Banks hedging financing for several “high risk for default” sectors

Cairo – February 12, 2024: Banks in Egypt are hedging financing for seven economic sectors that have a potential risk of defaulting due to the foreign currency shortage, according to sources speaking to Al-Sharq.

Identified as the real estate, tourism, fertilizers, fodder, rebar, cement, and ceramics sectors, the sectors were classified as “high risk of default” due to foreign currency shortages and high inflation.

The shortage has caused a significant backlog and waiting lists for import operations, the appearance of the black market, and a large gap between the official and unofficial exchange rates.

To address potential default risks, banks are taking preventive measures, according to the news outlet’s report, with one private bank planning provisions to hedge against potential risks in the real estate development sector, particularly concerns regarding project implementation and delivery.

The head of a private bank indicated that banks are also currently hedging against risks related to geopolitical tensions in the region, and the real estate sector was added to the sectors at the beginning of 2024 due to a rise in contractual sales compared to real project implementations, amid increases in costs.

The Egyptian government has been actively reducing hard currency consumption, postponing projects, and refraining from external financing or starting new projects involving loans or additional foreign support.

A separate source noted the bank they worked at has become more cautious about the 7 sectors, most of which depend on energy, gas, and importing raw materials from abroad. They added that production rates of most factories within these sectors fell by around 50 percent, pointing towards the shortage and a rise in input costs such as a 78 percent jump in rebar prices.

Banks are also hedging funding for the tourism sector, considering risks around Egypt's borders due to the war on Gaza. Geopolitical tensions have affected the expected number of tourists and revenues, despite a 27.4 percent increase in tourists arriving in Egypt in the previous year.

Egypt's tourism revenues increased by 8 percent during Q4 of 2023, according to a January statement by Tourism Minister Ahmed Issa, with around 14.906 million tourist arrivals (+27.4 percent) in the entirety of the year.