Abu Dhabi Islamic Bank PJSC (ADIB)’s Egyptian unit sees demand for Shariah-compliant finance picking up, expecting to complete deals for about 5 billion pounds ($699 million) in the next year.
The institution is working to provide syndicated financing for as much as five infrastructure projects in electricity, oil and gas, Nevine Loutfy, the only woman chief executive officer of a Shariah lender in the Middle East, said July 15. ADIB Egypt was one of six lenders, including state-owned Banque Misr SAE that arranged a $110 million Islamic facility for East Delta Electricity Co. in February 2013, the nation’s first Islamic loan, she said.
“Shariah-compliant financing is our mandate and we will continue to expand it,” Loutfy, who joined ADIB Egypt from Citigroup Inc. (C) in 2008 as the top executive, said in an interview at her Cairo office. The bank is focused on “projects that are essential to the Egyptian economy and that will contribute positively” to growth, she said.
Islamic banking assets may double to $3.4 trillion by 2018 from last year as investors seek vehicles that meet the religion’s ban on interest, according to Ernst & Young LLP estimates. Saudi Arabia, home to Al Rajhi Bank, the world’s biggest publicly traded Islamic lender, the United Arab Emirates and Kuwait have provided almost $15.6 billion of aid to support Egypt’s government, which took over after the military removed Islamists from power last year, according to an estimate by Cairo-based EFG-Hermes Holding SAE.
ADIB Egypt, which completed deals for about 3.3 billion pounds since February 2013, is moving to capture share in a market dominated by conventional banks and one that has seen lending slump amid political turmoil that began in 2011. The loan-to-deposit ratio at Egyptian banks fell to 41 percent in April, the lowest in central bank records dating back to 2000.
Three of Egypt’s 40 banks are Shariah compliant, and the regulator doesn’t segregate their data. Islamic syndicated financing in Europe, the Middle East and Africa has risen 21 percent to $6.2 billion so far this year compared to the same period last year, data compiled by Bloomberg show.
“We’ve seen a rise in Islamic financing throughout the region,” Richard Segal, a London-based international credit strategist at Jefferies International Ltd., said by phone yesterday. “For a country like Egypt, it’s another source of financing which they probably shouldn’t turn their backs on.”
Egypt is trying to attract foreign investment to pull the economy from its worst slump in two decades with growth at about a third of the 6.2 percent averaged in the last five years of President Hosni Mubarak’s rule.
The government raised fuel prices this month to help narrow the country’s budget deficit to 10 percent of gross domestic product, from an estimated 12 percent for the fiscal year that ended in June.
“Despite economic reform decisions, investment spending is expected to lag over the next two years due to energy shortages and low-gear government investment,” Monette Doss, chief economist at Cairo-based HS Securities & Investment, wrote in a July 14 report.
President Abdel-Fattah El-Sisi, the former army chief who ousted the Islamist government last year and was elected to the presidency in May, has vowed to repair an economy growing at the slowest pace in two decades, and called on Egyptians to make sacrifices, saying he’ll accept only half his own pay.
ADIB Egypt expects 2014 to be its second profitable year in a row, Loutfy said. It had been posting losses since Abu Dhabi Islamic Bank in 2007 acquired the lender formerly known as National Bank for Development, according to data compiled by Bloomberg. Plans for the next three-to-five years include expansion of its investment banking unit into asset management, advisory services and private equity, Loutfy said.
The bank’s shares climbed 5 percent at the close in Cairo, the most since February, on more than twice the three-month average daily volume. The benchmark EGX 30 Index added 0.5 percent.
In April, ADIB Egypt teamed up with Banque Misr and Bank Audi SAL to arrange a record 1.5 billion pound Shariah-compliant facility for Al Nouran Sugar to build a factory. The deal also attracted $30 million in the form of a mezzanine investment, or debt that’s convertible to equity in case of default, from the Islamic Development Bank in Jeddah, Saudi Arabia.
Egypt “will probably see a substantial increase in this form of financing in the next few years, be it from a low base,” Segal said. “Investors are more inclined to look at Egypt now that the political situation has calmed down a bit.”
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