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Wednesday, 18 January 2023

Resilient banks + reduced-price bread

It was banking and bread on the airwaves last night: The attention of the talking heads was captured by a new report from Fitch Ratings with positive things to say about the resilience of our banking sector in the face of the EGP devaluation, as well as more details on the subsidized bread scheme set to launch in pilot form today.

Our banking sector can withstand the EGP deval, according to Fitch Ratings: “Egyptian banks’ regulatory capital ratios can withstand further EGP depreciation as they are supported by healthy internal capital generation,” according to a report out yesterday from Fitch Ratings. “Even further sharp currency falls should not directly trigger rating downgrades,” the report reads.

Our large private-sector banks are better equipped to sustain the currency devaluation than the sector’s two largest public banks, the National Bank of Egypt and Banque Misr, the report adds, citing private banks’ “higher regulatory capital buffers.” The 25% CDs will “squeeze NBE’s and Banque Misr’s net interest margins (NIMs),” while private-sector banks will be able to make up for deposit outflows thanks to the CDs through higher yields on sovereign securities, Fitch says.

But we’re not out of the woods yet: The EGP “may remain under pressure in 2023” thanks to the USD 5.4 bn backlog at ports (equivalent to c. 16% of our FX reserves) and external funding needs of USD 19 bn (equivalent to c, 60% of our FX reserves), the ratings agency writes. “It remains to be seen whether the Central Bank of Egypt will let the exchange rate and interest rates adjust sufficiently to attract new portfolio flows,” it adds. Al Hayah Al Youm has more coverage (watch, runtime: 18:07)

Local banking experts agree: It’s true that our banking sector can withstand further EGP deprecation, especially after the 2020 Banking Act increased the mandatory capital requirement for banks to EGP 5 bn, SAIB Bank Chairman Tarek El Khouly told Masaa DMC’s Ramy Radwan in a phone call (watch, runtime: 9:16.) But he disputed the claim that private banks are more resilient, noting that the NBE and Banque Misr own around a 50-60% market share.

AND- Any prepaid card works for subsidized bread purchases: People can use any existing or new prepaid card issued by Egypt Post to buy subsidized bread, Egypt Post’s Hatem Al Souly told Kelma Akhira’s Lamees El Hadidi in a phone call (watch, runtime: 7:27.) The cards can be charged with any amount of money at ATMs or post offices without additional fees, said El Souly, adding that there are currently around 16 mn cards in the market.

REMEMBER- People not covered by the ration card system will be able to buy bread from bakeries at cost in a trial of the new scheme that should kick off today.

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