The document discusses various options for implementing an external sales strategy for HBEG in Egypt. It analyzes the market opportunities around Egypt's growing population and economy. It examines competitor strategies and presents two models - Model A of an in-house external sales team, and Model B of an external sales company. Both models are projected to have higher sales, productivity and profitability than the existing setup due to factors like intensive targeting, performance-based incentives, and recruitment of sales professionals.

1. HBEG External Sales Strategy Presentation to Halla Sakr HBEG DMD, PFS/Branches March 2008

2. Strategic Objectives Leverage a large sales force to optimize mass acquisition with the aim to achieve HBEG’s strategic objectives: Generate and Sustain Revenue Growth Grow Market Share of PFS segment Enhance Productivity Enhance Profitability

3. Destination Model An external sales model to capture market share through focused/intense targeting of NTB customers, to generate revenue growth and profitability. This entails: Alignment to HBEG PFS Strategy (“Hunter-Farmer” model) A business structure where cost-to-income ratios are directly linked to sales and goal achievement Recruitment based on characteristics and sales skills A sales culture to take forward aggressive acquisition strategies (targets, incentives, performance management, rewards and recognition, training etc.)

4. Opportunities/Situation Analysis Population Market Share Competition Life Cycle Management Services Embedded Value Geographical Coverage

5. 1. Population Most populous country in Middle East; 78 million (JUL06); annual growth 1.9%. Density of the population with 95% of inhabitants living in the Nile Valley - 70% within 150 km of Cairo; concentration makes marketing efforts effective in terms of reach. Young population, 63% within 15-64years age group; opportunity to capture and retain customers from the beginning of the life cycle.

6. 2. Market Share A, B+ segment estimated at 2m (estimates backed up by post-paid mobile users approximately 3m). 50:50 male-female Married – 88% Have Children – 90% Stable employment for 16-25 age bracket - 38% 97% have Bank accounts - 13% only have credit cards, and 14% planning to acquire (270k). Household Income for 83% ranges between EGP2-4000

7. 2(a) Market Share - General Market Share - still dominated by the public sector banks. CBE Website

8. 2(b) Market Share – Competition PFS Assets/Liabilities

9. 2(c) Market Share – Competition PFS Loans/Deposits

10. 2(d) Market Share – Credit Cards Egypt is one of the fastest growing countries in Middle East in terms of cards, with an average growth rate 39% (as compared to Middle East) POS usage growing strongly, with retail sales volumes growing year-on-year at approximately 12% for the past 5 years

11. 2(e) Market Share - Credit Cards Growth -15.2 -13.8 -1.3 -1.0 Growth in HSBC Market Share 8.3 (8% as at 2Q06) 9.5 9.7 HSBC Market Share 44.2 15.9 11.7 26.6 Growth in HSBC CIF 71.2 18.2 13.2 27.9 Growth in market Visa CIF Cumm. (02–05) % 2005 % 2004 % 2003 % Visa Card (Credit Cards)

12. 2(f) Market Share - Credit Cards Growth 250.0 7.7 225.0 Growth in HSBC Market Share 1.4 1.3 0.4 HSBC Market Share 659.8 76.8 329.6 82.7 Growth in HSBC CIF 142.6 71.9 (49.6%-SEP06) 41.2 - Growth in market MasterCard CIF Cumm. (03–05) % 2005 % 2004 % 2003 % MasterCard (Credit Cards)

13. 2(g) Market Share - Credit Cards Rank / Share 1 / 29% 1 / 30% Visa Gold Retail Spend 1 / 24% 1 / 27% Visa Gold CIF 5 / 2.2% 6 / 2.6% 6 / MasterCard Retail Spend 6 / 1.4% 6 / 1.3% 7 / MasterCard CIF 2 / 12% 3 / 10% Visa Classic Retail Spend 3 / 7% 2 / 8% Visa Classis CIF 2005 2004 2003 2002 Credit Cards

14. 3(a) Competition - General Aggressive competition; new products/ services, and pricing challenges on supply side putting pressures on market share/ profit margins. Public Sector Banks – greater geographic coverage & larger customer base Subsidiaries of global banks (Citibank, Barclays) Mergers and acquisitions (Credit Agricole, NSGB)

15. 3(b) Competition – External Sales Citibank (1999); PFS sales fully outsourced to their own company; sales force 94 Credit Agricole (2003); internal management - outsourced sales force - 60-100 sales executives Arab Bank (2004); internal management and sales force - 20-30 sales staff CIB – recent set up of internal sales team; 30-40 staff Barclays Bank (2006); internal management - outsourced sales force; approx. 400 sales executives (to grow to over 1000 during plan period)

16. 4. Life Cycle Management Economy – growing economy, with GDP growth rate 5.7% (estimate 2006). Strong government efforts in fiscal consolidation, privatization and the restructure of some key sectors. Positive climate for foreign investment creating employment and growth opportunities. Customer – large young population; opportunity to capture with hook products for potential future cross sell, as they move with life cycle requirements. Product – opportunity to develop the basic products offerings for higher returns through loyalty programs, expenditure promotions.

17. 5. Services Service levels under threat due to: Complexity of sales/increasing number of products; Expansion growth rate Sales targets Enhanced awareness of targeted/ bankable customers: more demanding requirements continuously changing needs expectations of good service standards, convenience and pro-activeness from banks.

18. 6. Embedded Value Cross sales ratio currently at 2:14; the upside is doubling this figure, thereafter need to invest in future market. Opportunity to create embedded value: External sales models break even – within 2 years, thereafter it is direct embedded value DSC creates a new pool of customers for future growth (derived embedded value)

19. 7. Geographic Coverage Geographical coverage to enhance profit per square meter. Aggressive expansion of branch network, will be complemented by large sales force to optimize reach. The proactive reach of customers, at their convenience.

20. External Sales Strategies An external sales strategy meets the challenges / opportunities of the market environment. It is also in line with market and Group practice; successful Group models in place - HBME, Asia, and TIMBRE.

21. TIMBRE TIMBRE countries - similar market dynamics of emerging markets; growth opportunities - young un-banked large population – economies undergoing structural reforms. The external sales models – identified as cost efficient strategies for mass sales acquisition, to grow market share and increase raise profitability, through NTB customers. The External Sales Strategy should encompass: Focused sales approach – clearly defined market segments Variable income of around 0.6% of disbursement amount Systems to measure and manage productivity and performance Systems to measure and manage sales activities, leads and referrals Sourcing of sales referrals through regular campaigns, promotions

22. TIMBRE - Mexico An outsourced direct sales company (Fuerza Movil) leveraging the branch network (1316 branches, 6.8m customers, 4.5k ATMs and 20k FTEs) Sales force size - 663 (includes supervisors, Managers, Regional Heads) Sales force - managed within PFS structure and work with branch units to align synergies Dedicated to credit card sales Performance based compensation applied bank-wide ; the “Motivator” system – calculates incentives based on value generation Sales force incentives - based acquisition and usage; small fixed income, large variable Branch incentives - based on average balance variation, promoting referrals CRM usage – for sale referrals, cross-and-up sales Multi channel campaigns to generate leads

23. TIMBRE - India Limited network coverage due to regulatory environment; 46 branches, 2010 target is set around 60 - 70 branches Mass acquisition strategy - outsourced outbound tele-calling centre to generate leads Total sales force exceeds 1000 for personal loans and credit card, 60% outsourced Supervisor ratio 1:10; each Direct Sales Agent reports to a Sales Manager Home mortgages – separate team 85-90

24. Set-up 2001; 14 Direct Sales Staff

25. TIMBRE – Egypt (Direct Sales) HBEG Direct Sales Team; set-up Y2001; 14 sales representatives

26. The Ideal Sales Model Build on Group experience (TIMBRE, HBME). Establish the ideal sales model, key elements of which are: Aligned strategies with Bank’s strategic objectives Appropriate structure/ management span Selection/recruitment of the management team, and the “hunters” Training and development Targets and incentives Performance Management/ Management Information The Sales Culture.

27. The Ideal Sales Model - Implementation Options

28. Model A – HBEG External Sales Model A – In-house external sales structure. General Assumptions: YI cards income contribution - 50% of average credit card YII+ cards income contribution – 25% more than average credit card YII+ Premier/Gold share of card base – 20% Income Contribution; Premier/Gold EGP913 - Others EGP296 Turnover per card growth – 8% Fixed cost growth – 8% Fixed salary growth – 5% 5 year Discount Rate – 10.5% Assumptions specific to Model A: FTE 40 - planned sales force 50; (turnover, recruitment process) Fixed salaries sales force - 60% Productivity 8% Incentives – EGP69/unit Incentives; Team Leaders – 20% of sales force incentives; Sales Executive – 20% of Team leader Incentives

29. Model A – Financials

30. Model A - Advantages Benefits over the existing set-up are: NPV out-weighs the impact of the high cost structure over plan Reduced fixed salary costs (60% of HBEG salary scales) Higher sales and productivity given: Management structure, supervisory overview (1:10) Product focus and intensity Rewards and recognition programs Performance and activity management Campaign referrals and leads Increased training cycles

31. Models B – External Sales Company External Sales Company - internal management team and sales force. General Assumptions: YI cards income contribution - 50% of average credit card YII+ cards income contribution – 25% more than average credit card YII+ Premier/Gold share of card base – 20% Income Contribution; Premier/Gold EGP913 - Others EGP296 Turnover per card growth – 8% Fixed cost growth – 8% Fixed salary growth – 5% 5 year Discount Rate – 10.5% Assumptions specific to Model B: Sales force – 50; Fixed salaries sales force - 40% Productivity 10% Incentives – EGP77/unit; gateway 11 cards/month Incentives; Team Leaders – 20% of sales force incentives; Sales Executive – 20% of Team leader Incentives

32. Models B – Financials

33. Model B – Advantages Additional benefits over Model A are: Standalone, flexible business structure Flexible recruitment policy – focus on sales characteristics; Exit bottom 5-10% performers annually Flexible remuneration policy linked to sales achievements Reduced fixed salary costs – 40% Sales environment more attainable – higher productivity Sales environment does not impact HBEG equilibrium No commitment to integrate sales force within HBEG Ability for HBEG to second management (oversight) Increased training cycles, regular coaching and mentoring Campaign referrals and leads

34. Models C / D – Outsourced Sales Force Models C and D are external and internal models, both using an outsourced sales force. The two models have similar financial returns based on the comparable levels of sales achievement and productivity. The key differences lie in: Set-up requirements – legalities, time and one off cost Degree of impact on HBEG equilibrium The ability to attract/recruit best talent

35. Models C / D …cont General Assumptions YI cards income contribution - 50% of average credit card YII+ cards income contribution – 25% more than average credit card YII+ Premier/Gold share of card base – 20% Income Contribution; Premier/Gold EGP913 - Others EGP296 Turnover per card growth – 8% Fixed cost growth – 8% Fixed salary growth – 5% 5 year Discount Rate – 10.5% Assumptions specific to Models C/D Sales force – 50 Zero fixed cost - sales force Productivity 10% Incentives; Sales force EGP70/unit Incentives; Team Leaders – 20% of sales force incentives; Sales Executive – 20% of Team leader Incentives

36. Models C and D – Financials (2/day)

37. Models C and D – Financials (1.5/day) Low sales (1.5/day); productivity nil; cost growth 10%

38. Models C and D – Financials (3/day) Higher sales (3/day); productivity 12%; cost growth 8%

39. Model C - Advantages HBEG Sales Company, with an outsourced sales force. Additional benefits over Model B are: Reduced fixed costs – sales force An outsourced sales force enhances scalability, and migrates non-core sales functions to a third party – HR contracts, payroll, insurance, etc..

40. Model D - Advantages HBEG External Sales Department - internal management team, with an outsourced sales force. Additional benefits over Model C are: No set-up costs and/or legal complexities relating to establishing a new company (capitol costs, approvals, registration, 3 shareholders, general assemblies, balance sheet, income and profit distribution etc) Ability to attract, recruit and retain the best talent.

41. Key Considerations -1 0 1 Rating

42. Recommendations While Models C and D both meet HBEG business objectives, the recommended option is Model D, due to: Setup does not involve the complexities of establishing/maintaining a separate legal entity Ability to attract/retain best talent Given that there are no restrictions on number of branches, a separate sales company does not provide additional reach/benefits Successful implementation/goal achievements are directly linked/subject to: A stand-alone business structure, and the ability to create a robust sales environment/culture Sales force selection/recruitment with the sales management team Management team incentives based on goal achievements Ability to handle staff turnover