A position of strength

This has been a challenging year for banks across the globe, with economic activity disrupted and concerns surrounding asset quality coming to the surface. 

Yet Egypt’s strongest lenders appear well placed to prosper. Commercial International Bank (CIB), Egypt’s largest lender by market capitalisation, has entered this troubled period — like Egypt as a whole — from a position of strength, says its chairman and managing director, Hisham Ezz Al-Arab. 

“We’ve been investing heavily in our digital transformation platforms, giving us an edge over our competitors during a period where customers needed established tools and services to carry on their banking needs while staying safe,” he says.

The spread of the novel coronavirus has created opportunities for banks like CIB to expand in digital services, for example developing digital channels and automating payments. The number of transactions via internet and mobile banking increased by 100% following the emergence of the virus.

The bank has continued to grow and expand in 2020. “Despite unfavourable global circumstances, we successfully finalised our first acquisition outside Egypt, acquiring a majority stake in Kenya’s Mayfair Bank, making CIB the first Egyptian Bank to establish a presence in Kenya, in line with our expansion plans in Africa,” says Mr Ezz Al-Arab. 

CIB announced the acquisition of a 51% stake in Mayfair, to be renamed Mayfair CIB Bank  Limited in Kenya, at the end of April. 

The move is in line with CIB’s mandate to explore and assess opportunities in Africa, building a bridge for Egyptian customers to benefit from regional integration efforts across the continent and benefiting from the prospects available from being Common Market for Eastern and Southern Africa (COMESA) members and the recent African Continental Free Trade Agreement (ACFTA). 

Nonetheless, key sectors of the Egyptian economy, such as tourism, are suffering due to the global shutdown. The tourism sector isn’t expected to make a full recovery before spring/summer 2021. Meanwhile, remittances — traditionally a big source of income for Egypt’s economy — have remained low due to a number of Egyptian workers abroad being let go from their jobs. The Suez Canal revenues have also been affected.

However, says Mr Ezz Al-Arab, the Egyptian government took a number of measures to ensure that the economy can withstand these difficult times. 

“Egypt has entered the crisis from a point of strength after achieving high economic growth in 2019, and, according to projections from several international financial institutions such as the IMF and the World Bank, it is the only country in the MENA region that will not undergo a recession in 2020, but is set to experience growth. This growth is a testament to the strength of the Egyptian economy, the success of the government’s response to the global crisis and the fruition of the economic reform programme implement in the past few years,” he says. 

CIB’s financial results for the first half of 2020 showed a resilient performance by the bank, as it entered this global crisis from a position of strength. “Our revenues grew by 17% compared to the first half of 2019 thanks to the Bank’s management and staff and commitment to ensure business continuity and to navigate these unprecedented times,” says Mr Ezz Al-Arab.

First-half 2020 standalone revenues were E£2.7bn ($806m), up 17% from first-half 2019, on the back of net interest income growth. Second-quarter 2020 standalone revenues were E£6.24bn, up 20% from second-quarter 2019. 

The bank’s first-half 2020 standalone net interest margin was 6.96%, generating net interest income of E£12.5bn, up 25% in year-on-year terms.  

The bank took a number of measures to insulate itself in the pandemic.

“We remain in full compliance with all regulatory ratio requirements,” says Mr Ezz Al-Arab. “With regards to liquidity and capital adequacy, our asset base is composed of almost 60% sovereign investments. We are at a capital adequacy ratio of 26%, putting us in a solid position to withstand any blowback. As at year-end 2019, we held total capital of E£52bn, 90% of which is classified as tier one. CIB’s provisioning policy has been highly successful in shielding us from external shocks in recent years: the bank’s coverage ratio stands at 233% and our specific ratio was at 98.5% as of year-end 2019.”

CIB has in place a contingency funding plan to manage any arising liquidity requirements as needed, and it has minimised market risk by restricting its trading book position. Additionally, the Bank’s assets and liabilities committee is closely monitoring all market developments and will take immediate action as and when required to manage CIB’s balance sheet.

CIB maintained its comfortable liquidity position above CBE requirements and Basel III guidelines in both local currency and foreign currency in the first half of 2020. The local currency CBE liquidity ratio remained well above the regulator’s 20% requirement, recording 69.0% as of June 2020, while the foreign currency CBE liquidity ratio reached 59.6%, above the threshold of 25%. 

Over the past few years, CIB’s strategy has been focused on moving toward a more customer-centric approach to uniquely position it among peers as an organisation, explains Mr Ezz Al-Arab.

“This focus revolves around the customer experience and a superior brand image. To carry out our strategy, we have been investing heavily in data analytics, upscaling our infrastructure, digitalizing and automating the way we do business, while constantly developing our employees’ skills with the latest emerging trends,” he says. 

The bank is working to transform traditional financial services into simple and accessible solutions by investing in people, data, and digitalization to serve tomorrow’s needs today by supporting the decision-making process with structured data, creating countless experiences that are consumed digitally by its customers. 

“This has enabled us to funnel time-consuming small ticket operations from the branches to digital channels, allowing our employees to concentrate on bigger ticket transactions and customers,” says Mr Ezz Al-Arab. “The move has benefited customers as well who no longer have to wait in long lines to perform their banking needs, almost everything is available through the click of a mouse or a touch of a screen on a smartphone.”

Expansion plans

CIB is looking forward to expanding its lines of business and diversifying its revenue base. 

“The two main aspects we’re currently concentrating on are digitisation and sustainability,” says Mr Ezz Al-Arab. “We will continue our efforts in expanding our digital roaster of products and services, bringing more of the bank to the customer and help them perform more types of transactions from the comfort and safety of their homes or offices.”

As for sustainability, in 2020 CIB became the first bank in Egypt to establish a sustainable finance division, in line with its continuous efforts to establish a new standard of responsible banking in the region. The new division ensures the centrality of sustainability as a core business strategy and provides a solid platform to integrate ESG principles across the bank’s functions.

The pandemic and the ensuing social distancing requirements have reinforced how important digital banking is this context. “Brick and mortar branches will remain a vital part of banking, but those who don’t invest in digital will be left behind. More customers demand the agility and flexibility of digital banking, while banks stand to gain from funnelling their small operations from branches to their digital platforms, thus reducing queuing and time spent on servicing low revenue transactions,” says Mr Ezz Al-Arab. 

As it moves forward, CIB will be looking to continue expanding its presence in Africa through partnerships with established banks in the countries it aims to penetrate. “We aim to build the partnerships between the two banks by combining the strengths of both entities; CIB with its technical expertise, experienced know-how, and vast correspondent banking network, with the local bank’s knowledge of the market and navigation via its existing shareholders,” says Mr Ezz Al-Arab.