What to expect in banking, education + financial inclusion in 2021

Good morning, friends, and Happy Monday on this holiday-shortened week. It’s lights-out at close of play on Wednesday as the nation downs tools to observe Coptic Christmas on Thursday. A very happy holiday to everyone who is celebrating.

We’ve got a cheat code for you this morning — with two caveats: *155#. If you’ve ever signed up for a promotion, entertainment service or game through your mobile carrier — or “been subscribed” or had your kid mess with your phone and find you have a recurring charge on you tab — you’re in luck.

SMART POLICY- The NTRA just gave you the power to see who’s chiseling you for 50 piasters a day:

• Go to your Phone app and switch to the dialpad.
• Now tap in *155# and then press dial and follow the menu prompts

The caveats: You can’t unsubscribe from the (endless) feed of spam SMS that certain companies insist on pushing through the pipe (you know who you are, and you stink). And if you’re on a corporate line, the dial code doesn’t work — you’ll have to go through your company’s authorized rep with the phone company.

WHAT’S HAPPENING TODAY-

We’re getting the details of the government’s natgas transition plan this week: The expo for the government’s multi-year natural gas transition plan — the Go Green Exhibition — kicks off today and runs until Wednesday at the International Exhibition Center in New Cairo. The Trade and Industry Ministry is expected to announce how it plans to outfit existing vehicles with natural gas engines as part of its strategy to cover 70k cars that have been on the road for over 20 years in 2021 — including 55k taxis and passenger cars and 15k microbuses.

Bankers, take note: The ministry also seems to be lining up funding from local lenders to set up natgas refueling stations including at least EGP 500 mn from the Industrial Development Bank.

Need to get caught up on the program? We’ve got you covered here.

What could impact global markets this week? The Saudi GCC summit, China telecom company NYSE delistings, and Georgia Senate runoffs in the US of A.

GCC leaders will gather in Saudi tomorrow with an eye to finding a resolution to the 3.5-year diplomatic row with Qatar, AFP reports. The outgoing Trump administration has ramped up pressure on Egypt, the UAE, Saudi Arabia and Bahrain to bury the hatchet with Qatar and unite to confront Iran.

Egypt seems willing to go along with the idea and together with the UAE has publicly backed the talks as well as what appears to be shuttle diplomacy by Kuwait. But while sources say that an agreement on further talks and trust-building measures is in the works, it doesn’t yet enjoy the full support of all the boycotting countries.

MARKET WATCH- Just how long can the “buy everything rally” go on for? asks the Wall Street Journal. Analysts say the post-corona crash melt-up could have a while still to run as appetite for risk shows no sign of slowing, despite the troubling fundamentals. Fund managers are trying to make their clients focus on the latter half of 2021, which is when they’re predicting a full recovery and an economic boom.

THE DOWNSIDE RISK: A nice, big, fat bubble waiting to burst.

CIRCLE YOUR CALENDAR-

The usual news triggers to keep your eye on over the next several days:

• PMI: Purchasing managers’ index figures for December will land tomorrow at 6:15am CLT.
• Foreign reserves data for last month should be out later this week.
• Inflation figures for December are due out on Sunday, 10 January.

We’re keeping our eyes peeled for any updates on a potential visit from US Treasury Secretary Steven Mnuchin sometime this week as part of a brief regional tour that will also take him to Sudan, the UAE, Israel, and Qatar. This would be his last overseas trip as a White House official.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

MORNING MUST READS-

Wild guess: You have “exercise more” on your list of resolutions but you’re still trying to peel yourself off the couch. Take comfort from the fact that you’re probably not alone — and you can get your heart racing right at home with this list of fitness apps courtesy of the Wall Street Journal. Worth considering rather than trudging into the gym during this second wave of corona.

Once you get started, don’t stop until you’ve hit the 66-day mark. That’s how long studies have shown it takes for most people to develop a new habit that is likely to become a more permanent fixture of your lifestyle. The benefits aren’t just about your Sahel bod — adults who lead an active life generally have better physical health (including lower susceptibility to chronic disease, improved sleeping patterns and mood, among others), which in turn can have financial upsides, not least of which is a lower healthcare bill.

ALIEN WATCH- Predictions that aliens would land on earth didn’t pan out last year, but the US Senate is keeping an eye out. The USD 2.3 tn spending bill US President Donald Trump signed at the end of last month includes a request from the Senate Intelligence Committee for the Pentagon to submit a report within six months on all UFO sightings and analysis, according to the New York Post. H/t Mostafa S.

!_InsertLine!

Expect corporate borrowing to boom this year — but bank margins to remain thin, our friends at Pharos say in their 2021 outlook for the sector. Last year’s 400 bps of interest rate cuts — starting with 300 bps in March followed by 50 bps in each of September and November — will be “meaningful” enough to make it worthwhile for companies to borrow in support of capital expenditures, but the borrowing boom will really come to a head in 2022 with the help of macro dynamics, Dalia Bonna and Bassma Bakry write for Pharos. The anticipated uptick in corporate and capex borrowing could beef up bank utilization ratios if lending growth surpasses funding growth.

You can tap or click here to read the report in full (pdf).

Banks are also likely to rein in their allocations to treasuries this year, Pharos says. The research note chalks this up in part to an expected narrowing of the state budget deficit — meaning fewer debt instrument sales. A large part of banks’ income comes from investment in government debt, and many piled into long-term bonds at the height of the pandemic in 2Q2020, according to a local press survey last month. This move helped banks stay financially sound even as they ramped up loan loss provisions on expectations of a wave of bad loans.

Net interest margins (NIMs) are expected to come under further pressure this year as the Central Bank of Egypt pushes ahead with its monetary easing cycle in 2021 and 2022, according to the research note.

Put all that together with higher taxes and new fees, and you get a slowdown in earnings growth at banks. The research note points to 2019 amendments to the Income Tax Act that effectively hiked the tax rate on interest income banks and corporations make from investments in government bonds and bills as a key source of pressure on banks’ earning growth this year, coupled with the 0.25% tithe on interest income to support the new universal healthcare system, the 0.5% of deposits taken for the new emergency bailout fund, and the 1% tithe to finance an industry development fund.

Could we see a wave of M&A this year? Consolidation is one potential result of last year’s Banking Act, which hiked minimum capital requirements for commercial banks to EGP 5 bn from EGP 500 mn, Pharos says. Last year saw a spate of acquisition talks in the sector, particularly as Gulf banks close in on several Lebanese banks leaving Egypt.

What would help the sector perform better? If the economy stages a healthy recovery, Pharos hopes this bounceback will reflect on corporate earnings and borrowing appetite, which would in turn breathe new life into banks’ non-interest income and ease the pressure on their NIMs. Pharos is also hopeful that the CBE will scale back its requirements for commercial banks’ reserve ratios — which it hiked to 14% back in 2017 — and allow banks to loan out a higher percentage of deposits they take in.

What might drag it down: On the flipside, the banking sector could struggle to recuperate and bring up its income if purchasing power has a slower-than-expected recovery, which would weigh on individual borrowing. The research note also points to the possibility of an uptick in non-performing loans in the event that the business environment experiences a “delayed recovery.” Banks’ bottom lines could also continue to come under pressure if the CBE enacts stricter regulations on the sector, or if the new tax treatments have a bigger effect than expected.

Banks will continue to support businesses at risk of default for another six months: The Central Bank of Egypt (CBE) has extended until 30 June two debt relief initiatives launched in late 2019 and early last year to waive marginal interest on debt owed by distressed companies and tourism businesses, it said in a circular (pdf) to commercial banks. The initiative requires banks to remove the names of financially-distressed companies from the CBE and i-Score’s blacklist and lifts restrictions on their assets, as well as call off any legal action they had taken against companies with bad loans.

Who’s eligible: Corporate clients with debt of less than EGP 10 mn who pay down part of their debt and tourism firms with debt of over EGP 10 mn who settle over 50% of their original debt.

The extension comes as the covid-19 pandemic continues to take its toll on many businesses, the CBE said. The central bank last week also extended a similar debt relief initiative it launched in March for retail bank clients.

Egypt is a “top priority” market for the UAE’s National Central Cooling Company’s (Tabreed) expansion plans, CEO Bader Al Lamki told Al Arabiya. Tabreed has been expanding into densely populated countries, recently setting foot in India, but is now eyeing the Arab world, including Egypt and Saudi Arabia, for its next expansion phase. Lamki said that Egypt’s investment environment and demographics make it an ideal market for the company, which it expressed interest in back in 2019.

Egypt’s auto sector continued to recover from the shock of the pandemic in November with sales ticking up from October, according to industry data released yesterday. Figures from the Automobile Market Information Council showed that 26,134 vehicles were sold in November, up almost 50% from November 2019 and up from 25,569 in October.

Passenger cars are still underpinning the recovery: More than 20.5k passenger cars were sold in November, up 67% from 12.3k in the same time last year and up from 19.4k in October. Sales volumes of passenger cars fell by as much as 26% during the government’s partial lockdown of the economy earlier this year, which caused dealerships to close and consumers to defer purchases.

Bus, truck sales drop in November: Sales of trucks and buses fell from October but remained higher on a y-o-y basis. Truck sales fell to 3,485 from 3,515 in October but were 7.4% higher than volumes in November 2019. Likewise, bus sales dropped to 2,113 from 2,626 in October but were 4.2% above November 2019 levels.

UK construction firm Malicorp is reportedly preparing to file a fresh international arbitration case against the Civil Aviation Ministry for terminating a contract for the Ras Sudr airport, Al Mal reports, citing unnamed sources with knowledge of the matter. The company is said to be seeking USD 100 mn, along with an unspecified amount in overdue interest payments dating back to 2004, to compensate it for the losses it claims to have incurred after the ministry cancelled a contract to build, operate, and manage the airport. Malicorp has reportedly tapped a local law firm to file the arbitration case with the Cairo Regional Center for International Commercial Arbitration (CRCICA).

Background: The Transport Ministry had issued the tender for the airport back in 2000 and had awarded Malicorp the contract under a build-operate-transfer framework. The Civil Aviation Ministry, which took over the project, scrapped it a year later because of security concerns; the project was awarded in 2019 some 7k feddans of state land on which to build. Malicorp had previously taken the case to the International Center for Settlement of Investment Disputes, seeking USD 500 mn in damages.

Malicorp has lost before: When the international tribunal dismissed the compensation claim and Malicorp tried but failed to reverse ICSID’s decision, it took the case to CRCICA, which ordered Egypt to reimburse the UK company for expenses totalling USD 14.8 mn. The Court of Cassation then refused to implement the ruling on the grounds that the case had separately been taken through the French court system.

The revival of the case comes as the Public Enterprises Ministry said it has cleared its own backlog of international arbitration cases filed between 2018 and 2020, including settling Emaar Misr’s long-standing dispute with state-owned El Nasr Housing over Emaar’s Uptown Cairo development, and the spat between state-owned El Nasr for Steam Boilers’ and Al Kholoud for Touristic and Real Estate.

Fawry Microfinance greenlights EGP 310 mn debt to fuel expansion: Fawry subsidiary Fawry Microfinance is taking on an EGP 160 mn loan from the Egyptian-American Enterprise Fund (EAEF) and a EGP 150 mn credit facility from Banque Misr after the parent company’s ordinary general assembly approved the terms on Thursday, the company said (pdf). EAEF owns a 9.7% stake in Fawry while Banque Misr owns 6.3%. Fawry CEO Ashraf Sabry had told Enterprise last month that expanding the microfinance subsidiary complements Fawry’s digital lending strategy as it enables merchants to pay their suppliers electronically.

Also approved by the assembly:

• Banque Misr getting a 2% stake in Fawry Dahab, an e-payments service for public utilities.
• Increasing Fawry Dahab’s service fee to 17.25% from 15%.

Microfinance startup Cassbana has raised USD 1 mn+ in a funding round led by Disruptech, former Fawry CEO Mohamed Okasha’s USD 25 mn fintech fund, the startup said in a statement carried by Al Mal. The company says it uses AI to run a behavior-based credit scoring system, which determines individuals and businesses access to credit. It launched its app on a trial basis last June, and hopes to attract 1 mn users by the end of 2021, founder and CEO Haitham Nassar (LinkedIn) said.

Small and micro projects are being urged to adopt digital payments by the Financial Regulatory Authority, which has launched its Digital Financial Inclusion for 2021 initiative in a bid to speed up the formalization of the economy and the transition to a cashless society, Masrawy reports. The regulator will run a series of seminars and training sessions in January to raise awareness among micro lenders about the benefits of e-payments. Some EGP 18.2 bn has currently been lent to micro projects. FRA chairman Mohamed Omran voiced optimism that 1Q2021 will see an acceleration of the use of digital payments among micro projects, especially given the influence of the pandemic which has over the past 12 months encouraged the use of fintech among businesses and individuals alike.

In other microfinance news: NCB Capital’s microfinance subsidiary could obtain the necessary licenses to begin operating within the next two months. The microfinance firm will have a starting capital of EGP 150 mn.

Suez Canal revenues dipped 3% in 2020 to USD 5.61 bn compared to USD 5.8 bn in 2019, the Suez Canal Authority said in a statement yesterday. The canal recorded its second-highest annual net tonnage last year at 1.17 bn tonnes from over 18k ships crossing the canal.

Incentives and reductions the authority introduced last year to counter the global trade slowdown due to covid-19 will extend into 2021, Chairman Osama Rabie said. LNG, LPG, and oil carriers will receive reductions on their Suez Canal transit fees between 30-75%. Transit fees for all ships will be fixed in 2021 at the same price as the previous year as another initiative to spur movement across the canal. Rabie said that these marketing policies had helped to protect much of the canal’s shipping volumes and revenues during the pandemic.

The deaths of at least four covid-19 patients in a hospital in Sharqia due to an alleged oxygen shortage is leading coverage on Egypt in the foreign press. We have more on the story in this morning’s Covid Watch, below.

Invesco Asset Management — one of the world’s largest asset managers — holds a 6.5% stake in CIB, equivalent to 96.95 mn shares, the leading private sector bank said in a statement (pdf) to the EGX yesterday. The fund holds 5.55% of the bank in its developing markets fund, while the rest of the shares are split between 16 other emerging-market portfolios and tracker funds.

Prosecutors are investigating the deaths of four covid-19 patients from an alleged oxygen shortage at El Husseineya Central Hospital, a public facility in Sharqia, several news outlets reported (Al Shorouk | El Watan | Al Masry Al Youm). This followed a video posted on social media (runtime: 0:45) featuring a doctor alleging that all patients in an ICU wing at the hospital died. Health Minister Hala Zayed denied the facility lacked oxygen and Sharqia Governor Mamdouh Ghorab said the patients had pre-existing “chronic diseases,” (watch, runtime: 4:18). A similar incident in Zefta General Hospital in Gharbia is also under investigation.

The story dominated the conversation on the airwaves last night: El Hekaya’s Amr Adib dedicated a lengthy segment to the story (watch, runtime: 28:49) before phoning Health Ministry Spokesperson Khaled Megahed and head of the medical supplies division at Federation of Egyptian Chambers of Commerce Mohamed Ismail. Megahed said that the deaths were the result of negligence and not an oxygen shortage (watch, runtime: 5:45) while Ismail claimed they were likely caused by “an administrative error” (watch, runtime: 6:46). Kelma Akhira’s Lamees El Hadidi (watch, runtime: 7:44) and Al Hayah Al Youm’s Lobna Assal also covered the story (watch, runtime: 6:17).

The story received plenty of ink in the foreign press: Associated Press | AFP | Asharq Al Awsat | Gulf News.

Lowest daily covid tally in a week: The Health Ministry reported 1,309 new covid-19 infections yesterday, down from 1,407 the day before and the lowest since 27 December when the ministry reported 1,226 cases. The ministry also reported 64 new deaths, bringing the country’s total death toll to 7,805. Egypt has now disclosed a total of 142,187 confirmed cases of covid-19.

Anti-vaxxers, you won’t be fined for turning down the jab — but we’ll continue to judge. The Cabinet dismissed a rumor that people who decide against taking the covid-19 vaccine will be fined EGP 10k, saying that this will be a voluntary decision.

Pfizer and BioNTech have offered to supply Africa with 50 mn covid-19 vaccines for health workers between March and the end of the year, South African President and current African Union chairman Cyril Ramaphosa told Bloomberg yesterday. Pfizer confirmed talks are underway with the African Union, but gave no further details.

No mention was made of whether any of these vaccines would be allocated to Egypt, but the government is already in talks with AstraZeneca and Pfizer and is also hoping to get some 20 mn doses of a still undetermined vaccine from global vaccine alliance Gavi around May 2021.

Israel is going hell for leather to get its population vaccinated: Some 12% of Israelis (1.1 mn people) have already received the first dose of the two-shot Pfizer / BioNTech vaccine and the government aims to start handing out jabs to the general public by late March or early April, Bloomberg reports.

Over in Europe, governments are looking at either extending or tightening covid-19 restrictions as case numbers continue to surge after the emergence of the faster-spreading variant. German officials will meet this week to decide whether to prolong a lockdown which will expire on 10 January, France has just recently extended a nighttime curfew by two hours, and UK Prime Minister Boris Johnson is hinting at tougher restrictions just around the corner.

Egypt, Ethiopia and Sudan will hold a week-long round of negotiations in another attempt to finally find a breakthrough in the long-deadlocked talks over the future of the Grand Ethiopian Renaissance Dam (GERD), the Egyptian Foreign Ministry said yesterday following a meeting between the countries’ foreign and water ministers. The ministry called for an agreement to be reached before Addis Ababa begins the second phase of filling the reservoir in August while Sudan believes a pact can be reached before South Africa’s chairing of the AU ends at the end of January. Talks have been on hold since Sudan walked away from the table in November and called for the African Union to take on a bigger role as a mediator.

Meanwhile in the US of A: The Donald has been caught trying to subvert democratic norms in a tape published by the Washington Post during which he pressures a Georgia Republican official to “find” him extra votes to hand him the state. Understandably this is causing quite a commotion in the US press: NYT | WSJ | CNN. And all 10 living former defense secretaries have come out in the Post to warn Trump against using the military during the democratic transition of power.

The tomb of King Ramses I in Luxor’s Valley of the Kings was reopened on Saturday following its restoration, the Tourism Ministry said in a statement. The work included conservation of the floors, as well as the restoration and cleaning of the inscriptions, Minister Mostafa Waziri said. The tomb was discovered by Italian archaeologist Giovanni Belzoni in 1817.

January: US Treasury Secretary Steven Mnuchin is set to visit Egypt.

4-6 January: (Monday-Wednesday): The Go Green Exhibition to support the government’s campaign to convert vehicles to natural gas engines, Egypt International Exhibition Center, New Cairo.

7 January (Thursday): Coptic Christmas, national holiday.

13-31 January (Wednesday-Sunday): Egypt will host the 2021 Men’s Handball World Championship in four venues in Alexandria, Cairo, Giza and the New Capital.

25 January (Monday): 25 January revolution anniversary / Police Day.

25-29 January (Monday-Friday): The World Economic Forum’s “Davos Dialogues” will take place virtually.

26-28 January (Tuesday-Thursday): Future Investment Initiative, Riyadh, Saudi Arabia.

28 January (Thursday): National holiday in observance of 25 January revolution anniversary / Police Day.

4 February (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

6-18 February (Saturday-Thursday): Mid-year school break.

20 February (Saturday): The CBE’s Monetary Policy Committee will meet to review interest rates.

18 March (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

1Q2021: The Annual Egypt Automotive Summit will be held.

12 April (Monday): First day of Ramadan (TBC).

25 April (Sunday): Sinai Liberation Day.

29 April (Thursday): National holiday in observance of Sinai Liberation Day.

29 April (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

3 May (Monday): Sham El Nessim.

6 May (Thursday): National holiday in observance of Sham El Nessim.

12-15 May (Wednesday-Saturday): Eid El Fitr (TBC).

18-21 May (Tuesday-Friday): The World Economic Forum’s annual meeting will be held under the theme of “The Great Reset” in Lucerne-Bürgenstock, Switzerland

31 May-2 June (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo.

30 May-15 June (Wednesday-Thursday): Cairo International Book Fair.

1 June (Tuesday): The IMF will conduct a second review of targets set under the USD 5.2 bn standby loan approved in June 2020 (proposed date).

17 June (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

24 June (Thursday): End of the 2020-2021 academic year.

26-29 June (Saturday-Tuesday): The Big 5 Construct Egypt, Cairo International Convention Center

30 June- 15 July: National Book Fair.

2H2021: Egypt’s Commodities Exchange (Egycomex) will begin trading.

1 July (Thursday): Large taxpayers that have not yet signed on on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

30 July-3 August (Thursday-Monday): Eid Al Adha, national holiday (TBC).

5 August (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

1 October-31 March 2022 (Friday-Thursday): Postponed Expo 2020 Dubai.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.