EAB: Innovator on the expansion trail

27 June 1997

ASK any banker in Egypt to name the most sophisticated local banks and Egyptian American Bank (EAB) is sure of a mention. EAB may be smaller and less well-known abroad than its main competitor, the ubiquitous Commercial International Bank (CIB), but it is pursuing a similar strategy as a provider of quality services for multinationals, big local companies and affluent individuals.

EAB began life in the mid-1970s as a joint venture between the state- owned Bank of Alexandria and American Express Bank of the US. In July 1996, EAB raised its capital by 20 per cent in a public offering, which pushed the Egyptian shareholder's stake below 51 per cent, in line with government instructions to all four state-owned banks to reduce their interests in joint-venture banks to an eventual 20 per cent. At the moment, Bank of Alexandria owns just under 43 per cent of EAB, American Express Holdings has another 41 per cent, with employees and private investors holding the rest. Bank of Alexandria could cut its stake further through another public offering or a global equity offering, the option used by National Bank of Egypt with CIB and Banque Misr with Misr International Bank (MIBank).

'[EAB] is one of the most sophisticated and professionally-managed banks in Egypt,' Moody's Investors Service said earlier this year, when it assigned the bank a financial strength rating of D+. The agency gave CIB a C- due to its larger size.

One of the most profitable of Egyptian banks, EAB made profits of $26.7 million last year, giving a return on end-year assets of 2.2 per cent. This return is comparable to CIB's, though EAB is less than half the size with assets of £E 4,077 million ($1,202 million) at the end of last year, compared to CIB's £E 10,958 million ($71 million). There is the possibility of an eventual merger with the Egypt branch of American Express Bank, which has a balance sheet about half the size of EAB's.

The bank has 29 branches: about half are in Cairo, with three more in Alexandria. The others are in the tourist centres of Aswan, Luxor, Sharm el-Sheikh, Hurghada, and in Port Said and the new industrial cities. 'We continue to open four-five branches a year, but nowadays we open small, boutique-type branches,' says Gary Johns, EAB's managing director. The bank has recently hired a former employee of CIB as a new head of marketing. It is also centralising its processing operations in a single office.

The main thrust of EAB's strategy is into investment banking. Its capital markets division, set up in 1994, has arranged the sale of shares in privatising companies, as well as a £E 200 million, five-year bond issue for the bank itself. Johns says the next step is to create an investment banking subsidiary on the model of CIB's Commercial International Investment Company (CIIC). The new company already has official approval and will be 40 per cent owned by EAB, while 20 per cent will be held by Bank of Alexandria.

Last July, EAB bought 40 per cent of a local stockbroking firm to create Delta-EAB Securities, which ranks among the top six local brokers in size. The idea is to use EAB's branch network to offer broking services to retail customers, although this will depend on an expansion of the limited facilities for trading at the stock exchange itself. Delta-EAB and the parent bank are about to set up a portfolio management company together. EAB already has a local equity fund and is planning to launch a dollar-denominated money market fund soon. Other proposals include setting up a leasing company.

Retail banking is a relatively neglected area in Egypt, where the state- owned banks have huge branch networks but offer a relatively narrow range of products. 'We've been a market leader with new products,' Johns maintains. He cites car loans, real estate loans and American Express credit cards as examples. EAB hopes to build up its market share among affluent consumers through the quality of its products and services and the speed with which they are delivered. 'All our tellers are multi-functional. You don't have to stand in line, only to be told to go to another guy,' Johns says. Anyone who has spent time in Egypt will appreciate the appeal of speedy service.

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