June 15, 2024

A Booming Banking industry is a big Gift of Nile in 2022

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Egypt has around 39 active banks today with the Central Bank of Egypt being the monetary authority of the Arab Republic of Egypt. According to the Central Bank of Egypt (CBE), these 39 existing banks in Egypt are categorized as commercial, non-commercial, public and private sectors. As of June 30, 2009, public sector commercial banks (three banks) accounted for 38.2% of all loans. Generally, vast majority of these banks operate as commercial banks, even though there are a few specialized banks, catering to specific sectors (i.e., agriculture and real estate). 

The Egyptian banking industry has not only pulled through the pandemic but also accounts for the lowest non-performing loans. The pandemic led to a huge boost to the digital banking platforms in the MENA region. 

Globally-acknowledged stability

As the Egyptian banks entered the pandemic in a good shape, the new banking act passed in 2020, has served the capital requirements for new mergers and acquisitions and boosted financial inclusions across the country. Apart from pushing access to ATMs and point of sale machines, fintech companies are playing a major role for promoting mobile wallet and payment options in the country.

Several rating agencies have certified the Egyptian Banking system as fairly stable. This is largely because of a stable government profile that helps the banking system balance profitability and loan book pressures against sound liquidity.

Standard & Poor’s reports from April and November 2020 kept the country’s credit rating at B while the Fitch report confirmed the rating at B+ in July 2020. Moody’s ratings were stable at B2 in September 2020.

Keeping Matters Public

The Egyptian banking sector has been dominated by the public banking players for a very long time, which further delayed the banking reforms and its implementations. The government-owned banks are largely investing in government securities with short maturity, which does not boost the bank’s incentive to develop the capacity to serve small and medium private enterprises.

According to the latest reports from CBE, the Egyptian economy has gained significantly after March, when it cut the interest rates by 300 bps. This brought the overnight deposit rate, overnight lending rate, the rate of main operation, and the discount rate to 9.25 percent. The same report has also revealed the country’s Net International Reserves (NIR) achieved a record increase of more than USD 45.5 billion at the end of February 2020. This is what helped Egypt withstand the COVID-19 pandemic.

A major factor that has been instigating non-performing loans in the country are the lack of proper legal framework to legitimise collaterals. However, with more stringent reforms towards financial inclusion taken, CBE has reported its reserve money increase by EGP 205.2 billion or 20.8% to EGP 1192.9 billion at the end of June 2022.

Leading the Bull run

International Business Magazine recently announced 3 award titles  Most Trusted CSR Bank Egypt 2022, Best Retail Bank Egypt 2022, and Best Funding for Green Project Egypt 2022. The titles were given to Cairo-based Government-owned National Bank of Egypt (NBE). In terms of assets, deposits, loans, bank-capital, total number of branches and employees, it is one of the largest in the country. As per 2007 reports, it accounted for 23 percent of the total assets of the Egyptian banking system. In the same year, it accounted for about 25 percent of the total deposits and 25 percent of the total advances and loans.

National Bank of Egypt has always been in the forefront for its Corporate Social Responsibility (CSR) initiatives. As per reports, the bank has spent about EGP 2.6 billion in 2020, which is practically 19.9 percent of its net profit. In another report, it has been recorded that banks are allotting huge amounts towards climate action projects.

NBE, with its 122 years of banking legacy, has disclosed a whopping USD 150 million for the period of 2016-19 to serve the climate action projects. Its first sustainability report that came out in 2020 highlighted the bank’s performance beyond profit and in alignment with Economic, Environmental, Social and Governance indicators. NBE has voluntarily dedicated almost 20 years towards green initiatives for energy efficiency and renewable energy. It has also cooperated with Egyptian Environmental Affairs Agency (EEAA) and managed the finance of the Egyptian Pollution Abatement Program (EPAP). The EPAP program tackles industrial pollution and promoting the concept of cleaner technology in order to mitigate GHG emissions (reducing 670,000 tons of CO2 in 18,000 industrial facilities) in cement, iron and chemical industries. NBE was the Apex Bank in one of Egypt’s largest initiatives by the Ministry of Environment and the EEAA. Grant funds reached 7.17 million euros.

With major banks of Egypt like the NBE experiencing more than 100 percent growth in its retail gross revenue, the banking sector in Egypt is poised for a major growth story in the coming years. The increasing popularity of digital banking services and contactless transactions is increasing the retail customer base.

With better apprehension of risks and proper regulatory and supervisory framework from the Central Bank of Egypt, the risk of failures for the Egyptian banks have been steadily declining. The banking supervision can be improved through rigid corporate governance in banks and management skills.

Blog By Tasleem Majumder

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