Moody's expects Egyptian banking system to remain stable in 2021

CAIRO – 21 January 2021: Moody's Investors Service expected in a report, Wednesday, Egypt's banking system to remain stable in 2021. 

‘The stable 2021 outlook for Egypt's banking system balances profitability and loan book pressures against sound liquidity and a stable government credit profile,”  it stated.

The report referred to the effect of coronavirus on the economy, foreseeing a modest economic growth of 2.4percent in 2021. 

It attributed this percentage to the hinder in industrial production and tourism sectors due to the crisis. However, it saw that “economic and fiscal reforms will cushion the blow and support a stronger 5 percentGDP growth in 2022.”

As for banking sector, it anticipated non-performing loans to rise from a sector average of 3.9 percent of gross loans as slowed business activity, subdued consumption and disruptions in the tourism and construction sectors take their toll on borrowers' repayment capacity.

"Egyptian banks' profits will come under pressure this year, as declining net interest margins will hit bottom-line profit, following an accumulative four percentage-point interest rate cut during 2020, though Egyptian banks' profitability will continue to compare well against their peers," Senior Vice President at Moody's Investors Service, Constantinos Kypreos, said.

"That said, we also expect Egyptian banks' internal capital generation to be maintained, because lower profitability will be offset by lower dividend pay-outs, enough to absorb growth in risk-weighted assets and keep capital ratios stable," Kypreos added.

According to the report, Egyptian banks will be able to rely on ample low-cost customer deposits to fund their lending, with deposits accounting for 73 percent of total assets as of July 2020. 

Liquidity will also remain solid, with cash and interbank balances accounting for 19% of total assets and an additional 39% invested in government securities, though some state-owned banks will continue to face tighter foreign-currency liquidity, it added.

“Furthermore, government support for failing banks is likely to remain high, although its capacity to do so will be constrained.” The report stated.

In December, Moody's Investors Service (Moody's) announced completing the periodic review of a group of issuers, including Egypt.

“The credit profile of Egypt (issuer rating B2) is supported by "a3" economic strength, reflecting the country's large and diversified economy; "b1" institutions and governance strength that balances relatively weak but improving governance indicators with a solid track record of reform implementation over the past three year,” Moody’s noted.

Earlier in September, Moody’s said in a report that Egypt's (B2 stable) credit profile reflects its sizable and diversified economy, large domestic funding base, and projected foreign exchange reserves that are enough to cover maturing external liabilities over the next three years.