Ozalp: Revolution’s Implications Proved The Strength of Egyptian Banking System
Mohamed Ozalp, Managing Director of BLOM Bank Egypt, affirmed that the turmoil that followed last year’s 25th January revolution and its negative implications on all economic sectors proved the strength of Egypt’s banks as they achieved good returns on deposits portfolios and loans, in addition to meeting their liabilities towards international bodies.
Ozalp added in his interview with Amwal Al Ghad that BLOM Bank allocated additional provisions to absorb potential shocks totaling to EGP 107 million at the end of 2011. Real estate and tourism sectors were affected the most and that made the Bank further supported and extended installment periods for customers working in these sectors.
Ozalp said the Bank posted good results for 2011, despite the political and economic unrest Egypt witnessed. BLOM Bank Egypt achieved net profit of EGP 73.6 million, with an increase of 59.4%, up from EGP 46.2 million at the end of 2010. The Bank’s loans portfolio registered EGP 2.6 billion at the end of 2011 and deposits portfolio increased by 9.7%, registering EGP 6.7 billion.
Evaluate Egyptian banking system’s performance amid transitional period?
The unstable political circumstances have affected the economic situation in Egypt which led to a temporary recession in the local markets and that does not necessarily lead to an economic crisis. Despite being a developing country, Egypt is not suffering from liquidity, currency or banking crisis.
All expectations indicate that the economic recession in Egypt will end after finalizing the constitution’s drafting and selecting president. This will necessarily affect positively all economic sectors such as tourism which is expected to post high returns again three months after the transitional period. Local and foreign direct investments are expected to be injected after six months. Therefore, concerted efforts between the government and concerned bodies shall be made to pave the way to the expected gradual improvement in political and economic situations.
Banking has been the most consistent sector after the turmoil that followed last year’s revolution as it maintained high performance level through the successive crises such as 2008 global financial crisis and the negative implications of last year’s uprising which proved banks’ resilience and ability to achieve good returns on deposits portfolio and to meet their liabilities towards international bodies in addition to maintaining currency rate.
Are banks able to finance the state without affecting liquidity?
First of all we shall note that this period is a transitional one which will not last for a long time. Banks highly contributed in financing the budget deficit as Egypt after the revolution relied on local debt to finance the deficit while banks were having unused liquidity. Therefore, loans to customers were not affected. As investing in treasury bills is not the main function of banks, the lenders have continued to offer credit for serious customers which in turn increased loans portfolios.
Banks had invested in government debt instruments to finance the budget deficit and to invest the finances that witnessed low demand because of the unrest and unclear political and economic views in Egypt which made many investors delay their expansion plans.
Are current interest rates suitable for the current period?
Interest rates mainly move according to the standards and inputs of the market. Monetary Policy Committee of the Central bank of Egypt determines the guiding interest rates according to the above said factors. I see that the current interest rates do not impede investment. The factors that contribute in saving time and effort and reducing borrowing costs include offering customs facilities, setting up the basic infrastructure and offering investment incentives to create an attractive local market.
How do you see the ongoing decrease in cash reserves?
The cash reserve of the foreign currency enormously slumped after Egypt’s revolution; it reached $ 15.1 billion last March, due to the security and political instability. This cash reserve suffice commodity imports for more than four months, consequently we haven’t approached the danger phase. As soon as stability backs to Egyptian street, a gradual improvement in the tourism sector will come about, and the foreign investments will reinstate, in order to compensate the successive declines the reserve witnessed the past months.
The long-term foreign debt is not hefty and doesn’t represent a burden on the state like domestic debts which exceeded EGP 1.1 trillion in 2011. The need of providing the state’s strategic commodities represent burden on the cash reserve of the foreign currencies; especially during the rise of the state’s balance of trade deficit and also the ongoing state of political instability for coming four months.
What are your expectations about the repeated declines of the state’s credit ratings?
Egypt enjoys a good reputation in many countries, international authorities and a number of natural features represented in its geographical location and Suez Canal. This matter limits the effect of the declines which the state’s credit ratings witnessed that is normal during the current time as a result of the uncertainty state in different political and economic fields. The Egyptian banks also haven’t affected as after the revolution they lean in the in the international relations on their good performance during the previous years
There were some problems the banks faced in opening letters of guaranty, but they can overcome through their correspondents trust in the perfect financial performance.
Can you outline the strategic features of BLOM Bank in 2012?
BLOM Bank aims this year to expand in order to provide all the banking services for the clients with a high level service. The bank is about to finish the restructuring which resulted in improving the bank’s internal state. It also restructured the weaknesses of ATMs pursuant to the service level, moreover, improving the bank’s private systems. The bank depends on providing all the financial services via BLOM Bank Securities and Arope Life Insurance and Property Insurance Company
What sectors you mainly target?
The bank’s general strategy depends on the diversity of the credit portfolio to limit its risks; consequently we aim during the coming period to consider all the investing sectors as well the feasibility studies of the project, analyzing all the submitted demands for each project, in addition, granting credit to all the serious projects. The tourism sector, during the coming period, is paramount and it will witnesses varied chances for growth; this will let the bank to consider the expansion of refinancing it.
What about Bank’s profits posted during 2011?
In 2011, BLOM Bank Egypt posted net profits of EGP 73.6 million, higher 59.4%. Noting that the bank had achieved net profits of EGP 46.2 million by the end of 2010. This reflects the great efforts the bank had exerted while the deteriorated political conditions had negatively affected on all the economic sectors.
How much is the Bank’s loan and deposit portfolio by the end of 2011? What do you plan for the current year?
BLOM’s loan portfolio has reached EGP 2.6 billion by the end of 2011, lower 0.9% (EGP 23.8 million). Noting that the bank’s loan portfolio recorded by the end of 2010 EGP 2.713 billion. While the bank’s deposit portfolio during the same comparable period has reached EGP 6.7 billion, higher 9.7% (EGP 599.4), compared to deposit portfolio of EGP 6.1 billion a year earlier. BLOM’s volume of deposits has witnessed a rise of 7% during 2011. The bank is targeting higher growth rates of loan and deposit portfolios than the average rate which is achieved by the sector in 2012.
How much is the amount of retail banking out of the BLOM’s total loan portfolio?
BLOM’s retail banking portfolio represents 25% of the total loan portfolio, while corporate banking portfolio represents around 57% divided into large enterprises and the SMEs. Additionally, the syndicated loan portfolio seizes 18% of BLOM’s total loan portfolio.
What is the volume of BLOM’s investments portfolio in government debt instruments?
BLOM’s total volume of investments in treasury bills (T-bils) and government securities by the end of 2011 has reached EGP 1.2 billion. This has contributed to supporting the national economy through using these amounts to reduce the state’s budget deficit.
How provisions were affected by post-revolution incidents?
Extra provisions have been allocated by the end of 2011, rose to EGP 107, as precautionary procedures adopted in case of emergency facing the clients and hindering regular payments. The retail banking sector is the most vulnerable in the banking system. We have resorted to postpone customers’ payments in the tourism and real estate sectors in particular that was negatively affected the most due to the incidents occurred after the revolution. We also resorted to schedule other volumes of debts. This has led to alleviate the current negative impact on the bank’s portfolio.
