EFG Holding Group CEO Karim Awad shares insights about how the renowned universal financial institution is striking a balance between ensuring long-term viability and market leadership while meeting shareholders’ growth expectations. Find out his take on digital transformation and how he plans to make sure that EFG Holding stays ahead of the curve.Â
What innovative financial products or services is the firm developing to enhance its leadership in emerging markets, especially in the region?
EFG Holding excels in innovation, constantly introducing new products to meet the evolving needs of our expanding client base. In 2017, our private equity arm established our renewable energy play Vortex Energy, which became the region’s first manager to offer clients exposure to this important sector across the European continent.
Our fintech subsidiary Valu, which has become a household name in Egypt, has revolutionized consumer lending in Egypt, and now boasts a client base of over 500,000 and offers a wide range of innovative products and services. These are just some examples of innovative financial products, among many others, that have been developed or are under development to help provide cutting-edge financial solutions that cater to the diverse requirements of our growing number of customers.
What are the biggest hurdles MENA is facing in terms of investing? What can be done to improve the region’s investment climate further?
While I maintain my belief in the abundance of opportunities within the MENA region, I don’t think you can think of it as a cohesive bundle. It is essential to acknowledge the diversity and distinctiveness of each economy. While economies like the UAE and KSA have notably raised the bar in becoming global havens for investors of all nationalities, others have inherent challenges they are actively dealing with.
However, in general, I think the biggest hurdle to investing in the region is its perceived geopolitical risk that continues to put a ceiling on the amount of investments we can currently attract. While this perception is not entirely fair, in my opinion, its complete elimination through more stable conditions accompanied by intense investor education can have a massive positive impact on the inflows into the region as a whole.
Can you share insights into how EFG Holding navigates the digital transformation in investment services? What challenges have you encountered, and how did you overcome them?
We have long recognized the pivotal role that digital transformation will play in reshaping our industry in the forthcoming years. As we navigate the rapidly evolving landscape of AI, it is evident that both product offerings and client expectations are poised to undergo significant shifts. Remaining at the forefront necessitates substantial investments in infrastructure and innovative products, even if the returns may not be immediately realized.
For publicly traded companies such as ours, striking a balance between fortifying the business for long-term success and meeting shareholders’ immediate growth expectations presents a formidable challenge. Fortunately, we have stakeholders who provide unwavering support for our strategic initiatives, which aim to future-proof our business and ensure sustained growth in an increasingly digital-centric environment.
There has been an increasing focus on ESG. How are you addressing the demand for sustainable investment?
We are actually quite active on the sustainable investment front. As previously mentioned, our private equity platform, Vortex Energy, is a fast-growing player on the global renewable energy scene and actively contributes to funding the growth of players in solar, wind, and energy transition. Furthermore, our commitment extends to the education sector, where we have a $150 million fund that has invested in more than 15 K-12 schools in Egypt. The remarkable success and strong operational track record of that fund have driven us to look into taking its expertise regionally through a new $300 million fund that we are currently raising, and that will be fully dedicated to the booming education sector in Saudi Arabia.
The banking and finance sector is growing increasingly competitive. What strategies are you employing to stay ahead of the curve?
In a people business like ours, I believe the key strategy lies in cultivating an exceptional work environment to attract top talent across all sectors in which we operate. While this can be challenging given the escalating competitiveness of the financial sector, our track record at EFG Holding over the past 40 years showcases our good fortune in consistently hiring some of the most brilliant and dedicated professionals in the field.
The fact that we have retained a majority of these exceptional individuals in the face of intense talent competition in the region is a testament to the value proposition that EFG Holding offers its employees. This success fills me with optimism regarding our ability to maintain a leading position in the industry in the years ahead.
EFG Hermes, EFG Holding’s investment bank, has been in the UAE for over 20 years now. In your view, what are the key financial steps that enabled the UAE to be a regional financial powerhouse?
We take great pride in being among the pioneering investment banks that established a presence in the UAE back in 2002. While our initial foray was driven by optimism about the country’s potential, the remarkable progress over the past two decades has far surpassed our expectations. What sets the UAE apart is its commitment to providing equal opportunities to all participants, irrespective of their nationalities.
The regulatory framework, known for its transparency, has undergone significant evolution over the years to become even more investor-friendly, thereby attracting a growing share of regional foreign direct investments. Moreover, the establishment of the DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market) as globally competitive jurisdictions within the UAE has been instrumental in fostering a conducive environment for companies to operate.
How do you see Egypt’s EGP free-float decision impacting your Q1 results this year?
Over the past decade, we have built a resilient business model specifically designed to navigate the continuous regional volatility. Presently, a growing portion of our revenues is denominated in USD, positioning us to benefit from the recent currency floatation and grow in terms of EGP. Furthermore, we have diligently managed our balance sheet and implemented hedging strategies to mitigate the risks associated with a potential devaluation of the EGP. As a result, we anticipate capitalizing on the recent shift in the currency regime and delivering exceptional performance in the first quarter of 2024.
aiBANK, EFG Holding’s commercial bank, saw a 61 percent revenue growth on the back of higher net interest income because of significant loan book growth. Which companies/projects are borrowing in this economic environment, and where are the investments targeted?
In late 2021, we acquired aiBANK as a pure restructuring play, and since then, we have worked hard over the past two years to properly capitalize the bank and equip it with the needed human and non-human resources to position it for strong future growth. While the bank will continue to serve large corporate clients in Egypt, its main focus will be on growing its retail, medium, and small business lending portfolios.
These segments not only enhance the bank’s overall risk diversification but also offer more favorable margins. However, effectively targeting these segments necessitates significant investments in upgrading our technology infrastructure and branch network, areas where we are currently channeling a substantial portion of our capital.
We’ve heard that EFG Holding may offload 25 percent of its shares in Valu in an IPO in Egypt over the next 12 months. At a time when several companies are considering delaying their listing, citing a weak environment, is this the right time to go for an IPO?
Our board has yet to reach a final decision on this matter. Nonetheless, we are actively exploring avenues to maximize value for our shareholders, which includes evaluating the possibility of listing some of the exceptional businesses we have cultivated in recent years. Foremost among these is Valu.
While market conditions will ultimately influence the decision to proceed with the listing, we are confident in the substantial growth of the company’s market share and has done so with an increasing growing profitability. Coupled with its extensive brand recognition in Egypt, Valu presents a compelling opportunity for a successful IPO when the time is right, and our board decides to move forward.
About Karim Awad
Karim Awad is group chief executive officer, chairman of the Executive Committee and a member of the board of EFG Hermes Holding. Since assuming leadership of the firm in 2013, Mr. Awad has led EFG Hermes’ return to profitability by cutting unwarranted expenses, selling non-core assets and distributing excess cash to shareholders. Starting 2014, Mr. Awad worked with top tier professionals across the Company’s different divisions in building a comprehensive regional advisory pipeline; extending its leadership as the Arab World’s largest securities brokerage; continuing to lead its peers in like-for-like rankings as an asset manager; successfully refocusing private equity business; and continuing to provide the region’s highest-quality research offering.
By the beginning of 2016, Mr. Awad also drove the company into a new strategic shift based on an extended geographic presence that aims at transforming EFG Hermes from a MENA house into a finance house that has reach across frontier markets. He also initiated an increased emphasis on product diversification in the Company’s traditional business lines as well as through the creation of a parallel non-bank finance platform, EFG Hermes Finance— a platform that was formed in 2015 and currently encompasses a leasing, microfinance, consumer finance and factoring businesses.
Prior to assuming his current role, Mr. Awad was Chief Executive Officer of the Investment Banking platform with an overall responsibility for managing the firm’s Investment Banking, Securities Brokerage, Research, Asset Management, and Private Equity divisions. Earlier, he was head of Investment Banking, having joined the division in 1998.
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