• Severe shortage of FX leads to slowdown in corporate loan growth Annual loan growth decelerated to 16.8% Y-o-Y in January 2016, down from 18.8% in December 2015, as loans to the private corporate sector slowed by 3.1 pps to 12.2%. M-o-M loan growth also slowed to 0.7% in January, from 1.4% in December. The deceleration in corporate loan growth does not come as a surprise, in our view, as the lack of availability of FX and the recent CBE restrictions on imports continue to negatively impact both working capital and investment lending demand, and we expect further weakening in credit growth in the coming months. In the current environment, we believe that banks with a strong track record of growing low-cost deposits will report above-sector growth in earnings. CIB and Credit Agricole Egypt are our top picks in Egypt banks.
• Retail segment continues to drive strong Y-o-Y growth in deposits Deposit growth slowed to 19.1% Y-o-Y in January from 20.4% in December. The slowdown comes primarily as a result of weaker growth in deposits from the public business sector. Household deposits, which account for 76% of total, also slowed from 18.5% Y-o-Y in December to 17.8% in January, but growth was nevertheless higher than average growth during 2015. Deposit dollarization was flat M-o-M at 17.3% and the loan-to-deposit ratio was also roughly unchanged M-o-M at 45.7%.
• NFAs further in the red System net foreign assets (NFAs) declined by USD1.3 billion to a total negative position of USD3.5 billion in January. The deterioration was largely driven by the banking sector, with CBE NFAs remaining stable, as the economy continues to build foreign liabilities to meet short-term FX needs amidst hard currency shortages. We expect further deterioration in February as the USD1.8 billion loans from China, to both the central bank and two largest public banks, hit the accounts. We reiterate our view that EGP devaluation is likely to materialise in 2H2016 when the CBE manages to build a liquidity buffer that will enable it to stabilise the market.

Elena Sanchez-Cabezudo, CFA
Mohamed Abu Basha
Rajae Aadel