CAIRO - 17 January 2023: Egyptian banks’ regulatory capital ratios can withstand further Egyptian pound depreciation as they are supported by healthy internal capital generation, Fitch Ratings said Tuesday.
It added that large private-sector banks are better-placed to withstand currency depreciation than the two largest public-sector banks, National Bank of Egypt (NBE) and Banque Misr (BM), due to their higher regulatory capital buffers.
“The Egyptian pound has weakened 16 percent against the US dollar so far this year, and by about 40 percent since end-June 2022,” it stated, nothing that the currency may remain under pressure in 2023 given Egypt’s import backlog, estimated at $5.4 billion (16 percent of FX reserves), and large gross external funding needs, estimated at over $19 billion for 2023 (about 60 percent of FX reserves).
It wondered whether the Central Bank of Egypt would let the exchange rate and interest rates adjust sufficiently to attract new portfolio flows.
Fitch Ratings added that some Egyptian banks keep moderate long open-currency positions, which can lead to pressure on capital ratios due to inflation of foreign-currency (FC) denominated risk-weighted assets (RWA).
On Monday, the Central Bank of Egypt (CBE) stated that the Egyptian banking sector has covered more than $2 billion in requests from Egyptian importers during the past three days, in addition to covering other requests for Egyptian bank clients.
The CBE elaborated that this confirms the ability of the banking sector to cover pending currency requests for importers as soon as possible.
It indicated that banks are promoting financial derivatives operations in the exchange market, with the aim of providing an integrated financial service that allows bank customers to hedge against the risks of exchange rate fluctuations.
Furthermore, the Central Bank referred to the large increase in banks’ foreign exchange earnings, whether from the local market, or the proceeds of remittances from Egyptians abroad, as well as from the tourism sector.
In addition, Foreign investors’ entry into the Egyptian market has also been monitored since last Wednesday, with amounts exceeding $925 million.
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