Interview: Ali Al Kuwari
What are Egypt’s comparative advantages as an investment destination?
ALI AL KUWARI: While Egypt is currently facing some challenges, the long-term prospects of the country are encouraging. Egypt is an attractive destination due to its dynamic and educated labour force, sizable population, natural resources and diversified economy. With the appropriate mix of economic policy and investment incentives, it is widely recognised that Egypt has the potential to grow at a much faster pace than it is now. The country is strategically located in the Middle East, connecting Asia and Africa, and in close proximity to Europe, with the Suez Canal being an important route for world trade. Tourism is also an important contributor to the economy that has the potential for further growth.
What role did the financial crisis have on the composition of foreign investors in banking sectors in emerging markets?
AL KUWARI: This situation as you described it was the trigger that permitted us to seize the opportunity to revive our long-standing aim of having a presence in Egypt. Thus, the reassessment of the presence of some major European banks in emerging markets following the financial crisis allowed strong financial institutions with a strategy for regional expansion to consider new opportunities. Given this, QNB entered into negotiations with Société Générale to acquire its entire stake in Egypt’s National Société Générale Bank, a leading financial institution and the country’s second-largest private sector bank.
A key lesson learned from the international financial slowdown is how key financial metrics were able to withstand a difficult operating environment. This includes a number of things such as a high capital adequacy ratio, ample liquidity, a low level of non-performing loans and a high coverage ratio. The conservative nature of credit extensions along with a strong risk management will allow these metrics to remain strong.
How relevant are Basel III rules to banks in fluid and well-capitalised emerging markets?
AL KUWARI: Basel III rules remain relevant to banks in emerging markets, as they are a useful framework for consistently measuring an individual bank’s strength relative to the stability of the overall sector and in terms of future capital requirements, as well as liquidity needs. The narrower definition of regulatory capital and broader coverage of risks, including off-balance sheet liabilities, advocated under Basel III goes a long way towards improving risk governance and transparency standards.
A view on measuring banks’ ability to absorb any financial shocks from external threats that might arise in the future bodes well for improving confidence in individual banks and the overall system. The higher anticipated costs of adopting these new standards for banks in emerging markets are likely to cause a greater divide in competitiveness as banks’ state of readiness varies, with the larger institutions at an advantage over small to medium-sized banks.
In which markets do you see the greatest opportunities for growth in corporate lending?
AL KUWARI: Emerging markets in regions such as Africa, the Middle East and Asia, along with countries in Latin America, have been experiencing strong growth in recent years, although declining slightly of late. Nevertheless, growth is still much higher than what the advanced economies are experiencing.
While opportunities for growth remain favourable across emerging markets, the bulk of our corporate lending activities are currently centred on the Middle East region given our focus on Qatar and the GCC. However, having said that, there are attractive corporate lending opportunities in the greater MENA region and in select countries in Asia, to the extent that we are now in the process of opening an office in India, with another to follow in China – both markets where there are an increasing number of opportunities.