Egypt's loan-to-deposit ratio is currently more than 50 percent, and despite the recent political turmoil, experts said lending is stable. After the nation's January 25 revolution, the first quarter of this year took a hard hit and the banking sector seemed to have faltered. According to analysts however, most banks will “maintain” profits over the upcoming months. “If we are talking just the first quarter of this year, compared to last year in 2010, some banks basically maintained their profits with no growth, while others had growth when it came to loans,” said Sarah El-Banna, banking analyst at Naeem Holding. "The decision from the Central Bank of Egypt to extend the grace period for NPL's [non-performing loans] also helped banks and borrowers out significantly," she said. When the revolution began, it put banks and businesses across the country at a standstill, and forced the Egyptian Stock Exchange to close for two months. Feeling insecure, some started to withdraw large amounts of cash instead of depositing. However, when banks first opened, there wasn't the run on banks many had expected. “There were some corporate losses and a lot of people actually withdrew their money from the banks to have a cash reserve at home,” a head banker at National Bank of Egypt told Daily News Egypt. “Overall in the past three months, there was a small decline in deposits.” Senior banking analyst at Prime Securities, Monette Doss noted that there is unforeseen growth, considering recent events. “Growth of loans and deposits is significantly lower than growth rates seen last year, yet they are higher than expected,” said Monette Doss, senior banking analyst at Prime Securities. “I was expecting a 2 percent growth in loans for the whole year, yet banks exceeded that rate only in the first quarter,” she added. According to El-Banna, from January 2011 to February, deposits decreased slightly by about .09 percent. National Bank of Egypt's head banker added that large withdrawals have since lessened. In terms of lending, the National Bank's personal loans are still on the rise. “We are seeing a need even for auto loans,” he said. “May has been better than April by 10 percent, while we are below normal expectations of last year, we are seeing an improvement considering the country's circumstances.” “The volatility of the country now is high,” he added. “But, while the results for March were negative for the country's banks in general, things slowly started to bounce back in April.” He also points out that, while locally more people are deciding to hold on to their savings right now, many cash forwards from abroad have also decreased, especially from Egyptians in Libya for example. While not all banks will be affected the same way, Doss said this is the broader outlook on Egyptian banks. “Small cap banks will be the most affected due to being largely government owned, hence, inefficient and they possess higher NPL's and lower coverage, thus higher provisioning charges are needed in 2011,” she said. Non-performing loans at large cap banks are manageable, according to Doss, settling at 3 percent on average. While on the other hand, small cap banks are reaching an average of 8 percent. “Lending has also increased by an average of 3 percent in March, compared to December 2010,” Doss added. As one of the hardest hit sectors of Egypt's economy has been real estate, especially when it comes to Class A properties, where there is already an “oversupply,” the National Bank of Egypt, along with many other banks in the country, stopped giving out mortgage loans until further notice. “Lands right now are a big question mark in the country, real estate in general, so like most banks, we've stopped personal mortgage loans until the real estate market indicates stabilizes,” he said. “However, banks will be excited to give corporate loans to real estate development but only for low-to mid-[income] housing because that's were the country's needs lie.” Doss reiterated the fact that Egypt's real estate sector faces the highest risk at the moment. “Banks are trying to cut on mortgage finance at the moment for several reasons mainly due to the high risk of retail as lay offs are expected to take place,” she added. “Real estate developers are also facing serious problems at the moment making the collateral almost worthless.” According to Doss, Egypt's lenders are expected to witness a 20 percent decline in the bottom line at the end of the year.
