National Bank of Egypt (NBE) is Egypt's oldest commercial bank, established in 1898. The document provides an overview of NBE's sources and uses of funds. Deposits and borrowed funds are major sources of funds for NBE. NBE offers various deposit accounts and loans to individuals and businesses. To manage risk, the Central Bank of Egypt regulates banks' reserve ratios, capital requirements, and disclosure rules. NBE utilizes technology to provide services like online payments and ATM access. Financial analysis of NBE shows adequate liquidity and profitability ratios.

1. Commercial Banks
National Bank of Egypt
Team Members
1. Amal Samir Ali 1137
2. Amira Mohamed Samir 1138
3. Asmaa Adel Hassan 1134
4. Ehdaa Refaat Elsayed 1139
5. Marwa Ossama Elmessiry 1197
6. Salma Mohammed Dehis 1255
Team Code (FI 11)
April, 2013
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2. Introduction
This research is developed to provide further information about Financial Institutions. It
represents a study about National Bank of Egypt (NBE); it covers a historical back ground
of the bank and its sources and uses of fund. In each sources and uses of fund, it includes
the definition of source, its type and its obligations and collaterals if any. It shows the
importance of technology and its effect on presenting valuable customer services. Also it
covers the financial analysis of bank, to know the extent to which NBE successes and
manages its operations and risk. The report ends with a conclusion and references list.
Definition of Bank
A bank is a financial institution which deals with deposits and advances and other
related services. It receives money from those who want to save in the form of deposits and
it lends money to those who need it. Bank is an establishment for custody of money, which
it pays out on customer's order (Bhatia, 2007).
National Bank of Egypt: Bank Background
National Bank of Egypt (NBE) is the oldest commercial bank in Egypt. It had been
established on June 25, 1898 with a capital of £ 1 million. NBE is one of important banks
whom reflect development in economic sector. It held equity participation in 186 projects
covering all fields of economic activities. In addition to it established some companies such
AL-Ahly Co. for land Reclamation and Cultivation, Egyptian Co. for Real estate management
and investment and Al-Ahly Financial Leasing. A bank's major role is to raise funds largely
through deposits and equity and invest them in productive assets. However, the resulting
differential interest income (interest earnings on assets minus interest costs on deposits)
will go to meet operating costs including loan provisions and provide the institution with
its net earnings. Egyptian Central Bank determines NBE’s reserve for each branch
depending on activities of the branch (NBE, 2013).
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3. Sources of Fund
Deposits and borrowed funds are the major sources of fund. As central bank's monetary
policy control the money supply of any bank, each bank has to compete for its share based
on service rendered to the depositor since interest is not paid on these current account
balances. Bank calculates the cost of services to make sure the value of deposits
compensate cost and provides a profit margin by calculating service charge (cost) plus
profit margin and offsetting this charge. So banks should provide the needed service at low
cost margin in order to succeed. Bank mobilizes savings in a variety of forms - savings
account, time deposit account, and certificate of deposit as follow (Selvavinayagm, 1995):
1. Savings account
Have no specific maturity date, no written contractual require from depositor about his
withdrawal funds. It is permitted by Local and Foreign Currency (NBE, 2013).
A. Local Currency: It has three types; each type differs in its interest frequency, opening
amount, prizes and holders. One example is EGP Retirement Saving which offers an
advantage to retired persons that allow pension amount be transferred to the account for
investing purpose. It is allowed only for Egyptians and interest on this account will be paid
monthly as helping holders as they took monthly salary (NBE, 2013).
B. Foreign Currency: Such as Saving Account with Prizes. It is allowed for Egyptian,
gives return annually. It has two different prizes one by US $and other by Sterling Pound £.
Each prize has different amount of US $ or £ is considered as separate deposit that can
enter draw monthly or by NBE announcement for large prizes (NBE, 2013).
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4. 2. Deposits
1.2 Short Term Deposits: It is opened for Egyptians, Foreigners, legal persons and
Minors. It has many advantages such interest can be added to deposit balance at accrual
dates to be invested along with the principal. NBE permits deposits by different currencies
EGP, US, SR, € and £, however in different amounts and durations (NBE, 2013).
EGP 100,000 EGP Week – 2 weeks – less than one month
US 1000 $ 1-3 months – 6 months – 9 months – 1 year
2.2 Long Term Deposits: They are allowed only by Egyptian Pound (Min. 1000 EGP). It
offers monthly, quarterly, semi annually, and annually interest. In case of canceling the
deposit prior to its maturity date, an interest rate is calculated for the actual period, 2%
less than the rate at the time of booking deposit or the rate at the time of canceling deposit,
whichever is lower (NBE, 2013).
3. Certificate of Deposits
It is a deposit that provides from its face the amount of each deposit payable, either on
certain date specified in the certificate or at expiry of specified date that should be not less
than 30 days after the date of instrument. It is divided into two majors: Local and Foreign
certificates (NBE, 2013).
1.3 Foreign Certificates: have many different types, while they are somehow common
in their return which exceeds 2% above certificate rate of return. They differ in their
duration, interest frequency and denominations (NBE, 2013).
2.3 Local Certificates: Such as Platinum Certificate. Its duration is 3 years, interest
paid monthly & quarterly and minimum amount for certificate is EGP 1,000 (NBE, 2013).
Uses of Fund
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5. A bank’s assets are grouped into four major subcategories: (1) Cash and Balances due
from other depository institutions (2) Investment Securities, (3) Loans and Leases and
(4) Other assets. Loans are the major items on a bank’s balance sheet and generate the
largest flow of revenue income. However, loans are the least liquid asset item and the
major source of credit and liquidity risk for most banks. NBE offers two kinds of loans
which are as follow (Saunders & Cornett, 2009).
1. Personal Cash Loan
1.1 With Company undertaking to transfer salary or installment
NBE offers this type of loans for governmental and public sector employees,
petroleum sector employees and for private multinational company employees listed in
NBE. It has common minimum amount 5000 EGP and different maximum amount for
different sectors. Maximum monthly installment value varies 50% to 60% of monthly
salary. It is free life insurance with competitive interest rates (NBE, 2013).
2.1 Without Company undertaking to transfer
This type of loan is offered for the same above sectors, in addition to bankers. Loan
tenure differs from sector to another such (For petroleum sector 4 years and for
bankers 7 years). Maximum monthly installment value varies from 25% to 50% of
monthly salary. It is free life insurance with competitive interest rates and without
guarantor. Bank requires fees 2% for late payment and 3% for early settlement (NBE,
2013).
2. Loans guaranteed by deposits, saving pools and investment
certificates
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6. 1.2 Loans guaranteed by L.E. investment certificates: 2% above the credit interest rate
of the certificate + commission 0.75% (zero point seventy five per mille) per month on the
highest debit balance (NBE, 2013).
2.2 Loans guaranteed by L.E saving pools (certificates): 2% above the credit interest
rate of the saving pool + commission 0.75% (zero point seventy five per mille) per month
on the highest debit balance (NBE, 2013).
3.2 Loans guaranteed by L.E saving books and fixed deposits: 2% above the credit
interest rate of the book or deposit + commission 0.75% (zero point seventy five per mille)
per month on the highest debit balance (NBE, 2013).
4.2 Loans guaranteed by assets: They expired after 5 years and have 13.5% interest
rate which is determined by Central Bank (NBE, 2013).
 And here's a simple comparison that shows the differences between the American
system and that in the national bank of Egypt according to types of loans:
The National bank
of Egypt
The American
system
Types of loans
Commercial and industrial loans
Real estate loans
Individual/ Consumer loans
loans guaranteed by deposits, saving pools and
investment certificates
Loans to nonbank financial institution
State and local governments loans
Foreign banks loans
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7. Sovereign government loans
After reviewing the differences between the two systems, hence it is easier to understand
more about the NBE’s loans conditions. Amount of loan for each kind of NBE’s loans is 80%
from the value of saving pools, certificates or assets. 2% above credit interest rate is
considered gains for the bank. After three months in case of solvency of the borrower, the
bank will contact him to know the reasons that prevent him to pay the installments. Then
bank will give him a chance for extra three months to pay, if he cannot pay the installments
the bank will close his savings pools or certificates as collateral of the loan. In addition to
NBE participates in Insurance Policies against Risk Agency.
Banking services and Technology
Advanced technology affects well many institutions, companies and others. It allows
them doing their business and functions easily and in effective cost for time and effort. NBE
started to use the technology since 2002 by offering its customers E-Payment services. This
service allows customers to buy any product/ service over the internet for organizations
request to add this service on their websites. One of the advantages of this service is that it
offers technical support for companies 24 hours/ 7 days a week. NBE is able to secure
transactions over the internet by using the latest internationally recognized security such
Verified by Visa (VBV). It is worth to mention that NBE is keen on its customers, it offers
them outstanding service such ATMs which allow them to withdraw from their accounts
with maximum amount 5000 Egyptian pound from any installed ATM machine. Also NBE
offer a service named AL-AHLI Swift, which allows transfer any desired amounts from
customer’s account to other party’s account in other bank. For continual outstanding
services provided by NBE, it offers good investment service to its customers. This
investment service allows customers to buy or sell securities in stock market easily
through Brokerage Company owned by NBE, in turns of gains to the bank from
commissions (NBE, 2013).
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8. Risk Faced by Bank
Having a risk management plan is essential for any bank, as it can help preventing
disasters and losses. Central Bank of Egypt (CBE) takes then responsibility of undertaking
any tasks or measures required for applying the monetary, credit and bank policies for
guaranteeing the soundness of bank credit. Most of banks nowadays suffer from existing of
many deposits without using in useful or profitable track. NBE does not face any risk
problems, since Board of Directors of CBE sets rules for the regulations and supervision
over banks such:
1. A determination of the minimum capital adequacy requirement.
2. Determination of the liquidity and reserve ratios.
3. The rules of disclosure, and the data to be disseminated, as well as the means of
dissemination.
4. The rules concerning the maximum limit of the bonds each bank may issue or guarantee,
and the conditions of bonds issuing or guaranteeing (NBE, 2013).
Banking Supervision Departments are responsible for implementing CBE’s supervisory
objectives. These departments supervise 39 banks in Egypt as per annual supervisory plan.
They consist of seven departments such On- Site and Off- Site Supervision (NBE, 2013).
On-Site Supervision Department aims to apply effective and efficient supervision
standards through controls systems based on a risk approach. This department plays an
important role in assessing financial condition of banks and risks associated with current
and planned activities, in addition to following up with banks and verifying that
deficiencies have been corrected. Banking supervision process is carried out by control
system that includes a mixture between the CAMELS rating system and the Risk
Assessment (NBE, 2013).
The Risk Assessment system assesses quantitative and qualitative risk inherited in
banks such credit risk and market risk and assessing bank’s quality of risk management.
While the CAMELS rating system assesses bank’s performance through capital adequacy,
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9. asset quality, management quality, earnings quality, liquidity and funding and sensitivity to
market risk. This system ensures effectiveness of internal control of the bank and existing
and potential risks (NBE, 2013).
Off-Site Supervision Department is responsible for developing an effective risk based
approach that monitors different types and developments of risks facing banks. Also it
assesses the extent to which banks are affected by current events. It is a whistle Brower
whom allows CBE to take proactive measures to ensure the safety and soundness of the
banking sector (NBE, 2013).
Financial Analysis and Bank’s Appraisal
Financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. Then arrange
the information in a way to highlight significant relationship. Finally interpret and draw
inference and conclusions. It is useful to present complex data in financial statement in a
simple and understandable form, to know the earning capacity or profitability of any
institution and to measure the efficiency of management. Bank can do it by many methods;
this research will cover only financial analysis by using financial ratios (Bhatia, 2007).
 Cash Ratio
It is a ratio of total cash and cash equivalents to its current liabilities. It is most
commonly used as a measure of a company’s liquidity; which means how quickly a
company can repay its short-term debt. A strong cash ratio is useful to creditors when
deciding how much debt they will be willing to extend to the asking party. A cash ratio of
1.00 and above means business will be able to pay all its current liabilities in immediate
short term. However, the ratio in 2010 is 0.3029* which means that it is lower than 1, that
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10. could be explained , the bank prefer to use the idle cash to generate profit , and it decrease
in 2011 to be 0.1811* which prove the strategy the bank prefer. This means that a normal
value of cash ratio is somewhere below 1 (Selvavinayagm, 1995).
 Loans to asset Ratio
This ratio measures the total loans outstanding as a percentage of total assets. The
higher this ratio gets the lower is the liquidity of a bank. Hence, the higher the ratio, the
more risky it is for a bank for to encounter higher defaults. The higher the level of long-
term debt, the more important it is for a bank to receive positive revenue and steady cash
flow. In 2010, the percent was 59.86%* which means that more than 50% of the current
asset of the bank is financed in loans, then in 2011 it increase to be 74.39%* which means
that loans are one of the most important source of profit. It is very helpful for management
to check its debt structure and determine its debt capacity (Selvavinayagm, 1995).
 Loans Deposit Ratio
This ratio is used to measure a bank’s liquidity through dividing the total bank’s
loan by its total deposits. This ratio is expressed as a percentage; as if this ratio is too high
it means that the bank may not be able to have sufficient liquidity to cover any fund
requirement and vice versa. In 2010, the rate was 33.37 %* that means that bank uses that
ratio from deposit to provide loans for companies. Then in 2011 it decreased to be
32.58%* which means that bank decided to keep a certain level of mandatory reserves,
they may also choose to keep a percentage of their non-lending investing in short term
securities to ensure that any monies needed can be accessed in the short term
(Selvavinayagm, 1995).
 Return on asset Ratio
This is an indicator of how well is a company or a bank is profitable relative to its
total assets. ROA is efficient as it shows how management is utilizing assets to generate
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11. earning. Return on assets in 2010 was 1.22* indicates the number of cents earned on each
pound of assets, it shows the profitability on asset before tax, then it increases in 2011 to
be 1.36*, Thus higher values of return on assets show that business is more profitable
(Selvavinayagm, 1995).
 Return on Equity Ratio
It reflects the amount of net income returned as a percentage of shareholder’s
equity. It is a measure of profitability as how much profit is generated from shareholders
investments. This ratio is useful as it compares the company’s profitability to other
companies of the same industry. Higher values are generally favorable meaning that bank
is efficient in generating income on new investment. In 2010, it was 0.616* it means the
profitability on equity after tax. Then in 2011, it increased to be 0.6387*, which means the
investment of the bank became better. The management, for example, can artificially
influence it when debt financing used to reduce share capital there will be an increase in
ROE even if income remains constant (Selvavinayagm, 1995).
 Return on Investment Ratio
This ratio mainly measures performance, as to evaluate the efficiency of an
investment. In 2010, it was 5.63 %* refers to the proceeds obtained from selling the
investment of interest, and then it increased in 2011 to be 8.68 %*, which means the
interest received on security increased and that is a good indicator for the buyer. Return on
investment is a very popular metric because of its versatility and simplicity. That is, if an
investment does not have a positive ROI, or if there are other opportunities with a higher
ROI, then the investment should be not be undertaken (Selvavinayagm, 1995).
 Net Interest Margin
It is a performance measure as it examines how well a firm’s investment decisions
are compared to its debt situations. So; a negative value would indicate that the firm did
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12. not make an optimal decision, simply because interest expense was greater than the
amount of returns generated by investments. NBE’s net interest margin in 2010 was -5.84
%*. However, Bank’s yield on security depends on the general level of interest rates and
the maturity distribution of the portfolio. Then in 2011 it decreased to be -5.72 %* that
means NBE would have been better off if it had used the investment funds to pay off debts
instead to making an investment. Typically, a portfolio with long-term securities earns
more than one with short-term securities, the differential accounting for lower liquidity
(Selvavinayagm, 1995).
 Other Operating Income Ratio
This ratio shows the dependence of NBE on income other than (operating) interest
earnings on loans, in 2010 it was 0.54%* which represent a small rate then it slightly
increased to be 0.55%* which means that NBE depends on other operating income by that
ratio (Selvavinayagm, 1995).
(*) It refers to appendix 1 which includes any calculation of all ratios.
Appendix 1
No. Ratio Formula 2010 2011
1 Cash ratio
Cash at the bank
Total deposit 0.3029 0.1811
2 Loans to asset
Loan X 100%
asset 59.86% 74.39%
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13. 3 Loans deposit ratio
loan at the bank x100%
total deposit 33.37% 32.58%
4 ROA
Profit before tax
Average total asset 1.22 1.36
5 ROE
Net profit after tax X100%
Capital+ reserve 0.616 0.6387
6 Return on loans
Interest/fees earned X100%
Total loans 11.66% 9.46%
7 Return on investment
Interest on security X100%
Total book value of security 5.63% 8.68%
8 Net interest margin
Interest income-interest exp.
Average total asset -5.84% -5.72%
9 Other operating income
Other operating income X100%
Average total asset 0.54% 0.549%
Conclusion
Finally, this research concludes that banks as a kind of financial institutions play a
crucial role in serving country’s economy and finance some vital projects. One of Key
success factors of National bank of Egypt (NBE) is the way the bank mobilizes its savings
and deposits and how it uses that to develop its operations and handling its risks. It also
concludes that Loans are considered main use of fund in the bank while they include high
risks and requires from bank to have a good management which facilitate loans’ obligations
and guarantee repaying the amount of loan at due date. In addition to the way Central Bank
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14. of Egypt (CBE) manage risk over other banks, in turns to that (NBE) does not face such
disasters or harmful risks. NBE uses technology well and offering its customers ultimate
services such transferring money online and ATM’s. In addition to presenting a financial
analysis of NBE by using financial ratios, this analysis reflects successful management of
bank’s operations and its profitability.
References
Bhatia, Meeru, (2007). Comprehensive Study on Financial Analysis (M.B.A). Kurukshetra
University.
Central Bank of Egypt (CBE). Retrieved From: http://www.nbe.com.eg/en/main.aspx
National Bank of Egypt (NBE). Retrieved From:
http://www.cbe.org.eg/English/Banking+Supervision/Banking+Supervision+Departments
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15. Saunders, Anthony & Cornett, Marcia million (2009). Financial Markets and Institutions.
McGraw- Hill 4th
Edition: New York.
Selvavinayagm, (1995). Financial Analysis of Banking Institutions. FAO Investment Center,
Occasional Paper Series NO. 1.
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