The Housing and Development Bank (HDB) revealed that its net income after taxes (NIAT) increased to EGP 1.521bn in the first nine months (9M) of 2019, compared to EGP 1.395bn in the same period of 2018, an increase of 9%. It’s also 104.5% higher than the bank’s target for this period of the year.
HDB overcome many challenges
Hassan Ghanem, chairperson and managing director of the HDB, said the bank succeeded in achieving these profits despite the challenges that the Egyptian banking sector has been experiencing since the beginning of the current fiscal year.
He told Daily News Egypt that the most prominent of these challenges was the Central Bank of Egypt’s (CBE) decision to cut its interest rates. Despite the importance of this decision to support investment and reduce inflation, it has lowered the income of banking activities, while the interest on some savings vessels, such as time deposits, remained the same until they were renewed, which for some time affected the bank’s profitability, he explained.
Ghanem added that among those challenges was also the application of the new International Financial Reporting Standard (IFRS9), which aims to further hedge expected credit losses (ECL), in order to strengthen the financial positions of banks. The application of this standard required the preparation of an advanced technological environment, and the qualification of the staff responsible for the application of the standard.
Adjusting tax accounting for investment in state debt instruments
Ghanem said that the change in the tax policy regarding investment in state debt instruments, the high prices of government services, and growing costs of assets the bank is buying to open new branches increased the HDB’s expenditures from previous years, which in turn, affected the bank’s profits. We also should take into account the great competition between banks in attracting new customers, whether for deposits or loans.
According to Ghanem, despite all of this, the bank was able to achieve higher profits than targeted, thanks to the professional management of the bank and the efforts of workers that help achieve the goals of senior management in continuing to achieve growth.
Significant growth in loans and deposits despite market competition
Regarding other performance indicators of the bank, Ghanem revealed that the bank’s loans portfolio increased to EGP 16.55bn at the end of September 2019, an increase of EGP 2.94bn (21.7%) compared to September 2018. In addition, customer deposits hiked to EGP 38.8bn, an increase of EGP 4.7bn (13.8%) in the comparison period.
He noted that the bank’s capital adequacy ratio (CAR) reached 20.74% according to Basel II requirements, in light of the optimal application of credit policies, with the bank’s investment portfolio free of any risk assets. The return on average equity reached 36.9%, and return on average assets 3.1%
Ghanem explained that the growth rates in the bank’s operating income increased at good rates at the end of September 2019 than September 2018, where the total revenue amounted to EGP 5.9bn compared to EGP 5.4bn, an increase of EGP 502m (9.3%).
The return on loans and similar revenues reached EGP 4.9bn compared to EGP 4.6bn, an increase of EGP 254m (5.5%) in the comparison period. In addition, fee and commission income reached EGP 248.1m compared to EGP 227.2m, an increase of EGP 20.9m (9.2%).
According to Ghanem, the profits of the bank’s subsidiaries reached EGP 127.2m at the end of September 2019, compared to EGP 77.9m in September 2018, an increase of EGP 49.3m (63.2%).
Higher expenses due to expansion and infrastructure modernisation
On the other hand, the administrative expenses at the bank increased by 20% in 9M of 2019, which Ghanem attributed to opening new branches of the bank to reach out all society segments, especially those who do not have banking dealings, to achieve financial inclusion.
These steps coincide with providing banking services that commensurate with the customers’ needs, which enhances the bank’s position in the market and increases its spread nationwide.
Ghanem indicated that the bank is also interested in implementing the required modernisation of its technological infrastructure, to provide the best and fastest services to its customers, which also increased the bank’s total expenses.
He stressed that the results achieved by the bank reflect its strength thanks to its risk management system which enables the HDB to enhance its position and maintain high market share to be among the top 10 banks in Egypt.
He pointed out that the bank can achieve this based on its strategy that aims to meet the needs of customers, including finding competitive solutions and attracting new customer segments, in line with the policy of the state and the CBE in spreading banking culture and financial inclusion.