Gulf Cooperation Council (GCC) banks are showing "a strong appetite" to expand their presence in key regional markets, and Egypt is one of the three top destinations, Fitch Ratings said in a recent report. These banks are "attracted by the improving economic conditions and better growth opportunities than in their domestic markets," "Several GCC banks are reportedly looking to acquire banks in Turkiye (B+/Positive), Egypt (B-/Positive), and India (BBB-/Stable). We believe external growth is part of some GCC banks' strategy to diversify business models and improve profitability. By deploying capital into high-growth markets, they may be able to compensate for weaker growth in their home markets." Fitch noted. The global ratings agency explained that Egypt along with Turkey and India each have much larger populations than the GCC, "and greater potential for bank sector growth given their strong real GDP growth prospects and smaller banking systems relative to their economies." "Their banking system assets/GDP ratios are below 100 per cent, compared with over 200 per cent in the largest GCC markets, and private credit/GDP was only 27 per cent in Egypt, 43 per cent in Turkiye and 60 per cent in India in 2023." GCC banks' main exposure outside their domestic markets is through subsidiaries in Turkey and Egypt, where they had about $150 billion of assets at end of the first quarter of 2024. GCC Banks' Exposure to Egypt Interest from GCC banks in Egypt is also "gaining momentum," Fitch asserted. "We believe this is driven by Egypt's improved macroeconomic environment, opportunities offered by the authorities' privatisation programme, and the expansion of some GCC corporates in the country." The ratings agency has recently revised the outlook on its 'b-' operating environment score for Egyptian banks to positive. The revised outlook reflects Fitch's expectations of improved macro stability due to "Egypt's large FDI deal with the UAE, an enhanced IMF deal, increased foreign-exchange (FX) rate flexibility and greater commitment to structural reforms." "We expect the significant improvement in the Egyptian banking sector's net foreign assets position this year to be sustained by strong portfolio inflows, remittances and tourism receipts. Meanwhile, Fitch further said in its report that it forecasts inflation to fall to 12.3 per cent in June 2025 from 27.5 per cent in June 2024, which could lead to policy interest rate cuts from the fourth quarter of 2024. "The Egyptian banking market has high barriers to entry, but GCC banks may have opportunities to acquire stakes in three banks through the authorities' privatisation programme. The expansion of GCC corporates in Egypt, particularly of UAE firms, could also support increased GCC bank presence." the report read. "The increasing cost of acquiring banks in Turkiye, Egypt and India could weigh on GCC banks' acquisition plans. Price-to-book multiples have increased since last year, particularly in Turkiye and India, reflecting improved macroeconomic prospects and decreased operating environment risks." "Acquisitions in lower-rated jurisdictions could weaken GCC banks' Viability Ratings. An acquisition could lead to a lower operating environment score (depending on the relative size of the acquired entity) or weakened financial profile, which could weigh on the acquiring bank's Viability Rating. However, almost all GCC banks' Long-Term Issuer Default Ratings are driven by government support and are therefore unlikely to be affected by acquisitions."
