Egyptian banks’ Viability Ratings (VRs) could come under pressure if the banks’ foreign assets continue to drop, Fitch Ratings said in recent report
According to the Central Bank of Egypt (CBE), the banking sector’s net foreign liabilities (NFL) stood at EGP 112 billion ($7 billion) at the end of November 2021, compared with net foreign assets of EGP 107 billion at the end of February 2021.
Fitch attributed the downturn to declining foreign assets.
“If the trend continues, the banks’ foreign-currency (FC) liquidity and debt service capacity could be constrained,” Fitch explained.
It added that the sector’s NFL were even wider at the end of November 2021 than immediately after the hike in capital outflows that occurred in April 2020 as a response to the Covid-19 pandemic pressure.
“The deterioration in February-November 2021 was driven by a drawdown of foreign assets despite a strong recovery in foreign portfolio balances, which had increased to $32 billion at the end of October 2021 from a low of $7 billion at the end of April 2020,” Fitch revealed.
Meanwhile, the sector’s FC lending increased modestly due to foreign assets being used to help meet the CBE’s external debt obligations as the CBE drew down on some of its FC deposits at domestic banks, according to Fitch.
Additionally, Fitch said that Egypt’s account deficit may have added to the pressure on banks’ foreign assets.
According to the CBE, Egypt’s account deficit significantly increased in FY2020/22 to $18.4 billion, up from $11.2 billion in FY2019/20.
