April 7th, 2008
Summary
▪Retail Loans to Drive Loans Growth…
With strong economic growth and aggressive retail expansion strategies implemented by most private banks, household loans grew by 20.3% YoY in 2007, compared to 9.2% YoY for corporate and other loans and 11.0% for total sector loans. We believe that retail loans are to drive loans growth, and thus the future earning power of Egypt's large cap banks.
▪… But Rising Inflation is a Risk
Inflation reached an 11-month high of 12.1% in February 2008 driven by higher food prices that extended to non-food prices. High inflation induced the CBE to raise interest rates in its last two meetings by a total of 75 bps, which could place a pressure on banks' funding costs, especially with the excessive liquidity position of Egyptian banks. We believe that the three banks discussed in our report base their interest rate decisions primarily on their liquidity position, and thus any potential increase in rates at those banks will be for the most part disproportionate to the increase in the CBE's policy rates.