Although a number of Egypt's largest banks posted notable growth during the turbulent first half of 2011, the second half may prove more challenging as tourism, investments and fund flows continue to decline. The Central Bank of Egypt (CBE) has played an active role in mitigating the effects of the political turmoil in early 2011 on the banking system. Throughout the summer it has kept overnight deposit and lending rates unchanged at 8.25 percent and 9.75 percent, respectively. These levels, the lowest since November 2006, were held steady in an attempt to boost economic growth. With the political unrest having knock-on effects for a number of sectors, Egypt's GDP saw negative growth of 4.2 percent in the first quarter of 2011, a rate not seen since the CBE began releasing quarterly GDP data in 2001. Yet in spite of the challenging macro environment and the corresponding 26 percent decline in investment, some of the country's banks have actually posted increases in income this year. The National Bank of Egypt, the country's oldest bank and its largest by assets, saw net income for the year ending June 30 reach 2.2 billion Egyptian pounds ($370.4 million), up from two billion Egyptian pounds ($336.7 million) a year earlier. Net profits also increased 10 percent to more than one billion Egyptian pounds ($168.4 million) due to higher foreign exchange transactions, net interest income and increased fees. Still, the bank missed its full-year net income target of 2.6 billion Egyptian pounds ($437.7 million). Tarek Amer, the bank's chairman, attributed this to rising staff wages and benefits after the country's political transition this year. National Société Générale Bank (NSGB), Egypt's second-biggest private bank by market capitalization, also fared well. It saw an 8 percent increase in its net income compared last year at the same time to 733 million Egyptian pounds ($123.4 million). The bank's second-quarter net profit rose 14 percent from the previous year to 369.2 million Egyptian pounds ($62.2 million) from 323.1 million Egyptian pounds ($54.4 million) in second-quarter 2010. Likewise, NSGB's net interest income increased to 512.4 million Egyptian pounds ($86.3 million) from 462.3 million Egyptian pounds ($77.8 million) the previous year. Not all local banks fared so well, however. Crédit Agricole Egypt's first-half profits fell 30 percent from a year earlier, the bank said in late July. The bank, which is 60 percent owned by France's Crédit Agricole, also reported a net profit drop to 140.7 million Egyptian pounds ($23.7 million) from 201.6 million Egyptian pounds ($34 million) in the first half of 2010. The Commercial Bank of Egypt (CIB), Egypt's largest private sector player and the third-largest bank, similarly saw profits slow for first-half 2011. Net profits after tax touched 751 million Egyptian pounds ($126.4 million) in June 2011, down from 1.02 billion Egyptian pounds ($171.7 million) a year earlier. However, in a promising sign of future growth, the bank's loans increased 6.37 percent as of June, while the overall loans market grew 2.81 percent during the first five months of the year. It also saw deposits rise 6.16 percent. In CIB's first-half financial report, the bank noted 90 percent of retail loan growth and more than 60 percent of retail deposit growth for the first six months of 2011 was in the second quarter alone, supporting the perspective that banks are beginning to recover from turmoil earlier this year. The ratio of non-performing loans (NPLs) at most banks either remained unchanged or declined slightly over second-quarter 2011, a sign that the quality of loan books remains stable. CIB's NPL ratio remained a healthy 2.9 percent as of June, while NSGB's NPL ratio decreased slightly to 3.25 percent from 3.42 percent in December 2010. Thus while the challenging economic environment has led to a few bumps in the road, there are signs that overall banking performance has been better than expected, with many in the sector anticipating a far worse loss. BM
