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Dr. Nilgün Birgören Premium Member Group moderatorThe company name is only visible to registered members.How to Learn to Stop Worrying and LOVE THE CRISIS
Bank of Alexandria Chairman Mahmoud Abdel Latif has made more money for the privatized Bank of Alexandria’s shareholders in the past two years than the bank made in all the years from 1957 until its privatization in 2006 combined. Coming up on the third anniversary of the Bank of Alexandria’s landmark sale to Italy’s Intesa SanPaolo, bt takes measure of the man in a wide-ranging interview on everything from why the economic crisis will ultimately be great for Egypt to the shape of the banking community in the years to come. Here is the interview by Patrick FitzPatrick:
Mahmoud Abdel Latif is the near-dictionary definition of a polymath. An engineer and policy wonk at heart, he’s a committed family man, a farmer, a former musician. A guy who, in his teens, founded a roaring nightclub and managed another. He’s also a gentleman competitor, the type who will send flowers to an archrival because he admires a particular move they just made.“Sometimes they’ll call me up and say ‘Flowers? What’s this?’ And I’ll have to explain: ‘Yeah, you did something beautiful. I really admired your last move. I’ll be your competitor next time. Maybe I’ll beat you next time. But that was a really classy move, or well-timed move, or whatever’,” says Abdel Latif.
We’re into the second of nearly four hours of interview time, and Abdel Latif is sitting at the head of the long conference table that dominates his office at Bank of Alexandria’s Downtown headquarters, sipping a coffee as we talk. His desk is at the opposite end of the room, but the far end of this table is the corner that feels most lived-in. Papers are already spread around when I arrive. There’s a laptop nearby. All his creature comforts are within easy reach, his jacket is on the back of his chair. (“It’s how my staff know I’m in — the jacket on the back of the chair. First thing I do each morning,” he will later say.)
Although he claims to be a type-A personality who says the worst thing about his job is his impatience (something he says “is in me, not in the job”), Abdel Latif exudes the cool of a former jazzman.
In a nation in which the words “customer service” and “banks” are rarely associated in a positive manner, Abdel Latif seems to have imprinted some of his cool into the DNA of this former state-owned giant. On the day of our first interview, a taxi hauls up to the front doors of the flagship branch as I waited just inside for clearance upstairs to Abdel Latif’s office. The taxi driver gets out and bellows at a security guard outside. Instead of snarling at the guy to move on, the guard and a cop yell for another guard inside and the three of them amble over to the taxi to help an elderly woman —probably a pensioner, definitely in a wheelchair —out of the taxi, into her chair and up the stairs to the bank. All around me, the institution seems to hum in contented busy-ness.
In a few minutes’ time, the chairman of what was once the smallest of the Big Four public-sector banks — and which is today the largest private-sector institution — will start our interview by apologizing for being late. His morning routine, he says, is to pop in downstairs — or at another branch — and poke around.
“No, it’s not really about trouble-shooting problems,” he will say. “It’s about interacting with clients. It’s about letting staff know that the chairman will show up — with a smile on his face — to look after the customer.”
In the hours that follow, Mahmoud Abdel Latif will talk about how he became the banking sector’s Billion Dollar Man — the guy who has made more money for the state’s coffers than any other person in the private sector. In the run-up to the 2006 privatization of the Bank of Alexandria, the government and its public entities owed the bank LE 12 billion. Abdel Latif agreed to settle with them for LE 7 billion after two years of negotiations. He used the windfall to cover all of his requirements in provisions and netted about LE 2.1 billion at day’s end. What did he do with the LE 2.1 billion? He kicked LE 2 billion of it back to the state as a dividend and closed his balance sheet with just LE 100 million as a profit.
Net-net, then, the government settled LE 12 billion in debts for LE 5 billion —and then earned some LE 11.5 billion after Intesa SanPaolo bought 80% of the bank thanks to the cleanup and restructuring effort Abdel Latif and his team led.
Abdel Latif stayed on after the sale despite consistent rumors that he may be headed to the cabinet. His ties to the governing National Democratic Party are as solid as they are quiet. In policy circles, Abdel Latif is known for his advocacy of legislation that would see bureaucrats punished administratively for genuine mistakes, not hauled into court in shackles. He’s part of a group advocating a decentralization and re-districting of Egypt that would re-draw governorate boundaries to divide the country horizontally, not along the Nile. A booster of development in Upper Egypt and a champion of the notion that governors should be “chairmen” who run their districts as businesses, he’s also working with GAFI, the nation’s investment regulation and promotion body, to create a menu of pre-cleared, pre-licensed industrial, agricultural and manufacturing projects. The goal: To allow any qualified investor to peruse the list, choose a project that matches his business goals and start up in a matter of days, not months.
Although the heart of a policy wonk certainly beats within, Abdel Latif insists he’s entirely satisfied at the Bank of Alexandria, where he says he still has his work cut out for him. “Look, I’m having fun. It’s a wonderful challenge, and believe it or not, I’ve never been the guy who sat around saying, ‘Gee, I wonder how long I have to stay here before I move on to the next thing, before I get the next promotion?’ That’s not my personality. And you know what? I never dreamt this would be my career in the first place,” he says.
A staunch advocate of lending to SMEs and a calculated risk-taker, Abdel Latif spoke with Business Today Egypt about why the global economic crisis will ultimately benefit Egypt, why he thinks obstacles to the trickle-down effect have been cleared, his bank’s performance since privatization and that nagging matter of the 20% of Bank of Alexandria still in state hands —among other topics.
Edited excerpts:
You’ve said several times now that the financial crisis has been a good thing, not just for the banking industry, but for Egypt as a whole.
I’ve been saying this since last November. The crisis is a blessing from God — 100%. It will bring everyone back to reality on all fronts. Look, the economy of the past few years just wasn’t sustainable. Not in Egypt, not in the Gulf, not in the UK or America. From revenues to profits, everything was out of whack.
Consider profit margins. Maybe you remember that once upon a time, time there were these things called industry norms? If I’m a developer, I’m supposed to make a return of 15-25% on my investment. If I’m a trader, 10-15%. If I’m a contractor and I’m making more than a 5% return on my sales, I’m doing something wrong. And in recent years, these numbers were coming out multiplied by 10, multiplied by 20, multiplied by 50. There were some developers making a 400% return on investment. Contractors were making 50%.It was fuelled by people making a killing on the stock market and by speculating on property.
Business isn’t about: ‘I sell a piece of paper to you, you sell that piece of paper to someone else and then he sells it back to me.’ That’s not productive, that’s not a real economy, you know? There’s no product at the end of the day — nothing, no value added. You buy a house in a North Coast compound for LE 7 million in 2007 and you sell in 2008 for LE 19 million. What happened between ‘07 and ‘08? The sea is the same. The sand is the same. The house is the same. So people around you say, “Why should I work? I’ll go buy a couple of houses and make a mint.”
Everyone — you, me, normal people —was suffering even though the country was growing, GDP wise. People were complaining all the time and saying, ‘It’s not trickling down. What’s happening? We’re not feeling it, but the rich are getting richer and we’re getting poorer.’
And you know what? They’re right. A vast amount of capital was invested in projects that created goods — from real estate on up — for the very rich. To buy a small house as a second home, you were talking millions. To buy a first home, you’re talking zillions — and that’s rising on a daily basis. It didn’t make any sense.
The crisis was not a bad thing, not for Egypt, not for the rest of the world. The whole world is going to emerge stronger and find itself on more realistic ground going forward rather than flying in the air. Dubai is a fantastic case in point [he smiles broadly]. It was The Best Country In The World, but you know what? It didn’t have wings. No wind? Boom. You’re back to earth. But today, and for the next 10-20 years, all of these Arab countries are going to be fine, even Dubai. We’re back on solid ground, we’ve learned that the real economy matters. It will be a generation before we go crazy again. I’m not going to do this again. You’re not going to do this again.
You said the crisis had benefited your mortgage portfolio?
Absolutely. During the boom, I was running after major developers, saying, ‘Guys, you’ve delivered the project, why should you carry the installments on your books? Give it to me, I’ll mortgage it, and you’re off — you take your money and go.’
But everybody was making good money on the installments — they became developersandbanks andI don’t know what else — so they said, ‘Why should I give it to you? I’m happy, and I have enough cash to do whatever I want to do.’
Then the crisis came and khalass, everybody was dry: They needed the cash to move to the next project. That’s what has re-energized our mortgage business. Today, I’m still focusing on major developers, and we send our people to “live” on site. They sit next to the sales people from the developer, and what we’re doing is encouraging middle class people to buy on 10-20 year terms. Think about it: If for an LE 500,000 unit a middle-class wage earner pays 20%, up front, he can live with the balance over 10-15 years. That’s doable. What’s not doable are LE 12 million mansions.
As a byproduct of the crisis, you’re bringing the market in line with the needs of the population. Before, the gap was just ridiculous.
So you’re seeing signs now of the economy picking up?
Absolutely. We had huge issues with how to forecast when we were doing our ‘09 budgets last year. There was real pressure to revise downward, but I thought we had taken the worst of it, so I said, ‘No, we take today’s levels and we build from here, okay?’
Everyone in the market was on pause for a while, but immediately after that, there was a shift in product. Real estate led the way as it often does — it is the engine of so many activities. We had a big meeting with the Minister of Housing and all the developers last September. I told them, ‘Guys, we’re ready to finance all of you, providing you start doing realistic projects. No more LE 5 and LE 10 million villas. Anything in the LE 100,000 to LE 2 million range? That works. You’ll expedite sales and completion time.’
I was inspired by Morshedi from Degla Group — that’s his style. Take a nice building, not huge, but nice and develop saleable units. And that re-balancing of the products on the market is now visible in cars, too. The car market was dead the first quarter of this year, but now you’re starting to see cars in the LE 40,000 to LE 100,000. Cars are selling again because there’s a big segment that can afford these cars with some form of loan from a bank.
The key here is that we have started addressing the middle class in general and the lower end of the middle class in particular.
Did you see a spike in your default rate from last year?
Not on the corporate side, not at all. We saw some default — very, very little — on the consumer side, but nothing on the corporate side. It was less a case of real financial problems and more of an attitude problem, because a lot of people, well, they take opportunity where they see it. We’re in a financial crisis. Banks are collapsing in the States and in the UK. So the guy has an auto loan here in Egypt and he says, ‘Oh, okay, a financial crisis. I won’t pay.’ You know? ‘Khalass, let them do whatever they want to do.’ Stuff like this [he laughs].
And some people just weren’t sure of their cashflow. Are they getting a bonus or not? Are they getting the salary increase they hoped for? They had a small asset they wanted to sell — does it have the right value? So they put some priorities on their spending and, instead of paying a bank installment, they will go pay something else. It was a phase, but we kept on top of it.
We have a great risk management system. We gave a strong signal to our people and our network that crisis or not, we could not stop the business — and part of doing business is collecting just as much as it is lending. The minute I see an uptick in my default rate, business will grind to a halt, and that’s not good for anyone. Not for you as a bank employee and not for the market.
We had six meetings with the bank staff since the crisis started to educate them about what was happening. My philosophy at the time was, “I don’t want to stop working.” In a situation like this there is always pressure to pull back, but you know what? If I have a bankable opportunity, it is a bankable opportunity. If I cool it, it wasn’t a bankable opportunity in the first place, you know?
We have actually continued growing during the crisis in a very calculated manner while other banks have pulled back. That was a good opportunity for us — they pull back? Good! Stay where you are! It was a great chance to grow our market share. In retail I had less than 1% of the retail market when we privatized; today it is 3.5%. On the corporate side, it was around 2.5% and today it is 4.6% and growing.
How long has it been now since privatization?
Beginning of ‘07 — so two and a half years, almost exactly.
What’s changed the most in the time since?
In the bank? The culture. Without a doubt. The first phase was changing the government culture into a bank culture. A bank is not a government, right? It’s a service-oriented organization, and governments are not naturally that way. So instead of insulting the client, kicking him out the door, you need to welcome him, you need to accept that heisyour favorite person. Without him, you don’t operate. You don’t open in the morning.
Today, we’re seeing that our banking culture has transformed itself into more of an international banking culture — and a very friendly one at that. Staff have begun to understand not just what they have to do on a day-to-day basis for the clients, but also that they’re part of a group. This doesn’t just mean certain rules and regulations, it also means a certain attitude.
Obviously lots has changed in terms of adopting group risk policies and new accounting procedures and financial control mechanisms. Our product mix changed too. We started, for example, retail activities in a very structured manner after privatization. We also started risk management in a more structured manner. Both of those activities were there before the privatization, but it was just the beginning. Today, we can claim that we have the best risk-management division in Egypt and in the Middle East. I would stack our risk-management practices up against almost any European institution. We’re following rules and regulations from the Central Bank of Egypt, from the Central Bank of Italy and IntesaSanPaulo rules and regulations.
At the beginning, that was hectic, it was a bit too much. But today, now that the system is virtually running itself, it’s great. It has created more awareness of risks at every level withoutmaking staff too risk-averse. They’re now trained to look at a question of risk and say, “Yes, I’ve identified risk. But is it a risk we can work with? What can I do to help the client manage this?”
That has been all to our benefit since the sale. More subtle things have changed, too: We’re much more active in CSR and we have a department that looks after it. We have a role to play in the community, and it’s not just about donating to charity. Part of this is ongoing activities to teach people about finance. What is a bank? How do you manage your cash, whether you have LE 10 or LE 10 million?
Beforehand, we were similarly unconcerned about the environment. Today, part of the inspection we do for our corporate clients is whether or not they’re environmentally friendly, whether they recruit or hire child labor. We’re becoming more of a force for change.
The ability to work with risk rather than just turn down a client is a huge change in mindset, isn’t it? Not just at BOA, but by the standards of the national banking industry.
It’s major, it really is. Our head of risk is so good at what he does and is so accomplished at teaching others how to work with risk in this business environment. That’s why he is now our second deputy chairman here at the bank. That’s precisely what you need. You need to be risk aware, but very business-oriented, because at the end of the day you need to keep moving.
You need to keep closing good transactions to benefit employees and shareholders alike.
Now, financially—?
Financially, the bank’s performance has dramatically improved. It was coming in any case — that was the groundwork we had laid before the sale — and the Italian presence did help streamline a lot of details. But the bank was ready to make money after the restructuring. Really: Open a drawer and you would make money. The bank was clean, it had the internal systems we needed and the right people to run the show.
In the two years since privatization, our total net income was around LE 1.3 billion, which is more money than the bank has made since 1957.
The bank made an on-paper profit of LE 400 million between 1957 and privatization. In reality, they had a gap of LE 16 billion in provisions and capital of LE 800 million. And they were distributing profits!
That’s the message to those who questioned the privatization of this institution. Guys, come on. You have good assets and you’re not using them, and by not properly deploying them in the market and across the country, there were other opportunities that you messed up. The state didn’t finance the right people, they didn’t support good businessmen, and that’s why over the years the country kept going in circles.
The change is so distinct that today we’re not just the leading private sector bank, we’re even major players in microfinance.
How would you rate your performance in the last year?
The first year, we had maybe an 85% return on capital. Last year, we had a bad year because of the performance of some of our funds in a very, very challenging market. You know how bad the market was. The goal for the year was to close at LE 1 billion on the bottom line, but we wound up closing at LE 430 million.
We saw this coming, and we stage managed it. You see; we have three big equity funds managed for us [by institutions such as EFG-Hermes, which has made the Bank of Alexandria 2 Fund the top-performing fixed-income fund in the country] in the stock market. In the second half of last year, we saw a deterioration on a daily basis — huge percentages.
A lot of people started to redeem their certificates, and not just foreigners. No, it was the small guy, the retail investor, the pensioner. The market wasn’t liquid at all — remember, there were days where we barely had LE 300 million in turnover on the stock market. When people were redeeming, I gave instructions not to send them away. The fund managers had to understand that — we can’t ask people to wait with us. I’ll take the hit, I’ll take their position and cover them until we can liquidate through the stock market. I don’t want to create panic that would affect not just Bank of Alexandria, but the market.
If we had said, ‘No, sorry, come back last week’ — what kind of message does that send? I’ll tell you: word would be on the street in five minutes and the whole system would seize up.
That hit cost us about LE 500 million, and that LE 500 million came out of our flesh, out of the revenues of core business. Despite this, we closed the year up LE 430 million.
What that means is that in two years, we generated around LE 1.2 billion in profits. Our capital is still LE 800 million — that’s more than 120% return on capital and a more than 100% return on equity.
That builds the story, and I look at what happened in the last quarter as part of the story we’ll tell investors. It shows how solid this bank has become, that we can deal with global crises washing into our market. All the business lines are growing in a healthy manner, our portfolios are very well managed, the provisions are almost 95% covered across the board.
We’re in great shape, and we will have a great story to tell: Solid management, solid performance, outstanding products and a new image, too.
So is that a story you’ll be telling potential investors soon? There’s been a lot of speculation in the press about what’s going to happen to the 20% of the bank still in government hands. When we last had you on the cover just after the sale, you said 5% of the bank would go to an employee stock ownership program and 15% would go to the market.
Five percent will definitely go to employees and 15% will definitely go to the market in an IPO. The question is the timing of that IPO. There are different parties influencing the decision. The shareholder is the government, so it’s ultimately their decision as far as timing and the way they want to do it. They have a partner in the form of IntesaSanPaolo, which of course has input, and management has views to share, too.
My opinion back in ‘07 was, ‘Why go to the market now without a story?’ Yeah, okay, we could sell the restructuring, but that’s selling potential, not an accomplishment. It’s a fantastic story, but it’s a national story, an inspiring story, not a story for investors talking about lines of business, strategy, returns [] So the idea was to wait a couple of years to build the financials, the image, the products, to inject professional expertise throughout the bank.
At the time of the sale, we had five professionals. Now, we have nearly 600: 40-50 first-line people — GMs and assistant GMs. We have 200-250 middle managers in locations throughout the bank. Fresh graduates from AUC and other international universities in Egypt account for the balance. Only yesterday I interviewed something like 15 new people in different levels and different areas.
We needed to wait that long to develop a story to tell investors, and we’re ready now to start telling that story. Our earnings are 100% dependent on core business, not investment, not funds in the stock market. We have neutralized all of this and all of our bottom line is from pure, core business. That was the idea, and both parties — the owner and the shareholder — agreed to this.
As to timing? We talk every now and then [with the government]. In the course of daily business, I meet people like Dr. Youssef [Boutros-Ghali, minister of finance and insurance] and Dr. Mahmoud [Mohieldin, minister of investment] and of course the subject comes up.
Maybe. Maybe this year. It’s their call. It’s going to depend on a lot of factors, not least of which is market sentiment. We have a great product to take to market. Why IPO if we’re not going to get what we’re worth because the market is down?
What’s your strategy going forward?
We’re realistic about our strength, which is that as a former government-owned bank, we are large and we have a truly national presence. That allows us, in many ways, to be everything to everyone. From microfinance and SMEs to mid-sized corporations, large corporations and project finance. We cover the whole market, and we have quadrupled our retail portfolio since 2007.
We started with LE 1.5 billion in retail in 2007, while today we have more than LE 6.5 billion. The same thing happened with the corporate base: We started with a portfolio, after the cleanup, of about LE 4 billion, and now we’re talking about LE 9.5 billion.
The loan to deposit ratio, when started after the cleanup, was 19%. Today, it is 65%.
That’s high for the country average. I’m mean, we’re talking what: 55-57% nationally, right?
It is, yeah. The country average is probably 50-55%, so we’re high for the country average, but you know what? The country average is too low, far too low.
A lot of that has to do with being overly risk averse.
That and the regulator’s preferences, yes.
What about SMEs? You have something like LE 1 billion out to SMEs now, right?
No, we’ve easily crossed the billion mark and we’re now at LE 1.6 – 1.7 billion. To take it further, I’ve recruited the best senior officers in the SME business over the past six months. We have the best team in the banking community — experienced pros who as human beings really believe in SMEs. You have to believe in SMEs as a banker if you’re going to do it properly. It’s not the easiest segment to deal with.
We expect, in the coming two years, to see substantial growth in our SME portfolio. I’m also working very closely with the investment authority, which funnels us clients. We’ve created eight centers across the country for SME activities. You have to remember, SMEs are not, for the most part, in Cairo. SMEs are in Shubra. They’re in Banha. In Beni Suef. They’re not in Zamalek, you know?
It’s like microfinance. We don’t do it in Cairo, in Alexandria. We do it in the villages of Upper Egypt and in the villages of the Delta area. You lend those very poor small players — the guy sitting in a small room making something with his hands that he’ll sell tomorrow — you lend him LE 5,000 or LE 10,000 and he pays back in a couple of weeks. That’s when you increase the amount you’ll loan him, but you condition it: ‘You need to hire someone to work with you. I’ll give you LE 20,000 now, give the guy you hire LE 300 or LE 500 a month and you’ll increase your production capacity.’
So client education has a lot to do with it?
Absolutely. A major part of this exercise, whether you’re talking about SMEs or microfinance, is educating your client. That’s why you, as a banker, have to have a passion for the segment, you need to feel you’re doing something really useful for the country and for your bank.
How do you encourage the banking industry to take more calculated risks?
It’s a function of so many things. First of all, the management and staff need to be more aggressive. And, at the same time, you need support from other bodies, especially regulators.
I think part of what helps us as Bank of Alexandria is that we have perfected closed-cycle finance for all our activities. If you are a trader, manufacturer or developer, it doesn’t matter. Closed-cycle finance protects all parties from mishaps and enables you and your customers to rest on solid ground.
Look, a lot of our customers were affected in the first three or four months of the crisis. But because we did our job properly when we extended the facilities in the first place, we could see our money somewhere in the business cycle. Either you see the goods or you see the real estate or you see the land — you see something. It’s not ‘Where’s my money gone?’ when it’s well-structured.
That why we weathered the storm with our clients. We didn’t put them under pressure. What we ended up doing in so many cases is rescheduling the loans — before they came to ask. I called on certain customers and said, “Listen, the way things are going you are probably not going to be able to meet certain installments, so let us sit down today before we come to that point. Let’s sit and reschedule.”
That triggered a thinking process by all parties involved and you know something? It worked.
Let’s look ahead a bit now. True or false: The market is starting to feel overdue for another wave of consolidation.
True. I think so. We as an industry are in a very good position today, okay? But as you say, after living it for three to four years, for five years, yeah, we have too many banks.
And it’s not like all the new entrants have specialized. Everyone seems to want to be soup-to-nuts.
No specialization at all. Exactly. Everybody’s trying to do the same thing, and even the small players are trying to do big transactions. I hope there will be another round of consolidation, but this time it has to be voluntary — it has to be driven by the market.
A case in point: Start with the governmental banks. Leave Banque du Caire to the side for a moment and consider this: Maybe you start with Banque Misr and the National Bank of Egypt? No, seriously: Why not create one super national bank? Why not? Khalass, the government is adamant about not selling the NBE, fine. Think about it. Merge those two and you don’t just have a strong national player, you have a regional giant.
Doing this will create pressure on every other player in the market, myself included. If they’re one player, then I really need to think about what can I do to double my size, to triple my size. I’m exaggerating, but not much. That’s how you can drive the market.
Who would you go buy if you felt another wave of consolidation were coming?
I’d start by looking at smaller players. They would be cheaper and they would compliment my offerings in one way or another. Of course the foreign banks are foreign banks, the HSBCs and the Credit Agricole — they’ll never sell. But I would look at the specialized banks. Proper, specialized arms. They don’t cost a lot to buy, but they add something unique and new to your opportunities.
Have you been tempted to expand regionally?
No, not really. What we wanted to do first is establish ourselves in Egypt as the “New Bank of Alexandria.” I wanted to be next to the CIBs and the HSBCs. We’re getting there, alhamdulilah. Now, depending on the group’s plans, we could expand regionally. The chairman of the Group has said that any expansion in the area — be it North Africa, the Gulf or Africa itself — will be from this hub in Cairo.
It depends on their plans. They’re not risk takers that rush around buying banks, thankfully.
In which specialties or areas is the domestic banking industry weakest?
Industrial and agricultural finance. If we had a strong agribank, this country would flourish. But only if the agribank isn’t just a bank. It needs to have a vision for the future, for how to develop this country. It’s not just banking, it’s not just debit and credit: It’s development, it’s structuring, its building. Then look at all the industries that grow up around agrifoods and farming — it’s huge. And Egypt has global competitive advantages in growing seasons, proximity to major markets.
Go to the New Valley — I did, and I couldn’t believe my eyes! You’re in the middle of the desert and the water is gushing out of the ground! And we haven’t even scratched the surface of its potential.
Within SMEs, what industries are most interesting? Which are growing fastest as bank clients?
It’s a phased business, in many senses. You get to know an industry and expand horizontally within it. In the first phase, the industry saw a boom in small assembly businesses, particularly in computer assembly. Then the software business was really a big hit. Medical doctors, labs, clinics and small hospitals have all taken off.
Agribusiness is really growing — not only farming and land reclamation, but new segments within agri including packagers and specialists. Take tomatoes: 50% of the tomato crop in Egypt is wasted — it spoils before it can ever get to market. It can’t be handled or transported. So we started a program to finance the purchase of smaller, portable mashers. That way, tomatoes that are destined to become paste are processed right on the farm. The tomato is squeezed, decanted into plastic jugs and transported to the factory. We’re doing the same thing with fruit crops for jams.
Believe it or not, this encourages people to grow certain crops — it becomes profitable. They’re making good money from something that is cheaper and easier, you know? We’re also financing a lot of on-farm chilling stations and refrigerated transport for people who want to ship their produce to market whole.
Farming is a passion for me, really.
How has the crisis impacted agriculture?
Not in the way many people think. One good thing about the crisis is that a lot of people who had land are now starting to think about how it is used. Take the Cairo-Alexandria Desert Road. There are plenty of good farms there. Plenty of them — and lots that you and I don’t see because they’re far off the road. In the past 10 years, these people have been focusing on how to convert their farms into real estate developments. They would make tons of money from doing it, and they really didn’t focus on the agri side of the business.
A friend of mine owns 1,500 acres on the Desert Road to Alexandria, and for the last 5 to 6 years he was saying, ‘Why should I waste my energy here on a farm? I’ll wait because Suleymaniyya is coming this way, El-Nakheel is coming this way. I’m in the middle and I’ll sell it off by the square meter.’
When the crisis came, this guy and so many others like him started to bleed because: they’re not selling land and many of them allowed their core agribusinesses to fall. We took a couple of them on, and I got hands-on personally and turned two of these businesses into a case study. I took a team of 12 people from the SME side and we went and visited the land.
I said, “Okay, this isn’t your land anymore, this is our land. You’re going to work from our plan, and we’ll finance whatever it takes.” That was nine months ago. Today? The first change you notice is that it’s green. You go there and, wallahee I had tears in my eyes. It’s green! This huge swath of desert with stones and rocks is today green as far as the eye can see. He’s exporting tomatoes, he’s exporting grapes and the number of people working there has boomed. He has people from Dakhaleya, from Banha. Instead of 20-30 people scattered on 1,500 acres, he has more than 3,000 people working for him today. Three thousand people. That’s one of the great things about the crisis. It’s making us focus on productive activities, on activities that have real value.
How are you identifying sectors of interest?
It’s not that we really identify priority sectors because our mandate is to serve clients across the spectrum. Agri is a major area, but so are industrial zones and parks. Industrial activity, particularly SMEs, is a major part of our focus. By comparison, we’re certainly supportive of retailers or traders, but this isn’t an activity that needs much in the way of advice or structured finance. Real estate development is a major part of our focus at different levels. On the corporate side, we deal with all the major developers in Egypt. We’re pleased to see developers moving to B-class housing, and we’re financing these projects.
We’re also financing youth housing developments. Not the subsidized ones, but the ones that are for kids like yours or mine. They go buy a studio of 90-150 square meters for LE 300,000 to LE 500,000 in a very decent compound with gardens — not maken shaabiyya [subsidized youth housing]. I don’t do this, and I don’t do anything where the government kicks in a subsidy. That’s government business — they have their companies, they have their own means. But I’m supporting the Orascoms, the Dorra, the Degla guys from Maadi. These are the major players in youth middle-class housing.
And, of course, oil and gas is also very interesting to us. We have a very strong corporate banking unit that deals with cement, fertilizers — any major manufacturing facility.
What’s your outlook for the coming five years?
Until the past few years, the banking community was not providing the full line of products. What we see now is that everyone has retail, microfinance, SMEs, corporate activities and project finance. They’re strengthening areas they didn’t have before.
My view for the coming five years? It will be a very strong market. As we discussed before, maybe we’ll see a bit of consolidation because the market is not growing fast enough to serve all the competition. But it will be a much better banking sector in the coming five years.
Do you see banks offering new products in the years ahead?
We’re doing almost everything, the key is to do it better. Better systems to help you convert the country from a cash community into a banking community. The thing here is that everybody is on track, but they’re on the same tack. We may see an expansion of leasing activities, but of course that’s a function of the regulator allowing banks to become effective players in this segment. Few banks are willing to get into a subsidiary as a minority investor, so we would have to see new licenses being issued.
We have, as a sector, almost all the products the market needs. It’s a matter of perfecting the products and tapping into the right markets.
One of the next steps is to shape the SME community just as the large corporate community was restructured. We’re going to start asking for financials to be audited by certain people. We’re going to start asking questions about management, about the markets, about the products. It will be more educational for both parties.
Customers will know what the bank needs to loan, and banks will start better understanding what customers need to grow, which will allow them to improve and refine their products.
If that happened with SMEs, it would be transformative.
Exactly. That’s the direction. A few banks have started in this direction, and we’re one of them. Others are following suit. They’re talking about it — it’s a step in the right direction. The pie is so big and competition is healthy, so if all the talk is transformed into business, that’s very good news for Egypt. bt
The ‘Accidental’ Banker
One of the most high-profile bankers of his generation, Mahmoud Abdel Latif didn’t set out to be a financier. Instead, he grew up as a musician, founded a nightclub and entered the Faculty of Commerce almost by default.
Did you see all of this happening when you first came back to Egypt? Did you see this path for yourself?
No. No. Honestly, I didn’t. When I came back, I came with Chase. It was a small office: myself, a colleague, a secretary, a driver and a messenger. Chase sent me back because the operation was so small. Egypt, at the time — 1997-98 — was so quiet. But something was happening after the problems of 1997: Corporates were being born. The Sawirises started putting their hands in the market, Farid Khamis started becoming a player. EFG was all over the place, CIIC was roaring.
As a Citi guy in Bahrain, I was working a lot with Chase. We partnered on so many deals despite being traditional enemies outside the region. The Gulf was the only area in the world at the time that had megaprojects, so when I took over the Gulf-based branch in Bahrain, I started developing strong personal relationships with the people at Chase. It got to the point that we agreed we would join forces. Bank of Tokyo-Mitsubishi, Barclays, the French banks — they were all following our lead. Citi-Chase would jump in take the transaction, structure it, then ask who wanted a piece of it.
I was away from Egypt for some 23 years and I had always planned to come back, for personal reasons. But I wanted to come back as international staff, and Chase gave me that opportunity.
I was lucky. At the end of 1997 and beginning of 1998, when I came back, I met an American guy who worked for Apache. We got to chatting and we wound up doing a deal with this then-small American petroleum company. It was the first deal of its kind here, the financing of exploration against some proven reserves and without any production. I syndicated that transaction in Egypt and while I was doing that, Naguib Sawiris was bidding for the license on Mobinil.
Naguib and I clicked, and he needed $700 million to buy the license the next week. We agreed on terms pretty quickly. I flew to London the next morning to sit and talk to the guys at Chase, we wrapped the deal in something like six hours and we were off to do the syndication.
Imagine that? Imagine netting those two transactions just as I came back? That was what gave me a name and a face in the local market.That was how I started locally. I was this guy who traveled around the city with a flip chart. I’d show up in a chairman’s office, pop up my chart, take off my jacket and roll up my sleeves. I’d stand there with a pen and start going through the deal. So I guess I stood out! [he laughs]
And yet you went into government service?
Well, in the course of all this I met Dr. Youssef [Boutros-Ghali, then the minister of economy]. Dr. Mahmoud [Mohieldin, now the minister of investment] was with him then, so was Maged Shawky [now chairman of the Egyptian Exchange]. They were good people, Dr. Youssef asked me to work on Egypt’s eurobond. We started building up the ideas, how to approach the markets. So Egypt became quite hot for Chase. Instead of making under $100,000 from this country, we made something like $22-23 million in our first year.
That won some attention from the industry people at Chase, particularly the syndication guys. I thought that was it: I came back to this place where no one knew me and I made my name, I’m doing good. I was having a great time, and I had back office support in London that did a lot of the heavy lifting on the numbers, so I wasn’t looking for “the next big thing.” I was working too hard and having too much fun. I never thought I would move to the government side or have more of a role in Egypt than I had at the time.
What happened?
In short, Chase acquired JP Morgan in 2000 just as the market was starting to take off here in Egypt. The JP Morgan people took Egypt and the Middle East, and their module was very different from Chase’s. They wanted all the country heads based in London, and that wasn’t going to work. Someone in the meantime told Dr. Youssef, “Mahmoud is leaving for London.”
Dr. Youssef rang me up and said, “Look, we don’t want you to leave. We’re starting this new program of injecting people like you into the public sector banks. Do you want to join?”
I was thrilled. During my years with Chase, I saw how bad the system was and I knew it had to change — and that it would be a great challenge. What encouraged me to do this, believe it or not, were my kids. We sat down as a family to talk through the move. They were in their final years of school at Cairo American College, and I told them we had an opportunity to go live in London or we could stay here. I explained the two jobs to them. Believe it or not, contrary to my expectations, both said, “We just got here, it’s our country, we like it, we want to stay.”
What’s the best part of the job?
Helping people improve their lives. Without a doubt. Helping people solve problems gives me great satisfaction.
What’s the worst part?
I get tense pretty quickly. I have high expectations, and I get stressed when things fall short of that. This is the worst part, and it’s in me, not in the job.
What did you want to be when you grew up?
I never thought I’d be a banker, I’ll tell you that! Never! What I wanted was to become an engineer. And my childhood, until I graduated, was 90% music. I started playing music when I was four or five years old — the piano, the organ, the accordion. The arts were big at my school, St. Joseph’s, and I really enjoyed that.
I started playing with a small band in Maadi when I was in secondary school. We played houses and clubs — there was a dance night every week at the Maadi Club. So I played music until I graduated university, and I wound up starting to manage restaurants and nightclubs. I was managing the Chateau de Versailles in Zamalek and Cave du Roi, which I built starting when I was in the first year of university. It was something I did for a family friend. A long story, but my God was it fun.
So how did you become a banker?
I did commerce almost by default and I didn’t enjoy my education. In 1976, when I graduated, Chase and Citibank came to Egypt. I saw the Citibank sign and I said, Okay, that sounds like a good company, why not? There’s nothing else to do, I don’t want to join the government.”
Again, it’s a long story, but they took me on and I came to the notice of a senior guy who sent me abroad for a proper banking education. I did courses in Athens and then stayed and did work for a year and a half with them on shipping. Then London and New York as an operations guy. Then Saudi Arabia when they saw the boom coming, and I was shipped to the corporate side after doing the corporate course in Athens.That was the beginning.
Okay, last question: What didn’t I ask you that you had expected to be asked?
Am I happy? Yes, I’m very happy. I’m very content and satisfied, not just because of the success we’ve had — alhamdulilah — but because we’re making a contribution to this country. I never thought of myself as someone who would have this kind of impact on people’s lives, and it’s thrilling.
- 15 Sep 2009, 5:01 pm
