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Sunday, 14 October 2018

Banking’s love affair with Egypt, according to the FT

** #5 FT says global banks love Egypt, but interest rates remain a thorny issue: In a climate in which emerging market economies are more than ever competing for scarce global capital, “the latest focus of bankers’ attention is Egypt,” writes Nicholas Megaw for the FT. The economic reform program, and the stability it has brought, has drawn a number of foreign banks after a period where banks, including Citi, Société Générale and BNP Paribas, had closed up shop in the country. “It’s a good sign because this push from different international banks and entities increases the potential of foreign investor participation in the market,” says our friend Mohamed Ebeid, co-CEO for investment banking at EFG Hermes. Karim Tannir, JPMorgan’s head of investment banking for Middle East and North Africa, sees “a lot of potential in Egypt,” saying, “the country is embarking on several reform initiatives, including privatization which we expect to be an important theme in the coming years.”

Retail banking is the key: While the short-term prizes on offer for corporate and investment banks are not expected to be as large as in Saudi Arabia, Egypt’s large population also creates opportunities in retail banking, says Julien Faye, head of financial services for Middle East and north Africa at Bain. He credits in part the CBE’s financial inclusion initiative for those opportunities. Those who have stayed the course in Egypt during trying times, including QNB Al Ahly, say they are benefiting from the economic turnaround the growth of the retail banking sector.

Interest rates remain a thorny issue: The high interest rate environment has been great for bankers who have opened their wallets to lend to the government, notes Cairo bureau chief Heba Saleh in another feature appearing in the Arab World Banking and Finance package — but it’s not been good for private-sector borrowers looking to finance capex or operating expenses, she notes. Thanks largely to the economic turnaround, private-sector lending looks like it could be on the upswing: CIB Chief Operating Officer Mohamed Sultan noted that loans to business increased by around 13% in 1H2018. While these have mostly been for working capital, there is an uptick in demand: “Factories which operated at 50-60% capacity last year are now at 70-80%,” he says. “For capex lending to come back they need to be operating at 90% capacity, and interest rates should come down,” he noted.

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