Fitch Upgrades Outlook on Egypt’s Banking Sector

The situation in Egypt’s banking sector, which is suffering from a severe hard currency liquidity shortage, is set to improve in the coming months. This is stated by the international rating agency Fitch in a special report, naming three “components” that should help credit institutions in this North African country to cope with the foreign currency liquidity crisis.

First is the $35 billion maxi-investment agreement between Egypt and the United Arab Emirates. In addition, the International Monetary Fund (IMF) announced that it has reached an agreement with Cairo on funding, estimated at $8 billion, for a program to support the Egyptian financial sector. Finally, Fitch experts noted the “devaluation of the Egyptian pound by almost 40%,” which, however, “threatens to put pressure on the capital adequacy ratios of Egyptian banks.”

In this context, the agency will have to leave the rating of the Egyptian banking sector unchanged, limited to B-/stable level on sovereign debt. “Consequently,” the Fitch analysts write, “we believe that the net external liability position of Egypt’s banking sector, equal to $17.6 billion at the end of January 2024, will shrink significantly throughout 2024.”

Finally, Fitch expects “Egypt’s local currency sovereign bond yields to trend higher” after the Central Bank of Egypt raised interest rates by another 600 basis points on March 6. “This should improve banks’ profitability and internal capital generation in 2024-2025,” Fitch experts emphasized.