Banking fundamentals improve in Cairo

The key performance matrix of Egypt’s banking sector shows that bank fundamentals have improved this year compared to most emerging economies.

Data from the Institute of International Finance (IIF) reveals that the average capital adequacy ratio had improved, with the Tier-1 capital ratio increasing to 12.6 per cent at the end of June 2018, well above the regulatory minimum. The non-performing loan (NPL) ratio continued its decline to 4.3 per cent, partly due to NPL write-offs.

Bank profitability, while moderating, is adequate enough to more than offset a possible rise in credit risk costs.

Analysts say funding risks on average remain low with Egyptian lenders having one of the lowest loan-to-deposit ratios among emerging economies.

“Egypt is different from Turkey. First, Egyptian corporates’ exposure to the international market is negligible as they cover financing needs from the local banks,” said Garbis Iradian, IIF Mena chief economist, said. “Second, most of the funding of Egyptian banks comes from deposits from residents and a loyal Egyptian diaspora.”

Sector liquidity is expected to remain strong in the context of relatively low loan growth while the country’s monetary policy is seen remaining accommodative.