Egypt, new dimensions, new frontiers

Mr James D. Vaughn, Managing Director of EAB

Interview with Mr. James D. Vaughn,
Managing Director
Read our exclusive interview

Egypt -

Mr. James D. Vaughn
Managing Director

4-6, Hassan Sabri street, Zamalek, CAIRO, EGYPT
Tel: (202) 340 73 30
        (202) 341 61 50-57/58
        (202) 339 15 09
        (202) 340 78 12
        (202) 341 25 62/64
Fax: (202) 342 02 65
         (202) 340 94 30
Company profile

The Egyptian American Bank was established in 1976 as a joint venture bank between American Express Holdings Inc. and Bank of Alexandria (BOA).

EAB offers a wide range of banking and financial services through its 30-branch (the bank added one branch this year) nationwide network as well as affiliate companies, offers securities and investment services.

At present, the bank's branch network comprises of these 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 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 built the bank's reputation as a provider of quality financial services.

Looking ahead, EAB still intends to take initiatives and measures to increase its growth rate, expand its service and increase shareholder value.

Services offered

Corporate banking

The Corporate Banking remains the primary asset generator. EAB is the largest private bank in Egypt, with assets of EŁ5;8bn and deposits of EŁ4.6bn. The bank is majority owned by American Express, bringing in expertise in corporate governance. EAB is the most retail oriented in its peer group.

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 programs in which EAB participant including: USAID GSM-102, KFW and Euro Med.

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.

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 end local correspondent banking network to support and accommodate the bank's business growth both in Egypt and overseas.

In addition 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 ans establishing lines for new relationships.

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. EAB has 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, EAB has developed a unique interest bearing demand account and installed Automatic Teller machines (ATMs) in strategic locations.

Looking ahead, EAB sees Retail Banking activity as a major contributor to the bank's growth and results.

Private Banking

This is a unit of the Bank which has been established to provide and cater to needs of High Network 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.

Capital Markets & Investment Banking

The Capital Market & Investment Banking division focuses on providing financial advice to, and raising capital for, abroad range of domestic Corporate and institutional Clients.

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.
Review of 1999 results

EAB posted 1999 results with a net profit to shareloders of EŁ92.4m, up 25% y-o-y ; however this masks 54% y-o-y operating income growth driven by net interest icome.

42% y-o-y net interest income growth driven by margins

Historically, EAB has aggressively pursued a volume growth strategy at the expense of margins. A shift from this strategy began to show in 1998. In 1999, margins contributed to 62% of net interest income growth.

EAB benefited from market conditions, ie interbank rates, averaging 14.2% in 1999 compared with 9.4% in 1998. Interbank assets grew by around 64% while the T-bill account was totally diluted by year-end. Lending rates were increased by around 1% but there was an equal increase in deposit rates.

The drop in the cost of funds from 5.77% in 1998 to 5.70% in 1999 was therefore mostly the result of the repayment of half of the bank's syndicated loan. Higher spreads and margins of 2.46% and 2.68% respectively, were a function of higher asset yields arising form the bank's interbank position, which rose from 7.69% in 1998 to 8.17% in 1999.

Mixed signal from cost efficiency ratios

Costs grew at 9% in 1999, 5% above inflation. Cost/total income dropped from 52% to 44%, however, the cost/average assets ratio rose from 1.77% in 1998 to 1.85% in 1999. The growth in costs came from an administrative and personnel costs, which grew at an annual rate of 16%.

Strong operational growth

Operating income grew at 54% y-o-y, 3% above HSBC expectations. As can be seen below, net interest income was the main driver behind revenue growth ; however, non-interest income also showed healthy y-o-y growth of 17% only slightly below expectations. Cost growth on a yearly basis was much lower than in 1998, 9% in 1999 versus 27% in 1998.

Provisions higher than historical trend and expectations

Provisions at 32% of operating income compares with 17% in 1998.

A shift towards interest earning assets

Assets grew 2.8% y-o-y, reaching EŁ5.8bn, in line with HSBC expectations. Interest earning assets/total assets actually increased from 90% in 1998 to 95% in 1999, mainly interbank and interest bearing investments. Net loans grew by 7% while the T-bill account was totally diluted, and interbank assets and interest bearing investment show growth rates of 64% and 55% respectively.

Net loans to deposits up to 78% hen adjusted for a temporary deposit and higher lending exposure, with net loans/assets up to 60%.

EAB shows the highest asset quality in its peer group (0.8% in 1999 from 1.0% in 1998 and NPLs/total loans to 1.3% from 1.7% in 1998 due to the upgrading of some of the bank's NPLs).

Risks and Valuation & recommendation

  • Lower interest margins as liquidity squeeze eases and higher competition for deposits.

  • EAB's recent underperformance offers investors a good buying opportunity. Target price of EŁ61.52 indicates 26% upside potential.

  • Key developments

  • EAB intends to add one to two branches annually, reaching around 36 by 2002.

  • EAB started 1999 with seven ATMs and added 12, bring the number of ATMs to 19 at year-end. Two more ATMs were installed in February 2000 and the bank is planning for five more by the end of 2000.

  • EAB has set a target of generating equal revenues from corporate and retail banking within a five year period.

  • Profitability and front deal computer systems are being installed to enhance cost control and support retail activity. EAB launched phone banking in February 2000 and internet banking capabilities are being developed, while remote access is available to corporate clients

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    © World INvestment NEws, 2000.
    This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
    August 7th 2000 Issue.
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