Bankers expect that the decision to float the Egyptian pound and raising the interest rate by 3% will limit the growth of retail banking in the coming period.
The retail banking industry took a hit on January 2016 when the Central Bank of Egypt (CBE) imposed new regulations and restrictions on the sector. These measures struck the sector in the months that followed.
The CBE at the time obligated banks to grant loans with premiums of 35% of the client’s monthly income. The rate goes up to 40% in case of mortgage loans granted according to Law No. 148 for 2001.
Bankers said that the declining purchasing power of the pound following the flotation decision and the high cost of loans will add more burdens on banks that are already exerting effort to activate loans.
They noted that banks currently rely on attracting new clients, especially university students, and offer more technological services to offset the expected decline of the retail activity.
Vice chairperson of the National Bank of Egypt (NBE) Yehia Aboul Fotouh said that banks injected EGP 180bn, in total, into the retail banking sector after January 2011. Yet, he added that the activity will be impacted following the CBE’s most recent decisions.
He explained that raising the interest rate on the pound will limit retail loans. “The devaluation of the pound, following the flotation, will also reduce the appetite of clients for these loans,” he added.
Commercial & Marketing Director at QNB Al-Ahli Bassem Nour said that interest on retail loans will go up by the same rate of saving certificates, amounting to 3% more, which would hinder the demand on loans in the coming period. “The effect is double, since the retail banking sector was still suffering from the CBE’s decision in January 2016,” he noted.
He added that the value of loans that are granted by retail clients has gone down as commodities and services became more expensive following the flotation decisions. “What you used to buy for EGP 100,000 will now cost you EGP 200,000,” he explained. “Clients will postpone their decisions to obtain loans until the prices go down.”
Nour said that attracting new clients is a tough challenge, as banks only have 8-9 million bank accounts, while there are about 51 million people in Egypt that could have one each.
Alaa Farouk, head of product marketing and retail sales at the National Bank of Egypt (NBE) said that banks’ retail policies have started to change after the decisions of the CBE, whether in terms of loan limits of January 2016, or the flotation of the pound and raising the interest rate.
He noted that banks are targeting youth and university students, and using new technologies to attract more clients.
He pointed out that retail banking is not limited to personal and car loans, but also includes small- and micro-enterprise loans, which should see more focus in the coming period.
Yehia El-Agamy, the general manager of Retail Banking at Banque Misr, said that banks are trying to overcome the hindrances facing their retail banking activity through attracting new clients, spreading geographically and offering more advanced solutions.
He added that Banque Misr tried to extend the loans period to bypass the 35% limit imposed on personal loans by the CBE in January. He noted that interest rates are expected to go down again when the market stabilises. “This would prompt activity in the sector and push it to grow again,” he stressed.