Cairo – Decypha: Flotation of the Egyptian currency has put some Egyptian banks at risk of falling short in terms of meeting the minimum regulatory capital requirements, due to their high exposure to foreign-currency (FC) loans, according to Fitch Ratings.
The agency however, only expects modest deterioration, as asset quality has weakens.
Debt restructuring of loans for smaller corporates is underway.
“In the event of capital shortfalls at public-sector banks, we believe the Egyptian authorities would look to provide support, as they did last year when the Central Bank of Egypt (CBE) provided interest-free loans classified as subordinated debt to help recapitalise the country's three public-sector banks,” the agency stated in its ratings report.
It is however a limited solution, as the government’s ability to support banks is expected to be limited, due to its weak credit profile.
In terms of private-sector banks, they are expected to cut dividends as a response to any capital shortfalls.
“With some banks reporting more than 50% loan growth in 2016, while capital is predominantly in local currency. Seeking subordinated debt may help banks meet the minimum regulatory capital adequacy requirement of 11.25%,” the report stated.
By Decypha Editorial Team
