Banking experts and economists said that the presence of a large number of Arab and foreign banks in the Egyptian market, amounting to 20 banks and seven joint banks, is a testament to the importance of the market for banks and to the regional and international status of Egypt.
Banking expert and board member of the Suez Canal and the Arab-Sudanese Bank Mohamed Abdel-Aal said that the presence of foreign banks, including Arab banks, in the Egyptian market has changed in recent years.
Abdel-Aal explained that some banks were established to implement joint economic and financial agreements between Egypt and other countries, or between Egypt and a group of countries, in order to facilitate international trade to finance intra-joint ventures and to serve investors requirements in Egypt. Examples of these banks are the Arab African International Bank (AAIB) and Arab International Bank.
There are other banks that were nationalised in Egypt and returned directly to its work after the political situation changed and the investment climate and legislation improved circumstances. Those banks started to re-open their old branches, even with new licences, relying on their old reputation before nationalisation and its customer base. An example of those banks is found in the Arab Bank, according to Abdel-Aal.
He added that some banks were established by a group of investors, individuals, or institutions, whom were attracted to the market by the promising investment climate in Egypt and the reduced average of the number of bank customers compared to the population. This made the banking business attractive in funding, loan activities, retail activities, or investment banking activities. An example of those banks is found in the CIB.
According to Abdel-Aal, some banks entered the Egyptian market after acquiring Egyptian banks that were sold. This is how most Arab and foreign banks entered the Egyptian market.
Egypt has benefited from Arab banks and branches of foreign banks operating in its market, said Abdel-Aal. The most important among these benefits are transferring modern banking expertise, risk management technology and international finance models, as well as training young cadres that have helped in the spread of these banks.
Arab and foreign banks operating in Egypt provided credit and financing limits that helped the Egyptian banking system to finance the rapid economic development processes. They also provided amounts of foreign exchange to a certain extent in previous years that contributed to the financing of foreign trade activities between Egypt and other countries. They pushed the government and Egyptian banks to improve their situation and develop their human structures so that they can compete, according to Abdel-Aal.
He added that foreign banks have their own risks, as they are controlled from their parent companies abroad and may face their own problems, which could lead to bankruptcy or withdrawal from global markets.
Abdel-Aal noticed that the foreign banks that stopped operating in Egypt were acquired by other Arab banks. One of these banks is Barclays, which was recently acquired by Attijariwafa Bank.
“As we know, foreign banks will not exist in Egypt or anywhere in the world before they are able to anticipate their profitability rates and calculate them in advance,” according to Abdel Aal.
He explained that there are many factors and reasons why Arab banks enter the Egyptian market. Some of the factors are the economic recession in Europe and America, and the high risk for Arab investments in those countries. This is along with the decrease of investment rates compared to savings rates in the Arab countries, which makes them look for external opportunities especially in the banking sector.
The emergence of new petroleum discoveries in Egypt’s Mediterranean coasts made Egypt an attractive station for foreign investments, especially in national projects and the Suez Canal Area Development Project, another advantage enjoyed by Egypt that attracts banks, according to Abdel-Aal.
He added that the main reason that causes Arab banks join the Egyptian market is its population. The Egyptian population has now reached about 90 million people and is expected to reach 118 million in 2030, then 162 million in 2050. We know that only 10% to 18% of the population is currently using the banking system, which explains the enormous future marketing opportunities that await the banking system in Egypt and will allow it to expand and grow.
On the other hand, according to Abdel-Aal, banking density is very high in Egypt compared to their counterparts in other countries. In other countries, almost every million set of citizens are served through 200 bank branches. In Egypt, every million people are served by only 40 bank branches. This reflects the size of the gap that must be filled by spreading existing banks or establishing new banks, which confirms the feasibility of foreign banks seeking to work in the Egyptian market.
Banking expert Hany Aboul Fotouh said that the presence of that many Arab and foreign banks in Egypt is an indicator for their trust in the Egyptian banking sector and a proof of its attractiveness for foreign investment, on the back of the successful banking reform programme that strengthened banks in Egypt and their capital bases.
He added that the diversity of banks in Egypt will be an engine of competitiveness that exchanges expertise among banks in terms of the banking information technology sector, which would contribute in the provision of sophisticated, advanced, and high quality banking services and products to Egyptian consumers at affordable prices.
“When we talk about Arab banks in particular and their investment in the Egyptian banking sector, that attributes to the size of the market, in terms of potential customers size—driven by a large population—and the variety of economy sectors that require different banking services, unlike the main centres of banks in Arab countries that suffer from limited economic activities,” he explained.
He noted that the number of bank clients in Egypt is less than 10 million people, which means that Egyptian and Arab banks still have the potential to attract 45 million customers in the future.
Moreover, Aboul Fotouh said that among other factors that attract foreign banking units to enter the Egyptian market is the strong labour presence of Egyptians in the Gulf, where Arab banks benefit from Egyptian expats to offer remittance services.
Director general of one of the private banks in Egypt, Ahmed Selim, said that over the past 20 years, the Egyptian market has been very attractive for banks, due to the expansion in investment projects and the inflow of tourism.
He added that Egypt is a big consumer market of some 90 million citizens. “The market consumes traditional goods, as well as banking products,” he noted.
He pointed out that the large geographical size of Egypt helps banks expand easily.
Furthermore, he noted that despite the sporadic violence, Egypt is almost one of the few countries in the region that enjoys a degree of stability, as both the army and the police moved the battlefield from inside the country to the borders along Sinai, leaving the rest of the country relatively secure.
He stressed that even if some banks exited the market, they are expected to return as soon as the country’s situation normalises again.
“There is no doubt that the country is facing harsh conditions,” he said. “But the market is still promising.” Selim added that in two years Egypt will see growth and new projects underway, supported by a good infrastructure.
He pointed out that Syrians, Iraqis, and Libyans have been moving to Egypt, bringing their businesses with them, which helped diversify the banks’ clients and revise the economy. He stated that if they would feel unsafe in Egypt, they would have moved their savings elsewhere.
Lead risk management specialist Zakaria Salah said that the banking sector in Egypt is going through a phase of restructuring that led to the creation of a strong and stable banking sector and unlocked the potential for Arab and foreign banks to enter the market.
He added that the Egyptian banking sector has been, and still remains attractive to Arab and foreign banks for several reasons. He highlighted the strength, stability, and safety of the sector, which has been proven by facing the global financial crisis, as well as the strong Central Bank of Egypt (CBE) that applies the best banking practices and watches the performance of banks, while managing risks.
The presence of bankers and professionals capable of efficient administration, along with a population of over 90 million people with a demand for banking services, especially retail banking, are the reasons why Arab and foreign banks are attracted to the Egyptian market, according to Salah.
He noted that there are other reasons, including the possibility of achieving high profitability levels, compared to other countries, and the potential for providing new banking services in Egypt. Additionally, banks could benefit from the remittances through commissions and fees paid by millions of Egyptians working in the Gulf countries.
Ezz El-Din Hassanein, a banking expert and general manager of an Arab bank in Egypt, said that Egypt is, without a doubt, a distinct market in the services sector, especially financial services.
He explained that Egypt’s population is approaching 100 million people, yet only 10% is dealing with banks. He added that the banking sector needs to increase the number its clients.
He attributed the keenness of Arab banks to expand to Egypt to the promising nature of the market that could accommodate a large number of banks, as well as the skilled labour who are able to absorb the advanced methods of work in international banks.
Additionally, he said that the low wages of workers in the banking sector of Egypt, compared to their counterparts in other countries, is an extra advantage for Egypt, especially in light of the high number of distinct graduates who hold degrees from international and governmental universities and can speak foreign languages fluently.
He stressed that the Egyptian market still has massive potential to attract Arab, Gulf, and foreign investments, which facilitates the task of Gulf banks in serving their national businessmen and expats in Egypt, in addition to the presence of some 4 million Egyptians in Gulf countries sending remittances to Egypt.
He pointed out that Gulf countries are interested in expanding in the Middle East, in which Egypt is one of the most important stops, especially for the banking sector. He added that the sector is one of the most profitable ones with high returns on investment, equity, and assets.
He explained that the Gulf banks benefited since January 2011 from foreign banks exiting the Egyptian market, as Arab banks seized the chance and replaced them in the market. He added that the CBE must work to attract new foreign banks, especially from Asia and Latin America, as they could bring in foreign investments from unpenetrated markets and help diversify the banking services offered to clients.