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generating interest
in a span of three years, mahmoud abdel latif has
transformed bank of alexandria from a financially inviable dinosaur
into a modern, profit-generating institution offering competitive
services to clients. with privatization expected this summer, all
eyes are on the bank and its impressive track record.
by rehab el- bakry
it was a task both clear and complex. when mahmoud abdel latif
was appointed as chairman of bank of alexandria (ba) in september
2003, the banking veteran knew his performance would be based on
how well he steered the antiquated public sector bank toward its
planned private sector future. the operation would in no way be
simple, given the dilapidated condition in which he inherited the
ailing institution.
calling on almost two decades of experience in the banking sector,
abdel latif rolled up his sleeves to turn what he saw as the “most
backward” of the public sector banks into a profit-generating,
customer-oriented operation. in a span of less than three years,
he managed to turn bank of alexandria around – doubling its
balance sheet to £e 42 billion, and increasing return on capital
from 8 percent in 2003 to 45 percent in 2005. today, the bank’s
net income is estimated at over £e 360 million. in 2003, it
was just £e 65 million.
the figures are a smack in the face to those who doubted him. “there
was some resistance from market- and financial-sector insiders when
i was appointed,” he admits. “i didn’t really follow
the normal hierarchy through which people traditionally got promoted
to become bank chairman.” traditionally, public banks were
chaired by employees who had made their way through the ranks. abdel
latif was a complete outsider, both a stranger to ba and a relative
newcomer to public banking.
he believes the initial resistance was a backlash against his “radical
ideas,” the very ideas he suspects got him – and other
private sector bankers now in similar roles – appointed in
the first place. “it was my experience in the private sector
that helped me identify what needed to be changed about the bank
and then plan and implement a strategy that made these changes a
reality,” he says.
abdel latif brought plenty of private sector experience to his new
job: almost 27 years of it. in 1976, he was recruited fresh out
of the faculty of business administration at ain shams university
by citibank, the second multinational bank to set up branches in
egypt amid the infitah (open door) policies of the 1970s. while
working in egypt during those early years, he attended a few key
citibank training sessions, taking courses in operations and credit
banking – lessons that were later to prove formative. abdel
latif calls the first decade of his career “lucky,” in
that his assignments soon took him to the gulf, then one of the
fastest growing banking sectors in the world. “at the time,
the gulf countries were undergoing huge infrastructural transformations.
their banking sector was evolving in order to finance these massive
projects,” he says. “i was in the middle of this, which
gave me tremendous experience in a variety of banking services.”
abdel latif remained with citibank in the gulf for almost 17 years.
on the strength of that experience, he was recruited by chase manhattan
to head its egypt and north africa business finance project, as
well as its correspondence with international financial institutions,
a position he held for four years. in 2002, he became one of a handful
of private sector banking veterans appointed to top positions in
public sector banks. he served as vice chairman for banque du caire
until his appointment as chairman of bank of alexandria in september
2003.
when he made the sector switch, abdel latif knew that the country’s
public sector banks had been neglected for some time. nothing, however,
could have prepared him for the state in which he found ba. “on
a relative scale, [bank of alexandria] was by far the most [messed
up] of all the private and public banks,” he says. “when
i took over, it was the only bank in the country that didn’t
have a single cash machine. it didn’t issue any type of bank
cards or credit cards. everything was still done on paper... the
procedures the employees followed had been written almost 30 years
earlier. but all this i could deal with. the real challenge for
me was going to be the 8,500 employees who viewed me as someone
coming in from the outside to change the way they did things. they
were very suspicious of me from the beginning.”
abdel latif knew that in order for him to implement the necessary
changes, he needed to convince his employees to see him as an ally
rather than an adversary. he started by working his way through
the creaky inside of the organization. “i spent the first two
months touring the branches of the bank to meet with employees,
to [share with] them exactly what changes would be made and explain
where we were going,” he says. “i met people face-to-face,
which was very important because, for the most part, they had never
seen their chairman except in newspaper clippings. talking to them
established direct communication, which puts people’s minds
at ease and reduces their resistance to change.”
abdel latif believed his private sector experience could benefit
his employees, many of whom had been jaded by the technological
and service shortcomings of state banks. “i was lucky. i’d
been employed by a multinational that trained me, equipped me with
the right tools, paid me, rewarded me and punished me throughout
my career. that’s how i became a good banker. i kept telling
them that i wanted to do the same for them.”
true to his word, he took steps to improve his employees’ view
of their own jobs. he nearly doubled salaries, created a bonus and
incentive system, improved the work space and provided training
that allowed employees to perform their tasks more efficiently.
for those who have banked at ba over the years, the changes have
had a dramatic effect, improving employee morale and customer service
across the board.
with ba’s employees on his side, abdel latif began marshaling
his forces for the push to upgrade performance. initially, he focused
on the tangibles. each branch got a facelift that included new furniture,
computer systems and a waiting area for clients. improving customer
service followed close behind. abdel latif used training programs
to fine-tune the language and tone that employees used in dealing
with clients. “banking is customer-based service,” he
kept telling employees. “if you don’t have clients, why
bother coming to work in the morning? i believe that if you give
employees a good working environment and good pay for what they
do, they will do their best to serve their clients well.”
the bank chairman recognized that it would take more than just new
upholstery and cheery tellers to bring ba into the 21st century.
the institution he’d inherited was rife with problems –
the sort of problems particularly acute in egypt’s public sector
banks. although the “big four” public sector banks –
national bank of egypt, banque du caire, banque misr and bank of
alexandria – hold nearly half the total assets of the market
and 57 percent of deposits, they also have a legacy of non-performing
loans (npls), which account for about 20-30 percent of all loans.
in the case of bank of alexandria, npls posed an even greater challenge.
“fifty percent of [the bank’s] loans were to the public
sector, as was the case with many of the public sector banks. these
were non-performing loans. of the loans given to the private sector,
80 percent were non-performing. so in total around 75 percent of
the bank’s total loan portfolio was classified as non-performing,”
says abdel latif.
yet, as the bank’s new head, abdel latif refused to dwell on
where it went wrong. instead, he focused on finding solutions. “i
didn’t go on a mission to punish everyone who made bad decisions,
and i didn’t decide to punish everyone else by [refusing] to
lend a single penny,” he says.
“we’d invested hundreds of millions of pounds all over
the market in incomplete projects and had misused funds. part of
what i did was to develop credit processes and procedures on how
to lend money. it was essential that before we lent money, we understood
the company and the sector in which it was working. we had to know
if they had the right know-how, the right raw materials and the
right market in which to sell their product.”
abdel latif made a point of reviewing – when deemed necessary
– a potential borrower’s family connections. some applicants
were offended by the intrusion, to which he politely explained that
while they were entitled to hold on to their secrets, he was likewise
entitled to hold on to the bank’s money.
he explains that tighter lending policies aside, the only way in
which he could relieve the bank’s debt was to seek new business
opportunities. “i spent a lot of time in the market, actively
seeking new business and getting the right type of business deals
with respectable companies, both local and international,”
he says. “we managed to settle all our old problems from the
profits we were making. the second thing we did was focus on retail
products, which we had thus far completely ignored.”
ba started from scratch in 2003, with no atms, credit cards or debit
cards. it now has 120 atms and seven different types of credit and
debit cards. it also introduced bill payment services, bank insurance
and a customer call center.
in 2003, the bank’s operating profits totaled £e 150
million, with provisions of £e 700 million, according to abdel
latif. the majority of this profit, he says, was “fictitious”
or “paper” profit because it was based on interest accrued
on npls. last year, he reports that the bank made up to £e
2.2 billion in real operating profit, with provisions of £e
4 billion. to eliminate another obstacle to performance, the bank
trimmed 1,500 people from its roster by choosing not to replace
staff who accepted early retirement packages. the workload was then
redistributed to make the remaining 6,000 employees value-adders,
and thus indispensable when the bank privatizes.
according to abdel latif, ba was singled out as the first bank on
the privatization block because it was the one with the biggest
problems. yet its radical transformation over the past three years
has made it an enviable prize for investors. “we were initially
singled out as the first bank on the privatization block because
we were the one with the biggest problems,” he says. “i
believe that four years ago when we were first placed on the [to-be-privatized]
list, the government would have had to pay someone to take us off
their hands. today, the privatization of the bank, [expected to
take place by june 2006], could turn out to be one of the most profitable
privatizations for the government.”
abdel latif says 5 percent of shares will be offered to bank employees,
with a minimum of 75 percent and a maximum of 80 percent up for
sale to a strategic investor. the remaining shares will be offered
to the public on the stock market. “we already know that there
is a lot of interest from the international banking sector in acquiring
bank of alexandria, as well as other banks in egypt,” he says.
“there is still a lot of room for the market to grow, in spite
of the fact that we have had as many as 55 banks working in the
market at certain points. but the changes that have taken place
in the economy over the past two years or so, and the development
that this sector in particular has seen, have made it very attractive
to many players that still see egypt as an important market because
of the high population base and its strategic location.”
in the midst of all the optimism surrounding ba’s recent upswing,
the only hint of dissatisfaction comes from those who see abdel
latif as overbearing. while he admits to being a bit of a micro-manager,
he says that this hands-on style was integral to the process of
turning the bank around. “it’s not that i don’t trust
my own people,” he protests. “i do, but i am not willing
to wait until things get to the crisis level. and again, this [management
approach] did get the job done. so i don’t really worry too
much about being a micro-manager – the point is to get the
job done. we certainly did that.”
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