CAIRO -- Just as the playing field levels out for foreign banks doing business in Egypt, Bank-America Corp. has shifted its strategy and decided to pull up its stakes here.
Its retreat paves the way for both foreign and domestic banks to expand operations, snapping up staff and clients from the San Francisco-based bank.
Ironically, Bank of America's departure comes at a time when foreign bank branches have just started operating in the local Egyptian pound, a legal right they have long lobbied for.
While Western banks, such as Citibank and American Express Bank, are growing, Bank of America, which entered the Egyptian market in 1976, plans to cease all its commercial banking activities here, pending regulatory approval.
Security Wasn't a Factor
Despite the recent rise in terrorist attacks against foreigners, Bank of America's decision was "not influenced by security or economic reasons," the bank's area manager, Michael Seibel, told the Egyptian press.
BankAmerican's strategy in the Middle East has "shifted toward selective corporate banking and away from commercial banking," according to a statement from the company.
Commercial banking had been the basis for the bank's business in Egypt, where banks are "increasingly sophisticated and competitive," Mr. Seibel said.
BankAmerica cannot duplicate the vast branch network public-sector banks have, said Khalil Nougaim, president of Cairo Projects and Finance, an investment bank. But the National Bank of Egypt could not compete on a retail basis in California either, he added.
Concessions Made
Even so, it is "unfortunate that Bank of America is leaving, after the government has given them everything they wanted, such as the ability to operate in Egyptian pounds," said Aida el Seheimy, assistant general manager at Commercial International Bank.
CIB was Chase Manhattan Bank's joint venture partner in Egypt, until that money-center bank pulled out in 1986, citing economic reasons.
Although Bank of America said its strategy for the region had changed, Ms. Seheimy suspects that the bank did not want to increase its capital to $15 million in order to obtain the license required to deal in Egyptian currency.
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"It is a bit late to start working in local currency," since CIB and other banks already have market share, she said.
That didn't discourage American Express Bank, Credit Lyonnais, Jordan's Arab Bank, and Citibank. Citi began dealing in local currency in November, following American Express Bank's lead last summer.
"Yes, we're late to start," admitted Ahmed Elbardai, Citibank vice president, regional head of North Africa and country corporate officer in Egypt. "But we are scoring," he said.
Citibank, which operated as an offshore branch from 1975 until last year, may lack an extensive branch network and deep roots in Egypt, but few local banks can boast its technology and expertise.
"If I can service an exporter by offering him forward contracts, then I am going to get his business," Mr. Elbardai said.
No longer limited to lending in foreign currencies, Citibank and other foreign banks are trying to capture more of the Egyptian market. But Commercial International Bank still has an edge, Ms. Seheimy said, since it was set up as a joint venture, enabling it to deal in Egyptian pounds since it opened in 1975.
Citibank 'in Growth Mode'
Executives at both CIB and Citibank say that they are capitalizing on Bank of America's retreat, picking up both customers and staff.
Citibank renovated its head office in Cairo this year and added 30% more staff. While it has just three branches in Egypt, Mr. Elbardai said the bank is now "in growth mode."
CIB, which has 16 branches now, plans to add nine more in the next year, Ms. Seheimy said.
CIB's expansion plans illustrate that business is booming, she said.
In 1993, the bank reported a $40 million profit. In fact, since Chase quit the alliance in 1986, profits have been on an upward trend. In 1992, the bank had a $29.2 million profit, a 28% increase over the previous year.
Still, joint venture, foreign, and public-sector banks are all fighting to keep customers and attract new ones.
"We are all undercutting each other," Ms. Seheimy said.
That's good news for customers. As competition increases, banks are also racing to provide better rates, new products, and superior service.
"The whole banking environment in Egypt has changed radically," said Mohamed Ozalp, senior general manager of Misr International Bank.
Misr International, a joint venture with First National Bank of Chicago, Banco di Roma, Europartners, Mitsui Bank, and one of the four Egyptian public-sector banks, Banque Misr, has been on the cutting edge withnew products and services, including investment and private banking.
In the past year, retail lending, unheard of a year ago, has hit the Egyptian scene. Now customers can finance automobile and appliance purchases, for example. Mortgage lending is still not available, but bankers predict that will be the next wave.
Banks are also offering a slew of other new products from export and debt-equity swaps to employee benefits and retirement plans.
Mutual Funds on the Way
Two public-sector banks, National Bank of Egypt and Banque Misr, plan to introduce mutual funds this year, and privatesector banks are expected to follow their lead.
While CIB has started a merchant banking division, to handle investment banking needs, Citibank is providing private banking services.
Banks are also upgrading their technological capabilities, improving interbranch communications and electronic transactions.
Automated teller machines are starting to appear. CIB, the forerunner in installing the machines, now has them at all their branches.
Several banks offer check cashing at all branches, and more plan to follow suit.
Banks are also joining Swift, an electronic system that enables banks to transfer funds within 24 hours.
Competition has been a strange change for Egypt's previously protected banking sector. Now, under the structural adjustment plan instituted by the International Monetary Fund, banks are scheduled to be privatized, which should make competition even stiffer.
Egypt's four public-sector banks are scheduled to sell off their shares in a dozen joint venture commercial banks by 1995.
Selling off these valuable assets is intended to strengthen the public-sector banks' balance sheets, preparing them for sale down the road.
Privatization will "increase the efficiency of the banking sector," said Yousef Boutros Ghali, minister for international cooperation and a veteran International Monetary Fund economist.
Overcapacity Seen
With more than 60 banks, many bankers and business executives say the market is already saturated.
"The country is over-banked," said Citi's Mr. Elbardai, "but we only have about 10 real competitors."
Today, roughly 70% of banking is done through the four public-sector banks.
That does not seem to be a stumbling block for foreign banks, though.
"Our business will be complementary to theirs," Mr. Elbardai said. Citi creates a secondary market for the public-sector giants. "I have to depend on them for funding as I grow," Mr. Elbardai explained.
However, some bankers expect that the state-owned banks will have a hard time acclimating to a private-sector environment.
"Each one of us does the work of 20 or 30 National Bank of Egypt employees," CIB's Ms. Seheimy said.
Shakeout Expected
Cairo bankers also expect the market to shrink, once state-supported banks have to turn a profit in order to stay alive.
While most executives say that Egypt could stand to lose a few banks, economists tend to disagree. "It may seem that Egypt is overbanked, but in reality it is not," said Ibrahim Oweiss, a founding member of the Arab Bankers Association of North America and former first undersecretary of state for economic affairs.
Egypt is still a cash society, Mr. Oweiss said, with just a small percentage of the pupulation using banking services.
"Despite the number of banks, they are not sufficient to service the entire population if society is to rely on banking in the future," he said.
That is good news for the other foreign banks that are eyeing the Egyptian market.
"Many banks are clamoring to get in," said Mr. Boutros Ghali. And the minister predicts that "those who come in will make a vast killing."
