Moody's: Egypt Banking Outlook Stable on Strong Growth, Liquidity

Moody's investor service said in a report that the outlook for Egypt's banking system is stable over the next 12-18 months as the banks maintain high liquidity amid an expanding economy that will help generate more loans and business.

The service affirmed that the Egyptian economy is growing at a strong pace due to economic reforms adopted by the government and central bank financing initiatives to support key sectors of the economy.

"The economy is growing robustly – we project real GDP growth of 5.8% in 2020  supported by declining interest rates, and banks retain good access to stable, deposit-based funding and are very liquid, especially in local currency," said Constantinos Kypreos, Senior Vice President at Moody's.

Moody's expected, in its latest report issued on Thursday, the acceleration of credit growth in the private sector to hit 12-15% in 2020, driven by the economic momentum the country is witnessing amid low inflation, coupled with lower interest rates, effective taxes and higher capital expenditure.

The agency explained that a series of financing initiatives will contribute to stimulating credit growth, including the initiative to finance small and medium-sized enterprises (SMEs) to reach 20% of the total credit portfolios.

Also the initiative to support the real estate sector through allocating EGP 50 billion to finance middle-income inpiduals to purchase housing units, in addition to the biggest financing plan to support the tourism sector with over EGP 50 billion.

Moody's also valued the initiative launched by the central bank in cooperation with the government to support the industry sector at a value of EGP 100 billion in an effort to motivate the private sector to play a greater role in pushing the wheel of comprehensive economic growth in the country.

Moody's considered that the steps taken by the Egyptian government in order to improve the national economy have succeeded in reviving vital sectors such as manufacturing, energy, agriculture and tourism, which is one of the most important sources of foreign currency, as the size of tourism increased by more than 20% in 2019 and is expected to grow.

Mega national projects have also played a role in stimulating the growth of the Egyptian economy, such as infrastructure, as the government aims to pump investments amounting to EGP 51 billion for the development of roads and bridges over the next five years.

Moody's added that Egypt had successfully completed the implementation of the terms of the economic reform program supported by the International Monetary Fund (IMF), which in turn contributed to improving the macroeconomic situation through the liberalization of the local currency and the restructuring of fuel and fuel prices.

In addition, the new legislation and laws that contributed to changing the form of the investment climate in Egypt and attracting more local and foreign investments.

Meantime, the Egyptian banking sector would benefit greatly from the economic expansion by supporting the availability of cash liquidity driven by strong flows of deposits and stable reserves, as well as the success of the Central Bank in eliminating the specter of foreign currency shortages.

Moody's concluded its report that investor confidence has increased in Egypt, which will help banks restore their net foreign assets at EGP 73 billion as of October last year.