The financial positions of the National Bank of Egypt (NBE) increased to EGP 1.3tn by the end of fiscal year (FY) 2016/2017, according to Yehia Abu El-Fotouh, the vice chairperson of the bank.
He told Daily News Egypt that the bank achieved net profits worth EGP 12.5bn by the end of June 2017, while deposits reached EGP 860bn. Loans exceeded EGP 360bn.
According to Abu El-Fotouh, the bank aims to inject EGP 8bn in retails loans and small and medium enterprises (SMEs) in the new fiscal year and increase major corporate loans by 10-15%.
A few days ago FY 2016/2017 ended. What are the main performance indicators of the bank this year?
The preliminary indicators showed that the bank’s finances reached EGP 1.3tn, an unprecedented record by the bank in the Egyptian banking market.
What about the volume of profits?
The bank’s profits in the last FY are expected to reach EGP 12.5bn, the same amount achieved in FY 2015/2016. Maintaining the same level is a great success for the bank in consideration of the challenges in the market since the flotation of the pound at the end of 2016.
What was the volume of deposits by the end of June 2017?
Total deposits reached EGP 860bn on 30 June 2017, including more than EGP 300bn in high-yield certificates launched for a 3-year term with a 16% yield, and for a one and a half-year term with a 20% yield. The liquidity deposited in savings certificates is estimated at more than 50% of the bank’s deposit portfolio.
How much is the bank’s loan portfolio?
It was estimated at EGP 360bn by the end of the last FY, including EGP 32bn for SMEs and microenterprises, in addition to EGP 42bn for retail banking and individuals, and the rest was for major companies.
The sectors of petroleum, electricity, and industry have the largest part of the loan portfolio in the bank.
What are the bank’s goals in FY 2017/2018?
We aim to increase the financing provided to SMEs and microenterprises to EGP 36bn and increase retail to EGP 46bn, with a EGP 4bn increase in each. We also aim to increase the loan portfolio for companies to 10-15%.
A EGP 4bn increase in retail portfolio is not considered small for a bank like NBE, in your opinion?
There are controls put forward by the Central Bank of Egypt (CBE); they stipulate that a monthly installment obtained by the bank should be no more than 35% of the income of the borrower. These controls limit the growth of retail loans. In addition, citizens are going through difficult circumstances, which reflects on retail loans.
What about the bank’s role in implementing the mortgage funding initiative launched by the CBE?
The volume of this funding until June 2017 reached EGP 1.7bn, provided to nearly 19,000 low and medium income clients. We hope to take the volume of this portfolio to EGP 2.5bn for 25,000 clients.
Does the bank provide mortgage loans outside the initiative?
Yes, but with a low volume, as the bank mainly depends on Al Ahly Mortgage Finance in this regard.
There was a trend within the bank to separate microfinance as a sector. What took place in this regard?
Microfinance, though managed separately, will still be amongst SMEs for now.
The volume of the microenterprise portfolio in the bank was EGP 3.5bn by the end of June, including EGP 2.5bn funded directly and EGP 1bn granted to associations and organisations. The bank aims to expand in financing this sector.
Does the bank plan to exit companies it has shares in over the upcoming period?
There is an inclination towards recycling the direct investments portfolio of the bank in companies, but we have companies we do not plan to exit, including Al Ahly Capital, Al Ahly Mortgage Financing, Al Ahly Medical Services, and Al Ahly Lands Reclamation and Cultivation. Al Ahly Exchange company was recently established with EGP 50m capital and will start its activity this month with two branches, and then 10 branches in the first year.
Has NBE signed agreements with the General Authority of the Suez Canal Economic Zone (SCZone)?
The bank welcomes any financeable investment, not just in the SCZone, but anywhere across Egypt. The bank is already present through 402 branches across the country.
The government is criticized for focusing on investing in government debt instruments. What is your opinion on this?
Banks’ main job is to receive savings by citizens and re-inject them into all kinds of projects. Banks do their best in this regard. But if there were not any projects that accommodate all the liquidity in banks, will banks leave finances without investment? The answer is no; thus, banks have no other option but to inject government debt instruments. This is normal across the world. Once demand on loans increases, investment in debt instruments will decrease. I expect this to happen shortly, following the completing of the new investment law and its bylaws.
What is the volume of the non-performing loans portfolio in the bank?
It reached EGP 8bn, after collecting debts of EGP 1bn. We aim to decrease the number to EGP 7bn this FY. The non-performing loans accounts for 2%; it is one of the best percentages in the Egyptian market and world. About 60% of the non-performing loans are in the tourism sector. The loans of this sector are subject to the initiative launched by the CBE to support it.
Banks are criticized for not supporting troubled factories. How do you respond to these criticisms?
First of all, let me express my disagreement with the number of troubled factories that are estimated to be thousands; the numbers are unreal. As a person who was responsible for the non-performing loans in the bank, I have documented data about this particular file.
In NBE, we have worked on troubled factories since the era of Mahmoud Eissa, the former minister of industry, all the way to Minister Tarek Kabil.
Based on studies carried out over that period, I guarantee that the number of factories with problems is no more than 700-800, and factories that are likely to be re-operated are 120; the rest are workshops whose doors were closed long ago for a variety of issues. Issues that are related to financing are very limited. We have made major efforts in cooperation with the Ministry of Industry and the Industrial Modernization Centre to reach the owners of these factories. In the last fiscal year, we injected more than EGP 300m to re-operate some factories.
As for factories that are unable to be funded or whose funding is pointless, I suggest liquidating them and reselling them to investors to repay the debts, and then re-operate them.
There are fears from more troubled projects after the increase of the interest rates; are they legitimate?
When the CBE made the decision to increase the interest rate 2% and other decisions, this probably means it has access to more information than we do. However, if we carry out a simple analysis for the reasons of the recent increase, we will find that the CBE aims to curb inflation, which is expected to grow larger after the recent economic reforms of increasing fuel and electricity prices, in addition to increasing the flow of foreign currencies in the Egyptian market.
Regarding the impact of increasing the interest rate on projects, only senior clients who borrowed with changing interest rates will be impacted. As for those who borrowed with fixed interest rates, their loans’ interest rates will not be changed. Any increases will not be applied to the projects and activities financed within the CBE’s initiatives.
Owners of large projects who want to lend will either bear the high interest rate for a period of no more than six months, or will largely depend on their own funds until the rates decline again. They can also increase cash selling to provide the necessary liquidity and reduce lending.
The CBE said in its most recent report that the interest rate increase is temporary and is likely to be for less than six months. I do not think that investors will develop plans for years of work based on temporary circumstances.
How do you explain banks’ abandonments to making changes to their interest rates after the past two times the CBE changed the interest rates?
Everyone is awaiting the interest of the high-yield certificates of 16-20%, and this will not increase again. Based on that, we only move the interest rate of the short-term saving funds up until six months. After that, we await the next trend of the CBE and decide what suits the situation of the bank and the market.
What is the situation of the foreign exchange in the bank currently?
The bank’s foreign exchange earnings have improved after the decision to float the Egyptian pound, which helped it cover the demands of its clients, with no demands on dollars left on hold.
The bank’s total foreign exchange earnings since 3 November 2016 are estimated at more than $10bn, including $500m during the past week only, which witnessed a large decline in the price of dollars in banks.
The bank covered the demand of its clients with more than $10.5bn during that same period.
Speaking of the large decline of the dollar price in banks last week, some said that it is a made-up decline with intervention from the CBE; what is your response to that?
These are untrue allegations. At NBE, the dollar price is determined every morning based on our study of the market and the needs for foreign exchange. We do not receive instructions to move the dollar in any direction.
Regarding the decline in the dollar price last week, this is due to logical reasons related to increasing the supply of dollars in banks with the increase of concession of dollars by clients in the local market and Egyptians working abroad, as well as the entrance of funding packages into the Egyptian market and a package of dollar bonds recently launched by the government. There are also the new direct and indirect investments and exports. All of this has resulted in availability of dollars. On the other hand, the recent months have witnessed a major decline in the volume of imports, which also reduced the demand for dollars.
In my opinion, all indicators show that there is a possibility for more declines in the dollar price against the pound over the upcoming period.
After the increase of the bank’s foreign exchange resources, was the idea of issuing dollar bonds in international markets excluded, and are there international agreements to borrow from abroad?
Offering bonds is possible at every moment to diversify income sources; however, the bank is delaying this step until the conditions of the market improve. The idea of borrowing from abroad and the existence of agreements with banks abroad to cover the import processes or provide funding is part of the bank’s daily work.
The bank has recently obtained $300m from the African Export-Import Bank, and there are ongoing negotiations with other parties.
What is the role that the bank plays in serving the society?
Social responsibility is one of our most important concerns. The bank recorded donations worth EGP 2bn over the past five years, including EGP 800m during the last fiscal year. We aim to inject a similar amount this fiscal year.
We study the projects we enter into very well, including fighting slums and supporting health and education, in addition to paying the debts of indebted men and women.