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Banking in Egypt

• A market with a population of 70 million and a GDP per capita of $1,000

• 62 banks compete primarily on price• Dominated by 4 government-owned

banks with about 50% of market• Total deposits of $62 bil & total

loans of $47 bil• Low customer penetration rate

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Banque du Caire: Background• Established in 1952. Third largest

bank in Egypt. Government owned• Financial highlights:

– Assets: $7 bil– Net Loans: $4 bil– Deposits: $6 bil– Net Worth: $400 mil– Net Profits: $11 mil

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Banque du Caire: Background2

• Other important numbers:– Credit customers: 12,000– Liability customers: 500,000– Employees: 10,800 (down from

12,000)– No. of branches & units: 226

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Banque du Caire: Background3

• Main problem areas– Weak management systems– Quality of loan portfolio– Excess staff which is unmotivated &

untrained

• Leading to:– Inability to privatize bank at this

stage

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Banque du Caire: Background4

• The Government has therefore decided on the following route to privatization:– Short-term: Privatize Management– Medium- to long-term: Privatize

Ownership

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Banque du Caire: Background5

• Privatize management:– Private sector management of a

government-owned institution still operating under public sector rules

– First such set-up in banking– Only second such approach in Egypt

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Phases of the Reform Process• Short-term/Immediate actions

– Problem identification– Achieve control through identified

main levers & centralization• Short- to Medium-term actions

– Modernize work processes through:• Implementation of new systems &

procedures• On-going staff training• Testing of implemented systems

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Phases of the Reform Process2

• Medium-term actions– Decentralize decision making process– Aggressive business acquisition

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Reform: Getting to Know the Place• What are the critical problems facing the

organization?• Work process:

– What decisions are being made?– By whom?– How are they being made & implemented?

• Key persons:– Who are they?– What are their loyalties & motivations?– Identify potential candidates for reform

leadership (agents of change)

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Reform: The First Steps – The Team• Hire senior team from outside

– Same culture & language– Work well together– Demonstrated capabilities

• Limited reliance on outside consultants

“The single most important factor in establishing the permanence of

change”

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Reform: The First Steps - Evaluation• Staff quality• Risk & control• Systems & operations• Credit culture & process• Product offering• Distribution channels• Customer service• Financial capacity

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Reform: The First Steps – Critical Control Levers• Centralize decision making authority as

credit culture was not sufficiently developed or instituted

• Strengthen the audit function & make it fully independent

• Shock the system regularly with quick fixes and management changes:– To affirm that new management is in place– To institute a mind-set of change

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Reform: The First Steps – Critical Control Levers2

• Identify agents of change from within the bank

• Review, update & change operating procedures with the objective of:– Strengthening bank processes– Clarifying lines of authority and

responsibility– Tracking & managing performance

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Reform: Human Resources – The Main Issues• Significant level of overstaffing• Large number of staff is related• Generally resistant to change• Limited use of PC’s & resistant to

technology• High percentage of non-professional

staff• Low mobility

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Reform: Human Resources – The Solution• Intensive training programs for all critical

functions• Identify & train future leaders• Communication through frequent meetings &

by becoming embedded in the bank’s grape vine• Improved & transparent performance

evaluation• Maintain existing benefits. Improve bonuses for

high achievers• Targeted new hires

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Reform: Human Resources – The Solution2• Introduce early retirement program with

more than 10% of staff taking advantage of it in less than 2 years

• Deal with long-festering issues such as speeding up the handling of employee investigations (67 cases pending, down from 737)

• Increase sense of healthy insecurity with a strong & quick reward & punishment system

• Lobby government to change applicable labor laws & policies to support program

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Reform: Human Resources – The Solution3• Deal with employee misconceptions

displayed through the never-ending rumor mill:– Significant layoffs– Reduced monetary rewards– Limited promotion opportunities with best

positions filled from outside– No new credit extensions

• Initial emphasis on fighting rumors replaced by concentration on implementation of reform program

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Reform: The Bank’s Technology• Change the bank’s technology systems

allowing the linkage of all units on a real time basis to:– Improve controls & supervision– Support credit administration & risk

management functions– Generate real time MIS– Ease introduction of new products

“The second most important change factor as it involves reengineering all of the bank’s

processes”

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Reform: The Missing Blocks• Fill up the missing corporate

functions:– Independence of audit function– Treasury– Risk management– Credit administration– Performance evaluation

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Reform: The Outside Constituencies• Customers

– The final objective of the reform process is to have satisfied customers whose needs the bank can service in a timely & profitable manner

– Towards this end we are remodeling & changing work flow in branches to:• Speed-up customer service• Improve work environment• Change the bank’s image

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Reform: The Outside Constituencies2

• Customers– Embarked on an ad campaign with the

realistic slogan of:

“The world is changing & so are we”– Campaign only promises what we can

deliver now to avoid creating false expectations

– Campaign & remodeling had positive effect on both customers & staff

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Reform: The Outside Constituencies3

• The Government– Absolutely critical as both owner & regulator:

• Took bold decision to appoint new Chairman from private sector, reconstitute the board of directors & approve appointment of senior management team from outside

• Provide outside source of compensation to match market levels

– Consistent commitment & support to the process & the new management in the face of strong resistance from disaffected parties which included a smear campaign

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Reform: The Outside Constituencies4

• The Government– Institutionalizing the reform process

through a new banking law– Refrain from interfering in bank

business– Commitment to inject additional

capital– Support on labor issues

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Banque du Caire: Where Are We Now?

• Management team is largely in place & well entrenched:– Work is very challenging & rewarding– Our shareholders are happy

• Magnitude of problems has been determined & boxed in

• Institutionalizing the changes to the management process

• Most staff willing to learn & endorse change, others are mostly resigned to it

• Operating results are much improved• Working on The Vision and the strategic plan to

ensure market leadership

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Banque du Caire: Where Are We Now?2

• Creating a new culture– Introduce a sense of initiative &

urgency– Process driven with clear lines of

responsibility– Risk awareness & control– Customer oriented– Refrain from “passing the buck”

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Banque du Caire: Where Are We Now?3

• Our success has encouraged the government to adopt a similar strategy in all the other government-owned banks with the recent privatization of their management

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Reform: Greatest Risk

Ensure at all times that new management does not get side-

tracked by the day-to-day business and loses sight of the new corporate

vision

“The new management must set up and control the reform agenda at

all times”