Egypt’s banks could face further pressure on net income in 2021, Fitch

Egypt’s banks could face further pressure on net income in 2021 due to the lower interest rate environment , Fitch Ratings said in a report.

The pressure may also arise due to a  potential rise of Non-performing loans when the Central Bank of Egypt (CBE) lifts support measures it introduced at the onset of the pandemic

The international credit ratings agency does not “expect this to lead to capital erosion, but capitalisation remains a credit weakness given banks’ high exposure to the sovereign and large individual obligors.”

The quality of banks’ assets has deteriorated as borrower support measures adopted by the Central Bank of Egypt (CBE) ended.

“However, the sector could benefit from growth and revenue opportunities, with Egypt’s lockdowns less stringent than those in many jurisdictions, and consumer consumption and public investment more resilient.”

Fitch expects the ratio of bad loans to rise to 4 percent by the end of 2021 as the central bank ends its measures to support borrowers.

Banks last year set aside bns on their balance sheets in the form of provisions against the possibility that covid-19 would force more borrowers to default on loans, which played a key role in a 20 percent drop in profits during the first half of 2020.

“Banks’ foreign-currency liquidity has recovered from the large sell-offs and portfolio outflows in March and April 2020 but remains vulnerable to foreign investors’ confidence in emerging-market debt and exchange-rate fluctuations.”