• Corporate & retail segments drive slight slowdown in loan growth Loan growth remained strong at 16.3% Y-o-Y in Feb, but this was slower than 16.8% Y-o-Y in Jan 2016 and 18.8% Y-o-Y in Dec 2015. Drivers of weaker loan growth were: i) the private corporate sector, where loans rose 11.4% Y-o-Y in Jan versus 12.2% in Feb; and ii) the retail segment, with loans up 22.5% in Feb from 23.1% in Jan. We had expected a continued slowdown in loan growth, on the back of corporates’ difficult access to FX, and the debt burden ratios imposed by the CBE on retail loans. At 0.8%, M-o-M loan growth in Feb was broadly unchanged compared to Jan. In the current environment, we continue to favour banks with strong deposit franchises: CIB and Credit Agricole Egypt. Amongst the smaller banks, we also like HDB on attractive multiples.
• Local currency deposit growth picks up in February Total deposits increased 19.1% Y-o-Y in February, compared to 19% Y-o-Y in January. M-o-M, total deposit growth accelerated to 0.9% in February from 0.2% M-o-M in January, thanks to strong 1.2% growth in EGP-denominated deposits, while foreign currency deposits fell 0.7% M-o-M. As a result, deposit dollarisation declined to 17% from 17.3% in February. The system loan-to-deposit ratio was flat M-o-M at 45.7%.
• Economy builds more foreign liabilities; M2 growth stable System net foreign assets (NFAs) declined by USD2.4 billion to a total negative position of USD5.9 billion in February as the system accumulates foreign liabilities to provide FX liquidity. The CBE received a USD0.9 billion loan from China in February, and accumulated an additional USD0.5 billion in foreign liabilities; banks added another USD1 billion in such liabilities. We expect further accumulation of liabilities in 2016 as the economy seeks resources to boost FX liquidity - the recent EGP devaluation will need some time before managing to attract capital inflows, in our view. Meanwhile, broad money supply growth was stable at 17.5%, driven primarily by government borrowing from CBE to bridge local funding needs.

Elena Sanchez-Cabezudo, CFA
Mohamed Abu Basha
Rajae Aadel