• EGP devaluation in mid-March boosts loan growth… Loan growth rose to 17% Y-o-Y in March (up from 16.3% Y-o-Y in February) mainly due to the EGP devaluation in March, which boosted FX-denominated loans when translated into EGP. Loans in FX account for roughly 25% of total loans (breakdown for March is not available). Loan growth jumped 4% M-o-M in March versus 0.8% in February, driven by the private corporate sector where growth rose from 0.5% in February to 4.9% in March, due to EGP weakness. Q-o-Q loan growth numbers in 1Q2016 should be strong for banks that have a large share of FX denominated loans i.e. CIB, CAE, and EGB.
• …as well as deposit growth and deposit dollarisation Total deposits increased 19.3% Y-o-Y in March compared to 19.0% Y-o-Y in February, as foreign currency deposit growth rose 22.5% Y-o-Y in March, up from 13.2% Y-o-Y in February. Local currency deposit growth remained strong, although it slowed in March to 18.6% Y-o-Y, compared to 20.3% Y-o-Y in February. The boost to FX deposit growth as a result of EGP devaluation pushed up the deposit dollarisation ratio to 18.8% in March from 17% in February. The system loan-to-deposit ratio was broadly flat M-o-M at 45.9%.
• Money supply boosted by devaluation; NFAs further in the red Broad money growth (M2) accelerated to 18.1% Y-o-Y in March from 17.4% in February driven primarily by a weaker EGP; M2 actually slowed to 15.8% when excluding the FX impact. Meanwhile, the economy continued to accumulate foreign liabilities to ease FX shortages, sending the net foreign asset position further in the red. The CBE accumulated another USD1.5 bn in external liabilities, bringing total accumulated liabilities in 1Q2016 to USD2.7 bn. The balance is set to increase further when the recently announced USD2 bn UAE deposit at the CBE hits the accounts later in May.  

Elena Sanchez-Cabezudo, CFA
Mohamed Abu Basha
Rajae Aadel