x Abu Dhabi, UAEThursday 20 July 2017

Traditional approach helps Egyptian bank

Lender sees huge rise in share price over 12 months

By modern standards, National Societe Generale Bank (NSGB) is not particularly sexy or sophisticated but being old-fashioned is often equally attractive. The Egyptian bank's share price is up 23.8 per cent since January and more than 60 per cent in the past 12 months. It closed at 31.05 Egyptian pounds yesterdayand analysts believe there could be even more good news to come.

Like most Egyptian banks, NSGB was not exposed to the mortgage-backed securities that infected many of their western counterparts. It also maintains plenty of liquidity, with a 60 per cent loan-to-deposit ratio. That left the bank fairly sheltered from the financial crisis with relatively few write-downs and provisions. And while the Egyptian property market is blossoming, the country's banking regulations require lenders to stick with shorter-term loans of 10 to 15 years, which generally entail less risk.

The company reported a net profit of 353 million Egyptian pounds for the first quarter and analysts say they believe "positive surprises" could be on the way for the second quarter. In addition, the pending change from general accepted accounting principles (GAAP) to international financial reporting standards (IFRS) is expected to increase the company's book value by 4 per cent. France's Societe Generale owns slightly more than 70 per cent of NSGB, with the rest publicly traded on Cairo's Egyptian Exchange. NSGB is Egypt's fourth-largest bank by assets. In 2006 the bank acquired the local lender MIBank, which contributed to the growth of its loan portfolio and helped bring it on par with its main competitor, Commercial International Bank.

NSGB's core business is its commercial banking division but it also maintains a smaller retail arm. It is considering a plan to launch a small and medium enterprise business that would cater to the private sector. According to data recently published by the country's central bank, Egyptian bank loans rose 2.5 per cent in April to 451 billion Egyptian pounds, from 439bn in the previous month. "Overall, the broader picture [for Egyptian banks] is encouraging. Asset quality is showing sign of improvement as banks took lower provisions in the past quarters," said May el Haggar, the director of research at Naeem Securities.