North Africa seeks to weather the storm

The position of North African banks in our continental table might be expected to be slipping. Continued political unrest, its close ties with the stagnating economies of the European Union and lower economic growth rates than in the rest of Africa could have resulted in relative decline. Yet the real picture is far more nuanced than that. In this year’s survey, the region has four representatives among Africa’s Top 10, up from three last year, although those at the lower end of the regional table have not performed quite as well. As ever, individual banks must be judged on their own performance and not just that of their host region.

North Africa’s top bank remains Groupe Banque Populaire, with Tier 1 Capital of $3.3bn, up from $2.8bn in last year’s table. It retains its lead over another Moroccan company, Attijariwafa Bank, which takes second place with $3bn. Morocco’s three biggest banks, Groupe Banque Populaire, Attijariwafa and BMCE Bank, all plan to issue bonds denominated in foreign currency by the end of this year in order to fund expansion, including into the rest of the continent. As with South African banks, more rapid economic growth in the rest of Africa is encouraging Moroccan banks to expand south of the Sahara.

The confluence of Moroccan and South African expansion in the region should help to boost competition levels in many African states.

The Tier 1 Capital of the third-biggest North African bank, National Bank of Egypt, has increased strongly from $1.9bn in our 2012 survey to $2.4bn this year. The capital of other Egyptian banks, including Commercial International Bank Egypt and Banque Misr, has also increased. Indeed, Banque Misr has now moved up from ninth to sixth in our regional table as a result of a corresponding jump in Tier 1 capital from $1.0bn in our 2012 survey to $1.9bn this year. Yet such strong performance is largely concentrated at the top end of our table. While Banque International Arabe de Tunisie needed Tier 1 capital of $346m to secure the 25th and final position in our 2012 North African table, Banque de l’Habitat – also of Tunisia – needed just $327m to take the same spot this year.

There are nine Egyptian banks in the Top 25 North African banks this year, down from 11 last year. Morocco has eight entrants, Tunisia five and Algeria three, while Libyan banks unfortunately fail to feature in this year’s survey because of the lack of up-to-date data. Some decline in Egyptian representation was expected because of renewed political instability in the region’s most populous country but it is the resilience of the Egyptian banking sector that is perhaps most surprising.

Our table is based on data from the most recent financial year, which in most cases ended on 31st December 2012. The state of Egyptian bank finances in our table has therefore not been affected by the coup that overthrew former president, Mohamed Morsi in July. Over the past few months, the health of the Egyptian economy has continued to deteriorate. The lack of foreign currency reserves has forced Cairo into drastic measures, such as diverting gas from the country’s liquefied natural gas (LNG) facilities to domestic power plants. This will only reduce export earnings yet further, weakening international confidence in the economy and undermining the nation’s banking sector.

However, several Gulf governments have signalled their support for the military coup by offering billions of dollars to Cairo. Kuwait, the United Arab Emirates and Kuwait have collectively offered $12bn in the form of aid, central bank deposits and fuel. This money may keep the country afloat for many months to come but the Egyptian banking sector has a long way to go before it can once again feel secure.

Islamic interest

Given the level of political unrest in most of North Africa, it is interesting how many overseas banks are keen to invest in the region. Much of this new investment comes from Gulf banks keen to set up Islamic banking units. The nature of the initial Tunisian and Egyptian governments that emerged from the Arab Spring helped to create an environment in which Islamic banking was favoured. Yet there is also a feeling in the region – which is not always grounded in fact – that Gulf investors will offer cheaper access to finance than more conventional banks. In July, as a result of support from the Islamic Development Bank, new legislation was passed in Tunisia permitting the sale of sukuk. Prior to its overthrow, the Muslim Brotherhood government in Egypt also managed to pass legislation allowing the government to issue sukuk.

Abu Dhabi Islamic Bank (ADIB) has applied for Algerian and Libyan banking licences, already operates in Egypt and is actively considering moving into Morocco and Tunisia. Chief executive of ADIB, Tirad Mahmoud, said: “We are seeking to expand in nations with a critical mass in terms of population and economic activity. Regional companies, when they choose their banks, choose those that are present in all their key markets and they give them regional mandates in working capital management, trade, and foreign exchange flows.” There are currently no fully Islamic banks in Libya but ADIB’s strategy suggests that it is only a matter of time before several are set up.