BdC’s Hussein Abaza on why the bank is listing now and what comes next

Banque du Caire (BdC) is due to confirm its IPO price today at the end of a roadshow where CEO Hussein Abaza pitched it as a “private sector bank in everything but ownership.” Abaza explains why BdC chose a listing over a sale to a single buyer and why it’s listing now in conversation with our Editor-in-Chief Patrick FitzPatrick on EnterpriseAM’s podcast Making It, recorded before Banque Misr took the sale to 45% of the bank from 30%.

Why now: BdC’s earlier attempts to list, the last during Covid, pitched a turnaround that was still in progress. This time, Abaza says, “we’re actually bringing it to the market as a successful transformation story that actually happened.” He points to targets set six years ago that the bank has since beaten. Return on equity is in the high 20s and capital adequacy around 22%, while the net interest margin has climbed from below 3% to a blended 7.5%.

Why a listing: An IPO sets a market price so later stakes can be sold at that price at a time of the seller’s choosing, Abaza says. “The market will establish how good or bad the bank is.” His model is CIB, once 51% owned by the National Bank of Egypt (NBE) and 49% by Chase Manhattan Bank: NBE bought out Chase, then sold down its stake through a series of public offerings, which he calls “a very, very successful model.”

Abaza judged demand from the investor meetings, where investors in South Africa, the US, the UK, and the GCC came back with follow-ups and detailed questions. “We’re seeing massive demand, at least in the meetings,” he says. The toughest question he faced wasn’t about BdC at all: investors wanted his view on what would happen in the Gulf. When the talk did turn to Egypt, he says, it was less about what had gone wrong than about “how did Egypt come out unscathed?” His answer was access to USD. The EGP weakened from about 46 to the USD to 55-56, but “at every price point there were [USDs] available for local importers,” he says. “The rate can move. It’s about the availability.”

Where the cheap deposits come from

BdC’s 243 branches aren’t many more than its nearest rivals have. What matters is where they are, Abaza says. Some 114 are in rural areas home to 40-45 mn people, where banking penetration is below 20% against a 43% national average, and which generate at least 40% of GDP, by his count. Local staff know their customers, which helps with both deposits and loans.

The branches outside Cairo are a big source of BdC’s cheapest funding, bringing in current and savings accounts (CASA), which pay little or no interest. CASA now makes up 57.5% of BdC’s deposits, up from 30% five years ago, after growing 44% last year, when local-currency deposits rose 28% and total deposits 14%. Deposits grew 9% in the first half of this year, with CASA accounting for 86% of that growth and branches outside Cairo contributing more than 55% of it.

Built for rate cuts

BdC’s margins actually grew last year despite 825 bps of interest rate cuts, which would normally squeeze a bank’s net interest margin, Abaza says. He credits both sides of the balance sheet. On the funding side, the bank focused on gathering cheap deposits. On the lending side, retail loans make up about 34% of the book, at 21-23% fixed, usually for three to five years, which locks in those yields as rates fall and “helps mitigate any NIM compression.” BdC’s margin on EGP business is almost 10%. The bank puts its excess liquidity into government bonds, which he sees as a compelling window as Treasury yields have decoupled from the policy rate: one is there to manage inflation, while the other reflects the budget deficit.

Rate cuts are on pause because of events in the Gulf, he says, with economists expecting easing to resume early next year. By his arithmetic, the top of the central bank’s 7% (±2) inflation target, plus a 3-4% real rate, puts rates at around 12-13%. He expects to get there in “a year, a year and a half,” depending on how quickly the easing cycle resumes.

Partners, and the question of control

Abaza treats fintechs and non-bank lenders as clients more than competition. “They’re not competitors. There has to be cooperation with them.” Since they need bank funding and only banks can take deposits, he expects competition to shift to fees and commissions.

As for the question every minority investor will ask, which is what protects them from a controlling shareholder, Abaza says BdC’s board and management are independent. “We have complete independence as to what to finance, what not to finance,” he says, citing transactions the bank has turned down. Asked whether that includes saying no to state-owned companies, his answer was “Absolutely.” He credits his predecessor, who was mandated to privatize the bank, with stepping back and hiring managers from the private sector. When asked how much of that protection depends on Abaza himself, he said: “It was here before I came.”

WHAT’S NEXT- BdC is expected to start trading on the EGX on or about 2 November, according to the offering circular (pdf). Abaza’s measure of success a year from now is whether investors keep engaging with the bank: “As long as there’s interaction, there’s interest.” Inside the bank, the next push is digital. BdC switched off its old core banking system and switched to a new one on 30 June. Its digital push only began “in earnest” in July, Abaza says, and one thing the app has yet to do is “get new money in.”