Egyptian banks finally appears to be learning that there is more to life than corporate accounts. The new, and increasingly more popular alternative is retail banking.
Egypt's banking system has undergone a radical transformation during the past decade. And, while there remains significant growth potential on both a local and regional level, because of a scarcity of human resources the banks generally have preferred not be proactive, but were content to enjoy organic growth. However, as the locally published Business Today Magazine recently noted, while during the 1990s the sector focused primarily on corporate banking, there has recently been a moderate shift toward retail banking as a source of growth.
During the mid-1990s, as Egypt underwent a period of economic reform and structural readjustment, banks generally neglected the retail sector and focused on corporate clients. At the time this was necessary, because it would be corporate banking that was finance those vital projects that boosted Egypt's economic growth rates and raised export levels up to IMF and World Bank standards.
At the time, retail banking was also overlooked because of demographic factors. In a country where 95 percent of the population occupies 5 percent of the land, it did not make sense to stretch a bank’s resources to thinly. The four dominant publicly owned banks did provide retail banking services to remote regions, but there was not one private sector initiative to expand geographically.
The banking sector is changing. Publicly owned banks, and notably the National Bank of Egypt, were the first to launch retail products, with the introduction of credit cards in 1994. However, today almost all Egyptian banks have installed ATM machines, introduced telephone banking and signed agreements for mobile banking access and even the private institutions, are now developing retail-banking products at a rapid rate.
National Societe General, for example, is doubling its branch network over the current year; EAB has introduced a car loan program, with other services and products to follow; and Citibank has begun a personal loan system—Tabseet Citibank—which can be used for personal purchases. Citibank was the first in Egypt to offer a program for direct cash loans, Citibank Tabseet.
The Citibank Tabseet cash loan service has proven very popular, essentially among ordinary Egyptians who have urgent projects that needs to paid for, such as weddings or vacations. Citibank was also a leader in introducing software to enhance banking security among its retail clients. Its fraud early warning system (FEWS) establishes a trend pattern whereby it can detect any diversion and if one is found, the client is informed immediately.
These new banking facilities are targeting a wide consumer base, including people without bank accounts. With the emergence of retail banking, Egypt's national banking ratio, which currently stands at 0.2 accounts per person, should rise significantly.
The banks chose to concentrate on retail banking as increased competition caused corporate banking profits to fall. This new approach has generated much-needed market liquidity and enhanced competition even further.
Nonetheless, Egypt's banks are still somewhat unprepared to develop retail banking to its full potential. No institution enjoys necessary infrastructure, as launching a retail-based system requires an investment of between $4-7 million and at least two years preparation to operate. Instead, the banks are generally relying on their old systems, which were originally designed to handle corporate clients. Only a handful of financial institutions have demonstrated the commitment to undertake the investment to install a retail-banking infrastructure. These banks are delaying net profits and waiting until their systems are installed before launching their comprehensive range of consumer banking services.
A major benefit of an expanded retail-banking network will be to transform the Egyptian market from a cashed-base into a cashless society. Operating with credit cards and similar financial instruments would give banks the chance to utilize individual deposits in a more productive manner. Still, the country's banks will almost certainly require government assistance to achieve this makeover.
The banks also suffer from a serious lack of information about private individuals, which is critical for consumer banking. Such data is required to assess if an individual qualifies for a program and to protect the client's security. In general, the Egyptian banking system is in dire need a credit bureau that will be able to provide such information. This exists on the corporate side, with Markazeat Al Makhater provides financial data on companies with loans exceeding EP 40,000. —(Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)
