Cairo – Mubasher: Egyptian banks may increase lending in the coming period if the recent reductions in interest rates boost credit demand, Fitch Ratings said in a report.
However, this may place additional pressure on the lenders’ insufficient capital bases, the international credit rating agency noted.
On 26 September, the Central Bank of Egypt (CBE) decided to lower key interest rates by 100 basis points, slashing the discount rate to 13.75%.
Loans of the banking sector grew by 13% year-on-year at the end of last June, according to the report released by Fitch Ratings issued on Monday.
“Egyptian banks are under-loaned, with loans representing only a third of total sector assets and excess liquidity stockpiled, mainly in sovereign debt securities. However, their ability to support a rapid increase in their loan portfolios is limited by their relatively weak capitalisation,” the report added.
Government lending makes up 29% of the total bank lending; however, expanding into private-sector lending would encourage banks to diversify their business models and reduce reliance on government lending and investing in public debt instruments.
In addition, the international credit rating agency expects Egypt’s gross domestic product (GDP) to grow by 5.5% in 2019 and in 2020.
According to Fitch Ratings, the Egyptian banks' long-term issuer default ratings are all on stable outlook, which have been reflected on Egypt's 'B+' sovereign rating.
