Despite government debt, which accounts for 88% of the GDP, a budget deficit of 11.5%, and 26.3% poverty, the banking environment remains stable, according to the credit rating company Moody’s.
While Moody’s said economic growth is predicted to slow in the first half of 2016, it will accelerate in the second half of fiscal year (FY) 2016 and into 2017 with an average growth rate of 4%. Despite this, Moody’s decided not to upgrade Egypt’s credit rating.
Capital risks continue to inform investor decisions despite relative political and economic stability. As Egypt’s debt increases as a result of the increasing number of loans, its capacity to pay its debt diminishes in the long term.
“We expect Egypt’s gradually recovering economy to continue to provide banks with plenty of business opportunities,” says Melina Skouridou, an assistant the vice president at Moody’s.
While Egypt has gone through great lengths to service debt repayment, past loan and debt risk remains high as the government increasingly takes out small- and medium-sized enterprises (SME) loans which could undermine performance over the long term as bank capital remains low.
Government securities have helped banks maintain liquidity and increased demand from low cost customers obtaining loans is a positive indicator for banks. The government securities and increasing business have helped maintain strong profitability and government support helps to sure up overall stability despite limited options as a result of the currency shortage.
Egyptian banks have a far stronger performance than its regional peers, vastly out competing Jordan, Lebanon, Morocco, and Tunisia in return on average equity and only Jordan having a slightly better average in return on assets. Egypt has an 18.9% return on average equity, while the next highest, Lebanon has an average of about 13%.