EBRD, CBE discuss offering new banking products for Egypt’s private sector

Hagar Omran
13 Min Read

The Central Bank of Egypt (CBE) is discussing with the European Bank for Reconstruction and Development (EBRD) offering new banking products to the local market, EBRD’s Vice President for Banking, Alain Pilloux, said.

“We have invested in our 13 partner banks in Egypt which we offer them diversified packages in order to save energy, finance women’s businesses, focus on youth, and others. All of these banking products are important for the country,” he noted.

The EBRD’s banking cooperation with Egypt will continue and expand over new banking products for small and medium-sized enterprises (SMEs) and FinTech, Pilloux asserted, adding that bank lending represents about 25% of the EBRD’s portfolio in Egypt.

Daily News Egypt interviewed Pilloux during his recent visit to Egypt, in the presence of Janet Heckman, the EBRD’s managing director for the southern and eastern Mediterranean (SEMED) region, along with Khalid Hamza, the newly appointed deputy head of the EBRD’s Egypt office, the transcript for which is below, lightly edited for clarity:

What was your recent visit to Egypt?

I had very fruitful meetings during my recent four-day visit to Egypt, which took place in early July. I had the opportunity to meet with Egypt’s Prime Minister Mostafa Madbouly.

I also discussed expanding our cooperation with several ministers, including Minister of Investment and International Cooperation, Sahar Nasr; Minister of Electricity and Renewable Energy, Mohamed Shaker; and Minister of Public Enterprise Sector, Hisham Tawfik.

I met with the Governor of CBE, Tarek Amer, as well as representatives of several banks operating in Egypt and the private sector.

You also visited Alexandria, what did you do there?

In Alexandria, we celebrated the EBRD’s advisory of about 200 SMEs there and neighbouring governorates. I also had a fruitful meeting with the Governor of Alexandria, Abdel-Aziz Qonsowa.

What about the EBRD’s future plans for Egypt?

Egypt is an important country for the EBRD. It became number one for the bank in 2018 in terms of annual activities. Over the last two years, in 2017 and 2018, we invested in Egypt about $3bn.

Currently, we do more in Egypt and we want to maintain a very high level of activities. We aim to invest over $1bn annually in Egypt, yet it depends on local projects’ needs.

What were the main topics in your meetings in Egypt?

I’ve put a lot of emphasis on the private sector as the main creator of jobs, particularly SMEs. We advised 800 SMEs in the country, of which 200 projects are in Alexandria and the neighbouring region. The EBRD aims to expand its businesses in the Egyptian SME sector.

Since we can’t directly reach all Egyptian companies, we are always keen to maintain good partnerships with banks in order to lend SMEs.

In Egypt, we work with 30 banks, in both public and private sectors.

The most important thing for us is to work with good partners in a strong network to ensure that our funds benefit the Egyptian economy and do not stay in banks.

How do you assess Egypt’s banking system?

Egypt’s banking sector is stable which makes the performance of the banks operating there positive. Many of the countries that we are working in do not enjoy this stability.

We proposed a diversified package to our 13 partner banks in Egypt which include energy efficiency, women’s business, and youth. All of these banking products are important for the country.

Large companies can directly access our finance. Recently, we have signed a new $25m loan agreement to United Metals Company (UMC), a subsidiary of Elsewedy Electric.

‘The funds will boost the company’s working capital and co-finance the implementation of a comprehensive environmental and social action plan which includes the purchase of modern equipment that will set new quality standards in Egypt’s cable and electrical products industry,’ according to a previous statement of the EBRD on 4 July.

What is the outlook for EBRD’s future cooperation with the private sector in Egypt?

The EBRD is expected to expand business with Egypt’s private sector. We are not here to compete with the Egyptian banks, we are here to complement their role.

For example, we can lend companies in foreign currency because it might be a problem for some Egyptian banks. We can lend companies over a long-term payment plan because sometimes Egyptian banks don’t want to do that.

Renewable energy can easily attract the private sector. Egypt is hungry for energy as the country’s GDP is growing by about 5-6% annually. Consumption is growing at the same pace or more, so the country will need a lot of energy too.

Renewable energy prices are very competitive, contrary to the past. Renewables are good for the Egyptian state and people, so we will continue supporting this field. 

We are working on additional deals in the energy sector which will be announced in due time.

The EBRD supports the private sector through developing public private partnerships (PPP), such as the Sixth of October dry port and a container terminal in Damietta.

What is the size of funds provided by EBRD to banks operating in Egypt?

It represents about 25% of our portfolio in Egypt. Since 2012, we have invested about €5bn in more than 90 projects throughout the Egyptian economy. The bank invests in all sectors of the economy to support the private sector and sustainable development.

EBRD’s Vice President for Banking, Alain Pilloux

Does the bank have any future cooperation plans with the banks operating in Egypt?

Our cooperation will continue and expand over all banking products. We would like to work more closely with this sector to offer innovative products.

We discussed with the CBE and other banks the possibility of creating a product that would help people get out of informality.

The informal sector represents 40-60% of Egypt’s GDP. When SMEs were informal, they could not grow because they had no bank accounts or working licenses, so they would stay small.

It’s not easy to convince SMEs of the disadvantages of being informal, so we are discussing with the CBE the possibilities of creating a banking product that encourages informal projects to join the formal market.

We want to innovate all the time and to create new banking products because our role is to help the market to expand.

Does EBRD plan to expand beyond the 13 banks currently dealing with?

It is possible. The EBRD is partnering with about one-third of the banks in Egypt which is a good number.

Janet Heckman: We hope we will add new banks. We have been adding new products in the Egyptian market for years. For example, we have supported the supply chain financing through helping SME companies to become suppliers to larger ones and we also had green products.

How do you see the flotation decision and its consequences?

Flotation was an excellent decision because it was taken in close coordination with the International Monetary Fund (IMF). The big advantage of cooperating with the IMF is the guidance that Egypt had step-by-step during its economic reform programme.

Like in any activity, you know what you have to do but when there is a step-by-step guidance with a timetable, it works better.

I am impressed with Egypt’s economic reform programme, and with the resilience of the Egyptian people because flotation caused the inflation to soar to more than 30%.

A lot of people suffered in Egypt following the flotation. Today people can see the reforms’ benefits. Inflation is about 14% now. It will go down to a single digit figure in the future. Everything will normalise because I believe that flotation was the right decision.

What about interest rates in Egypt? What are the appropriate rates for investments?

Investors always complain from high interest rates, even when they’re not. Companies in Egypt borrow at about 16% interest rate, which is high but it is linked to inflation. When inflation goes down, interest rates will decrease too. I would like to emphasise that Egypt is going in the right direction and everything will normalise at the end.

What about the technical cooperation with the CBE?

We have a large number of technical assistance projects with the CBE in order to improve the CBE’s functions in many areas, like the money market, the yield curve, and the capital market.

We are also discussing with the CBE having better access to the local currency. We already have access to local currency in Egypt in various means, yet we want to have better access.

We are also discussing with the CBE offering new products in the areas of financial technology (FinTech) and innovation. I have discussed this matter with the CBE team during my recent visit to Egypt.

How do you see Egypt’s steps to achieve financial inclusion?

The EBRD pays great attention to financial inclusion in its activities in Egypt. Women business and youth programmes are part of the financial inclusion. For us, financial inclusion is a key theme in Egypt.

What do you think of CBE’s plans to float some public banks?

The EBRD is closely following the CBE and the Egyptian authorities’ IPO plans of some banks. We know about the Banque de Caire’s offering and we are closely following it.

However, we hope that the IPO process is faster than it is. Privatisation is important not only in the banking sector but also in other sectors.

How do you see the CBE’s initiatives to support SMEs?

The SME sector is very large and has many needs. Supporting SMEs is very positive. The CBE announced EGP 25bn initiative to the SMEs at subsidised interest rates. There is also another CBE initiative of EGP 5bn for the medium-sized companies. For us, we continue to play our role in collaboration with the banks operating in the local market to support the SME sector.

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