The Industrial Development Bank (IDB) is one of Egypt’s fastest-growing financial institutions and provides a distinctive range of services to individuals, institutional and corporate clients. Majority-owned by Egypt’s Ministry of Finance, the bank is closely aligned with the government in its quest to advance Egypt’s overall economic development. Here, Maged Fahmy Attieh, the bank’s Chairman and Managing Director since April 2016, explains how he has led IDB’s reinvention over the last three years, and his ambitions to transform IDB into one of the country’s leading banks
IDB has undergone a hugely positive turnaround in its performance since 2016. What new fields has the bank entered to create this positive momentum?
We have always been active in financing industrial projects of large corporations and continue to do so. But we have added new services that have helped us become the fifth most important bank in SME financing. Even in our retail banking activity, which is mainly directed to consumers, loans and so on, we have taken a different direction than other banks. We decided to do retail banking for development projects. So, for example, we extended around 1 billion EGP (€54 million) to real estate financing for people with limited income. This is an initiative of the Central Bank of Egypt. The loans were extended with a 5% interest rate. Because of that, we became bank number four or five in this field. We also financed natural gas. Government policy is to provide natural gas to residential units. However, taking the natural gas to a flat costs around EGP5,000-6,000 (€270-€320). Low-income people can’t afford that, so we financed it through seven-year loans, and connected the installments to the monthly annual consumption in partnership with the companies dealing with natural gas. Overall, we made a portfolio with around EGP1.5 billion (€81 million) worth of retail banking for these development purposes. That really differentiates us. We created this important portfolio in just over two years, and its quality is excellent. The percentage of delinquency in this activity is almost zero because limited income people who get a cheap flat for say EGP260,000 (€14,000) with a 5% interest rate over 20 years, cannot afford to lose it by defaulting on payments. We worked very hard on the figures, and the result was this growth of our balance sheet and profits. In 2017 we were ranked as the fastest growing bank in Egypt. We have also reduced retained losses substantially and will end them completely in 2019.
How else have you restructured the bank?
In terms of staffing, when I started, I created a significant retirement plan. I also got PricewaterhouseCoopers to restructure the entire administrative structure of the bank. The salaries increased substantially and we hired fresh new graduates. Training and upgrading our human resources is a big focus of mine. There’s a massive difference from now to when I started in 2016. The performance of the staff, the attitude and the corporate culture have shifted. And although there was a major restructuring, the changes were carried out calmly and peacefully. Moving on to technology, we had absolutely nothing when I came in. Now, the situation here is completely different as well. We won a prize a few months ago for our IT infrastructure transformation. We spent hundreds of millions of pounds and created a very safe and sophisticated data set. We updated our core banking, adding many software applications and during the coming months, our new technology products will be launched. Another major problem the bank had was with taxes. When I started, the bank was required to pay around EGP900 million (€48 million). The problem had been going on for the last 22 years. We brought in very professional tax consultants who, after difficult negotiations, began working on our case. They ended up settling our problems with the tax authority by paying EGP150 million (€8 million). Today, I can say that we are up to date with all of our taxes, and this problem no longer haunts us. The rebranding was another important step. We changed the logo and the name of the bank in August, and we’ve opened four new branches. When I came here, there was a building in New Cairo, in a very prime location. This building is built on a piece of land of 7,500 meters and has a total area of 30,000 square meters. However, the work on this building had stopped for five years. Our plan is to finish construction, which has almost been done now, and sell it. Why? Because the building is worth over 1 billion EGP, and with the profits from the sale, we will cover the remaining retained losses of the bank. Meanwhile, we bought another piece of land in the new capital for our new headquarters.
What is your evaluation of Egypt’s progress on economic reforms?
It all started with the flotation of the currency, which was extremely important. Before that took place in 2016, we had a real problem in the exchange market. Egypt had two markets for foreign currency: the banks and the black market. There was a big difference between the two, and it meant we could not provide our importers with foreign currency – they had to go to the black market. At the same time, the banks were all running out of foreign currency. The Central Bank of Egypt had to dip into the reserves to provide the banks with the foreign currency needed to import basic commodities like medicines and wheat. Today that situation today is completely different. There is only one market: the banks. The exchange rate is stable. The Egyptian Pound has been appreciating over the last few months but it won’t continue like this for long. The foreign reserve also went up to exceed $43 billion, which is the highest point ever. Even before the revolution it was only $36 billion. The decisions taken to remove the subsidies were also extremely important. Imagine that the majority of the internal debt was going to finance unnecessary subsidies that mostly benefited the rich; it’s crazy and it was happening in Egypt. There was no point in continuing that stupid policy. When no one had the guts to make the decision, President El-Sisi did. He’s very brave because this decision was not made by any of his predecessors. Even though it was obvious, they were afraid of the people.
Overall, the reforms have been very efficient. The Egyptian economy looks completely different today than a few years ago. The number of projects that have been going on over the past five years is amazing. Since I was a child, they always told us at school that Egyptians have been living on only 5-7% of the total area of Egypt. Now, with the new projects, that 5-7% became 11%. In just a few years, we will be living on 15% of the total area of Egypt. So yes, the economic reform was extremely important. That these are improvements is not just my opinion either; international experts also agree. For example, Moody’s recently upgraded Egypt to B2 with a positive outlook from B3 with a stable outlook.
Earlier this year, it was announced that IDB would finance 1,000 factories. The bank has also been successful in financing the agricultural stock exchange. Could you tell us more about these initiatives and the importance they have for the bank?
First, let’s discuss the initiative to finance 1,000 factories. This bank was established in 1947 to finance the industrial sector. Yet, over the years the specialization of banks disappeared and we became a standard commercial bank. But, at this bank we all have a strong belief that industry is the real future of our country. We all must support this sector because industry means locals products; it helps replace imported products and create exports; and it means good jobs. Industry is the future. Keeping in mind the historic role of the bank and our goal to finance development activities, we decided to renew our focus on industry. We now have something like 550 factories. We want to have 1,000 by the end of the year. When we reach the 1,000 factory target, we’ll move to 2,000. This is also a message to those who work in this sector: the government, the banks, and the country are all supporting you. We are here to help you succeed. In terms of the agricultural stock market, we were the first and only bank to finance all the owners of the units there. It was not only that project; we were the first and only bank to finance Robiki, which is an integrated industrial cluster for the leather industry. We are also one of three banks financing the furniture industrial zone. We are present in virtually all of the country’s industrial development projects. We’re signed protocols with many governors to finance these projects, as well as to finance natural gas connections.
Could you elaborate on the bank’s expansion plans and growth strategy?
2019 will be a turning point in the life of this bank. Why? Because by the end of 2019, while we are continuing our growth in figures and activities, we are planning to completely end the problem of retained losses. The bank will have a clean financial standing. 2017 was also a very exceptional year, in which the rate of growth was around 100%. After that, we started to grow by around 30-35%. We aim to continue at that rate. However, starting in 2020, there will likely be a new banking law. It is currently being discussed in parliament. It will probably come into effect next year and stipulates that the capital of any bank would have to be a minimum of 5 billion EGP (€270 million). The capital of the bank now is 500 million EGP (€27 million). So, in 2020, we will be increasing the bank’s capital, and thus the size of the bank will be completely different. For the first three years, I’ve been telling my staff that we have very difficult missions. The first, which I can say we’ve basically already achieved, is to work to deal with the problems that the bank had suffered from previously. The new mission is to move up on the banking map of Egypt. I want IDB to be one of the leading banks in Egypt; I want to compete with the big foreign banks.
How do you view the investment environment in Egypt today?
I see that Egypt is a very promising market in terms of FDI. First of all, it is the most stable country, both politically and economically, in the region. Secondly, Egypt is growing – the economy has seen a lot of success, which can be proven by indicators, ratings and international reports. Egypt also offers cheap labor, an excellent geographical location at the entrance to the African continent and a national market with over 100 million people. I believe that Egypt is one of the most promising investment destinations in the world.
How can you help German investors?
We can help in many ways. We extend financing, of course, as a bank. We can make introductions to Egyptian businesspeople with whom partnerships can be formed. We can advise on what sectors or areas German investors can invest in. Also, our focus on industry gives us unique insight into that sector, which could be particularly useful to Germans.
To what extent would you say that your vision is in line with that of the government?
What has happened to Egypt as a macroeconomic market has happened in IDB at a micro level. In terms of reform, both IDB and Egypt are completely different today than they were just a few years ago. We remember the one bad year when the Muslim Brotherhood was ruling the country; we remember how Egypt was after the revolution… We lived through days when there was no security and Egypt was about to be declared bankrupt. Today, that situation has been totally reversed.