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Securities & Investment

Month: July 2025

HC: Credit Agricole Egypt – Value play

Posted on by Marwa Nakhla

  • Egypt’s external position improved on currency liberalization and economic reforms despite external shocks

  • We expect CIEB to maintain decent profitability despite rate cuts

 

HC Brokerage just issued their report about the banking sector in Egypt through shedding the light on Crédit Agricole Egypt https://www.ca-egypt.com/en/ expecting the banking sector’s profitability to start normalizing parallel to monetary easing and CIEB’s net income to grow

Financials analyst and economist at HC, Heba Monir declared that: “Egypt’s economy is stabilizing and focusing on enabling private sector growth: The Ras El Hekma USD35bn investment deal with the UAE announced in February 2024 helped the Egyptian economy to overcome the FX crunch, reduce its external debt by USD11bn, record a balance of payment (BoP) surplus, and kick-start and upsize the stalled International Monetary Fund (IMF) ’s Extended Fund Facility (EFF) to Egypt. As a result, the banking sector’s net foreign asset (NFA) position widened to USD14.7bn as of May 2025, reversing a net foreign liability (NFL) position of USD29.0bn as of January 2024, and net international reserves (NIR) increased to USD48.7bn as of June 2025. Furthermore, banks have sufficient FX liquidity, which almost eliminated the FX parallel market, and inflation subdued, allowing the Central Bank of Egypt (CBE) to start cutting interest rates by 225 bps on 17 April 2025 and by 100 bps on 22 May 2025, with further expected rate cuts depending on how the geopolitical/tariffs risks will play out. Having said that, Egypt’s real GDP growth rate remains sub-optimal despite improving to 4.8% y-o-y in 3Q24/25 from 4.3% y-o-y in 2Q24/25, and the purchasing managers index (PMI), which measures the non-oil private sector activity growth, is still below the 50.0 neutral mark. We see the government prioritizing private sector growth, capping public investments at EGP1.0trn in FY24/25 and EGP1.16trn in FY25/26, encouraging Public Private Partnerships (PPP), resuming the partial asset sale program and increasing renewable energy investments, which coupled with the expected rate cuts, should bode well for CAPEX loans growth, in our view.”

“We expect Egypt’s banking sector’s profitability to start normalizing parallel to monetary easing: Given the global economic turbulences, we expect Egypt’s interest rate cuts to be gradual, with total cuts of around 550 bps by the end of 2025e, of which 325 bps already materialized. For treasury yields, we forecast it to lag the policy rate cuts with an estimated drop of 200 bps y-o-y in the 12-month T-bills rate to 24.23% by the end of 2025. This implies a real interest rate of 5.47% by year-end, based on our calculations (after deducting a 15% tax rate for US and UK investors, and based on our 12M inflation estimates). Following the rate cuts, public and private banks have cut interest rates on their certificates of deposit (CDs) by an average of 100–225 bps. Accordingly, we expect the sector’s NIMs to start retreating gradually to an average of 8.72% in 2025e from 9.25% in 2024 for our coverage universe. As for the sector’s balance sheet, we forecast loans to grow moderately by c20% y-o-y to EGP10.0trn in 2025e, compared to c49% y-o-y in 2024 (inflated by the EGP devaluation), driven mainly by EGP loans to finance working capital needs. Given the still-high interest rate environment (overnight lending rate of 25.0%) and the lower energy subsidies for the industrial sector, we do not expect CAPEX lending to materialize before 1Q26. We expect market deposits to increase by c21% y-o-y to EGP16.2trn, compared to c33% y-o-y in 2024, mainly driven by household savings. Regarding asset quality, we expect most banks to continue reporting adequate asset quality, benefiting from their sufficient provisions. As for the capital adequacy ratio (CAR), most banks’ CARs are above the CBE’s minimum requirement, and we anticipate a limited effect on their CARs, given the adopted free float exchange rate regime.” Heba Monir added.

HC’s financials analyst concluded: “We forecast CIEB’s net income to grow at a 5-year CAGR of c8%: We forecast CIEB’s net income to grow at a 5-year CAGR of c8% from 2024–29e, compared to c28% from 2019–2024, due to the base year effect as interest rates normalize. We expect FY25’s net income to inch up c1% y-o-y to EGP8.12bn, due to the high cost of funds from the still-high interest rates on CDs issued in 2024. Going forward, we anticipate net income to grow gradually due to an expected decline in the cost of funds and a rebound in lending opportunities, including CAPEX. For NIMs, we forecast it to decline moderately to 9.47% in 2025e from 10.3% in 2024, with a 5-year average of 8.89% over 2025–29e, given the significant contribution of CASA accounts of about c55% to total deposits versus the relatively lower yields on treasuries. As for CIEB’s balance sheet, we estimate the net loans-to-deposits ratio to rise to 57.7% in 2025 from 55.7% in 2024, with a 5-year average of 59.2% from 2025–29e. We estimate net loans to grow at a 5-year CAGR of 16.6%, surpassing the customer deposits’ 5-year CAGR of 14.9%, given the bank’s strategy to maintain high profitability from borrowing activities, with moderate exposure to government treasuries. Thus, we anticipate the bank’s ROE to drop to 35.4% in 2025 from 44.7% in 2024, with a 5-year average of 34.0%.”

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

HC Research Team was awarded the second overall best forecaster for Egypt

Posted on by Marwa Nakhla

  • HC Research Team was awarded the second overall best forecaster for Egypt in the FocusEconomics Analyst Forecast Awards in the Real and External Sector, and Overall Categories.

In April 2025, HC was awarded the Best Forecaster of Egypt’s Monetary sector in the 2025 FocusEconomics Analyst Forecast Awards, where it ranked number one in forecasting Egypt’s interest rate and number three in forecasting inflation

In 2024, HC won the Best Forecaster of Egypt’s Fiscal Balance.

In 2023, HC won the Best Overall Forecaster for Egypt, number one in inflation forecasts, number three in the exchange rate, and number three in fiscal balance forecasts.

Forecasters for Egypt included EFG Hermes, HSBC, Goldman Sachs, JP Morgan, Oxford Economics, Standard Chartered, EIU, Capital Economics, Delta Bank, EMFI, Emirate NBD, Euromonitor Intl., Fitch Ratings, Fitch Solutions, National Bank of Greece, National Bank of Kuwait, Allianz, BNP Paribas, Credit Agricole, and Scope Ratings.

HC expects the CBE to maintain policy rates at its upcoming meeting

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment www.hc-si.com expects the CBE to maintain interest rates at its upcoming July 10, 2025 meeting.

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position showed resilience during the turbulent regional geopolitical tensions in June, demonstrated in: (1) the FX flexibility with the USD/EGP rate reaching EGP49.6/USD by the end of June, almost unchanged m-o-m, (2) Egypt 1-year CDS retreating to 301 bps from 333 bps at the beginning of the year, (3) foreign investors were net buyers in the secondary market of Egyptian treasuries by EGP1.2bn in June due to the attractive treasury yields, despite some foreign outflows during June due to the Israel-Iran war, which cuased interbank volume to reach as high as USD800m in mid-June, higher than the daily average of USD150m–250m, and (4) Egypt’s worker remittances surged c39% y-o-y in April to USD3.0bn with a c77% y-o-y hike in 10M24/25 to USD29.4bn, reflecting confidence in the FX liquidity in Egypt. Domestically, the PMI index increased to 49.5 in May from 48.5 in April, still below the 50.0 mark, helped by the renewed growth in the manufacturing sector. However, many key PMI metrics indicated a deterioration in the business conditions in May. However, we expect some inflationary pressures in July as the Egyptian Parliament approved this week some amendments to the Value Added Tax (VAT) Law for some businesses, including cigarettes and tobacco, as cigarette prices are expected to increase by c16% within days besides a potential increase in electricity prices due to higher natural gas prices. Also, U.S. President Donald Trump said he was not thinking of extending the 9 July deadline for countries to negotiate trade deals with the U.S., suggesting higher tariffs to resume, which could lead to higher global inflation. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 24.833% implies a positive yield of 5.21% using our 12M inflation estimate of 16.03% (after deducting a 15% tax rate for European and US investors). Also, the average required rate of return by foreign investors on the 12M T-bills declined to 27.2% from 28.0% in May, based on our calculations, suggesting that Egypt’s Carry Trade remains attractive, especially considering further rate cuts by other developed economies. Based on our expectation of domestic inflationary pressures, geopolitical tensions, and tariff threats in July, we expect the MPC to maintain policy rates at its upcoming 10 July meeting.”

It is worth mentioning that, at its 22 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt www.cbe.org.eg cut the benchmark overnight deposit and lending rates by 100 bps to 24.0% and 25.0%, respectively, for the second time, after it had cut policy rates by 225 bps on 17 April, reversing a total of 325 bps of the 1,900 bps rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation accelerated to 16.8% in May from 13.6% in April, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices increased 1.9% m-o-m compared to a 1.3% m-o-m increase in April. On the global front, on 18 June, the U.S. Federal Reserve maintained the target range for the federal funds rate at 4.25-4.50%, leaving the total cuts at 100 bps after it hiked rates by 525 bps since it started tightening policy in 2022, while the European Central Bank (ECB) lowered the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps on 5 June to 2.00%, 2.15% and 2.40%, respectively, bringing total cuts to 200 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 22 May MPC meeting.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP4bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.