Egyptian banking system outlook stable as economic growth picks up, Moody’s says

Moody’s does not expect a material deterioration in the loan quality of Egyptian banks despite a sharp rise in borrowing costs and inflation. (Reuters)

DUBAI: The outlook for Egypt’s banking system remained stable as economic growth picked up, loan performance was broadly resilient and banks benefited from a stable deposit base, Moody’s said in its latest report.
Economic growth would be driven by rising foreign investment, resilient domestic consumption and the gradual recovery of the tourism industry, according to the ratings agency.
With investments, household expenditure and tourism picking up, Moody’s projected that Egypt’s gross domestic product would expand at a faster 4.5 percent for the fiscal year ending June 2018, from 4 percent in 2017, and will accelerate further to 5 percent in 2019.
“The banks are funded by stable and low-cost domestic deposits, mainly from households, a credit strength, said Melina Skouridou, assistant vice president and analyst at Moody’s.
“We expect increasing banking penetration and increased remittances to spur deposit growth. Though government-owned banks have significantly increased their market funding over the last two years, this funding is mainly from regional banks and multilateral development banks, where refinancing risks are lower.”
The ratings agency also does not expect a material deterioration in the loan quality of Egyptian banks despite a sharp rise in borrowing costs and inflation.
While corporate profits declined, their debt repayment capacity was supported by relatively low overall levels of debt, as well as government initiatives to help tourist companies and importers, Moody’s explained, and added that retail loans were confined to wealthier households.
It however cautioned that delinquency rates – especially if interest rates rose further, high inflation persisted or economic growth faltered – could increase as new loans mature.
The banks’ high exposure to low-rated government securities – accounting for 33 percent of their assets – will continue to be a key concentration risk and links banks’ credit profile to that of the government, Moody’s said.