Egyptian banking system outlook stable as economic growth picks up, Moody’s says

Moody’s does not expect a material deterioration in the loan quality of Egyptian banks despite a sharp rise in borrowing costs and inflation. (Reuters)
Updated 14 October 2017
0

Egyptian banking system outlook stable as economic growth picks up, Moody’s says

DUBAI: The outlook for Egypt’s banking system remained stable as economic growth picked up, loan performance was broadly resilient and banks benefited from a stable deposit base, Moody’s said in its latest report.
Economic growth would be driven by rising foreign investment, resilient domestic consumption and the gradual recovery of the tourism industry, according to the ratings agency.
With investments, household expenditure and tourism picking up, Moody’s projected that Egypt’s gross domestic product would expand at a faster 4.5 percent for the fiscal year ending June 2018, from 4 percent in 2017, and will accelerate further to 5 percent in 2019.
“The banks are funded by stable and low-cost domestic deposits, mainly from households, a credit strength, said Melina Skouridou, assistant vice president and analyst at Moody’s.
“We expect increasing banking penetration and increased remittances to spur deposit growth. Though government-owned banks have significantly increased their market funding over the last two years, this funding is mainly from regional banks and multilateral development banks, where refinancing risks are lower.”
The ratings agency also does not expect a material deterioration in the loan quality of Egyptian banks despite a sharp rise in borrowing costs and inflation.
While corporate profits declined, their debt repayment capacity was supported by relatively low overall levels of debt, as well as government initiatives to help tourist companies and importers, Moody’s explained, and added that retail loans were confined to wealthier households.
It however cautioned that delinquency rates – especially if interest rates rose further, high inflation persisted or economic growth faltered – could increase as new loans mature.
The banks’ high exposure to low-rated government securities – accounting for 33 percent of their assets – will continue to be a key concentration risk and links banks’ credit profile to that of the government, Moody’s said.


No need for more talks over draft budget: Lebanon finance minister

Updated 21 May 2019
0

No need for more talks over draft budget: Lebanon finance minister

  • Lebanon’s proposed austerity budget may please international lenders but it could enrage sectors of society
  • Lebanon has one of the world’s heaviest public debt burdens at 150 percent of GDP

BEIRUT: Lebanon’s finance minister said on Tuesday there was no need for more talks over the 2019 draft budget, seen as a vital test of the government’s will to reform, although the foreign minister signalled the debate may go on.
The cabinet says the budget will reduce the deficit to 7.6% of gross domestic product (GDP) from last year’s 11.2%. Lebanon has one of the world’s heaviest public debt burdens at 150% of GDP.
“There is no longer need for too much talking or anything that calls for delay. I have presented all the numbers in their final form,” Finance Minister Ali Hassan Khalil said.
But Foreign Minister Gebran Bassil suggested the debate may go on, telling reporters: “The budget is done when it’s done.”
While Lebanon has dragged its feet on reforms for years, its sectarian leaders appear more serious this time, warning of a catastrophe if there is no serious action. Their plans have triggered protests and strikes by state workers and army retirees worried about their pensions.
President Michel Aoun on Tuesday repeated his call for Lebanese to sacrifice “a little“: “(If) we want to hold onto all privileges without sacrifice, we will lose them all.”
“We import from abroad, we don’t produce anything ... So what we did was necessary and the citizens won’t realize its importance until after they feel its positive results soon,” Aoun said, noting Lebanon’s $80 billion debt mountain.
A draft of the budget seen by Reuters included a three-year freeze on all forms of hiring and a cap on bonus and overtime benefits.
It also includes a 2% levy on imports including refined oil products and excluding medicine and primary inputs for agriculture and industry, said Youssef Finianos, minister of public works and transport.
“DEVIL IN THE DETAIL“
Marwan Mikhael, head of research at Blominvest Bank, said investors would welcome the additional efforts in the latest draft to cut the deficit.
“There will be some who claim it is not good because they were hit by the decline in spending or increased taxes, but it should be well viewed by the international community,” he said.
Jason Tuvey, senior emerging markets economist at Capital Economics, said: “The numbers will be of some comfort to investors, but the devil will be in the detail.”
“Even if the authorities do manage to rein in the deficit, it probably won’t be enough to stabilize the debt ratio and some form of restructuring looks increasingly likely over the next couple of years,” Tuvey said.
The government said in January it was committed to paying all maturing debt and interest payments on the predetermined dates.
Lebanon’s main expenses are a bloated public sector, interest payments on public debt and transfers to the loss-making power generator, for which a reform plan was approved in April. The state is riddled with corruption and waste.
Serious reforms should help Lebanon tap into some $11 billion of project financing pledged at a Paris donors’ conference last year.
Once approved by cabinet, the draft budget must be debated and passed by parliament. While no specific timetable is in place for those steps, Aoun has previously said he wants the budget approved by parliament by the end of May.
On Monday, veterans fearing cuts to their pensions and benefits burned tires outside the parliament building where the cabinet met. Police used water cannon to drive them back.