Egypt - A financial stability report issued by the Central Bank of Egypt revealed the continued resilience of Egypt’s financial system—both banking and non-banking sectors—in performing its core function of financial intermediation throughout fiscal year 2023 and into the first quarter of 2024.

This includes providing essential financing to various sectors, offering diverse financial products, and relying on stable household deposits as a key funding source.

The report highlighted Egypt’s ongoing economic growth, with real GDP rising by 2.4% from July 2023 to March 2024, compared to 4.1% during the same period the previous year. This occurred despite global challenges such as escalating regional geopolitical tensions, persistent inflation, and high interest rates.

According to the report, banking sector assets represented 116.9% of nominal GDP and 92.3% of total financial system assets by the end of fiscal year 2023. The sector maintained strong financial health indicators through March 2024, consistently exceeding the regulatory thresholds set by the CBE and Basel Committee requirements, reinforcing trust among market participants.

The report also noted the sector’s ongoing role in foreign currency intermediation and the financing of foreign trade. In line with the structural reforms of the IMF-backed economic program, the adoption of a flexible exchange rate system and an improved economic outlook contributed to increased foreign investment inflows and a balance of payments surplus between January and March 2024. Additionally, net foreign assets in the banking sector improved, foreign currency liquidity increased, and net international reserves grew, continuing to cover short-term external debt.

The banking sector also provided essential financing to both businesses and households without excessive risk-taking, reducing the likelihood of systemic risks from borrower defaults. This success is attributed to the CBE’s enhancement of the credit environment and the continued coordination between fiscal, monetary, and macroprudential policies to maintain economic and financial stability. Fiscal policy focused on fiscal consolidation, while monetary policy remained restrictive to curb inflation by raising interest rates. Additionally, the mandatory local currency reserve ratio at the CBE stayed at 18%.

On the regulatory side, a macroprudential policy maintained the cap on total loan instalments for consumer credit at 50% of monthly income, including a cap of 40% for mortgage instalments.

The report also indicated a reduced risk of systemic issues arising from fiscal imbalances in the banking sector, as the government continued its fiscal consolidation efforts by improving public spending efficiency, maximizing revenues, and reducing public debt. At the same time, the share of government securities in total banking sector assets decreased as foreign investors’ holdings in local treasury bills rose.

Non-banking financial assets accounted for 9.8% of nominal GDP and 7.7% of total financial system assets, according to the report. The non-banking financial sector saw substantial growth during fiscal year 2023, and the Egyptian stock market performed exceptionally well through the first quarter of 2024. The Financial Regulatory Authority (FRA) adopted more flexible and responsive measures to cope with increasing market changes, enhancing the efficiency of financial markets to strike a balance between growth and stability.

These developments were reflected in the financial stability index, which rose to 0.44 in March 2024 from 0.34 in March 2023, driven by notable improvements in banking sector performance, financial markets, macroeconomic indicators, and the global economic climate.

The report confirmed that the results of various stress tests demonstrated the resilience of Egypt’s financial system, both banking and non-banking, in facing unexpected losses arising from potential systemic risks. These risks were assessed under adverse economic, financial, environmental, and geopolitical conditions, measuring their impact on capital adequacy and liquidity in both sectors.

The CBE also prioritized financial inclusion by working with relevant ministries and agencies to expand access to financial services. As of March 2024, 47.4 million citizens were financially included. Additionally, the CBE placed significant focus on developing the financial infrastructure for digital payment systems, ensuring their availability and security in accordance with the latest global standards, and recognizing their vital role in promoting financial stability.

Furthermore, the CBE has taken active steps to establish robust customer rights protection, boosting customer trust in the banking sector by issuing new regulatory guidelines aimed at improving the quality of financial services and ensuring that customers’ rights are protected, ultimately fostering confidence in the banking system and contributing to financial stability.

© 2024 Daily News Egypt. Provided by SyndiGate Media Inc. (Syndigate.info).