The new administration of the Egyptian Arab Land Bank is making great efforts to put the bank in a rank in Egypt by the end of September 2020—the date set for the end of the administration’s first term, according to Amr Gadallah, vice chairperson of the bank.
Daily News Egypt sat down for an interview with Gadallah, who explained that the bank’s new management took responsibility in October 2017. Since then, they have done their best effort to solve the major problems that has hindered the bank’s growth.
He said that the new management was able to attract over EGP 6bn of deposits, injected EGP 5.6bn, and disposed stagnant assets of EGP 1.868bn. They have also succeeded in reducing the non-performing loans portfolio (NPL) to EGP 3.8bn, down from EGP 6.1bn, in addition to bridging the allocations gap entirely and even realize a surplus of EGP 1.2bn. The transcript for which is below, lightly edited for clarity:
You took office in October 2017, about 11 months ago, what are the results of your work so far?
There has been an unprecedented development in the mental image of the bank, which we have seen from all clients. We can say that the bank has already begun to come out to the light.
We have taken upon ourselves the responsibility of the bank to create an environment in which we can maximize the bank’s operations, both in terms of technology, human resources, and management.
To provide new products to customers, whether in retail banking or loans, a strong technological structure was needed.
We have already started offering a range of retail and personal loans, such as education and health care loans, as we prepare to offer car loans soon.
The bank also did not have credit cards, but we are now preparing to launch our first credit card in cooperation with MasterCard.
The other important thing that we are keen to achieve is to work to attract more deposits. To achieve this goal; we had to gain the confidence of customers first, whether individuals or companies or state institutions.
We have also issued a large number of saving instruments such as fixed yield certificates, variable yield certificates in Egyptian pounds and US dollars, current accounts with interest, and competitive savings accounts.
The bank has already managed to attract more than EGP 6bn since October 2017 to bring up deposits from EGP 24bn in October 2017 to EGP 31bn now, growing by about 30%.
Meanwhile, it was also necessary to increase the volume of the loan portfolio, which has already happened. Loans have increased from EGP 5bn in October 2017 to about EGP 10.6bn now—marking an increase of EGP 5.6bn.
How did you manage to pump all these loans during that short period?
The credit for achieving this is largely due to the chairperson of the bank. With his strong network, we managed to attract 40 of the largest borrowers in Egypt in different sectors, including some of the largest real estate developers, the biggest steel manufacturers, major pharmaceutical producers, and fertilisers factories.
This required a change in the working environment of the bank, and the use of cadres, expertise, and competencies from other banks, which help us attract corporate loan customers specifically and open new horizons.
It is not a secret that the bank had previously suffered from a severe bureaucracy in granting loans. In order to overcome this, we have formed working groups that are responsible for VIP accounts from begging to finish. They intervene at any time to solve any problem facing customers quickly. The client does not feel that there is any problem with the procedures of obtaining loans.
We have also developed the bank’s finance sector, which is part of my personal responsibility. A sales unit has been set up within the sector to create a new business for the bank, attract deposits, and sell debt instruments to customers.
What about the role of the bank in relation to the initiatives put forward by the Central Bank of Egypt (CBE), such as the Mortgage Finance Initiative and SMEs funding?
When we assumed office in October 2017; the mortgage finance portfolio within the CBE’s initiative stood at EGP 80m. Now, it has reached about EGP 400m.
The size of the small and medium enterprises (SME)s financing portfolio was also EGP 90m in October 2017, but has now reached over EGP 500m.
What about the asset portfolio that you own?
This file is receiving huge efforts from the management.
Since we assumed responsibility, we have liquidated some assets and restructured other assets to maximise their value in preparations to sell them.
In this regard, we sold the largest assets of the bank, Long Beach Resort, which was sold at a value of EGP 1.28bn.
There is a Long Beach Hotel in Hurghada, which has been making heavy losses since January 2011. At the end of 2017, we terminated the contract with the company that used to manage it and awarded the contract to a new subsidiary of the bank and put the company as the hotel owner.
After this development; the hotel’s revenues have reached over EGP 45m in about six months.
We are moving in parallel lines in regard to dealing with this hotel. On the one hand we are developing the hotel itself, while working to attract more clients to it. The hotel is set to be developed completely and upgraded to 900 rooms by the end of the year, up from 700 rooms now.
This hotel is currently worth about EGP 1.2bn. We aim to raise its value to EGP 4bn at least.
There is another group of small assets that include land and real estate units that have been completely stagnant. We have liquefied over 50% of them and we are marketing others now.
The total selling value of the assets that have been liquidated so far is about EGP 1.868bn, while their book value was estimated at EGP 1bn. What this means is that we have profited EGP 868m from selling these assets.
As part of the bank’s handling of these assets, we transferred some of them to two of the bank’s subsidiaries. Some assets were transferred to Al-Ahlia Real Estate Projects Company (AREPCO) and other assets were transferred to Edit – El Akary For Touristic Development, which manages the Long Beach Hotel. The company is also set to manage more resorts and hotels in the coming period.
The advantage of this company is that it is developing these hotels and resorts to maximise their value, so that they can be sold later for more.
What about the bank’s NPL?
The bank’s NPL portfolio had reached EGP 6.1bn before the new management took over in October 2017. Now, it has almost halved to EGP 3.8bn, down by EGP 2.3bn.
We have succeeded in achieving this by changing the approach of dealing with defaulting customers. The previous administrations of the bank have adopted a specific framework in dealing with defaulters only through legal channels relying on a legal sector that is the largest in Egyptian banks with over 160 lawyers.
When we took over the responsibility of the bank; we changed this method completely. We began to negotiate with customers differently, and we re-floated some of them. This helped us see amazing results. We returned huge liquidity to the bank that can be re-employed to make revenues.
What about the provisions gap that the bank suffered from?
The bank was suffering from a gap in provisions for doubtful debts worth EGP 4bn. Since we took office, we covered this gap completely and realized a surplus of EGP 1.2bn to face any potential default.
The bank has branches in Jordan and Palestine. How are these branches handled?
We start in Jordan, where the bank has 14 big and high level branches. However, they suffered the same problems as in Egyptian branches. The Central Bank of Jordan also had complains about the performance of these branches and sometimes imposed fines.
This led us to change the regional management of these branches. We brought a professional management led by Tarek Akel in July 2018. We have already avoided the issues marked by the Central Bank of Jordon, especially, after the commitment administration has been strengthened and restructured. I can now confirm that the Central Bank of Jordan’s opinion in those branches has already changed.
At the same time, the new management of these branches has already begun to implement an expansion plan there, especially, in retail banking, where we aim to increase the number of these branches to 18 branches by the end of 2019.
I would like to point out that the Jordanian economy is a small economy that always relies on microfinance, personal finance, and retail products. The branches of Jordan are already advanced in retail activity and have come a long way in this regard.
It is also expected that these branches will start to provide new service that has not been previously worked, including the SMEs financing. The previous administration was keen to finance large companies only. Now, the new administration is choosing and financing SMEs that have good reputation. There are many of them in Jordan.
What are the performance indicators of these branches now?
The total loan portfolio of these branches reached JD 166m at the end of June 2017, then to JD 172m in 30 June 2018, up by JD 6m (4%). We plan to boost the size of this portfolio to JD 320m at least by the end of 2019.
As for deposits, they increased from JD 213m at the end of June 2017 to about JD 221m by June 2018, marking an increase of JD 8m, with plans to reach JD 500m by the end of 2019.
These branches also made a profit of JD 1m at the end of June 2018. My personal goal is to increase the profitability of these branches by three folds by the end of 2019.
What about the branches of Palestine?
The bank owns eight branches in Palestine scattered in the West Bank, Gaza and some other areas. These branches had special conditions due to the economic recession suffered by Palestine. Therefore, they were making losses. They, however, turned a corner to profits for the first time in June 2018.
The work of these branches is mostly concentrated in the retail and micro-credit sector. The total loan portfolio of these branches reached $19m in October 2017 and to $32m at the end of June 2018, rising by 40%.
These branches focused on lending the Palestinian government. The total of these loans when we assumed office was $49m. We asked the Ministry of Finance to pay this debt. They agreed and paid $37m already, leaving only $12m.
Are these efforts in the restructuring and operation of the branches of Jordan and Palestine mean that you have cancelled the idea of selling them as the previous management of the bank intended?
Yes, this idea has been completely cancelled. On the contrary, we aim to make these branches a factor in increasing the bank’s profits. We believe that our presence in Jordan and Palestine is important. The potential of these branches is huge, especially in Jordan.
What is your vision for the future of Egyptian Arab Land Bank?
We aim to have a strong presence in the Egyptian, Jordanian, and Palestinian markets, and to become a bank that we are proud of.
We are aware that we are facing a major challenge, but we are determined to put the bank in the ranks of major banks.
What is your next expansion plan?
The bank now has 28 branches. We aim to reach 31 branches by the end of 2018, 40 branches by the end of 2019, and 45 branches by September 2020.
We are also keen to re-change the mental image of the bank about these branches. We develop them and the services they provide. We also plan to open several mini branches in the coming period.
In terms of other activities of the bank, we have already begun to open letters of credit to finance foreign trade and we entered the remittances sector as well. We aim to provide all banking services, not only mortgage financing.
What about the bank’s target profits?
We aim to achieve at least EGP 500m by the end of 2020, after bridging the provisions gap.
CBE Governor Tarek Amer made a surprise visit to the bank recently. What does this visit mean?
The visit was a strong message of support to the board of directors and employees of the bank. The governor of the CBE during the visit reviewed the positive developments achieved by the bank. He emphasised the CBE’s support to the bank’s management and said he is confident in the efficiency of the board of directors and experts to complete the restructuring and development.