Egypt's Banking Sector Struggles to Shift Focus from Government Debt to Private Sector Lending

Strategic Insights -

Despite a steady fall in the fiscal deficit, banks in Egypt continue to rely heavily on government debt, with Treasury bills accounting for approximately two-thirds of total domestic credit. The COVID-19 pandemic led to increased government support measures, with the central bank introducing schemes to subsidize credit to industry, agriculture, and tourism, as well as providing payment waivers and deferrals. However, most of the larger commercial banks have reported reduced net profits for 2020, with increased loan-loss provisions cited as the main reason.

Key Takeaways:

  • Banks in Egypt have maintained a structural reliance on public-sector debt, with Treasury bills accounting for approximately two-thirds of total domestic credit.
  • The pandemic mitigation measures introduced by the central bank have had a limited impact on the overall pattern of credit, with private sector borrowing remaining stuck at a low 21-22% of total domestic credit for several years.
  • The SME quota, introduced in 2017, aimed to increase lending to businesses, but has had little impact, with a target of reaching 20% by end-2020.
  • Commercial banks, such as Commercial International Bank (CIB) and QNB Alahli, have reduced net profits in 2020, citing increased loan-loss provisions and a steeper decline in margins.
  • The central bank has introduced several schemes to subsidize credit to industry, agriculture, and tourism, with over 80% of the total value of E[pound]200bn (US$12.7bn) allocated by end-October 2020.
  • Banks are likely to forego dividend payments in 2021 as a prudent measure, and several banks have announced plans to allocate part of their retained earnings to increasing capital.
  • The new banking law that came into effect in September 2020 has increased the minimum capital requirement for commercial banks, which may lead to smaller banks being obliged to merge.

Statistics:

  • Treasury bills account for approximately two-thirds of total domestic credit.
  • Private sector borrowing accounts for approximately 21-22% of total domestic credit.
  • The SME quota target of 20% by end-2020 has not been met, with a deadline of end-2022 to reach 25% of total loan portfolios.
  • The total value of subsidized loan schemes was E[pound]200bn (US$12.7bn) by end-October 2020.
  • Over 80% of the total value of subsidized loan schemes was allocated by end-October 2020.
  • Commercial International Bank (CIB) reported a 13% decline in net profit, with a net profit after tax of E[pound]10.2bn (US$650m) in 2020.
  • QNB Alahli reported a 12% decline in net profit, with a net interest income of E[pound]5.5bn in 2020.

Sources:

  • The article does not provide specific sources.