• Strong growth in public sector loans; retail loans decelerate System M-o-M loan growth rose to 1.7% in June, up from 1.3% M-o-M in May, mainly driven by strong growth in loans to the public business sector. On a Y-o-Y basis, loan growth accelerated to 17.2% Y-o-Y in June, up from 16.1% Y-o-Y. Corporate loan growth improved slightly to 12.4% Y-o-Y, up from 11.8% Y-o-Y in May. Retail loan growth continues to be strong, up 18.7% Y-o-Y, but there has been a slowdown post the introduction of retail lending restrictions by the CBE last January; retail loan growth was 23% Y-o-Y in Dec 2015. The outlook for loan growth, especially for banks focused on the private corporate sector (CIB, CAE), continues to be clouded by the ongoing shortage of USD.
• Slight deceleration in Y-o-Y deposit growth Total deposits increased 1.9% M-o-M in June, compared to 1.8% M-o-M in May, driven by both EGP and USD-denominated deposits. Y-o-Y deposit growth slowed to 18.7% Y-o-Y in June, compared to 19.8% in May. While overall deposit growth continues to be strong, it is worth noting the slowdown in growth in demand deposits, up 9.8% Y-o-Y in June, compared to 17.2% Y-o-Y in May, a slowdown we assume is related to companies increasingly purchasing FX from the parallel market following the abolishment of deposit limits in March. The loan-to-deposit ratio at the system level was broadly unchanged M-o-M at 46.0% and deposit dollarisation also stabilised M-o-M at 18.5% in June.
• Money supply slows despite more lending to government Broad money supply growth edged down to 18.6% Y-o-Y in June from 18.9% Y-o-Y in May on further deterioration in the net foreign asset position as credit to the government remains strong (net claims rose 35% Y-o-Y). The banking system’s net foreign liability position stood at USD9.8bn after local banks added USD0.4bn in foreign liabilities in June, while CBE’s net foreign liability position was stable at USD5.1bn.

Elena Sanchez-Cabezudo, CFA
Mohamed Abu Basha
Rajae Aadel