Egypt Commercial Banking Report Q2 2008

In March 2008, we updated all data for the 59 countries surveyed with official figures, sourced from central banks and regulators. In most cases, we were able to find data that pertained to the end of 2007: in almost all other cases, the data pertains to September 30 2007. As a result, the insights that we derive on particular countries are based on consistently sourced information that is far more current than it had been previously.

Although we gather data for countries such as the US, Japan, Australia and the eurozone, the vast majority of the 59 countries whose banking industries we survey are, or are generally seen as being, emerging markets. For all the widely publicised problems of large banks in developed countries, in the wake of the subprime banking crisis in the US, 2007 was an extremely good year for the banking sectors of the emerging markets. In local currency terms, the median growth in assets was 21% (in Brazil). The median rates of growth in loans to non-bank customers and in deposits were 22% (in India) and 18% (in Morocco). In some countries - and not just those enjoying oil booms - the figures were spectacular. In Ukraine, for instance, assets and deposits rose by 76% and 62% respectively. Loans grew by more than one-third in Bulgaria, Estonia, Latvia, Lithuania, Romania, Russia, Serbia, Slovenia, Peru, Bahrain, Iran and Nigeria. Deposits also rose by more than one-third in most of these countries.

In absolute terms, Egypt's banking sector enjoyed reasonable growth through the year to December 31 2007. In local currency terms, total assets, total loans and total deposits increased by 20%, 11% and 19% respectively. Of the 59 countries surveyed, Egypt ranks 31st in terms of local currency asset growth, 47th in terms of local currency loan growth and 27th in terms of local currency deposit growth. Egypt's rankings in terms of its loan/deposit, loan/asset and loan/GDP ratios are 54th, 52nd and 37th, respectively.

All three ratios fell. This is in a country with per capita GDP of US$1,571 and deposits per capita of US$1,645.

In Q108, we envisaged that total assets, total loans and total deposits would rise by 10%, 7% and 10% annually through the 2007-2012 forecast period. Now, and using an improved forecasting method, we are looking for growth rates of 13%, 10% and 13% respectively.

Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

Egypt's overall BBER is 53.2. The equivalent figures for the US and eurozone are 84.8 and 84.6, respectively. Egypt's BBER is approximately in the middle of the countries we monitor in the Middle East and Africa.

Within the BBER, the most important aspect is the banking market structure of the limits of potential returns. This element accounts for 42% of the overall BBER. Egypt's rating for this element - 58.8 - is higher than its overall BBER and higher than the country structure of the limits of potential returns - 45.4. Egypt has a sophisticated commercial banking sector, with relatively large total assets and expectations of relatively strong growth during the 2007-2012 forecast period. However, absolute growth in total lending is not expected to be strong compared to other countries in the region.

The BBER highlights the factors that are holding back Egypt's banking sector. The low level of per capita GDP is one of the key factors, as is the country's legal framework and bureaucracy. In terms of the overall economy, momentum remains in place for a very impressive growth performance throughout the forecast period, although inflation is a risk. Consumption and investment will remain the primary drivers, with inflation and political instability the main risks to this outlook.