Egypt’s Banks to benefit from improved environment

Business Monitor International anticipated the Egyptian banking sector to benefit from the continuous improvements in domestic economic activity and political conditions. It said that reforms to the fuel subsidy system, in addition to lower global oil prices, would improve the fiscal outlook and reduce the financing needs of the government, which would encourage lending to the private sector.

Further, it indicated that banks in Egypt have subscribed excessively to high-yielding government debt instruments to support their profitability. It noted that banks’ holdings of government securities were equivalent to 41.4% of their assets at the end of November 2014, the highest level in recent years. But it considered that the gradual reassessment of rate expectations on government securities and the decrease in yields on bonds would encourage banks to shift away from Treasury bills towards lending to the private sector.

In addition, it pointed out that low statistical base effects, reduced risks of dollarization, a positive macroeconomic environment and lower global oil prices would strengthen customer deposits and would support credit growth. It forecast lending to grow by 9% and for customer deposits to increase by 14.2% in 2015. However, it did not anticipate non-performing loans (NPLs) to significantly drop in coming months. It noted that the expiry of loan repayment facilities to corporates, which have been crucial in limiting the rise in NPLs, would offset the positive impact of a better operating environment.