of banks but they are stronger and better performing.
Consolidation is a fantastic evolution or – even better – revolution that started in a very short time, he added. The winners are shareholders who will have more volume. But the biggest winners are clients who benefit from having more competitive banks.
One of the main conditions for improving the country s rating, he added, is to improve the banking sector. The key to that is consolidation, which creates robust institutions and helps reduce costs.
The Egyptian market has seen excellent quality deals that are well-structured and well-priced, he stated. Six years ago, nothing like that was available, and now [restructuring of the sector] is taking place thanks to new players penetrating the banking sector.
Several giant companies – domestic, Arab, and international – have recently forayed into Egypt in line with their goals to expand and penetrate emerging markets.
Over the last 10 years, the market has seen around 200 [M&As] worth some $600 billion, and these are all sizeable transactions, said Omar Mohanna, chairman of Suez Cement Group. M&A transactions taking place in Egypt now have to have a joint venture flavor. The easiest part is to acquire a company, but what should be done afterwards? That really is the question.
Panelists at the workshop entitled “The role of M&A in consolidating key sectors in Egypt at Euromoney Egypt Conference Wednesday referred particularly to acquisition finance as a vital part of the game.
The problem is that some banks consider acquisition finance a non-promising process, said Ahmed Heikal, chairman and managing director of HC Securities and Investment. That is a misconception and does not help broaden the economy.
Speakers insisted that acquisition finance has strong potential to boost and better guide M&A transactions. They clarified that different measures could help reduce risks of acquisition finance, however such guidelines were still lacking in Egypt.
There still are not clear guidelines on how to reduce risks, but there is a committee within the Central Bank of Egypt currently working on setting these [guidelines] up, said Mohanna.
Speakers shared their experiences of venturing into M&A transactions in Egypt. After acquiring Egyptian American Bank last year, Credit Agricole Egypt aimed to create a new culture founded on creativity and fierce competition.
Still, creating this synergy can impose a challenge on mergers or acquirers, who often find themselves struggling to unify different – at times conflicting – cultures.
The trick is to invent a new culture and not impose your culture on the bank, said Phares. The benefit from an M&A is to create a new strategy that everyone adheres to.
During another panel called “Egyptian banking in the spotlight, speakers agreed that bank privatization was a win-win situation, whereby clients have access to more competitive banks and better services.
If that’s true, then why does the privatization of banks constantly cause uproar in the public and media.
Perception of the market should have been [tackled] differently, explained Sahar El Sallab, vice chairman and managing director of Commercial International Bank. She added that the government should have addressed the media directly explaining to them benefits of privatization so they can pass the correct information to the public.
All [bankers] – Egyptians, Arab, or foreign – are working under one regulator. We re all working for Egypt, she added. I think having a national champion is very important, whereby it can implement its own strategy, aim for quality, and empower the sector.
Panelists pointed out that acquirers of banks have wonderful opportunities to revamp and restructure the sector which works to the advantage of the community and the economy as a whole.
Segments of banking that particularly require reform are microfinance and SME lending, mortgage lending, and most importantly retail banking.
Experts clarified that the banking market, as it stands now, is extremely under-penetrated, whereby less than ten percent of the population is banked. Retail business is where banks should serve in a country such as Egypt, where the population is above 70 million, El Sallab stated. If only we can address 20 percent of the population, imagine how much we can upgrade banking services and the entire sector.
As for lack of microfinance and credit lending, bankers are apparently waiting for Egypt s Credit Bureau to streamline and jump start the business. The Credit Bureau will make a huge difference in the banking sector and increase the number of lenders, anticipated Mohamed Ozalp, vice chairman of Banque Misr.
SME lending is another domain that bankers believe has great potential to invigorate the market. We have to be part of the growth cycle and [prove] that we ve been there in the social and economic development of the country, El Sallab stated. Large corporations are not the only portfolios we should be looking at. We need to address SMEs because these are the ones that will truly build the market. All banks and regulators should.meet at that point, which will [drive] Egypt at a different pace.
