Interview: Hussein Abaza

To what extent can banks help promote sustainable or green economic growth?

HUSSEIN ABAZA: The reality brought about by climate change, the Covid-19 pandemic and rising income inequality has necessitated a new approach to tackle the challenges at hand in a collective manner. Many countries – Egypt included – have begun to feel the effects of climate change in earnest, and as the economy experiences its negative effects, so does the financial sector. The world has seen losses mount from weather-related events and natural catastrophes, which affects the economy and insurance sector, and has an impact on inflation dynamics. It has therefore become clear that sustainability must be at the centre of any effort to address this and other challenges.

The banking sector can work towards a greener economy by issuing new sukuk (Islamic bonds), green sukuk and green bonds that will pave the way for additional industries and sectors to join the debt capital market. It is worth noting that banks have been playing an increasingly integral role in supporting investment in renewable energy in line with Egypt’s Integrated Sustainable Energy Strategy, which aims to produce 42% of the country’s electricity from renewable resources by 2035. Tarek El Molla, the minister of petroleum and mineral resources, announced at the COP26 UN Climate Change Conference in late 2021 that the target date had been brought forwards to 2030.

How are digitalisation and financial technology (fintech) tools improving financial inclusion?

ABAZA: The pandemic caused significant policy and regulatory changes, and accelerated digitalisation trends that were already in progress prior to the crisis. This opened up new avenues for digital transformation and financial inclusion. Egypt’s high mobile penetration rate, even among the unbanked, is supporting the shift towards digital finance services and the utilisation of fintech to improve financial inclusion. Digital banking is coming into increased focus for banks both in terms of operations and client services. Enhanced technological infrastructure has and will continue to greatly reduce turnaround times, bolster cost synergies and optimise banking services.

Digital banking channels not only reduce footfall at branches but allow for less cash to change hands, therefore reducing risks such as physical theft. Expanding penetration through these tools should focus on data analytics, digital channels and behavioural segmentation in order to improve people’s perceptions of financial transactions and services. This is achievable through investing in digital channels and innovative solutions to enhance the customer experience and lower transaction costs.

The largest banks in the market are moving ahead with digitalisation as part of their long-term strategies to facilitate the wider move towards a cashless economy. Such developments include regulations related to the Instant Payment Network (IPN) , which support the development of the digital economy and provide new services that will facilitate financial transactions. The IPN links different banks and financial service providers, allowing payments sent between accounts at different banks to be credited and debited instantly. This will provide effective and efficient access to banking services, thus enhancing financing inclusion.

What moves have been made to support small and medium-sized enterprises?

ABAZA: When banks were instructed to boost micro-, small and medium-sized enterprises’ share of their loan portfolios to 25% by the end of 2022, this effectively extended the timeframe under which these enterprises could be classified as distressed by a bank. Credit facilities will be restructured based on the company’s available funds and ability to pay, while alternative support, such as extending the tenor of their facilities and granting grace periods, will be offered.