A large unbanked population, conservative lending habits and a humming economy make Egypt an attractive proposition for lenders eager to expand their services.
After a decade of political and economic turmoil in Egypt that has encompassed the financial crisis, revolution, counterrevolution, rampant inflation and a collapsing currency, the country's economy is forecast to expand at 5.5% this year, its highest growth rate since 2008, according to the International Monetary Fund.
Most adults in Egypt do not have access to the formal banking sector.
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Egypt has a population approaching 100 million but just 1 in 3 working-age Egyptians has a bank account, according to 2017 World Bank data.
Financial technology companies are helping to meet surging demand for nonbank financial services, such as crowdfunding, savings apps and collective savings schemes.
The central bank is also considering measures to reform the banking sector, including offering new licenses to foreign lenders and expanding services to small and medium-sized enterprises.
But it is retail banking that offers a long-term growth opportunity for banks, said Monsef Morsy, co-head of research at Cairo's CI Capital, estimating that retail lending represents a quarter of banks' combined loan value.
"Most banks have been very aggressive in terms of developing their retail business because they know this represents the biggest opportunity," said Morsy.
Room for growth
A 2018 academic study in which 64% of respondents had a bank account suggests a huge untapped market for banks that can convince Egyptians to change their borrowing habits. Only 14% of Egyptians borrow from financial institutions, with 55% borrowing from family or friends and 24% buying on credit and repaying in installments.
READ: Egypt considers new foreign bank licenses, pushes SME lending
"There's still room to grow significantly — in personal loans, car loans, credit cards," said Morsy. "The mortgage market is very small but has good long-term growth potential."
Among the large private banks, about 35% of Credit Agricole - Egypt Bank (SAE)'s loan bank is made up of retail lending. That compares with less than 20% at Commercial International Bank (Egypt) SAE and QNB ALAHLI SAE, he said.
Qatar National Bank is one of several foreign lenders with operations in Egypt.
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Credit Agricole Egypt is majority owned by SAS Rue La Boetie, whose ultimate parent is the Crédit Agricole Group, while QNB Al Ahli is majority owned by Qatar National Bank (QPSC). Other foreign lenders with stakes in the Egyptian market include Intesa Sanpaolo SpA, with a majority holding in Bank of Alexandria SAE, and HSBC Holdings PLC via HSBC Bank Egypt SAE.
Shift to digital
Traditional banks face challenges due to cost pressure from microlenders, said Jaap Meijer, managing director of research at Dubai's Arqaam Capital.
"Banks cannot compete because their distribution models are too expensive, even though funding costs of nonbanking financial services companies are 10% higher than those of the banks," he said.
In Egypt, only 11% of bank customers prefer to use internet or mobile to complete transactions, with 78% stating going to a branch remains their preferred method, according to a McKinsey & Co. report.
Yet banks are preparing for a shift to digital, according to Morsy.
"Digitalizing bank services is at the top of most banks' agenda," he said.
Market ructions over the past decade — the global financial crisis, currency shortages, and high interest rates — prevented banks from fulfilling their ambitions to substantially expand retail banking, but greater political and economic stability should make them more likely succeed now.
"Egypt is a typical developing country where a big part of the population is underbanked and work in the informal economy, while there's a large, young demographic that is growing rapidly," said EFG's Elena Sanchez-Cabezudo.
"Banking penetration will remain low relative to developed countries, but higher income per capita over the medium term and as SMEs move into the formal economy there will be more payrolls and the number of people wanting banking services will increase."