Egypt Commercial Banking Report Q3 2007, new business publication announcement from Report Buyer

Dec. 5, 2007 - PRLog -- Report Buyer (http://www.reportbuyer.com) the online destination for business intelligence for major industry sectors, has added a new report called “Egypt Commercial Banking Report Q3 2007”

Report Summary

The positive economic outlook is discussed at length later in this report. We have left our real GDP growth forecasts unchanged, believing that there may even be upside risks to this year's projection of 6.7%.

We are standing by the forecasts we ran in our last Business Forecast Report, believing that investment will drive real GDP growth of at least 6.8% in FY06/07 (with risks to the upside). Expansion will then drop gradually over the remainder of the forecast period, coming in at 5.3% in FY07/08, 4.9% in FY08/09, 4.7% in FY09/10 and 3.9% in FY10/11. Consumer and government spending will also boost the rate of growth, while, on the output side, we remain bullish about construction, real estate and tourism.

We are forecasting very strong investment growth over the next five years, as Egypt benefits from the positive sentiment towards its reformist pro-market government, which has now been in place for three exhilarating years, and still abundant liquidity in the Gulf. Recently released balance of payments data show that direct investment in Egypt came in at US$9.0bn in the first three quarters of FY06/07, easily beating last year's already stellar US$6.1bn of inflows. A healthy 83.6% of inflows went to the nonpetroleum sector, indicating a broad-based confidence that extends beyond the current commodity boom.

With the government's ongoing pro-market policies - it has recently announced the privatisation of Banque du Caire, as well as plans to open up Egyptian debt markets to overseas investors by listing local instruments on the Euroclear system - we expect this enthusiasm to continue. We have therefore priced in gross fixed capital formation (GFCF) growth of 10% this year (FY06/07), then 8.0% next year, slowing to 4.0% by the end of the forecast period. However, judging by the foreign direct investment (FDI) performance so far this year, there are upside risks to the FY06/07 forecast, and indeed to our overall real GDP growth forecast.

We are also very bullish on the prospects for consumer spending in Egypt, with inflation and interests rates set to fall, and unemployment firmly on a downward trend. At the time of writing, the last confirmed CPI reading was 10.0% y-o-y (in May), already a significant drop on March's 12.8%, but news reports have suggested that it fell even further to 8.5% in June.

We now see the next interest rate move being down, and are forecasting an end-2007 lending rate of 10.25% (from 10.75% now). Thereafter, we have revised down our interest rate forecasts, based on the benign inflationary environment, our view of ongoing EGP strength and the attitude of the central bank during the recent inflationary spike. In spite of calls for further rate hikes, it kept its tightening to 75 basis points (bps), stopping when inflation was at a peak, a decision which was validated by later inflation data, but which highlighted the bank's determination to keep rates as low as possible.

Egypt Commercial Banking Report Q3 2007  Business Monitor International Ltd Page 10 As far as net exports are concerned, the drag effect will remain in place throughout the forecast period.

We are forecasting 0% real growth in exports this year, as non-oil shipments counteract the decline in oil and gas production this year (see Balance of Payments). Thereafter, though, we see strong real growth in the export sector, with gas production coming onstream and non-oil goods benefiting from favourable trade agreements. Imports will continue to grow very strongly, though, keeping the trade balance in deficit, and therefore a drag on GDP growth.

Turning now to GDP by output, this consumer-spending uptrend should feed through into the retail sector. While the wholesale and retail industries have not seen the stellar growth witnessed by other areas of the economy (expanding by a respectable 6.5% in real terms in FY05/06, up from 3.1% in FY04/05), they do have strong potential against the backdrop of a low base, lower interest rates, and the wealth effect of real GDP growth and growing employment.

Indeed, our food and drink team is forecasting a strong outlook for that sector: in US dollar terms, we expect overall food consumption in Egypt to increase by 29.2% over the next five years to 2011, to reach US$42.42bn, while per-capita food consumption will grow to US$463. Meanwhile, management consulting firm A.T. Kearney ranked Egypt 14th in its Global Retail Development Index, which focuses on opportunities for mass merchants and food retailers, which are typically the bellwether for modern retailing concepts, in emerging markets.

Meanwhile, we also reiterate our bullish view on the real estate and construction sectors, both of which will benefit from investment flows. Many of the planned projects - such as Mediterranean coast resort planned by the UAE's Emaar Properties - will also feed through into tourism, which will remain a key driver of growth in the services sector. Tourism continues to grow robustly, with visitor numbers in the first three quarters of the financial year up 11.0% y-o-y. Interestingly, the average length of a tourist's stay has also increased over the last few years: from 7.0 days in 2001/02, it has risen to 10.4 in 2005/06.

The Commercial Banking Sector At the end of 2006, total assets, loans and deposits of Egyptian banks amounted to US$149.1bn, US$59.3bn and US$102.3bn, respectively. Egypt's commercial banking sector is of average size, relative to those of most countries surveyed in the Middle East and North African region.

Egypt continues to experience low growth rates of assets, loans and deposits. In local currency terms, total assets, total loans and total deposits rose by 14%, 7% and 8% respectively, through the 12 months to the end of December 2006. These growth rates are lower than most other countries in the region and rank poorly against the 59 countries that BMI surveys.

Egypt's loan/deposit, loan/asset and loan/GDP ratios are falling. At December 31 2006, the Egyptian banks' loan/deposit ratio was 57.9%. The loan/asset and loan/GDP ratios were 39.7% and 58.8%, respectively. Of the BMI sample of 59 countries, Egypt's loan/deposit, loan asset and loan/GDP ratios were respectively ranked 52nd, 46th and 26th.

At December 31 2006, Egyptian commercial banks' collective holdings of bonds amounted to US$36.2bn. This figure represents 24.3% of total assets. Year-on-year bond growth rose, in US dollar terms, by 15%.

Press Reports The main story in the press in Q307 relates to the ongoing privatisation of the banking sector.

It is reported that Abu Dhabi Islamic Bank and Emirates International Investment Company have just submitted an offer of EGP310mn (US$54mn) for the National Bank of Development, which should give them a stake of 51.3%. This is good news not only in terms of FDI, but also in terms of the health of the banking sector generally: the central bank has restricted the number of licences available to foreign lenders, making takeovers the only way to move in. This deal increases Egypt's exposure to the evergrowing Islamic finance sector, bringing the market experience it needs, if it is to tap into this lucrative industry.

The government also announced that it would sell off 80% of Banque du Caire, the third-largest publicsector bank in Egypt. This announcement reflects the government's commitment to privatisation and economic reform and is part of Prime Minister Nazif's strategy to consolidate the banking sector by reducing the number of banks from 60 to 26.

“Egypt Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/banking_finance/country_overvi...

Piribo Product ID: BMI00492

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