Foundation said Fitch Credit Rating The rating of Egyptian banks may face pressure if the decline in foreign assets in Egyptian banks continues.
And she added in a report issued today, Thursday, that net foreign liabilities in the Egyptian banking sector amounted to 7 billion dollars (112 billion pounds) at the end of last November, according to data from the Central Bank of Egypt, compared to net foreign assets of 107 billion pounds at the end of last February.
She pointed out that this deterioration came due to the decline in foreign assets, noting that if this downward trend continues, the liquidity of foreign currencies and the ability to meet debt service may be restricted.
The agency indicated in the report that the current deficit in Egypt’s current account may increase pressure on banks’ foreign exchange assets.
The report pointed out that the balance sheets of Egyptian banks do not depend on the dollar to a high degree, explaining that the foreign currency obligations represent less than 20% of the sector’s obligations and correspond well with the currency.
The net foreign currency position of the sector was only 2.2% of the capital at the end of September 2021, which is much lower than the ceiling of the Central Bank of Egypt of 20%.
The report noted that the average ratio of loans to deposits in foreign currencies was stable at 72%, while “Fitch” believes that total foreign assets are a better indicator of the liquidity of the financial sector, as they are largely short-term deposits with foreign banks and can be easily liquidated when needed.
The coverage of foreign currency debt obligations by foreign assets was 24% at the end of September 2021, down from 33% at the end of 2020, and will likely have declined further by the end of November 2021, according to Fitch.
According to the report, Egyptian banks could witness more pressure on the banks’ foreign assets if there is a renewed wave of selling by foreign portfolio investors due to high inflation.
Fitch believes that the global inflation wave will lead to a flight of foreign liquidity from investing in emerging market debt due to the high interest rate in the United States.
Fitch estimated that foreign holdings of local currency sovereign securities declined by $2 billion in October 2021 from an all-time high of $34 billion at the end of September 2021, reflecting pressure on net foreign currency liabilities.