 Strategy
 Company profile
EAB offers a wide range of banking services and through its affiliate companies, offers securities and investment services. At present, the bank’s branch network comprises of 29 branches located in key business, industrial and tourist centers throughout Egypt. EAB is a respected leader and innovator in today’s banking environment, leveraging diverse and wide ranging capabilities to create new business and growth opportunities for the bank and its clients in a highly competitive market. EAB’s industry specialists, well trained personnel and technologically advanced operations capabilities combine to build the bank’s reputation as a provider of quality financial services.
Looking ahead, EAB intends to take initiatives and measures to increase its growth rate, expand its services and increase shareholder value.
Activities
1. Corporate Banking
Corporate Banking remains the most important lines of business for EAB. Through its industry specialists and relationship managers, EAB’s net loans in 1997 grew to L.E. 2,721 Million, reflecting an increase of L.E. 737 Million or 37% over the previous year. This was achieved despite maintaining a conservative and strict control over market and credit risks.
Corporate Banking is structured in industry specialists and relationship manager are backed by a well-trained Business Development Services group, located throughout the branch network.
2. Trade Finance & Syndications
The trade Finance group (TFG) play a very important role in handling the cross border exposure and international business for the bank. The group’s main tasks include participating in international loan syndication, discounting trade paper, developing export letter of credit business and handling all trade related programs in which EAB participant, including: USAID GSM-102, KFW and Euro Med. In 1997, TFG booked L.E. 163 Million for the bank and handled a large number of letters of credit transactions. Furthermore, it played an important role in the US$ 125 million syndicated Loan Facility Agreement which EAB signed in August 1997 at unprecedented margin of 35 basis points over LIBOR. The facility agent was one of the most prominent international financial institutions (Union Bank of Switzerland).
3. Global Treasury
EAB’s Treasury Department provides Money Market, Foreign Exchange and Securities Trading services both to the Bank and its clients. It existing facilities give EAB immediate access to dealing centers worldwide providing information on Foreign Exchange rates, Money Market rates, Securities and Equity Stock Market and economic business or political news that may have impact on Foreign Exchange interest rates of Equity Market. Total Foreign Exchange revenue in 1997 was L.E. 14831 M. an increase of 35% over previous year. This was achieved by providing Foreign Exchange Services to Corporate clients and offering Retail Exchanges Services throughout its branch network.
4. Corresponding Banking
In 1997, the Corresponding Banking group continued its efforts to foster important strategic alliances with prime financial institutions around the globe. The responsibility of the department is to manage and expand EAB’s foreign and local correspondent banking network to support and accommodate the bank’s business growth both in Egypt and overseas.
In additions to the build up of a global correspondent banking network abroad which offers a broad range of financial services in more than 60 countries, the department focused on strengthening the business relationship with Egyptian banks providing increased lines and establishing lines for new relationships.
Remittance, letter of Credit and Documentary Collections volume increased substantially, thanks to arrangements with our Correspondent Banks, related fee income has also increased substantially.
5. Retail Banking
Recognizing the potential and need for consumer banking services, and capitalizing on the bank’s network throughout Egypt, EAB has strategically positioned itself to focus on Retail Banking as one of its core businesses. We have introduced a number of lending products including Car Financing, Real Estate Financing in select housing projects, Share Financing, and Cash Lending to American Express Cardmembers and bank depositors. For deposit generation we have developed a unique interest bearing demand account and installed Automatic Teller machines (ATMs) in strategic locations.
Looking ahead, we see Retail Banking activity as a major contributor to the bank’s growth and results.
6. Private Banking
This is a newly created unit of the Bank which has been established to provide and cater to needs of High Networth individuals. The group offers the Bank’s traditional deposit and investment products and cross sells the products of our affiliate Brokerage and Protfolio Management Companies. Despite its infancy, total assets handled as December 31, 1997, exceeded L.E. 100 Million.
7. Capital Markets & Investment Banking
The Capital Markets & Investment Banking division focuses on providing financial advice to, and raising capital for, a broad range of domestic Corporate and institutional Clients.
In 1997, the Capital Market team carried out several assignments in the field of privatization and corporate finance functions. Most importantly, was EAB’s role as the offering manager and advisor, on the sell side, of the initial public offering of 5,000,000 shares representing 100% of the shares of Delta Industrial Company
"Ideal".
Furthermore, The group carried out several corporate valuations for its private Sector Clients, as well as for a prime medium sized Bank, for the purpose of either private placement and/ or an upcoming public offering.
Looking ahead, 1998 promises to be another active year for the group. On the asset management side, we are currently in the process of developing a second fund. EAB’s first mutual fund continued to perform well. While in 1997 the Egyptian Stock Market had a lackluster performance due to various events internationally and domestically, especially in the last quarter, the EAB fund made 15.11% for the year and
73% since inception to date.
The rest of the corporate finance functions and merchant banking activities will be carried out by the banks investment arm, Egyptian American Investment Company (EAIC). EAIC, under formation, is poised to exploit future growth in the Egyptian capital markets.
For a detailed company profile please visit our Website: http://www.eab-online.com
INTERVIEW WITH
MR. JAMES VAUGHN
MANAGING DIRECTOR OF EGYPTIAN AMERICAN BANK (EAB)
Monday 11th January, 1999.
1/Q: Could you give our readers a brief historical background of EAB?
The bank was founded in 1976 as a joint venture between the Bank of Alexandria and American Express Bank. It was listed on the Stock Market in 1996, when Bank of Alexandria and American Express Bank reduced their shareholdings to 40% each and to 20% on the market. Today, American Express represents 40% and Bank of Alexandria about 35%. The bank has 29 branches, primarily located in Cairo and Alexandria, but with branches outside the two metropolitan centers. These include, Sharm El Sheikh, Hurghada, Luxor and Aswan. The core of the business over the years has been local corporate or commercial business. We have a local and foreign currency combined retail deposit business. This funds our loans to local companies, multinationals and the public sector. More recently, after privatization in the last few years, there are more and more customers in the private sector. Today, the primary business of the bank is commercial business for corporate accounts. Most of our customers are local companies, although a big portion of our business is related to multinationals locally and to some extent to public sector companies. We offer traditional banking products, all the foreign exchange products that are offered in the country, trade services, trade finance, correspondent banking group. We have been involved with advisory work on the investment side, although it is not our core activity. Our affiliate, which is Delta EAB, a local brokerage company, is a major broker in the company. Our reputation is based on our service levels, not our size.
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2/Q: Since you are a joint venture bank with Bank of Alexandria, are you planning to be fully privatized in the coming years?
That is not my plan. The Government has a long range plan to privatize the public sector’s banks. Which bank and when is an open question. They have to reduce their holdings down to 20 % but the date on which it will happen is uncertain. We expect Bank of Alexandria to do that some time in the future. There are initial partners and so even if they reduce it to 20% they will still be a major partner.
3/Q: Since our readers are business people, can you give us some figures?
As of today, our loans are about $850 million. Total assets for the bank are about $1.6 billion. Deposits are about $1.2 billion. In 1997, the after-tax income for the bank was about $27 million. It will be less than that in 1998 because the equity market has dragged us down this year.
4/Q: The Egyptian financial sector is still dominated by state-owned banks but there are plans for all of them to be privatized. How will this affect your business in terms of competition?
I think that Egypt is a lot like other emerging markets that have been dominated by public sector banks. There a lot of products and services that have not been available for the consumers in the market, whether retail consumers or corporate consumers and whether the product is a foreign exchange product, a derivative product, home loan, car loan etc. I think that Egypt is very much in the take-off phase as far as banking products are concerned. There is going to be a lot of change in terms of products offered and their competitive mix. I expect an increasing involvement from other international institutions as well. Competition will increase and I fully expect the National Bank of Egypt, Bank of Alexandria and the other public sector banks to get better and better as well. We installed our new computer system last year. We now have nationwide online banking so you can walk into any of our branches and do a live transaction, which we were not able to do before. I believe we have the products, the people, the systems and the nationwide coverage to be a very serous competition.
5/Q: What other services will you be offering?
Again our main business is corporate banking, new products will be available for both corporate and retail consumers. We will be offering new retail loans, deposit and investment products. We hope to offer new credit cards. We are expanding our ATM and branch cover. On the corporate side we will continue to grow with our clients in the market. The bond and equity markets are increasingly important for our clients. We also will be improving our payroll and cash management.
6/Q: EAB has struggled to reposition itself (Early 1998: hiring binge, retail and investment banking, expanding loan portfolio). What is the situation today?
We just had a great quarter. The fourth quarter was the best we have ever had. Our pipeline is good. In 1997 we got sizable chunks of income from fees from our mutual funds as well as gains on securities sold and traded. The fees on our mutual funds in 1998 were down considerably and instead of having gains on trading, we had losses. That hurt our comparative performance. However, our core business, has been steadily improving.
7/Q: The bank still ranks among the top four. What is the secret of the bank?
Service. I am relatively new to EAB. When I came here, I looked at the problems that we had and the mistakes that we made rather than to the glowing reports. However, my predecessors and the original founders of the bank who ran the bank for the first decade instilled a service ethic in the employees. We have a lot of employees who have been around for a long time that have a service ethic are above what we see in the market. We are aggressively pushing to improve our systems and our capabilities to provide better services. We actually made huge strides last year.
8/Q: Would you say that Egypt enjoys a well-developed and well-operating banking and financial system? If ‘yes’ give your reasons and if
‘no’ then what else should be done in that sector?
My prior experience was in different countries in Asia since 1981. In an emerging market there are usually some difficulties with the banking system. Directed lending resulting in poor loan portfolios is common. Management systems and supervision are usually not well developed. However, banks in this market work well given the country’s stage of development and they are improving rapidly. Private sector banks are healthy and well run.
9/Q: In which areas of your activities would you be interested in attracting foreign direct investment?
If you spend a month travelling around Egypt you would get to see some of the projects. There has been quite a bit of foreign direct investment, much of it from the Middle East. Egypt is relatively healthy and the economy is stable. As an emerging market to invest in, I think that it offers stability: the economy has not been sky rocketing at 9% or 10%, it has been growing at a consistent 5% or 6% growth rate. The local regulations have been improving. The government has been undertaking improvements to the regulatory framework in the country. There is no foreign exchange problem in the country as far as reserves are concerned. Most of our clients are local but we still have multinationals like General Motors, ABB, Daewoo, Siemens, and pharmaceutical companies, American and European companies. They are attracted by the developing consumer market here and the development for export too. Geographically, Egypt has got a great location, and I am confident that it will develop a substantial export base.
10/Q: Could you give us your personal background?
I have been in the international banking business beginning in Tokyo in
1981. I have lived in Taiwan, India, and Korea. I moved here in March from India. India was a fascinating country. I am new to the Middle East, which is a fascinating country. The people the culture and the players are new to me too. Egypt is a great place, it is very interesting to see the stages of growth in a country and the stages of growth in a banking sector.
11/Q: You have been recently appointed. Since then, what has been your most satisfying personal achievement as the Managing Director of EAB?
My aim is to improve our competitive edge in the market here. I want to increase our market share and our competitiveness vis à vis the other private banks here. While we continue to remain primarily a corporate related commercial bank, I think it is also going to be exciting to develop the consumer business here. I am sure that we will have tough competition as there are able players out there, but we will transform the bank over time.
13/Q: What will be your final message to our readers?
Egypt is a market that they should not overlook, whether in terms financial investment or direct investment. It has great geographical advantages and critical mass in terms of population with 62 million. The country has been steadily improving, which should appear on everyone’s radar screen.
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EGYPT
