Mubasher: Moody’s Investors Service has changed the outlook for the Egyptian banking system to positive from stable.
The ratings agency said in a report on Wednesday that its decision is attributed to the economic growth picking up, thus supporting credit growth, banks' profitability and internal capital generation, especially with the strong links between the banks' and the Government of Egypt's (B3 positive) improving credit profile.
This is due to the large exposure that Egypt's banks have to the country's government through investments in securities and loans, which stood at 40% of total banking system assets as of June 2018.
"Increased domestic private sector investment, large infrastructure projects, as well as higher exports will drive economic growth and credit demand", the report indicated.
The key drivers of Moody's positive outlook for the Egyptian banking system are the improving operating environment, following the implementation of structural reforms that put the country on a path of sustainable and inclusive growth.
Moody’s expects loan quality and the formation of non-performing loans (NPL) to remain stable and steady, as new lending is tested.
Profitability will remain strong, as rising fees and commissions on new lending will support banks pre-provision profit, noting that stable deposit funding and low loan-to-deposit ratios also support liquidity.
Loan-loss provisioning will be broadly stable for rated banks, the report explained, noting that Egyptian banks' capital buffers will improve only modestly as internally generated capital finances loan growth.
Egyptian banks will maintain high levels of liquid assets to ensure coverage of liquidity needs and deposit movements, Moody’s noted.
Moody's expects real GDP growth in Egypt to reach 5.5% in 2019 from 4.2% in 2017, while ongoing economic and fiscal reforms will slowly nudge GDP higher.
