Citi sees Egypt as a very important and critical country among emerging markets, Rizwan Shaikh, Head of the EMEA Emerging Markets Corporate Banking at Citi has told Daily News Egypt.
Shaikh also said that, as a result, the bank is looking to invest to grow its business in the Egyptian market.
He noted that there is a lot of confidence in how Egypt’s government has managed economic, monetary, and fiscal policies through the novel coronavirus (ba-19) crisis. This confidence is reflected in the investor behaviour, he added.
Meanwhile, Mohamed Abdel Kader, Citi Country Officer in Egypt, praised the role that the Central Bank of Egypt (CBE) has played during the COVID-19 crisis. He said that the Egyptian Government and the CBE have been carefully undertaking all efforts to keep the momentum of growth going in the country.
Their remarks came during an interview with Daily News Egypt on the sidelines of the Citibank media summit.
The interview touched on the bank’s activities in Egypt, and how they were impacted during the pandemic, in addition to its plans during the next period. It also tackled Egypt’s economy and debt to foreign investors, the COVID-19 crisis and the country’s handling of the pandemic, in addition to the policies that they would recommend CBE adopt in the near future.
Citibank has long been known as the bank that manages most foreign investments in government debt instruments, is the bank still performing this role? If yes, how do you evaluate the demand of foreign investors on government debt instruments in Egypt at the present time, and what is the bank’s future vision on that matter?
Abdel Kader: The bank continues to provide custody services, and continues to provide market making for foreign portfolio investors in the country. We continue to be the largest custodian in the country after acquiring many of the major global clients in Egypt.
How attractive is Egypt’s debt to foreign investors compared to the MENA and EM peers?
Shaikh: Egypt has been a favourite across Emerging Market (EM) investors globally, both the domestic government issuances and international bond issuances, which Citibank has also led.
In the domestic market, currency stability offers very attractive returns to EM Local Currency Funds. The government has delivered on their plans with respect to indexation and Euroclear, which should attract more foreign investment into the local government bond market.
On the international side, when we saw the rate volatility earlier in the year, demand for higher yielding EM assets remained resilient. In fact, we saw a number of non-investment grade issuers open the bond market. The demand continues to be very robust. It is, however, dependent on credit and economic fundamentals.
Egypt is a very sophisticated issuer in the market, and attracts investors to different points on the curve, including the 40 year bonds. So, it’s an attractive market for foreign investors.
What is the scope of the bank’s activities in Egypt after the sale of your retail portfolio?
Abdel Kader: The bank sold its retail business back at the end of 2015, and since then we have been a corporate bank in Egypt, making Citibank a fully-fledged corporate bank in the country. We undertake corporate banking activities, where we serve our global subsidiary group which is a major portfolio, in addition to serving the Government of Egypt, the largest local corporation in the country.
We have very strong trade and transaction services business, which is providing lots of solutions to our clients.
We have also a very strong market business in the country, given the appetite of foreign investors to Egypt carry trade. Our markets products are quite strong in Egypt on the back of the country’s fixed income offering, so this is another area that we are providing for in terms of business in the country.
We are also the largest custodian in Egypt. We are also offering different investment banking services, and other products that we cover for in Egypt and where we use our global expertise to help local and multinational clients.
As a corporate bank, we continue to be fully engaged in the Egyptian market. We continue to look for expanding our portfolio further in the Egyptian market.
What are Citibank’s other plans in Egypt during the next period?
Abdel Kader: We will continue to be a corporate bank in the country, where we will focus on creating partnerships with some financial technology companies (fintechs) in order to provide more payment solutions to our clients on that front, and support financial inclusion in the country.
We are also focusing on growing our corporate bank business in Egypt. Given the opportunity that Egypt provides at this point of time, I think it makes full sense to grow our local corporate business in the country.
We also focus on our Financial Institutions business in Egypt and look forward to grow it further.
Also, we plan to continue adding to our global subsidiary group, including targeting more multinational companies in Egypt.
At the same time, we will continue working with the Government of Egypt on new risk management solutions.
Shaikh: Egypt for us, across EM markets, is one of the markets where we are very focused on growth and investment, both from a balance sheet, and from a human capital perspective. We think that the country is on the right path and track for growth. We want to be part of that journey, facilitating growth across the corporate and public sector, and financial institutions.
How did the pandemic impact the bank’s activities globally and in Egypt? How do you evaluate the government’s response to the COVID-19 crisis?
Shaikh: I think across the region, Egypt has handled the crisis much better than a lot of other markets, so there will be full marks to the country’s handling of the crisis.
Abdel Kader: The pandemic has definitely affected global trade activity. Accordingly, it impacted the bank’s activity or the type of products that are offered by the bank to its customers.
The impact wasn’t that bad on Citibank, because we have also very strong market activity that has compensated for some other businesses. But definitely, trade business was a challenge, but markets business performed well given market volatility.
Similarly in Egypt, we didn’t suffer much during the pandemic, and that’s mainly on the back of the initiatives that the CBE and the Egyptian Government undertook. It was also driven by the fact that Egypt did not fully lock down, so corporates continued to perform in the first two or three months of the pandemic. It was during this time that corporates and other banks actually were fixing things to work from home, in order to fix the difference in the feed and so on. Definitely there has been a little slow down during that period of time, until everything operationally became quite active. But afterwards, I think the impact was not that bad.
You mentioned that COVID-19 impacted the type of products the banks have in Egypt. How did it vary?
Abdel Kader: The pandemic did not affect the type of service that Citibank offers in Egypt, and we didn’t change the type of product on offer. What has changed is the way in which we are offering our products and how to facilitate processes to our clients, as we’ve seen more technology coming in.
The way things have been done was a little different than the way we used to do it, which came also on the back of the CBE’s push to put limits on cash deposits or cash withdrawals in the banking sector, and made people actually go more for electronic transfers.
As a result, we have seen the volume of electronic transfers increasing, while the cash deposits slowed down a bit. I think this is one of the major things that happened during that period of time in Egypt’s banking sector in general and at Citibank too, we’ve seen more electronic solutions, more fintech solutions coming in.
The plan originally was to have that electronic banking and solutions happening over a period of two or three years of time, but the facts of the pandemic coming in have actually expedited the plans for that part. We have seen lots of digital solutions being offered to customers, and Citibank was one of the banks to offer some of these solutions.
What are your expectations for Egypt’s growth and debt to GDP levels?
Abdel Kader: After the reform programme with the International Monetary Fund (IMF) that took place between 2016 and 2019, Egypt’s macro indicators are on track again.
We saw the country growing at almost 5.6% or 5.7% prior to the pandemic. Egypt was one of few countries who actually continued to grow during the pandemic, which was very good testimony of the reforms that happened in the country. Also helpful, of course, was the lack of a full lockdown in Egypt, which also helped the country to continue its growth.
I think after the pandemic, and after vaccination against the pandemic becomes more widespread globally, trade activity will be more active worldwide, and I think Egypt is set to regain its pre-pandemic growth handsomely.
We know that the IMF and the World Bank have indicated that Egypt would grow around 5.5% to 5.7% in fiscal year (FY) 2021/22, so that should be the aim of the country in the following year.
I think Egypt is set to grow, just as the reforms that have happened are putting the country on the right track to retain its high growth level as soon as the pandemic goes away.
In terms of the structural reform plan that the government has announced, they did not announce the details yet, but the broad lines of it suggest that we will see lots of growth in the manufacturing, telecommunications, rural development, and agriculture sectors. Those are all actually the sectors that put the country on the right track to grow and reduce its trade deficit.
Shaikh: Egypt was one of the best performing economies in the Middle East and North Africa (MENA) region prior to the pandemic. Even during 2020, we saw resilience in the economy, and it is this economic resilience can be attributed to the very prudent monetary and fiscal policies, and the exchange rate policies, that supported the country’s macroeconomic conditions.
So we expect that with that foundation built, as the world generally and the region specifically comes out of the pandemic, Egypt is very well positioned.
What are the policies you would advise the CBE to adopt in the near future?
Abdel Kader: As a player in the market, I see that the CBE’s major monetary policy action during the pandemic was cutting interest rates by 400 basis points, which was a major move. It will be dependent on the variables that the market will experience over the coming period of time. So, I don’t see too much further actions needed on the monetary policy front, as I think the CBE is really taking all the right actions.
I think the continuation of the CBE’s effective initiatives is very important until the different sectors become more stable.