Mashreq Q4 Net Profit Up 28%, Eyes Citigroup’s Egypt Retail Business

Mashreq is holding talks with Citigroup about acquiring its retail banking business in Egypt and is targeting net profit growth in 2015 of between six per cent and 10 per cent, the Dubai bank’s chief executive said on Sunday.

Abdul Aziz al-Ghurair made the remarks to reporters after the emirate’s third-largest bank by assets reported a 28 per cent jump in fourth-quarter earnings on the back of improved operating income.

With Emirates NBD, which recorded a 82 per cent net profit increase, it marked a positive start to the fourth-quarter reporting season for the United Arab Emirates’ banks, who have benefited from strong domestic economic conditions in recent quarters.

Citi has received bids from ten banks for its Egyptian consumer business after putting it up for sale in October to trim costs, sources told Reuters last week.

“We are in dialogue with Citi and the regulator in Egypt to explore the potential of this business,” Ghurair confirmed, adding Mashreq had yet to appoint advisors but would do so as the process progressed.

Citi’s assets can only be sold to banks already operating in the North African country as the U.S. lender is retaining its banking licence, Ghurair said. Mashreq has around 10 branches in Egypt.

Across the Gulf, strong competition at home is forcing banks to look overseas for their next stage of growth. Ghurair admitted in September that Mashreq was looking to expand in Egypt and Turkey.

The bank hopes to generate 25 per cent of its revenue from international sources, up from 18 per cent now.

LOAN GROWTH

Mashreq made Dhs644.3 million ($175.4 million) for the three months to Dec. 31, compared with Dhs504.6 million in the corresponding period of 2013, boosted by a 20 per cent and 18 per cent year-on-year rise in fee and net interest income respectively.

Rarely traded, Mashreq’s shares gained 2.3 per cent in positive trading on the Dubai bourse.

Into 2015, Mashreq’s loan growth was expected to be around five per cent to eight per cent as increased lending to large corporates and state-linked entities, who could ride out any disruption in the local economy from oil price-related volatility, offset a decline in consumer lending, according to Ghurair.

The CEO said he expected its retail business would shrink in the coming six to 12 months as the UAE’s recently-introduced credit bureau highlighted customers’ total borrowings for the first time, making banks generally more cautious on retail lending.

Mashreq’s lending book grew 15.1 per cent in 2014.

The bank plans to sell a $500 million bond which would boost its Tier 2 – or supplementary – capital, Ghurair said, adding the issue just needed shareholder approval before coming to market. He declined to say if banks had been appointed to arrange the transaction.

Banks in the UAE, including Dubai Islamic Bank and ENBD, have been selling capital-boosting debt instruments to diversify their shareholder base and enhance their reserves in recent months after two years of strong loan growth.

Mashreq’s total capital adequacy ratio, a combination of Tier 1 and 2 capital and regarded as one of the key indicators of a bank’s health, was 16.6 per cent at the end of December, the statement said.

In future, Ghurair said Mashreq could also boost its reserves by retaining more earnings, as opposed to paying out dividends to shareholders.

Mashreq said its board proposed a 40 per cent cash dividend for 2014, in line with its pay-out for the previous year, according to Thomson Reuters data.