CAIRO: News reports on Wednesday suggested an imminent merger between the Housing Development Bank and the Egyptian Arab Land Bank.
The merger is set to take place in 2009 pending approval of both banks’ shareholders. Egyptian Arab Land Bank’s deputy chairman Mohamed El Etreby told Al-Mal newspaper that the two parties have completed their due diligence.
The Housing and Development Bank is 75 percent state-owned, while the Egyptian Arab Land Bank is under 100 percent ownership of the state.
Long in the works, the merger was held up for some time because the Egyptian Arab Land Bank, which had accumulated debt and engaged in a significant number of underperforming loans, needed to re-structure before the deal could proceed.
“The Housing and Development Bank is a very clean bank.while the Egyptian Arab Land Bank is very behind, said Nour Farrag, associate at EFG-Hermes.
The Housing and Development Bank has only a 7 percent non-performing loan ratio, which is considered low for the industry.
In its restructuring, the Egyptian Arab Land Bank closed out 75 percent of the loans that were deemed to be underperforming, and it says it will have taken care of the rest by the end of the year.
The Egyptian Arab Land Bank has long struggled with its assets, most notably in 2001 when the Central Bank of Egypt (CBE) closed it for five years due to unacceptably high levels of debt.
The Housing and Development Bank was established to grant loans in order to facilitate housing projects across the country. Its long term loans encourage a diverse range of projects, including sprawling housing developments and compact apartment complexes.
It has undergone heavy restructuring over the years, noted Farrag, and has succeeded largely on the basis that it uses real estate as collateral, insuring that few of its loans fail.”The Housing and Development Bank is very specialized when it comes to real estate banking; mortgage banking to be more precise, noted Farrag.
The Egyptian Arab Land Bank specializes in mortgage lending. It claims to control about 20 percent of the LE 2.4 billion mortgage industry.
Bank mergers have a growing history in Egypt. In September 2005 and 2006, Credit Agricole made major acquisitions of the Egypt Branch of Credit Lyonnais and the Egyptian American Bank in an effort to broaden the number of services it offers.
In May of this year, the Commercial International Bank (CIB) engaged in talks with the Arab African International Bank (AAIB). The talks failed to lead to any sort of agreement between the two banks.
Merger talks alone, however, are often enough to drive stock market prices.
In March of this year, when EFG-Hermes confirmed it was in merger negotiations with Audi, of which it was a 23 percent stakeholder, stock prices soared, rising 18.6 percent and 8.9 percent on consecutive days following confirmation of the negotiations.