Egypt: Banking sector facing challenges

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, Global Arab Network reports according to OBG.

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% and 9.75%, 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% 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% 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 LE2.2bn ($370.4m), up from LE2bn ($336.7m) a year earlier. Net profits also increased 10% to more than LE1bn ($168.4m) due to higher foreign exchange transactions, net interest income and increased fees.

Still, the bank missed its full-year net income target of LE2.6bn ($437.7m). Tarek Amer, the bank’s chairman, attributed this to rising staff wages and benefits after the country’s political transition this year.

National Société Générale Bank (NSGB), Egypt’s second-biggest private bank by market capitalisation, also fared well. It saw an 8% increase in its net income y-o-y to LE733m ($123.4m). The bank’s second-quarter net profit rose 14% y-o-y to LE369.2m ($62.2m) from LE323.1m ($54.4m) in second-quarter 2010. Likewise, NSGB’s net interest income increased to LE512.4m ($86.3m) from LE462.3m ($77.8m) the previous year.

Not all local banks fared so well, however. Crédit Agricole Egypt’s first-half profits fell 30% from a year earlier, the bank said in late July. The bank, which is 60% owned by France’s Crédit Agricole, also reported a net profit drop to LE140.7m ($23.7m) from LE201.6m ($34m) in the first half of 2010.

The Commercial Bank of Egypt (CIB), Egypt’s largest private sector player and the third-largest bank, similarly saw profits slow for first-half 2011. Net profits after tax touched LE751m ($126.4m) in June 2011, down from LE1.02bn ($171.7m) a year earlier. However, in a promising sign of future growth, the bank’s loans increased 6.37% as of June, while the overall loans market grew 2.81% during the first five months of the year. It also saw deposits rise 6.16%.

In CIB’s first-half financial report, the bank noted 90% of retail loan growth and more than 60% of retail deposit growth for the first six months of 2011 was in the second quarter alone, supporting the perspective that banks are beginning to recover from turmoil earlier this year.

The ratio of non-performing loans (NPLs) at most banks either remained unchanged or declined slightly over second-quarter 2011, a sign that the quality of loan books remains stable. CIB’s NPL ratio remained a healthy 2.9% as of June, while NSGB’s NPL ratio decreased slightly to 3.25% from 3.42% in December 2010.