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