“This is not the first crisis we have been through,” Hisham Ezz Al-Arab, chairman and managing director of Egypt’s Commercial International Bank (CIB) tells Euromoney. “January 2011 was a very tough time.”
Curfews, shutdowns and threats to life may be fresh challenges to many global banks more used to dealing with mortgage crises and market volatility, but those operating in Egypt have faced and survived these sorts of threats before.
Egypt’s bankers were confronted with upheaval when a revolution ousted president Hosni Mubarak in 2011, sparking years of intermittent unrest.
Hisham Ezz Al-Arab, CIB
Banks faced attacks from armed mobs. During that time Al-Arab, who steered CIB through the Arab Spring, spent night shifts on the streets of Cairo protecting his neighbourhood, armed with a recreational rifle.
The events “represented such a valuable learning experience”, he told Euromoney last year, teaching CIB the true meaning of contingency planning and crisis management.
“When things went down, we were the only ones hiring people, training people and investing in our future,” says Al-Arab. “We knew we would come back and we want to use this in the best interests of the people.”
Such an approach has helped CIB quickly shift its focus to protecting its staff and supporting its clients. But the scale of the economic fallout is new even to Al-Arab. “This one is global,” he says.
While Al-Arab says it is too early to say what the impact of the virus will be on CIB, he is confident that bank is adequately capitalized and able to withstand a severe downturn in Egypt’s economy.
Egypt has responded quickly to contain the spread of the virus, imposing a curfew and shutting all government services except healthcare. Despite this, Renaissance Capital’s chief economist says he expects there to be around 10,000 cases by mid-April.
With the downturn in tourism and global trade hitting Egypt’s economy hard, GDP growth targets have been revised down to 5.1% from 5.6% for 2020.
“The most important thing for us was insolvency,” says Al-Arab. “We have performed extreme testing and we are fine with our capital adequacy. In these situations I focus on insolvency just like in January 2011.”
The bank’s provisioning policy has helped it shield itself from external shocks. Its coverage ratio stands at 233%.
The bank’s asset base is composed of almost 60% sovereign investments. It has a capital adequacy ratio of 26% and, as at year end 2019, held total capital of E£52 billion ($3.3 billion), 90% of which is classified as tier one.
CIB is taking the health of its staff very seriously. Half are now working from home, physical meetings have been stopped and travel between branches is prohibited.
“We’ve set up a dedicated line 24/7 for staff if they are not feeling well,” he says. “No one can walk into a branch without washing their hands and we’re sanitizing everything.”
And Al-Arab says layoffs are not an option.
“We will not lay people off, we’re giving people their full salary and bonus,” he says. “Laying people off is the last thing we can do. Our most important asset is people.”
Branches remain open and offer a full range of banking services, albeit running with a reduced number of employees.
We’re not interested in legal cases and look forward to regularizing the credit history of non-performing SME clients and returning any collateral- Hisham Ezz Al-Arab, CIB
On March 29 the Egyptian central bank moved to apply temporary limits on withdrawals and deposits, urging people to limit their use of banknotes and to rely on electronic transfers and e-payments. It instructed banks to cancel fees on transfers and e-payments.
CIB is now directing all of its media campaigns to raise awareness of the virus and is focusing its marketing efforts on driving traffic away from branches and towards digital channels and ATMs.
Already at the forefront of Egypt’s digital banking push, Al-Arab acknowledges the transformation to online banking is more important than ever, not least because cash is believed to be a transmitter of Covid-19.
“Branches are not crowded and are sanitized at the weekend,” he says. “But we want to reduce traffic to the branches and show people how to use mobile banking to help people stay at home.”
The bank’s chatbot, Zaki, now displays a sanitary mask and has been programmed to answer questions on banking safely.
The central bank moved to enact an emergency 300 basis points rate cut and extended the tenor of all bank loans to businesses for a period of six months.
CIB will implement Bank of Egypt’s directives to extend maturities and interest on small and medium-sized enterprise loans for six months.
Where CIB’s exposure amounts to less than E£10 million, the bank is implementing the CBE’s directive to forgive 50% of the principal on loans to non-performing SME clients and to fully forgive unearned interest.
“Our mission is to help our SME clients back on their feet. We’re not interested in legal cases and look forward to regularizing the credit history of non-performing SME clients and returning any collateral,” says Al-Arab. (CIB’s non-performing loans stood at 5% of gross loans, according to Moody’s.)
The bank’s remedial management units will help SME clients with assessments and developing tailored action plans to aid clients through any debt restructuring.
“We won’t be compensated,” he says. “They’ve asked banks to play their part and as a company we are doing all the things a citizen must do. But from a regulatory side, if you are rescheduling a loan for a customer, they will exempt us from downgrading the loan.”