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Market Report, "Egypt Commercial Banking Report Q3 2012", Published

New Financial Services research report from Business Monitor International is now available from Fast Market Research


Boston, MA -- (SBWIRE) -- 08/27/2012 -- BMI View: The outlook on the Egyptian banking sector in 2012 remains subdued in light of a weak macroeconomic backdrop, risks of a currency devaluation, and elevated provisioning for loan losses. Net interest income should help support underlying profitability in the near term, particularly with yields on treasury bills likely to remain elevated. In light of a weak macroeconomic backdrop, risks of a currency devaluation and ongoing political uncertainty, our outlook on the Egyptian banking sector in 2012 remains cautious. Indeed, an aggressive expansion in balance sheets is likely to remain off the cards until 2013 at the earliest. Latest data from the Central Bank of Egypt (CBE) highlights the industry's troubles, with total assets expanding only 0.2% yo- y in November to come in at EGP1.3trn (US$221.8bn). With new lending having effectively come to a halt, the headline expansion in asset growth has primarily been due to a surge in the bond portfolios of state banks. Through the first eleven months of 2011, total loans expanded only 2.4% y-o-y, against growth in the sector's aggregate bond portfolio of 11.6%. This took bonds' share of total assets to 37.1%, against 36.0% for loans. As we have highlighted on numerous occasions previously, with yields on local treasury bills continuing to trend higher, net interest income for banks holding larger shares of their assets in Egypt Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 34 government securities is likely to remain well supported amidst the broader economic gloom. We hold a less optimistic outlook on the prospects for loan growth going forward, as uncertainty surrounding the political backdrop is likely to keep new credit growth in check. Deposit inflows also continue to slow, raising concerns surrounding the public's underlying confidence in the sector. In November, the total stock of deposits in the system increased 4.5% y-o-y (against consumer price inflation of 9.1%), marking the slowest pace of expansion in our data series going back to June 2005. As the accompanying chart highlights, there has also been a notable trend of dollarization within the system, which we expect to continue given ongoing risks of a forced and uncontrollable devaluation in the Egyptian pound over the coming months. In November, local currency deposits increased 2.0% yo- y (compared to 16.5% in November 2010), while FX deposits expanded 13.9% (compared to 1.5% in the same month a year earlier). Although confidence in the currency is collapsing, it is nevertheless encouraging that there has not yet been a wholesale withdrawal of deposits from the banking sector. FX Risks To The Fore In terms of how an official devaluation could impact underlying stability, some respite will be provided by the fact that the industry only suffers from a slight currency mismatch between deposits and loans. As of November, FX loans only accounted for 27.6% of the total stock o

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