What will happen to the Egyptian economy after the strong impact of the pound against the dollar?
Fitch Ratings has announced that the required reserve of Egyptian banks is able to withstand any drop in the value of the Egyptian pound.
The report indicated that these reserves are supported by significant capital inflows and noted that the main private sector banks are in a better position to withstand currency depreciation than the two largest state-owned banks, namely the National Bank of Egypt and the Misr Bank. taking into account the increase in the mandatory insurance reserve.
The report indicated that the Egyptian currency may remain under pressure in 2023 due to the accumulation of imports and large external financing needs, which are estimated at more than $19 billion for 2023.
Fitch indicated that the Central Bank of Egypt is waiting to see if it will allow the exchange rate and interest rates to adjust sufficiently to attract new portfolio inflows, noting that some Egyptian banks remain open in long-term currencies, which could put pressure on capital adequacy ratios from -for inflation of risk-weighted assets (RWA).
Fitch expects savings certificates at 25% to reduce the net interest margins of the National Bank of Egypt and Banque Misr, while private sector banks are likely to see more inflows of deposits abroad, but yields on government securities, which increased by more than by more than 500 basis points. In 2022, it should support private sector banks’ net interest margins and overall profitability.
Asset quality risks rise as business activity slows due to macroeconomic pressures and liquidity pressures, but strong bank reserves in the form of large holdings of government securities should cushion the impact.
The agency said that even a sharper fall in the currency should not lead directly to a downgrade.
Source: Al-Mal newspaper.