Banks in Egypt inject EGP 144.2bn to finance MSMEs from Dec. 2015 to June 2019: CBE

Hossam Mounir
12 Min Read
Businessman hand touching SME(or Small and Medium Enterprise) sign on virtual screen - commercial & business concept

The Central Bank of Egypt (CBE) issued its annual report on financial stability last Thursday, showing its major role in maintaining financial stability as the body responsible for safety, regulation, and supervision of the banking sector, in coordination with the Financial Regulatory Authority (FRA), which supervises the non-banking financial sector.

The CBE explained that the stability of the financial sector is represented in its continued facilitation of efficient distribution of economic resources through the provision of financial intermediation services, regardless external or internal obstacles that may lead to negative effects on the real economy.

The report pointed out that the CBE aims to ensure the stability of the financial sector by studying and monitoring the systemic risks that may threaten it.

This report also represents a communication channel with various parties in the market and the public to show the CBE’s role in facing the risks to which the banking sector may be exposed, as well as its efforts to develop the financial infrastructure, and establish economic growth within a framework of transparency.

Micro, Small, and Medium-sized Enterprises

The CBE said that banks operating in Egypt pumped EGP 144.2bn to finance micro, small, and medium-sized enterprises (MSMEs) from December 2015 to June 2019, benefitting 566,000 projects across the country.

The report added that the service sector got the lion’s share of the increase in loans to these projects, receiving about EGP 62.2bn, followed by the industrial sector by EGP 43.1bn.

The loans directed to MSMEs until the end of December 2018 came as follows; 47.3% for small projects, 46.6% for medium projects, and 6.1% for micro ones.

Credit Guarantee Company

The CBE announced that the Credit Guarantee Company (CGC) has issued EGP 17bn worth loan guarantees to banks to cover EGP 25.4bn funds granted to SMEs.

The report explained that the CBE holds a 20% stake in the CGC, in return for the company covering a part of the risks associated with financing SMEs.

The CBE recognises the CGC’s role as guarantor when calculating the capital adequacy rates, as well as when making provisions, to encourage banks to finance SMEs.

Mortgage finance for low- and middle-income people

The CBE said the banks operating in Egypt have injected EGP 20.6bn mortgage loans to 213,000 beneficiaries within the CBE mortgage finance initiative for low- and middle-income people, until the end of June 2019.

Noteworthy, the CBE has excluded middle-income people from its initiative, limiting the low-interest mortgage finance for low-income only, in coordination with the Social Housing and Mortgage Finance Fund and the Ministry of Finance, which contributes to enhancing financial intermediation and inclusion.

Top 50 receivers of bank loans

The CBE revealed that the total credit facilities granted by banks in Egypt to their top 50 clients amounted to about EGP 291bn at the end of March 2019.

It pointed out that these facilities are well distributed among more than 15 industrial, agricultural, and service sectors, such as petroleum, construction, real estate, steel, and communications. The report noted that recent economic reforms also affected positively the performance of companies operating in the local market, where most of these companies recorded a steady growth.

According to the CBE, companies operating in the construction and real estate development sectors have achieved the highest growth, profitability, and liquidity rates, while companies in the steel industry faced some challenges resulting from high prices of energy and some imported inputs, but they managed to achieve acceptable results.

Private business sector

The CBE said the private business sector was the main driver of growth in private credit, contributing by 54.6% of the growth, while also contributed 70% of the growth of the implemented investments, driven by the electricity, real estate, and extraction sectors.

According to the CBE, it contributed 64.4% of the growth in real GDP, which pushed the growth of the tourism, trade, construction, agriculture, real estate, manufacturing, and telecommunications sectors, while the public sector contributed to the growth of extractions, especially natural gas.

Financial Stability Index

The CBE said the financial stability index rose to 0.54 at the end of March 2019, after achieving slight increases in 2018, compared to 2017 and stabilising at an annual average of 0.51 during that period.

This index reflects the stability of current macroeconomic conditions, as it is not used to predict periods of financial stress.

This indicator is constructed as a composite quantitative measure using a wide range of variables (21 variables), which fall under four sub-indices, reflecting the performance of the banking sector, macroeconomic conditions, along with the development of financial markets and the global economic climate, using quarterly data for the period from March 2011 to March 2019.

The value of the index approaching 1 (maximum) indicates a higher degree of financial stability, while approaching zero (minimum) indicates a lower level of financial stability.

According to the CBE, the improvement of the macroeconomic index played a major role in the improvement of the index as a whole. The economic performance indicators witnessed positive developments in 2018, compared to 2017, as a result of fiscal pressure and exchange rate liberalisation policy, which pushed down the budget deficit and the increase in monetary reserves.

Performance Indicators of Banking Sector

As for the performance indicators of banking sector, the solvency of banks increased due to the increase in the capital adequacy ratio and the improvement in the indicators of asset quality, after the decline in non-performing loans and the increase in loans granted by banks.

The CBE added that this improvement came due to development economic conditions and the CBE’s initiatives to expand financing for SMEs.

The CBE pointed out that the average liquidity ratio in the local currency in the banking sector decreased in 2018 due to the increase in customer deposits. This was reflected in the decline in net foreign currency assets of banks.

Local Capital Market Indicators

The CBE said both indicators of the domestic capital market and the global economic climate saw a decline in 2018, as a result of the recent turmoil in emerging financial markets, and the beginning of the exit of foreign capital.

However, the CBE said the overall financial situation improved during this period, due to the positive developments in the Egyptian economy and the solidity of banks, despite the global turmoil.

Foreign exchange flows

The CBE pointed out that foreign exchange inflows to Egypt will continue during the first quarter of this year, to record net international reserves of $44.1bn at the end of March 2019.

The report said that Egypt’s coverage of commodity imports was 7.8 months in March 2019.

The CBE predicted that foreign exchange flows to Egypt will continue to improve in 2019 and 2020, supported by expectations of falling global oil prices and lower US interest rates.

The report expected the US interest rates to fall to 1.9% in 2019 and 2020, supporting flows to emerging and developing markets, thus improving the external conditions and exchange rate of local currencies.

It added that these developments will push towards further reduction of the domestic trade balance deficit of these countries and the continued abundance of foreign exchange in the banking sector.

The CBE expected economic growth and trade to slow down this year and improve next year.

A field study

The CBE said it is currently preparing a field study to identify the financial services offered by financial institutions to individuals and MSMEs in the formal and informal sector.

It added that the study is being prepared in cooperation with the Central Agency for Public Mobilization and Statistics (CAPMAS) and one of the international experts specialised in financial inclusion. The study is scheduled to be completed by the end of 2020.

The CBE highlighted the active participation of the external committee to exchange information on financial inclusion in preparing the study. The committee is chaired by Lubna Hilal, deputy governor of the CBE, with the membership of representatives of Ministry of Communications; Ministry of Social Solidarity; Ministry of Trade and Industry; FRA; Egypt Post; CAPMAS; Nasser Social Bank; Micro, Small and Medium Enterprise Development Agency; and the Egyptian Credit Bureau (I-Score).

Financial Services

The CBE said the study is part of Egypt’s strategy to promote financial inclusion for all segments of the population, as almost half of citizens uses financial services, with 32% of adults (older than 21) have bank or Egypt Post accounts.

The study pointed out that men use financial services more than women.

According to the CBE, a database of financial services was completed in 2018. This data is currently being compiled from banks and post offices as a first stage, and in later stages will include all data from different financial service providers, which are analysed based on its type and geographic location. This database shall be updated periodically.

The CBE explained that the national ID was adopted as a unified tool to calculate the number of citizens benefiting from financial services.


Loans directed to MSMEs until the end of December 2018 came as follows; 47.3% for small projects, 46.6% for medium projects, and 6.1% for micro ones

Total credit facilities granted by banks in Egypt to their top 50 clients amounted to about EGP 291bn at the end of March 2019

Companies operating in the construction and real estate sectors achieved the highest growth, profitability, and liquidity rates, while steel companies faced some challenges

The CBE expects foreign cash flows to Egypt to continue improving in 2019 and 2020, supported by expectations of falling world oil prices and lower US interest rates

Half of Egyptians uses financial services, and 32% of adults have bank or Egypt Post accounts

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