Moody’s Investors Service has maintained its stable outlook on Egypt’s banking<\/p>\n
system, reflecting the rating agency’s expectation that the country’s banks will continue to benefit from a stable<\/p>\n
deposit base, high local currency liquidity and strong profitability over the next 12-18 months.<\/p>\n
Moody’s report, entitled “Banking System Outlook — Egypt: Stable outlook reflects strong funding and<\/p>\n
profitability despite low capital” is available on www.moodys.com. Moody’s subscribers can access this report<\/p>\n
via the link provided at the end of this press release. Please note that this report does not constitute a rating<\/p>\n
action.<\/p>\n
“We expect Egypt’s gradually recovering economy to continue to provide banks with plenty of business<\/p>\n
opportunities,” says Melina Skouridou, an Assistant Vice President at Moody’s. The rating agency expects<\/p>\n
GDP growth to slow to 3.5% for the fiscal year ending in June 2016 (4.2% FY2015), but accelerate to 4.0% in<\/p>\n
2017. “As a result, we anticipate domestic loan growth of around 15% over the next 12-18 months, although<\/p>\n
Egyptian banks’ increasing exposure to the sovereign will remain a key risk, given modest capital buffers.”<\/p>\n
Asset quality metrics are likely to improve over the outlook horizon, in Moody’s view. The rating agency expects<\/p>\n
the system’s ratio of nonperforming loans to gross loans to decline to around 6.0% by December 2016 from<\/p>\n
6.8% in December 2015. This will likely be the result of the settlement of certain legacy cases which have<\/p>\n
lingered on Egyptian banks’ books. Asset risks, however, will remain high, especially those amongst the<\/p>\n
troubled tourism-related borrowers. Over the longer term, government-mandated lending to small and midsized<\/p>\n
businesses (SME) could compromise asset quality. The Egyptian banking system’s capital buffers<\/p>\n
against asset risk are low, particularly when Moody’s adjusts for its heavy exposure to government securities.<\/p>\n
On the other hand, Moody’s expects Egyptian banks to maintain their high liquidity buffers, with ample, lowcost<\/p>\n
customer deposits continuing to finance banks’ lending growth. “Migrant workers send home large flows of<\/p>\n
remittances, which will likely remain a significant driver of deposit growth over the next 12-18 months,”<\/p>\n
explains Ms. Skouridou. “In addition, deepening financial inclusion will further support deposit growth.”<\/p>\n
However, the rating agency notes that foreign currency liquidity is under pressure, due to the severe dollar<\/p>\n
shortage, although this should partly be mitigated by increasing foreign direct investment in the medium term.<\/p>\n
Profitabilty for Egypt’s banks will likely remain robust, with the sector’s return on average equity at 18.9% and<\/p>\n
return on average assets 1.3% as of December 2015, which compares favorably with similarly-rated banks in<\/p>\n
the North Africa and Levant region. Moody’s considers that banks’ profitability will continue to benefit from their<\/p>\n
high exposure to high yielding sovereign debt as well as from rising interest rates, central bank regulations<\/p>\n
allowing banks to finance certain SME loans from their reserves, and high lending volumes.<\/p>\n
Finally, Moody’s considers that while the Egyptian government remains willing to support the banking system,<\/p>\n
its capacity to do so is limited. Over the past three years, the authorities’ capacity to support any bank in<\/p>\n
financial difficulty has weakened as its finances have deteriorated.<\/p>\n","protected":false},"excerpt":{"rendered":"
Moody’s Investors Service has maintained its stable outlook on Egypt’s banking system, reflecting the rating agency’s expectation that the country’s banks will continue to benefit from a stable deposit base, high local currency liquidity and strong profitability over the next 12-18 months. Moody’s report, entitled “Banking System Outlook — Egypt: Stable outlook reflects strong funding […]<\/p>\n","protected":false},"author":2,"featured_media":2839,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_yoast_wpseo_meta-robots-noindex":"1","_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_pr_autopilot_social_copy":"","_yoast_wpseo_opengraph_title":"","_yoast_wpseo_opengraph_description":"","_yoast_wpseo_opengraph_image":"","_yoast_wpseo_opengraph_image_id":0,"_yoast_wpseo_twitter_title":"","_yoast_wpseo_twitter_description":"","_yoast_wpseo_twitter_image":"","_yoast_wpseo_twitter_image_id":0,"_yoast_wpseo_primary_category":0,"_extra_hide_author_box":"1","_extra_featured_post":"","_partner_post_id":0,"footnotes":""},"categories":[24],"tags":[],"class_list":["post-2838","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","et-has-post-format-content","et_post_format-et-post-format-standard"],"yoast_head":"\n