The announcement that Mashreq of Dubai is keen to expand into Egypt has highlighted a more general trend of Gulf banks moving across the Suez Canal and into the Arab world’s most populous country. Egypt now hosts five banks from the UAE alone. As in Turkey, where Gulf banks are also becoming more active, investors are attracted by the size of the young, unbanked population but they are also keen to invest overseas in order to reduce their exposure to indebted state owned companies in their home market.
While announcing that it was not interested in taking over Standard Chartered’s operations in the UAE, Mashreq of Dubai revealed it was looking to expand in Turkey and Egypt. Chief executive Aziz Al Ghurair said no deals would be completed until next year and added: “Egypt has a big population, there is potential there. We see a lot of Gulf banks have gone there: they’ve done very well.” The bank already has ten branches in Egypt but it remains to be seen whether it will opt for organic growth or acquisition to drive expansion in the country.
The attractions of Egypt aside, there are also push factors encouraging Gulf banks to look further afield. In the UAE for instance, there are now an incredible 51 lenders and a relatively small pool of potential customers. At the same time, some European banks, particularly in France, have opted to focus on their core operations, which have less potential for growth, than riskier but potentially more profitable operations in frontier or emerging markets. This trend of constrained ambition has been partly driven by new capital requirements by European regulators.
A popular target
In contrast, Gulf banks are generally better capitalised than their competitors in the industrialised world and often backed by cash-rich governments. Investing in oil-importing Egypt also acts as a hedge against falling oil prices for the oil producing states of the Gulf Cooperation Council (GCC) states. While Chinese and other Asian investors have focused on Sub-Saharan Africa because of its raw materials, most Gulf investment has been targeted at North Africa.
Prospects for growth
Egypt has obvious attractions: it has 82m inhabitants and strong population growth, while its geographic location at the junction of three continents makes it well placed to benefit from rising global trade volumes. Yet investors seem to be banking on potential rather than the current state of the Egyptian economy. The country has consistently underperformed for many years and several years of massive political instability have created uncertainty over the future direction of economic policy.
Nevertheless, the economy has recovered somewhat since President Abdul Fattah Sisi became president in May. His election reinforces the role of the army in national political life but much of the population and the investor community seems to prefer this to the disruption of the post-Mubarak years.
Emirates NBD completed its takeover of the Egyptian subsidiary of BNP Paribas last year, taking over 69 branches and more than 200,000 customers. The French bank decided to sell off some of its subsidiaries in order to strengthen its capital base and focus on its core activities.
The group chief executive of Emirates NBD, Rick Pudner, said: “Egypt is a key market in the Middle East and we are totally committed to serve the Egyptian economy and community. This acquisition represents a milestone opportunity for us to realise our strategic goal to be globally recognized as the most valued financial services provider based in the Middle East. We are confident that this acquisition will also underpin the potential opportunities that the Egyptian market offers…Our plan is to expand our brand territory and to maximise its value domestically and regionally”
Emirates NBD has set a target of becoming the biggest bank in the Middle East and North Africa region, but Qatar National Bank is providing competition by moving into many of the same markets as its UAE counterpart. Lebanon’s Bank Audi is another investor in Egypt, as well as in Syria.
Most analysts expect the trend of Gulf banks expanding into Egypt to continue for several years to come but much will depend on international perception of the country’s political and economic risk.
This story was published in full in The Middle East (TME) printed edition in November 2014