The Housing and Development Bank (HDB) is waiting for the approval of the Central Bank of Egypt (CBE) to pivot into a commercial bank and separate the real estate and investment activity from its main business, according to chairperson and managing director of the bank, Fathy Sebaey.
The HDB board of directors gave preliminary approval in February to assess a study of separating the bank into a real estate company and a commercial bank.
Sebaey said that there are three advisory bodies that submitted bids to advise on the separation, but no decision has been made, pending CBE approval.
He explained that once the separation is completed, the bank will be limited to offering commercial banking services, such as receiving deposits and granting loans, while the assets, lands, and investment companies owned by the bank will be transferred to an investment company formed with the same shareholders of the bank.
Sebaey expected the process to be completed within 9-12 months.
In response to a question about the move, Sebaey said that Arab and foreign investment funds have always been keen on investing in the bank’s shares, but would refrain from that as the bank is evaluated as a real estate company and not a bank. Hence, the separation had to be considered.
Sebaey said that each shareholder in the bank will own the same stake in the new company.
As for the impact on the bank’s profits, Sebaey said that the contribution of the companies that will be separated is less than 25% of the bank’s profits, which would not have much effect on the bank’s performance.
He stressed that the bank will not exit any investment now, noting that all investments will be transferred to the new investment company that will be formed after the separation.
He pointed out that the bank postponed an acquisition deal of an exchange bureau until the separation is completed. He also stated that the bank’s financial leasing company will be revived soon.
On a separate note, the mortgage financing granted by HDB to middle and low-income citizens within the CBE’s mortgage financing initiative amounted to EGP 2.2bn. The bank is considering 4,000 more requests submitted from the same two categories.
Sebaey said that the bank will not need to increase its capital following separation, noting that the capital adequacy ratio is at 13.83%, which is 3.83% more than the CBE’s stipulated ratio.
He added that HDB aspires to become one of the top five banks in Egypt, noting that the bank achieved a return on equity of 29%, which makes it the second largest bank with regards to this indicator. The bank also achieved a return on assets of 2%, which is a high percentage in the market.
Sebaey pointed out that the bank aims to open 13 new branches by the end of 2017—most of which will be small branches—to boost the number of its branches to 83, up from 70.
He added that the bank also plans to increase the number of its ATMs to 50 machines before the end of 2017 to reach 250 machines across the republic.
Sebaey noted that the bank will soon launch its internet banking and mobile wallet services soon, after completing its technological infrastructure upgrade.
In terms of the bank’s position towards hard currency credit facilities, Sebaey said that the bank earmarked special allocations to cover these debts, while it also put together an instalments scheme, in accordance with the CBE’s directives on this matter.
Asked about the performance of the banking sector in 2017, Sebaey said that the sector in Egypt is expected to meet a few challenges throughout the year, especially as clients suffered negative impacts from the flotation.
He explained that 2016 was full of economic and political instability in the world and the surrounding countries; yet, the Egyptian banking sector and HDB maintained good performance, he stressed.
He pointed out that the bank’s administration was aware of the economic and political implications, and pursued policies that minimise the negative aspects of these challenges.
The HDB general assembly had approved the bank’s 2016 financial results on Thursday. Figures indicated a growth in assets by 25.6% compared to 2015.
The total loan portfolio amounted to EGP 10.5bn, increasing by 27.4% from 2015. Deposits also increased by 16.2% to reach EGP 13.6bn—an increase of EGP 1.6bn from 2015.
According to Sebaey, the loans to deposits ratio registered 62%.
He noted that the return on revenue (ROR) registered EGP 1.7bn at the end of 2016, increasing by 64.3% from 2015, due to the increased return from loans and similar sources by 49.5%, as well as an increased cost of deposits and similar liabilities by 30.6%.
Fee income also reached EGP 237.5m at the end of 2016, compared to EGP 190m in 2015—growing by 25%.
According to Sebaey, the profit before tax (PBT) settled at EGP 920m at the end of the last year—up by 36.3% from 2015.
Profits after tax registered EGP 644.2m in 2016, compared to EGP 491.2m in 2015, increasing by 31.1%.