Egypt banks: Foreign assets set to recover, higher rates will affect NIMs

Egypt banks: Foreign assets set to recover, higher rates will affect NIMs

According to Fitch, the Central Bank of Egypt (CBE) “devalued the pound by 17 percent and raised its main interest rate by 100bp (basis points) on 21 March to tackle inflation. Higher interest rates will support the banks’ profitability but, along with high inflation, could put pressure on asset quality.”

Egyptian banks’ net foreign liabilities widened to 185 billion pounds ($12 billion) at end-February 2022 compared with net foreign assets of 26 billion pounds at end-June 2021, it said.

"This was driven, we believe, by public sector banks using foreign assets to buy foreign-currency (FC) securities issued by the sovereign to finance its current account deficit and upcoming maturities..."

But by March end, the sector’s net foreign liabilities narrowed to 128 billion pounds, supported by a 58 percent increase in foreign assets, it said.

Interest rate hikes

Meanwhile, CBE raised its overnight interest rates by 200 basis points on Thursday, seeking to contain inflation expectations. Annual inflation reached 13.1% in April, its fastest pace since May 2019.

The Monetary Policy Committee increased the deposit rate to 11.25 percent from 9.25 percent and the lending rate to 12.25 percent from 10.25 percent.

"Higher rates will weigh on the banks’ net interest margins (NIMs) following the issuance of 18