ABC at front of queue for Cairo bank

17 September 1999
FINANCE

The bid by Arab Banking Corporation (ABC) for a controlling stake in Egyptian Arab African Bank (EAAB) has been accepted by the vendors and will be examined by the Central Bank of Egypt in mid-September, says Taher Makkiyah, ABC's chief banking officer. He adds that ABC welcomes the recent revised outlook on the bank issued by US credit rating agency Standard & Poor's, and forecasts a strong full-year financial performance.

The acceptance of ABC's bid for EAAB follows the rejection by the central bank of the original winning bid, tabled by United Bank of Egypt (UBE - see Egypt). ABC's bid of úE 50 ($14.7) a share, or úE 349 million ($102 million), for a 93 per cent stake in the bank was the second highest (MEED 3:9:99). 'It is standard procedure for the second bid to be submitted if the first one fails, so we kept ours open,' says Makkiyah. 'Clearly pricing is not the only consideration and the complexity of the bid is important. Our bid is not complicated.' The central bank has not given reasons for the rejection of the UBE bid, but bankers say it is understood that a non- Egyptian buyer is wanted.

Credit Agricole Indosuez and National Bank of Kuwait were the other two institutions to bid. 'We are keeping our bid alive,' says Henri Guillemin, senior vice-president at Credit Agricole. 'No adjustment to the bid has been made yet, but there remains the possibility of changing the package and the price. No decision has been made.'

ABC's attempt to acquire EAAB is part of its plan for expanding its regional presence, and follows its entry into Algeria and Tunisia over the past year (MEED 27:8:99). 'It is our medium-to-long-term strategy to be the premier bank in the Middle East,' says Makkiyah.

This strategy, and a successful strengthening of the balance sheet in the first half of the year, encouraged US credit ratings agency Standard & Poor's (S&P) to revise its outlook on ABC to stable from negative on 3 September and maintain its BBB- long-term rating. 'After a difficult year in 1998, ABC has reduced its exposure in riskier Latin American and East Asian countries in favour of greater activity in the Middle East where traditionally its business has been more secure,' says S&P's Richard Thomas.

Concerns over asset quality have led to a contraction of ABC's balance sheet, with total assets declining by almost $2,000 million since the start of the year. 'We are not expecting them to return to previous levels by the end of the year, as we are not chasing growth but quality assets and improved profitability,' says Makkiyah.

Strong improvements in full-year earnings are forecast by the bank, as are reduced levels of provisioning. In the first half of the year, loan loss provisions of $48 million were made, compared to $91 million in the same period of last year. 'Provisioning will be even lower in the second half than in the first,' says Makkiyah. 'The only area where they might increase will be for our exposure in China.'

'Provisions might be on the short side but they will be adequate,' says Thomas. 'They will be able to absorb the risk on the portfolio without inflicting damage on the bottom line.'

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