The flurry of mergers and acquisitions that has taken place in Egypt over the past few years continues apace, egged on by the Central Bank as part of the state’s privatization drive and reform of the sector.
Following the implementation of a new law in 2003 that put the mantle of reform in the Central Bank of Egypt’s (CBE) hands, the CBE has encouraged banks to merge and public sector banks to sell off holdings in joint-venture banks whilst making it harder to enter the market without acquiring an existing bank.
“They are setting up criteria for the sector to really expand, provided, of course, they go through with the privatization of the big four, which have 70% of the sector,” said Anwar Jammal, CEO of Lebanon’s Jammal Trust Bank, which operated in Egypt until recently.
The liberalization of the sector really kicked off last fall with the sale of Egypt’s fourth largest bank, the Bank of Alexandria, to Italy-based Sanpaolo IMI. The acquisition was supposed to have set a new benchmark for the sector’s reforms, but consolidation has not happened as fast as the CBE wanted, with the slated reduction from 57 to 30 by the end of last year not achieved. There are currently 43 government-registered state, private, and joint venture banks and foreign bank branches in Egypt.
The most significant news has been the scrapping of the planned merger of the country’s second and third largest banks, Banque Misr and Banque du Caire (BDC), which had been slated for December by the CBE. Due to large loan defaults at BDC – the largest debtors have either fled the country, been imprisoned, or died – Banque Misr instead acquired BDC’s entire shares for $281.6 million in March.
The original plan had been to create a super state-owned bank that could compete with other major players domestically and internationally. For instance, the National Bank of Egypt (NBE), the country’s biggest commercial bank, has been instrumental in the growing trade between China and Egypt, estimated at $3.18 billion, up 48.8% from 2005.
NBE handles 65% of the financial services between the two countries, with the bank to turn a representative office in Shanghai into a branch by the end of the year.
Talk of mergers
Although the privatization of the public sector banks has not taken place as initially expected, with six state banks still in operation, regional banks are seeking stakes in private and joint-venture banks.
Egyptian Saudi Bank shares have soared lately over government plans to sell its 11% stake with Albaraka Banking Group, the bank’s major shareholder and potential buyer, while the Export Development Bank of Egypt has increased its capital to 800 million LE ($140 million) on the back of a possible merger or acquisition.
The Suez Canal bank and El Watany Bank of Egypt have also received acquisition offers, with reported interest in El Watany by the National Bank of Kuwait.
Pushing interest in the sector has been huge cash inflows from the Gulf, with $10 billion in investments coming from the UAE last year alone. There are some 215 joint ventures between the UAE and Egypt, largely concentrated in financial services and industry.
Last year, the Emirates’ Union National Bank purchased 94.8% of the Alexandria Commercial and Maritime Bank for $44 million and increased its wholly owned subsidiary’s capital to $176 million this year.
April saw the Abu Dhabi Islamic Bank (ADIB) beat off competition from Saudi banks to acquire a 49% stake in the National Bank of Development (NBD). The CBE has demanded that ADIB increase NBD’s paid in capital to LE500 million ($88 million), and then to LE2 billion ($351.6 million) within three years of the deal.
Last month, the Abu Dhabi Investment Authority acquired an 8% stake in regional investment bank EFG-Hermes, which reported a profit of $43.6 million for the first quarter, up 20% over the corresponding period last year. Meanwhile, EFG-Hermes’ UAE brokerage operation, established in 2005, holds number one position on the Dubai Financial Market this year with an average market share of 9%.
Egypt holds significant potential for the banking sector, retail in particular, with only 10% of the country’s 75 million population estimated to hold a bank account.
“Although the per capita income is low, that is improving,” said Saad Azhari, Vice Chairman and General Manager of Lebanon’s BLOM Bank, which bought out Misr Romanian Bank in 2005.
“Egypt is very promising with the adjustment of macroeconomic policies,” he added. In its first year, BLOM Egypt reported $11 million in profits and projects $15 million this year.
For Egypt to take advantage of all this external interest in its banking sector, the full liberalization of the sector is key, along with legislative and bureaucratic reform for the sector to run smoothly.
