While lending activity by Egyptian banks intensified over the past few years, it's debatable whether this upward trend will continue or reverse in the near future. According to a report published in February by RNCOS, a market research and information analysis company, demand for loans will see an increase in the near future as economic conditions improve. The report, titled “Egypt Banking Sector Analysis,” estimates that bank loans will grow at a compound annual growth rate (CAGR) of about 6.7 percent from fiscal year 2011-2014. The CAGR is the year on year growth rate of an investment over a period of time. External sector loans have witnessed an increase due to the growth in loans to the private business segment and demand for loans from the domestic as well as external sectors are expected to further increase, stated the report. Walid Hassouna, head of structured finance for Banque Misr, agreed, saying that loans will see an increase in the future, but to what degree is difficult to pinpoint. “To determine the percentage of increase is a very difficult task because there are many factors, such as foreign investors and the future of the country,” he said. Monette Doss, assistant manager of research at Prime Group, disagrees, citing a loss of confidence and current uncertainty of the future. “People were more willing to spend on durable goods, such as cars and other long term investments such as real estate units,” she said. “At the moment, however, spending takes place only on necessary goods such as food, pharmaceuticals and telecommunication, due to deteriorating consumer confidence as people are losing their jobs and due to general political uncertainty,” she added. Doss said she “expects retail loans to remain flat during 2011.” The report suggests that in addition to their predicted growth in lending activities, deposits will also see a rise, with time and saving deposits accounting for a majority of the growth. The banking sector in Egypt has shown flexibility and strength in the face of the financial crisis that plagued the rest of the world's economies and reforms that have been made led to the increase of activity within the sector. The report cited the central bank's non-performing loans (NPL) management plan that aided banks in settling a majority of outstanding NPLs as well as merger and acquisitions reducing the number of banks as reasons to the sector becoming stronger and more efficient. Hassouna does not believe that there is a major difference in activities before and after the revolution, but that “it is a matter of slowing down because of how many businessmen are currently being accused of things like fraud, but this is a normal setback.” “There has been a very low amount of money being transferred out of the country and while currency exchange from pounds to dollars has gone up, it is now dropping back to a normal level since the central bank intervened,” he said. He also added that the number of deposits are currently increasing in banks as opposed to keeping money at home due to security issues and fear from robberies. “I believe service charges and fees received by banks will remain intact during 2011, due to fees obtained on money transfers and such services,” said Doss. “I also believe that interest from treasury bills and bonds will maintain momentum due to high investment in the associated items and high interest paid on these tools,” she explained as to what she feels will generate more activity than loans. She added that banks could lower the interest rates on loans to provide appeal, but that rates are already low so it is not a viable option for them as well as people's risk for defaulting is greater now due to unemployment, which may increase. Doss believes that beyond 2012, things will become clearer and a real recovery will start to take place when a new government is elected into office and the situation is more stable. “The loan-to-deposit ratio is at 54 percent right now and I believe it could increase to above 60 percent once things are more stable,” she said. Egypt's loan-to-deposit ratio is comparatively less than similar countries, which has led to previous calls to increase lending.
