Egypt: Uncertain time for banking

Banks may have to adopt a policy of caution over the coming months, waiting to see how the dust settles from Egypt’s long-running political turmoil and how the installation of Mohammed Morsi as head of state will affect the economy and their business.

As with other sectors in the economy, uncertainty over the political situation is spilling over into the banking industry. Banks have become cautious as economic growth has stalled, and a rapidly changing political climate has made it difficult to predict future trends with any degree of accuracy. Lending, particularly to smaller businesses, remains tight, with banks having become highly risk-adverse in the past 18 months, at least as far as credit to the private sector is concerned.

With the country’s economy growing at a somewhat subdued rate – GDP expanded by just 1.8-2% for the 12 months ending June 30, according to data issued by the Ministry of Finance in mid-July – there is some pressure for banks to ramp up lending to support stimulus efforts. However, while the newly elected president may have been sworn in and taken over the office of head of state, deep uncertainty lingers over how stable the political environment will remain.