ICEC

Bankers: increase in provisions and unemployment rates cause banks’ profits retreat in 2011

Banks’ results showed a noticeable retreat in profits in the year ended on December 31st 2011, the most prominent of which is the Commercial International Bank (CIB) which declined by EGP 392.1 million as it records EGP 1.748 billion in net profits, compared with EGP 2.141 billion for the same period in the former year. Credit Agricole Bank’s profits also retreated as it achieved EGP 308.041 million, compared with EGP 444.882 million in fiscal year 2010.

Bankers said that these retreats is a result of the political turmoil Egypt witnessed in 2011, which forced many banks to take proactive steps and increase the volume of provisions, in fear of potential defaults. In addition, banks worked on raising returns on savings funds to cope with the ongoing changes, as National Bank of Egypt and Banque Misr increased the returns and in the same time unemployment rates rose due to delaying many projects.

However, bankers expect profits to increase by the end of the current year if security and stability return in Egypt, as many developmental projects, in need of banks’ finance, will be carried out.

Mohamed Badra, banking expert, said that the banks’ profits retreat is a result of the political turmoil and economic recession Egypt witnesses in 2011, which in return affected negatively on GNP rates as it declined from 7% to 1%.

Badra added that raising returns on deposits to more than 11% as well as increasing provisions contribute to profits retreat, especially amid unemployment rates decline and economic recession, pointing out that bank’s investments in domestic debt instruments (treasury bills and governmental bonds) impacted largely in limiting these retreats in profits.

Badra expected banks’ profits to grow more by the fourth quarter of the current year, as he predicted that security, stability and foreign investments will return after holding the presidential elections and writing a new constitution.

Although provisions increase affected negatively profits, these provisions is a positive points helping in facing potential defaults due to the economic turmoil many organizations and people have witnessed, Bassant Fahmy, banking expert and a former consultant at Baraka Bank, affirmed.

Banks’ investments in treasury bills and bonds did not prevent this retreat in profits, Fahmy said. Interest rates increase to 16% increases the burdens of state. Fahmy added that the National Bank of Egypt achieved high profits as a result of its expansion in domestic debt instruments investment. However, this affected NBE negatively as Moody’s lowered Egypt’s credit worthiness from ba3 to b1.

Fahmy expected that banks can compensate its losses and achieve profits in the second half of 2012, as there are many developmental projects to be done after the return of security and political stability to Egypt.

The below table shows the profits of some banks:

Bank Name

2011 profits

2010 profits

Commercial International Bank

EGP 1.748 billion

EGP 2.141 billion

Credit Agricole Bank

EGP 308.041 million

EGP 444.882 million

Arab Banking Corporation

USD 20.8 million

USD 27.7 million

Faisal Islamic Bank

EGP 186.582 million

EGP 337.847 million

Union National Bank

EGP 17.507 million

EGP 14.084 million

National Société Générale Bank

EGP 1.489 billion

EGP 1.337 billion

 

Mohamed Hamdy and Rana Mamdouh

Amwal Al Ghad

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