UAE banks’ Egypt subsidiaries will feel heat from 15.7% currency devaluation

UAE banks’ Egypt subsidiaries will feel heat from 15.7% currency devaluation

Dubai: Significant capital flight from Egypt following the over 15.7 per cent devaluation of its currency last month has become a major worry for UAE banks with subsidiaries in the country. Earlier this month First Abu Dhabi Bank (FAB), the UAE’s biggest bank, pulled out from a plan to acquire EFG-Hermes, Egypt’s largest investment bank. Investment banking sources said, many foreign direct investment proposals - including M&A deals - in Egypt from the GCC have come to a grinding halt following currency devaluation and massive capital outflows. Central Bank of Egypt (CBE) data shows net foreign asset (NFA) position decreased a sharp $13.7 billion to negative $5.1 billion in March amid non-resident capital outflows triggered by the Ukraine situation. The capital flight has triggered fear of further currency volatility. In addition, the capital outflows also amplify the domestic market effects of tightening global funding. “With liquid foreign exchange reserves at $29 billion at the end of March, a similar drawdown of $13.7 billion would reduce the reserve stock to around $15 billion,” said Moody’s in a recent note. “That level would undermine external debt service coverage over the next 12 months, which we estimate at about $30 billion.” London-based Capital