Egypt is the latest darling of overseas lenders

Financial Times, by Nicholas Megaw (Link: Egypt is the latest darling of overseas lenders)

Western banks that sold out stand to miss out on emerging opportunities

Georges Elhedery, HSBC’s Middle East and north Africa chief executive

Government drives to modernise economies in the Middle East have been a boon in recent years for foreign investment banks competing for advisory fees on privatisations and capital market deals.

Countries have fallen in and out of bankers’ favour as they have grappled with political difficulties and big movements in the price of oil.

The latest focus of bankers’ attention is Egypt, as the Arab world’s most populous country recovers from years of economic instability and begins its own major reform drive.

Less than two years ago, HSBC was helping the country’s central bank secure emergency funding ahead of a bailout from the IMF, but now the lender’s regional boss is confident about the outlook for Egypt.

“We’ve been there through thick and thin”, says Georges Elhedery, HSBC’s Middle East and north Africa chief executive. “We’ve always had a long-term positive view of Egypt, and as the economy rebounds we are optimistic about the next few years.

” Mr Elhedery is not alone in his optimism. The early reforms demanded by the IMF as part of the bailout — including cutting subsidies and removing controls on the Egyptian pound— pushed inflation above 30 per cent.

But with the economy stabilising and the government promising more market-friendly changes, the country is increasingly drawing the attention of international banks.

Karim Tannir, JPMorgan’s head of investment banking for Middle East and north Africa, says he sees “a lot of potential in Egypt”, adding: “The country is embarking on several reform initiatives, including privatisation which we expect to be an important theme in the coming years.”

The government plans to offload stakes in 23 different state companies over the next two years, with the first two set to take place in October.

Mohamed Ebeid, co-chief executive of investment banking at EFG Hermes, the regional investment bank, says: “It’s a good sign because this push from different international banks and entities increases the potential of foreign investor participation in the market.”

Julien Faye, head of financial services for Middle East and north Africa at Bain, the consultancy, says there is “a definite window of opportunity” in Egypt, pointing to planned infrastructure projects and natural gas discoveries that have already attracted overseas investment.

However, many international groups stand to miss out on one key area of banking growth in the country. While the short-term prizes on offer for corporate and investment banks are not expected to be as large as in Saudi Arabia, Egypt’s large population also creates opportunities in retail banking, according to Mr Faye.

“There’s a strong push from the central bank and government to really modernise the sector. A huge part of the population is unbanked and reliant on cash, so there’s a big push to give new shape to the sector.”

Most European and US banks have abandoned their Egyptian retail operations. Citi sold its Egyptian consumer bank in 2015, while France’s Société Générale and BNP Paribas both exited the country in 2012.