Piraeus Bank made a modest entry into the Egyptian market by buying a small commercial bank. Six years later, however, its portfolio is anything but modest, with a little over €1 billion in deposits and €900 million in loans.
With 50 branches around the country and a staff of 1,200 people, the bank has managed to expand its operations and maintain a strong balance sheet even during times of financial uncertainty worldwide.
Daily News Egypt sat down last week with Constantinos St. Loizides, chairman and CEO of Piraeus Bank Cyprus, at the headquarters in Nicosia to discuss the banking sectors in both countries and the effect of the current uncertainty in EU markets on the Greek bank.
Loizides also oversees operations in New York and Egypt, which he visits twice a month on average.
The local bank
Piraeus Bank Egypt has invested over €100 million in capital in the country, Loizides said, most recently, allocating €20 million to set up its new Cairo headquarters in Smart Village and €10 million to upgrade its core banking system.
At the height of the global economic crisis, the bank dedicated its efforts not so much on developing the business, but on “reorganizing, restructuring and upgrading operations in Egypt.”
And with a reasonably small share of the banking market, Loizides said Piraeus was less affected by the crisis.
“We devoted 2009 to mostly the restructuring process of moving to Smart Village and putting the systems [in place], making sure all of our accounts with our clients are in good order. …We haven’t focused on developing the business, and that worked out well because the crisis was there anyway and it would have been difficult,” Loizides said.
Going forward, Loizides said the bank’s expansion plans will focus less on increasing the number of branches and more on solidifying relationships with corporate clients to grow the small and medium enterprise (SME) and retail business.
“Starting from a very good base of blue chip corporate clients…[we will] use them as a base to expand to smaller clients, the suppliers of corporate clients and their staff for our retail business,” he explained.
Many banks and financial institutions have moved quickly to capitalize on the current push for microfinance in Egypt. Piraeus Bank, however, will take a more measured approach, anticipating a bigger drive for microfinance later this year.
“We are hesitant to jump immediately into the fray of microfinance. We certainly are responding to client’s request but we want to make sure we have the right products and the right systems…targeting the right clients before we make a big push,” Loizides said.
Piraeus Bank Egypt is also awaiting permission from the CBE to provide electronic banking services, a product which the bank already offers in Greece.
While some argue that Egypt’s banking sector is over-regulated by the Central Bank, Loizides says “they should be grateful.”
“Sovereign regulations protected [Egyptian] banks from instinctively getting involved in instruments activities that would have caused them to lose money. There is tight regulation in many aspects of the banks in Egypt but…at the end of the day it has worked in favor of banks.”
Commenting on the monetary policy which has largely played on interest rates as a way of reigning in inflation since 2008, Loizides credits the CBE for keeping the Egyptian pound stable against the dollar.
“Yes we work in a high inflation, high interest rate environment, but it is stable… with very low volatility against the dollar. That gives a lot of confidence in the country,” he said.
Earlier in May, the CBE — which last cut rates in September — kept key overnight interest rates steady at 9.75 percent for overnight lending and 8.25 percent for deposits. Inflation slowed to 11.4 percent in April, the lowest since September.
“In fact, banks normally make money in high interest rate environments,” he added.
As a global group, Piraeus Bank avoids localizing systems and operations, instead finding “as many synergies as possible, by using the same system and standards. The world is no longer lots of isolated silos. …We try to have a uniform level of standards and risk-taking throughout the group.”
Still, he recognizes that sometimes local rules impose a little tailoring. For example,“In Egypt, retail loans tend to be fixed rate for a long time. This is very bad for the banks…if you have a loan of five or seven years fixed rate in Egyptian pounds, the banks cannot get deposits for the same period at fixed rates, so they have a risk in providing these loans — but that’s the requirement of the market.”
It is also quite challenging to grant loan using mortgages as collateral, he said, because of the way property is registered, or not as the case may be. “The way you sell property in Egypt depends very much on the sale documents,” he added, and people find ways around registering land titles with official bodies because it’s expensive.
However, “banks cannot take a title from the land registry office and say this is collateral, it has to work in different ways, so we have to work in different ways.”
Still, these challenges do not detract from the bank’s outlook on Egypt. “Piraeus Bank Group views Egypt as the most attractive banking market for the group and where it sees most of the growth in the next few years,” he said.
With only around 10 percent of the population being banked, it is a general consensus among industry players that there’s room for growth in the sector as a whole, and in turn, for individual banks.
Loizides, however, argues that a large amount of the population is unbankable, “not because they would love to have banking services but they don’t get them, but because they live in a level of society and [their] activities as well as income basically preclude them from banking services.”
The country’s middle class, he said, is what’s most attractive to banks, and where the growth potential lies. As that expands, the banking sector will follow suit.
Cyprus, Greece and the EU
Piraeus Bank began Cyprus operations in 2008 and now has 15 branches, about €600 million in loans and about €1 billion in deposits.
“We have set up Piraeus Bank Cyprus as a regional financial center, so from this we look to develop further our business and our cooperation with Piraeus Bank in Egypt, the Middle East and Russia,” Loizides said.
The group views Russia as having high potential in terms of demands for banking services, and plans to focus on this market when the time is right.
Piraeus Bank Group has a regional strategy, with presence in 11 countries: Romania, Bulgaria, Albania, Serbia, Ukraine, Russia, Egypt, Cyprus, Greece, London and New York.
“Cyprus has helped in linking together all the other banking markets of the group through its double taxation treaties,” he said. “We have clients in Russia that open up a company in Cyprus that will borrow money from a bank in Romania to build a mall there, and it is one seamless operation.”
In 2009, Piraeus Bank Group made €780 million in profits, with provisions of €500 million. The group’s bottom line came in at €235 million, compared to €300 million the previous year. “It was a big decrease from the [previous] year but as long as you make a profit it’s respectable,” Loizides said.
Through Greece’s unstable economy continues to shake up global markets, Loizides said the banks there have always had a solid balance sheet.
“Greece went through a huge shock which I feel was almost needed in basically getting the government to [implement] a number of important measures to lower Greece’s propensity and instinct to borrow for non-productive purposes,” he explained.
“Greek banks — like Egyptian and Cypriot banks — never got involved in the derivative instruments that affected international banks at the beginning of the crisis about three years ago…hence there was no negative effect on capital or liquidity.”
He expects that as the economy worsens before it gets better, the ratio of non-performing loans will increase in both Greece and Cyprus. “Banks should be prepared for a worsening quality of loan portfolio,” he advised, which will in turn mean less lending.
And while he predicts a slowdown in global economic growth, Egypt, he said, is an exception. “In the first quarter it managed to have exceptional growth. What I said about other banks does not apply to banks in Egypt,” he added.
Egypt’s GDP grew at an annualized rate of 5.8 percent in the three months to March.
“Piraeus Bank Egypt is a local bank with a foreign shareholder, it has its own capital, management, so there I am much more optimistic about the ability of growth than I am for any bank in Greece, whether it’s Greek or foreign.”
Piraeus Bank headquarters in Nicosia, Cyprus. (Daily News Egypt photo/Amira Salah-Ahmed)