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Reports

03-Jul-2016

Egypt Economics Country Note 3-Jul-16

• Marginal slowdown in total loan growth, but further weakening in private sector lending demand Total loans rose 1.3% M-o-M in May, a slight slowdown from 1.6% M-o-M in April. Y-o-Y loan growth continues to be strong, up 16.1% Y-o-Y in May (vs 16.8% Y-o-Y in April), although this partly reflects the strong boost to corporate loans as a result of the March EGP devaluation. Our view is that higher borrowing costs after the increase in benchmark rates by the CBE (250bps YTD), weakening economic growth and continued shortage of USD will drive a further slowdown in private sector lending demand in 2016. The Y-o-Y slowdown in private corporate loan growth of 11.8% in May 2016, compared to 15.3% Y-o-Y in Dec 2015 is a reflection in our view of the weaker corporate sentiment.
• Strong Y-o-Y deposit growth at 19.8% Y-o-Y Total deposits increased 1.8% M-o-M in May, up from 0.5% M-o-M in April, thanks to stronger growth in EGP deposits of 2.1% M-o-M in May (from 0.5% in April). Y-o-Y deposit growth was 19.8% in May, up from 18.8% Y-o-Y in April. The system loan-to-deposit ratio fell slightly to 46.1% in May, versus 46.4% in April. Strong liquidity dynamics in EGP and higher interest rates should have boosted banks’ net interest margins in 2Q16. Deposit dollarization was broadly unchanged M-o-M at 18.6%.
• Money supply accelerates on rising lending to government Broad money supply growth accelerated to 18.9% Y-o-Y in May from 18.1% Y-o-Y in April thanks to continuing growth in credit to the government (net claims rose 29% Y-o-Y). The banking system’s net foreign liability position stood at USD9.4bn- a USD0.8bn drop below April’s level. The CBE added USD1.7bn in liabilities, though impact was mitigated due to a USD0.5bn grant from Saudi that boosted CBE's foreign assets, whereas banks’ foreign liabilities fell by USD0.2bn.

Elena Sanchez-Cabezudo, CFA
Mohamed Abu Basha
Rajae Aadel

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