Fitch: the continuing decline in foreign assets puts Egyptian banks’ ratings under pressure

Fitch Ratings said the ratings of Egyptian banks could come under pressure if the decline in foreign claims in Egyptian banks continues.

And he added in a report released today, Thursday, that net external liabilities in the Egyptian banking sector amounted to $ 7 billion (£ 112 billion) at the end of last November, according to data from the Central Bank of Egypt, compared to net assets foreign exchange of 107 billion pounds at the end of last February.

He stressed that this deterioration is due to the decline in foreign assets, noting that if this downward trend continues, the liquidity of foreign currencies and the ability to service debt may be limited.

The agency indicated in the report that Egypt’s current account deficit could increase pressure on banks’ currency assets.

The report found that the balance sheets of Egyptian banks are not dependent in largely by the dollar, explaining that bonds in foreign currency account for less than 20% of the sector’s bonds and correspond well to the currency.

The net position in The sector’s foreign currency was only 2.2% of the capital at the end of September 2021, which is far below the 20% ceiling of the Central Bank of Egypt.

The report notes that the average ratio of loans to deposits in foreign currency is stable at 72%, while “Fitch” believes that total foreign assets is a better indicator of the liquidity of the financial sector, in how much it is in large part of short-term deposits with foreign banks and can be easily liquidated when needed.

The coverage of debt obligations in foreign exchange by foreign assets was 24% at the end of September 2021, in drop from 33% at the end of 2020, and will likely have further decreased by the end of November 2021, according to Fitch.

According to the report, Egyptian banks could see increased pressure on banks’ foreign assets if there is a renewed wave of sales by foreign portfolio investors due to high inflation.

Fitch believes the wave of global inflation will lead to a flight of foreign liquidity from investing in emerging market debt due to the high interest rate in the US.

Fitch estimated that foreign holdings of sovereign bonds in local currency fell by $ 2 billion in October 2021 from an all-time high of $ 34 billion at the end of September 2021, reflecting pressure on net liabilities in foreign currency.

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