UAE banks bet on recovery in Egypt
SOLID FINANCIALS, ROBUST ECONOMIC GROWTH SUPPORTS OUTLOOK FOR BANKING SECTOR
Egypt’s banking sector strengthened by strong revival in the economy is expected to reflect in the profitability of leading UAE banks that have operations there.
UAE’s top banks such as Emirates NBD, First Abu Dhabi Bank (FAB), Abu Dhabi Commercial Bank (ADCB), Abu Dhabi Islamic Bank (ADIB) and Mashreq have subsidiaries in Egypt.
The latest financial results show profitability of Egyptian operations of these banks in 2021 have improved significantly over the past few years reflecting the overall improvement in the operating conditions.
Analysts say rapid loan growth and a decline in loan loss provisions are expected to improve profitability from both retail and wholesale lending.
Support for growth
“Continued infrastructure investments and robust spending will support economic growth, while initiatives to deepen financial inclusion will provide ample business opportunities for banks,” said Constantinos Kypreos, Senionr Vice-President at Moody’s.
The rating agency forecasts real GDP growth of 5.5 per cent for fiscal 2022 supporting a credit growth of around 20 per cent. Although nonperforming loans are expected to increase moderately, with the improved loan growth, the overall NPL ratio (problem loans to total loans) expected remain moderate.
According to Moody’s, funding and liquidity conditions of Egyptian banks will remain strong during the current year although foreign currency funding could turn expensive as the interest rates are likely to go up starting this quarter. However, the UAE banks with operations Egypt are less likely to be impacted by the rise in interests because of the strong funding base of their parent institutions and a good share of foreign currency deposits supported by remittance from Egyptian diaspora.
The inherent strength of Egypt’s financial services sector is attracting more investments form the UAE and GCC. Last week, First Abu Dhabi Bank made an offer to buy a controlling stake in Egypt’s biggest investment bank EFG Hermes that values the North African lender at 18.5 billion Egyptian pounds ($1.18 billion).
If the deal goes through, it would be FAB’s second major transaction in Egypt after it bought the Egyptian business of Lebanon’s Bank Audi last year. Earlier this year, Dubai Islamic Bank revealed that Egypt is on its radar for further international expansion. With more GCC banks facing saturation in their home markets, Egypt with a large economy of 100 million people is a sure bet regional opportunity to expand their asset base.
Although acquiring a banking licence in Egypt is difficult as the Egyptian central bank doesn’t issue new ones, the only way to enter the market is to buy out an already-registered bank. The financial turmoil in Lebanon forced many Lebanese banks to sell their Egyptian subsidiaries opening acquisition opportunities for cash rich GCC banks. The last ones to sell were Blom Bank and Bank Audi.
Acquisitions
In January last year, Bahrain-based Bank ABC acquired Blom’s 41 Egyptian branches for $480 million. In April, FAB received regulatory approval to acquire Bank Audi’s network for an undisclosed amount. The ongoing merger should be completed in 2022. The UAE’s biggest bank, which already has 17 branches in Egypt, will significantly increase its footprint in the country and become one of the biggest foreign lenders by assets.
Emirates NBD acquired BNP Paribas Egypt in 2013 and has a strong presence in the country. Bahrain’s Ahli United Bank increased its stake in Ahli United Egypt to 95.7 per cent in October 2020.