The Housing and Development Bank (HBD) is looking to 2016 to increase its financial assistance to low and medium home buyers.
To this end, the bank is looking to provide a total of EGP 2bn in loans to increase on its gains in 2015—wherein the bank dispersed nearly EGP 750m in loans to 10,000 persons.
Daily News Egypt sat down with Chairman of HBD Fathy El-Sebai to discuss the bank’s current and future plans for growth, the establishment of a real estate investment fund, its collaboration with other banks in the Arab and North African markets, and the ways in which it has adapted to the Central Bank of Egypt’s (CBE) new directives.
The bank previously announced that it would participate in the real estate funding initiative that the CBE launched in February 2014; what did you achieve in this regard?
Within this initiative, the bank granted EGP 750m to approximately 10,000 low and medium income prospective home buyers. These numbers were registered at the end of 2015. We aim to increase this amount to EGP 2bn by the end of 2016.
Throughout its history, low-income citizens have been among the bank’s highest priorities, with its significant role in funding the Social Housing Project, an extension to the National Housing Project.
Immediately following the announcement of the CBE’s new initiative, banks faced many application difficulties which slowed down their plans to grant the needed funds to low and medium income persons. However, banks have overcome these difficulties recently, enabling them to move forward in their lending plans.
The bank previously announced plans to launch a real estate investment fund; is that still in the bank’s plans?
This fund will be launched this year; its initial capital is expected to reach approximately EGP 200m.
The bank’s administration is now choosing between a number of companies operating in the field of asset management to manage this fund.
However, I would like to stress that real estate funds are new in the Egyptian market. Therefore, they should be carefully studied before they are launched.
It is known that the real estate projects need at least two to three years to achieve high returns. Consequently, the real estate fund’s management may resort to directing part of its liquidity to invest in other businesses in order to achieve initial returns.
What are your expectations for the real estate sector in the next period, and how can the housing problems facing the youth demographic be solved?
The real estate sector slowed down in the three years following the 25 January Revolution, and then started to revive. Now, there is a large gap between the volume of demand in real estate and the number of units that are being established. The volume of demand is estimated to be about 600,000 units, while current supply does not exceed 300,000.
I expect a 7% growth rate in the real estate sector over this year.
To allow developers to meet the increasing demand, I suggest that the government sells lands to real estate developers at low prices—on the condition that the developer’s profit does not exceed 10%— and for the government to decide on a specific price for apartments, which should be affordable for young people. I suggest, as well, that apartments be built and rent offered at affordable prices, in order to bridge the current demand gap.
What is the bank’s position regarding funding small and medium enterprises (SME), especially after the CBE launched an initiative to support these projects?
I would like to clarify that the majority of projects the bank funds are medium sized, in accordance with the bank’s capital base, which does not allow it to fund any project with more than EGP 400m.
As for small enterprises, the HDB directed approximately EGP 400m to them, which is approximately 5% of the bank’s EGP 8bn total loan portfolio registered at the end of last September.
We aim to increase the percentage of loans granted to these projects in the total loan portfolio to 20% in four years, apace the CBE’s initiative.
In order to achieve this goal, we now are classifying SMEs in accordance with the new definitions on which the CBE decided for these projects.
The bank has formed a committee under the guidance of the bank’s vice chairman to develop a strategy to support these projects.
The bank is expected to finish the studies, plans, and programmes necessary to increase funding to these projects with the month, as a prelude to submitting them to the CBE.
The planned strategy calls for the formation of a specialised department to fund these projects. The bank will also work closely with branches in its larger network to ensure a wide scope of action.
What about funding micro projects?
Micro projects are not included in the CBE’s initiative. Nevertheless, the bank funds them indirectly by funding the institutions that fund them.
Do you think that the CBE initiative alone is enough to support small and medium enterprises?
The CBE does what it has to do, and the banks support its course of action. The banking sector believes in the importance of these projects, in combating problems of poverty and unemployment. However, the government should do more to support the banking sector in this regard.
For example, the government can present incentives to attract small companies to work within the official economy, such as granting them tax and insurance exemptions, and working to remove any obstacles in registration and licensing.
The provision of loans requires that companies have an approved budget; how does the bank deal with small and medium companies that are yet to start operations and do not have budgets?
The CBE’s directive, intended to make it easier for such companies to obtain funds, stated that banks should work with such companies in the first year of their operations without the normal budget requirements.
However, these companies should be open to auditing measures from the beginning of operation, in order to be draft a budget by the end of the first year. This would allow banks to depend on these budgets in funding these companies in the next years.
What about the bank’s role in supporting the tourism sector?
The bank has allocated approximately EGP 400m to the tourism sector in its loans portfolio, and it is ready to invest more funds in this sector in the next period.
Moreover, the bank postponed the payment instalments of loans owed by the workers of this sector for six months, implementing the directive that the CBE launched to alleviate stress on this sector after the downing of the Russian commercial jet.
You said that the bank seeks to increase its branches to reach individuals and companies customers throughout the country; can you provide further details on this plan?
The bank currently has 65 branches, and we aim to expand to a total of 73 branches this year. We are also planning to reach a total of 100 branches by the end of 2017.
The bank obtained the CBE’s approval to open 11 mini branches distributed across the country. Three of these branches have already been opened, and the other eight will be opened before the end of this year.
Does the bank have a technological interface that will aid it in its geographical expansion?
The bank has contracted Temenos International to install an advanced technological interface at all the bank’s branches. This system was already installed at a number of branches last November, and it will be installed at the rest of the branches by next May.
This technological system will enable the bank to launch new technical products and services for its customers, such as internet banking, which probably will be launched before the end of the year.
What is the growth rate that the bank aims to achieve this year in both portfolios of deposits and loans?
The bank’s loans portfolio amounts to approximately EGP 8bn, while its deposits portfolio amounts to approximately EGP 13bn, according to the numbers that the bank registered at the end of last September.
The bank’s strategy in 2016 includes achieving a growth rate of about 18% in the loans’ portfolios and an increase by 15% in the deposit portfolio.
What is the bank’s plan to attract foreign currency liquidity?
The bank intends to offer saving certificates in US dollars in the coming period with a return rate that can compete with returns at other banks. The bank hopes that this will create increased dollar liquidity, in addition to the other schemes the bank already has to attract foreign currencies.
The bank recently signed a cooperation protocol with the Saudi Bank Albilad; what are the details of this agreement, and when will it be activated?
The agreement with Bank Albilad aims to facilitate the transfer of funds from Egyptians working abroad into Egypt, while also promoting an exchange of banking experiences and services between the two banks. This agreement will be activated in the first quarter of this year.
This agreement supports HDB’s aim to have a greater presence in external markets by tapping into the network of its partner banks and by cooperating with sister banks.
It is important to stress the importance of directing Egyptian banks toward the Arab market to create opportunities for commercial and investment cooperation.
The bank previously signed a cooperation protocol with Banque marocaine du commerce extérieur (BMCE) to facilitate money transfers from Egyptians working abroad, and to promote international commerce.
Will the bank be involved in funding any projects in the New Administrative Capital?
We have not received any requests to fund projects in this area yet. However, we are ready to be involved in any project, especially considering that the HDB is the financial arm of the Ministry of Housing, and the New Urban Communities Authority.
What about the bank’s expansion plan into external markets such as Libya?
The current circumstances in Libya prevent the bank from continuing its presence there. Moreover, the currency crisis from which Egypt is suffering prevents implementing the bank’s plan to have a greater external presence.