Hani Seif Al-Nasr, the chairperson of the Arab Investment Bank (AIB), said that Egypt has much potential and many resources to aid it in becoming one of the world’s most powerful economies.
During an interview with Daily News Egypt, he added that they are optimistic about the future of the Egyptian economy, despite the current challenges, especially following the government’s recently-adopted reform measures.
Seif Al-Nasr pointed out that the agreement recently reached with the International Monetary Fund (IMF) will allow Egypt to obtain a loan at reasonable interest rates and help the country overcome its liquidity crisis. Seif Al-Nasr also noted that the combined liquidity of banks operating in Egypt amounts to more than EGP 2tr, which makes them able to finance investment projects across various economic sectors.
He added that a rebound in local production is Egypt’s only way out of its current predicament. From their end, AIB aims to increase its small- and medium-sized enterprises (SME) loans in the country to EGP 7bn within the coming four years, compared to EGP 1.5bn currently, as a way of facilitating the process of recovery.
How do you see Egypt’s current economic situation?
Egypt has a lot of potential and economic resources that can help its economy become one of the most powerful in the world. We are now out of the bottleneck phase after a difficult five years. During that period, Egypt witnessed a significant decline in its foreign exchange resources, notably from the tourism sector, remittances sent by Egyptians working abroad, and exports.
We are very optimistic about the future of the Egyptian economy, especially after the reform measures adopted by the Egyptian government, notably on the subsidy system, making sure that it benefits those who need it.
The Egyptian government’s agreement with the IMF to obtain a loan worth $12bn over the course of three years shows the strength of the Egyptian economy and its ability to recover. This agreement will reflect positively on Egypt’s relations with foreign financial institutions.
I believe that this agreement will also allow Egypt to obtain other foreign loans at affordable prices and boost the Egyptian market’s position among other international markets. It would afford Egypt more credibility in the international community and encourage foreign businessmen to invest in the market.
In your opinion, how could we support strong growth in the Egyptian economy? How can the government overcome its foreign currency shortage? And what are the activities or projects you believe can stimulate the economy quickly?
Economic development rests on two axes: investments and savings, [working] in a sort of integrated system where each of them influences the other.
For example, achieving a growth rate of about 7% depends on the achievement of an investment rate of 14%, which should be accompanied and supported by adequate local saving rates.
Saving provides capital needed to implement any investment project and achieve economic growth, therefore domestic savings are necessary to develop the Egyptian economy.
We should also know that the recovery of local production is the only way out of the current crisis in the country.
All the initiatives led by the Central Bank of Egypt (CBE) and the political leadership in recent months aimed, directly and indirectly, to transform Egypt’s consumer society to a more productive society. The government has also been supporting and encouraging domestic industries and production, enhancing their ability to compete with the imported products that have flooded the Egyptian market.
The state’s initiatives also aim to limit random imports to prevent wasting foreign currency on importing unnecessary goods. The CBE has limited the use of foreign currency in importing commodities and feedstock.
I believe that banks in Egypt will focus on financing SMEs during the coming period, as well as the corporate sector in light of the sizeable development projects recently launched by the government.
It is important to point out that growth in the SMEs sector will outpace growth in the retail banking sector. This is in line with the CBE’s recent decision to limit the size of instalments on consumption loans to 35% of the borrower’s total monthly income. The CBE also decided to reduce the limit for bank loans to a single company and its subsidiaries from 25% to 20%.
What role can banks play in the easing of the foreign exchange crisis?
The CBE, headed by Tarek Amer, has been very keen on increasing the US dollar deposits within the banking system by attracting remittances from Egyptians living abroad, to help restore the flow of foreign funds into the country’s banking system. This would strengthen the actual value of the Egyptian pound and its purchasing power in the short-term.
In the same vein, several savings vessels and high-yield certificates were put forward in Egyptian pounds and foreign currencies. These savings are to meet the needs of some customers to abandon foreign currencies, and retain these currencies in vessels savings of Egyptian pounds. This gives a distinct return that exceeds the customers’ expectations of any profits that may result on the movements of exchange rates when retaining them.
The CBE is also keen on launching periodic [FX] auctions to sell US dollars in order to meet the needs of the Egyptian market.
Despite all these measures, there is a rise in the price of the US dollar on the black market, which is not justifiable at all. These prices do not in any way reflect the actual value of the US dollar, which is subject to the rules of supply and demand.
What role can banks play to support the Egyptian economy?
Banks are the backbone of the economy, and any new developments or updated data that take place the economic system will have an impact on banks. Therefore, banks must be an active factor in order to yield positive results.
The whole economic scene saw many variables, and all of these variables indicate that we have entered a different curve, and already many banks are rearranging their paper securities to cope with the needs of the state and the citizens.
Banks in Egypt have a combined liquidity of more than EGP 2tr, which makes them able to finance investment projects across various economic sectors.
Banks will certainly be the biggest supporters of those types of development projects, especially since banks are considered important financing tools that could employ their resources of customer deposits to fund investment activities in the coming period.
Banks are always looking for any investment opportunities that yield greater returns than investments in government debt instruments such as treasury bills and bonds.
With regards to AIB, what kind of projects and activities does the bank fund to help the economy?
AIB focuses strongly on developing SMEs and our aim is to have this sector represent the larger share of our credit portfolio.
To achieve this goal, we established an independent administration and division in 2012 to better-equip the bank to deal with the different problems these projects face and help them overcome them by processing their funding needs in the shortest time possible.
We have also developed a number of specialised initiatives that cater to different segments and types of customers under the Partners Programme. These include, for example, initiatives that provide funding for working capital, medical services and pharmacy projects, and the purchase of machinery and equipment, among others. Over the past year, the bank successfully injected about EGP 600m into the sector.
We are also keen on complying with the CBE’s initiative to support SMEs, which aims to encourage banks to increase the share of loans issued to fund these types of projects to at least 20% of their total credit portfolio. This is meant to support the national economy, increase gross domestic production (GDP), reduce unemployment and create job opportunities for young people, in addition to integrating those types projects into the official economic system.
To implement this initiative, we have restructured our system for paper securities and set an ambitious strategy that aims to widen our scope in the SMEs sector. We also prepared the necessary infrastructure and have modified the Partners Programme in accordance with the CBE’s new interest rates to facilitate funding processes for these projects.
The Partners Programme comprises a number of specialised initiatives that facilitate the funding necessary for existing and newly established activities. The interest rate is set at 5%, for small and very small businesses, and 7% for medium-sized enterprises, with repayment periods of up to seven-years long and simplified terms of financing for all loan classes.
I would like to point out that AIB’s SME portfolio is currently worth EGP1.5bn, which represents about 30% of the bank’s total credit portfolio. The bank targets a growth rate of about 20% over the next two years. It also aims to grow the size of its SME portfolio to about EGP 7bn over the next four years, through its 18 branches.
The bank will also focus on supporting and funding national development projects, such as the New Administrative Capital and the New El Alamein City, in addition to any major projects led by the government. This will be accomplished either through direct funding or through arranging or participating with other banks in syndicated loans, which will aid the development of the national economy.
The bank also intends to actively participate in the field of social responsibility, which directly tackles the needs of the Egyptian citizen. The Board of Directors has approved the establishment of the Arab Investment Bank Foundation for Community Development to emphasise the importance of social responsibility in promoting equitable development. The foundation is a non-profit civil institution that will contribute to the support and development of various fields in society through donations received from the bank or any other fronts in order to achieve social solidarity and sustainable development and promote good humanitarian values in society.
