The phrases "good news and "global economy are rarely found in the same sentence these days as world markets continue to plummet, companies continue to announce bankruptcy and more jobs are slashed. Regionally, the effects of financial disintegration have begun to show across sectors as well. In Egypt, while some industries have been feeling the pinch, the banking sector has some rare good news: liquidity is stable and banks remain solid - at least for now. Where regional markets were once flooded with liquidity, levels in the Gulf states have dropped to worrying levels, prompting government intervention to restore stability. Egypt has managed to circumvent this problem due to a number of factors unique to the country's financial institutions and policies. Liquidity in the banking sector refers to a bank's ability to meet obligations without incurring losses, i.e. being able to pay out all deposited funds in a timely manner. Maintaining liquidity requires banks to hold assets that can easily be converted into cash such as government securities, along with sustaining certain levels of deposits. Strategies vary according to the size of a bank and the scope of its clients; larger banks rely on short-term liabilities, essentially assets borrowed from lenders, to maintain appropriate levels of liquidity in a strategy known as liability management. Smaller banks, by contrast, satisfy the majority of their liquidity needs through customer deposits and investment in assets such as securities and bonds - the asset management approach to liquidity. Regardless of how individual banks handle their liquidity needs, a framework of standards across the industry is necessary for the banking sector to survive and thrive. Experts attribute Egypt's resilience to a well-planned and implemented monetary policy. According to Mary Nicola, an economist and Middle East specialist with the Standard Chartered Bank in Dubai, a strong foundation for a healthy banking sector in Egypt was established through implementation of an effective monetary policy addressing a wide range of economic issues. "Recent banking sector reforms including improving bank supervision, restructuring and consolidation, as well as cleaning up non-performing loans have all contributed to the current healthy state of the Egyptian economy. Unlike the rest of the world, Egypt has low loan-to-deposit ratios as well as credit-to-GDP ratio largely because a low percentage of the population have bank accounts, she explained. While these policies have anchored the banking sector in good practice, Nicola emphasizes that it is Egypt's independent currency that has allowed it to remain immune to banking sector problems impacting other countries like the United Arab Emirates whose currencies are pegged to the US dollar. Egypt's bond market has helped provide stability as well. "Egypt has a bond market which allows it to absorb or inject liquidity when necessary, explained Nicola. Other experts agree that Egypt's policies have helped maintain stability in the country's banking sector during these tumultuous times. Speaking at the recent Cairo ICT Conference, ICT Chairman and CEO Ossama Kamal said, "The Egyptian government's well planned strategy helped downplay the crisis's impact on our economy and thus in Egypt we are enjoying a good sum of cash liquidity, unlike other countries. Egypt's finance minister expressed similar confidence in the Egyptian banking industry, saying that "liquidity in the banking system is not an issue in Egypt. The banking system is totally safe. We are not in any way involved in the subprime, or any of the banking issues that are happening in other countries. If anything, Egypt's markets have been negatively impacted by the simple expectation of crisis, an issue the government has also addressed in the banking sector by guaranteeing all deposits to help bolster confidence in banks and keep deposit - and liquidity - levels stable. Despite this overall positive assessment of the banking industry, one important tool for controlling liquidity, interest rates, has not been effective in the Egyptian banking sector. "The effectiveness of interest rate cuts and hikes is questionable in Egypt, given that only about 15 percent of the population has a bank account, said Nicola. Looking into the future, liquidity levels and bank industry stability appear to be continuing in the right direction. "Overall, the Egyptian banking sector is healthy. There is ample liquidity. Net foreign positions of banks as well as deposit base has been stable. Money supply growth as of December 2008 was just under 20 percent yearly, while domestic credit growth was about 10 percent yearly, and both are growing at steady rates, Nicola concluded.
