Annual Report 2012 - Al Baraka Investment and Development

president & chief executiVe’s report
(continued)
Al BARAKA BAnK egypt
Founded 1980
Following the events of early 2011 the Egyptian economy’s growth
rate slumped to an estimated 2.2% compared with 5.1% growth
in 2010. From this base, growth recovered a little but remained
low at an estimated 2.2% in 2012, although on a rising trend.
The new government has signalled that it is unlikely to deviate
significantly from previous economic policy including a long
term economic reform programme, with the budget for fiscal
year to June 2013 maintaining an emphasis on social equality,
including increased spending on wages and benefits. The resultant
growing fiscal deficit – which reached -10.7% of GDP in 2011/12
– the funding of which is reliant on domestic borrowing, looks
set to continue, but is becoming more expensive in the light of
continuing uncertainties. The Central Bank responded to these
concerns by reducing reserve requirements on the banks to allow
more liquidity into the market to stimulate lending.
Egypt’s large structural trade deficit was estimated to have
increased to $39.7 billion in the 12 months to November 2012
as exports slowed and imports rose in value. The current account
deficit rose to an estimated -2.0% of GDP compared with -2.1%
in 2011. However, foreign exchange reserves rose to $15.1 billion,
although this partly reflected contributions from two Gulf States
and the proceeds of a successful euro-denominated Treasury bill
issue. The government has meanwhile agreed with the IMF on
a standby credit of $4.8 billion, increased from its earlier request
for $3.2 billion which, together with a moderate foreign currency
debt position, places is in good stead with investors and other
potential lenders. Other positive indicators of the underlying
health of the economy and its improving trend over the year
included the fall in the cost of treasury bills issued by 1.25%
to 1.5% - indicative of a lower risk perception of government
debt – and a 65% rise in share values on the Egyptian Stock
Exchange - one of the best performances on global financial
markets. The rate of inflation has also been relatively stable, at
7.2% compared with 9.6% for 2011.
Al Baraka Egypt responded to a national rise in defaults in
the retail banking sector by adopting a conservative and very
selective policy towards new business. Despite the cautious
approach, however, its total assets rose by 10% to $2.71
billion as its total financings and investments grew by 11% to
$2.38 billion, with the majority of the growth occurring in
Murabaha sales receivables, investments and fixed assets and
38 Annual Report 2012
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equipment for the branch network, with Mudaraba somewhat
reduced. The increase was funded mainly by a rise of some
12% in customer deposits including equity of IAH and increased
owners’ equity.
The bank’s total income from joint financings and investments
rose by 14% to $228 million, of which its own share, including
its share as Mudarib, amounted to $87 million, 23% above that
earned in 2011, with the investors’ share rising to $141 million
compared with $130 million the year before. After accounting
for income from fees and commissions, and other operating
income, the total operating income increased by 20% to
$102 million. Total operating expenses increased by some 27%
to $41 million, mainly on account of increased staff costs and
other operating expenses. Net operating income was therefore
$61 million, representing an increase of some 15%, which, after
reduced provisions and increased taxation, resulted in a net
profit for the year of $23 million, 32% above the result for 2011.
Al Baraka Egypt added to its network by inaugurating one new
branch in 2012, in Al Azhar, bringing the total to 27 branches
and foreign exchange bureaus. During the year it introduced a
new savings product on which return is paid on a daily basis. At
the end of the year it also announced the issue of an Al Baraka
US Dollar Islamic Sukuk, similar to the successful 10-year Egyptian
pound issue in 2011. It also launched, in cooperation with one of
the biggest religious tourism companies, a facility for financing
Hajj and Umrah trips with repayment in instalments following
the visit, the first such product of its kind in Egypt. This was
followed by a new Shari’a compliant product to finance timeshare
leasing, in cooperation with the biggest real estate company in
the sector. It was pleased to announce the signing of an Islamic
Musharaka contract with the Social Fund for Development
through the World Bank, in the amount of E£200 million, for
financing small and medium-sized enterprises.
The bank plans to open 4 new branches in 2013 to bring the
network total up to 31. Its rolling programme anticipates thereafter
the expansion of the network by 3 new branches each year, to
reach 44 by 2017. Its preparations meanwhile for the launch of
its Internet and mobile banking services are almost complete, in
addition to the launch in 2013 of an Islamic credit card in three
categories: gold, silver and bronze, only awaiting full implementation
of the second phase of its new core banking system.
(All figures in US Dollars unless otherwise stated)