The National Bank of Abu Dhabi is offering Egyptian expats in the UAE mortgages for property back home in a move that could help to plug a massive gap in housing finance in the country.
The move also comes as the bank boosts efforts to grow its consumer business and expand to other emerging markets as UAE growth has been hit by the effect of lower oil prices.
At the same time, the bank is focusing on Egypt where it has the largest number of branches outside of the UAE, and where the mortgage market is underpenetrated because of the difficulty of getting loans. The economy of the Arab world’s most populous nation is also on the mend following several years of economic and political turbulence.
“The reason we are doing it in Egypt, is we have a very large branch network in Egypt, so we can leverage that,” said Suvrat Saigal, the chief of NBAD’s global consumer banking business.
“We are also growing fairly rapidly in retail in the region,” he said. “We have actually grown market share, we have grown the retail area. We are doing several steps, like launching of the mobile banking platform, like chip and pin and like our investment in front-line distribution.”
Customers will be able to secure the loan in Egyptian pounds and pay it back in dirhams. If the Egyptian pound, which has lost more than 30 per cent against the dollar since the 2011 revolt that resulted in the removal of former president Hosni Mubarak, continues declining against the US dollar, that will reduce payments for the loan in dirhams, said Ahmed Ismail Hassan, the chief executive officer of NBAD Egypt.
Almost every currency around the world has declined against the US dollar this year, but that has not weakened Arabian Gulf currencies such as the dirham that are pegged to the greenback.
Any further decline, Mr Hassan said, would compensate buyers for paying higher rates of interest on the Egyptian pound.
While mortgages in the UAE can be had at about 4 per cent annually, in Egypt rates typically start at 15 per cent. Interest rates in Egypt on deposits are however considerably higher, starting at about 5 per cent. Interest rates on the dirham, which follow the rate on the US dollar, are close to zero.
Egyptian real estate prices have boomed in recent years as Egyptians buy property to hedge against high rates of inflation – more than 10 per cent in the past couple of years. That has been a boon for publicly traded property developers such as Talaat Moustafa Group, Palm Hills Developments, Sodic and Emaar Egypt, that typically sell properties to customers before they are built.
UAE banks and companies have been among the most aggressive first movers in investing in Egypt amid the flourishing ties between the two nations. Emirates NBD bought the assets of BNP Paribas in Egypt in the aftermath of Egypt’s political upheaval in 2012.
And in March last year, Arabtec, the country’s largest listed construction company, won a US$40 billion low-cost housing contract, its biggest venture overseas. Majid Al Futtaim, the UAE company behind the Mall of the Emirates and the City Centre mall brands, is developing more malls in the country. And Emaar Properties, the biggest real estate developer in the UAE by market value, sold shares of its Egyptian unit in a public offering over the summer.
NBAD’s chief executive Alex Thursby this year told The National that he would bolster NBAD’s existing branch network in the North African country with a new look and new products, and this would not necessarily include additional branches.
Follow The National’s Business section on Twitter