Egypt's banking system remained stable during COVID-19 pandemic: IMF

CAIRO – 11 August 2020: The Egyptian banking system has remained stable in light of the global fluctuations caused by the emerging corona virus pandemic, according to the International Monetary Fund (IMF).

IMF added in a report that the most recent data indicate that the system was liquid, profitable, and well capitalized heading into the crisis, but risks around banks’ loan portfolios, capital costs, and profitability have increased due to the economic slowdown.

“The authorities are seeking to provide relief to heavily affected borrowers, while maintaining financial stability and ensuring a stable flow of credit to the real economy. After promulgation and implementation of the Banking and CBE Act recently approved by the granting a 6-month repayment moratorium on existing credit facilities, the authorities are urging banks to work with heavily affected clients to prudently and preemptively restructure loans,” it stated. 

It explained that tothe recently approved Banking and CBE Act to be signed into law later this year will mandate financial stability and price stability as the objectives of the CBE, and strengthen, inter alia, its governance, financial structure, operational and institutional autonomy. 

The report added that to facilitate targeted relief and support credit, the CBE has provided a one-year waiver for additional risk-weights imposed on portfolio concentrations and may consider allowing banks to temporarily draw down prudential buffers if needed.

“To support restructurings and boost the provision of credit to the real economy, the CBE might allow banks to temporarily draw down their prudential buffers if needed (e.g., capital conservation buffer and stock of high quality liquid assets), subject to temporary restrictions on capital distributions (e.g., dividends, share buybacks and discretionary bonus payments) to preserve capital resources. However, to ensure transparency and prevent a potential build-up of vulnerabilities, loan classification rules and provisioning requirements will be strictly enforced, and banks will need to closely assess the creditworthiness of their borrowers—especially those that benefit from temporary concessions,” it noted.

According to the IMF, the monetary framework is being modernized with a gradual shift to inflation targeting supported by exchange rate flexibility. 

“Staff supports the CBE’s data-driven policy approach to anchor inflation expectations, which has so far delivered low and stable inflation. Staff welcomes the exchange rate flexibility evidenced since mid-May; continued flexibility will be an important shock absorber for Egypt.”

IMF stated that it  will closely monitor financial sector risks while supporting borrowers most negatively impacted by the economic slowdown, and to continue to encourage commercial banks to work closely with borrowers heavily affected by the crisis to restructure their loans as needed to enable uninterrupted debt servicing as the current moratorium on repayment obligations is set to expire in September 2020. 

“We will also ensure that supervisors discuss capital restoration plans with banks at early stages, if losses were to have material impact on banks’ capital. Exceptional financial sector measures, taken in response to the COVID-19 outbreak (including but not limited to the CBE’s stock purchase program) will be rolled back when conditions allow,” it added.

In the same report, IMF expected Egypt’s growth rates during fiscal year 2020/2021 has been lowered to 2 percent due to COVID-19 pandemic with expectations to rebound to 6.5 percent in 2021/2022.

IMF expects Egypt's GDP to dip to 2% in 20/21, rebound to 6.5% in 21/22

CAIRO - 11 August 2020: Egypt's growth rates during fiscal year 2020/2021 has been lowered to 2 percent due to COVID-19 pandemic with expectations to rebound to 6.5 percent in 2021/2022, the International Monetary Fund (IMF) said in a report.