Inflation remains a major concern for Egyptians and will lead to a sharp rise in borrowing costs, warned Fitch Solutions, one of the Fitch Ratings companies.
Since March 2022, the increase in the value of loans has been driven almost entirely by a revaluation of loans after three currency devaluations, Fitch Solutions said in a report.
It anticipates that the pound will lose nearly 20 percent of its value during the remainder of 2023 and that loans to the government will remain high.
Nominally, this will lead to loan growth of about 20.2 percent by the end of this year.
The report stressed that despite the high interest rates and the depreciation of the currency, the banking system in Egypt is strong enough to deal with economic challenges.
Fitch Solutions anticipates that the percentage of non-performing loans, which amounted to about 3.2 percent would rise in 2022, because the Central Bank of Egypt took a generous position regarding non-performing loans in small and medium enterprises and the tourism sector last year.
Fitch Solutions believes that the average adequacy ratios for the first tranche of capital for banks will remain more than 17 percent – higher than the required standards – and that the Central Bank has begun to oblige banks to comply with Basel Four standards, which supports the solidity of the banking sector.
The institution raised its expectations for the growth of the Egyptian gross domestic product during the fiscal year that ends on June 30, from 3.4 percent to 3.8 percent.