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Egypt banking sector outlook stable with abundant liquidity

The banking sector outlook for Egypt, which has embarked on significant banking reforms since 2004, is stable for 2009 and is not significantly affected by the global financial crisis due to its minimal exposure, according to a report by a Kuwaiti investment bank.

Global Investment House (GIH) said investments by Egyptian banks, not covering risky instruments such as derivatives and securitised bonds, have saved them from the world’s financial turmoil.

It said local banks enjoy abundant liquidity, with an average loan to deposits ratio of 55 per cent compared to approximately 80 per cent as an international norm, providing enough room for extending loans.

Standing on solid ground amid the financial crisis, attractive sector dynamics have led to international and regional acquisitions over Egyptian banks.

GIH said currently, Egyptian banks are targeting small and medium enterprises (SMEs), as they are believed to drive economic growth in the coming period.

GIH said there are still a lot of unexploited segments in the banking sector, such as mortgage and SMEs lending, adding that the Egyptian government needs to pay more attention to SMEs because 80 per cent of employment in Egypt is in SMEs and their products are directed at the local market, therefore they are protected from the global recession.

Egyptian banks have very low mortgage lending, standing below one per cent of GDP, compared to 65 per cent in the US, 45 per cent in Europe and 14 per cent in the UAE, GIH added.

GIH said lending opportunities for Egyptian banks are still there to fund projects as the country’s GDP growth is expected to be higher than most other countries. It said those banks with international parent lenders may not be negatively affected by the global turmoil due to local independent operations.

Despite the financial crisis, most of the traded banks were able to realise positive growth over the year 2008. Declining growth in some banks was related to internal factors rather than the international turmoil, primarily investments impairment losses or provisions’ addition, it added.


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