FRA stress test shows “strength” of Egypt’s NBFS institutions, says Omran
FRA stress test shows “strength” of NBFS institutions, says Omran: The FRA put out a statement yesterday on the results of its first stress test on the impact of covid-19 on the non-banking financial services sector. The test, which was conducted earlier this year to gauge the impact of macroeconomic crises — such as a liquidity crunch, changing interest rates or debt default — triggered by covid-19 demonstrated the “strength in the financial position” of the sector, said FRA head Mohamed Omran.
Who was tested: The FRA applied the test to companies in the insurance, financial services and asset management, leasing, mortgages and factoring, and SME funding sectors. While the number of companies was not disclosed, the statement said that the companies held a combined 60-97% market share in their respective fields.
The results showed that most of these sectors were able to withstand some of the riskiest scenarios. It broke it down as follows:
- Insurance: The sector showed very limited risk of insolvency during the crisis and a moderate risk to any liquidity crunch that may arise. Companies in the sector are also in good shape to handle any dips in profitability.
- Financial services and asset management: 20% of companies would face “mild stress” if interest rates fall by 100 bps, while another 20% would suffer “moderate stress.” Meanwhile, only 10% of companies would be at “moderate stress” if interest rates were to rise by 100 bps. The sector is currently at a moderate risk to any liquidity crunch.
- Mortgage financing, leasing, and factoring: This segment is only at a moderate risk of financial insolvency during covid, while it is at a mild risk of collapse in the event of a recession or a liquidity crunch.
- SME financing: There is a moderate risk for the sector to face financial insolvency during the covid crisis, while showing an “appropriate” risk to a liquidity crunch or a recession.
The FRA’s recommendations: Companies in the sector need to build up their digital capabilities during the covid-19 crisis, according to the statement. The FRA will release the official report of its findings at a later date.