Egypt’s banking sector forecast to remain stable in 2021 – Moody’s

The Egyptian banking sector is expected to be stable in 2021 even as profitability comes under pressure due to falling net interest margins and growing non-performing loans, according to Moody’s Investors Service.

Profitability of Egyptian banks will compare well against their peers thanks to the Central Bank of Egypt’s (CBE) decision to ban dividend payments for 2020 which will be “enough to absorb growth in risk-weighted assets and keep capital ratios stable,” the international credit ratings agency said in a report on Wednesday.

Non-performing loans are expected to rise from an average 3.9% of total loans due to the economic disruption caused by the coronavirus pandemic which affected tourism and construction sectors and dampened consumer demand.

The CBE’s decision to cut interest rates by 400 basis points (bps) in 2020 will reduce net interest margins, leading to lower incomes for banks, Moody’s noted.

Liquidity will remain solid as cash and interbank balances represent 19% of total assets, while an additional 39% are invested in government securities. However, state-owned banks will continue to face tighter foreign-currency liquidity.