The Central Bank of Egypt (CBE) said that the Egyptian banking sector is expected to maintain its current level of strength, financial resilience, and ability to face crises, while continuing to provide financing to various economic sectors.
In a recent report, CBE said that the banking sector was able to face many challenges and deal with them efficiently over the past period. It also continued to achieve good financial indicators with efficient management of all types of risks, thanks to the continuous equipping of the sector by building capital bases and properly strengthening them.
According to CBE, the future trends of banks include continued strengthening of capital bases through increasing capital or profits made to meet the capital requirements set by Article 64 of CBE and the Banking System Law promulgated by Law No. 194 of 2020. Issued and paid up capital of banks should be no less than EGP 5bn, and the capital allocated for the activities of foreign bank branches in Egypt should not be less than $150m or its equivalent in free currencies.
Future trends also include completing the issuance of supervisory instructions implementing the law of CBE and the banking system, continuing to develop systems for security and protection of databases and customer data, and providing due diligence against cyber risks, along with tools to mitigate these risks. The banking sector will also continue to benefit from applying the best practices in the field of banking.
Trends also include developing the capabilities of workers in the control and supervision sector of CBE with regard to control and supervision of banks, digital services and digital currencies, to keep pace with the development of the use of financial technology in providing banking services and products.
Digital banking services
These future trends also include a broader spread of digital banking services and developing the sector’s capabilities with regard to managing the risks associated with it, the expansion of micro-borrowing to serve a larger number of customers, promoting financial inclusion for all segments of society, adopting the necessary reform policies in cooperation with the concerned parties, and providing financial services for all segments of society, its institutions and individuals, in order to achieve financial stability and sustainable development, in addition to moving towards green financing to reduce the risks resulting from climate changes.
CBE said that it aims to sustain the integrity of the monetary and banking system and price stability within the framework of the general economic policy of the state. It will also exert effort to achieve its goals, including the development and implementation of monetary policy, the foreign exchange rate policy, as well as the policy of managing macro risks in the banking system, in addition to managing banking crises and settling the situation of troubled banks securing payment systems and services, in accordance with the law of the Central Bank and the banking system.
It pointed out that since the Egyptian financial system represented by financial institutions and markets and their infrastructure is based on the banking sector, it plays a major role in maintaining financial stability in its capacity as the body responsible for the safety, regulation and supervision of the banking sector, in cooperation with FRA, which supervises The non-banking financial sector.
CBE pointed out that the banking sector contributed to accommodating the consequences of fluctuations in the flows of portfolio investments in the local treasury bills market, thanks to its high liquidity ratios in local currency, in addition to its use of its net foreign assets, which declined during the first half of 2022. International reserves played a fundamental role in mitigating the consequences, as they decreased from $41bn at the end of February 2022 to $33.4bn in June of the same year, in addition to the depreciation of the local currency by about 20% during the same period.
Flexible exchange rate
Egyptian economic authorities adopted reform measures in October 2022. The importance of the flexibility of the exchange rate – based on supply and demand – was emphasized. Banks were also allowed to use forward exchange operations linked to the Egyptian pound, with the aim of deepening the foreign exchange market and raising liquidity levels in foreign currency. Moreover, the economic authorities succeeded in reaching an agreement on economic and structural policies and reforms for an economic reform program supported by the International Monetary Fund, which proves the confidence in the resilience and solidity of the Egyptian economy and the soundness of the economic policies followed.
According to the CBE, foreign exchange inflows, reflected in revenues from petroleum exports, tourism, the Suez Canal, remittances from workers abroad, and direct foreign investments, contributed to alleviating the direct consequences of the Russian-Ukrainian war, and net foreign assets in the banking sector also contributed to easing these consequences.
CBE pointed out that the net open positions in foreign currencies did not exceed the authorized regulatory limits, as they reached negative 0.2% in March 2022 and negative 1.9% in June 2022.
The Monetary Policy Committee worked on containing the high inflation through increasing interest rates by 300 basis points in March and May 2022. CBE noted that the risks of higher interest rates in the banking sector are considered low.
CBE also indicated that banks continue to develop methods and improve the efficiency of managing operational risks facing the sector, especially with technological development, the trend towards digital transformation, and banks’ innovation of digital products and services to enhance financial inclusion, by testing and continuous updating of business continuity plans, strengthening internal control systems and strengthening the application of governance systems. good, leading to mitigation of those risks in the sector.
Mortgage finance initiative
CBE also revealed that banks have pumped financing worth EGP 48.3bn to about 436,900 customers within the framework of the mortgage finance initiative for low and middle-income people until September 2022.
There were two mortgage finance initiatives: The first one had a decreasing interest of 8% and the second offered a decreasing interest of 3%. Both operated under the management of the Ministry of Finance starting from November 2022, with the maximum limit of support for the 8% initiative reduced to EGP 15bn, and the maximum limit for the 3% initiative was EGP 100bn. The Ministry of Housing will bear the cost of the interest rate difference and compensate the banks for the prevailing market price difference.
CBE also revealed that EGP 13bn were pumped to finance small breeders through banks as part of the national project to revive veal meat.
The Agricultural Bank of Egypt (ABE) was allowed to finance cooperative societies working in the field of agriculture, agricultural processing, dairy, fodder, poultry and livestock, within the framework of the small enterprises initiative.
CBE announced financing small farmers working in the field of raising female livestock, milk collection centers and poultry farms within the framework of the Small aforementioned initiative.
CBE also said that EGP 55.5bn has been allocated through some banks in the form of interest-free good loans to be paid over 10 years as part of the national initiative to develop irrigation and convert to modern opinion.
Decent Life Initiative
CBE also highlighted the participation of the banking sector in supporting the Decent Life initiative, which was coordinated with the Ministry of Planning, with the participation of a number of banks, by improving and developing the financial infrastructure in those villages. The efforts of the banking sector also included raising awareness and providing financial education for citizens on the importance of financial inclusion and providing banking products and services.
According to CBE, during the first phase of the initiative and until June 2022, the banking sector pumped EGP 2.3bn to finance small and micro development enterprises.
Banks also installed 380 ATMs, opened 36,000 bank accounts, provided 4,800 quick response code machines and points of sale to merchants, developed 71 branches, and established 10 new bank branches.
During the initiative, 9,200 new mobile wallets were opened, and 70,200 prepaid “Meeza” cards were issued.
11 banks are participating in the initiative, which are the National Bank of Egypt, Banque Misr, Banque du Caire, ABE, QNB Alahli, CIB, saib, the United Bank, HDB, AlexBank, and the Export Development Bank of Egypt.
Moreover, CBE revealed that banks provided 3.3 million banking products during financial inclusion activities in fiscal year 2021/2022, compared to 2.5 million within financial inclusion activities during the fiscal year before.
CBE said that 1.3 million accounts were opened, 300,000 mobile wallets were opened, and 1.7 million prepaid cards were issued during these events.
The activities of financial inclusion witnessed an increase in the number of banks that were present abroad in many governorates with the aim of reaching excluded groups, which was reflected in the increase in the products provided in the governorates of Lower Egypt compared to Cairo.
CBE said that the rates of financial inclusion during the period from 2016 to June 2022 witnessed a growth of 131%, explaining that the total number of citizens who have accounts that enable them to conduct financial transactions amounted to 39.6 million citizens, equivalent to 60.6% of the total citizens – 16 years of age and over – amounting to 65.4 million citizens, according to population estimates in 2022.
CBE had announced earlier drafting the Financial Inclusion Strategy (2022-2025), which aims to enhance the financial inclusion of society and achieve economic growth, as part of the efforts made at the state level to achieve economic empowerment for citizens and companies, in line with the goals of sustainable development and Egypt’s vision 2030.
In addition, CBE established a database of financial inclusion, categorized by gender, using the national IDs and unique identifiers as a basis for collecting data from banks and financial service providers, including Egypt Post.
CBE said that the strategy was carried out on a scientific basis, based on the results of the field survey of financial services, which was implemented on a representative sample of individuals and micro, small and medium enterprises (formal and informal sectors), in cooperation with the Central Agency for Public Mobilization and Statistics (CAPMAS), with technical support of the European Union and the German Agency for International Cooperation (GIZ), which reflects the strategic partnership with development partners.
The financial inclusion strategy is based on four main axes that are being worked on in a sustainable manner, the first of which is financial education and protection of customer rights, then diversification in banking and non-banking financial services and products according to the needs of customers, creating a work environment for micro, small and medium enterprises and entrepreneurs, in addition to digital financial services.
CBE indicated that this comes within the framework of its keenness to cooperate with all state institutions to provide banking services to various segments of society with fairness, quality and a reasonable cost.