Egypt, new dimensions, new frontiers

Mr. Mohamed Barakat, Vice Chairman and Managing Director of EGB
Egypt -

"Innovation in Banking"

Interview with:

Mr. Mohamed Barakat,
Vice-Chairman and Managing Director

(Also present are Mr. Hanna, General Manager and Mr. Ramez, General Manager)
Cairo, May 3rd, 2000
Could you give us a brief historical background and overview of main operations of the Egyptian Gulf Bank?

The bank was established in 1982, and 60% of shares are owned by Egyptians, with Saudi Arabians and Kuwaitis holding the remaining 40%. Within Egypt, MISR Insurance holds 24.5% and the Mahmoud family own about 23.5%. The Kuwait investment authority and other individual Kuwaiti and Saudi holdings account for 40% and the remainder is made of smaller Egyptian shareholders.

The bank operates through nine branches. There are branches in Greater Cairo, Alexandria, Mansoura and 10th of Ramadan City. Three more branches will open very shortly, one in Heliopolis, due to open on May 11th, 2000, and two more will open in the National Club in Zamalek and another in Nasr City.

We are a commercial bank, with all the normal associated activities. We have one or two new interests such as the retail area, and internet banking. We have ATM's now, which we introduced last year as well as a phone banking service. We have a system we call 'cross country' so you can cash a cheque with any of our branches, anywhere in Egypt.

Could you provide us with some financial figures, such as annual turnover and net profit?

Last year, our net profits were lower than our previous year, after provisions. In 1999 we had profits of EGP 18 Million, versus EGP 27 Million the previous year. Before provisions the difference is about 9% less than this. We have just received our figures for the first quarter and we are up by 26% compared to the same quarter last year. There are several reasons for the lower figures of last year; our capital base is mainly in US Dollars, and we are borrowing, inter-bank, in Egyptian pounds. Inter-bank rates here increased and this had a negative effect. The differential between dollars and pounds was much higher last year and this also had a direct effect on our figures. Things have changed in this first quarter, and things are undoubtedly looking up.

Have you been effected by the decreasing number of loans?

Actually, our estimates on this were excessively conservative, as it happens, and in 1998 we took measures to reduce the amount of money we were lending, until we have greater deposits. We used the intervening time to improve efficiency.

A new management team joined the bank in the second half of 1996. Prior to this, we were almost like a public sector bank. We introduced a new marketing team with innovative ideas, and the year after this was the best yet. The market at the time was different. In the second half of 1998 we decreased our lending a little, since we predicted what is happening in the Egyptian economy now. We are using the time to improve our infrastructure and IT possibilities.

We believe that the future for us lies in Information Technology, as we are a medium-sized bank, and this will give us the edge over our larger competitors. We have a very strong IT department and we are using the AS400 3-4 System, whist many other banks are not yet fully automated. In January 1997 we had AS1 up and working, with a Mimix backup, it is an exceptional IBM product. As we have ATMs we had to become members of the SWIFT system. All the branches are now on line, and all our services will be available over the internet within the next months. This is not just a web site, and we are investing a great deal of money to develop it.

Here in Egypt, internet usage is skyrocketing - in fact it recorded the highest usage in the middle east, so we are looking to provide the same services as US banks for the young Egyptians who are beginning to demand these. We have used the temporary slowdown in market conditions to facilitate our integration into the IT world.

How would you say your bank is positioned within the Egyptian market?

We are a medium-sized bank, but we have the same clientele base as the larger banks, such as CIB, EAB and MIBank.

Are you within the top twenty banks here in Egypt?

Yes, within certain criteria, even including the public sector banks.

You have been making significant changes, streamlining and introducing new technology. What have the major developments been in the bank?

We have had major investments in the computer systems mentioned above, as well as the technology to allow us to use screen based signatures. We have invested heavily in our new branches as well and ATMs. Three branches in the last two years and another three this year shows considerable investment. We have nearly doubled our number of branches. Staff training and 150 new PC's have also required a great deal of expenditure.

Retail banking is undergoing major changes here. Numerous banks are now offering mortgage insurance, vehicle financing, share financing, mutual funds and so on. Which services are you providing, or looking to offer in the near future?

Our mutual fund opened three years ago, and is managed by EFG Hermes because, according to the law, we cannot manage it ourselves. We have a plan to issue bonds this year, and we now issue Visa and Master cards. We have club membership, complete with benefits, and we issue a club credit card which has more benefits than our Cash Plus card, which is a fairly standard ATM card.

We are waiting for the adoption of the new leasing law at the moment, and when it is in place all the banks will be active in this area, so we really must use this time to ensure that we are ahead of the competition. No banks are active in retail banking at the moment. There were some retail based loans, mainly for cars, but the banks were badly hit by delinquent loans. The new lease law will prevent the financing of cars in this way.

Our internet division is also going to help us reduce certain costs. For example, we will need fewer branches than we otherwise would, especially in the gulf area where there are a great number of Egyptian expats.
We are active in the capital and equity markets, and the local market too, we were one of the most active banks in this market in 1997. We have had exposure to the international equity market, and unfortunately we cannot offer this service at the moment but things will change. We are awaiting positive change in the law.

Have you had to forge partnerships with other companies to facilitate your IT developments?

We found that the company that best suited our needs was IBM, and we decided to go into full partnership with them.

Some people are suggesting that there are too many banks, and we are facing a period of mergers and acquisitions. What is the bank's view on this?

Yes, I share this view. Smaller banks will be under pressure, either to merge or acquire. The two Government Real Estate Banks that merged may well be a sign of what is coming but apart from this all the others were sales and foreign acquisitions in order to acquire licences to operate. The institutions that have been formed will be larger and I anticipate further mergers.

How is the Egyptian Gulf Bank looking to succeed in these challenging times of change? Is it looking to merge or form a strategic partnership with another bank?

Well, we are presently reviewing our position on this issue, so I cannot really comment in great detail at the present. However, our capital base is double what is actually required, so we feel quite safe regarding that aspect.

We are not sure about the value added by these mergers and acquisitions, it has not yet been seen, but we need to prepare, in house, for all eventualities. I personally don't envisage any major changes on this front for the next three to four years.

When did the Egyptian Gulf Bank become public?

It has been public for a long time, and 85% of the present shareholders were founders of the bank. As a result of this, the price quoted on the stock exchange is not a good indicator of value - the number of shares created is very liquid, and trading will be within less than five percent of the shares of the bank.

The introduction of the GATT into Egypt in 2005 is going to create some new issues for Egyptian banks, how are you preparing for these?

We are waiting on information from the central bank concerning this, but we presently meet all international requirements on such issues as transparency and so on, and we will certainly strive to meet new criteria as quickly as possible.

What is you future strategy for expansion, both at home and internationally?

We have no plans for expansion outside Egypt, given the size of the bank. We are counting on growth both in Egypt and the Gulf area, through our Internet access program. This is a lot more cost efficient than having branches dotted around everywhere. Here in Egypt we are looking to have several relatively small branches, well dispersed to decrease costs. This will help us stabilise our deposit base. The borrower can go to any branch for commercial borrowing, but depositing is a different issue, since it requires physical proximity to the bank.

What new investments are you looking to invest in, and in which areas of your operations are there opportunities for foreign investment?

We are opening several new branches and this requires considerable investment. We considered, three years ago, to go into partnership with a foreign, Western-based bank, but we considered that the time was not right for this. This is a very sensitive area, and we do need foreign investors and know-how. We may consider forming a separate entity in collaboration with foreign investors in order to approach some of these issues, as there are several legal issues that need to be taken into consideration. The bank has invested heavily over the last two years, and much of this went of obtaining foreign expertise and training, such as an intensive training course for graduates.

Could you tell us a little about your e-commerce strategy, what you are doing to let people know about the services you will offer?

We need to finish the whole project before we start advertising it. First, we intend to form a new customer support department to help people understand what is going on, and how the changes can benefit them. Secondly, we intend to advertise to attract new customers, particularly in the Gulf countries.

How do you envisage the future of the Egyptian Gulf Bank?

In three years time we hope to have doubled our branches once again. Saying that however, many of these branches will be small, offering focused services and core facilities.

Can you tell us a little about the challenges you have faced, and how you have gone about overcoming them?

We have faced a number of challenges which we have successfully ironed out during the last four years. An important challenge was to instil a change in the in-house corporate culture and to make our staff more customer-oriented. As for our shareholders, they have financially supported the bank by increasing the paid in capital several times as a result of several corrective actions adopted by management, leading to where we are now, in this competitive banking environment.

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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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