Committees Briefing 2000
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Banking and Finance Committee

• The "informal" sector - November 2000
• Recent international bank mergers and their effect on the Egyptian economy - July 2000
• The future of retail banking in Egypt - April 2000
• Expanding and modernizing the life insurance industry - January 2000

The "informal" sector

Mr. James Vaughn, co-chairman of the Banking & Finance Committee, introduced guest speakers Dr. Laila Iskandar, managing director, and Ms. Nadra Garas, senior researcher for the Community & Institutional Development (CID) program, on November 22 at the AmCham offices. "Is the Informal Sector Bankable?" was the subject of discussion tackled by the speakers.

Dr. Iskandar and Ms. Garas highlighted the effects of the Informal Solid Waste Management Project carried out by the CID program on the magnitude, growth and vitality of the informal sector in greater Cairo.

The speakers also explained project activities with regard to waste management and the employment division: who does what and the technology used.

Dr. Iskandar specifically highlighted the financing of enterprises by informal means and the links this has to the formal economy. Bearing this in mind, Dr. Iskandar concluded "there should be a more serious look at developing these informal sectors."

The question and answer session focused on the difference between the formal and informal sector, whether NGOs should start getting into the business of microenterprise management and finally the challenges that globalization presents to small enterprises.

Recent international bank mergers and their effect on the Egyptian economy

AmCham's Banking & Finance Committee, chaired by Gamal Moharam of the Bank of New York, held a meeting on July 3 to discuss recent international bank mergers and their effect on the Egyptian economy. In attendance were several representatives of international banks with branches in Egypt, including Peter Peicher of Deutsche Bank, James Vaughn of EAB, Daniel Drevrillon of Paris Bas, and Vries Pons of ABN Amro.

The topic was chosen because of the flurry of recent global mergers which have irrevocably changed the landscape of the Egyptian – and international – business community, especially the banking sector.

Participants discussed the various reasons for recent mergers, the most important of which were cited as increased investment, prestige, human resources and geographic reach, as well as the ability to absorb unexpected economic shocks – an all-too-common feature of the Egyptian economy.

Speakers also stressed that bank mergers were different in nature than mergers in, say, the industrial or pharmaceutical sectors, as most of the latter occur within a single country.

As for Egypt, participants agreed that the country has a positive investment climate, and that foreign banks would be eager to explore possibilities here – once mortgage legislation was passed.

However, they emphasized that privatization must be accelerated across the board, so as to attract more foreign direct investment, especially since suitable infrastructure is already in place.

Questioned as to whether the presence of investment banks is beneficial to Egypt, speakers conceded that the country is not yet prepared to host such banks. Priority, they insisted, must be given to increasing transactions with non-investment, which currently deal with a mere 10 percent of the population.

When asked about the possibility of bank mergers in Egypt, the bank reps said that international banking institutions tend to overlook Egypt because of the relatively small nature of its projects. They went on to say that Egypt needs 10 big private banks, which – once the government guarantees deposits – will gradually build up the strength of the banking sector.

The representatives of foreign banks described their experiences with successful and attempted mergers in the West. They elucidated many problems and pitfalls that can occur when two institutions with separate traditions and cultures try to merge.

Committee chair Gamal Moharam said another meeting would be held – this time with representatives of Egyptian banks – to discuss the possibility of Egyptian bank mergers in order to achieve an economy robust enough to take on its many competitors in the new economy.

"E-banking and Egypt"

"Any industry that relies on information in its core business has to have a strategy that includes structure and skills to apply that strategy," said Ted Katsorchis, managing director of EE21 (e-Engineering for the 21st Century). As the guest speaker at the AmCham Egypt Banking & Finance Committee on July 20, Katsorchis addressed the topic of "E-banking and Egypt."

In the four basic areas of the financial industry - wholesale, retail, full-service investment banking and "niche" services - banks have been revolutionized by technology. While interest charges are traditionally banks’ main source of revenue, most financial institutions have, since the mid-1980s, focused more on cutting costs, especially through applying technological innovations, the speaker said.

As customers increasingly dealt with banks by telephone, the field of customer-relations management came to the fore. Banks, Katsorchis said, raised the quality of their services - especially information and advisory services - in efforts to compete for new customers.

Now, Internet companies such as Loan.com and Mortgage.com are working hard to establish a strong presence in the banking market. These web-based newcomers are reducing costs drastically, forcing the older institutions to work on a very competitive level, he said.

Every institution needs a vision, Katsorchis concluded, "and this vision has to be translated into a strategy that makes sense for a particular market."

The future of retail banking in Egypt

In an informative discussion on "the future of retail banking in Egypt" on April 13, 2000, the AmCham Banking & Finance Committee met. The panel included key speakers like Mr. C.P. Janardhan, country business manager, Citibank; Mr. Mohamed Ashmawy, senior general manager, Branches Group, CIB; Mr. Magdy Hanna, senior general manager, consumer banking, EAB.

Committee chairman Mr. M. Gamal Moharam commenced the meeting with an important question: "Do we have retail banking in Egypt?" Mr. Mohamed Ashmawy of CIB began his presentation with the history of retail banking from the 1930s and 1940s. He then gave figures about the size and composition of the present banking sector. Among the most notable facts is that Egypt’s banks total assets equal $93 billion, which is around 132.5 percent of the GDP.

The current savings rate is 17 percent of GDP; while the target remains between 25 and 28 percent of GDP. The ATM machines were developed 30 years ago; and so far one million machines have been sold worldwide with total technology investments reaching $30 billion. Currently, Egypt has 640 ATM machines, which is a relatively small number in comparison to the United States’ 197,500 machines.

Mr. Sanjay Kao from Citibank discussed the opportunities for banks in Egypt. To provide better service for customers, banks must develop daily services like the hours of operation and efficient transaction mechanisms. It has become ordinary to expect little from banks because they do not satisfy each individual’s needs. Citibank is planning a mission to change this by providing superior services, including phone banking, and focusing on the average consumer’s wants.

From EAB, Mr. Magdy Hanna stressed the need to develop services such as insurance banking since it can draw large deposits. A new approach to service, CRM (Customers Relations Management) focuses on analyzing the behavior of customers and developing services accordingly. By incorporating this approach, management can get more people to utilize the banking systems in Egypt. There are some problems with the delivery of technology but the automation is improving very quickly.

From the audience, Mr. Mohamed Magued noted that obstacles for the banking industry are sometimes created by the banks themselves. For example, there is great resistance from the banks to share information in order to establish a credit bureau. There are factors such as laws that get in the way of doing business, and this is why it is critical for the banking industry as a whole to unite and work with the government to change the legislation.

On the final note, the attendance agreed that it is in everyone’s benefit that Egypt’s banking sector evolves to provide better service to consumers and to work with the government on related issues. The Union of Egyptian Banks should become more active and aid in increasing opportunities. For follow up, it was suggested that the AmCham Banking Committee meet with the AmCham Human Resources Committee to discuss salary comparison and annual raises.

Expanding and modernizing the life insurance industry

The committee held its second meeting for the 1999-2000 term on December 6. Guest speaker Michel Khalaf, deputy chairman and CEO of Pharaonic American Life Insurance Co. (ALICO), led a discussion on expanding and modernizing the life insurance industry. Items on the agenda included how insurance companies invest their money, major challenges on the path of expansion and modernization, and potential areas of partnership between banks and insurance companies.

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