A Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York - Reuters/Brendan McDermid
CAIRO – 11 October 2017: Egypt’s banking system is stable on the back of a picked-up economic growth, resilient loan performance and banks benefiting from a stable deposit base, Moody's Investors Service said in a report Wednesday.
Moody’s predicts growth to pick up to 4.5 percent in fiscal year (FY) 2017/2018, from 4.0 percent in FY 2016/2017, before accelerating to 5.0 percent in 2019.
It said that economic growth will be driven by rising foreign investment, resilient domestic consumption and the gradual recovery of the tourism industry.
Assistant Vice President and Analyst at Moody's, Melina Skouridou, said that banks are funded by stable and low-cost domestic deposits, mainly from households.
"We expect increasing banking penetration and increased remittances to spur deposit growth. Though government-owned banks have significantly increased their market funding over the last two years, this funding is mainly from regional banks and multilateral development banks, where refinancing risks are lower", she said.
Despite a sharp rise in borrowing rates and inflation, the rating agency does not expect a material deterioration in loan quality. However, delinquency rates could increase as new loans mature, particularly if interest rates rise further, high inflation persists or economic growth falters.
“The banks' high exposure to low-rated government securities - accounting for 33% of their assets - will continue to be a key concentration risk and links banks' credit profile to that of the government,” Moody’s said in the report.
The report, titled "Banking System Outlook; Egypt - Stable outlook balances strong profitability and rising capital, against growing asset risk”, expects capital buffers for Egyptian banks to improve over the coming two years as banks retain more of their profits.
It added that the country’s banks will continue to report better-than-peers profits.
Egypt’s headline inflation rate eased in September to 31.6 percent year-on-year, from 31.9 percent in August.
Inflation soared in July to its highest levels in decades as a result of cutting energy and fuel subsidies as part of the country’s economic reform program.