CAIRO: Egypt’s banking sector showed a great performance during 2014, and has proven to be a backbone for Egypt’s economy, with banks raising 64 billion EGP in an 8-day IPO for the Suez Canal expansion project.
Youm7 monitored the key events and decisions that affected the banking sector and Egypt’s economy in turn during the course of the year.
Suez Canal investment certificates oversubscribed
The successful IPO of the Suez Canal expansion project, which sold 64 billion EGP ($9 billion) worth of investment certificates within just eight days, was the most important event for Egypt’s economy generally and the banking sector in particular during 2014.
New cash valued at 27 billion EGP flew into banks for certificate purchases. The certificates were offered with the aim of raising 60 billion EGP for financing the Suez Canal expansion project launched in August.
The certificates were offered with a lifetime of five years at a 12 percent interest rate. Certificates were offered in three categories: 10 EGP, 100 EGP and 1,000 EGP. Revenues from the 10 EGP and 100 EGP certificates will be paid after five years, while the 1,000 EGP certificates will be paid quarterly. Banks have already paid the first quarter revenues worth 1.9 billion EGP to owners of the 1,000 EGP certificates.
Maximum wage at public banks
The application of the 42,000 EGP maximum wage at the Central Bank of Egypt (CBE) and public banks starting in July was a decision that rocked the banking sector, leading a significant number of senior officials to resign in search of better opportunities at private and Gulf banks.
This decision put six top banking posts on equal footing, as the president, vice president, sector heads and general directors are now paid equal salaries. The controversial maximum wage law is making it harder for the banking sector to attract efficient cadres to develop state-owned banks.
Qatari deposit repayment
Despite the remarkable decline in Egypt’s foreign reserves due to weak revenues from tourism and foreign direct investment since the January 25 Revolution, the CBE paid back $3 billion to Doha over two installments, the first valued at $500 million in October and the second worth $2.5 billion on Nov. 28.
Since June 30, 2013, Cairo has paid back a total of $6 billion to Doha and a last installment worth $500 million is scheduled to be repaid during the second half of 2015. This timely repayment was a sign of the CBE’s strong management of the foreign reserve despite the tough economic challenges Egypt has faced over the past four years. It also confirmed the government’s commitment to repay foreign debts.
Central Bank’s mortgage initiative
In May, the CBE launched an initiative offering 10 billion EGP ($1.4 billion) to banks to stimulate the mortgage sector to offer housing units for low and average-income families.
Through the new initiative, the CBE will lend banks operating in Egypt 10 billion EGP for 20 years to lend to people of low-income and average-income at 7 percent and 8 percent interest rates respectively. This—the CBE hopes—will allow them to buy housing units in new urban communities. A new phase of the mortgage initiative is to be launched later.
CBE governor receives “Leading Vision” award in Lebanon
CBE Governor Hisham Ramez was honored with the “Leading Vision” award at the Arab Banking Conference held in Beirut in November.
Ramez was honored in the presence of Lebanon’s Prime Minister Tamam Sallam and a great number of top local, Arab and international banking officials. The management of Egypt’s monetary policy, the success of the Suez Canal IPO and controlling the exchange rate were key reasons for Ramez receiving the award.
Egypt’s credit ratings upgraded
As the year came to an end, Fitch Ratings raised Egypt’s long-term foreign and local currency issuer default ratings (IDR) to “B” from “B-,” and the outlooks were maintained at “stable.”
In July, the rating agency affirmed Egypt’s long-term foreign and local currency IDR at “B-,” while the outlook was kept at “stable.” However, the agency praised the government’s recent oil price hike as “an important step to reduce subsidies which will contribute to Egypt’s substantial fiscal deficit—a key rating weakness.”
“Political stability has improved under President Sisi… this reflects a desire for stability, a clampdown on political opposition and an improving economy,” Fitch stated.
The upgrade was mainly attributed to the government’s policy course designed to tackle serious structural weaknesses, Fitch said.
Fitch predicted that stronger growth and lower commodity prices will pull down Egypt’s fiscal deficit to reach 10.2 percent of GDP in FY 2015 (to end in June), compared to 12 percent in FY 2014.
Real GDP growth will rise from 2.1 percent in 2013 to 4.7 percent in 2016, the agency said, noting that “growth is vulnerable to setbacks if reform stalls.”
In October, Moody’s Investors Service, a global credit rating agency and provider of financial analysis, upgraded Egypt’s investment outlook to stable from negative and affirmed its government bond rating at “Caa1.”
Reporting by Youm7’s Ahmed Yacoub