Egyptian banks can endure more currency fall: Fitch Ratings

Updated 1/18/2023 1:37:00 PM

ArabFinance: Egyptian banks can have their capital ratios withstand further currency devaluation due to "healthy" internal capital generation, Fitch Ratings said in a research note on January 17th.

"Large private-sector banks are better-placed to withstand currency depreciation than the two largest public-sector banks, National Bank of Egypt (NBE) and Banque Misr (BM), due to their higher regulatory capital buffers," Fitch said.

The rating agency also forecasted that Egypt’s local currency would still suffer this year due to the country's import backlog, estimated at $5.4 billion, as well as the "large gross external funding needs, estimated at over $19 billion for 2023 (about 60% of FX reserves)".

The Egyptian pound has tumbled 16% against the US dollar year-to-date.

Asset quality risks mount as business activity slows due to macroeconomic pressures and liquidity shortages, but banks' strong reserves of large holdings of sovereign securities should mitigate the impact, according to Fitch.

The rating agency added that even after further Egyptian pound depreciation, no direct rating downgrades could be triggered.
"Egyptian banks’ main ratings sensitivity is to a change in Egypt’s ‘B+’/Negative sovereign rating,” the research note added.

On January 11th, the Egyptian pound traded in a volatile manner hitting a new all-time high of more than EGP 30 against the dollar, after plummeting again at the close.

It is worth noting that the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided at its latest meeting on December 22^nd to raise key interest rates by 300 basis points (bps)

In October 2022, the CBE said it would adopt a more flexible exchange rate policy to back macroeconomic stability and sustainable growth, devaluing the pound by over 16% from 19.67 per dollar to 22.85, in order to absorb the economic shock triggered by the Russian-Ukrainian war.