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Wednesday, 6 April 2022

Egyptian banks aren’t likely to be hit by fallout from Russia’s war in Ukraine –S&P

Rated Egyptian banks have little direct exposure to Russian and Ukrainian assets, according to an S&P Global Ratings report looking at the impact of the war on the banking sector in eight Middle East and African markets. “We do not expect the conflict will have significant direct effects on bank asset quality indicators,” the report read.

The impact on banks of the EGP’s depreciation is also set to be limited given that foreign-currency lending accounts for only 20% of the loan books of the banks S&P concerns.

And from the Dept. of the Obvious: Credit losses in the sector could tick up on the back of turbulence in the wider economy given all that’s going on right now, the rating agency suggests.

Local banks face no funding or liquidity challenges, according to the report. Our banking sector has an “ample” local customer deposit base, “where growth has proven resilient even at times of weakened stability,” S&P said, adding that it expects leverage to remain low at a loan-to-debt ratio of around 50% throughout 2022.

The 18% CDs offered by state-owned banks Banque Misr and National Bank of Egypt after the central bank upped interest rates put pressure on banks’ net interest margins, depending on uptake and whether private banks follow suit. Investors had poured some EGP 423 bn into the CDs as of Monday, Al Arabiya reports.

IMF support could help mitigate overall economic risks in Egypt in general and to the banking sector in particular, the report suggests. The government is in talks with the international lender over a fresh round of assistance, following two rounds of funding in 2016 (coinciding with the float of the EGP) and in 2020 (amid the pandemic) totaling USD 20 bn.

ELSEWHERE IN THE REGION- The main risks across the region remain high food and oil prices and a decreased risk appetite in emerging markets among investors, the report notes. Banks in Turkey and Tunisia are most exposed to the impact of Russia’s war, the report read, while Saudi, Emirati and South African banks show little to no vulnerability.

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