CAPEX lending has come to a halt with working capital financing also affected by the ongoing coronavirus (COVID-19) pandemic, Pharos Research has said. The company noted that banks had a strong growth outlook for the year with many soft approvals for CAPEX lending at the beginning of the year. With the global rise of the coronavirus pandemic, however, business cycles have been interrupted, particularly those who rely on imported raw materials. The fall has continued even in the face of the surprise 300bps cut in rates by the Central Bank of Egypt (CBE) on 16 March. Some banks have resorted to raise interest on deposits as a pre-emptive move to prevent deposit flight out of their system and into local banks' 15% one-year Certificate of Deposit (CD). Other banks, however, have not resorted to raise rates on deposits, since demand for lending is weak and they do not invest on a large-scale in sovereign instruments. Excess funding should now flow into treasury investments, or interbank deposits. The current situation's visibility remains fluid, with corporations likely to postpone capital expenditures to 2021 should the situation persisted through the second half (2H) of 2020. This will come on the back of weak demand for loans, and will mainly be driven by working capital financing. Banks will be making extra provisions, in anticipation of lower asset quality due to the current weak economic situation and interrupted business operations, which is affecting the corporate and retail sectors. CoR is expected to rise over the next period with non-performing loans also likely to rise if the situation persists. This comes in spite of the CBE's introduced debt relief programmes, including the postponement of all credit installments for 6 months for all economic segments and products. There are also expected donations at an average of 1-2% of banks' 2019 net profits into the Emergency Fund to support affected individuals. Capital adequacy ratios may come under pressure, if the situation becomes protracted, especially for small and middle sized banks, on increased risk and low profit generation. Margins are expected to be mixed, affected by two opposing forces. Margins will either remain strong supported by agile balance sheet management and having a large base of CASA deposits. This will be coupled with high investments in-long term government bonds (of a 3-5 year maturity), where banks will be able to roll over liabilities at lower rates while locking up high yield from long term investments. Margins will also come under pressure if the yields on government treasury bills fall since banks will start to load on them amid weak lending volumes.