The Egyptian banking sector has dealt efficiently with the repercussions of the coronavirus pandemic and has contributed to mitigating its negative effects on the social and economic levels, according to the Central Bank of Egypt (CBE).
In its financial stability report issued, the CBE attributed this to the banking sector’s high solvency and abundance of liquidity in both local and foreign currencies as well as the application of a package of precautionary measures to ensure economic activities proceed smoothly.
The CBE explained that it had taken a package of precautionary measures, including supporting customers affected by the crisis; providing stimulus packages; providing credit guarantees; maintaining sufficient liquidity in the banking system; maintaining banking operations and workflow in banks; and ensuring the continuity of payment systems in an efficient and secure manner.
It explained that these measures have contributed to the stability of the banking sector and boosted its ability to perform its role efficiently and effectively since the beginning of the crisis while maintaining high financial safety indicators. Moreover, adhering to the CBE’s instructions in regulating all banking activities has led to maintaining financial stability and achieving the targeted economic growth rates.
The measures have also supported economic sectors in various fields without the need to reduce their workforce. These sectors and individuals were able to repay loans on a regular basis after the postponement period of 6 months.
Furthermore, the measures resulted in a growth in the size of the credit and investment portfolios of banks and an abundance in liquidity. Banks were also able to self-support capital bases as a result of continuous improvement in asset management, and they could commit and benefit from the advanced systems of risk management, as well as apply the best international best practices in the banking industry.
The CBE emphasized that the financial inclusion plan continues to be applied with new segments of clients targeted to benefit from the services of the banking sector. At the same time, the CBE is encouraging demand at a macroeconomic level.
It pointed out that these measures supported banks’ provision of digital products and services and benefited from financial technology to serve customers, in line with developments in the banking industry. There is a continuous increase in the confidence of individuals and companies in the banking sector, especially micro-, small-, and medium-sized enterprises (MSMEs).
At the same time, the CBE confirmed that the Egyptian banking sector was able to manage all risks efficiently due to the CBE’s attention to risk management systems and structure. It was also keen on urging banks to build strategies, taking into account the size of the risks in the business.
The CBE added that the banking sector enjoys high liquidity rates, which allows it to utilise them in more employment and investment opportunities and provide liquidity for all sectors, which reflects the quality of the banks’ liquidity management policies. The policies include harmonising the maturities of assets and liabilities by monitoring the integrity of the maturities and adopting maximum limits for the total current and cumulative gaps. Moreover, banks are continuously making scenarios and tests to be able to predict any changes.
In the same context, the CBE indicated that despite the challenges the Egyptian banking sector deals with as a result of changes in the financial environment, the spread of the pandemic, and the continuous attempts to penetrate data information systems, the process of developing and strengthening the sector’s capabilities is ongoing and is being implemented efficiently.
It explained that it provides the banking sector with instructions and procedures that reduce exposure to risks that may result in losses. The CBE informs banks of all developments in the banking industry and events that could affect the sector, and it takes the measures necessary to mitigate the repercussions and maintain the sector’s strength, durability, and liquidity.
It also continues to contribute to achieving target economic growth rates by supporting all sectors. The banking sector is expected to maintain its strength, efficiency, and ability to fund the local economy and enhance growth rates.
Furthermore, the necessary regulatory and supervisory rules and instructions for implementing the new CBE and banking sector’s law have been prepared.
There has been a special focus on spreading banking culture and educating customers on how to preserve personal data and information related to their accounts and transactions. This is taking place within the framework of enhancing financial inclusion, especially as directives are given to banks to continuously update their cybersecurity systems and secure digital banking services and products.
The CBE stressed the need to strengthen the financial positions of banks and their capital bases in implementation of the requirements of the new law of the CBE and the banking sector.
They must strengthen their ability to face risks while continuing to apply financial inclusion and rely on electronic payment systems to attract a larger number of clients and encourage them to use the services provided by their banks, according to the CBE.
Working on improving and strengthening governance systems, risk management, internal audit functions, and the inclusion of risks in the decision-making process continues, as banks are keen on developing and enhancing risk management in the sector.
This happens through constant testing and business continuity plans updating, in addition to having backups, creating copies of all data and operation processes, providing alternative e-channels (such as internet banking) and ensuring that all transactions can be done remotely.
The CBE has also revealed the results of financial stress tests, which have shown the great resilience of the banking system and its ability to handle losses due to the COVID-19 repercussions and climate-related shocks.
These tests have been applied to the 15 largest banks in the banking sector, accounting for 84.7% of the sector’s total financial position to estimate the extent of the impact which could continue throughout 2022.
Stress tests have also been applied on several companies and institutions within the non-banking financial sector and capital market, accounting for 60-100% of the volume of each activity.
The results of these tests have shown a low or medium level of financial solvency risks. Capital bases of the sector could accommodate losses from presumed shocks, whether in basic or more severe scenarios. The capital adequacy ratio also continues to be higher than the minimum level set by the CBE and higher than the requirement of the Basel Committee.
Moreover, the results of the stress tests showed the strength and durability of the financial position of non-banking financial sector companies and institutions. They also shed light on some aspects that should be taken into consideration at this stage.
They include working on developing business continuity plans, supporting companies’ orientation towards further digital transformation, conducting constant follow up on some companies, and determining the extent of their need to increase their capital.
