Banking Sector: Slow Turnaround Ahead
BMI View: The modest improvements in Egypt's economic and political situation will provide relief to the country's banking sector. The injection of USD16bn in Gulf aid over the past year has served to stabilise the economic outlook of the country and reduce risks of dollarization in the economy. However, significant risks of dollarization remain over the longer term.
We expect a slight improvement in Egypt's banking sector over the coming months as greater political stability and low base effects provide room for relatively substantial gains. We forecast deposit and loan growth to come in at 11.0% and 7.0% respectively, in 2014, and stay around these levels for the period to 2018. These figures are notably higher than trend growth.
In line our cautiously optimistic outlook on the domestic banking sector heading into 2014, sentiment towards the industry appears to be turning, with the EGX Bank Index (an index composed of 12 banking stocks) up 16.0% since the start of the year. Moreover, it is important to keep in mind that amidst the economic and political headwinds, some of the country's largest publically-listed lenders have remained profitable, with Commercial International Bank seeing an 18.8% y-o-y jump in Q2 net profit.
|Growth Above Long-Term Trend|
|Egypt - Loan & Deposit Growth|