When Hisham Ezz Al-Arab was appointed chairman of the Commercial International Bank in 2002, the Egyptian economy was hurting. The banking sector, blamed for a large proportion of the country's problems, was being singed by criticism of its mishandling of risk management and non-performing loans (NPLs), but bad debts were not his number-one concern at the time.
"For CIB, the major challenge was people. We had the right people, but we had to make them better so as to be competitive not only regionally, but internationally," says Ezz Al-Arab, who invested heavily in training the bank's 2,000-plus employees.
"I would question whether any other local or regional bank has as many training hours per capita. Last year, we were up to 54,000 training hours, which is more than 25 hours per year for each person. Technology was also very important," says Ezz Al-Arab, who is widely credited by industry insiders with introducing world-standard technology at CIB.
Ezz Al-Arab believes CIB was luckier than other banks on the NPL front because his institution began to tackle the problem much earlier. When he first joined the bank as deputy managing director under Mahmoud Abdel Aziz in 1999, it was obvious that there were problems.
Prior to coming to CIB, Ezz Al-Arab spent 14 years in London as a managing director at Deutsche Bank and, later, Morgan Stanley.
"When you come from a different environment, you see things differently from people who are immersed in the situation at hand. The 14 years I spent in the international market taught me to look at things in a certain way, so I started to raise and discuss some issues with the board who, fortunately, did not write me off as an outsider and listened to what I had to say. As early as '99 we were addressing certain risks [in our loan portfolio]. We knew that there would be turbulence, and we did not want to be on the crowding out."
Despite the heads-up, Ezz Al-Arab admits that CIB, like the rest of the industry, went through a tough period as the regulatory environment tightened. "Today, all that has changed. Things are very different," he says, asserting the biggest change industry-wide has been that of mindset.
"Between 1992 and 1996, we went through the economic liberalization that was triggered by the International Monetary Fund and World Bank, but that was a very different era than the one we began in 2004. The first wave of reform came out of necessity, and the one we are going through today stems from desire. The country was on the verge of bankruptcy in the early 1990s, and we needed to renegotiate our debts. But today, we want to improve because we really deserve better as a country. That's a vital difference. People have bought into this government's reform initiative because it is not a result of pressure, but of a real desire to change and become part of the global community. It's improving the standard of living rather than paying debts that is now on the top of the government's agenda," says Ezz Al-Arab.
"There has been a definite change in mindset on the level of decision and policymakers. The challenge is how to change the mindset of middle management and the public at large cultural change, if you will."
Ezz Al-Arab cites credibility as vital to bringing about any form of cultural change, even on the level of an organization such as a bank. "In a bank with 2,200 employees, it has taken almost five years to change the corporate culture, and you still won't find 100% consensus. If we talk about a country where there are lots of political forces at play, it's very, very difficult. All the government can do is try to be credible and deliver on their promises.
"Still, I think that if you wake up in the morning and you can say that you have managed to change just one person's mindset or beliefs about reform, that's an achievement. It's a marathon, and we have to be patient but it has already started to happen. The government has started to deliver, but it is hard to erase the past."
Still, the banker is convinced that indicators and policies are moving in the right direction.
"I think we now have a reasonable, transparent monetary policy. I won't say that it's credible, because it has not yet been published. But I do know for a fact that the Central Bank is working on it and that it will be published soon. Once that is in place, you can look at the framework, the target and the interest rates.
Then it will be credible. I don't believe that interest rates will go lower. They have already been brought down from 12% to an average of 8%. Excess capacity in the manufacturing sector will be absorbed soon.
When you start to reach a certain level on capacity utilization, you expect more investment, so my guess is that inflation has bottomed out in Egypt."
As for Egypt's stalled mortgage finance apparatus, Ezz Al-Arab blames the absence of documentation and an underdeveloped system rather than high interest rates.
"You have to build up a framework in order to make mortgages work, it's not really about interest rates.
There's lots of work that needs to be done, but we are getting there." Credit history remains a problem, but according to Ezz Al-Arab, "the Egyptian Credit Bureau is working on its first report, which should be out sometime this year or early next year. It is six months overdue, but this is all very new for Egypt.
"I think we can sustain the 6% growth, but that is not good enough. We need to hit 9 and 10%. If China can do it, why can't we? To reach these growth figures, we need to give SMEs access to finance. If the banking sector doesn't move soon in this respect, we will not be able to accelerate growth rates. We know that this is an issue that has been exacerbated by all the problems we had with non-performing loans in the past, but we've become too cautious. We need to lend to SMEs, many of which are currently underleveraged.
"If we want to talk about jobs over the coming five to ten years," says Ezz Al-Arab, "they will not come from the big petrochemical projects or cement factories, but rather from SMEs."
Hisham Ezz Al-Arab (49)
Chairman, Commercial International Bank
Past experience: Managing Director, Morgan Stanley (London) Managing Director Deutsche Bank (London)
Brand Egypt: Before we think of a brand, we have to come up with a national dream. We should think of a national dream for Egypt 100 years from now. Unintentionally, we had a national dream during the Africa Cup of Nations if we can all unite for football, we should be able to do so for our future.
By Hadia Mostafa
Business Today Egypt 2006
