Financial sector contains repercussions of pandemic without prejudice to its main role: CBE

The Egyptian financial system succeeded in containing the repercussions of the coronavirus pandemic without prejudice to its main role, with the economy continuing to achieve positive growth rates during fiscal year (FY) 2020/21, according to the Central Bank of Egypt (CBE).

The bank clarified in its Financial Stability Report for 2020 that this came thanks to the flexibility and diversity of the Egyptian economy and the effective proactive measures and policies that were taken to confront the repercussions of the pandemic, supported by the gains of the economic reform programme, which contributed to alleviating the economic and social effects of the pandemic in various sectors and was reflected positively in the stability of the country’s credit rating.

This allowed the economy to maintain the confidence of foreign investors and give a positive and optimistic view of its future performance in the coming years.

The report pointed out that although the pandemic caused a high level of uncertainty among foreign investors, which led to a decline in net foreign flows to emerging markets during 2020, the components of the Egyptian economy, in addition to the banking sector’s enjoyment of high rates of liquidity in both local and foreign currencies, contributed to containing the sudden exit of portfolio investments from the local treasury bills market during the first half of 2020.

The second half of the year, however, witnessed the beginning of the return of foreign investors, which continued during the first half of 2021, exceeding their share of the total balances of treasury bills in local currency last June to pre-pandemic levels.

It stressed that net international reserves played a primary role in repelling the first consequences of the pandemic and remained in the sufficient range relative to short-term foreign currency obligations, and these components enabled the maintenance of exchange rate stability, low market risks for the banking sector, and the absence of systemic risks resulting from foreign capital fluctuations.

The report also revealed the success of the CBE in enhancing the credit environment, supported by a package of economic and precautionary policies, and its launch of many initiatives that are commensurate with the nature of each economic activity separately without excessive risk, which led to the absence of systemic risks related to the failure of borrowers.

Furthermore, it showed an increase in the financial stability index in June 2021, recording 0.51, compared to 0.49 in June 2020, as a result of the rise in macroeconomic indicators, with the banking sector continuing to achieve a high level of stability, and its indicators exceeding the supervisory and indicative ratios sufficiently, which is due to the sector’s accurate identification of risks and the development of strategies, sound management that is in line with international best practices, and supervisory instructions that are consistent with the decisions of the Basel Committee.

Additionally, it indicated that the assets of the banking sector represented 89.8% of the total assets of the financial system in FY2019/20, presenting the development of the terms of the financial position of the sector and its enjoyment of good financial soundness indicators until June 2021, while continuing to target new categories of individuals and companies and benefit from financial technology to customer service, which was reflected in the increase in the confidence of individuals and various sectors in the banking sector.

The report also praised the precautionary measures taken by the Financial Regulatory Authority to confront the negative effects of the pandemic, in conjunction with the development of the infrastructure for fintech, which contributes to confronting the risks facing the various activities of the sector, which was reflected in the continuation of various activities in achieving good performance indicators.

It stressed that the results of various stress tests showed the solidity of the financial system — with its banking and non-banking components — and its ability to face the losses that may result from the continuation of the negative consequences of the pandemic and the emergence of mutated strains of it, in addition to the shocks that may result from developments related to climate change.

The report pointed out that the CBE attaches great importance to enhancing financial inclusion and providing appropriate services and payment systems that meet the needs of customers in light of the continuous and successive technological development in the banking sector, emphasising the need to continue these services and ensure their availability to the satisfaction of all users in the context of supporting economic growth and the sustainable development goals, which are the focus of Egypt’s 2030 Vision.