HSBC Egypt is moving forward with expansion plans for next year, opening up more branches and increasing the size of its staff, according to the new CEO.
“My cost base is going up this year, and is planned to go up next year and the next four years quite dramatically. My revenues are expected to go up, my balance sheet is going to expand, the number of branches and staff is all going to be bigger than they are today. Those are all investments,” Andrew Long, CEO of HSBC Egypt, told Daily News Egypt.
Without quantifying the size of planned investments or the number of new branches, Long said, “This is a country of more than 80 million people, we have 100 branches — I think there’s plenty of scope in Cairo and Alex, and elsewhere for us to open more branches. We will look to where the opportunities are.”
Moving forward, the plan is clear: “The Group CEO has a very positive message about Egypt and he’s looking for me to build the business dramatically while I’m here. …We’re here to stay and grow now.”
Long took up his new post as the CEO of HSBC Egypt in March, during what can most mildly be described as a tumultuous and challenging time for the banking sector, the economy and the country as a whole.
During the 18-day uprising that toppled president Hosni Mubarak, Egypt’s economy came to a grinding halt. When banks first reopened on Feb. 6, there was widespread concern of a possible run on banks — though that did not occur, banks were shuttered again shortly after due to wage related strikes.
Since then, tourism and foreign investments have dropped significantly, and other sectors have also faltered. Egypt has cut its growth rate forecast for next year to around 3 percent.
The Central Bank of Egypt has tightened its monetary policy, keeping the currency relatively stable and interest rates steady.
“I was told I was coming in the beginning of December. …of course everything was rosy in Egypt [then], at least on the surface. I was due to start on March 1, so once the revolution came, it just changed the dynamics,” Long said.
“Most of my career has been in Asia Pacific, so moving to the emerging markets, developing markets, is not something I have a problem with. In fact I was born in Beirut. So it was a lot like coming home,” he said of coming to Cairo.
Long was head of Global Transaction Banking (GTB) from December 2006 and was appointed a Group General Manager of the HSBC Group in May 2008. He has worked in a number of positions throughout Asia, Australia, the US and Europe.
Among the challenges currently facing Egypt is “clearly the issue of security…it’s one of the reasons tourists aren’t here.”
“There’s a lot of business that we do with people who are directly or indirectly related to the tourism sector, so we have to look at that aspect of it,” he added.
Moreover, foreign direct investment has been impacted, “foreign exchange is not coming in because investors have withdrawn, so there’s negative FDI and that affects how we play in the money markets and our positions.”
The bank has had to tighten its decision-making process when it comes to granting credit, since on both the corporate and personal side, clients are affected because their respective businesses have been impacted.
“Some people being laid off, some companies running at 50 percent capacity. And so our credit decisioning process has to be a little bit tighter than it normally would have been,” Long said.
Still, the bank is performing well, according to Long, and “the economy is a great place to be.”
Retail and corporate
The bank’s loan-to-deposit ratio is currently under 50 percent and there are plans to prudently expand the lending portfolio.
“We are highly liquid…partly because we’ve gained a lot of deposits in the last few months from clients. We are growing our lending, increasing the size of our assets because clients need more money,” he said.
With some sectors struggling and having trouble repaying on schedule, namely in the tourist sector, “we are extending payment schedules,” he added.
“But we’re being very conservative. Look[ing] at the cash flow coming from clients…taking on new business in existing sectors where we’re comfortable, but also in new sectors where we have not as big a presence as we would like,” Long said.
HSBC Egypt sees opportunities in retail and will work to strengthen that side of the business. “We have a very strong Premier brand, our higher net worth (upper-middle income type things), and our Advance brand. …We expect to double or triple those over the next few years in size,” said Long.
Wealth management products, insurance products, and credit cards with different features — such as more attractive reward systems— are other areas of interest.
In the corporate space, trade holds viable growth opportunities. “We are the biggest trade bank in the country, in the world. Because we’re in so many countries, we can leverage our own relationships overseas with the offshore buyers of the sellers (manufacturers/exporters) here in Egypt and we can leverage the our overseas relationships with the offshore suppliers of the buyers (importers) here — we can be on both ends of the transaction and that gives us a huge advantage,” he said.
One of the issues currently impacting trade, however, is that some customers are having issues with the controls around foreign exchange because the CBE is managing the currency, he said. “That makes it a little bit more bureaucratic to make payments offshore. Imports are down and exports are down, but the economy will recover.”
There is also a huge opportunity in offering services to small businesses. According to IMF and World Bank reports, there are 3 million SMEs in Egypt whose annual growth rate is around 3 percent, and 50 percent of those are involved in tourism. While around 250,000 SMEs qualify for banking services, they’re not all banked.
“We’ve spent the last three or four years looking at this sector, and expect to do even more,” Long said. If this government and the next government want to increase employment…then the SME sector is where you’re going to have to do that.”
Revenues and growth
Egypt’s “[Ministry of Finance] is expecting growth next year at 3.2 percent of GDP and we’re thinking actually that’s good, we want to be part of that and leverage off that,” Long said.
“We have ambition to grow. We’re still opening branches this year … and we’re still recruiting at the moment. We will accelerate that when the economy looks stronger, but we won’t go backwards, that’s the key thing.”
As for its revenue outlook, Long said the bank is well ahead of last year.
On the macro level, banks “can only go faster than GDP if you’re going to take market share. So if GDP is struggling across the region, which it is in a few countries, if you strip out the oil impact anyway, then banks themselves are going to struggle to grow revenue.
“But we are growing considerably faster than GDP ourselves in Egypt which suggests that we’re probably taking market share,” he said, attributing that to what he calls an element of “security flight quality” as well as their global presence.
“People look at HSBC here in Egypt and say HSBC is here forever. We’re not going to withdraw suddenly because we never do withdraw [from a market],” he said, citing Argentina as an example.
Present in more than 80 countries, HSBC sees that “sort of strength and that connectivity [as] an important part of our performance over the last three months.”
HSBC came under scrutiny in early May for the role it played in controversial land deals by senior Egyptian officials who are now being investigated on corruption allegations. The bank responded by saying that it did not actually finance these deals and that its operations have always been transparent.
Long reiterated a similar response, saying, “At the time the transactions in question were taken, none of the individuals, none of the companies and Egypt itself was not under any form of sanction anywhere in the world. Having prepared due diligence on the individuals and the companies, and everything was completely above board, there was absolutely no hint that there were problems.
“From that perspective the HSBC Group is the same as every other financial institution that was involved, at the time things were great, they appeared to be above board. The companies themselves aren’t necessarily at fault, it’s individuals within those companies.
“We ourselves were involved in advising but we didn’t provide any financing to the particular transactions in question. We followed all the rules…international and local and we were fully regulated both here in Egypt and offshore and there’s no hint of anybody that we were doing anything with being corrupt.”