By Mahmoud Shenishen and Asmaa Nabil
Chairman of NBE Board, Hisham Okasha spoke about the daily reality of the situation in Egypt and its largest financial institution, which he operates.
This is the reality that the government has attempted to alleviate by launching several initiatives to diminish social disparities and improve living conditions for the poor. The latest initiative included a bold decision to limit salaries for employees working in governmental or semi-governmental companies.
This limit is currently set at EGP 42,000 and is even applied to governmental banks including the National Bank of Egypt, which undertook a wide-scale process of structural reform in recent years. The process mainly depended on attracting highly paid private-sector employees, including Okasha himself.
However, Okasha is not worried about cutting back salaries for senior bank employees, even if some of them leave because the reform process of the last decade was institutional. “We have alternatives, and on-going training is taking place for bank employees in order to keep pace with experience,” Okasha told Al-Borsa.
He asserted that wage limits for senior employees would lead to a deterioration of conditions at public banks, stressing that success for those banks does not depend on particular individuals.
He pointed out that the banking reform program that has been in place since 2004 is the reason behind the soundness of the Egyptian banking sector and widespread trust in banks, denying any negative effects on public bank performance under the maximum wage regulations. The banking system survived the global financial crisis and a credit rating downgrade five times in one year.
The bank seeks to significantly increase the number of clients in the coming period, Okasha said, criticising low turnout among banks, for which clients do not exceed 10 million.
He added that the bank aims to increase its base to 20 million clients. This will depend on resuming the pre-2011 plan to transfer governmental wages to banks instead of paying them directly, according to Okasha.
He also added that this plan succeeded initially before its suspension following the January 2011 Revolution. Governmental institutions exploited the system and stopped transferring wages through banks in order to avoid oversight.
Government employees currently number 5.9 million. A small percentage of them deal with banks, and the government and banks hope that they will utilise banking services, increase the number of accounts in existence, and strengthen the financial brokerage industry.
This comes as part of a broader plan to restructure governmental payment and collection. The plan provides for pension payments via ATMs, and the number of employees paid through the program will reach 8.1 million. The plan also includes collection of taxes and customs electronically and payment of public utilities dues.
NBE intends to invest in the three national projects announced by the government in the Suez Canal, the north west coast, and the south east desert of Egypt.
These projects will provide large investment opportunities in different types of activities, particularly in developing the Suez Canal axis, which will include traditional and technological industries, logistics, ports, airports and agricultural areas, according to Okasha.
Through its investment arm Al Ahly Capital, the bank will study the opportunities and projects after drawing up a final outline. Al Ahly Capital conducts promotions and negotiations in order to enter into partnerships with foreign investors. The bank expects high funding demands following the launch of the new projects, he added.
He also added that large projects represent a major challenge and a goal for NBE, pointing out that the bank is ready to provide funding on a permanent basis in addition to an investment contribution from Al Ahly Capital if the opportunity is consistent with the bank’s goals.
The bank is awaiting clear plans and general strategies from the state to study forms of contributions to major national projects. He also noted that a number of sectors are at the top of the bank’s priorities, notably river transport, industrial projects, and logistics, explaining that results of feasibility studies play a major role in the decision to approve the project.
Okasha denied any competition among banks issuing the Suez Canal certificates to attain a larger share of combined liquidity, pointing out that the goal of the four banks is to provide the funding required as a nationalist service void of intentions to strengthen the bank’s capital base. He also noted that the bank is currently working to limit the cost of issuing the Suez Canal certificate.
Okasha ruled out the possibility of the banks suffering liquidity pressure after offering the Suez Canal certificates. He pointed out that savings rates in a single quarter range from EGP 50bn to 55bn, in addition to total deposits worth of EGP 1.3tn with 1.1tn in local currencies, and only 40% of the total utilised.
Okasha pointed out that demands vary from one client to another and saving mechanisms and products vary as well. The existence of new savings coffers is a healthy phenomenon that attracts new sectors of clients.
Okasha also added that the bank is constantly looking into bond offering mechanisms in foreign markets, pointing out that the search for liquidity in other markets doesn’t necessarily mean that there is a lack of local funding. Rather, this forms a different means for strengthening the bank’s capital base and providing long-term liquidity savings mechanisms that facilitate the process of entering new markets.
He asserted that, for the time being, nothing stands in the way of offering dollar bonds, especially with the improvement in Egypt’s credit rating and progress among its financial institutions. Okasha noted that the bank has the ingredients necessary for offering bonds, as well as data and indicators required for the disclosure process.
He also pointed to the importance of activating the bond market to exploit such mechanisms in order to provide the funding necessary for major projects.
NBE issued dollar bonds in 2010 worth $600m through Nile Finance Limited with an NBE guarantee. The bonds are listed in the Luxembourg Stock Exchange for five years, set to end in 2015.
He attributed low revenues of 0.8% to non-productive assets in the bank’s portfolio, represented by lands and estates owned by the bank following financially troubled settlements. High operating costs limit the profit margin, according to Okasha.
The bank’s assets exceeded EGP 500bn in June, with EGP 117m in loans and EGP 200bn in bills and treasury bond underwriting. The remaining amount was comprised of contributions and non-productive assets, said Okasha.
The bank hopes to raise the assets rates to between 1.5% to 2% by restructuring the bank’s investment portfolio. This procedure occurs often so that the portfolio may be recycled and the maximum benefit achieved, according to Okasha.
Investment restructuring varies depending on the investment itself, Okasha said, denying that generalisations could be made regarding the bank’s investment evaluation procedures. He pointed to various companies that have received capital, including NBE Medical Services, South Upper Egypt Petroleum Products Manufacturing, and others that require financing in order to regain their ability to register profits and pay debts and returns to the bank. Other investments are sometimes unfeasible for the bank and fail to add value. The bank extracts itself from those investments by selling them to strengthen the bank’s capital base, which reached EGP 26bn by the end of June 2008, according to Okasha. He also pointed out that throughout the restructuring processes, the bank takes into account Central Bank regulations that oblige company heads’ contributions not to exceed 10% of the bank’s capital base, Okasha said.
He attributed NBE’s portfolio growth to EGP 400bn by the end of June compared to EGP 173bn at the end of 2008 to its regaining a large proportion of foreign savings in local markets following the global financial crisis. NBE held a large share of those savings.
Okasha said that the recession witnessed by the economy over the past three years and an increase in awareness of and confidence in banks have contributed to the flow of savings. The same phenomenon also served to stop corporate expansion, freeze investments, and increase risks in some sectors, like the Egyptian Exchange and the real estate market. This helped push liquidity levels in the banking system up to EGP 1.3tn over the past six years.
Okasha said that the Platinum Certificate issued by NBE brought in savings valuingover EGP 150bn of the bank’s total deposits, worth EGp 400bn, by the end of June 2014. He pointed out that retail deposits represent 75% of the bank’s portfolios and deposits.
He ruled out the possibility of the bank raising the price of its returns, especially after the Central Bank established prices for the returns at its last meeting. He said that there is no push to raise these prices at the moment.
Regarding an increase in bank investments in government debt, Okasha confirmed that this is a natural result of the increase in bank liquidity surpluses due to the recession that hit most sectors. He said that investments in treasury bills and bonds form alternatives to combat the costs of funds and maintain profit margins.
Okasha said that the bank’s net profits exceeded EGP 3.5bn for FY 2013/2014 and EGP 3.1bn for FY 2012/2013.
He said that the bank strives to grow an average of 10% during the current fiscal year in its various sectors.
He added that the bank hopes to inject EGP 4bn into SMEs to increase the bank’s portfolio to EGP 16bn by the end of June 2015 compared to EGP 1bn at the end of last June, noting that the bank supplied funding worth between EGP 6-8bn to individuals. This move brought the portfolio to EGP 33bn compared to EGP 25bn at the end of last year.
He added that the contracting, electricity, aviation, gas, and petroleum sectors acquired 60% of the bank’s credit portfolio, and that this share is expected to increase after prices change and cash flows increase to the companies operating in these sectors.
He pointed out that the bank is waiting for the General Assembly to be held in order to adopt a capital increase from EGP 9.2bn to EGP 15bn, explaining that the bank requires constant capital increases to keep pace with market growth, strengthen the capital base, apply strategies to increase lending rates, and continuously enhance property rights.
He ruled out the possibility of increasing capital for the bank’s investment arm Al Ahly Capital at present, saying that current liquidity rates are sufficient to manage all its investments. Al Ahly Capital achieved good profits despite conditions that disrupted its activities.
Okasha said that the size of the bank’s funding portfolio for the tourism sector reached EGP 8bn, EGP 4bn of which are delinquent.
He pointed out that the bank has not received any requests to participate in the fund to support tourism affiliated with the ministry, stressing that the bank already contributes directly to restructuring tourism projects that are facing financing problems and often keeps these ventures afloat. He denied the need to contribute through the company or the management fund, or invest in capital risks.
Okasha said that NBE pays special attention to SMEs, pointing out that the bank is currently pursuing a strategy that adopts SME clients in order to transform them into large companies. He explained that the bank has succeeded in converting 62 SME customers into large companies, saying that the bank achieved a net increase of EGP 4bn annually in funding for SMEs.
He added that the SME sector must coordinate on the international level and encourage incubators for small projects while also coordinating with production input and raw materials suppliers, he said.
Okasha said that the Central Bank has established the largest database of SMEs available to the public, and he expects a boom in the sector in the near future thanks to the current government’s plans and strategies. He added that insuring loans for the sector is a must.
Okasha stressed the importance of transforming the informal sector into the formal sector, especially since the informal sector accounts for 70% of the economy. Okasha expects a complete change in economic indicators if those activities are successfully incorporated into the formal sector.
Okasha said that NBE aims to add 200 new branches over the next three years, pointing out that the bank is constantly working to improve and develop its services for individuals.
He added that the bank is preparing to provide prepaid service cards before the year’s end, as phone-cash and money transfer via mobile phone services are no longer available.
Okasha said that NBE increased social responsibility donations to EGP 500m over the past five years, not including donations to the Tehya Masr Fund, compared to EGP 5m by the end of 2008. He noted that the bank’s contribution to social activities amounted to EGP 5m during FY 2013/2014, saying that it was crucial for the banking sector to play a role in social activities.
Lastly, Okasha emphasised that NBE undertakes activities geared toward health and education while also taking a vested interest in the community. NBE played a part in launching a burns and emergency unit at Qasr Al-Aini hospital through a contribution of EGP 60m. A portion of this contribution was allocated toward the Hussein University hospital while another portion went toward private clinics associated with Al-Azhar. The bank also contributed EGP 300m to a project to develop slums with the support of the banks’ union.