Egypt’s banking sector faces difficulties

Although a number of Egypt’s largest banks posted notable growth during the turbulent first half of 2011, the second half may prove more challenging as tourism, investments and fund flows continue to decline.

The Central Bank of Egypt (CBE) has played an active role in mitigating the effects of the political turmoil in early 2011 on the banking system. Throughout the summer it has kept overnight deposit and lending rates unchanged at 8.25 percent and 9.75 percent, respectively. These levels, the lowest since November 2006, were held steady in an attempt to boost economic growth.

With the political unrest having knock-on effects for a number of sectors, Egypt’s GDP saw negative growth of 4.2 percent in the first quarter of 2011, a rate not seen since the CBE began releasing quarterly GDP data in 2001. Yet in spite of the challenging macro environment and the corresponding 26 percent decline in investment, some of the country’s banks have actually posted increases in income this year.

The National Bank of Egypt, the country’s oldest bank and its largest by assets, saw net income for the year ending June 30 reach 2.2 billion Egyptian pounds ($370.4 million), up from two billion Egyptian pounds ($336.7 million) a year earlier. Net profits also increased 10 percent to more than one billion Egyptian pounds ($168.4 million) due to higher foreign exchange transactions, net interest income and increased fees.

Still, the bank missed its full-year net income target of 2.6 billion Egyptian pounds ($437.7 million). Tarek Amer, the bank’s chairman, attributed this to rising staff wages and benefits after the country’s political transition this year.