On April 24, the Kenyan central bank announced that Egypt’s Commercial International Bank (CIB), the biggest private sector bank in Egypt, has acquired a 51% stake in Kenya’s Mayfair Bank – renamed Mayfair CIB Bank Limited. The deal, which is the first cross-border acquisition by CIB since its inception in 1975, is valued at $35.5 million and effectively gives CIB a 0.2% market share in the East African country.
Interview & video by Moustafa Daly
In this Business Forward exclusive, conducted via Zoom on April 27, CIB chairman Hisham Ezz Al-Arab walks us through the lessons and challenges behind CIB’s first international venture, future expansion strategy, and, on another note, the opportunities brought about by COVID-19 to Egypt’s banking sector.
When and why did CIB decide to expand internationally?
Africa has always been an opportunity. But the interest of Egypt in [the rest of] Africa has long been muted. Around three years ago, when the country started to rebuild its relationship and engaging with the rest of the continent once more, we decided to look at it seriously; we started engaging in conferences and began looking at different regions on the continent – east, west, south, and sub-Sahara. The rebuilding of political ties with Africa gave a strategic depth to our cross-border direction.
Two years ago, even before Egypt headed the African Union, I was selected as a member of a task force that was initiated in a joint effort by the European Union and the African Union, with its goal being to come up with a digital strategy for Africa. We acquired a lot of knowledge in the process, and got the chance to engage with many leaders on the continent – not only country leaders, but private sector leaders as well.
There’s no doubt that Kenya is one of the countries renowned for financial inclusion and utilizing digital channels and so on. They also have very strong and professional regulators, who were very welcoming when we started engaging with them, so it was a priority for us to be in Kenya.
What were the lessons learnt in the process?
This was our first cross-border acquisition, and it taught us a lot of lessons. We had done local acquisitions before, like when we bought Citi Bank’s operations in Egypt. But when you go international, it’s different. There is a culture that we need to create internally about multi-country management. That’s also why we went for a small transaction that we can swallow. The operations [of Mayfair bank] are small, and there won’t be a lot of effort needed in revamping and changing them.
Additionally, there are different laws and a different legal environment that we needed to adapt to. The trips our team took to Kenya were more likely more than their trips to Alexandria, so they came to know the culture there. But it takes time to understand the culture and its dynamics. I always say that each country in Africa has its own flavor, we can’t generalize and lump them all together and simply say Africa. This is a big mistake; each country, in my experience, is different.
Were there specific regulations that were challenging to adapt to?
We selected Kenya because of the quality of the regulatory system. I have great respect for the governor of Kenya’s central bank and his team – they are very open and they listen. Much like everywhere else, there are bureaucratic papers and procedures, but everything went smoothly. If you don’t have a good central bank in a country, don’t go there.
Being the largest private bank in Egypt, what competitive advantages do you think CIB will have to the Kenyan market?
I’ve said to the governor of the central bank there that we’re not coming with the mindset of that we’re the gurus who know everything. We’re going to learn from their experiences and educate them on the things we know how to do well, like cash-flow lending, corporate lending, how to deal with SMEs, among other things. We need to learn from them about financial inclusion, and for instance, payments, because they’re excellent in that regard.
Are you going to merge the operations of CIB Egypt and Kenya?
No, each country has its own regulations, but we’ll leverage what we have. Instead of increasing expenditure in certain aspects in Kenya for instance, we can use our existing resources in Egypt. Eventually when there’s licensing, we can negotiate with the vendors and it will be even better.
What’s different in Kenya than Egypt?
At CIB, part of our DNA is customer service. We are betting on making this the culture there. It’s not about how high or good your price is; it’s about how good is your service. Banks belong to the service industry, just like restaurants. You could walk into a restaurant and find good food but bad service, and most probably won’t recommend it to your friends. Same applies here; I want the quality of product and service that I give to the customer to be top-notch so that people would not complain about the cost.
Do you think such a deal could contribute to increasing trade and investment between Egypt and Kenya?
One of the things always mentioned by the African Bank are trade finance lines. Up to a year ago, we never had direct correspondence lines with banks in many African countries like Ghana, Nigeria, and Kenya. So to set up a deal with any bank there, the trade finance business always had to be re-confirmed by a European bank.
That has now changed; we have direct finance lines with 27 countries on the continent. Having a direct link is like having a third eye; meaning that, with two eyes, I could easily know what Egypt and Kenya’s economies need separately, but as long as there’s no bird-eye view of the whole situation, you won’t be able to use the opportunities right.
Also note that Kenya is a hub for landlocked countries around it like Ethiopia and Rwanda, which use Kenya for trade. It’s a developed economy which has many strategic and economic ties with Egypt. So we made our decision considering all these things from an economic perspective. There are a lot of variables though; you can’t have it 100% perfect.
Are you eyeing any other markets in East Africa this coming while?
We’re hoping things would open up again, and after that we can finalize this initial transaction and see how it plays out, its potential impact and prove to our shareholders that we were right in pursuing this deal, and subsequently gain their trust to go for the following transaction.
But we’d need to be able to travel and communicate to do that. Technology is great and it’s a good that we can still communicate despite the current circumstances. But when you run a business, the ‘water cooler chat’ (casual conversations at work) is very critical. It’s different than being on a call for an hour and getting the meeting done.
What do you predict would be the impact of COVID-19 on the Egyptian banking sector?
It’s quite foggy at the moment. We don’t really know when we’re going to be able to start again. You’re trying to keep things going, keep feeding people. But you feed people by working, so you try to do the bare minimum to keep the engine going. However to be practical, it won’t be before next year at least that we speed up again like we were before the crisis. We need to manage our expectations and stand strong.
At the end of the day, it’s not worse than 2011, because this time it’s a global challenge. In short, we’re all in it together.
Do you see any potential opportunities in the crisis?
Our dream is to on-board customers digitally without paper and pen push, and that’s why we’ve invested heavily in terms of technology and digital channels, but we couldn’t do it because of regulations.
Now, due to the crisis, the Central Bank of Egypt (CBE) has issued an exception from three to six months that enables us to on-board customers digitally until things stabilize again. This is good, because we’ll prove to the CBE that we don’t need the paper and pen push. If you manage to on-board customers digitally, you can do whatever checks and balances and controls you want. Eventually, we need to move away from cash, and not only because of COVID-19, but because it’s very costly to maintain and print.
Also, if you want to talk inclusion, you have to forget about pen and paper push, a lesson I learned in Kenya. Latest government stats I read said that the grey economy makes up 54% of Egypt’s economy, and that’s not even factoring in the black economy. This is a very high number – unacceptable.
Three years ago, when I was president of the Federation of Egyptian Banks, I worked with the president of the Federation of Egyptian Industries on a paper on how to move to cashless society. It was made up of two documents, each with tactical implications of the topic. There has been work done by the civil society and private sector, and there is sincere willingness to help the government move to cashless society.