The Egyptian banking sector\u2019s FX liquidity has recovered from pandemic-induced lows, thanks to the return of foreign inflows to capital markets, Fitch Ratings said in a report yesterday.<\/p>\n
Net foreign assets at banks increased to $ 2.9 bn in October, continuing to rebound after having turned positive in September.<\/p>\n
Excluding the central bank, net foreign assets in banks are still low compared to $7.3 bn in February, before the pandemic struck.<\/p>\n
Meanwhile, the combined net foreign assets of commercial banks and the CBE in September rose 33 percent m-o-m to positive $14 bn, up from $10.6 bn in August, central bank data we picked up in November showed.<\/p>\n
The liquidity position is a \u201csustained improvement\u201d as net foreign assets had dropped to negative $ 5.3 bn in April, when banks had to service some USD 17 bn of capital outflows triggered by the global market panic, Fitch said. Fitch had previously expected the recovery in FX to last longer.<\/p>\n
This improvement was underpinned by foreign investors flocking back to EGP treasuries, Fitch said. Foreign portfolio investments recovered sharply since May, increasing to $ 23 bn by the end of November, up from $ 21.1 bn six weeks earlier and more than doubling from $ 10.4 bn in May.<\/p>\n
Egypt\u2019s carry trade continues to be attractive for overseas investors, the ratings agency noted as real interest rates continue to be among the highest in the world, despite this year\u2019s 400 bps reduction in nominal rates.<\/p>\n
Banks, however, saw a 21 percent\u00a0 increase in foreign liabilities in 10M2020, posing some long-term repayment risks. Net foreign assets at banks also only covered 7 percent of local foreign currency-denominated deposits at the end of October, down from 18% at the end of February, Fitch said. H<\/p>\n
owever, nearly 70% of the banks\u2019 external debt is long-term, limiting short-term refinancing threats, it added.<\/p>\n
FX liquidity is still vulnerable to any drop in investor confidence and to exchange-rate fluctuations, and the reliance of banks on foreign creditors carries \u201crefinancing risks,\u201d Fitch added. Given higher external financing needs and the drop in FX receipts \u2014 as we\u2019ve seen in the plunge in tourism revenues \u2014 Fitch forecasts \u201crenewed pressure\u201d on FX reserves and on the EGP<\/p>\n","protected":false},"excerpt":{"rendered":"
The Egyptian banking sector\u2019s FX liquidity has recovered from pandemic-induced lows, thanks to the return of foreign inflows to capital markets, Fitch Ratings said in a report yesterday.<\/p>\n","protected":false},"author":4,"featured_media":320008,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22,33],"tags":[],"class_list":["post-320007","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","category-main"],"yoast_head":"\n