Value Partners Highlights Growth Opportunities in Retail Banking Sector

• Text size
•  
•  

Retail potential include payments, mortgages and SME financing

Cario, Egypt, 17 May 2010 - According to a recent study by Value Partners, leading global management consultancy firm, Egypt's banking sector is growing at a fast pace - with total assets up to 43 percent in the last 4 years - and provides attractive growth opportunities, specifically in the retail sector.

Value Partners found out that retail assets account only for as little as 10 percent of Egypt's total assets. Retail loans, instead, represent 20 percent of total loan portfolio while mortgage-related finance less than 1 percent of total sector loans. In addition, only 10 percent - out of a population of 81 million - have a bank account, while just 4 percent own a credit card.

Roland Topic, senior manager at Value Partners Dubai office, explained: "This significant growth potential can be captured through two main channels: by increasing the penetration of existing banking products - especially among the growing middle class outside of the main urban areas - and by introducing new banking products that are more customised to local consumer's needs. The growth in population and personal wealth, especially among the middle class, which amounts to around 5 million people, is fuelling the increasing demand for credit cards and auto loans and now also mortgages".

Consultants at Value Partners identified some major external factors during a challenging economy that affected Egypt's banking sector: a drop in Foreign Direct Investment (FDI), weaker tourism revenues, lower trade with developed countries and lower Suez Canal revenues. Topic continued, "This primarily impacts the corporate side, which represents around 70 percent of lending for the banks, but it also affects non-core operations with less trading activities and drops in exports. Should macroeconomic conditions persist, a new cycle of Non Performing Loans would also threaten banks balance sheets."

He added: "The largest local private banks are planning to capture retail potential as a consequence of reduced opportunities on the corporate side. They have noticed not only the retail sector growth potential and better profit margin, compared to other lending, but also the fact that it offers opportunities to diversify operations, risk and revenues. "

Despite the liberalisation of the financial sector and the recent entry of many global players, Egypt continues to be highly under-banked, with only 3,500 branches and networks located outside the major urban areas. Most local and regional banks are planning to build more retail divisions. Globally, banks are committing funds to capture the Egyptian retail banking business opportunities. The Lebanese Blom Bank and Bank Audi have recently set up offices in Cairo, while the National Bank of KuwaitNational Bank of Kuwait (NBKNBK) bought Al Watany Bank of EgyptAl Watany Bank of Egypt (AWBAWB) and Ahli United Bank EgyptAhli United Bank Egypt made its official debut after the Bahrain-based bank bought an 89.3 percent stake of Delta International BankDelta International Bank.

Egyptian banks show high levels of liquidity - where liquid assets increased in 2009 up to 45 percent - and banks rely almost exclusively on customer deposits to fund their activities. In 2009, credit growth was weaker than deposit growth; 9 percent credit CAGR vs. 13 percent deposit CAGR between 2003 and 2008.

"The recent financial crisis has not influenced Egypt's banking sector due to a limited integration with global financial markets, abundant liquidity and a conservative regulatory environment," explained Topic. "Egyptian banks were not exposed to the toxic structured assets that affected Western banks, and the almost non-existent mortgage market has protected the local system from a collapse in house prices."

Focusing on mortgages, the government is working to introduce better access to mortgage finance through both banks and specific mortgage lenders. Some of the government's reforms implemented so far include reducing property-registration fees to 3 percent of the transaction, down from 13 percent in 2006, and easier registration procedures. With the purpose of enhancing banks' information used in consumer lending in 2007 a credit bureau (ISCORE) was introduced. In a few years' time the Basel II regulation framework will also be introduced. More than 300,000 housing units are expected to be required annually for the next few years, and demand over the longer term is likely to soar when housing finance becomes more accessible.

In the retail-banking sector, Small and Medium Enterprises (SMEs) also appear currently under-banked. This can represent a great potential if banks start working with the entire supply chain of their blue chip corporate. Topic explains, "SMEs are the backbone of the Egyptian economy; they contribute almost 80 percent of GDP (Jordan 50 percent and Lebanon 99 percent) in different sectors, in particular wholesale and retail trade, vehicle maintenance, and manufacturing. In addition, Egypt SMEs employ 75 percent (Jordan 60 percent and Lebanon 82 percent) of the employees."

A number of banks are working towards increasing their penetration in this segment, but microfinance solutions remain marginal. The government has been supporting lending to this segment, also asking for SMEs increasing in transparency. In addition, in December 2008 the Central Bank of Egypt has announced to exempt the 14 percent cash reserve requirement for SMEs loans, in order to encourage local banks in lending to this critical segment.

"While controlling the cost of risk, the best way to serve SMEs effectively is to start with working capital financing, focused in particular on the supply side of the major corporate client," said Topic. "In this way, more than the specific risk, the bank will be able to assess the risk of the entire supply chain cycle, physiologically lower, and involve a larger number of SMEs in a reduced time frame. The best products to launch, in this case, would be factoring, payments and e-invoicing, all relying on worldwide standards and contractual agreements."

Value Partners is a global management consulting firm, which draws on nearly 50 partners and 3,100 professionals of 25 nationalities. Founded in 1993, it has built its strong international reputation by assisting clients in over 40 countries in the telecom and media, financial services, energy, industrial and consumer goods sectors. Value Partners, which opened an office in Dubai two years ago to serve its clients across GCC, Levant and Africa, has been doing business in the Middle East for some years, mainly with projects in the media and telecom sectors and recently in banking, insurance, real estate, health, government sectors. Today the firm has offices in Milan, Rome, London, Munich, Helsinki, Istanbul, Dubai, Sao Paulo, Rio de Janeiro, Buenos Aires, Mumbai, Beijing, Hong Kong and Singapore. For more information, visit www.valuepartners.com.

-Ends-

For further information, contact:
Natasha D'Souza - The Portsmouth Group
Tel : +971 4 369 3575
natasha.dsouza@theportsmouthgroup.com

© Press Release 2010