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Reasons to be cheerful for UAE banks with Egyptian subsidiaries

Banks in Egypt provide returns on equity of 30% and more, which analysts say is high for the region Pixabay
Banks in Egypt provide returns on equity of 30% and more, which analysts say is high for Mena
  • Economy expected to stabilise
  • Balance sheet risk is low
  • ‘Huge unbanked population’

Despite the plunge in the value of the Egyptian pound, UAE banks’ subsidiaries in the country remain a strong long-term asset, analysts have told AGBI.

Three Emirati banks – Abu Dhabi Islamic Bank, First Abu Dhabi Bank and Dubai’s Emirates NBD – have acquired Egyptian lenders.

The pound-to-dollar exchange rate stood at about EGP31 at the end of 2023, but this month Egypt devalued its currency. The pound is now trading at around EGP47 to the dollar, a fall of close to 55 percent. 



Emirates NBD Egypt made a net profit of EGP3.2 billion in 2023, nearly triple the figure for a year earlier. In January the parent bank’s chief financial officer, Patrick Sullivan, told an analyst call that the Cairo operation’s 2023 profit was “just under $100 million”.

That was based on the earlier, higher exchange rate, however. Now EGP3.2 billion is worth about $69 million. The longstanding exchange rate mismatch – and a foreign currency shortage – are likely to have made it difficult for UAE banks to repatriate their profits from Egypt.

“Loan growth and net interest margins have been steady, but the problem has been that the currency should have ideally steadily devalued in a deregulated currency regime, so the profits the banks are booking in dirham terms should have declined accordingly,” says Chiro Ghosh, vice president for financial institutions at Bahrain’s SICO Bank.

“Due to the managed currency, 2023 earnings have been inflated compared to an otherwise deregulated currency.”

For Abu Dhabi Islamic Bank Egypt, net profit more than doubled year on year to EGP4.7 billion in 2023. That sum was worth $151 million on December 31, but is now closer to $99 million.

Similarly, First Abu Dhabi Bank’s Egyptian subsidiary, FAB Misr, reported annual profit of EGP10.4 billion for 2023, a year-on-year increase of 131 percent. This was worth $335 million at the end of last year, compared with $221 million now.

The outlook for banking and interest rates

Ghosh says Egypt’s economy should stabilise after an $8 billion IMF package agreement and tens of billions of dollars of investments in the country, pledged by the UAE.

This would help the UAE banks’ subsidiaries in Egypt to expand their lending.

“Their profits this year could be lower than 2023 due to the currency devaluation, but a more realistic valuation for the pound should mean UAE banks’ profits are a fairer reflection of their performance,” he says. 

“Egypt offers a lot of promise. The country’s demographics are positive, banks’ balance sheet risk is low, with the sector’s loan-to-deposit ratio among the region’s lowest, so there is plenty of growth potential.”

Sherif El Etr, a banking analyst at Cairo’s CI Capital, says lenders in Egypt, including the subsidiaries of UAE banks, provide returns on equity of more than 30 percent, which is high for the Middle East and North Africa.

Ads for Emirates NBD investments near a branch of the bank in CairoReuters/Amr Abdallah Dalsh
Ads for Emirates NBD savings and loan products near a branch of the bank in Cairo

“The Egyptian banking sector’s growth potential is vast. There’s a huge unbanked population, and if the economy stabilises, banks’ earnings and balance sheets will expand without them having to do anything,” El Etr says.

“Egypt is a banking market with high growth and high profitability. Yes, the currency has devalued, but earnings growth is more than offsetting this.”

Egypt’s central bank raised its benchmark interest rate to 27.25 percent in early March, the highest in at least three decades. This is part of policymakers’ efforts to support the country’s currency and constrain inflation, which hit a 21st-century peak of 38 percent last September

El Etr says: “We expect further interest rate rises. Banks will be among the biggest beneficiaries as rate rises expand their net interest margins.

"We’re optimistic about the banking sector’s performance in 2024 and 2025. Given current valuations, now is a good entry point for equity investors.”

First Abu Dhabi

First Abu Dhabi bought Bank Audi SAE (Egypt) – a subsidiary of Lebanon's Bank Audi – for AED2.2 billion ($600 million) in April 2021.

The deal valued Bank Audi SAE’s assets at AED1.86 billion. By 2022, this figure had fallen to AED881 million. FAB’s 2023 results do not provide a similar figure.

Chiro Ghosh says First Abu Dhabi “was already operating in Egypt so knew the reality on the ground".

"It got a good deal from Bank Audi, which needed to sell urgently due to its own liquidity problems. There is some hit to asset valuation, but the likelihood of the pound devaluing was likely factored into the acquisition.

“It’s still too early to see the full benefits of FAB’s acquisition but the subsidiary is doing well and we expect more growth.”

Emirates NBD

Dubai’s top bank, Emirates NBD, bought 95 percent of BNP Paribas’ Egyptian operations for $500 million in 2013. It later acquired the remaining shares and Emirates NBD Egypt is now a wholly owned subsidiary.

Abu Dhabi Islamic Bank 

A consortium led by Abu Dhabi Islamic Bank paid EGP159 million for a 51.3 percent stake in the loss-making National Bank of Development Egypt in July 2007, Reuters reported.

ADIB’s initial stake was 49 percent. Its consortium partner, Emirates International, which is owned by Abu Dhabi’s ruling family and is also the largest shareholder in ADIB itself, held 2.3 points.

The bank was renamed Abu Dhabi Islamic Bank Egypt in 2007, with ADIB later increasing its stake to 53 percent.

ADIB Egypt is listed on Cairo’s bourse and had a market capitalisation of EGP22.7 billion ($483 million) on March 25. ADIB’s initial acquisition valued the bank at $55 million, based on the pound’s exchange rate at the time. It has increased nearly tenfold in value in foreign currency terms, despite the pound declining by almost 90 percent over the same period.

El Etr says: “ADIB Egypt is a very successful turnaround story and yet is still trading at low multiples compared with other Egyptian banks.” 

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