AS one of the leading private sector banks and a dominant force on the Egyptian Stock Exchange, Commercial International Bank (Egypt - CIB) is constantly at the centre of attention. After difficult times in 1998, the bank remains a leading player but recent controversy and unsuccessful initiatives have taken some of the shine off its formidable reputation. But a new deputy managing director, Hisham Ezz al-Arab, remains positive about the future and says that CIB is well positioned for growth.

The arrival of Ezz al-Arab on 1 April was the culmination of a radical change in the management structure of the bank. The resignation of Adel el-Labban from his position of managing director in February followed a period of sustained pressure. El-Labban had presided over the operations of CIB since the mid-1990s, but during the course of last year was increasingly criticised over a number of issues, in particular tax provision policy, relations with shareholders and investment banking policy.

El-Labban was replaced as managing director by Mahmoud Abdel-Aziz, chairman of CIB and National Bank of Egypt, the state-owned operation which holds a majority stake in CIB. However, the management structure has been redefined and much of the key decision-taking responsibility has been devolved to Ezz al-Arab and a strengthened tier of operations managers.

'We believe that the curtain has finally fallen on months - if not years - of friction within the bank's senior management ranks,' says Ghassan Medawar, bank analyst at ABN AMRO. 'The opportunity now exists for...a clearer direction for CIB.'

The arrival of new management has renewed interest in CIB's plans for the future. With competition tight in the sector, CIB is keen to strengthen its retail banking operations. 'We're launching a new retail banking campaign before the summer,' says Ezz al-Arab. 'It will include full services: debit/credit cards and a network of automated teller machines (ATMs).'

Analysts say that the aggressive move into retail banking has been partly fuelled by CIB's search for new sources of capital. Net loans and overdrafts at the end of 1998 were 108 per cent of customer deposits and the margin was unchanged at the end of the first quarter of 1999.

The bank has aggressively pursued other sources of funding. It is strongly capitalised having staged the first, and still the largest, bank initial public offering (IPO) in 1993 and the first Egyptian global depositary receipt (GDR) offering in 1996. CIB has taken an international syndicated loan and has made a number of forays into the domestic bond market, the most recent being a úE 300 million ($88 million) issue in late April.

The bank's forward-thinking strategy saw it come close to being the first Egyptian institution, private or public, to issue a Eurobond. The way was paved for this by US' credit ratings agency Standard & Poor's which issued a BBB- investment grade rating in mid-1998. Plans for the Eurobond were well advanced before the issue of Qatar's sovereign bond in mid-May set an unfavourable benchmark.

'A $150 million issue was planned but we are now not willing to take the risk after the Qatar deal. It was very expensive,' says Ezz al-Arab. 'We have rethought our strategy.' He says CIB will meet its funding needs through other medium-term options. 'We are leveraging on corporate borrowing into other fee-generating areas,' Ezz al-Arab says.

Despite the departure of El-Labban, his vision of building CIB into a fully integrated financial services operation continues to guide the bank, and the new management's plans do not simply focus on building a presence in the retail banking market.

CIB plans to boost its brokerage activities through the operations of its wholly-owned subsidiary Commercial International Brokerage Company (CIBC), established in 1998. The new strategy follows the reduction last September of CIB's stake in Commercial International Investment Company (CIIC), the joint venture operation it set up in 1995.

Analysts say the CIIC stake was sold to add úE 69 million ($20 million) to an ailing bottom line. With CIB's holding in CIIC down to 15 per cent, the brokerage now operates independently from CIB, as was confirmed with the establishment in March of a joint venture between CIIC and UK investment house Flemings.

CIB's response has been to expand the operations of CIBC. 'The CIBC logo is due to be launched soon and it will operate out of 10 branches,' says Ezz al-Arab. 'Last month [April], CIBC was number two in terms of turnover, so it is making money.' He says that CIBC's expansion strategy is to build volumes and a strong local presence by operating out of CIB's branch network. When fully established, CIBC will aim to attract international investors. 'We issue very good quality research which is gaining credibility. We have the capability,' says Ezz al-Arab.

CIB is also preparing for the establishment of a life insurance operation. Commercial International Life (CIL) is a 40:40 joint venture with the UK's Legal & General in which two other strategic investors have taken the remaining 20 per cent. 'We have all the official approvals,' says Ezz al-Arab. 'Staff have been trained for CIL, and the first meeting will take place in June.' He adds that CIL will operate through specific CIB branches and will also have its own premises.

While the benefits of the joint ventures are unlikely to be felt in terms of profit in the short term, the bank's prospects have been improved. 'Going forward, CIB is looking to draw on synergies between its traditional corporate business and the retail and investment banking businesses it is developing,' says Medawar. 'The bank is now in the early stages of a longer-term turnaround.'

After a difficult year in 1998, early signs suggest that CIB is heading for a profitable 1999. First-quarter earnings of úE 87 million ($25.5 million) were reported, up 85 per cent on the same period of 1998. That profits were boosted by a 34 per cent growth in net interest income has been welcomed by analysts. They add that core operations are likely to be considerably more profitable than last year and that recourse to extraordinary income from the sale of strategic stakes, such as that in CIIC, will be avoided.