Exclusive Interview with Chairman of Banque du Caire, Mounir El Zahid

Interview with Mounir El Zahid, Chairman and CEO of Banque du Caire

According to Hisham Okasha, Governor of the Central Bank of Egypt (CBE), there are about 6 to 8 million individual banking customers in Egypt. What is your assessment of the Egyptian banking sector and its potential?

The banking sector in Egypt has great potential. We are 90 million people. However, about 50% of the population is still under the age of 25. There is a great potential for market penetration by the banking sector. There are some challenges because of the per capita income. The culture of having a bank account is now being nurtured. We are seeing some progress in that area.

Banque du Caire is the leading bank in retail products. One of our main areas of activity is microfinance. We extend loans as small as EGP 5,000. We go into the rural areas, small villages with this product. It’s one of the good products for job creation. Collection rates are at acceptable levels. It’s a good milestone of market penetration. We are working on capacity building. We also try to create a financial culture and raise financial awareness among the people. We are trying to create an awareness about the importance of having a bank record in relation to significant future transactions. This has become part of the existing culture in the entire banking sector.

Your bank tops the list (of MENA banks) in terms of return on capital, which stands at about 65%. What is the secret of your success?

It is due to the collective effort of the 7,500 employees of the bank. We have all worked very hard and we are happy to have achieved this result. How did we get here? There are a few reasons. First, we have re-visited the financial models for each asset and liability product of the bank. We worked on value creation for each of these products. Second, we worked on raising the competitiveness of the bank. We re-visited turnaround times, simplified procedures and gave branch managers the right authority. Third, we worked on the back office procedures, like the SLAs between various departments, to raise the competitiveness and effectiveness of the bank.

Banque du Caire has many investment products in its portfolio, like the Cumulative Fund, the Islamic Fund etc. Can you talk to us about your investment options?

I must start by saying all our profits are pure operational profits. There are no exceptional items, no inflow profits, no disposition of assets, no refund of provision etc. They are all pure operational banking profits. We have a very diverse range of investment products, a wide variety of funds. We have equal strength on funds as we do on retail or corporate banking. Our income comes from a fine blend of products. There is no concentration on a specific product.

You mentioned corporate products. Can you tell us what makes you stand out in this area?

Similar to investment banks, our group’s offerings are divided into specialized industry sectors, corporate and risk as well. We identify the transaction by these divisions. We are one of the leading banks in the syndication market. We have a number of milestone transactions in hydrocarbons, energy, power generation, fertilizers etc. We are the leading bank in the SMEs proposition as well. We believe SMEs are important. We start with microfinance and go all the way to large, syndicated corporate deals. We also deal with the mid-sized transactions, we work all the way up and down the chain.

We have a strong team for SMEs. About 20 people were cherry picked and recruited for this sector. They then underwent credit training, similar to the credit training provided by US banks. It’s a 6 month long, full classroom training. They start with accounting, and go on to financial statement analysis, lending rationales, projections, cash flow etc. The trainees must maintain a 70% score at all times to complete the training. There are mockup desks and presentations. My colleagues and I conduct the final tests ourselves, to examine the skills and confidence of the trainees. We test their understanding of credit analysis, etc.  When we are confident about their abilities, the trainees are allowed into Phase 2, which is the production phase. These are the future leaders of Banque du Caire. The idea is to have a production line for servicing SMEs and to keep increasing the number of accounts we service. This is how we grow. This is the nucleus of our work, not just for us but for the entire banking sector. The SMEs sector has been underserviced by banks, overlooked for quite a while. There have many reasons for this, for example the lack of capacity building, the lack of financial support, and some of the entities did not want to become part of the official economy because of bookkeeping and taxation. It’s been challenging but we have a presence there now, and we hope to make a success of it.

Banque du Caire is the leader in microfinance. What is your competitive advantage and activity in this area?

Microfinance is one of the older propositions of the bank.  We work in a vast area. We work in about 25 governorates and villages. It is one of our most successful applications and the collection rates are quite satisfactory. I think the importance of microfinance is in job creation. With microfinance, a new job can be created with as little as EGP 10,000 to 15,000. In larger, more developed, sophisticated industries, the creation of a single job can cost as much as EGP 200,000 or EGP 250,000. We are not a rich country. So microfinance is very important in raising awareness and the entrepreneurial spirit of the people. This is a way for people to become self-employed. It has been quite successful.

In which sectors is Banque du Caire most active? You mentioned tourism and aviation earlier, and I know you are active on the corporate side, too.

Being a commercial bank, naturally we address all industries. We do concentrate on risk-rate industries and their sub industries as well. It depends on the importance of the industry, the size of the labor force, where the raw materials come from and where the end product goes. We also study the susceptibility of the industry and how it is affected by unforeseeable circumstances, as they are also important issues. We look in particular at those industries that are of national importance to Egypt. For instance, we are very interested in the energy sector, we are looking into hydrocarbons. So it’s not just about job creation but also about those industries that are pressing needs for the nation. It will be very difficult to create more industries without adequate power generation. We need the infrastructure to be in place before we can increase urbanization and build new cities. These are important industries to pave the way for more industrial activity.

Can you give us some more information about infrastructure projects such as hydrocarbons or the Suez Canal development?

These projects have been worked on consistently over the past several years. The Ministry of electricity and the Ministry of Petrochemicals have been focused on infrastructure projects. We work closely with the ministries and we are a key player in those industries.

What kind of exposure do you have to international opportunities? How do you deal with this aspect?

We have international correspondent banking relationships with several banks overseas.
Banque du Caire is 62% shareholder in Banque du Caire in Kampala, Uganda, one of the successful banks there. We anticipate that it will help facilitate the flow of trade between Egypt and Africa. We are a presence in the entire Arab region, facilitating transfers and remittances of funds for Egyptians in the Gulf and Arab regions. We have affiliations and alliances with several Gulf banks and moneychangers.

What do you envision as your short or medium term achievement in the next 2 years or so?

For Banque du Caire, I hope we can achieve a significant capital increase. That will enable us to continue to observe best banking practices and maintain international standards, with Basel II, and now Basel 2.5. We want to enable the continuity and sustainability of the future growth of the bank. If this were a wish list, I would like to consider a very serious incentivization program for the entire staff. It is important to keep our people motivated, geared for action and feeling a sense of ownership in and loyalty to the bank.

If you wanted to consider this a platform to make an appeal to the world at large, what would be your message?

Our competitive edge, our product offering, especially in retail and personal banking, is entirely dependent on our IT capability. I would wish to ally with the very best of IT providers in the world. If that challenge is taken care of, then we could focus on the business, the competition, the designing of the products, the risk factors, and growth.