Banking, Finance and Insurance
Overseas strategy of Lebanon's Blom Bank
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On February 21, AmCham's Banking, Finance & Insurance Committee
met with Saad Azhari, chairman of Blom Bank, and Elias Aractingi,
the bank's vice chairman and managing director, to discuss "Overseas
strategy of Lebanon's Blom Bank - with special emphasis on Egypt."
In the 1990s, Lebanese banks carried out a restructuring process
that involved hiring new executives, executing mergers and acquisitions,
and improving technical infrastructure. Later, they targeted product
development, such as retail and private banking with a priority
given to corporate and commercial banking. According to the speakers,
Lebanese banks - which have been expanding in Syria, Jordan, Sudan
and Algeria - can compete in the region because their system is
opening up and leading. Lebanese banks already own a promising share
of 55 percent of the regional market.
The Blom Group has total deposits of $10.2 billion, total assets
of $11.2 billion and equity of $1.2 billion. Its 2005 net income
reached $137 million. In Egypt, the group now owns Blom Bank Egypt,
formerly Misr-Romania Bank, with eight branches in Egypt and five
in Romania targeting the corporate, middle market and retail sectors.
The bank employs 380 Egyptian and 80 Romanian employees. Blom Egypt
recently appointed a new board, CEO and high-caliber organization
and audit teams, who helped reform the bank's infrastructure through
a $50 million loan from Beirut.
An updated IT system, staff training methods and job redesign were
also introduced. In the credit sector, Blom is working on the formulation
of a new credit analysis process, reorganizing credit and follow-up
functions, improving bad debt collection and creating corporate
marketing and risk management functions. The bank is also developing
a high standard of services in the retail division, supported by
a new sales organization to guarantee the successful launch of its
new products.
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Privatization of a public sector bank: Bank of Alexandria
The Banking, Finance & Insurance Committee held a meeting on
"Privatization of a public sector bank: Bank of Alexandria"
on December 27, 2005. Guest speakers Mahmoud Abdel-Latif, chairman
and CEO of Bank of Alexandria, and Fatma Lotfy, vice chair, gave
an overview of the state bank's privatization experience, which
entailed a restructuring process of its systems and key departments.
This included updating the bank's technical infrastructure to enhance
its products and services portfolio together with introducing the
latest IT applications, networking systems and HR policies.
During their presentation, Abdel-Latif and Lotfy spoke about the
formulation of a new credit policy, which involved implementing
a credit risk rating system, the introduction of loan underwriting
and bond issuance services, and establishing a retail and SME financing
division. The bank created a remedial management division and a
risk management division. It also launched a proper MIS reporting
system and a credit scoring system.
Similarly in the audit area, the bank's policies and responsibilities
were redefined, activating money laundering regulations and setting
strict corporate governance standards.
The HR department received a good share in the bank's reform process,
with the promotion of 6,984 members of staff and the development
of a new personnel appraisal system. The bank now offers specialized
training courses, salary increase and incentive programs, and an
optional early retirement program. The reforms were made to achieve
the bank's objectives of scoring higher profitability, strengthening
capital structure and increasing the shareholders value.
The speakers compared the bank's financial figures from 2002 to
2005, to highlight their success along the three-year privatization
process. The bank has doubled both customer deposits and its total
balance sheet. Operating profit rose by 600 percent, while provisions
increased 10 times. Likewise, the net income and return on capital
jumped five times higher.
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The new terms and conditions of the check in light of Egyptian legislation
Samir El Sharkawy, a professor of commercial law at Cairo University
spoke to AmCham's Banking, Finance & Insurance and Legal Affairs
committees on December 7 about the new terms and conditions of the
check in light of new Egyptian legislation.
The check, he said, is considered an immediate instrument of payment
- in contrast to promissory notes or bills of exchange, which are
payable only when the recipient submits them to the issuer. The
check, moreover, came into Egyptian law as the only commercial paper
whose validity is protected by the penal code. The penalty for issuing
a bad check in Egyptian law was previously set at ŁE 50 or three
years in prison, or both. The protection this law afforded bearers
of checks made checks a popular means of payment.
But the check's utility as an immediate instrument of payment was
cheapened by the common practice of postdating checks, El Sharkawy
said. More seriously, recipients were allowing issuers to write
checks for sums they knew the issuers didn't have as a means of
extending them credit.
So legislators intervened to revive the check's utility. Trade Law
No. 17 of 1999, implemented after a long delay, includes a section
governing the use of checks, which included international rules.
According to this law, the word "check" should be clearly written
on the document, checks can be withdrawn only from the issuing bank,
and a personal stamp or fingerprint can carry the weight of a signature.
Furthermore, if the amount written on the check in words differs
from the amount as written in numerals, the bank will use the words.
If the issuer's bank balance is insufficient to cover the check,
the beneficiary can reject or accept the available amount and can
receive a promissory note for the remainder. Postdated checks can
be cashed the day they are signed.
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Mergers and acquisitions in the banking sector View Presentation1 - View Presentation2
On December 6, Hisham Ezz El Arab, chairman and managing director of
Commercial International Bank (CIB), and Aly Shaker, chairman and
managing director of National Bank for Development (NBD), spoke
on the topic of banking mergers and acquisitions at a breakfast
meeting of AmCham's Banking, Finance & Insurance Committee.
Shaker's presentation focused on three topics: banking mismanagement
and the deterioration of management culture; the problems that beset
mergers and acquisitions; and the importance of transparency in
banking.
Banking crises, he said, stem not only from macroeconomic factors, but
also from poor management and ineffective supervision. Managers
can mismanage their banks by failing to plan ahead for change or
to acknowledge a deteriorating situation. In these cases, banks
can overextend themselves and carry out ill-conceived lending policies.
In other cases, banks hide serious problems and losses to buy time
while looking or waiting for solutions.
Such responses to internal problems serve only to put the bank
in further jeopardy. Transparency, Shaker stressed, is one of the
necessary elements for the free market to work. The market rewards
more transparent companies with higher valuations because investors
believe the risk of unpleasant surprises to be lower. Banks that
are performing well have nothing to hide.
Every deal, Ezz El Arab noted, has its disappointments and its difficulties.
Some of the most common pitfalls include ignoring the challenges
of integration, overestimating synergies, incomplete due diligence
reports and a target company that had been dressed up for sale.
Ezz El Arab further noted that having a detailed plan, and sticking to it, is the best way to avoid problems in mergers down the line. The most successful mergers are generally those in which friction resulting from the integration of two company cultures is addressed early. Finally, he concluded, speed should be valued above perfection as lengthy mergers cn be harmful to a company's long-term health.
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