In an environment of higher interest rates, heightened infla tion, and FX shortages, businesses across different sectors are demanding more from their banks: They want more innovation, more diversification in products and services, and more digitization. While the regulatory environment plays a significant role in the types of products and services banks can deliver, there are still some things that banks can do to make businesses’ lives easier.

That was the key takeaway from our panel at the Enterprise Finance Forum, which featured Ibrahim El Missiri, CEO of Somabay, Pakinam Kafafi, CEO of Taqa Arabia, and Tarek Abdel Rahman, managing partner at Compass Capital.

First thing’s first — speed and adaptability are key when it comes to dealing with banks: “It’s all about making the process easier — we are working with banks on a daily basis and as long as they are focused on our business and are able to deliver the services we need promptly, then we will definitely engage with them,” El Missiri said, pointing to the necessity of finding a bank that is able to find creative solutions to navigate its way around bank regulations. Abdel Rahman also emphasized the importance of the team’s expertise and its problem solving ability, as well as its balance sheet and pricing.

Reputation, industry knowledge, and network are also important: Kafafi cited industry knowledge, expertise, and size as among the most sought after qualities in a bank. “Taqa thinks of banks as more like partners and advisors,” she said. Kafafi went on to explain that “We want a bank that has a regional and global network to be able to help us grow regionally and in Africa” and added that “it is very, very important to have a bank that embraces technology developments, digital solutions, and online trading.”

The same applies to investment banks: Compass Capital uses both corporate and investment banks to manage their funds and exits. Their track record, team members, and global reach is extremely important, Abdel Rahman explained.

Businesses also want more than just transactional advice from their investment banks: “We do have conversations with them pretty often [seeking] general advice, but the interaction becomes much more intense during the transaction,” Abdel Rahman explained.

When it comes to commercial banks, digital services are important: There’s a need for digital services like cash management and cash pooling, Kafafi said, especially for companies of Taqa’s size that have several subsidiaries and require the company to see the numbers clearly. Other digital services like online trading and integration with ERP systems are also important, she added. El Missiri voiced his hopes for a digital solution that can replace cheques, especially considering real estate developers process “truckloads” of cheques on a regular basis.

Digitization will also help streamline processing times, which Kafafi says can sometimes be too long and can slow down projects that need them to act fast.

They also want more diverse offerings: “We are constantly on the lookout for new products and innovative products because we’re on an acquisition spree, so we’re looking for different sources of finance that are priced well that give us the right tenors, the right structure, and allow us the most flexibility,” Abdel Rahman said. One such product is a mezzanine loan, which is a debt and equity hybrid that allows companies to convert debt to equity in case of a default, and which is not offered by banks in Egypt. Compass Capital secured a mezzanine loan from South African fund manager Vantage Capital in 2022. Another product Abdel Rahman looks for is more bridge or miscellaneous facilities that sit between debt and equity to allow them more leeway when navigating between different investments and exits, he explained.

And more flexible and long-term loan structures and tenors, Kafafi added, especially when it’s an industry — like oil and gas — that by nature has long-term horizons of 20-25 years.

Part of the problem is regulatory: Both Kafafi and El Missiri agreed that businesses need more diverse products, with El Missiri pointing to current regulations preventing foreign residency holders who own property from opening up bank accounts.“We are always in discussions with the banks and we find the banks extremely receptive to that, but the regulation sometimes doesn’t allow them to be as bullish or as flexible as they would want to be,” Abdel Rahman agreed.

Regulations are too restrictive: “ These regulations have helped the banks during hard times, making them extremely safe … but they are also stifling their ability to extend more innovative products and helping their clients more,” Abdel Rahman said.

But some of it is also risk aversion from banks: In challenging times, it’s important that different stakeholders in the ecosystem take an equal amount of risk, Kafafi explained. While businesses are taking risk, she thinks banks need to take some risk as well. El Missiri agreed, noting that when it comes to real estate, banks leave most of the financing and credit offerings to the developers, while avoiding the risk.

When do businesses seek out NBFIs, instead of banks? For Abdel Rahman, it’s when they’re looking for speed. “The only reason we use NBFIs is because they’re quicker than banks … seeing that banks have more committees involved in the process,” Abdel Rahman said. “The flip side is that they’re much more expensive [than banks], so a lot of the time you would use them for a while and then if we can’t get them to lower their interest rates to reasonable prices then we’ll have to refinance from the bank,” he continued. NBFIs also fill a gap in the market for SME finance, Abdel Rahman added.

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