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Why Egypt’s banks are ripe for picking

Central Bank of Egypt

With a political transition in full swing and a pledge from the president not to devalue the pound, a number of banks could soon change hands as European owners retreat in a bid to shore up capital thinks Una Galani

September 3, 2012 4:51 by

Egypt’s banks are ripe for picking. Qatar National Bank is in talks to buy Societe Generale’s 77-percent stake in its local subsidiary, NSGB, the country’s second-largest private bank by market value.

The sellers are mostly forced. BNP Paribas is selling its retail banking business and Credit Agricole Egypt is seen as a takeover target. Last year, Standard Chartered walked away from talks to acquire the business of Piraeus Bank.

Egypt remains an attractive long-term market even though credit growth has almost ground to a halt after the change of government, from around 25 percent year-on-year. Only 10 percent of the population has a bank account. Retail lending is less than 10 percent of GDP, compared to 50 percent or higher in developed markets.

Egypt, like Turkey, is a key market for any bank that wants to be a strong regional player. QNB has excess capital to fund its ambition to become an “iconic” brand. Yet the bank misjudged Dexia’s desperation to sell earlier this year when it put in a low ball bid for Turkey’s Denizbank, only to lose to Russia’s Sberbank. The bank sold for 1.3 times book value. In Egypt, there are fewer assets on offer and the regulator isn’t handing out new licenses. So there will be more competition, with higher valuations.

An offer for the whole of NSGB, as per Egyptian market rules, would cost QNB around $2.8 billion at current prices, or around 2.2 times book value. That’s still below the 2.8 times of its pre-revolution days. The shares have risen 20 percent since talks were announced. With a 25 percent premium to the undisturbed price, QNB could make a return on investment of 8.6 percent in the first year, according to Arqaam Capital. That leaves some room for a slip in the pound if Egypt’s currency loses some of its value in spite of the president’s promise.

Egypt’s economic stabilisation will only take it closer to a wave of banking M&A.

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