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Country Risk Weekly Bulletin 523

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February 08, 2018
Country Risk Weekly Bulletin 523
Banking Risks: Egypt vs peers
Source: S&P Global Ratings

  • Egyptian banking sector faces significant economic risks
    S&P Global Ratings maintained Egypt's Banking Industry Country Risk Assessment (BICRA) in 'Group 10', with an economic risk score of '10' and an industry risk score of '8'. The BICRA framework evaluates banking systems based on economic and industry risks facing a banking sector, with 'Group 10' including the riskiest banking sectors. Other countries in BICRA's 'Group 10' include Belarus, Greece, Nigeria and Ukraine. S&P indicated that Egypt's economic risk score reflects its "extremely high risks" in its economic resilience and credit risks in the economy, as well as "high risks" in its economic imbalances. It expected banks to face rising credit losses in the short term, mainly due to the inflationary pressure caused by the devaluation of the Egyptian pound and the government's fiscal consolidation. It anticipated the banks' non-performing loans ratio to gradually increase from 5.5% at end-June 2017 to 5.9% at end-June 2018. In addition, it said that banks remain highly exposed to the sovereign, with their holdings of sovereign debt equivalent to about 50% of their aggregate assets at the end of June 2017. 
    Source: S&P Global Ratings

  • Economic activity to pick up in 2018
    Samba Financial Group projected Saudi Arabia's real GDP to grow by 1.8% in 2018 following a contraction of 0.7% in 2017, supported mainly by an increase in consumption, a rise in non-hydrocarbon exports and higher public investment. It anticipated economic growth to be constrained by flat oil production this year, while it forecast non-hydrocarbon sector activity to accelerate from 1.1% in 2017 to 2.7% in 2018. It expected economic growth to reach 3.2% in 2019 and 3.8% by 2020, in case foreign investment flows recover, government spending continues to be strong and household confidence further improves.

    In parallel, Samba forecast Saudi Arabia's fiscal deficit at 8.9% of GDP in 2018, nearly unchanged from the preceding year, as it expected public spending to increase by 10% this year. It estimated the net gains from the introduction of the VAT to be negative this year, as the rollout of cash payments to lower-income households would offset the increase in VAT receipts and the cuts in subsidies. It considered that Saudi Arabia's looser fiscal policy is in line with the IMF advice to adopt a gradual fiscal adjustment, and does not signal any significant change in the government's commitment to the National Transformation Plan.
    Source: Samba Financial Group

  • Debt stock up 10% to $7.4 trillion at end-2017
    ICE Market Data Services indicated that outstanding debt in emerging markets (EMs) reached $7,416bn at the end of 2017, constituting an increase of 10.1% from $6,737bn at end-2016. The debt stock includes the local and external debt of sovereign and non-sovereign issuers. In comparison, the global bond market rose by 4.8% year-on-year to $63,847bn at the end of 2017, mainly supported by the growth in EM debt during the year. Outstanding local sovereign debt in EMs increased by 7.5% year-on-year to $4,787bn at end-2017, and accounted for 64.6% of the total EM bond stock, mainly due to a rise of $209bn and $17bn in Chinese and Russian local debt, respectively. The external non-sovereign debt stock followed with $1,472bn, or 19.8% of the total, then external sovereign debt with $900bn (12.1%) and the local non-sovereign bond market with $256.6bn (3.5%). In parallel, ICE indicated that outstanding local non-sovereign debt in EMs rose by 56% at the end of 2017, the largest year-on-year increase among debt segments, followed by external sovereign bonds (+16%), external non-sovereign debt (+9.5%) and local sovereign bonds (+7.5%).
    Source: ICE Market Data Services

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Byblos Bank S.A.L., Byblos Bank Headquarters, Elias Sarkis Ave., Ashrafieh, Beirut

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