Poor outlook for Egyptian banks could affect foreign lending

Egypt could face difficulties in obtaining foreign loans, warned banking experts, after Moody's revised its outlook on Egypt's banking system to "negative" from "stable".

Basant  Fahmi, a consultant at the Baraka Banking Group, said she expects the World Bank and International Monetary Fund (IMF) to impose stringent terms and conditions on Egypt during loan negotiations, which may amount to US$6 billion, according to recent reports by the Egyptian government.

Fahmi said she did not expect the IMF and World Bank to refuse Egypt the loans it needs to revive its local economy, especially after the Obama administration pledged to ensure Egypt gets the loans.

Fahmi went on to say that the government needs between LE10 billion and LE12 billion during the next 18 months to pump into local investments and create new job opportunities, ensure salary raises, and secure wheat imports.

Banking expert Ahmed Adam said that growing exposure to lower-rated Egyptian sovereign debt was the main reason behind the downgraded outlook on Egypt's banking system. The risks to banks have increased following the revolution, as many businessmen to whom banks have given loans are involved in cases of corruption, and their assets have been frozen accordingly.

Regarding sovereign and government debts, the Central Bank's latest reports revealed that local government debts rose to LE962.2 billion in December of last year. The reports also revealed that the government does not repay its debts to banks but rather repays its debts with new loans through the use of treasury bills and bonds, which increase the bank's risks in government lending.

In order to face the liquidity crises that banks face due to government debts, Adam called for the amendment of Article 32 of Law 88 for the year 2003, which would raise the minimum capital of Egypt’s 39 local banks from LE500 million to LE3 billion. This would ensure liquidity of nearly LE68 billion in the local market.

Meanwhile, the former head of Al-Ahli Bank, Mahmoud Abdel Aziz, is more optimistic, saying he expected Moody's to revise its outlook on Egypt's banking system to "stable" in the coming few weeks.

Abdel Aziz said the downgrade was to be expected in light of the recent political turmoil and its economic effects.

Translated from the Arabic Edition

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