AlexBank tops most efficient banks with best loan-to-deposit ratio, net interest margin

Daily News Egypt
7 Min Read

AlexBank ranked first in the Most Efficient Bank Index in its 12th edition, surpassing HSBC, which excelled in most of the sub-indicators. The index is based on seven sub-indicators: Net Interest Margin, Nonperforming Loans-to-Total Loans ratio, Loan-to-Deposit Ratio, Tier-1 Capital Adequacy Rate, Return on Average Assets, Return on Average Equity, and Cost-to-Income Ratio.

AlexBank achieved a net income of EGP 7.3bn last year, with an average of EGP 113bn in assets generating returns. It had the second-highest rate in net interest margin, as most of its gains came from interest. It also had the third-highest rate in return on average assets and average equity. The bank’s loan portfolio amounted to approximately EGP 59.6bn, while its deposits reached about EGP 110.7bn, with a loan-to-deposit ratio of 53.8%. This was the main factor that gave AlexBank the edge over HSBC, which had a loan-to-deposit ratio of only 27.1%.

AlexBank focused on lending to individuals, who accounted for 80% of its loan portfolio, distributing the risks across a larger customer base. This resulted in a non-performing loan ratio of around 6%, higher than the 4.4% recorded in 2021. Most of the increase in non-performing loans came from corporate loans, reaching EGP 1.7bn compared to EGP 1bn in 2021.

The bank invested 24.2% of its assets in treasury bills and bonds, which have zero risk weight. Additionally, only 12.9% of its assets were in foreign currency, limiting the currency risk. The risk-weighted assets decreased to 47.7% of the total assets, from 50% in 2021. As a result, the bank’s profits for the first tier of capital covered 23.9% of the risk-weighted assets, the third-highest rate among sector banks.

In 2022, banks faced economic challenges that affected their asset management efficiency. Their ability to generate profits from interest income, and reduce the risk weight of their assets through investment in government debt instruments, was the decisive factor in their efficiency ranking.

The Central Bank raised interest rates by about 10% since March 2022 to contain inflation and made three currency devaluations, causing the pound to lose 50% of its value.

According to central bank data, profitability indicators for the banking sector varied in 2022. The return on average assets remained at 1.2%. Meanwhile, the return on average equity increased to 17.7% from 16.1% in 2021, and the net interest margin decreased to 3.8% from 4.2%.

Despite the decrease in capital adequacy indicators, they remained significantly higher than regulatory ratios, with the capital adequacy ratio dropping to 18.9% at the end of 2022 from 22.2% in 2021. The tier-1 capital adequacy ratio recorded 12%, down from 13.4%, but it was still much higher than the regulatory ratios at 7%.

HSBC: Second Place in Profitability and Loan-to-Deposit Ratio

With a slight difference from Alexandria Bank, HSBC Bank took second place, depriving it of the top spot due to the low Loan-to-Deposit Ratio, which exceeded EGP 151.1bn in loans of EGP 40.9bn. Despite its profits qualifying it as the second-highest bank in return on average assets and average equity.

The bank achieved a net profit of EGP 5.5bn last year, supported by core operational activity, which contributed around EGP 10bn in revenues, in addition to about EGP 516m in trading net income and around EGP 462m in other revenues, mostly valuation differences in currency and the release of other allowances.

The Central Bank ranked fourth in the net interest margin index at a rate of 6.1%, with a net income of around EGP 8.7bn and average assets generating returns of EGP 142.5bn.

The bank reduced the levels of irregular loans to 5.22% of the loan portfolio last year, down from 9.22% in 2021, ranking 19th among 26 banks in the asset quality index.

The bank secured the second position in the tier-1 capital adequacy index with a rate of 23.98%, as assets, after being weighted for risks, represented about 40.7% of total assets. The bank invests about 31% of its assets in government bonds and securities, mostly bonds. Additionally, 23.6% of assets are held with the central bank.

Credit Agricole Bank: High Efficiency and Profitability

Credit Agricole Bank supported its efficiency ranking with top positions in profitability indicators, ranking third with a return on average assets of 3.55% and seventh in the return on average equity index at around 25.81%.

The bank achieved a net profit of EGP 2.4bn, with an average equity of EGP 9.3bn and average assets of around EGP 67.7bn. Despite a high Loan-to-Deposit Ratio at 56.9%, ranking eighth, the bank maintains a high ratio of tier-1 capital adequacy at 16.4%. Risk-weighted assets represent 60.7% of total assets, with foreign currency assets accounting for only 25%. The bank also invests EGP 13bn in treasury bills and around EGP 13.5bn with the central bank.

Bottom Three Banks: Low Profitability and Capital Adequacy

The common factor among the bottom three banks in the efficiency index is the failure to benefit from the increase in interest rates in generating sufficient net income to support profitability indicators and the first tier of capital. Banque Misr came last, with a cost-to-income ratio of 48.1%, the third-highest ratio in the sector, and the third-lowest return on average assets at 1.03%.

The historical bad debt at the Suez Canal Bank still affects its ranking despite significant progress, with a reduced rate of 5.5%, and limited profits to EGP 1bn. The return on average assets is among the lowest nine rates on the index, while the cost-to-income ratio is the second-highest on the list.

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