Banking sector improved significant post-Egyptian pound float, fresh FX, and reforms, says Fitch

Cairo – June 25, 2024: Egypt’s banking sector has improved significantly in the past few months, explained Fitch Solutions in its latest research, driven by substantial financial injections, economic reforms and the pound’s exchange rate adjustment.

According to Fitch, the exchange rate float on March 6, 2024, alongside substantial financing totaling $57 billion, bolstered forecasts for the sector.

Despite concerns over currency devaluation impacting balance sheets, Fitch Solutions remains optimistic, highlighting that approximately 30 percent of total loans are in foreign currency, mostly directed towards the public sector.

Egypt received a substantial boost from multiple sources since February, including $24 billion through the Ras al-Hikma deal with the UAE and $820 million from the IMF, part of pledged funds.  

This revived portfolio investments and remittances through official channels, pumping in fresh foreign currency after it faced a prolonged hard cash shortage.

The influx of foreign currency is important, noted Fitch Solutions, enabling banks to fulfill import demands, settle arrears to international entities, and bolster foreign currency lending to local businesses.

The Central Bank of Egypt (CBE) saw its net foreign liabilities decrease from $11.4 billion in January 2024 to just $1.4 billion by March 2024, with banks also improving their net foreign assets deficit from $17.6 billion to $2.8 billion.

The CBE’s hiking of interest rates by 800 basis points in total since the start of the year reflect a strategy to manage inflation and stabilize the economy, with Fitch expecting these high rates to persist through 2024, impacting loan demand but maintaining financial stability.

Looking ahead, Fitch predicts modest loan portfolio growth amidst inflationary pressures, estimating a 28 percent increase for 2024. Despite challenges, the banking sector remains strong, supported by a diverse deposit base and ongoing financial inclusion efforts.

Overall, Fitch notes that while economic conditions pose challenges, Egypt's banking sector is well-positioned to navigate uncertainties, supported by strategic reforms and financial management.