CAIRO: Amid escalating rumors in the market, Commercial International Bank (CIB) and Arab African International Bank (AAIB) finally broke their silence and announced they have agreed to conduct due diligence that could lead to a merger.
The two lenders have made it clear that they have not yet conducted any due diligence or agreed on any terms regarding a possible transaction. Both banks declined to comment on the issue until either a definitive agreement is executed or negotiations are terminated.
“The objective of the merger is to create a national champion in the Egyptian banking sector, said Radwa El-Swaify, senior banking analyst at Beltone Financial. “The new entity would hold a market share of seven to eight percent in loans and deposits.
Experts estimate that the new entity will hold around LE 77.9 billion in assets and LE 61.5 billion in deposits, creating Egypt’s third-largest private bank.
After talk of privatization of Banque Du Caire, El-Swaify explained, the market was in need of a big national entity that could take over the bank.
“With the entrance of foreign players into the Egyptian banking sector, the market became extremely competitive. Everyone wants to increase their market share to maintain presence.
She added that the CIB initially planned to double its market share by 2010 from the current five percent to 10 percent, and that it was always on the look out for acquisition and expansion opportunities.
“The bank has set a target of opening 20 branches per year, and the merger will help them reach that goal.
As for the AAIB, the possible merger comes amid talk that the Central Bank of Egypt (CBE) no longer wants to maintain its 49 percent stake in the bank. “The CBE does not want to have stake in other [private] banks.and is currently reducing its share in other banks, stated El-Swaify.
The much-anticipated merger will also open the door for CIB to enter other regional markets. “The CIB has long been eyeing Gulf and Levant countries, El-Swaify said. “The AAIB’s owns branches in the UAE and Lebanon, which makes it [easier] for CIB to be present in these markets.
Both banks scored high returns on assets and equity as well as operating at reasonable efficiencies as reflected in their cost-to-income ratios. The two combined will have a huge share of the Egyptian banking sector and might bid for Banque Du Caire, creating an even bigger entity.
“If the transaction goes through, it will be a positive consolidation step in the sector, said El-Swaify. “The market is fragmented, and consolidation is [very much] needed.
“The merger will also give them more strength because with a higher market base, the banks will aggressively enter retail banking, having more branches and more outreach to clients.
The merger talk pushed Egypt’s bourse to new record highs on Tuesday, lifting most banking shares.
Shares in CIB have been rising since the rumor began in July. After announcement of the possible merger, the shares rose to an all-time high, but then cooled down due to some profit-taking to last trade between LE 79-81 per share.
“The news pushed most banking shares as a whole, El-Swaify pointed out.
Housing and Development Bank led the way up, jumping 16 percent to close at LE 55.87 per share. Credit Agricole last traded at LE 18.23 per share, rising 1.2 percent, while National Societe Generale Bank soared 11 percent to close at LE 45.49.
