Saturday 28th May 2016
NEWS TICKER, FRIDAY MAY 27TH: BGEO Group plc, the London listed holding company of JSC Bank of Georgia, has this morning announced that Bank of Georgia, Georgia’s leading bank, and the European Bank for Reconstruction and Development (EBRD) have signed a GEL220m (approximately £70m) loan agreement with a maturity of five years. EBRD obtained the local currency funds through a private placement of GEL-dominated bonds arranged by Galt &Taggart, a wholly owned subsidiary of BGEO. This is the largest and the longest maturity local currency loan granted to a Georgian bank, which will allow Bank of Georgia to issue longer-term local currency loans, providing essential support for micro, small and medium sized enterprises to converge to DCFTA requirements, as well as underserved women entrepreneurs. “We are keen to develop financial products and lending practices, to service specifically women-led SMEs, which will ultimately increase their involvement in developing Georgia’s private sector”, says Irakli Gilauri, CEO of BGEO Group - The UK’s CBI has responded to analysis from the Treasury showing that a vote to leave the European Union could negatively impact UK pensions. Rain Newton-Smith, CBI Economics Director, says that: “All pension schemes benefit when funds can be invested across a stable, growing economy, to best support people in their retirement years. Any financial market turmoil caused by a Brexit is likely to have a negative effect on household wealth, the value of funds and damage pensions here at home, especially for those looking to retire within the next few years. The sheer weight of credible evidence points towards a serious economic shock if the UK were to leave the EU, meaning a hit to the value of our private pensions, jobs and prosperity.” - EPFR Global reports that Nine weeks into the second quarter mutual fund investors remain underwhelmed by their choices as they seek to navigate a global economy characterized by political uncertainty in Europe, lacklustre corporate profits and the prospect of another interest rate hike in the US, economic stress in major emerging markets and Japan's experiment with negative interest rates. During the week ending May 25 all nine of the major EPFR Global-tracked Emerging and Developed Markets Equity Fund groups posted outflows, as did Global, High Yield, Asia-Pacific and Emerging Markets Bond Funds, seven of the 11 major Sector Fund groups and three out of every five Country Equity Fund groups. Alternative Funds look to have taken in over $1bn for the fifth time in the past 14 weeks. Overall, EPFR Global-tracked Bond Funds added $2.6 billion to their year-to-date tally while another $9.1bn flowed out of Equity Funds. Some $12bn was absorbed by Money Market Funds with US funds attracting the bulk of the fresh money. EPFR Global-tracked Emerging Markets Equity Funds remained under pressure from many directions. China's economic data and policy shifts continue to paint a mixed picture for growth in the world's second largest economy, the US Federal Reserve is talking up the prospects of a second rate hike this summer, Europe's recovery appears to be running out of stream and the recent recovery in commodities prices is being viewed with scepticism in many quarters. All four of the major groups recorded outflows during the week ending May 25, with the diversified Global Emerging Markets (GEM) Equity Funds seeing the biggest outflows in cash terms and EMEA Equity Funds in flows as a percentage of AUM terms. Latin America Equity Funds extended their longest outflow streak since late 3Q15 as investors who bought into the prospect of political and economic change in Brazil confront the messy reality. However, year to date Brazil has been the top emerging market for all EPFR Global-tracked Equity Funds as managers bet that the impeachment proceedings against President Dilma Rousseff will open the door to more centrist economic policymaking says the funds data maven. Among the EMEA markets, the firm reports that GEM managers are showing more optimism than investors. EMEA Equity Funds have now posted outflows for five straight weeks and investors have pulled over $300m out of Russia and South Africa Equity Funds so far this month, though GEM allocations for both South Africa and Russia climbed coming into this month. The latest allocations data indicates less optimism about China despite is still impressive official numbers - annual GDP was running at 6.7% in 1Q16 - and the edge the recent slide in the renminbi should give Chinese exporters. GDP growth in Emerging Asia's second largest market, India, is even higher. Elsewhere, India Equity Funds have struggled to attract fresh money as investors wait to for domestic business investment and the government's reform agenda to kick into higher gears says EPFR Global – According to New Zealand press reports, stock exchange operator, NZX, will initiate confidential enquiries into listed companies that experience large, unexplained share price movements, to determine whether they may be holding undisclosed "material" information even while remaining in compliance with the market's Listing Rules that require disclosure of material information at certain trigger points. In an announcement this morning, NZX also warned investors not to assume that a listed entity's Listing Rules compliance statements meant they did not have material information in their possession which would potentially require eventual disclosure - Asian stocks were modestly higher today, largely on the back of increasingly softening sentiment from the US Federal Reserve. Most people think there will be one rate hike this year, but likely it will be in July rather than June. Either way, it will be one and not two or three. Fed chair Janet Yellen is scheduled to talk about interest rates at an event at Harvard University today and the expectation is that a softer approach for the rest of this year will be writ large; a good signal of intent will follow today’s quarterly growth stats. The presidential election will encourage caution; continued market volatility will encourage caution and mixed manufacturing data will encourage caution. Japan’s benchmark Nikkei 225 index added 0.4% to touch 16,834.84 and Hong Kong’s Hang Seng rose 0.9% to 20,576.52. The Shanghai Composite Index gained 0.3% to 2,829.67. The Straits Times Index (STI) ended 6.65 points or 0.24% higher to 2773.31, taking the year-to-date performance to -3.80%. The top active stocks today were SingTel, which gained 1.05%, DBS, which gained 0.07%, UOB, which gained0.11%, Keppel Corp, which gained2.47% and Ascendas REIT, which closed unchanged. The FTSE ST Mid Cap Index gained 0.27%, while the FTSE ST Small Cap Index rose 0.30% - The European Bank for Reconstruction and Development (EBRD) says it is taking the first step towards developing a green financial system in Kazakhstan in partnership with the Astana International Financial Centre (AIFC) Authority. EBRD President Sir Suma Chakrabarti and AIFC Governor Kairat Kelimbetov signed an agreement today on the sidelines of the Foreign Investors Council’s plenary session to commission a scoping study for the development of a green financing system in Kazakhstan. The study, scheduled to be completed in 2017, will assess the demand for green investments, identify gaps in current regulations, and make recommendations for the introduction of green financing standards and for the development of the green bonds market and carbon market services. The development of a green financing system would be consistent with the COP21 Paris Agreement, aligning financing flows with a pathway towards low greenhouse gas emissions and climate resilient development. The AIFC Authority was put in place earlier this year and is tasked with developing an international financial centre in Astana. In March, the AIFC Authority, TheCityUK and the EBRD signed a Memorandum of Understanding to support the establishment of the financial centre and to encourage and improve opportunities for the financial and related professional services industries – Turkey’s Yuksel has issued notice to holders of $200m senior notes due 2015 (ISIN XS0558618384), and filed with the Luxembourg Stock Exchange, that the company has agreed a term sheet with the ad-hoc committee of noteholders and its advisors to implement a restructuring of the notes and is currently finalising the required scheme documentation with the Committee. Once agreed, the Company will apply to the English High Court for leave to convene a meeting of note creditors to vote on the scheme proposals as soon as reasonably practicable when the High Court reconvenes after vacation in June 2016 - Following the agreement in principle of the May 24th Eurogroup for the release of the next loan tranche to Greece, domestic authorities have intensified their efforts for the completion of all pending issues reports EFG Eurobank in Athens. According to Greece’s Minister of Finance Euclid Tsakalotos, on the fulfilment of all pending issues, €7.5bn will be disbursed in mid-June, of which €1.8bn will be channeled to clear state arrears – This weekend is the second UK May Bank Holiday. FTSE Global Markets will reopen on Tuesday, May 31st at 9.00 am. We wish our readers and clients a sunny, restful, safe and exceedingly happy holiday.

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Hisham Ezz Al-Arab, CEO, CIB. Hisham Ezz Al-Arab, CEO, CIB. Photograph kindly supplied by CIB, November 2011.

20-20: CIB-Captain courageous

Thursday, 15 December 2011
20-20: CIB-Captain courageous CIB was borne in a cross-fire hurricane this year as the Arab Spring found form in Egypt with all the gusto of a force ten gale.  Despite the pouring rain of rubber bullets, tear gas and dissent, CIB kept at its job.  Like many chief executives in high-strung/high growth markets, Hisham Ezz Al-Arab, CIB’s chief executive officer, walks a tightrope between high finance and high politics.  Right now, it is a brave fellow who puts his head above the parapet in Cairo. In a heartfelt polemic on the hopes for change, Ezz Al-Arab shows how the staff of CIB are made of stern stuff. http://www.ftseglobalmarkets.com/media/k2/items/cache/c925b42be0bb1a72b320fe10c797fed2_XL.jpg

CIB was borne in a cross-fire hurricane this year as the Arab Spring found form in Egypt with all the gusto of a force ten gale.  Despite the pouring rain of rubber bullets, tear gas and dissent, CIB kept at its job.  Like many chief executives in high-strung/high growth markets, Hisham Ezz Al-Arab, CIB’s chief executive officer, walks a tightrope between high finance and high politics.  Right now, it is a brave fellow who puts his head above the parapet in Cairo. In a heartfelt polemic on the hopes for change, Ezz Al-Arab shows how the staff of CIB are made of stern stuff.

On February 11th 2011 Hisham Ezz Al-Arab, CIB’s chief executive officer was being interviewed by Bloomberg’s Margaret Brennan. As the interview went to air, the news came that President Hosni Mubarak had resigned. “Four days later at our board meeting we all agreed: it would be a rollercoaster ride so everyone would have to fasten their seat belt and enjoy it,” says Ezz Al Arab. “In practice, what this meant was that whatever was happening outside our doors, we had to remain focused. That focus kept us sane, it kept us in business and all the success we have enjoyed this year is build on that clear focus,” he adds.

The current troubles that blow through Egypt are not of the making of the so-called Arab Spring, suggests Ezz Al Arab. “It goes much further back, to before 2009 or even 2008. In the event, we firmly believe that change it is a good thing and forces us, as a country, to ask important questions of ourselves. Of course, in the run up to elections, there are and will be a lot of political games; and we reckon that it will be a good four to five years before everything settles down and we finally move along the right track. In the interim, we will continue to provide that focus to our clients and to our staff.”



For Ezz Al Arab, the strength to carry on as normal in the midst of apparent chaos is a mindset; and one that he has worked hard to instil in the day to day working culture of CIB “We are the only bank in Egypt where staff have not gone on strike.  We work hard to align our business culture both with our shareholders and our staff; we look after them as we would a family. In consequence we think the culture here at the bank is healthy and very strong,” he says. He explains that this cohesion has been built up over years and has involved some degree of ruthlessness.  “Most failures are down to having the wrong people in place and you are shy of changing them; we have no such qualms at the bank.”

All business sectors in Egypt have been affected by the aftermath of the collapse of former president Hosni Mubarak’s regime, particularly the country’s banking sector, which in recent years has worked hard to improve liquidity, introduce tighter monetary regulations and adopt various reforms. Although in general terms Egypt remains under-banked (only around 15% of the population have bank accounts); over the last decade the sector has undergone substantial consolidation, and the number of banks has decreased from 57 to 39. Both private and public banks were closed during the 18-day uprising that toppled Mubarak, then closed again for a week due to workers’ protests demanding wage parity. CIB was the exception.

Moreover, at the height of the crisis, on February 1st, CIB staff came into work to ensure that customer salaries were processed as normal. “We brought in our own security companies, to ensure that people needing cash could get it. The staff came in and secured our buildings over the worst of the crisis; it wasn’t a drill, but one of the best stress tests we could have had. It showed we could operate in the most uncertain of times. I am proud to say that the staff had the courage to do it.”

The crisis has been tough on the bank as most lending is for corporate business; with mortgages and car loans still a discrete business. “Most of this business is based around payroll and rolls through cards and personal loans,” says Ezz Al Arab, adding that: “the business was launched back in 2009. After the shutdown, the business came through at expected limits; so we cannot complain. The corporate side is a very deep culture at the bank and goes back to our Chase Manhattan days. We are still strongly committed to the cash flow based credit models that we adopted decades ago, and most players in the region followed later on.”

This year the banking segment has also had to work towards adopting Basel III requirements which, in practice, means banks have had to adopt broader measures of risk and demonstrate that they adhere to sound risk management practices that are publicly disclosed.  Basel III also solidifies the definition of capital and calls for stronger conditions for managing liquidity. The banking segment was set to conclude the final phase by this summer, but further reforms may be delayed due to the current circumstances. Even so, several banks continue to raise their capital reserves. What this means explains Ezz Al-Arab is capital adequacy running at 15%, double that of banks in the United States or Europe. We also run a loans/deposit ratio of around 50%, giving us the opportunity to grow. The financial strength of the bank surpasses Basel requirements; but we continue to be penalised by country ceilings.

Whatever the outcome of impending elections in Egypt in mid December 2011 (it appears to be a closing tie between the Muslim Brotherhood and the rising Noor Party), the challenge for any incoming government will be to integrate the official and the grey economy, tackle political corruption and lay the groundwork for economic prosperity. If the country is lucky, it will go down a similar route to Turkey where an Islamic governing party adheres to pragmatic capitalist principles; with all the attendant opportunities that this will provide for the Egyptian banking segment. “If the government insists on collections and paying of duties and the processing of these payments electronically, then obviously the banks will benefit,” explains Ezz Al Arab. “Traffic fines, car licences, etc all have to go through the banks; at the same time it will cut petty corruption and the grey economy. In Egypt the grey economy is at least equal to the GDP; in some ways it is good, because it employs the sometimes unemployable. In other ways it is bad, as the government misses out on substantial tax revenue.”

For Ezz Al Arab, the business of integrating political changes, of lessening corruption and creating conditions for growth centres around trust: “which must operate at every level of society,” he states.

For the time being CIB is focusing on doing more of the same:  “We will have opened five branches by the end of December in new urban areas and we are planning for more branches in 2012, with further growth on the loan book and deposits,” says Ezz Al Arab.  Up to now the policy has been working; the bank claims a growth of 10% in market share overall, backed up by growth of 8.4% in the bank’s loan book and 7.19% growth in deposits up to September 1st, despite  the introduction of some impairments which impacted on overall profits for the year. “The important thing in this regard, is that the bank did it by the book. That was important for us,” he says.

Ezz Al Arab, remains optimistic about the long term: “Our focus is Egypt and we are sure that political changes will bring the accountability that the market needs and we believe this will all be in place within the next three to four years. When you are accountable it changes everything; because everything is done properly, by the book and business is about what you know, rather than who you know. That has to be a good thing.”

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