S&P Sees Strong Credit Growth Ahead for Egypt’s Banking Sector

Egypt’s banking sector is expected to see robust lending growth and sustained liquidity strength, supported by improving funding conditions and a gradual economic recovery, according to a recent report by S&P Global Ratings.

The ratings agency said that a large and expanding deposit base will continue to finance strong credit growth, while improved macroeconomic conditions are likely to stabilize asset quality across the sector. S&P expects the positive economic backdrop to translate into stronger banking performance throughout 2026.

S&P forecasts that lending growth in Egypt could reach around 25% in 2026, driven by rising private-sector investment, continued momentum in tourism, and a gradual easing of monetary policy. Inflation is expected to decline to an average of 12% in 2026, down from 20% in 2025, creating a more supportive environment for credit expansion.

The agency noted that financing conditions are expected to remain favorable, supported by a stable Egyptian pound and anticipated interest rate cuts by major central banks. S&P currently expects the U.S. Federal Reserve to implement two 25-basis-point rate cuts in the second half of 2026, which should help stabilize emerging-market currencies, including Egypt’s.

In line with easing inflationary pressures, S&P expects the Central Bank of Egypt to continue loosening monetary policy. The benchmark policy rate is projected to fall to around 18% by the end of June 2026, down sharply from a peak of 27.25% maintained for much of fiscal year 2025.

Against this backdrop, credit growth is expected to remain strong through 2026 and 2027, with government and public-sector entities continuing to account for a significant share of lending, given their substantial financing needs. However, S&P expects private-sector demand to pick up in 2026, shifting the composition of loan growth toward corporate investment rather than inflation-driven working capital needs.

The report highlights a return in demand for capital expenditure, particularly in information technology, construction materials, oil and gas, shipping, and infrastructure. Banks are also expected to continue facing strong demand for working capital financing.

Small and medium-sized enterprises (SMEs) are likely to contribute to future lending growth after their share of total credit declined over the past two years due to tight financing conditions and economic uncertainty. As conditions normalize, SME lending is expected to gradually recover.

Despite strong loan growth, S&P expects bank profitability to moderate. Return on equity is forecast to decline to around 20% in 2026, from approximately 24–25% in 2025, and well below the sector’s historic peak of 39% recorded in 2024.

The moderation is largely attributed to lower interest rates compressing net interest margins, particularly given the dominance of short-term deposits in banks’ funding structures. Large holdings of government securities, accounting for roughly 34% of total banking assets as of September 2025, are expected to partially offset margin pressure, as these longer-term instruments continue to generate relatively high yields.

Lower credit losses are also expected to support earnings. S&P projects the cost of risk to fall to about 1.3% in 2026, down from 2.5% in 2024, reflecting improved borrower performance and stronger provisioning coverage.

Improved economic conditions and rising credit volumes are expected to support the stabilization of non-performing loan (NPL) ratios. The NPL ratio declined to 2.0% in September 2025, from 2.9% in December 2023, and is expected to remain stable over the next 12 to 18 months.

S&P noted that regulatory relief measures for SME loan classification, which remained in place through the end of 2025, are unlikely to materially affect asset quality due to banks’ limited exposure to the segment and adequate provisioning buffers.

The sector’s total capital adequacy ratio stood at 18.6% in June 2025, comfortably above the Central Bank of Egypt’s minimum requirement of 12.5%, although capital distribution remains uneven across institutions. The agency also highlighted the relatively high share of foreign-currency-denominated assets, estimated at around 27% of total assets, as a factor to monitor amid rapid balance sheet growth.

Overall, S&P concluded that Egypt’s improving economic environment, easing inflation, and strong liquidity position should provide a solid foundation for sustained banking sector growth, even as profitability gradually normalizes from record highs.