The Central Bank of Egypt (CBE) said that the Egyptian banking sector, the largest component of the financial system in Egypt, has been able to withstand various shocks and risks over the past two decades. These include the impacts of global geopolitical, economic, and financial developments, which caused uncertainty and high inflation rates.
The CBE said that these developments forced many central banks to adopt a restrictive monetary policy, leading to higher market risks, capital outflows from emerging markets, pressure on local currency exchange rates, and higher credit risks due to high-interest rates.
The CBE added that financial systems also face some emerging risks, such as cybersecurity and climate change risks. However, the Egyptian banking sector continued to maintain good financial performance indicators, high financial solvency and liquidity levels, and its essential role in the economy by attracting stable deposits and providing financing for all economic sectors and clients.
Applying best international practices
The CBE attributed this resilience to several measures that were taken, applying the best international practices in risk management. The CBE said that it adhered to the regulatory framework of Basel II and III decisions, which enabled the sector to achieve high levels of financial solvency to face all risks.
The CBE also issued instructions to develop internal control systems and establish governance. It obliged banks to use the standard method instead of the basic indicator method to measure operational risks, as part of the Basel III reforms. It also required banks to prepare recovery plans, ensuring their readiness and ability to respond effectively to any potential pressures.
Basel III is an international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector by requiring banks to maintain certain leverage ratios and keep certain levels of reserve capital on hand.
The CBE issued a general framework to regulate providing emergency liquidity, through which it supports banks in dealing with short-term liquidity crises. The aim is to contain potential crises and reduce their impact.
Regulating exchange market and strengthening cybersecurity
The CBE also took several measures to regulate the exchange market, such as amending the rules for controlling gold export proceeds, the use of credit and debit cards, and the management of foreign currency for travel purposes.
The CBE also enhanced cybersecurity by establishing an independent sector for it, to pay better attention to cyber risks. It launched the first computer emergency response center for the banking sector, through which it can report cybersecurity incidents that threaten the stability of the sector.
Supervising and monitoring systemic risks
The CBE said that the Egyptian banking sector has been able to withstand various shocks and risks over the past two decades.
The Bank said it played an effective supervisory role, monitored systemic risks, and periodically applied macro and micro stress tests. It aims to assess the impact of crises and potential risks on the financial solvency and liquidity of banks and take the necessary corrective measures to reduce their impact on the financial system.
Improving performance and efficiency
The CBE confirmed that despite the challenges that the sector frequently deals with, its performance and financial indicators will likely continue to improve, with improved efficiency in dealing with various risks. It will also continue to benefit from digital technology applications to enhance financial inclusion and the transition to a cashless society.
The Bank also stressed that it will continue to eye the latest banking developments, issue regulatory instructions, and develop tools and mechanisms for monitoring supervision, to maintain the strength and durability of the sector.
Furthermore, the CBE will continue to benefit from the RegTech technology-based control systems to improve the supervisory work environment and the efficiency of risk control. It pointed out that the Egyptian financial system will continue to play its main role in carrying out financial intermediation during the first half of the fiscal year 2022/2023, in light of the Egyptian economy’s ability to accommodate the consequences of the Russian-Ukrainian war, thanks to the strength of its components and the diversity of its activities, as well as the flexibility of the banking sector.
Providing financing and maintaining financial safety
The CBE reported that the banking sector continued to provide financing for all economic activities needed, while achieving good financial safety indicators. These include a high level of financial solvency of 19% in December 2022 compared to 12.5% as a regulatory limit set by CBE. In addition, there was a continued decline in the percentage of non-performing loans to total loans, recording 3.4%, with provisions covering 91.6% of non-performing loans. Moreover, there was a high level of liquidity in local and foreign currency, which exceeded the regulatory ratios for both currencies, which are 20% and 25%, respectively.
The CBE said that these indicators reflect the banking sector’s ability to confront and absorb many shocks and contain their repercussions.