(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
By Una Galani
DUBAI, Sept 3 (Reuters Breakingviews) - Egypt’s banks are ripe for picking. Qatar National Bank (QNBK.QA) is in talks to buy Societe Generale’s (SOGN.PA) 77 percent stake in its local subsidiary, NSGB, the country’s second-largest private bank by market value. With a political transition in full swing and a pledge from the president not to devalue the pound, a number of banks could soon change hands as European owners retreat in a bid to shore up capital.
The sellers are mostly forced. BNP Paribas (BNPP.PA) is selling its retail banking business and Credit Agricole (CAGR.PA) Egypt is seen as a takeover target. Last year, Standard Chartered (STAN.L) walked away from talks to acquire the business of Piraeus Bank (BOPr.AT).
Egypt remains an attractive long-term market even though credit growth has almost ground to halt after the change or government, from around 25 percent year-on-year. Only 10 percent of the population has a bank account. Retail lending is less than 10 percent of GDP, compared to 50 percent or higher in developed markets.
Egypt, like Turkey, is a key market for any bank that wants to be a strong regional player. QNB has excess capital to fund its ambition to become an “iconic” brand. Yet the bank misjudged Dexia’s desperation to sell earlier this year when it put in a low ball bid for Turkey’s Denizbank, only to lose to Russia’s Sberbank (SBER.MM). The bank sold for 1.3 times book value. In Egypt, there are fewer assets on offer and the regulator isn’t handing out new licenses. So there will be more competition, with higher valuations.
An offer for the whole of NSGB, as per Egyptian market rules, would cost QNB around $2.8 billion at current prices, or around 2.2 times book value. That’s still below the 2.8 times of its pre-revolution days. The shares have risen 20 percent since talks were announced. With a 25 percent premium to the undisturbed price, QNB could make a return on investment of 8.6 percent in the first year, according to Arqaam Capital. That leaves some room for a slip in the pound if Egypt’s currency loses some of its value in spite of the president’s promise.
Egypt’s economic stabilization will only take it closer to a wave of banking M&A.
- Societe Generale said on Aug. 30 that it is in talks to sell its 77.2-percent stake in its Egyptian unit, National Societe Generale Bank, to Qatar National Bank.
- “The discussions are preliminary and there can be no certainty as to whether an agreement will be reached”, SocGen said.
- NSGB is one of the largest foreign lenders in Egypt with a network of 160 branches across the country with total assets worth 63.8 billion Egyptian pounds ($10.5 billion) as of June 30, 2012, according to QNB.
- QNB, 50-percent owned by the government, is the largest bank in the Gulf state and has a market capitalisation of $26 billion.
- The bank’s 2017 strategy is “to become a Middle East and African icon” by increasing share and profitability in existing key markets and achieving scale by pursing sizeable acquisitions.
- BNP Paribas is also said to be seeking preliminary bids for its Egyptian retail banking business, sources have told Reuters.
- Shares in NSGB rose 10 percent in Cairo on Sept. 2 following the announcement, valuing the bank’s equity at 15.4 billion Egyptian pounds ($2.5 billion).
- Reuters: SocGen says in talks to sell Egyptian unit [ID:nL6E8JUCMI]
- Reuters: Qatar National Bank picks JP Morgan for Egypt buy-sources [ID:nL6E8K21CK]
- For previous columns by the author, Reuters customers can click on [GALANI/]
(Editing by Pierre Briançon and Sarah Bailey)
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