Moody's Maintains Positive Outlook on Egyptian Banks

By: ِYassmine ElSayed

CAIRO, Feb. 12 (SEE) - Moody's Investors Service maintained its outlook of the Egyptian banking sector to positive from stable, as North Africa's largest economy strengthens and operating conditions improve for lenders in the country.

According to Moody's report, the improving operating environment followed by the implementation of structural reforms that put the country on a path of sustainable and inclusive growth were the key drivers of Moody’s positive outlook.

The report adds: “The positive outlook is due to the large exposure that Egypt's banks have to the country's government through investments in securities and loans, which stood at 40 percent of total banking system assets as of June 2018.”

"Accelerating growth in Egypt reflects increased public and private-sector investment, higher exports and a recovery in tourism," said Constantinos Kypreos, a senior vice president at Moody’s. "We expect balance sheet growth of around 15 per cent in 2019 and for banks to maintain ample local currency funding, high liquidity, and strong and stable profitability."

It expected Egypt’s real gross domestic product (GDP) to record 5.5 percent in 2019, up from 4.2 percent in 2017, noting that ongoing economic and fiscal reforms will slowly nudge GDP higher,” the report said.

"Increased domestic private sector investment, large infrastructure projects, as well as higher exports will drive economic growth and credit demand", Moody's Assistant Vice President Melina Skouridou said.

Moody’s said banks profitability will remain strong, as rising fees and commissions on new lending will support banks' pre-provision profit. Loan-loss provisioning will be broadly stable for rated banks.

It clarified that the two largest government-owned banks, National Bank of Egypt SAE and Banque Misr SAE, have increased their market funding significantly, but their large liquidity buffers already offset refinancing risk, and Egyptian banks will maintain high levels of liquid assets to ensure coverage of liquidity needs and deposit movements, saying that stable deposit funding and low loan-to-deposit ratios also support liquidity.