Egyptian banks face rising earnings pressure

Dubai: Egyptian commercial banks are facing prospects of rising non-performing loans and potential losses on account of declines in loan growth and increased cost of funds, according to analysts and rating agencies.

"We do not expect the second quarter of this year to be a positive catalyst for Egypt banks. We expect earnings to fall, driven by higher credit losses," said Jaap Meijer, Head of Banks Research and senior analyst at AlembicHC.

Rating agency Moody's had recently revised its outlook on Egypt's banking system to negative from stable, citing growing exposure to lower-rated Egyptian sovereign debt and the effect of political turmoil on the economy.

The ratings agency said it expected that a decline in tourism, foreign direct investment, incoming fund flows and private consumption in the wake of political unrest would reduce Egypt's economic growth to around two per cent in the next 12 to 18 months.

"These adverse economic conditions are likely to challenge the banking system's asset quality and business prospects as well as its profitability and internal capital-generation capacity," Moody's said in a report.