Emboldened by the bank's success in Egypt, the chief executive of Emirates NBD is eyeing further expansion into Africa.
Shayne Nelson, the Australian banker who took the helm of Dubai’s biggest bank almost three years ago, is mostly looking at countries such as Kenya, Tanzania, Morocco and Algeria but is not averse to beefing up its business in Egypt through additional acquisitions.
India, where the bank has a representative office, is another area of growth potential and Iran could become interesting when sanctions are removed, Mr Nelson says.
“We are actively looking at opportunities but we have very strict investment criteria as to what would we would see as acceptable.”
“We don’t want overseas expansion for overseas expansion’s sake. It’s got to make sense geographically and financially, otherwise don’t do it. Just using your spare capital to go and do something that you will regret later is a mistake.’”
The fact, however, that many currencies in Africa have depreciated heavily in recent years against the US dollar is making expansion particularly attractive, he says. The UAE dirham is pegged to the US dollar.
On where the bank is honing its efforts, Mr Nelson says that while countries such as Morocco and Algeria hold great potential, it is much easier to buy a bank in a country such as Kenya. If Emirates NBD went into Kenya, it would be following in the footsteps of one of its biggest competitors, Dubai Islamic Bank, which is setting up shop in Nairobi.
Merger and acquisition activity is becoming hot in Africa. While many European and US banks are reducing exposure to the continent as new banking regulations put the brakes on how much risk lenders can take, there is no shortage of other international banks to take up the slack. Last year, the New York banking group Citi sold its retail banking operations to Cairo’s Commercial International Bank while, more recently, the London bank Barclays announced its intention to sell its Africa business.
Mr Nelson will not comment on whether he would be interested in buying the assets of Barclays Bank in Africa but says there is not a shortage of opportunities.
“We have a lot of investment bankers piling in through our doors offering us transactions,” he says.
UAE banks’ push into new markets comes as the local economy begins to show signs of stress amid lower oil prices. Fourth-quarter earnings revealed losses at some lenders as some corporate customers found it more difficult to repay debt.
The banking field is also extremely competitive, with more than 50 lenders vying with one another. Low interest rates have made that competition even more heated.
More importantly, however, the dramatic drop in the price of oil, which has shed some 70 per cent of its value in the past year and a half, has also reduced demand for loans, making expansion abroad a key way to diversify their sources of income. Of particular interest are countries such as Egypt and India, which are net energy importers.
National Bank of Abu Dhabi, the UAE’s biggest bank by assets, bought the offshore Indian corporate loan portfolio of the Edinburgh lender Royal Bank of Scotland (RBS) for US$900 million in November. Mr Nelson also says that he would like to expand into India and upgrade Emirates’ NBD representative office into a fully licensed operation. However, he says that would just focus on corporate banking and not venture into retail banking.
For the time being, however, Mr Nelson sounds most bullish on Egypt, which he sees becoming the second-biggest market for the bank after the UAE.
Emirates NBD has not been the only UAE lender to chase returns in Egypt. Banks have been at the forefront of those seeking to make money in Egypt, where one in 10 consumers does not have a bank account.
Qatar National Bank has been among other Arabian Gulf lenders that have recently expanded into Egypt. Mashreq Bank has been in the country for years, ADIB since 2007 and National Bank of Abu Dhabi for decades. NBAD’s chief executive Alex Thursby recently announced plans to overhaul the bank’s branch network in Egypt in a bid to drum up more business
Despite the weakening of the Egyptian economy amid a growing foreign exchange shortage following the downing of a Russian commercial jetliner last year, Mr Nelson says Emirates NBD’s purchase of BNP Paribas’s Egypt assets in 2012 had exceeded his expectations.
“On all metrics, the Egypt business has done extremely well, whether it be bad debts, profitability, whether it be revenue growth, cost growth versus revenue growth, it’s doing very well,” he says.
“It’s beaten all our expectations despite the difficulties. If you want to actually extract cash out of the country, that’s more difficult but because Egypt is one of our futures, putting more capital in is more likely than pulling capital out.”
Elsewhere, Mr Nelson says the full lifting of sanctions on Iran may give the bank, which has an office in the country, a boost, although for the time being, he is staying put until there is more clarity.
Iran, he says, has historically been an important trade partner for the UAE and any opening up will be beneficial for the whole economy.
mkassem@thenational.ae
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