Improvement witnessed in banking sector deposits growth: Beltone Financial

Commercial banks' foreign liabilities decreased to $430m in April from $10.7bn in November

Egypt's banking sector has witnessed a healthy growth in deposits amid a state of slight slowdown in loans, while net foreign assets continued improving, thanks to the policies pursued by the Central Bank of Egypt (CBE), according to a report published by Beltone Financial.
The report cited that commercial banks operating in the local market have seen a steady decline in net foreign liabilities after the pound flotation in November, to reach $1.2bn in April 2017, compared with a peak of $6.1bn in November 2016, as a result of the continuation of foreign exchange inflows of the banking system.
April is the second month where the CBE achieved net positive returns on foreign assets—worth $816m—as a result of the rise in foreign exchange inflows, in addition to some debt repayments.
Moreover, the foreign liabilities net assets of the CBE and banks amounted to $430m, compared with its peak of $10.7bn in November 2016, while the growth of the money supply accelerated slightly to 39% in April, compared to 38% in March, according to the report.
The report pointed out that there is still a healthy growth in total foreign currency deposits in the banking system as a whole, where their average monthly growth is about 1.6% to reach EGP 2.4tn. The fluctuations of deposit growth has stabilised to reach 28% of the total deposits during the last two months, compared with the previous quarters.
Furthermore, the growth of the total deposits of the banking system has driven the growth of demand deposits to reach around 83% of the net increase in deposits, reaching the highest annual growth rate in the last decade.
On the other hand, the monthly growth in total loans returns to its normal rates, after the fluctuations witnessed in the last two months. Loan growth was driven mainly by the private sector amid the slowdown in lending to the retail sector, according to the report.
Despite the lack of detailed data on the distribution of credit, according to the currency in the banking system as a whole, Beltone estimated that slowness of the total credit is the result of reduced lending in foreign currency, and this is clearly seen in the results of the first quarter (Q1) of 2017. However, after the flotation, the local currency lending (LC-lending) began to regain its health completely in most banks' loans-to-deposits ratio, where they reached 53%.
"The results of the first quarter of 2017 showed a sound growth in banks' budgets on the side of the local component. We believe that this trend is likely to continue in the coming period," said the report.
The report concludes that there is no doubt that the increase in the current interest rate by 2% will strengthen this trend in the coming period, adding that Beltone expects to see increasing liquidity to the governmental securities and facilities of the CBE more than lending.
Consequently, Beltone forecasted that the Net Interest Margins (NIMs) remains flexible throughout 2017 in the light of the recent rise in interest rates, especially that it was not followed by a similar increase in the cost of funds, which happened when raising interest rates in November last year.