Egypt’s reviving tourism to prop up banking sector: Moody’s

Tourism directly accounted for 3.2 percent of Egypt’s GDP and 2.9 percent of employment in 2016. (Reuters)
Updated 24 June 2017
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Egypt’s reviving tourism to prop up banking sector: Moody’s

JEDDAH: A 51 percent year-on-year increase in tourist arrivals in the first quarter of 2017 is likely to prop up the banking sector in Egypt, said a report issued by Moody’s Investors Service.
The increase in foreign-currency flow from tourism will boost Egyptian banks’ limited access to foreign currencies, improving their capacity to meet clients’ foreign-currency needs.
“Tourism in Egypt has great potential and has traditionally been a major economic force in Egypt,” said Melina Skouridou, an assistant vice president at Moody’s.
Tourism, she added, accounted for 19.5 percent of gross domestic product (GDP) at its peak in 2007.
The report said that the increase in tourism is positive for Egyptian banks because it enhances the repayment capacity of borrowers directly and indirectly linked to tourism.
Revenues from tourism increased 9 percent on a sequential quarterly basis to $826 million in the fourth quarter of 2016, from $758 in the third quarter and $510 million in the second quarter of 2016.
According to the World Travel and Tourism Council (WTTC), tourism directly accounted for 3.2 percent of Egypt’s GDP and 2.9 percent of employment in 2016. However, its total contribution including indirect effects on the economy was higher at 7.2 percent of GDP.
According to the report, indirect effects include the purchase of food and cleaning services for hotels, government spending related to advertising and promoting tourism and tourism spending outside the food and entertainment sectors.
“The tourism industry’s revival will positively affect the cash flows of borrowers in hospitality and related sectors such as transport, construction and food, and lead to job creation,” said Skouridou.
Among Moody’s-rated banks, Commercial International Bank is expected to benefit the most from an increase in tourism because it has the largest exposure to the sector, with around 8 percent of its total loans exposed to tourism, which is higher than the 3 percent system average.
The report said that the bank’s ratio of non-performing loans (NPL) to gross loans increased to 5.28 percent as of September 2016 from 3.97 percent in December 2015, reflecting the low economic growth following the sustained decline in tourism and the bank’s conservative approach of NPL classification.
“The March 2017 NPL ratio of 7 percent was further exacerbated by the floatation of the Egyptian pound, which resulted in higher inflation and higher interest rates,” it added.
The improvement in the tourism industry’s prospects and the bank’s relatively strict underwriting standards (e.g., lending to hotels with low leverage that can service their loans even with occupancy rates below 50 percent) will help contain further asset quality deterioration.
Egypt’s economy has been struggling since a 2011 uprising drove foreign investors and tourists away, but the government hopes a $12 billion International Monetary Fund (IMF) lending program signed last year will put it on the road to recovery.

— With input from Reuters


Samsung shares rise as Huawei struggles

Updated 40 min 4 sec ago
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Samsung shares rise as Huawei struggles

  • Huawei has been rocked with promblems in the past weeks, including major revelations from tech giants
  • Samsung is the world’s biggest smartphone maker which has been facing increasing competition from its Chinese rival

SEOUL: Shares in Samsung Electronics climbed nearly three percent Tuesday on the back of its chief rival Huawei’s mounting problems, including a decision by Google to sever ties with the Chinese mobile phone maker.
It is the latest in the months-long saga between Huawei and the United States analysts warn could see Chinese semiconductor demand fall, threatening a nascent Asian recovery in the industry.
US Internet giant Google, whose Android mobile operating system powers most of the world’s smartphones, said this week it is cutting ties with Huawei to comply with an executive order issued by President Donald Trump.
The move could have dramatic implications for Huawei smartphone users, as the firm will no longer have access to Google’s proprietary services — which include the Gmail and Google Maps apps.
Investors bet Huawei’s loss could benefit Samsung, the world’s biggest smartphone maker which has been facing increasing competition from its Chinese rival, sending its shares up 2.7 percent at closing on Tuesday.
Analysts say the US ban will damage Huawei’s ability to sell phones outside China, offering Samsung a chance to consolidate its position at the top of the global market.
“If you are in Europe or China and couldn’t use Google map or any Android services with a Huawei smartphone, would you buy one?” MS Hwang, an analyst at Samsung Securities, told Bloomberg News, adding: “Wouldn’t you buy a Samsung smartphone instead?“
Samsung accounted for 23.1 percent of global smartphone sales in the first quarter of this year, according to industry tracker International Data Corporation, while Huawei had 19.0 percent.
But Huawei’s troubles may be a double-edged sword for Samsung — also the world’s biggest chipmaker — if it leads to a plunge in demand for semiconductors.
China dominates purchases from Asian chip makers and bought 51 percent of their shipments in 2017, Bloomberg reported citing a Citigroup analysis. Including Hong Kong, it accounted for 69 percent of South Korea’s chip production.
“In our view, China’s restocking efforts for electronic goods will likely weaken and be delayed if the tensions and the ban stay longer, which likely will hurt overall demand,” the report said.
Last week, Trump declared a “national emergency” empowering him to blacklist companies seen as “an unacceptable risk to the national security of the United States” — a move analysts said was clearly aimed at Huawei.
The US Commerce Department announced a ban on American companies selling or transferring US technology to Huawei, with a 90-day reprieve by allowing temporary licenses.