Net interest margins (NIMs) of Egyptian banks will remain resilient despite large interest rate cuts likely to be announced by the Central Bank of Egypt (CBE) this year, according to Fitch Ratings.

The central bank is expected to start its monetary easing cycle on February 20. The consensus expectation is for a 100-200 basis points (bp) cut, driven by a steady decrease in inflation to 24% in January 2025, from 35.7% in February 2024.

NIMs stood resilient during the monetary easing cycle of 2018–2021 as policy rates were cut by a cumulative 10.5 percentage points, with the sector NIM falling by only 40 basis points (bp) from its 2020 peak. 

Fitch expects banks to increase their exposure to T-bonds to shield their NIMs against yields on T-bills and overnight deposit auctions at the CBE.

“We also expect banks to increase their fixed-rate retail lending to limit the impact of lower rates on NIMs,” the rating agency said.

However, NIMs are forecast to decline slightly in 2025 and 2026 as lower rates feed through to banks’ revenues. 

Egypt is the only Middle Eastern banking sector with an “improving” sector outlook for 2025, supporting improved operating conditions due to easing inflation, lower interest rates, improved investor confidence and healthy foreign-currency liquidity conditions.

(Editing by Seban Scaria) seban.scaria@lseg.com